Taxing the Rich

Taxing the RichIf you didn’t file your taxes on April 15th, you can breathe a sigh of relief. Thanks to the Emancipation Day holiday in the District of Columbia, the tax deadline was switched to April 18 this year. Already ahead of the game? While the final hours tick down, we have just the history of fiscal fairness for you.

In Taxing the Rich, Kenneth Scheve and David Stasavage analyze the history of taxes and take a look at when and why countries tax their wealthiest citizens. The authors argue that governments don’t tax the rich simply because of striking inequality—they do it when its citizens believe that such taxes compensate for the state unfairly privileging the wealthy. What matters most is society’s views on how the inequality is being generated in the first place.

The Atlantic recently wrote about the book, including quotes from Scheve and Stasavage:

Relative to the past 200 years of U.S. history, how heavily are the rich being taxed today? Kenneth Scheve and David Stasavage, professors of political science at Stanford University and New York University respectively, looked into when countries have taxed their wealthiest citizens most heavily, and what societal conditions might have produced those tax rates. In a project that took five years, the two constructed databases of tax rates and policies in 20 countries over the last two centuries in order to answer those questions. They recently published this research in a book, Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.

One of their motivations for starting the project was a disconnect they noticed between rising inequality and static tax rates. “With inequality rising over the last three or four decades, why have there not been public policies that seem to address that in an important and substantive way?” says Scheve. But while it would seem intuitive that taxes would increase at the times when inequality is highest, Scheve and Stasavage found that this relationship hasn’t held true over the course of history.

You can read the full piece in The Atlantic here, and an exclusive interview with Scheve and Stasavage here.

Joel Brockner on “bad process” in the Yahoo layoffs

Many feel that upper management in some of the most prominent companies has lost touch with how to care for employees on every rung of the ladder.  In his book The Process Matters: Engaging and Equipping People for Success, Joel Brockner addresses managers who want to promote a high-quality work environment for employees. Today he writes about the problem of management manipulation in the case of Yahoo’s recent, unexpected rash of layoffs. Brockner insists that it was the method used by management rather than the action of firing the employees that lead to such an outcry.

Yahoo Lawsuits Begin Over Management Manipulation

by Joel Brockner

Process matters jacketYahoo has been going through tough times so we shouldn’t be surprised to hear, as the New York Times recently reported that, “More than one-third of the company’s work force has left voluntarily or involuntarily over the last year.” It also comes as little surprise that among the involuntarily departed, some are suing for wrongful termination. It’s tempting to chalk up the negative reactions of former employees to economic considerations. After all, when people’s livelihood is at stake, it’s understandable for them to be looking elsewhere or for giving their former employers hell to pay.

However, many studies show that it’s not simply decisions that are economically unfavorable that are causing the upset. Rather, the combination of economically tough decisions and people’s perceptions of the decisions being handled poorly are putting them over the edge. Those filing suit at Yahoo claim that the way in which the layoffs were implemented was unfair, in several respects. First, the layoffs allegedly violated both state and Federal law which requires 60 days advance notice. Furthermore, there was considerable consternation about how it was decided which employees would be laid off and which would remain. On paper, it is hard to argue with Yahoo’s method: based on their Quarterly Performance Review (QPR), those people who received the least favorable evaluations were the ones targeted for dismissal.

The problem, however, is not with making layoff decisions on the basis of (de)merit, but rather, with people’s perceptions of the way in which the QPR was done. According to the New York Times, “The Q.P.R. process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed,” the lawsuit says. “This manipulation of the Q.P.R. process permitted employment decisions, including terminations, to be made on the basis of personal biases and stereotyping.”

