Cowles Foundation
Encyclopedia
The Cowles Commission for Research in Economics is an economic research institute
, founded in Colorado Springs in 1932 by Alfred Cowles
, a businessman and economist. 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 (Theory and 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 Cowles 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 prize
s 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
.
The Cowles Foundation is located at 30 Hillhouse Avenue
, New Haven, Connecticut
.
Research institute
A research institute is an establishment endowed for doing research. Research institutes may specialize in basic research or may be oriented to applied research...
, founded in Colorado Springs in 1932 by Alfred Cowles
Alfred Cowles
Alfred Cowles, 3rd was an American economist, businessman and founder of the Cowles Commission. He graduated from Yale in 1913, where he was a member of Skull and Bones....
, a businessman and economist. In 1939, the Cowles Commission moved to the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...
under the directorship of Theodore O. Yntema
Theodore O. Yntema
Theodore Otte Yntema was an American economist specialing in the field of quantitative analysis in finance.Yntema graduated summa cum laude in 1921 from Hope College as valedictorian. He received his master's degree from the University of Illinois in 1922. He received his PhD from the University...
. Jacob Marschak
Jacob Marschak
Jacob Marschak was an American economist of Ukrainian Jewish origin.- Life :...
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
Yale University
Yale University is a private, Ivy League university located in New Haven, Connecticut, United States. Founded in 1701 in the Colony of Connecticut, the university is the third-oldest institution of higher education in the United States...
in 1955 (where it was renamed the Cowles Foundation).
As its motto (Theory and 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
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
.
The thrust of the Cowles approach was a specific, probabilistic framework in estimating simultaneous equations
Simultaneous equations
In mathematics, simultaneous equations are a set of equations containing multiple variables. This set is often referred to as a system of equations. A solution to a system of equations is a particular specification of the values of all variables that simultaneously satisfies all of the 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 Cowles 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 prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
s for research done while at the Cowles Commission. These include Tjalling Koopmans
Tjalling Koopmans
Tjalling Charles Koopmans was the joint winner, with Leonid Kantorovich, of the 1975 Nobel Memorial Prize in Economic Sciences....
, Kenneth Arrow
Kenneth Arrow
Kenneth Joseph Arrow is an American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972. To date, he is the youngest person to have received this award, at 51....
, Gerard Debreu
Gerard Debreu
Gérard Debreu was a French economist and mathematician, who also came to have United States citizenship. Best known as a professor of economics at the University of California, Berkeley, where he began work in 1962, he won the 1983 Nobel Memorial Prize in Economics.-Biography:His father was the...
, James Tobin
James Tobin
James Tobin was an American economist who, in his lifetime, served on the Council of Economic Advisors and the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He developed the ideas of Keynesian economics, and advocated government intervention to...
, Franco Modigliani
Franco Modigliani
Franco Modigliani was an Italian economist at the MIT Sloan School of Management and MIT Department of Economics, and winner of the Nobel Memorial Prize in Economics in 1985.-Life and career:...
, Herbert Simon
Herbert Simon
Herbert Alexander Simon was an American political scientist, economist, sociologist, and psychologist, and professor—most notably at Carnegie Mellon University—whose research ranged across the fields of cognitive psychology, cognitive science, computer science, public administration, economics,...
, Lawrence Klein
Lawrence Klein
Lawrence Robert Klein is an American economist. For his work in creating computer models to forecast economic trends in the field of econometrics at the Wharton School of the University of Pennsylvania, he was awarded the Nobel Memorial Prize in Economic Sciences in 1980...
, Trygve Haavelmo
Trygve Haavelmo
Trygve Magnus Haavelmo , born in Skedsmo, Norway, was an influential economist with main research interests centered on the fields of econometrics and economics theory. During World War II he worked with Nortraship in the Statistical Department in New York City. He received his Ph.D...
and Harry Markowitz
Harry Markowitz
Harry Max Markowitz is an American economist and a recipient of the John von Neumann Theory Prize and the Nobel Memorial Prize in Economic Sciences....
.
The Cowles Foundation is located at 30 Hillhouse Avenue
Hillhouse Avenue
Hillhouse Avenue, described, according to tradition, by both Charles Dickens and Mark Twain as "the most beautiful street in America," , is in New Haven, Connecticut and is home to many nineteenth century mansions including the president's house at Yale University...
, New Haven, Connecticut
New Haven, Connecticut
New Haven is the second-largest city in Connecticut and the sixth-largest in New England. According to the 2010 Census, New Haven's population increased by 5.0% between 2000 and 2010, a rate higher than that of the State of Connecticut, and higher than that of the state's five largest cities, and...
.