PhD in Finance vs Economics vs Business Economics

[futurescholar]

I currently have a BS in Mathematics and am preparing to go back for a terminal masters in Economics. The reason I want to get a terminal masters in Economics is because I want to learn more about economics before I make the final decision as to whether to get a PhD in Finance, Economics, or Business Economics. Also, I'd like to gain some research experience prior to applying to PhD programs. From what I hear, PhDs in Business Economics get paid more than those that get their PhD straight from the Economics department and you can virtually study and do research in similar topics, but I don't know if this is true or not.

The problem is that I am also interested in studying Finance. Does anyone know if you can get a PhD in Finance and still teach and do research in both economics and finance OR get a Phd in Economics and still teach and do research in both economics and finance. I'd really like to be able to teach and do research in both Finance and Economics in application to business, but I am not sure which is the better route for me to take to be able to do this. So, which do you think is better for me: PhD in Finance, Economics, or Business Economics?

I appreciate any insight or advice you can provide to me.

[desimba]

As someone who has applied in the 2008 admissions cycle to a number of Economics & Business Economics programs across the country, let me offer some of my thoughts. Virtually all of the statements that I make below have exceptions to them but they are mostly true at an aggregate level.

1) Economics departments: These tend to be housed outside of the business schools in the College of Arts and Sciences. Tend to have fairly large incoming PhD class sizes, not all of whom are funded.

They have a first year sequence comprising microeconomics, macroeconomics & econometrics. Usually have a first year qualifier in which your knowledge of these 3 topics is tested and then based on the outcome of the test, some % of the class is usually let go. The second year revolves around the field courses in which students typically choose at least 2 fields from an assortment of courses offered by the department, such as labor economics, industrial organization, micro theory, macro theory, econometrics, economic history, etc.

In terms of placements, these grads face the most competitive job markets and take up positions either at economics departments or business economics departments in business schools or in the industry in economic consulting jobs or in think tanks.

2) Business Economics: A separate BE doesn't exist at most schools though the top ones mostly have such a department. Harvard Biz Econ and Stanford GSB Economic Analysis & Policy have some of the strongest economics programs across the country and have exceedingly strong placements as well. The other schools which have a separate BE type program are Chicago GSB (Economics); Wharton (Applied economics; used to be called Business & Public Policy earlier); Kellogg (MEDS); Berkeley (Business & Public Policy); UCLA (Global Economics & Management); Michigan (International Business-Business Economics) & NYU-Stern (Economics). They also have the advantage of being more well-funded and well-resourced than the conventional econ departments even at the same schools. They also have somewhat differing set of admissions requirements than the econ departments and may take a serious look at someone lacking a real analysis course (like myself) but with relevant work experience, for instance.

In terms of course work, the students in the department usually take the first year courses with the Econ students in the broader university. They then have some flexibility in the second year during which they must take some of the seminar courses offered by their home departments but have the flexibility of choosing their remaining courses from other departments within the business school (such as finance or strategy) or any of the fields that are offered by the economics departments.

There is an enormous degree of variability in terms of what each department chooses to focus on as far as research is concerned. Michigan IB-BE focusses on industrial organization, labor & developmental economics whereas Anderson's Global Economics & Management focusses on international trade and now, with the addition of some recent hires, political economy as well.

Finally in terms of placements, they in some cases go to teach at conventional economics departments but more often or not, stick to business schools. Depending on the course work in the second year and the subsequent research, they could find placements in corporate strategy departments or finance departments or even marketing departments.

3) Finance departments: Usually housed within the business schools entirely, they are some of the toughest programs to get into but offer the highest monetary rewards to its graduates. Assistant professor salaries in the finance area tend to be $150K+ at even mid-tier research institutions and can cross $200K at a top-tier school.

In terms of course work, they have some of the same courses in the first year as econ (esp. the micro & econometrics) but they also have a number of departmental seminars which tend to introduce the student to all of the different topics such as corporate finance, asset pricing and others. The research areas then are chosen by the student and usually build on what they learn in the first 2 years of the program.

In terms of placements, it is not surprising that they are happy taking up faculty placements at other business schools. However in some cases, depending on the outcome of the job search process as well as a candidate's own interest, they do occasionally take up positions with Wall Street firms.

