How to Build an Economic Model in Your Spare Time

by

Hal R. Varian
UC Berkeley December !!" Current #er$ion% &uly '() '**!

+b$tract. T,i$ i$ an e$$ay -or .a$$ion and Cra-t% Economi$t$ at /ork) edited by Mic,ael S0enber1) Uni#er$ity o- Mic,i1an .re$$) !!2.

3eyword$.

+ddre$$. Hal R. Varian) Dean) Sc,o ol o- 4n-ormation Man1ement and Sy$tem$) UC Berkeley. /eb pa1e ,ttp%55www.$im$.berkeley.edu6,al

How to Build an Economic Mo del in Your Spare Time Hal R. Varian

Mo$t o- my work in economic$ in#ol#e$ con$tructin1 t,eoretical mo del$. 7#er t,e year$) 4 ,a#e de#eloped $ome way$ o- doin1 t,i$ t,at may be wort, de$cribin1 to t,o$e w,o a$pire to practice t,i$ art. 4n reality t,e pro ce$$ i$ muc, more ,ap,a0ard t,an my de$cription would $u11e$t8t,e model o- re$earc, t,at 4 de$cribe i$ an ideali0ation o- reality) muc, like t,e economic model$ t,at 4 create. But t,ere i$ probably enou1, connection wit, reality to make t,e de$cription u$e-ul8w,ic, 4 ,ope i$ al$o true -or my economic model$.

. 9ettin1 idea$ T,e r$t $tep i$ to 1et an idea. T,i$ i$ not all t,at ,ard to do. T,e tricky part i$ to 1et a 1ood idea. T,e way you do t,i$ i$ to come up wit, lot$ and lot$ o- idea$ and t,row out all t,e one$ t,at aren:t 1o od. But w,ere to 1et idea$) t,at:$ t,e ;ue$tion. Mo$t 1raduate $tudent$ are con#inced t,at t,e way you 1et idea$ i$ to read <ournal article$. But in my e=perience <ournal$ really aren:t a #ery 1o od $ource o- ori1inal idea$. You can 1et lot$ o- t,in1$ -rom <ournal article$8tec,ni;ue) in$i1,t) e#en trut,. But mo$t o- t,e time you will only 1et $omeone el$e:$ idea$. True) t,ey may lea#e a -ew loo$e end$ lyin1 around t,at you can pick up on) but t,e rea$on t,ey are loo$e i$ probably t,at t,e aut,or t,ou1,t about t,em a w,ile and couldn:t 1ure out w,at to do wit, t,em or decided t,ey were to o tediou$ to bot,er wit,8w,ic, mean$ t,at it i$ likely t,at you will nd your$el- in t,e $ame $ituation. My $u11e$tion i$ rat,er di erent% 4 t,ink t,at you $,ould look -or your idea$ out$ide t,e academic <ournal$8in new$paper$) in ma1a0ine$) in con#er$ation$) and in TV and radio pro1ram$. /,en you read t,e new$paper) lo ok -or t,e article$ about economic$ . . . and t,en look at t,e one$ t,at aren:t about economic$) becau$e lot$ o- t,e time t,ey end up bein1 about economic$ to o. Ma1a0ine$ are u$ually better t,an new$paper$ becau$e t,ey 1o into i$$ue$ in more dept,. 7n t,e ot,er ,and) a $,allower analy$i$ may be more

$timulatin1% t,ere:$ not,in1 like a -allaciou$ ar1ument to $timulate re$earc,.

Con#er$ation$) e$pecially wit, people in bu$ine$$) are o-ten #ery -ruit-ul. Commerce i$ conducted in many way$) and mo$t o- t,em ,a#e ne#er been $ub<ected to a $eriou$ economic analy$i$. 7- cour$e you ,a#e to be care-ul not to belie#e e#eryt,in1 you ,ear8 people in bu$ine$$ u$ually know a $et o- rule$ t,at work well -or runnin1 t,eir own bu$ine$$) but t,ey o-ten ,a#e no idea o- w,ere t,e$e rule$ come -rom or w,y t,ey work) and t,i$ i$ really w,at economi$t$ tend to nd intere$tin1. 4n many ca$e$ your idea$ can come -rom your own li-e and e=perience$. 7ne o- my -a#orite piece$ o- my own work i$ t,e paper 4 wrote on >+ Model o- Sale$?. 4 ,ad decided to 1et a new TV $o 4 -ollowed t,e ad$ in t,e new$paper to 1et an idea o- ,ow muc, it would co$t. 4 noticed t,at t,e price$ uctuated ;uite a bit -rom week to week. 4t occurred to me t,at t,e c,allen1e to economic$ wa$ not w,y t,e price$ were $ometime$ low @i.e.) durin1 $ale$A but w,y t,ey were e#er ,i1,. /,o would be $o -o oli$, a$ to buy w,en t,e price wa$ ,i1, $ince e#eryone knew t,at t,e item would be on $ale in a -ew week$B But t,ere mu$t be $uc, people) ot,erwi$e t,e $tore$ would ne#er nd it pro table to c,ar1e a ,i1, price. +rmed wit, t,i$ in$i1,t) 4 wa$ able to 1enerate a mo del o- $ale$. 4n my mo del t,ere were two kind$ o- con$umer$% in-ormed con$umer$ w,o read t,e ad$ and unin-ormed con$umer$ w,o didn:t read t,e ad$. T,e $tore$ ,ad $ale$ in order to price di$criminate between t,e in-ormed and unin-ormed con$umer$. 7nce 4 de#eloped t,e model 4 ,ad a re$earc, a$$i$tant 1o t,rou1, a couple o- year$: wort, o- t,e +nn +rbor Cew$ $earc,in1 -or t,e price$ o- color TV$. Muc, to my deli1,t t,e 1eneral pattern o- pricin1 wa$ $imilar to t,at predicted by t,e model. +nd) ye$) 4 did mana1e to 1et a pretty 1o od deal on t,e TV 4 e#entually bou1,t.

