The 2009 Nobel Laureates in Economic Science -- Professors Elinor Ostrom and Oliver Williamson

The 2009 Nobel prize in Economic Science has just been announced. It is awarded to Professor Elinor Ostrom of Indiana University and to Professor Oliver Williamson of the University of California Berkeley.

Congratulations to these Nobel Laureates.

How terrific that this year multiple females are being given a Nobel prize in literature as well as in the sciences and now in economic science!

Audacious Science and Natural Beauty

I came upon a fascinating article while taking a break from packing for the INFORMS conference in San Diego. The article is on Audacious Science and scientists who take bold risks and who through their creativity and tenaciousness go against the prevailing dogma. It also mentions how great scientists often have in their heritage a flair for the arts. You may find the article here and it is definitely worth a read since it is provocative.

Since Amherst and New England are at the height of a magnificent fall foliage season I wanted to preserve some of the beauty through the photos that I took locally. Nature may look very different after I return from California.

The Award Season and the INFORMS Conference in San Diego

October is a season for the announcement of some major awards, including the Nobel prizes! I always find it fascinating to see who gets selected and, this week, the big news has been about President Obama's selection as the recipient of the 2009 Nobel Peace Prize.The recipient of an award receives recognition and, when an award is not expected, there is that extra element of surprise and wonder (and, of course, heightened expectations). The newspapers have had articles on previous recipients who continue to feel energized that their hard work has been recognized in a substantive and magnificent way.

Many of my colleagues and I are now getting ready to travel to take part in the 2009 INFORMS Conference, to be held in San Diego, October 11-14. This is an annual conference for operations researchers and management scientists and you can read a press release here. The program even includes a talk by the Nobel laureate in Economics, Dr. Harry Markowitz, who will be speaking next Monday, the same day that the 2009 Nobel Prize in Economic Science will be announced.

As Chair of the 2009 WORMS (Women in Operations Research and the Management Sciences) Award Committee, I will be giving out this award on Tuesday at the WORMS luncheon. I have already prepared my speech in which I have included quotes from several support letters for the awardee (very moving, I must say). I will also be taking part in a breakfast for fora at which the student chapter awards and other fora awards will be given out. The UMass Amherst INFORMS Student Chapter that I serve as the Faculty Advisor of will be honored with the summa cum laude award and one of its former officers, Dr. Patrick Qiang, will be receiving the 2009 Judith Liebman Award.

I am also very much looking forward to the Transportation Science & Logistics Society business meeting next Monday evening in San Diego at which a dissertation prize and the Robert Herman Lifetime Achievement Award will be given out.

Many of my former doctoral students from as far away as Australia as well as Associates of the Virtual Center for Supernetworks will be attending the INFORMS Conference in San Diego. It will be a wonderful venue in which to reunite and to celebrate research, community, and friendships.

Food Webs as Nature's Supply Chains and Network Economics: Research that Crosses Disciplines

In a recent paper, The Impact of Boundary Spanning Scholarly Publications and Patents, published in PLoSone, the authors: Shi, Adamic, Tseng, and Clarkson state in the abstract that Human knowledge and innovation are recorded in two media: scholarly publication and patents, ... which carefully cite prior work upon which the innovation is built. The authors conclude after their careful analysis of two very large citation datasets that a publication's citing across disciplines is tied to its subsequent impact. I had been told that the impact of one's work has really made a difference if it is used in other fields so it is gratifying to have such insights now documented. This brings me to another discipline and application that is making use of my results in Network Economics (which was the title of the very first book that I wrote, which was published in 1993 with the second edition appearing in 1999).

I came across a truly original and fascinating paper while researching food supply chains, entitled, NEATS: A Network Economics Approach to Trophic Systems, which is now in press in the journal Ecological Modelling and is co-authored by a group of researchers based in France: Mullon, Shin, and Cury. The paper applies some of the results in my Network Economics: A Variational Inequality Approach book to formulate and determine equilibria in predator prey complex webs. One reads regularly about the impact of science on economics but this paper demonstrates how economics and, especially, network economics, can be used to combine both biological constraints that couple biomass balance equations with complementarity principles using Walras' law. The authors investigate the solutions to simple food chains, bilayer networks, complex food webs, and even to cannibalism (the links loop back to the specific nodes in such networks)!

The authors derive the equilibrium conditions using path concepts, provide theoretical results, and apply the model to the coastal fishery system of Chile. The paper is beautifully illustrated with networks depicting the different species and their volumes along with the resulting species biomass under numerous scenarios. In this framework, one can then investigate the effects of climate change on the species and address numerous ecological questions, from those revolving around differences in productivity, the underlying causes of biological diversity, as well as various controls in marine ecosystems.

The lead author, with associates, will even be offering a course on the subject, Economic versus Ecological Networks: Integrating Economy and Ecology in Scenario Building for Marine Ecosystems, next month on the subject (in France) and the flyer even has my name on it.

A very nice presentation by the authors on the economic approach to the equilibrium of trophic networks can be found here.

In my Network Economics book I discuss applications using variational inequality theory to traffic networks, spatial price equilibrium problems, migration problems, oligopolies, knowledge networks, and even to financial networks. I guess the third edition will need to include applications to biological ecological systems, as well!

Of course I have corresponded with these authors to congratulate them on their excellent paper!

Also, for those of you who read my previous post, I am delighted that Dr. Helander of IBM has how made her slides on Food Safety in a Global Supply Chain available. We thank her!