Now with that primer over, let me try and answer your specific questions.

1) Does anyone know if you can get a PhD in Finance and still teach and do research in both economics and finance OR get a Phd in Economics and still teach and do research in both economics and finance.

Yes for both of your questions, though the second (i.e. Econ -> Finance) is a bit easier than Finance -> Econ. The reason is that econ gives you the basic framework to think of flow of goods and services of all kinds (including financial flows) without too narrowly focusing on financial flows alone whereas finance programs really don't look at flow of goods and services (e.g. intnl. trade is in econ and not finance). Therefore in some ways, you could crudely say that finance is a sub-set of econ (finance folks don't hit me for that- I know this is an oversimplification) and if you know that your interests are in the areas related to financial transactions, corporate governance, behavior of stock prices, etc. go for a focused program, i.e. finance whereas if you are not sure where your interests lie, you should consider going to an Econ program.

2) I'd really like to be able to teach and do research in both Finance and Economics in application to business, but I am not sure which is the better route for me to take to be able to do this. So, which do you think is better for me: PhD in Finance, Economics, or Business Economics?

The answer to the first question should help you with this as well. In addition, if I had to try and distinguish between Econ and Biz Econ, then it is a somewhat harder distinction and it boils down, at least in large measure, to taste. For instance, in my case, being an engineer and an MBA with significant work experience (>3 years), I would be a better fit with a Biz Econ department rather than a pure Econ department where the vast majority of students tend to have degrees in Econ/ Math/ Stats and come out fresh from school. At the same time, I realize that it would be somewhat harder for me to get a job in a pure Econ department once I graduate from a Biz Econ department. And I was fine with that since in any case, I would like to stay at a business school once I am done because of the better fit which I just talked about in addition to the higher pays which don't hurt either.

Hope this helps answer some of your questions,
SB

[Bayern]

Excellent post desimba, extremely helpful!

[doubtful]

excellent desimba... you are a smart guy...

[Optimyst]

Is it true that attrition is not as much in finance programs compared to econ ones? Or that the coursework in finance is *not as hard as* in econ?
Thanks.

[doubtful]

the first year in econ-finance is pretty much the same..

attrition I guess is lower for the contrary of the law of large numbers... admissions in finance are a few.. so they cannot fail the 50% of the class after one year.

[desimba]

Originally Posted by Optimyst

Is it true that attrition is not as much in finance programs compared to econ ones? Or that the coursework in finance is *not as hard as* in econ?
Thanks.

Attrition in finance programs tend to be significantly lower than Econ programs. There are multiple reasons for that but I don't think the course work is not as hard qualifies.

1) The key factor, I think is that the B-schools generally go through a more intensive screening process and frequently have interviews for selected candidates before making them an offer. Thus the chances that both parties know what they are getting themselves into is much higher in a finance program rather than in an econ program.

2) The students who join such programs also tend to be somewhat older and by extension, more mature than the typical econ student which is more likely than not an undergrad coming in straight from undergrad who may not have a full picture of what s/he is getting into.

3) Finally several econ departments admit a larger class but tend not to fund their entire incoming class and use the results of the qualifiers to screen students. In finance, with an average incoming class size of 3 to 5, that isn't the case and people want you to succeed in the program.

As a result of that, attrition tends to be low and not because finance courses are less tough than econ.

[futurescholar]

Thank you, desimba. Your comments have been very helpful to me.

[shootermcgavin7]

Originally Posted by Optimyst

Is it true that attrition is not as much in finance programs compared to econ ones? Or that the coursework in finance is *not as hard as* in econ?
Thanks.

Based on my own experience; attrition is lower. As has been mentioned by other users, there is probably some self-selection involved. The tiny sizes of the PhD programs allow for a lot deeper research environment which probably helps with the pass rates on the comprehensive exams.

As to the latter claim, I'm taking all of the Econ core + a finance seminar along with about 40hours/week of research...so make your own judgment.

[Bayern]

I thought I will post this in a new thread, but as a discussion has already started here, I will post my question here. How do you really choose the finance phd and business economics schools? As we know, the rankings vary a lot, and from the department's website it is not very easy to understand their specializations from amateur eyes. So how should I go about choosing schools in these concentrations?