I suppose we also shouldn’t be terribly surprised to hear that the combination of a bad outcome and a bad process makes people very upset. After all, there is an expression in everyday life that captures such a state of affairs: “Adding insult to injury.” People feel injured by the bad outcome, and they are insulted by the way in which it was carried out. However, one thing we are learning from research and experience is that the expression, “adding insult to injury” doesn’t do justice to how aggrieved people feel when they find themselves in that situation. In mathematical terms, the expression, “multiplying insult times injury” is more like it. This is why I advise people in authority positions (executives, as well as teachers and parents) that whenever they have to make the tough decisions they should do whatever they can to ensure that the process for making and carrying them out is as high-quality as possible. This is not to say that that those on the receiving end will be happy; grudging acceptance comes closer to how most people will take it. But, grudging acceptance is a lot better than what authorities are likely to encounter when those on the receiving end feel like they have had the injury of an unfavorable outcome multiplied by the insult of an unfair or otherwise flawed process.

So, the Yahoos of the world who are faced with having to be the bearers of bad news have a choice. By investing in a well-handled process, they can minimize (read: not eliminate) the ire that translates into actions like lawsuits. Alternatively, by ignoring the quality of the process, they are at peril for more lawsuits or other expressions of discontent. Over and above the ethical imperative of handling the process well, there is an economic one: would you rather spend resources needed to handle the process well, or the far greater resources you are likely to need to defend yourself in a court of law?

Joel Brockner
 is the Phillip Hettleman Professor of Business at the Columbia Business School. He is the author of A Contemporary Look at Organizational Justice: Multiplying Insult Times Injury and Self-Esteem at Work, and the coauthor of Entrapment in Escalating Conflicts. His most recent book is The Process Matters: Engaging and Equipping People for Success.

New Economics & Finance Catalog

Our Economics & Finance 2016 catalog is now available.

 

AkerlofShiller In Phishing for Phools, Nobel Prize-winning authors George A. Akerlof and Robert J. Shiller reveal the dark side of the free market, including the role that manipulation and deception play in it.
Gordon Robert J. Gordon explores the period of economic boom following the Civil War and the impact it had on society in The Rise and Fall of American Growth. Then, he argues that this era has now come to a close, analyzing the causes and effects of economic stagnation.
Sandbu Check out Europe’s Orphan by Martin Sandbu, a defense of the beleaguered euro and an analysis of what must be done to achieve prosperity in Europe.
Deaton Nobel prize-winning author Angus Deaton analyzes the remarkable progress that some nations have made over the course of the past 250 years and addresses what steps ought to be taken to aid those nations that have had less success in The Great Escape, now available in paperback.

If you would like updates of new titles, subscribe to our newsletter.

Finally, if you’re in San Francisco for the Allied Social Science Associations Meeting, visit PUP at booth #205.

The Process Matters: Joel Brockner critiques Twitter’s most recent layoff method

Process Matters coverAccording to Joel Brockner, author of The Process Matters: Engaging and Equipping People for Success, an overemphasis on “results only” in the workplace is as widespread as it is detrimental. As Brockner aims to demonstrate in his opinion piece in Fortune magazine, the process managers use to reach their goals is itself critical. He critiques Twitter’s recent decision to block employee email accounts as a way of notifying staff of layoffs, while professing the highest respect and consideration for its employees. Brockner explains:

While the generous exit package may have been well-intended, the message of utmost respect fell by the wayside because the approach Twitter took was a process disaster… Given Twitter’s professed intentions, it seems that they could have found a more dignified way to tell people that they were being let go. But Twitter isn’t alone in process dysfunction.

Brockner continues to discuss the potential reasons for such a managerial mishap: perhaps the misstep isn’t obvious, or the managers are simply unaware of its unintended consequences. Yet he maintains that executives should prioritize improving managerial-employee processes, because ultimately the company will, “pay now or pay (a lot more) later.”

Read the full opinion piece in Fortune here.

Joel Brockner is the Phillip Hettleman Professor of Business at the Columbia Business School. He is the author of A Contemporary Look at Organizational Justice: Multiplying Insult Times Injury and Self-Esteem at Work, and the coauthor of Entrapment in Escalating Conflicts.

