UBS Center Newsletter...1 UBS Center Newsletter Dear reader With the holidays just around the corner, we would like to share recent highlights of the UBS Center with you. We are pleased

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UBS Center Newsletter

Dear reader

With the holidays just around the corner, we would like to share recent highlights of the UBS Center with you.

We are pleased to announce that the Center along-side the Department of Economics has grown sub-stantially in the last couple of months. With four new professors joining us from Stanford, Harvard, or Chicago, we are now one step closer in achieving our goal to make Zurich one of the best places for research in economics in Europe.

Following up last year’s Forum for Economic Dia-logue on war and peace, we are pleased to launch the new UBS Center Public Paper, which focuses on the economics of peace. In this paper, Dominic Rohner (University of Lausanne) argues that much of the economics and political science literature on wars and conflict has focused on things that are hard for policymakers to change. While this paper

also touches on them, the focus lies on the parts that policymakers can affect. Getting the institu-tions and policies right can bring peace and pros-perity, while getting them wrong can bring war and destruction.

On the dialogue side, we can look back on several major public events, all of which were very well re-ceived. Nobel Laureate Paul Krugman visited the University of Zurich on September 22 and delivered a provocative lecture on Europe’s future in front of over 600 people. Another highlight was the fifth UBS Center Forum for Economic Dialogue in No-vember. Heavyweight speakers took on the “Rise of the Machines,” announcing an era of unprecedent-ed economic, technological and social change.

We hope to welcome you at one of our future events. But first of all, Season’s Greetings to you all.

Ernst Fehr Fabrizio ZilibottiDirector Scientific Director

No. 8, December 2016

Nobel Prize winner Paul Krugman during his lecture on “Can Europe Be Saved?” at the University of Zurich.

Content

Research ........................................ 2

Publications ............................... 4

Dialogue and Events ...... 6

Scholarships ............................. 10

Outlook ............................................. 10

About us .......................................... 11

UBS_Center_Newsletter8_final.indd 1 05.12.2016 16:11:51

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ResearchNew Researchers

Seven new professorships at the Department of Economics

The number of professors of economics at the University of Zurich has increased substantially from 23 to 30, with a corresponding contribution to research and teaching. Due to this growth of about 30 percent, the Department of Economics has gained a decisive advantage in the international competition between universities.

One of the UBS Center’s main aims has always been to support the department’s ambition to further strengthen its position as one of the top economics departments in Europe. To fulfill this aim, the Center has substantially contributed to recruiting the best talents for Zurich. It is no coincidence that six out of the seven new professorships at the De-partment of Economics were working at Stanford, Harvard, or Chicago before coming to Zurich. This progress – from which both the Department of Economics and the University of Zurich equally benefit – is largely due to the support from the UBS Center of Economics in Society.

UBS Center endows two full professorships and one assistant professorshipOverall, the Department of Economics has been able to appoint ten professors in the last two years, six of them by means of the UBS endowment. But the impact goes beyond the mere appointments since the recruited talents bring along financial means from third-party funding and they also attract good students. The new members of the UBS Center are:

Prof. Ralph Ossa has been appointed to the Profes-sorship in Economics of Globalization and Emerg-ing Markets, endowed by the UBS Center, per January 1, 2017. Professor Ossa is currently Associ-ate Professor of Economics and Neubauer Family Faculty Fellow at the University of Chicago Booth School of Business. His research focuses on interna-tional trade, economic geography, and economic development.

Prof. Dina D. Pomeranz was appointed to the Assis-tant Professorship in Microeconomics, endowed by the UBS Center, starting September 2017, and has been a visiting professor at the Department since August 1, 2016. Before joining the Department, she held a position as Assistant Professor at the Har-

vard Business School at Harvard University. Her research focuses on public policies towards firms and entrepreneurs in developing countries. She has conducted large-scale randomized field experiments on tax evasion by firms and the determinants and impacts of formal savings for low-income micro-entrepreneurs.

Prof. Florian Scheuer has been appointed to the Professorship in Economics of Institutions, en-dowed by the UBS Center, per January 1, 2017. Professor Scheuer is currently Assistant Professor at Stanford University and has been a Visiting Assis-tant Professor at Harvard University and UC Berke-ley. His research focuses on public finance, taxa-tion, competitive markets, and game theory.

