Editor: Vikas Kakkar
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Sir James Mirrlees is Emeritus Professor of Political Economy at Cambridge and Distinguished Professor-at-large at the Chinese University of Hong Kong. In 1996 he was awarded the Nobel Prize in Economic Science for his pioneering work in the field of information economics. The following are some excerpts from an interview of Sir Mirrlees conducted by Vikas Kakkar while he was visiting the Chinese University of Hong Kong.
An Interview with Sir James Mirrlees
VK: Was there anything in your early years that led you to economics?
SJM: No! On the contrary, I was interested in a lot of different things. I did try reading Marshall's Principles and found it so boring that I stopped reading after 50 pages. I couldn't see where he was going at all. So in my childhood and youth I was put off by economics rather than anything else. Obviously we would discuss economic issues as students at Edinburgh, but we didn't think about it as economics. One of the options at Edinburgh was that you could do a one year course in economics in your first year. But I went for philosophy instead.
VK: When and how did you decide to be an economist?
SJM: After I had been doing about a year and a half of Maths in Cambridge. I'd had four and a half years of Maths at university by then -- effectively I was doing a Master's core. And I decided it just wasn't so interesting any more. I enjoyed it but couldn't quite see that it was a useful thing to do in life. I wanted to do a social science, and after discussions with Fellows in the College, economics seemed the most promising route. In Cambridge in those days, there were a number of exciting economists. So for that reason it was rather a good subject to take up. I'd no intention of doing mathematical economics – in fact at that stage I didn't know that there was much maths in economics, because nothing I'd ever seen had that characteristic. When you read about economics in the newspapers, you don't see equations – they find them difficult to type. But there was a very good, rather eccentric, mathematical economist by the name of David Champernowne who was coming back to Trinity College (Cambridge) the year that I started economics. So they arranged that he would introduce me to economics. Not that he set about really trying to teach me mathematically, but we talked about mathematical things, so that got me back into it. The College, as opposed to the College, appointed Dick Stone – a famous econometrician who got the Nobel prize – as my research supervisor. I never saw very much of Dick except for nice meals at his house. But that was another influence, and he was the one who particularly drew my attention to a paper by Ramsey that proved the most stimulating for what I did after that. It was a very good contact with Dick Stone because it turned out that his morning jacket fitted me perfectly and was ideal for the Nobel prize ceremony in Stockholm! Dick was dead at that time but his wife lent me his jacket. The trousers would not have fitted because Dick was very tall, but the jacket fitted and I could wear my ordinary black tie trousers. So a very useful contact indeed!
VK: What was your doctoral thesis in Cambridge about?
SJM: It was about choice under uncertainty from the point of view of a hypothetical government that is trying to adopt an optimal plan. There's always been some interest among economists in the problem of optimal saving, and in those days we certainly thought about it as very much a question for a government to try to influence the level of savings in the country. But we didn't recognize at that time that governments are not prepared to have much influence over the level of saving. It seemed like an interesting problem and nothing I had seen had ever paid attention to uncertainty. And rather naively I thought that uncertainty was a key issue in anything to do with planning, that somehow or other should be taken account of. In fact I spent quite a lot of my early years in economics thinking about what that meant. So that's how I got into the economics of uncertainty. The thesis was specifically about how the degree of uncertainty would influence the saving level that you'd recommend to the government for planning purposes, and I discovered, under what I still think are plausible assumptions, that more uncertainty should mean more saving whereas most of the people that wrote about this or chatted about it without doing any serious analysis, took it for granted that if things were risky that was somehow or other a reason for saving less. Nowadays I think most people would jump up and say if you don't have markets for insurance, and saving is your substitute for insurance, the demand for insurance should be greater if there's more uncertainty. That was, of course, broadly the argument, but it's not that straightforward. It's about concavity or convexity of the marginal utility function – the third derivatives. Anyway I spotted this and it was quite nice, and I also developed techniques for handling things because I thought that continuous stochastic processes were the right things to use and that's of course what people use in finance for dealing with stock prices. I didn't know at that time that such processes had been invented as a way of describing share prices. I worked out for myself how you could solve optimizing problems with these using Ito equations, as I discovered later they are called.
VK: You've made seminal contributions in the economics of information and incentives, public finance and also development economics. Looking back on your work, what is/are your favorite paper(s)?