What do these Nobel prize winning economists have in common?

Princeton Makes. Stockholm Takes.

Princeton University Press is proud to be the publisher of these Nobel Prize-winning economists


2015
Angus DeatonThe Great Escape jacket

The Great Escape: Health, Wealth, and the Origins of Inequality

Demonstrating how changes in health and living standards have transformed our lives, The Great Escape is a powerful guide to addressing the well-being of all nations.

 

The Theory of Corporate Finance jacket2014 Jean Tirole

The Theory of Corporate Finance

Tirole conveys the organizing principles that structure the analysis of today’s key management and public policy issues, such as the reform of corporate governance and auditing; the role of private equity, financial markets, and takeovers; the efficient determination of leverage, dividends, liquidity, and risk management; and the design of managerial incentive packages.

2013 Lars Peter HansenRobustness jacket

Robustness

What should a decision maker do if the model cannot be trusted? This book adapts robust control techniques and applies them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics.

Irrational Exuberance jacket2013 Robert J. Shiller

Irrational Exuberance

In addition to diagnosing the causes of asset bubbles, Irrational Exuberance recommends urgent policy changes to lessen their likelihood and severity—and suggests ways that individuals can decrease their risk before the next bubble bursts. No one whose future depends on a retirement account, a house, or other investments can afford not to read it.

Handbook of Experimental Economics jacket2012 Alvin E. Roth

The Handbook of Experimental Economics (Edited with John H. Kagel)

This book presents a comprehensive critical survey of the results and methods of laboratory experiments in economics:public goods, coordination problems, bargaining, industrial organization, asset markets, auctions, and individual decision making.

2012 Lloyd S. Shapley

Advances in Game Theory (AM-52) (Edited with Melvin Dresher & Albert William Tucker)

Shapley considers Cooperative Game Theory when discerning various match methods that result in stable matches. In this book, Shapley defines stable matches as no two entities that would prefer one another over their counterparts and recognizes processes to achieve these matches.

2011 Thomas J. SargentConquest of American Inflation jacket

The Conquest of American Inflation

Sargent examines two broad explanations for the behavior of inflation and unemployment in this period: the natural-rate hypothesis joined to the Lucas critique and a more traditional econometric policy evaluation modified to include adaptive expectations and learning. His purpose is not only to determine which is the better account, but also to codify for the benefit of the next generation the economic forces that cause inflation.

2010 Peter DiamondBehavioral Economics and Its Applications

Behavioral Economics and Its Applications (Edited with Hannu Vartiainen)

In this volume, some of the world’s leading thinkers in behavioral economics and general economic theory make the case for a much greater use of behavioral ideas in six fields where these ideas have already proved useful but have not yet been fully incorporated–public economics, development, law and economics, health, wage determination, and organizational economics. The result is an attempt to set the agenda of an important development in economics.

Understanding Institutional Diversity jacket

2009 Elinor Ostrom

Understanding Institutional Diversity

Concentrating primarily on the rules aspect of the IAD framework, this book provides empirical evidence about the diversity of rules, the calculation process used by participants in changing rules, and the design principles that characterize robust, self-organized resource governance institutions.

Mass Flourishing jacket2006 Edmund S. Phelps

Mass Flourishing

Phelps argues that the modern values underlying the modern economy are under threat by a resurgence of traditional, corporatist values that put the community and state over the individual. The ultimate fate of modern values is now the most pressing question for the West: will Western nations recommit themselves to modernity, grassroots dynamism, indigenous innovation, and widespread personal fulfillment, or will we go on with a narrowed innovation that limits flourishing to a few?

2005 Robert J. Aumann

Values of Non-Atomic Games

This book extends the value concept to certain classes of non-atomic games, which are infinite-person games in which no individual player has significance. It is primarily a book of mathematics—a study of non-additive set functions and associated linear operators.

