Wednesday, July 07, 2010

Are Economists Good at Business?

Some tenured economists write fewer papers and spend more time in public consulting (i.e Washington DC) or in private consulting (i.e anti-trust litigation). Some start their own businesses. Paul Romer's success with Aplia is well documented but there are other cases. This Story about Barry Nalebuff's success with Honest Tea and the saga of what happens when his small startup was bought up by Coca-Cola was pretty interesting.

I wonder what other businesses have economists tried to launch? We know that some real estate economists have developed information companies providing forecasts and newsletters focused on industry trends in specific local real estate markets.

Are economists more successful than other people in starting firms that succeed? How many Fortune 500 firms have a CEO who has a Ph.D in econ? I see that my old friend Bryan Tyler from our graduate school days is having a very successful career in business. Does our University of Chicago economics training deserve any of the credit for his success?

The analytic approach emphasized at the Chicago's Business School, Wharton, and Stanford's GSB maked me think that our training must have some payoff in the business world. Now, I must admit that my interest here is not on Wall Street --- I mean at the Fortune 500 or companies such as Google --- are economists valuable people? I need to believe so.

UPDATE: I just found this website for a new company called "Mile Meter". Note that they sell car insurance but their market niche is that you pay per mile of driving. So what? More than 10 years ago' UC Berkeley's Aaron Edlin wrote a paper on the benefits of auto insurance per mile (rather than a fixed cost independent of miles driven). His paper was eventually published in the JPE. I'm guessing that these guys read his paper (or at least heard about it) and created a new firm based on the idea. Now, that shows you something. Greens like myself love Edlin's idea because it acts as an incentive to drive less and this helps mitigate traffic congestion, local air pollution and GHG production.

Maybe we could be good at business as the "vision guys". If any of you want to hear my ideas for mass marketing glow in the dark underwear, please call me.