2. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
Introduction: Rick Ericson in Economics
I Biography
I UC Berkeley PhD in 1979
I Taught at Harvard, Northwestern, Columbia, and ECU
I Visited Soviet Union regularly (every other year) from
1970 to 1990: highlights
I 1970 – language study (LGU)
I 1972 – USIA Cultural Exhibit
I 1977-78 – dissertation research year
I 1987 – Fulbright research visit
I Since 1996 – EERC workshops, NES, and some
conferences
I Research straddling microeconomic/equilibrium theory
and the Soviet economic system: 2 main thrusts –
I Plan Implementation
I Understanding the Soviet economic system
I IO - Industry Dynamics
3. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
Modeling Soviet Plan Implementation
Understanding the Soviet Economic System
I State of Research: descriptive analyses and models
re‡ecting the socialist debate of the 1930s;
I Early focus on ‘central planning’and its di¢ culties;
aggregating information and disaggregating ‘plans’;
decentralized algorithms for central planning
I Shift to incentive issues with asymmetric information,
and modeling the Soviet-type economy as an economic
organization
I Centrally planned industrial input allocation and its
impact on plan performance: Ericson (1978, 1982,
1983);
I (even optimal) Central planning rigidi…es the economy,
rendering its dynamics unstable in the face of incessant,
small shocks;
I Role of the “Second Economy”: Ericson (1983,1984):
ameliorates the impact of shocks, stabilizing system
dynamics at the cost of some loss of control;
4. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
Understanding the Soviet Economic System
... and its Collapse: elaborating on Gregory Grossman (1963)
I Command, not Planning, is the core:
I Necessary to maintain control over the development/
evolution of the economy, counter the centrifugal forces
of decentralized decisions even with perfectly consistent
and informed plans: Ericson (1991, 2008);
I The classical ‘System’was coherent and e¤ective, yet
ine¢ cient, increasingly unmanageable, and ultimately
‘unreformable’: Ericson (1991, 2006a);
I ‘Reforms’undercut coherence and e¤ectiveness,
disrupting/disorganizing planned economic activity and
state objectives
I Second economy, an increasingly necessary lubricant to
the functioning of the planned/…rst economy,
systematically undermined the coherence of plans and
planned outcomes, while helping preserve the
appearance of success;
I Collapsing largely under it’s growing incoherence in a
changing world: Ericson (2013a,b)
5. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
... And Its Transformation
I A systemic substitution, with mixed success: Ericson
(2000, 2001, 2002)
I Informal mechanisms and entrenched economic/political
interests, vitiated radical reforms
I Substantial changes, yet ‘channeled’by physical,
institutional, and ‘ideational’legacies: Ericson (2009,
2013a)
I Initial reforms only completed in 2003-5, after which
deep institutional reform stalled
I Creating a ‘Constrained Market Economy’: Ericson
(2001, 2006b, 2009)
I An abnormal con…guration of “normal” (Shleifer,
Treisman, 2004) middle-income country characteristics;
I Economic development and signi…cant initiative subject
to state authorization and control.
6. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
Industry Dynamics
I Most models in the deterministic “structure, conduct,
performance,” framework with limited dynamic analysis;
I Industry/product evolution with uncertainty: Lambson
(1991), Audretsch (1995), Klepper (1996);
I Game-theoretic duopoly and patent race models
(Maskin-Tirole, 1988; Rosenthal-Spady, 1989;
Cabral-Riordan, 1992)
I B. Jovanovic (1982) introduced stochastic dynamic
model with a continuum of …rms and e¢ ciency ‘type’
learned over time, an approach re…ned and extended in
the dynamic Hopenhayn (1992) model of a perfectly
competitive industry with entry, exit, and a continuum
of …rms subject to idiosyncratic shocks;
I These have spawned a large body of stochastic, dynamic
work analyzing perfectly competitive industry and its
response to regulation and other policy initiatives;
I Analysis not applicable to imperfectly competitive
industries and not amenable to structural econometric
modelling, issues addressed in my research with Pakes.
7. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
Industry Dynamics Contribution
I Pakes and I introduced a discrete time, stochastic
dynamic equilibrium model of industry evolution with a
‡uctuating …nite number of (imperfectly) competitive
…rms subject to idiosyncratic shocks, incorporating
endogenous entry, exit, and continuous pressure
(common shocks) from outside competition: Ericson,
Presman (1988), Ericson, Pakes (1989-1995, 1998)
I Early application of the Maskin-Tirole “Markov-Perfect
Equilibrium” concept, contributing to research in
dynamic stochastic games and the computation of
stochastic equilibria.
I Further developed by Pakes-McGuire (1994, 2001),
Pakes-Fershtman (2012), Doraszelski (2004),
Doraszelski-Satterthwaite (2003, 2010), Benkard, et.al.
(2007, 2008), etc.
I It has provided a widely used tool for empirical analysis
of industries: Pakes-Berry (1993), Pakes-Olley (1991),
Gorisankaran (1994), Ryan (2012), Laincz (2005, 2009),
Markovich (2008), etc.
8. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
Other Applications of Microeconomic Theory
Recent and Current Research
I Modeling international strategic interaction with ordinal
bi-matrix games (“Theory of Moves” — Brams 1994,
Willson 1998) and their “Ultimate Outcome” solution
concept, developing a program to solve all such 2-player
games. Applied to:
I Refugee crises: Zeager, Ericson, Williams (2013)
I Russian-Western strategic interaction over Ukraine:
Ericson, Zeager (2015)
I Welfare impact of macroeconomic shocks:
I Interest rate and productivity shocks in a DSGE model
of a small open economy: Ericson, Liu (2012a,b)
I Decision making in the face of catastrophe: the impact
of ‘ambiguity’: Ericson, Kruse (2016?)