Anticipating Correlations jacket2003 Robert F. Engle III

Anticipating Correlations:A New Paradigm for Risk Management

Engle demonstrates the role of correlations in financial decision making, and addresses the economic underpinnings and theoretical properties of correlations and their relation to other measures of dependence.


2003
Clive W.J. Granger

Spectral Analysis of Economic Time Series (PSME-1) (with Michio Hatanaka)

Spectral Analysis of Economic Time Series expands and implements on innovative statistical methods based on Granger’s differentiating process, “cointegration”. Granger analyzes and compares short-term alterations with long-term patterns.

Identity Economics jacket2001 George A. Akerlof

Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being (with Rachel E. Kranton)

Identity Economics provides an important and compelling new way to understand human behavior, revealing how our identities–and not just economic incentives–influence our decisions.The authors explain how our conception of who we are and who we want to be may shape our economic lives more than any other factor, affecting how hard we work, and how we learn, spend, and save.

Lectures on Public Economics jacket2001 Joseph Stiglit

Lectures on Public Economics (with Anthony B. Atkinson)

The lectures presented here examine the behavioral responses of households and firms to tax changes. The book then delves into normative questions such as the design of tax systems, optimal taxation, public sector pricing, and public goods, including local public goods.

Introducing the new video trailer for PHISHING FOR PHOOLS by Robert Shiller & George Akerlof

Phishing for Phools jacketDo you have a weakness? Of course you do. Which means, according to Nobel Prize-winning economists George Akerlof and Robert Shiller, you have probably been “phished” for a “phool.”

We tend to think of phishing as the invisible malevolence that led our grandparents to wire money to Nigeria, or inspired us to click on a Valentine’s day link that promised, “someone loves you,” and then promptly crashed our hard drive. But more generally understood, “phishing” is inseparable from the market economy of everyday life. As long as there is profit to be made, psychological weaknesses will be exploited. For example, overly optimistic information results in false conclusions and untenable purchases in houses and cars. Health clubs offer overpriced contracts to well-intentioned, but not terribly athletic athletes. Credit cards feed dramatic levels of debt. And phishing occurs in financial markets as well: Think of the legacy of mischief at work in the financial crises from accounting fraud through junk bonds and the marketing of derivatives.

Ever since Adam Smith, the central teaching of economics has been that the invisible hand of free markets provides us with material well-being. In Phishing for Phools, Akerlof and Shiller challenge this insight, arguing that markets are far from being essentially benign and don’t always create the greater good. In fact, markets are inherently filled with tricks and traps.

We are thrilled to introduce this new video trailer in which Robert Shiller talks about his new book with George Akerlof, Phishing for Phools:

 

Fragile by Design, The Limits of Partnership, and others among Bloomberg Businessweek’s favorite books of 2014

Happy new year 2014It’s nearing the end of the year and that means everyone is taking a look back at the best and worst of the past twelve months. Bloomberg Businessweek recently published a “Best Books of ’14,” list to their site, and five Princeton University Press titles were selected as some of the best of the year!

Mervyn King, former governor of the Bank of England, got things going; “Charles Calomiris and Stephen Haber’s Fragile by Design is a magnificent study of the economics and politics of banking.”fragile

Bjorn Wahlroos, Chairman of Nordea Bank AB (NDA), selected Edmund S. Phelps’s Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change and wrote, “[Phelps] redraws many political front lines and provides us with an answer to those who believe more public funding for investment and innovation is the road forward for our stagnant economies. It is a marvelous book that deserves to be read by everyone, but particularly by those entrusted with the design of the European future.”mass flourishing

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond selected both Fragile by Design: The Political Origins of Banking Crises and Scarce Credit by Calomiris and Haber and Human Capitalism: How Economic Growth has Made Us Smarter–and More Unequal by Brink Lindsey as his must reads of the year.human

“[Fragile by Design is] hands down the best single book for understanding the historical journey that laid the groundwork for the financial crisis.”

“[Lindsey] argues the case that economic inequality is more deeply intertwined with human capital accumulation and the process of economic growth than you thought.”