'. 4$ your idea wort, pur$uin1B So let:$ a$$ume @a -a#orite word o- economi$t$A t,at you ,a#e an idea. How do you know i- it i$ any 1oodB T,e r$t te$t i$ to try to p,ra$e your idea in a way t,at a nonDeconomi$t can under$tand. 4- you can:t do t,i$ it:$ probably not a #ery 1oo d idea. 4- you can p,ra$e
But w,ic, $ource$ to readB 4 read t,e Cew York Time$) t,e /all Street &ournal and t,e Economi$tE

t,e$e are probably 1ood place$ to $tart.

'

it in a way t,at a noneconomi$t can under$tand) it $till may be a lou$y idea) but at lea$t t,ere:$ ,ope. Be-ore you $tart tryin1 to decide w,et,er your idea i$ correct) you $,ould $top to a$k w,et,er it i$ intere$tin1. 4- it i$n:t intere$tin1) no one will care w,et,er it i$ correct or not. So try it out on a -ew people8$ee i- t,ey t,ink t,at it i$ wort, pur$uin1. /,at would -ollow -rom t,i$ idea i- it i$ correctB /ould it ,a#e lot$ o- implication$ or would it <u$t be a dead endB +lway$ remember t,at workin1 on t,i$ particular idea ,a$ an opportunity co$t8you could be $pendin1 your time workin1 on a di erent idea. Make $ure t,at t,e e=pected bene t$ co#er t,at opportunity co$t. 7ne o- t,e primary purpo$e$ o- economic t,eory i$ to 1enerate in$i1,t. T,e 1reate$t compliment i$ >+,F So t,at e=plain$ itF? T,at:$ w,at you $,ould be lookin1 -or8-or1et about t,e >nice $olid work? and try to become a /i0ard o- +,$. G. Don:t look at t,e literature too $o on T,e r$t t,in1 t,at mo$t 1raduate $tudent$ do i$ t,ey ru$, to t,e literature to $ee i$omeone el$e ,ad t,i$ idea already. Howe#er) my ad#ice i$ to wait a bit be-ore you lo ok at t,e literature. E#entually you $,ould do a t,orou1, literature re#iew) o- cour$e) but 4 t,ink t,at you will do muc, better i- you work on your idea -or a -ew week$ be-ore doin1 a $y$tematic literature $earc,. T,ere are $e#eral rea$on$ -or delay. Hir$t) you need t,e practice o- de#elopin1 a model. E#en i- you end up reproducin1 e=actly $omet,in1 t,at i$ in t,e literature already you will ,a#e learned a lot by doin1 it8and you can -eel aw-ully 1oo d about your$el- -or de#elopin1 a publi$,able ideaF @E#en i- you didn:t 1et to publi$, it your$el- . . . A Second) you mi1,t come up wit, a di erent approac, t,an i$ -ound in t,e literature. 4- you look at w,at $omeone el$e did your t,ou1,t$ will be $,aped too muc, by t,eir #iew$8you are muc, more likely to be ori1inal i- you plun1e ri1,t in and try to de#elop your own in$i1,t$. T,ird) your idea$ need time to incubate) $o you want to $tart modelin1 a$ early a$ po$$ible. /,en you read w,at ot,er$ ,a#e done t,eir idea$ can interact wit, your$ and) ,ope-ully) produce $omet,in1 new and intere$tin1. G

". Buildin1 your mo del So let:$ $kip t,e literature part -or now and try to 1et to t,e mo delin1. Iucky -or you) all economic$ mo del$ look pretty muc, t,e $ame. T,ere are $ome economic a1ent$. T,ey make c,oice$ in order to ad#ance t,eir ob <ecti#e$. T,e c,oice$ ,a#e to $ati$-y #ariou$ con$traint$ $o t,ere:$ $omet,in1 t,at ad<u$t$ to make all t,e$e c,oice$ con$i$tent. T,i$ ba$ic $tructure $u11e$t$ a plan o- attack% /,o are t,e people makin1 t,e c,oice$B /,at are t,e con$traint$ t,ey -aceB How do t,ey interactB /,at ad<u$t$ i- t,e c,oice$ aren:t mutually con$i$tentB +$kin1 ;ue$tion$ like t,i$ can ,elp you to identi-y t,e piece$ o- a model. 7nce you:#e 1ot a pretty 1ood idea o- w,at t,e piece$ lo ok like) you can mo#e on to t,e ne=t $ta1e. Mo$t $tudent$ t,ink t,at t,e ne=t $ta1e i$ to pro#e a t,eorem or run a re1re$$ion. CoF T,e ne=t $ta1e i$ to work an e=ample. Take t,e $imple$t e=ample8one period) ' 1ood$) ' people) linear utility8w,ate#er it take$ to 1et to $omet,in1 $imple enou1, to $ee w,at i$ 1oin1 on. 7nce you:#e 1ot an e=ample) work anot,er one) t,en anot,er one. See w,at i$ common to your e=ample$. 4$ t,ere $omet,in1 intere$tin1 ,appenin1 ,ereB /,en your e=ample$ ,a#e 1i#en you an inklin1 o- w,at i$ 1oin1 on) t,en you can try to write down a model. T,e critical ad#ice ,ere i$ 34SS% keep it $imple) $tupid. /rite down t,e $imple$t po$$ible model you can t,ink o-) and $ee i- it $till e=,ibit$ $ome intere$tin1 be,a#ior. 4- it do e$) t,en make it e#en $impler. Se#eral year$ a1o 4 1a#e a $eminar about $ome o- my re$earc,. 4 $tarted out wit, a #ery $imple e=ample. 7ne o- t,e -aculty in t,e audience interrupted me to $ay t,at ,e ,ad worked on $omet,in1 like t,i$ $e#eral year$ a1o) but ,i$ mo del wa$ >muc, more comple=?. 4 replied >My model wa$ comple= w,en 4 $tarted) too) but 4 <u$t kept workin1 on it till it 1ot $impleF? +nd t,at:$ w,at you $,ould do% keep at it till it 1et$ $imple. T,e w,ole point oa model i$ to 1i#e a $impli ed repre$entation o- reality. Ein$tein once $aid >E#eryt,in1 $,ould be a$ $imple a$ po$$ible . . . but no $impler.? + model i$ $uppo$ed to re#eal t,e e$$ence o- w,at i$ 1oin1 on% your model $,ould be reduced to <u$t t,o$e piece$ t,at are re;uired to make it work. "