Hamburgers, Food Safety, and Network Economics

Today's New York Times has an article that may convert everyone to vegetarianism. The article documents the trail that a hamburger, which was adulterated with E. coli, most likely took that resulted in the paralysis of a young female consumer. The article Trail of E. Coli Shows Flaws in Inspection of Ground Beef states that the prefrozen hamburger patty that she consumed had parts that originated in Texas, Nebraska, South Dakota, and even Uruguay! The processor noted that such processing was cheaper by about 25%. Clearly, the true costs are not being appropriately assigned.

What is also extremely frightening is that certain beef suppliers will only sell their "product" to processors that do not check the quality of their beef. There is, hence, tacit agreement or collusion between decision-makers in tiers of the food supply chain to explicitly and outrightly ignore quality of the product. And here we are speaking about food that we eat!

Food safety was a topic of Dr. Helander's presentation on September 18, 2009 in our speaker series at the Isenberg School. She (as the article also notes) stated that it appears that incidents of food adulteration are becoming more and more common. Ironically, other countries (and especially the continent of Europe) are paying much closer attention to the safety of the food that its consumers eat and are passing appropriate regulations and legislation. Indeed, a few years back I was on the doctoral dissertation of a student, Mr. Diogo M. Souza Monteiro, whose dissertation was entitled, Theoretical and Empirical Analysis of the Economics of Traceability Adoption in Food Supply Chains. He is now a professor in England. He had also been a student in one of my Management Science classes in which we used my Network Economics book and had done a very nice project on vertical integration in food supply chains. He also cited several of our papers on supply chains and risk management in his dissertation.

Also, his dissertation advisor, Professor Julie Ann Caswell, had delivered a talk on food safety and what it would take the first year of our speaker series.

A very interesting paper of theirs, which cites my Network Economics book, focuses on the multi-ingredient nature and the economics of food supply chains and traceability.

Dr. Andrew Lo on the Financial Crisis

Today we had the distinct privilege and great honor of hosting Professor Andrew Lo of the Sloan School at MIT who gave the lecture Kill All the Quants?: Models vs. Mania in the Current Financial Crisis. His talk was co-hosted by the UMass Amherst INFORMS Speaker Series and the Finance Series in the Isenberg School of Management. He spoke to a standing room only crowd and provided us with his unique insights into the financial crisis.

He discussed securitization as being at the heart of the financial crisis and the role that financial innovations played. He described how correlations increased and the role that human behavior played when we were in an era of prosperity and complacency. He discussed how the human brain has difficulty perceiving risk when we don't experience it. He showed us a video in which we were to count the number of times a basketball was passed from one white t-shirted individual to another while he randomly counted. He then asked the audience how many had noted that in the video there had been a person in a gorilla suit that had walked past. Most of the audience had not noticed the gorilla until he replayed the video (which says a lot about our human cognitive abilities to multitask).

Professor Lo spoke about the value of a PhD and why the associated training is so important. PhD students in creating something original and writing about it come to know the limitations of their knowledge. He discussed the psychology of greed that makes these crises unavoidable and how we must prepare for such eventualities. He has been promoting a National Transportation Safety Board for the financial system. He noted that finance should be taught even in high schools. Professor Lo spoke about the rebuilding of our financial infrastructure (a theme that resonated with me since critical infrastructure and its rebuilding permeates my Fragile Networks book). He also stated that it would take an act of Congress for us to get the data that we need to be able to analyze the topology of the complete financial network and mentioned my Network Economics chapter in the Handbook on Computational Econometrics.

He even spoke about complex systems and feedback loops. He mentioned the adaptive market hypothesis that he has been promulgating and that we need alternative theories that capture neuroscience, evolutionary principles, and economics. He mentioned that we need to let the smaller fires burn to prevent the huge inflagrations.

The doctoral students also immensely enjoyed discussions with Professor Lo after his talk and the lunch that followed at the University Club. They called him truly inspirational!

We thank Professor Lo for his time, his wisdom, and for his brilliance!

Supply Chain Network Economics and Taking Risks

Yesterday, the Dean of the Radcliffe Institute for Advanced Study, Dr. Barbara Grosz, launched the official recognition of the institute's tenth anniversary by delivering the Morning Prayers at Harvard University. In her speech, she quoted Genesis and overviewed the origins of the Radcliffe Institute. She spoke of the increasingly important roles that such institutes play in academia and even how Radcliffe is helping to crack glass ceilings and narrow recognition gaps at the highest levels of academia through its fellowship program, symposia, and other initiatives. As a Radcliffe Institute for Advanced Study Fellow '06, I personally benefited from a glorious year there during which I was able to write the book, Supply Chain Network Economics: Dynamics of Prices, Flows, and Profits. Dean Grosz (who, by the way, was Radcliffe's Dean of Science when I was a Fellow) also stated that she hopes that Radcliffe will continue to inspire students, faculty, fellows, staff and institution leaders alike, so that, like Jacob, we have the courage to risk unknown roads and the strength to overcome the obstacles we encounter along the way. And, may our circumstances enable us to realize our dreams.

My Supply Chain Network Economics book is now being cited and used internationally. It is quoted in a recent United Nations report on the social life cycle assessment of products produced by the United Nations Environment Programme (UNEP) and has even been discussed in the context of diamond supply chains!

Thank you, Radcliffe, for giving me the time, the community, and the incredible intellectual ambience so that I could write this book!