Dan Fuss, vice chairman of Loomis Sayles & Co., named The Limits of Partnership: U.S.-Russian Relations in the Twenty-First Century by Angela E. Stent as his choice for favorite book of 2014, while Satyajit Das, author of Traders, Guns, and Money selected The Transformation of the World: A Global History of the Nineteenth Century by Jürgen Osterhammel to round out the list of PUP titles. “Professor Jorgen Osterhammel’s fine book is anything but a linear recitation of events. Instead, it swoops, shimmies, and carves ellipses and spirals through the facts to give readers a remarkable picture of the 19th century, which has shaped much of the present world.”

angela stent world

Congratulations to all the PUP authors on the list! The rest of the article can be found, here.

 

Congratulations to Jean Tirole, recipient of 2014 Nobel Prize in Economic Science

Around this time last year the Press could not have been more excited. Why? Two of the three 2013 Nobel Prize in Economic Sciences awards went to PUP authors Lars Peter Hansen and Robert J. Shiller, authors of Robustness and Irrational Exuberance, respectively. To see just how excited we were, click here, here, or here. Amazingly enough, there was no shortage of excitement at the Press following this year’s announcement of the 2014 Nobel Prize in Economic Sciences award as Jean Tirole, author of Financial Crises, Liquidity, and the International Monetary System, The Theory of Corporate Finance, and co-author of Balancing the Banks: Global Lessons from the Financial Crisis, is the sole recipient.


“If we had more researchers like Jean Tirole it would be a very good thing for the world.”


The official Nobel Prize press release states Jean Tirole, head of economics at Toulouse University in France, won The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2014, “for his analysis of market power and regulation,” but this is just a fraction of the contribution he has made to economic theory and its real world implications. In an interview (which can be seen below) Chairman of the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel, Tore Ellingsen, praised Tirole for his tireless efforts to better understand and explain how governments could regulate industries dominated by monopolies. When asked if it was difficult to choose a winner for the award this year, Ellingsen explained, “Yes and no. It’s been clear for some time now that Jean Tirole is a worthy recipient, but the question has been for what, alone or with whom, and when?” The interview concludes with wishful thinking; “If we had more researches like Jean Tirole it would be a very good thing for the world.”

Tirole has been an active member and contributor to economic theory since the 1980’s, and although “his work is largely theoretical…it has translated easily to practical use.” As a New York Times article further notes, “[Tirole’s] work is also wide ranging. A description of his influence published by the prize committee cited more than 60 papers, an unusually large number.”

Peter J. Dougherty, Director of Princeton University Press had the following to say about Tirole’s impact on the field of economics and his much deserved recognition. “Jean Tirole’s 2006 book, The Theory of Corporate Finance, marked an important moment in economics as well as in the history of Princeton’s economics list. We extend our most heartfelt congratulations to Professor Tirole on the occasion of his Nobel prize.”

Again, on behalf of all of us at PUP, we would like to congratulate and thank Jean Tirole for keeping the Nobel Prize in Economic Sciences award in house. And who knows, maybe next year we’ll be posting about a three-peat… fingers crossed!

Book trailer for Atlas of Cities edited by Paul Knox


Princeton University Press senior designer Jason Alejandro created this book trailer for Atlas of Cities edited by Paul Knox. (The catchy song in the background is the aptly named “Weekend in the City” by Silent Partner.)

8-7 Atlas of Cities Atlas of Cities
Edited by Paul Knox

 

And the REAL World Cup Winner is…

IPHWell, surely everybody knows by now – the 2014 World Cup is over, and Germany went home with the trophy.

But there’s another “winner” worth mentioning: Princeton University Press author and London School of Economics professor Ignacio Palacios-Huerta, whose latest book, Beautiful Game Theory: How Soccer Can Help Economics, garnered some wonderful press over the course of the tournament. Mr. Palacios-Heurta not only received a mention in the Science section of the New York Times and was the subject of a full-length article in strategy+business; he also penned an op-ed for the New York Times’s Sunday Review and was featured in stories in both the Financial Times and Worldcrunch.

