303. The Selection Markets, Corruption, and Toy Models feat. Raymond Fisman

How do economists understand complex phenomena like selection markets and corruption? With frameworks often called toy models. These models often point toward unexpected consequences and help us to design better markets and incentives. 

Raymond Fisman is the Slater Family Professor in Behavioral Economics at Boston University and the co-author of many books, including Economic Gangsters: Corruption, Violence, and the Poverty of Nations, The Org: The Underlying Logic of the Office, and his new book Risky Business: Why Insurance Markets Fail and What to Do About It.

Raymond and Greg discuss Raymond’s work and how it relates to industries trying to deal with the problem of selection through examples in the airline, film, and sports markets. Raymond also shares what he’s learned about corruption, as well as the perception of corruption and how little the difference between those may matter. They discuss the issue as it relates with examples in China, Indonesia, India, as well as the United States Congress and Supreme Court. Greg also gets Raymond’s opinion on whether there is such a thing as ‘good corruption.’ 

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

A barrier to finding a solution to a democratic political system

39:52: One real barrier to finding our way to a solution in the context of a democratic political system is that people see corruption; they just think, ugh, the whole system's rotten. They're all the same. And it’s made even harder by the fact that we have seen, in many instances, politicians run on anti-corruption platforms only to find out they're just as corrupt as the people they replaced. So it was very undermining to citizens' faith that they can be part of the solution.

The government isn't a business

48:48: The government isn't a business, and you wouldn't want to run it like a business because there are features of the government's job that are very, very different from the job of a business.

What is a selection market?

06:18: A market that suffers from a selection problem is one in which businesses don't just care how much they sell, but they care whom they are selling to.

Do we need to spend more time convincing economists to take culture seriously?

51:22: What economists push back against is not that culture matters but just using culture as a residual explanation. Once you've tried everything else and nothing else quite worked, you say, "Oh, that's just culture." That's why we get these differences across groups. As is surely almost always the case, the truth lies somewhere in the gray between the black and the white.

Show Links:Recommended Resources:

• Explanation of Organizational Economics
• Wikipedia Page for Edward Lazear
• Understanding the Lemons Problem
• American Airlines AAirPass Problem
• Wikipedia Page for Jeffrey Skoll
• Wikipedia Page for Suharto
• Paper on Growth Under Dictators
• Monitoring Corruption: Evidence from a Field Experiment in Indonesia
• Stanford Profile of Mark Granovetter

Guest Profile:

• Faculty Profile at Boston University
• Faculty Profile at NYU
• Professional Profile on National Bureau of Economic Research
• Raymond Fisman on LinkedIn
• Raymond Fisman on Twitter

His Work:

• Risky Business: Why Insurance Markets Fail and What to Do About It
• The Org: The Underlying Logic of the Office
• The Inner Lives of Markets: How People Shape Them-And They Shape Us
• Corruption: What Everyone Needs to Know®
• Economic Gangsters: Corruption, Violence, and the Poverty of Nations
• Raymond Fisman on Google Scholar
• CEPR Page of Publications