Cowles Foundation
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The Cowles Commission for Research in Economics is a economic research institute, founded in Colorado Springs by the businessman and economist Alfred Cowles in 1932. In 1939, the Cowles Commission moved to the University of Chicago under the directorship of Theodore O. Yntema. Jacob Marschak took over as director in 1943 until 1948, when it was passed over to Tjalling C. Koopmans. Rising hostile opposition to the Cowles Commission by the department of economics at University of Chicago during the 1950s led Koopmans to convince the Cowles family to move it to Yale University in 1955 (where it was renamed the Cowles Foundation).
As its motto (Science is Measurement) indicates, the Cowles Commission was dedicated to the pursuit of linking economic theory to mathematics and statistics. Its main contributions to economics lie in its creation and consolidation of two important fields: general equilibrium theory and econometrics.
The thrust of the Cowles approach was a specific, probabilistic framework in estimating simultaneous equations to model an economy. Its ultimate goal in doing so was to gain policy insight. The Cowles approach structured its models from a priori economic theory. One of its main contributions was in exposing the bias of ordinary least squares regression in identifying coefficient estimates. Consequently Cowles researchers developed new methods such as the indirect least squares, instrumental variable methods, full information maximum likelihood method, and limited information maximum likelihood method. All of these methods used theoretical, a priori restrictions. According to an article by Carl F. Christ the Cowels approach was grounded on the following assumptions: 1, simultaneous economic behavior; 2, linear or logarithmic equations and disturbances; 3, systematic, observable variables without error; 4, discrete variable changes as opposed to continuous; 5, a prior determination of exogeneity and endogeneity; 6, the existence of a reduced form; 7, independence of the explanatory variables; 8, a priori identified structural equations; 9, normally distributed disturbances with zero means, finite and constant covariances, a nonsingular covariance matrix, and serial independence; 10, a dynamically stable system of equations.
Several Cowles associates have won Nobel prizes for research done while at the Cowles Commission. These include Tjalling Koopmans, Kenneth Arrow, Gerard Debreu, James Tobin, Franco Modigliani, Herbert Simon, Lawrence Klein, Trygve Haavelmo and Harry Markowitz.
[edit] Notes
- ↑ Christ, Carl F. 1994. “The Cowles Commission Contributions to Econometrics at Chicago: 1939-1955” Journal of Economic Literature. Vol. 32.
