Areas of Research
Applied microeconomics at Chicago uses price theory and other theoretical economic tools and empirical analysis to explain real world problems, including the effects of different public policies. This tradition at Chicago dates back to Jacob Viner and Frank Knight, and continued with Nobel Prize winners Milton Friedman, George Stigler, Theodore Schultz, Ronald Coase, Gary Becker, James Heckman, and Robert Fogel.
Chicago research in applied microeconomics has made important contributions to understanding problems in industrial organization, informational economics, human capital and other aspects of labor economics, agricultural economics and economic development, law and economics, including the Coase theorem, the economics of slavery, choice under uncertainty, and many other important issues.
Current research is analyzing environmental and energy economics, returns to education, crime, use of illegal drugs, the value of life, and investments in health, marriage and divorce, including the effects on labor markets, demand for insurance, the structure of industries, and many other topics. Much of this research is built around workshops that have heavy student and faculty participation. These workshops, as well as the whole program, treat economics as a powerful analytical tool for understanding real world economies. Students at Chicago learn the power and scope of economic analysis, and this understanding is clearly manifested in the nature and quality of their dissertations.
Faculty working in Applied Microeconomics:
James J. Heckman
Derek A. Neal
Chicago has a rich tradition in empirical research guided by economics and statistical theory. Henry Schultz, a founder of the Econometric Society, did pioneering work on the theory and measurement of consumer demand in the 1920’s and 30’s. Paul Douglas developed the Cobb-Douglas production function to explain features of US data while working at Chicago in the 20’s through the 40’s. The Cowles Commission was active at Chicago in the 40’s and 50’s and developed pioneering methodology for the study of causality and simultaneity that is the foundation of modern econometrics. Trygve Haavelmo’s Nobel-Prize winning work on the probability approach in econometrics united modern statistics with econometrics. Klein’s work on business cycles, Marschak’s work on stochastic choice and on policy evaluation were also done here under the auspices of the Cowles Commission. This tradition has been continued by later scholars like Zvi Griliches, Marc Nerlove, and Arnold Zellner.
More recently Lars Hansen and James Heckman have continued this tradition of uniting economics, empirical analysis and statistics in studying economic problems. Hansen’s pioneering work on the formulaltion and estimation of dynamic rational expectations models, on the measurement of risk aversion and intertemporal substitution, and on the econometrics of asset pricing have broken new ground. He developed GMM, the most-used estimation method in modern econometrics. Heckman has developed new methods in microeconometrics to control for selection and measure heterogeneity in micro and macro models. His work is widely used in the econometric evaluation of social programs, in measuring inequality, and in the study of the economics of the life cycle. At Chicago, econometrics is not an abstract game. Our research is guided by the application of theory to the interpretation of evidence. Chicago economists address real problems and develop the tools needed to address them.
Economic theory at the University of Chicago encompasses a large number of areas, including game theory, auction and mechanism design, economics of information and uncertainty, and general equilibrium theory, including dynamical models of growth and equilibrium. In each of these important areas, faculty in the department have made leading contributions. The department is committed to the view that economic theory is central to all of economics, and that the best theoretical work should both respond to and inform current work on applied problems. In the Chicago tradition, economic theory is serious business.
Macroeconomic research at Chicago is involved with the traditional subjects of business cycles, unemployment, inflation, and the design of monetary and fiscal policies. It has also come to include the study of economic growth and development, aspects of international trade theory, financial economics, the analysis of social insurance programs, and the study of the political determinants of macroeconomic policies.
A rigorous three-course sequence in the first year, along with a complementary course in time-series econometrics, provides basic technical background and a survey of substantive research in the area. Advanced courses, depending on the research interests of faculty and students, examine issues on current research frontiers, and suggest thesis topics. Interested students and faculty discuss new research at the Money and Banking Workshop, founded by Milton Friedman in the 1950s, at the Macro/International Workshop in the Graduate School of Business, and at more specialized bag lunches and reading groups.
Faculty working in Macroeconomics:
Lars Peter Hansen
Robert E. Lucas, Jr.