T,i$ take$ a $urpri$in1ly lon1 time8t,ere are u$ually lot$ o- -al$e $tart$) -ru$tratin1 di#er$ion$) and 1eneral -umblin1 around. But keep at itF 4- it were ea$y to do) it would ,a#e already been done. (. 9enerali0in1 your model Suppo$e t,at you:#e nally made your mo del a$ $imple a$ po$$ible. +t t,i$ point your model i$ probably too $imple to be o- muc, intere$t% it:$ likely <u$t an e=ample or a $pecial ca$e. But i- you ,a#e made your model a$ $imple a$ po$$ible) it will now be muc, ea$ier to $ee ,ow to 1enerali0e it $ince you know w,at t,e key piece$ are t,at make t,e mo del work. Here i$ w,ere your education can be ,elp-ul. +t la$t you can u$e all t,o$e tec,ni;ue$ you learned in 1raduate $c,ool. Mo$t o- t,e time you were a $tudent you probably $tudD ied #ariou$ canonical mo del$% t,in1$ like con$umer c,oice) and producer c,oice) 1eneral e;uilibrium) 1ame t,eory and $o on. T,e pro-e$$or probably told you t,at t,e$e were #ery 1eneral model$ t,at could encompa$$ lot$ o- $pecial ca$e$. /ell) it wa$ all true. 7#er t,e la$t -ty year$ economi$t$ ,a#e come up wit, $ome #ery 1eneral principle$ and model$. Mo$t likely your model i$ a $pecial ca$e o- one ot,e$e 1eneral mo del$. 4- $o you can immediately apply many o- t,e re$ult$ concernin1 t,e 1eneral mo del to your $pecial ca$e) and all t,at tec,ni;ue you learned can ,elp you analy0e your mo del.

J. Makin1 mi$take$ T,i$ proce$$8$impli-y to 1et t,e re$ult) comple=i-y to $ee ,ow 1eneral it i$8i$ a 1ood way to under$tand your mo del. Mo$t o- t,e time t,at 4 $pend modelin1 i$ in#ol#ed in t,i$ backDandD-ort, proce$$. +lon1 t,e way) 4 make a lot o- mi$take$. +$ .iet Hein put$ it% T,e road to wi$domB /e:ll it:$ plain and $imple to e=pre$$% Err and err and err a1ain but le$$ and le$$ (

and le$$.

T,i$ backDandD-ort, iteration in buildin1 a model i$ like $culptin1% you are c,ippin1 away a little bit ,ere) and a little bit t,ere) ,opin1 to nd w,at:$ really in$ide t,at $tubborn block o- marble. 4 c,oo$e t,e analo1y wit, $culptin1 purpo$ely% like $culpture mo$t o- t,e work in buildin1 a model doe$n:t con$i$t o- addin1 t,in1$) it con$i$t$ o- $ubtractin1 t,em. T,i$ i$ t,e mo$t -un part o- modelin1) and it can be #ery e=citin1 w,en t,e -orm o- t,e idea really be1in$ to take $,ape. 4 normally walk around in a bit o- a da0e at t,i$ $ta1eE and 4 try not to 1et to o -ar away -rom a yellow pad. E#entually) i- you:re lucky) t,e inner workin1$ o- your model will re#eal it$el-% you:ll $ee t,e $imple core o- w,at:$ 1oin1 on and you:ll al$o under$tand ,ow 1eneral t,e p,enomenon really i$.

2. Searc,in1 t,e literature +t t,i$ point you can $tart doin1 your literature $earc,. Tell your pro-e$$or$ about w,at you:#e di$co#ered8nine time$ out o- ten t,ey:ll tell you to look in t,e > !KG +ER? or >Econometrica 22? or $ome te=tbook @maybe e#en one o- mineA. +nd lot$ o- t,e time t,ey:ll be ri1,t. You:ll look t,ere and nd >your? model8but it will be muc, better done) muc, more -ully de#eloped) and muc, clearer. Hey) no one $aid re$earc, would be ea$y. But t,i$ i$ a point w,ere you really ,a#e a c,ance to learn $omet,in18read t,e article@$A care-ully and a$k your$el- >/,y didn:t 4 do t,atB? 4- $omeone $tarted wit, t,e $ame idea a$ you and carried it -urt,er) you want to $ee w,at you mi$$ed. 7n t,e ot,er ,and) i- you really -ollowed t,e ad#ice 4 1a#e you abo#e to keep it $imple) you may ,a#e come up wit, $omet,in1 t,at i$ muc, clearer t,an t,e current treatment$. 7r) maybe you:#e -ound $omet,in1 t,at i$ more 1eneral. 4- $o) you may ,a#e a wort,w,ile in$i1,t. 9o back to your ad#i$or and tell ,im or ,er w,at you ,a#e -ound. Maybe you:#e 1ot a new an1le on an old idea t,at i$ wort, -urt,er e=ploration. 4- $o) con1ratulation$8 you would ne#er ,a#e -ound t,i$ i- you did t,e literature $earc, ri1,t away. Maybe w,at you:#e 1ured out i$ not already in t,e literature. T,e ne=t po$$ibility i$ t,at you are wron1. Maybe your analy$i$ i$n:t ri1,t) maybe t,e idea i$ <u$t o t,e wall. J