SJM: Well, I've been re-reading some of them recently because of correcting proofs for a collection of the papers that's to be published. And quite a lot of them I wish I could rewrite now. I don't suppose anyone would stop me from rewriting them but of course I don't want to spend the time. They don't seem to me to be written as well as they should have been. It's hard to choose favorites among them but I think the optimal income tax paper which is very well known probably is my favorite paper although that's certainly not the way I would do it now. It would become several papers. And the second part – the more rigorous treatment that became a paper in one of those volumes of the Handbook of Mathematical Economics -- is probably the best of my papers. On the other hand, I do very much like the papers on optimal taxation with Peter Diamond. I think we did a number of good papers which were a pleasure to have been involved in. There's one paper I did with Nick Stern and Avinash Dixit on optimal growth with economies of scale. I like the paper very much because it's not at all obvious how you can identify the optimal path fully, and it took some neat mathematical moves to sort it out, so I'm really rather pleased with it in retrospect.
VK: Economists have become increasingly skeptical of the view that human beings make their decisions in a perfectly “rational” manner. What do you think are the implications of imperfect rationality on the theory of information and incentives and public policy?
SJM: I suppose it is going to take us quite a long time to answer that. I have made some attempts on this in the context of asymmetric information. I took a model that in some ways might be rightly unpopular because it's a model that has been disproved as a good account of reality. It's essentially the Logit model – a model that suggests that you are more likely to choose things that are better for you but you are not certain to choose the thing that is best for you. It seems an obvious way of weakening the rationality assumption. It's been used quite a lot in transportation and McFadden has made very good use of models of this kind. I put quite a bit of effort into trying to see what the implications were of behavior like that for policy choice by the government. Initially I thought one could have a very general model, analogous to an optimal tax model, but that poses problems of specification which are very difficult to decide about. But in very simple cases, I found an interesting and surprising result, that beyond a certain level of partial rationality, it's optimal for the government to narrow the range of choice completely. That is, essentially to plan for things, to say that everybody does the same thing instead of providing them with a whole range of choices. And often the government does just that. It tells people what the tax system is under which they will operate – they are not offered a choice of alternative tax schedules. In part, it looks like a justification for that sort of thing and it rests on probably the same general ideas that lead to that, namely that it will offer people too many opportunities for making expensive mistakes by allowing too much choice. It's very important for things like health policy and is part of the argument for having a national health service rather than leaving it to the private insurers.
VK: Are you the only economist in the world to have won the Nobel prize and received Knighthood from the queen of Great Britain?
SJM: No. Well, Dick Stone must have been Sir Richard. I thought that it was pretty much routine that if you won the Nobel prize, and they hadn't already made you a “Sir”, then they would offer you a knighthood. And some, at least one, have turned it down. But most British economists, who won the Nobel prize, were knighted – Sir John Hicks, Sir Richard Stone, Sir Clive Granger… quite a lot of economists are knights in Britain.
VK: Which recognition do you treasure more and why?
SJM: Oh dear me – one probably shouldn't answer such questions! But obviously I must value the Nobel prize more because there are fewer of them, plus the substantial financial reward attached. But I suppose the real reward of the Nobel prize is that you discover that you are valued more than you thought, because you know it's been given on the recommendation of people whose judgment you accept and value. That was certainly my feeling. I don't think I would've expected to be as pleased as I was when I realized that point. It's not quite the same with the knighthood particularly because it came afterwards and was clearly an automatic response.
VK: What do you think are the fundamental principles of success in academia? What words of wisdom would you like to offer to young scholars in economics just starting out in their academic careers?
SJM: I have kind of standard answers to these – one of them is that you have to think about good questions to ask. And I think they ought to be questions that you really want the answers to, for whatever reason, rather than picking questions that you think the profession regards as important. Although it seems irrational to believe it, most people do a much better job of choosing the right things to think about if they choose the questions they are interested in, rather than their impression of what other people think is interesting. I kind of sense that most academic subjects are not very good at identifying what's going to be most important to answer or deal with. The other aspect is motivation – if you really want to know, then perhaps you're going to put more effort into it. I do think that persistence is a major thing. That partly means that it's going to be important to take questions that seem pretty difficult when you first get at them. I don't want to overstate that because I also have the sense that people have a tendency to overvalue getting answers to questions that they find difficult to answer. And I think that's true of quite a number of economists that the best things they've done, they don't particularly think were very good because they were easy. Nevertheless it ought to be reasonably hard and you should be pretty persistent. I don't at all think this is a recipe for professional success – I have the old-fashioned kind of puritan feeling that it's really rather a bad thing to be doing something in order to get success in that way. Because the questions that interest you, the problems that you want to solve, you shouldn't want to solve because they will be valuable to others. I think that one should feel rather guilty for pursuing things for the sake of one's own advancement. Paradoxically then advancement for most people is likely to come from not pursuing it!