I Tractable models of agent behavior in the face of
extreme uncertainty.
9. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
References: Plan Implementation
I Ericson (1982), “Inventory Stability and Resource Allocation
under Uncertainty in a Command Economy,” Econometrica,
V. 50, #2, March 1982, pp. 345-376.
I Ericson (1983), “A Di¢ culty with the Command Allocation
Mechanism,” Journal of Economic Theory, V. 30, #1,
October 1983, pp. 1-26.
I Ericson (1984), “The ‘Second Economy’and Resource
Allocation under Central Planning,” Journal of Comparative
Economics, V. 8, #1, March 1984, pp. 1-24.
I Ericson (2006a), “Command vs. Shadow: The Con‡icted
Soul of the Soviet Economy;” Comparative Economic
Systems, V. 48, #1, March 2006, pp. 1-17.
I Ericson (1990), “The Soviet Statistical Debate: Khanin vs.
TsSU,” Chapter 2 in H.S. Rowen and C. Wolf, eds., The
Impoverished Superpower: Perestroika and the Soviet
Military Burden, (San Francisco, CA: ICS Press, 1990).
10. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
References: Russian Economic Transformation
I Ericson (1999), “The Structural Barrier to Transition Hidden
in Input-Output Tables of Centrally Planned Economies,”
Economic Systems, V.23, #3, September 1999, pp. 199-224.
I Ericson (2000), “The Post-Soviet Russian Economic System:
An Industrial Feudalism?” Chapter 6 in Tuomas Komulainen
and Iikka Korhonen, eds., Russian Crisis and its E¤ects
(Helsinki: Kikimora Publications, 2000), pp. 133-66.
I Ericson, Ickes (2001), “A Model of Russia’s ‘Virtual
Economy’,” Review of Economic Design, V. 6, #2, 2001, pp.
185-214.
I Ericson (2002), “The Russian Economy: Market in Form but
“Feudal” in Content?” Chapter 1 in Michael Cuddy and
Ruvin Gekker, eds., Institutional Change in Transition
Economies (London, UK: Ashgate, 2002), pp. 3-34.
I Ericson (2006b), “The Russian Economy,” in Wolfgang
Danspeckgrüber, ed., Perspectives on the Russian State in
Transition (Princeton, NJ: Princeton University Press, 2006),
pp. 112-162.
11. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
References: Enterprise and Industry Dynamics
I Ericson, Winston (1983), “Predatory Capacity Expansion in a
Deregulated Motor Carrier Industry,” in T. Keeler, ed.,
Research in Transportation Economics, (Greenwich, CT: JAI
Publishing Co., 1983), pp. 1985-235.
I Ericson, Pressman (1988), “A Stochastic Model of Optimal
Investment in New Technology and Competition,” in V.I.
Arkin and P.K. Katyshev, eds., Mathematical Modeling of
Control Processes under Uncertainty, (Moscow, USSR:
CEMI, 1988). [in Russian].
I Ericson, Pakes (1995), “Markov Perfect Industry Dynamics:
A Framework for Empirical Work,” Review of Economic
Studies, V. 62, #1, January 1995, pp. 53-82.
I Pakes, Ericson (1998), “Empirical Implications of Alternative
Models of Firm Dynamics,” Journal of Economic Theory, V.
78, #1, 1998, pp. 1-45.
12. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
References: Some Recent Work
I Ericson (2009), “Eurasian Natural Gas Pipelines: The
Political Economy of Network Interdependence,” Eurasian
Geography and Economics, V. 50, #1, 2009, pp.28-57.
I Zeager, Ericson, Williams (2013), Refugee Negotiations from
a Game-Theoretic Perspective, (Dordrecht, The Netherlands:
Republic of Letters, 2013).
I Ericson (2013a), “Command Economy and its Legacy,”
Chapter 3 in M. Alexeev, S. Weber, eds., Handbook of the
Russian Economy (London: Oxford University Press, 2013)
pp. 51-85.
I Ericson (2013b), “Demise of the Soviet Union,” Chapter 28
in R. Parker, R Whaples, eds., The Handbook of Major
Events in Economic History (New York: Publisher, 2013), pp.
330-349.
I Ericson, Zeager (2015), “Ukraine Crisis 2014: A Study of
Russian-Western Strategic Interaction,” Peace Economics,
Peace Science and Public Policy, V. 21, #2, April 2015, pp.
153-190.
13. Applications of
Microeconomic
Theory
Rick Ericson
Contributions
The Soviet Economy
Microeconomic
Theory
Other Research
My References
Other Economic Theory
I Ericson, Fusaro (2010), “The Welfare Economics of ‘Bounce
Protection’Programs,” Journal of Consumer Policy, V. 33,
#1, 2010, pp. 55-73.
I Ericson, Liu (2012a), “Welfare E¤ect of Productivity Shocks
and Policy Implications in a Small Open Economy,”
Perspectives on Global Development and Technology, V. 11,
#2, 2012, pp. 290-319.
I Ericson, Liu (2012b), “Welfare E¤ect of Interest Rate Shocks
and Policy Implications,” Applied Financial Economics, Vol.
22 (22), October 2012, pp. 1899-1917.
I Ericson, Kung (2015), “Fundamental Non-Convexity and
Externalities: A Di¤erentiable Approach,” Berkeley Journal
of Theoretical Economics (Topics), 2015, #1, pp. 49-62.