T,i$ i$ w,ere your ad#i$or can play a bi1 role. 4- you:#e really made your analy$i$ a$ $imple a$ po$$ible) it i$ aA le$$ likely to contain an error) and bA any error$ t,at remain will be ea$ier to nd. T,i$ brin1$ me to anot,er common problem. /,en you:#e worked on a topic -or $e#eral mont,$8or e#en $e#eral week$8you tend to lo$e a lot o- per$pecti#e . . . literally. You:re <u$t too clo$e to t,e work to really 1et a picture o- w,at i$ 1oin1 on. T,i$ lack o- per$pecti#e take$ one o- two -orm$% r$t) you may t,ink $omet,in1 i$ ob#iou$ w,en it really i$n:t. 4t may be ob#iou$ to you) but you:#e been t,inkin1 about t,i$ i$$ue -or $e#eral mont,$8it probably i$n:t $o ob#iou$ to $omeone w,o doe$n:t ,a#e t,e bene t o- t,at e=perience.

T,e ot,er po$$ibility i$ t,at you may t,ink $omet,in1 i$ complicated w,en it i$ really ob#iou$8you:#e wandered into a -ore$t #ia a meanderin1 pat,. Maybe t,ere:$ a nice clear trail <u$t a -ew -eet away t,at you:#e totally mi$$ed. So at t,i$ point you:#e 1ot to $tart 1ettin1 $ome independent <ud1ment o- your work. Talk to your ad#i$or) talk to your -ellow $tudent$) talk to your wi-e) ,u$band) 1irl-riend) boy-riend) nei1,bor) or pet. . . w,o e#er you can 1et to li$ten. +nd ,ere:$ w,at you:ll nd% t,ey:#e 1ot no idea o- w,at you are talkin1 about @e$pecially your petA. So you ,a#e to 1o back to tryin1 to 1ure out w,at you really are talkin1 about% w,at i$ t,e -undamental idea o- your modelB

K. 9i#in1 a $eminar +-ter you:#e bored your -riend$) relati#e$ and pet$ to deat,) you $,ould 1i#e $eminar. T,i$ i$ a really important p,a$e% t,e more you can talk about your work) t,e better t,e nal paper will be. T,i$ i$ becau$e a talk -orce$ you to 1et to t,e point. 4- you want your audience to li$ten to you) you:#e 1ot to make your idea clear) conci$e) and or1ani0ed8and t,e e=perience t,at you 1ain by doin1 t,i$ i$ e=tremely u$e-ul -or writin1 your paper.

4 li$ten to a lot o- $tupid idea$8but t,at:$ w,at 4:m paid to do. Iot$ o- people li$ten to $tupid idea$ -rom me) too% my collea1ue$ 1et paid to do it) and t,e $tudent$ 1et e=amined on it. But mo$t people don:t ,a#e to li$ten to you. T,ey don:t ,a#e to read your paper. T,ey won:t e#en ,a#e to 1lance at t,e ab$tract unle$$ t,ey ,a#e a rea$on to. T,i$ come$ a$ a bi1 $,ock to mo$t 1raduate $tudent$. T,ey t,ink t,at <u$t becau$e t,ey:#e put a lot o- work and a lot o- t,ou1,t into t,eir paper t,at t,e re$t o- t,e world 2

i$ obli1ed to pay attention to t,em. +la$) it i$n:t $o. Herb Simon once $aid t,at t,e -undamental $carcity in t,e modern world wa$ $carcity o- attention8and brot,er) i$ t,at t,e trut,. T,ere are demand$ -or e#erybo dy:$ attention) and i- you want $omeone to pay attention to you) you ,a#e to 1i#e t,em a rea$on to do $o. + $eminar i$ a way to 1et t,em to pay attention) $o be $ure to e=ploit t,i$ opportunity to 1et people to li$ten to you.

T,e u$e-ul t,in1 about a $eminar i$ t,at you 1et immediate -eedback -rom t,e audience. +n audience won:t put up wit, a lot o- t,e t,in1$ t,at aut,or$ try to write in paper$% tur1id pro$e) comple= notation) and tediou$ detail$. +nd) belie#e it or not) reader$ won:t put up wit, t,e$e t,in1$ eit,erF T,e trick i$ to u$e t,e $eminar to 1et all t,o$e t,in1$ out o- your paper8t,at way) it may actually 1et read.

Controllin1 t,e audience 4:#e $een it claimed t,at one o- t,e 1reate$t -ear$ t,at mo$t people ,a#e i$ $peakin1 be-ore a 1roup. 4 ima1ine t,at mo$t a$$i$tant pro-e$$or$ ,a#e t,i$ problem) but a-ter many year$ o- 1i#in1 lecture$ be-ore $e#eral ,undred $tudent$ it 1oe$ away. 4n -act) lecturin1 can become downri1,t addicti#e @a$ my -amily o-ten remind$ me.A +$ t,e mat,ematician R. H. Bin1 once $aid% >/,en 4 wa$ youn1) 4 would rat,er 1i#e a lecture on mat,ematic$ t,an li$ten to one. Cow t,at 4 am older and more mature 4 would rat,er 1i#e two lecture$ on mat,ematic$ t,an li$ten to one.? 9i#in1 lecture$ i$ a bit like eatin1 oy$ter$. Your r$t one re;uire$ $ome coura1e) but a-ter you de#elop a ta$te -or t,em) it can be ,ard to $top. T,ere are t,ree part$ to a $eminar% t,e intro duction) t,e content) and t,e conclu$ion. My ad#ice about introduction$ i$ $imple% don:t ,a#e one. 4 ,a#e $een many $eminar$ ruined by lon1) pretentiou$) contentle$$ introduction$. My ad#i$e% $ay a -ew $entence$ about t,e bi1 picture and t,en 1et down to bu$ine$$% $,ow t,em w,at you:#e 1ot and w,y it:$ important. T,e primary rea$on to 1et down to bu$ine$$ ri1,t away i$ t,at your audience will only remember about twenty minute$ o- your talk8and t,at i$ u$ually t,e