(VK: Dr. Vikas Kakkar, SJM: Sir James Mirrlees)
New Appointments
We are pleased to announce the arrival of the following faculty members.
Prof. Kenneth S Chan joined us as a Professor in January 2006. Prof. Chan received his PhD in Economics from Brown University, USA. Before joining us, he had taught at McMaster University in Canada. He has published numerous articles in major international journals in the fields of international economics, economic development and experimental economics. He is currently Editor of the Pacific Economic Review (PER).
Mr. Wai-Ho Ho joined us as a Teaching Assistant in September 2006 and was promoted to Instructor in September 2007. Mr. Ho obtained his BSc in Economics and Finance from the Hong Kong University of Science and Technology and MPhil in Economics from City University of Hong Kong.
Mr. Hugo T S Ip joined us as an Instructor in September 2007. Mr. Ip received his BBA in Finance and MPhil in Economics from the Chinese University of Hong Kong.
Miss Ping Jiang joined us as an Instructor in August 2007. Miss Jiang received her BA and MA from Peking University, China. She is currently a part-time PhD student in Finance of our department.
Mr. Peter W S Jor joined us as a Teaching Assistant in September 2004 and was promoted to Instructor in September 2007. Mr. Jor received his BBA in Business Economics and MPhil from the City University of Hong Kong.
Dr. Fan-Chin Kung joined us as an Assistant Professor in August 2005. Dr. Kung received his PhD in Economics from Washington University in St. Louis, USA. Before joining us, he had served at the Institute of Economics of Academia Sinica in Taiwan and taught at Saint Louis University. His research interests are in microeconomic theory, urban and regional economics, and public economics.
Dr. Sangwoo Lee joined us as an Assistant Professor in August 2005. Dr. Lee received his MBA and PhD in Finance from the University of Illinois at Urbana-Champaign, USA. His research interests are in investments, capital markets research, and behavioral finance.
Dr. Charles K Y Leung joined us as an Associate Professor in August 2006. Dr. Leung received his PhD in Economics at University of Rochester. Before joining us, he had taught at the Chinese University of Hong Kong. He specializes in real estate and macroeconomics.
Dr. Chia-Hui Lu joined us as an Assistant Professor. Dr. Lu received her PhD in Economics from University of Wisconsin Madison, USA. Before joining us, she had served at the Institute of Economics of Academia Sinica and taught at National Taiwan University and National Cheng-chi University in Taiwan. She specializes in international trade, foreign direct investment, and economic development.
Dr. Douglas S Rolph joined us as an Assistant Professor in August 2005. Dr. Rolph received his PhD in Finance from University of Washington. Before joining us, he had taught at Seattle University. His research interests are in asset pricing, monetary policy and the regulation of international financial institutions.
Dr. Shih-Wei Yen joined us as an Assistant Professor in August 2005. Dr. Yen received his PhD in Business Economics (Finance) from the University of British Columbia in Canada. His main research interests are in corporate finance, corporate governance and organizational economics.
Dr. Junbo Wang joined us as an Assistant Professor in August 2005. Dr. Wang received his PhD in Management from China Academia Sinica, and PhD in Finance from Syracuse University, USA. Before joining us, he had taught at Syracuse University. His research interests include fixed income securities, asset pricing, corporate finance, and market microstructure.
Dr. Joe H Zou joined us as an Associate Professor in September 2007. Dr. Zou received his PhD in Finance from University of Wales, UK. Before joining us, he had worked as a statistician, investment banker and accountant and taught at Cardiff University in UK and Lingnan University in Hong Kong. He specializes in finance, accounting and insurance.
Promotion
Dr. Lixin Huang and Dr. Aristotelis Stouraitis were promoted to Associate Professors in July 2005. We express our congratulations to them.