Prof. David Yanagizawa-Drott has been appointed Professor for Development and Emerging Markets per September 1, 2016. Before joining the Univer-sity of Zurich, he was an Associate Professor of Public Policy at the Harvard Kennedy School of Harvard University. His research interests include economic development and political economy, with special focus on civil conflict, health, information, and mass media. Professor Yanagizawa-Drott will be affiliated with the UBS Center.

With these new members, we now have more than 20 researchers that are part of the Center. An over-view of these positions and their holders is present-ed on the next page. But the journey does not end here. The next milestone will be the appointment of another researcher to the Professorship in Behav-ioral Economics of Financial Markets, endowed by the UBS Center. Meanwhile, the Center will con-tinue to serve as a platform for dialogue between academia, business, politics, and the broader pub-lic, fostering continuous knowledge transfer in the process.


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Overview of positions that are endowed by or affiliated with the Center

Endowed ProfessorshipsEndowed Assistant ProfessorshipsAffiliated ProfessorsScholarship Holders

Macro-economics

and Political Economy

InternationalTrade and Labor

Markets

Developmentand Emerging

Markets

Macro-economics

and FinancialMarkets

Micro-economics andExperimental

Economics BehavioralEconomics of

FinancialMarkets

Globalizationand Emerging

Markets

Innovationand Entrepre-

neurshipMicroeconomics

Microeconomics

Economics ofInstitutions

UBS CenterScholarship

Holders

David Hémous, Assistant Professorship of Economics of Innovation and Entrepreneurship, endowed by the UBS Center.

Ralph Ossa, Professorship in Economics of Glo-balization and Emerging Markets, endowed by the UBS Center.

Florian Scheuer, Professorship in Economics of Institutions, endowed by the UBS Center.

Joachim Voth, Professorship in Macroeconom-ics and Financial Markets, endowed by the UBS Center.

Pietro Biroli, Assistant Professorship of Microeco-nomics, endowed by the UBS Center.

Dina D. Pomeranz, Assistant Professorship of Microeconomics, endowed by the UBS Center.

David Dorn, Professor of Economics of Inter-national Trade and Labor Markets, Affiliated Professor at the UBS Center.

Ernst Fehr, Professor of Microeconomics and Ex-perimental Economics, Director of the UBS Center.

David Yanagizawa-Drott, Professor for Develop-ment and Emerging Markets, Affiliated Professor at the UBS Center.

Fabrizio Zilibotti, Professor of Macroeconomics and Political Economy, Scientific Director of the UBS Center.

Jean-Michel Benkert, Fanny Brun, Caroline Chuard, Pascale De Raemy, Emanuele Di Carlo, Sebastian Dörr, Giacomin Favre, Matteo Roberto Greco, Guangyu Pei, Ursina Schaede, Michael Stiefel.


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The Economics of Peace:Can “Swiss” Institutions Do the Job?

In the 5th edition of the UBS Center Public Paper Series, Dominic Rohner (University of Lausanne) shows how conflict-torn countries can escape the vicious cycle of war and destruction.

When it comes to peace and understanding, the 20th century was a mixed basket. On the dark side, politically motivated violence led to two World Wars, mass killings, and purges carried out by a series of totalitarian regimes, as well as of dozens of recurrent ethnic civil wars that took place mostly in poor countries. Furthermore, the resurgence of terrorism has become a major problem. Overall, conflict-related violence has led to unimaginable human suffering and to a death toll of over 100 million human lives.

But there is also a bright side: For the first time for centuries, much of Europe has been at peace since 1946, and the creation of the European Union has brought many traditional foes and enemies closer together. There has also been an impressive spread of democracy around the world, which can be one of the strongest warrants against political violence under some circumstances. There has also been a massive increase in prosperity around the world, which is also one of the pillars of peace.

PublicationsPublic Paper Series

Much of the economics and political science litera-ture on wars and conflict has focused on things that are hard for policymakers to change (natural re-sources, ethnic composition, weather shocks).While this paper also touches on them, the focus clearly lies on the parts that policymakers can affect.