r$t twenty minute$. So make $ure t,at you 1et $ome u$e-ul in-ormation into t,at r$t twenty minute$. +$ -or conclu$ion$) t,e mo$t common problem i$ lettin1 t,e $eminar trail o into $ilence. T,i$ can ruin a 1oo d talk. 4 alway$ like to $pend t,e la$t couple o- minute$ $ummari0in1 K

w,at 4 accompli$,ed and w,y t,e audience $,ould care. +-ter all) t,i$ i$ w,at t,ey will walk away wit,) $o you mi1,t a$ well tell t,em w,at t,ey $,ould remember rat,er t,an make t,em 1ure t,i$ out -or t,em$el#e$. Cowaday$ e#eryone $eem$ to u$e o#er,ead$ -or t,eir lecture$. T,e down$ide o- t,i$ i$ t,at t,e $eminar i$n:t #ery $pontaneou$8but t,e up$ide i$ t,at t,e $eminar i$ u$ually better or1ani0ed. My ad#ice i$ to limit your$el- to one or two $lide$ -or a introduction and one -or a conclu$ion. T,at way you will be -orced to 1et to your contribution $ooner rat,er t,an later. +nd make your o#er,ead$ bi1E u$e lar1e type and don:t try to $ay too muc, on eac, one.

T,ere are two t,in1$ to a#oid in your pre$entation% don:t let your audience 1o to $leep) and don:t let t,em 1et too li#ely. You want t,e audience to ,ear w,at you ,a#e to $ay. T,ey won:t ,ear your me$$a1e i- t,ey are $leepin1) and t,ey won:t ,ear your me$$a1e it,ey are talkin1 more t,an you are. So don:t lo$e control o- your $eminarF T,e key to maintainin1 control i$ to e$tabli$, credibility early on. T,e way to do i$ to 1o into 1reat detail in t,e pre$entation o- your r$t re$ult8a t,eorem) a re1re$$ion) a dia1ram) w,ate#er. Spell out eac, a$pect o- your re$ult in e=cruciatin1 detail $o no one can po$$ibly mi$under$tand. /,en you do t,i$ you will certainly 1et ;ue$tion$ like >/ill t,i$ 1enerali0e to n a1ent$B? or >Ha#e you corrected -or ,etero$keda$ticityB?

4- you know t,e an$wer to t,e ;ue$tion) 1o a,ead and an$wer it. 4- you don:t know t,e an$wer8or t,e ;ue$tion i$ totally o t,e wall8$ay >T,at:$ a 1oo d ;ue$tionE let me come back to t,at at t,e end o- t,e $eminar.? @7- cour$e you ne#er will.A Don:t 1et $idetracked% t,e point o- 1oin1 t,rou1, t,e initial re$ult in 1reat detail i$ to e$tabli$, credibility. 7nce you:#e pre$ented your re$ult and you $ee t,at t,e audience ,a$ under$tood t,e point8t,eir ,ead$ are noddin1 but not noddin1 o 8you can 1o on to t,e 1enerali0ation$ and elaboration$. 4- you:#e done a 1ood <ob at e$tabli$,in1 your credibility initially now t,e audience will belie#e anyt,in1 you $ayF 7- cour$e you $,ouldn:t abu$e t,i$ tru$t) but it i$ u$e-ul to e=ploit it in t,e re$t o- your pre$entation. T,i$ i$ t,e -undamental rea$on -or $tartin1 $imple% i- you $tart out wit, a delicate ar1ument) it will be ,ard -or t,e audience to under$tand and you will ne#er e$tabli$, tru$t.

/,en you are done wit, your talk you $,ould take a -ew minute$ to <ot down $ome note$% w,at wa$ di cult -or people to under$tandB w,at ;ue$tion$ did t,ey a$kB w,at !

$u11e$tion$ did t,ey makeB w,at re-erence$ did t,ey 1i#e youB You may t,ink t,at you will remember t,e$e point$) but ;uite o-ten you won:t. T,e audience i$ a #ery u$e-ul re$ource -or clari-yin1 your t,ou1,t$8make $ure you u$e it well. !. .lannin1 your paper
+lmo$t e#eryone write$ on computer$ t,e$e day$. 4 know t,at computer$ are 1reat time $a#er$% 4 1et almo$t a$ muc, work done now a$ 4 1ot done be-ore 4 $tarted u$in1 computer$.'

