Q&A: Clark Medal Winner Levin Discusses Economics

by Justin Lahart

Wall Street Journal
April 19, 2011

Stanford University economist Jonathan Levin, won the American Economic Association‘s John Bates Clark medal, awarded to the nation’s most promising economist under the age of 40, last Friday.

An expert in industrial organization — the study of how firms and markets interact with each other — Levin has done work on subprime lending (before “subprime” was a dirty word), health insurance and internet markets. He talked with the Wall Street Journal’s Justin Lahart. Here are excerpts:

How would you describe your approach to economics?

Levin: I work in industrial organization, which is basically the study of how industries are organized and how they’re affected by competition and regulation and so forth. And I work in market design, which is in a sense a subfield of industrial organization that focuses on thinking about how to design allocation mechanisms and how to design markets to achieve different purposes.

Most of my work just studies what makes different sorts of industries more competitive, or what makes markets work efficiently or inefficiently. I’ve worked on subprime lending. Recently I’ve been doing a lot of work on Internet markets – I’m very interested in the way technology has changed the way markets are organized and the way firms behave. I’ve done work on how to design auctions for natural resources like timber.

I’m interested in how you can use economic theory to better understand different markets. How you can bring the theory together with empirical evidence from different settings to try to understand what makes markets work efficiently or inefficiently and how you can design rules for markets to make them work better.

What piece of your research do you feel is most influential?

Levin: When I started in graduate school in economics, I was basically an economic theorist. I was doing game theory models. I was of building models of relationships in long-term contracts, like employment relationships and the relationships between firms. I don’t know if it’s the most influential thing but it’s the most cited thing that I’ve worked on, because that model got picked up and has been used by a lot of people to study problems in the economics of organizations and contracting.

But as I went along, I got much more interested in how you could bring modern economic theories to think about really practical problems. How you could bring them together with data to see how well they worked to describe different settings and make predictions and test hypotheses.

More