Switzerland as a political role modelThe 5th edition of the UBS Center Public Paper Series begins with a historic overview of the evolu-tion of conflicts around the world. How have differ-ent types of conflicts been distributed between re-gions? How has their frequency evolved and how has the prevailing typology been changing over time? Next, the author focuses on the costs of wars and their impact on human lives, explaining why wars are a major obstacle to growth and development.

A major part of this essay is dedicated to defining the main drivers for conflict. The economic and political science literature on conflict has been booming in the last decades, and a series of impor-tant drivers of conflict have been identified. The factors that have been found to matter substantially for political violence range from asymmetries in recourse holdings to ethnic and religious diversity, as well as to income levels and demographics.

Having outlined the different factors of risk, the author consequently presents a number of institu-tions and policies that have the potential to reduce the risk of conflict. Using the “Swiss model” as a template, for instance, could well inspire political reforms in divided and war-torn societies.

Reading this paper will make you realize that getting the institutions and policies right can bring peace and pros-perity, while getting them wrong can bring war and de-struction.


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New Working Papers

Working Paper No. 16, November 2016Long-Range Growth: Economic Development in the Global Network of Air LinksDavid Yanagizawa-Drott

It is often said, to the point of being cliché, that we are living through an age of globalization. One key aspect of that is certainly a marked reduction in transportation costs of goods, of information, of people: a globalized world is an interconnected world, in all these dimensions.

This paper studies the impact of direct long-distance air links, to present the first evidence of causal effects of that transformation on economic development. A long intellectual tradition has posited that proximity – and in particular its most fundamental aspect, face-to-face contact – is a key driver of the transmis-sion of knowledge and information, which in turn underpins the increases in productivity without which sustained economic growth is impossible. While people have been able to move from Shanghai to London or New York for a long time, and goods have been moving for just as long, now people can, unlike ever before, go back and forth between these places. This opens up new possibilities of exchange and interaction, with potentially transformative effects for development.

In sum, the evidence suggests that increasing the number of direct connections between different places has a significant impact on development, as it increas-es economic activity at the local level. This seems to be driven by an intensification of business links, consistent with the idea that the ability to interact in person is crucial for the establishment of those links. In other words, the movement of people fosters the movement of capital, even though there is no techno-logical reason why capital would need airplanes to move around. This suggests that policy interventions designed to increase the number of connections could potentially spur development, though at the price of increased spatial inequalities at the local level.

Working Paper No. 17, November 2016Health and Skill Formation in Early ChildhoodPietro Biroli

Harry Truman once said, “A nation is only as healthy as its children.” Indeed, various disciplines have ac-

cumulated evidence on the fundamental role played by early childhood health in shaping well-being later in life. At the same time, an emerging developmental literature has demonstrated the importance of early cognitive and socio-emotional skills: intelligence and cognition are a main ingredient in economic success and personal well-being; the parallel importance of socio-emotional abilities and personality in influenc-ing later life outcomes has been extensively studied by psychologists and, more recently, economists. Overall, the fundamental role that skills and capabili-ties play in achieving a long and successful life has long been recognized, and the subsequent importance of investing and developing such abilities is widely acknowledged.

However, most studies focus on a narrowly defined set of capabilities and usually fail to recognize or to properly estimate the rich set of complementari-ties and interconnections among different skills. The main contribution of this paper is to undertake a comprehensive approach that integrates health in a unifying framework of human capital formation, considered as a multidimensional asset that dynami-cally evolves in the family environment. The author achieves this goal by considering a simple economic model where future skills are generated by combining the past stock of the child’s human capital, various parental abilities, and different types of investment.

Using data from the Avon Longitudinal Study of Parents and Children (ALSPAC), Biroli finds that children’s capabilities strongly interact and build on each other: health is an important determinant of early socio-emotional development; in turn socio-emotional skills have a positive impact on the evolu-tion of both health and cognitive functions; on the other side, the effect of cognitive abilities on health is negligible. Furthermore, all facets of human capital display a high degree of persistence. Finally, mother’s investments are an important determinant of the child’s health, cognitive, and socio-emotional devel-opment early in life.