4 t,ou1,t t,at 4 would $pend a bit o- time talkin1 about ,ow 4 u$e computer$) not becau$e it i$ all t,at important) but becau$e no one el$e in t,i$ collection will di$cu$$ $uc, mundane matter$. Since 4 am well known a$ a computer nerd) people alway$ a$k me w,at 4 u$e) and 4 1ure 4 can $a#e time by pointin1 t,em to t,i$ article. Undoubtedly t,i$ will all look incredibly arc,aic in a -ew year$) but t,at:$ t,e co$t o- bein1 on t,e bleedin1 ed1e o- tec,nolo1y. 4 currently u$e a Uni= mac,ine) but mo$t o- w,at 4 $ay applie$ e;ually well to ot,er en#ironment$. 4 ,a#e a directory on my computer called .aper$ and w,en 4 $tart to work on a new topic 4 create a $ubdirectory under paper$. @Hor e=ample) t,i$ paper i$ in a directory .aper$5,owD4Dwork.A /,en 4 create t,e directory 4 create a note$.t=t le% t,i$ contain$ my initial idea$) a rou1, outline) w,ate#er. Hor e=ample) t,e note$.t=t le -or t,i$ paper initially ,ad entrie$ in it like% Lread t,e new$paper L$impli-y Lwrite and talk LLi- you don:t 1rab t,em in t,e r$t pa1e) t,ey won:t read it

4 create a note$ le like t,i$ w,en 4 r$t $tart to work on a topic84 <ot down t,e initial idea$ 4 ,a#e) w,ic, are u$ually pretty $ketc,y. 4n t,e -ollowin1 day$ and week$ 4 occa$ionally take a look at t,i$ outline. /,en 4 lo ok at it 4 mo#e t,in1$ around) add
' 4- a train $top$ at a train $tation) w,at do you t,ink ,appen$ at a work $tationB

material and $o on. 4 rarely take anyt,in1 out completely84 <u$t mo#e material to t,e end o- t,e le. +-ter all) 4 mi1,t want t,o$e note$ a1ain. +-ter or1ani0in1 t,e$e idea$ -or $e#eral week$ or mont,$ 4 am ready to write t,e r$t dra-t o- t,e paper. 4 u$ually try to do t,i$ in a day or two) to keep it all -re$,. 4 normally put t,e note$ in one window and t,e paper in t,e ot,er and write t,e paper w,ile 4 re-er back and update t,e note$ to keep t,em in $ync wit, t,e paper. 7nce t,e paper i$ written 4 put it a$ide -or a couple o- week$. .aper$ need to a1e like ne c,ee$e8it:$ true t,at mold mi1,t de#elop) but t,e a#or i$ o-ten en,anced. More importantly) it 1i#e$ your $ubcon$ciou$ mind a c,ance to work on t,e idea8maybe it will come up wit, $omet,in1 your con$ciou$ mind ,a$ mi$$ed. /,en 4 come back to t,e paper 4 try to read it wit, a -re$, mind) like $omeone w,o
,a$ ne#er $een it be-ore.G 7n rare o cca$ion$ 4 like w,at 4 read) but u$ually 4 ,a#e lot$

o- critici$m$. /,ene#er 4 ,a#e to pau$e and t,ink >w,at do e$ t,at meanB? 4 rewrite84 add more e=planation) c,an1e t,e notation) or w,ate#er i$ nece$$ary to make t,e paper clearer. /,en 4:m done wit, t,i$ proce$$ 4 ,a#e a r$t dra-t. 4 ne=t c,eck t,i$ dra-t into a re#i$ion control $y$tem. T,i$ i$ a piece o- $o-tware t,at keep$ track o- t,e re#i$ion$ o- a paper. 4t document$ all o- t,e c,an1e$ you make and allow$ you to re$tore any pre#iou$ #er$ion o- a paper. 4 u$e t,e Uni= utility rc$ but 4 know t,ere are many ot,er $y$tem$ a#ailable. Re#i$ion control $y$tem$ are e$pecially #aluable i- you are workin1 wit, a coaut,or $ince t,ey keep track o- w,ic, per$on made w,ic, c,an1e$ w,en. 4 t,en repeat t,e proce$$% let t,e paper $it -or a -ew more week$ or mont,$) t,en come back to it) read it wit, a -re$, mind and re#i$e it accordin1ly. 4t i$ particularly u$e-ul to do a re#i$ion ri1,t a-ter you 1i#e a $eminar. Remember t,o$e note$ 4 told you to write a-ter your $eminar endedB Sit down wit, t,e paper and 1o o#er t,e ;ue$tion$ t,e audience ,ad and t,e $u11e$tion$ t,ey made. Can you an$wer t,eir ;ue$tion$ in your paperB Can you incorporate t,eir $u11e$tion$B Be $ure to modi-y t,e note$5outline5$lide$ -or your talk w,en you incorporate t,e audience:$ $u11e$tion$.
G T,i$ i$ muc, ea$ier once you reac, middle a1e.