Sure, he can’t rally like Ronaldo or kick it like Klose; but this fùtbol fanatic’s research presents advantages that extend far beyond the pitch.

Palacios-Huerta is unique in that he utilizes soccer data to test economic theories. In his op-ed in the Times, Palacios-Huerta lays out the basics of this experiment by explaining its origins in the Nash Equilibrium, which analyzes how people should behave in “strategic situations” and stresses that, in order to “win,” they shouldn’t repeat their choices. He says that, “according to Mr. Nash’s theory, in a zero-sum game (i.e., where a win for one player entails a corresponding loss for the other) the best approach is to vary your moves unpredictably and in such proportions that your probability of winning is the same for each move.”

He chooses penalty kicks to demonstrate this theory because they’re zero-sum games, wherein it’s ill-advised to use a strategy repeatedly. The explanation for this is relatively simple: a player’s shots become predictable if he always kicks to the same side of the net, making them easier to block. A lot of legwork (pun somewhat-intended) has gone into proving this idea: Palacios-Huerta analyzed 9,017 penalty kicks between 1995 and 2012, to find that successful players typically distributed their shots unpredictably and in just the right proportions. We won’t get into the numbers here, but they’re abundant in both the book and the op-ed.


Other research by me and others has shown that data from soccer can shed light on the economics of discrimination, fear, corruption and the dark side of incentives in organizations. In other words, aspects of the beautiful game that are less than beautiful from a fan’s perspective can still be illuminating for economists.”


And penalty kicks are just one handy example. Data from soccer can also illuminate one of the most prominent theories of the stock market: the efficient-market hypothesis, which essentially posits that the market processes economic data so quickly that any news relating to a stock is incorporated into its price before anyone can even act on it, diminishing the risk of insider trading.

We’re excited to see more of what these soccer stats can do to advance economic theory, and more importantly, how Palacios-Huerta can translate something so complicated, using something so, well…beautiful.

__________________________________________________________________________________________________________________________________________________________________________

Ignacio Palacios-Huerta is the author of:

BGT Beautiful Game Theory: How Soccer Can Help Economics by Ignacio Palacios-Huerta
Hardcover | 2014 | $35.00 / £24.95 | ISBN: 9780691144023
224 pp. | 6 x 9 | 30 line illus. | eBook | ISBN: 9781400850310 | Reviews Table of Contents   Introduction[PDF] 

Could India save Twitter? Misiek Piskorski discusses the future of social media with Yahoo! Finance

Harvard Business professor Misiek Piskorski is making the media rounds in New York to promote the publication of A Social Strategy: How We Profit from Social Media. Here, with Yahoo! Finance, he discusses why Twitter needs to make a big play in India if it wants to stay relevant and competitive with other social media platforms like Facebook and Alibaba.

And here he discusses social media and the growth of Uber on Bloomberg TV:

 

bookjacket A Social Strategy: How We Profit from Social Media
Mikolaj Jan Piskorski

Hardcover | 2014 | $29.95 / £19.95 | ISBN: 9780691153391
288 pp. | 6 x 9 | 2 halftones. 13 line illus. 9 tables.eBook | ISBN: 9781400850020 |

Reviews
Table of Contents

Sample the book:
Preface[PDF] pdf-icon
Chapter 1[PDF] pdf-icon

Ian Goldin stopped by the USA Today offices to chat about his latest book THE BUTTERFLY DEFECT on video

Ian Goldin, director of the Oxford Martin School and professor of globalization and development at the University of Oxford, recently stopped by the USA Today offices to discuss his latest book THE BUTTERFLY DEFECT: How Globalization Creates Systemic Risks, and What to Do about It with editor-in-chief David Callaway. Check out their entertaining discussion below.