PublicationsWorking Paper Series

You can download the UBS Center Public Papers, the Working Papers, and Factsheets (summaries of the Working Papers) from our website anytime. www.ubscenter.uzh.ch/en/publications

Print editions of the Public Papers and the Factsheets can be ordered free of charge. [email protected]


http://www.ubscenter.uzh.ch/en/publications

mailto:[email protected]

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Public Lecture on “Can Europe be saved?”

Seventy years after Winston Churchill gave his historic address calling for a “United States of Europe” at the University of Zurich, Nobel Laureate Professor of economics Paul Krugman stood at the same podium and delivered a provocative lecture on Europe’s fu-ture.

Low growth, low-to-negative inflation and negative interest rates have dominated the business headlines in recent years, as they depress margins and profitability of businesses and banks. The problem is nowhere more acute than in Europe, which is also struggling with Brexit, the eurozone debt and refugee crises.

Krugman made clear he didn’t have the answer to all of Europe’s current problems. But if Europe doesn’t solve its economic crisis, its political and social prob-lems will get worse. What keeps Europe in a state of permanent recession or what the IMF calls “lowfla-tion”? His answer is that we’ve seen it all before, in Japan with its two lost decades.

What the Japan case can teach usIn both Europe and Japan the cause of the current economic malaise is usually placed firmly at the door of the financial excesses and spectacular crashes that preceded them. In Japan, it was the infamous bubble of the late 1980s; in Europe it was the 2007–09 finan-cial crisis. But Krugman dismisses the received wisdom that these events could be blamed for such persistent low growth and deflationary scenarios.

To explain the paradox of a persistent recession despite the European Central Bank’s expansionary monetary policies, Krugman summarized the recent-ly revived economic theory of “secular stagnation.” The accelerating decline of working-age populations in Europe and Japan is the underlying cause of a lack of growth that depresses demand and deters compa-nies from investing and utilizing their full capacity. Japan has already shown that such a cycle of low

Dialogue and EventsOpinions

growth and deflation can last for decades, despite massive and multiple expansionary and fiscal stimu-lus packages. Europe seems determined to repeat Japan’s mistakes and add some new ones, argues Krugman. Europe is further constrained by political weaknesses and the lack of structural flexibility in an asymmetric currency union that makes radical struc-tural reforms difficult to impossible.

So can Europe be saved? Krugman’s proposed solution is drastic: an aggressive form of Abenomics combining a massive program of fiscal expansion with an accommodating monetary policy to push inflation up to 3–4% and return the economy to a normal path of growth. But he doubts the political will exists for such radical measures. Instead he foresees continued economic stagnation and political paralysis that will slowly undermine the political and social fabric of the European Union. “I predict an erosion, not an explosion,” he concludes.“We need to stop blaming

the excesses of the precrisis period. The bubble before 2008 was masking longer-term problems.”

Krugman’s lecture, which was hosted by the UBS Center, attracted over 600 people and received considerable media attention.

Professor Paul Krugman received the Nobel Memorial Prize in Economic Sciences for his work on international trade theory in 2008.


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Forum for Economic Dialogue on “The rise of the machines”

Whether you call it the third or the fourth industrial revolution, all the speakers at this year’s “UBS Center Forum for Economic Dialogue – The Rise of the Ma-chines” agreed we are entering an era of unprecedent-ed economic, technological and social change. But what are the forces driving this change and will human-ity benefit or suffer as a result?

A matter of survivalJeremy Rifkin kicked off this year’s forum with a tour de force taking the title from his best-selling book, The Zero Marginal Cost Society. The first and second industrial revolutions have taken us from a largely agrarian society to a highly sophisticated urban and industrialized world. But this progress has not elimi-nated poverty or inequality. In fact, the world’s 62 richest individuals now hold more wealth than half the world’s population, i.e. 3.5 billion people. The global fall in productivity and slowing growth of recent decades are inevitable consequences of the failure to extract further growth from aging technologies as they reach the physical limits of thermodynamic laws, argues Rifkin.

More ominously, climate change resulting from our continued dependence on first and second industrial revolution technologies and energy, in particular fossil fuels, threatens humanity with an existential crisis.

Smart technology, smart economyIn Rifkin’s vision of the future the traditional model of

“We are facing an extinc-tion event. You can have as many reforms as you like, as long as your businesses are still plugged into a second industrial revolution infra-structure with centralized communications, fossil-fuel-nuclear power, and internal combustion transport, it won’t make any difference.”