Biblio1rap,ic $o-tware 7ne #ery u$e-ul computer tool i$ a biblio1rap,ic $y$tem. T,i$ i$ a piece o- $o-tware de$i1ned to mana1e a li$t o- re-erence$. T,ere i$ a ma$ter databa$e o- re-erence$ t,at i$ $tored on your computer. You a$$i1n a key to eac, article like +rrow2* or +rrowRi$k. /,en you want to re-er to a paper you u$e t,e key) by $ayin1 $omet,in1 like MciteN+rrow2*O. T,e biblio1rap,ic pro1ram t,en look$ up t,e appropriate citation in your databa$e and put$ it in t,e li$t o- re-erence$ at t,e end o- your article. 4 u$e t,e $y$tem called BibTEP) $ince it work$ well wit, TEP. Howe#er) t,ere are many ot,er $y$tem$ a#ailable t,at work -or ot,er wordproce$$in1 packa1e$. 4t:$ a 1o od idea to 1et in t,e ,abit o- u$in1 a $y$tem like t,i$. 7#er t,e year$ you will build up a compre,en$i#e biblio1rap,y -or t,e area$ you work in. But w,ere do you 1et your re-erence$ in t,e r$t placeB /ell) one way i$ to a$k people% your ad#i$er) your collea1ue$) your -riend$) and $o on. T,i$ i$ $till one o- t,e mo$t reliable way$. But nowaday$ t,ere are a number o- computeri0ed databa$e$ a#ailable online or on CD$ t,at allow -or ea$y $earc,. You can open t,e CD -or t,e &ournal o- Economic Iiterature) type in a -ew key word$ like >price di$crimination? and 1et t,e la$t * year$ wort, o- ab$tract$ o- publi$,ed article$ t,at contain t,e word$ >price di$crimination.? +$ you look at t,e$e article$ you will $ee a -ew >cla$$ic? article$ cited. /,en you identi-y t,e$e cla$$ic article$ 1o to t,e Social Science Citation 4nde= and $earc, -or all t,e recent paper$ t,at ,a#e cited t,e$e cla$$ic$. T,i$ pro ce$$ $,ould 1i#e you an upDtoDdate biblio1rap,y pretty ;uickly. 7-ten you can download t,e citation$ you 1et directly into your biblio1rap,y databa$e pro1ram. *. T,e $tructure o- t,e paper T,ere:$ an old <oke about academic paper$. T,ey are all $uppo$ed to ,a#e t,ree part$. T,e r$t part) e#eryone can under$tand. T,e $econd) only a ,and-ul o- reader$ can under$tand. T,e la$t part no one can under$tand8t,at:$ ,ow t,e reader$ know it:$ a $eriou$ piece oworkF T,e bi1 mi$take t,at aut,or$ make t,e$e day$ i$ to lea#e out t,e r$t part o- t,e paper8 t,at part t,at e#eryone can under$tand. But t,e introduction i$ t,e mo$t important part '

o- t,e paper. You:#e 1ot to 1rab t,e reader on t,e r$t pa1e. Co matter ,ow brilliant t,e re$t o- t,e paper i$) it won:t be noticed i- no one read$ it. +nd no one will read it i- you don:t 1et t,eir intere$t in t,e r$t -ew para1rap,$. 4- you really know w,at your paper i$ about) you $,ouldn:t nd it ,ard to e=plain t,i$ to your reader$ in a couple o- para1rap,$. My ba$ic ad#ice i$ to make your paper lo ok like your talk. 9et to t,e point. U$e e=ample$. 3eep it $imple. Tell people w,y w,at you did i$ important a-ter you:#e done it. .ut t,e tediou$ $tu in t,e appendi=. End wit, a $ummary o- w,at you ,a#e accompli$,ed. 4- you ,a#e really written a 1ood paper) people won:t ,a#e to li$ten to your $eminar to nd out w,at you ,a#e done% t,ey can <u$t read it in your paper.

. /,en to $top You can tell w,en your work i$ 1ettin1 ready -or publication by t,e reaction$ in t,e $eminar$% people $top a$kin1 ;ue$tion$. @7r at lea$t) t,e people w,o ,a#e read your paper $top a$kin1 ;ue$tion$.A 4- you:#e -ollowed my ad#ice) you:#e already a$ked t,eir ;ue$tion$8and an$wered t,em8in your paper. 7nce you:#e made your point) $top. Iot$ o- paper$ dra1 on too lon1. 4 $aid earlier t,at people only remember about '* minute$ o- your $eminar @i- you:re luckyA) and t,ey only remember about * pa1e$ o- your paper. You $,ould be able to $ay mo$t o- w,at you want to $ay in t,at len1t,. 7nce your paper i$ written) you can $ubmit it to a <ournal. 4 don:t ,a#e too muc, to $ay about t,i$E Dan Hamerme$, ,a$ written a nice article t,at de$cribe$ t,e procedure
better t,an 4 can." +ll 4 can $ay i$ to ec,o ,i$ ad#ice t,at you 1o o#er t,e article wit, a

ne toot, comb be-ore $endin1 it in. Cot,in1 turn$ o an editor or a re-eree more t,an to nd typo$) mi$$in1 re-erence$ and $loppy editin1 in t,e article$ t,ey deal wit,.

" Daniel S. Hamerme$,) >T,e Youn1 Economi$t:$ 9uide to .ro-e$$ional Eti;uette?) &ournal o- Economic

.er$pecti#e$) J% ) J!Q K*.

'. /ritin1 te=tbook$ Mo$t o- w,at 4:#e ,ad to $ay $o -ar ,a$ to do wit, writin1 article$. But 4 $uppo$e 4 really
$,ould $ay a bit about t,e ot,er kind o- writin1 4:#e done% te=tbook$.(

My r$t te=t) Microeconomic +naly$i$ really wa$n:t plannedE it <u$t ,appened. /,en 4 r$t $tarted my pro-e$$ional career at M4T in !2G 4 wa$ a$ked to teac, t,e r$t year 1raduate micro cour$e. T,e te=t) $uc, a$ it wa$) con$i$ted o- about '* pa1e$ o- note$ written by Bob Hall) maybe "* pa1e$ o- note$ -rom Dan McHadden and Sid /inter) and a -ew <ournal article$. T,e note$ were aw-ully $ketc,y) and t,e <ournal article$ were muc, too ad#anced -or r$t year $tudent$. So 4 ,ad to write my own note$ -or t,e $tudent$. T,e r$t year 4 wrote about (* pa1e$E t,e ne=t year anot,er (*) and t,e year a-ter t,at anot,er (*. T,e $tudent$ w,o u$ed t,em were 1reat. T,ey read t,em care-ully and told me w,at wa$ wron1% w,ere t,e ob$curitie$ were) w,ere t,e error$ were) w,at wa$ too ad#anced) and w,at wa$ too $imple. 4 owe muc, o- t,e $ucce$$ o- t,at book to t,e -act it wa$ cla$$ te$ted be-ore a ,i1,ly critical audience. Durin1 t,i$ period 4 ,appened to meet Ric,ard Hammin1) an electrical en1ineer w,o ,ad written $e#eral te=t$. He 1a#e me a key piece o- ad#ice% >9et to1et,er t,e problem$ t,at you want your $tudent$ to be able to $ol#e a-ter t,ey:#e read your bo ok8and t,en write t,e book t,at will teac, t,em ,ow to $ol#e t,em.? T,i$ wa$ 1reat ad#ice. 4 -ollowed it to $ome de1ree wit, t,e 1raduate te=t) but later)
w,en 4 wrote t,e under1raduate te=t) 4 -ollowed it reli1iou$ly8but more about t,at below.J

7ne day a publi$,er came into my o ce and a$ked @a$ t,ey o-ten doA >+re you writin1 a bookB? 4 $aid t,at would be a $illy t,in1 -or an a$$i$tant pro-e$$or to do8but a$ a matter o- -act) 4 did ,a#e $ome cla$$ note$ t,at 4 ,ad been workin1 on -or a -ew year$.
( T,e reader may recall Di$raeli:$ warnin1% >+n aut,or w,o $peak$ about ,i$ own book$ i$ almo$t a$

bad a$ a mot,er w,o talk$ about ,er own c,ildren.?

J T,e 1eneral principle t,at 4 -ollowed @and $till -ollowA wit, t,e 1raduate te=t i$ t,at it $,ould 1i#e t,e

$tudent t,e in-ormation t,ey need to know to read a microeconomic$ paper in t,e +merican Economic Re#iew. E#ery now and t,en 4 1o t,rou1, a -ew i$$ue$ o- t,e +ER and note topic$ t,at $,ould 1o in t,e ne=t edition o- t,e book.

"

education Ce=t t,in1 i$ >learnin1 4 knew)by 4 ,ad doin1? $e#eral but publi$,er$ a$ -ar a$ 4:m intere$ted concerned in my t,at:$ note$. alway$ 4 $pent been a $eme$ter t,e only way to 1o. at Berkeley in !22 and u$ed t,at opportunity to ,ammer t,em into $,ape. Muc, to my T,e under1raduate te=t turned outato be pretty $ucce$$-ul a$ well. t,eu$ed. workbo ok $urpri$e t,e note$ e#entually become book and ended up bein1 #ery +nd widely 4 did ,a$ ended up $ellin1 two and or t,ree time$ a$ muc, any o- it$ 1oe$4 to a $econd edition in !KG 4 $,ould ,a#e done a$ a re#i$ion incompetitor$8w,ic, !K2 or $o8but in$tead $,ow t,at t,ere $till i$ a market -or a ;uality product in t,e te=tbook market. decided to write an under1raduate te=t. 4 wanted to write an under1raduate book becau$e 4 wa$ -ed up wit, t,e bo ok$ 4 ,ad G. Summary been u$in1. 4 ,ad tried $e#eral di erent one$) but couldn:t nd any 4 really liked. 4 4 $aid t,at e#ery talk $,ould a $ummary8$o 4 $uppo$e 4 ,a#e to -ollowt,e mybo own remember one $eme$ter 4 $at,a#e down and tried to write a midterm e=am8but ok ad#ice. 4 Here are t,e point$ to take away% ,ad been u$in1 wa$ $o #apid t,at 4 couldn:t t,ink o- any problem$ t,at t,e $tudent$ could $ol#e tool$ ,ad been in t,e bo okF +t t,at point 4 1ured 4 could R Io u$in1 ok -ort,e idea$ in t,at t,e world) notpre$ented in t,e <ournal$. pro duce $omet,in1 better.a$ $imple a$ po$$ible) t,en 1enerali0e it. R Hir$t make your model +bout t,e $ame time one o- my under1raduate$ ,ad picked up a workbook by Marcia R Io ok at t,e literature later) not $ooner. Sti1um called) 4 belie#e) .roblem$ in Microeconomic$. T,e $tudent -ound t,i$ #ery ,elp-ul R Model your paper a-ter your $eminar. in under$tandin1 t,e concept$ o- economic$) and 4 remembered w,at Hammin1 ,ad told R Stop w,en you:#e made your point. me about ,ow to write a te=tbook. So 4 a$ked my collea1ue Ted Ber1$trom i- ,e would +nd now my point$ ,a#e been made) $o 4:m duty bound to $top. 9o -ort, and mo delF
like to work wit, me to create a $eriou$ workbook.2 Ted created problem$ a$ t,e te=t

wa$ bein1 written) and 4 ,ad to make $ure t,at t,e te=t contained e#eryt,in1 nece$$ary to $ol#e t,e problem$ ,e created. 4 created problem$ too) but t,o$e were automatically co ordinated wit, t,e te=tbook8t,e e=ternal $timulu$ impo$ed by Ted:$ problem$ wa$ muc, more important in $,apin1 t,e content o- t,e book. 4- t,e $tudent$ weren:t able to $ol#e t,e problem$) 4 ,ad to add e=planation$ to t,e te=t until t,ey could8and i- we couldn:t create a problem to illu$trate $ome point) t,e point probably wa$n:t important enou1, to put in t,e te=t. 4t:$ a pity t,at mo$t workbo ok$ are created a$ a-tert,ou1,t$. Creatin1 t,e workbo ok really $,ould be an inte1ral part o- t,e writin1 proce$$) a$ Hammin1 $u11e$ted. You want t,e $tudent$ to be able to u$e t,e material you teac, t,em) $o t,e r$t order o- bu$ine$$ i$ to 1ure out w,at it i$ t,at you want t,em to be able to do. T,e late$t bu00word in
2 +$ it turned out) it wa$n:t ;uite a$ $eriou$ a$ 4 ,ad e=pected8in -act) 4 t,ink t,at it i$ ;uite -unny)

but t,at i$ due to Ted:$ uni;ue $en$e o- ,umor rat,er t,an my intention$.

( J