Dialogue and EventsForum for Economic Dialogue

buying and selling goods, driven by industrial-age technology and energy, will be replaced by a digitalized Internet of Things. In this new economic model, prod-ucts and goods are produced at zero marginal cost using 3-D printing and shared via a transport network of GPS-automated driverless vehicles, propelled by clean engines. This new economy will be fuelled by unlimited and renewable energy sources supplied by smart grids that are largely self-sustaining, producing limitless energy from clean sources, all at zero mar-ginal cost.

The great challenge for the current and last generations of the industrial age will be to build the infrastructure of this new economy that will require the labor of millions over at least two generations. Businesses and banks will plan, build and finance the construction of this new global infrastructure. Once it’s completed, they will manage and maintain the infrastructure as service providers. IBM is one company that has already shifted from manufacturing and selling hardware to building and managing networks and services for clients, says Rifkin. Energy and technology giants like EON and ABB are also moving toward new business models based on the construction, management and optimization of smart-energy networks using renew-able energy.

Revolution or evolution?Rifkin’s bold vision of a zero marginal cost digital future posed as many questions as it answered and was the subject of heated debate in the ensuing panel dis-cussions. The first panel “The Rise of the Machines –Revolution or Evolution?” explored the age-old discus-sion of man vs. machine and concluded that it was unlikely machines would ever reach a level of human consciousness or intelligence. Machines will become indispensable aids to people in performing tasks of increasing complexity that demand an ever-greater

Jeremy Rifkin, economist, best-selling author, political advisor


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capacity to manage, store, filter and interpret data. But these machines will still require humans to provide input and ask the questions that demand answers.

Hey robot, where’s my job? The afternoon panel discussions revolved around the subject of how humans will adapt to a machine-driven economy and whether large segments of the working-age population would find themselves redundant and out of work. The afternoon session looked at “Policies for the Machine Age.” It concluded that government and business-led training programs will be urgently needed to fill the skills gap especially in information and communications technology (ICT) that will be essential to help millions transition to the machine age.

Prof. Roland Siegwart, director Autonomous Systems Lab, ETH Zurich; Prof. Joel Mokyr, Northwestern University; Prof. Nick Bostrom, Oxford University, founding director of the Future of Humanity Institute (Chair); Dr. Alessandro Curioni, IBM Fellow, Vice President Europe and Director IBM Research Zurich Lab (from left).

John Martin, consultant and former OECD director for Employment, Labour and Social Affairs; Prof. Jeremy Greenwood, University of Pennsylvania; Prof. Nick Bostrom, Oxford University, founding director of the Future of Humanity Institute (from left).

According to Joel Mokyr, Northwestern University, the bottom line on the future of technological progress and innovation is very simple: You ain’t seen nothin’ yet.

At the same time, closing borders and shutting out immigration to protect unqualified native workers would be counterproductive and most likely stall progress toward a digital future.

The final session was a disputation on “The Rise of Machines – Boon or Bane for Workers?” It noted the contradiction that each wave of technological progress, while destroying existing industries, always succeeded in creating many more new jobs in new ones. There are more jobs and more people in work in the US than ever before, but pointed out the irony that a transformative technology product like Apple’s iPhone could not be manufactured in the US for regulatory reasons.


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The challenge of automation

The future-of-work theme was picked up in the con-cluding Zurich Lecture of Economics in Society: “Why Are There Still So Many Jobs? The Past and Future of Workplace Automation,” by Professor David Autor from the Massachusetts Institute of Technology (MIT).

David Autor closed the day by addressing the contra-diction that there are now more bank tellers in the US than ever before, despite the invention of the automatic cash dispenser (ATM) 40 years ago. Labor participation in the US and the developed world has risen steadily over the last 125 years. The US has added 14 million new jobs since 2010 alone. His explanation is that new technology always expands the possibilities and creates new ideas for products and services and these require people to develop, refine and sell them, which drives further consump-tion. Modern bank tellers don’t just dispense cash or hand out forms, but also provide advice and assis-tance to customers bewildered by the growing num-bers of products and services available.

Dialogue and EventsZurich Lecture of Economics in Society

Professor David Autor elaborated on the numerous challenges produced by employment polarization.

All eyes on David Autor in the Kaufleuten Zurich.

However, automation and technology is polarizing the workforce with growing numbers of poorly paid, low-skilled jobs on one side, and highly paid, high-skilled work on the other, while middle income, medium-skilled work disappears. This creates major challenges not least in perpetuating inequality and poverty and restricting equality of opportunity. These are not problems that can be solved by the market, says Autor, but by governments and social institutions.

“Technological change presents new challenges to each generation, but with the right policies in place, we can control and solve them.”

You will find more pictures, video recordings, and media coverage on our website.www.ubscenter.uzh.ch


http://www.ubscenter.uzh.ch/

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New UBS Scholarship holders 2016

The UBS International Center welcomes three promising international students as this year’s UBS Center Scholarship holders. They were selected from several hundred applicants to the Zurich Grad-uate School of Economics (Zurich GSE).

Pascale De Raemy received her Bachelor’s degree at the University of Zurich in 2014. Her research interests include Industrial Economics, Game Theory, Economic Growth, Monetary Policy, and Behav-ioral Macroeconomics.

Matteo Roberto Greco’s re-search interests cover the fields of Industrial Organization, Microeconomics, and Econo-metrics. He completed both his Bachelor’s and Master’s degree at Bocconi University in Italy.

Ursina Schaede owns a double Bachelor’s degree in Econom-ics and International Affairs from the University of St. Gal-len, Switzerland. After that, she completed a Master of Public Policy at the University of Chicago.

We wish our new students great success for their ongoing studies.

Podium “Immigration policy” on April 10, 2017

With the biggest migration movement since World War II, it is now more important than ever to have ap-propriate migration policies.

The UBS Center invites experts from different sec-tors to discuss new options and solutions for the challenges caused by migration. The Podium will in-clude a debate about the drivers and potential policy options as well as a discussion on whether and how Switzerland should modify its current migration policy.

The starting keynote lecture will be delivered by Sir Paul Collier, who is Professor of Economics and Public Policy at the Blavatnik School of Government and a Professorial Fellow of St Antony’s College. From 1998 to 2003 he was Director of the Research Development Department of the World Bank. He is currently a Professeur invité at Sciences Po and a Director of the International Growth Centre. Pro-fessor Collier has written for the Independent, the New York Times, the Financial Times, the Wall Street Journal, and the Washington Post. His lat-est book is Exodus: How migration is changing our world. The book attracted widespread media atten-tion in connections with the latest migration crisis.With the German translation of the book coming out soon, it is time to welcome Professor Collier to Zurich and hear his assessment of immigration policies.

The detailed program together with further infor-mation on the speakers and how to register will be available in due course onwww.ubscenter.uzh.ch

Scholarships Outlook

Registration for 2017 is now open

UBS Center Scholarships – Quick FactsLevel of study: PhD candidatesOffered: AnnuallyNumber of awards: 3 (for entry in September 2017)Value: Approx. CHF 42,500 p.a. plus tuition feesDuration: 4 yearsClosing date: January 31, 2017

For more information, please visit www.ubscenter.uzh.ch

Sir Paul Collier in Paris, 2011 © PhotonQ




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About the UBS International Center of Economics in Society

The UBS International Center of Economics in Society is an associated institute of the Department of Economics at the University of Zurich. It aims to become a center for world-class research in economics that investigates the interdependencies between the economy and society and fosters knowledge transfer. To achieve this goal, the UBS Center will recruit top international researchers and nurture young academic talents who focus on economi-cally and socially relevant topics. Their research will go beyond disciplinary boundaries and take into account business perspectives. The UBS Center will furthermore establish a continuous dialogue between academia, business and society. This exchange will foster the transfer of new knowledge and will further encourage solutions to key economic questions of our time.


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UBS International Center of Economics in Society

University of ZurichDepartment of EconomicsSchönberggasse 1CH-8001 ZurichTel. +41 44 634 57 [email protected]

Economics. For Society.


+41 44 634 57 22

mailto:[email protected]


Documents

UBS Center Newsletter...1 UBS Center Newsletter Dear reader With the holidays just around the corner, we would like to share recent highlights of the UBS Center with you. We are pleased