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Faculty of Economics

By Julian Lorkin

The Keynes Fund for Applied Economics promotes innovative and path breaking quality research in economics and finance. A key part of the Faculty of Economics, it provides resources for early stage researchers as well as for established academics in Cambridge, with a special emphasis on understanding key distortions that affect market allocations and create inefficiencies and on finding policy solutions to correct such inefficiencies. In an interview with Julian Lorkin, Dr. Aidt, Keynes Fund Director, finds out how the fund works, and what research it provides financial support for.


Dr. Toke Aidt

“We’re here for anyone at Cambridge who has a good research project, but is struggling to find the financial support to carry it out,” says Dr. Toke Aidt, a University Reader and Director of the Keynes Fund. “What we’re really looking for, is early stage, cutting-edge research in Economics and Finance, generated by “young” and “old” talent in Cambridge, including among our Post-docs and PhD students.”

The Keynes Fund was established in 2012 through a generous donation to the University, and provides financial support for researchers at the University of Cambridge working within its remit: to understand how key distortions that affect market allocations and create inefficiencies and to find policy solutions to correct such inefficiencies. However, Dr Aidt says most of the proposals submitted to the Keynes Fund are from academics in the Faculty of Economics and the Judge Business School. But the Fund also has a significant number of proposals by social historians, and from academics in law and from mathematicians with an interest in finance and it seeks to fund research with an interdisciplinary dimension. The Fund is keen on helping early career researchers, who often struggle to find external funding, as they seek to establish their academic career. “It's really not meant for established academics only,” he says, “although the lion’s share of the world-leading research that the Fund supports comes from established faculty.

So far, more than 60 research projects have received about two million pounds in total. Grants are typically to pay a research assistant’s wages, or to buy data, because applied research is a lot more labour intensive than it used to be, and buying data is now very costly. However, the Fund has also funded full-time post-doc positions that enable young researchers to come to or stay in Cambridge to work with established Cambridge academics.

“Without funding many will struggle with freely available data that may be very basic or incomplete; not meeting academic rigour. Today, we live in a very different environment to that of Keynes, when data was limited and it was a manual difficult process to collect it.” Now there is a vast amount of data often collected electronically, however he says “that comes at a cost, and it may need a full time researcher to shift through it and for some types of projects based on historical data old-fashioned manual data collection is still the order of the day”.

Much of the research supported by the Fund is highly relevant to understanding real-world problems and to finding solutions and essentially to gain a better understanding of economic and social interactions. For example, one of the most recent projects is research by Dr Julia Shvets, into the behaviour of managers in a large chain of food and drink stores. It shines a light on some fundamental questions about human behaviour and how incentives operate in practice.

“The main finding was that they appeared to be in a kind of ‘tournament’ with everyone being ranked,” he says. “But, startlingly, they always seemed to remember how they performed in the past in a much better way than they actually did. They often thought they did well in adversity, when actually their performance was mediocre.”

The size of grants varies. “Most applications to the Keynes fund are for less than £50,000, but some can be more than double, such as those that hire a post-doc to work with a researcher, that promotes top level applied research and create positive externalities for the Cambridge research environment,” added Dr Aidt.

For example Dr Matt Eliott had a project where he tried to analyse communication under extreme uncertainty, such as the current pandemic, and wanted to find out which people are most responsive to experts. The research is crucial to understand the impact of communication and design so-called ‘targeted persuasion’. “To predict the effectiveness of health advisories, we need to know who will follow them,” he says.



Just as with the Credit Crunch issue, the fund is trying to find solutions that will work in the longer term. “We don’t want quick fix solutions, we want applied research that will fix some of the essential issues in economics and finance, to fix market failures and influence the design of economic policy.”

Building networks is more important than ever for young academics, but alas many PhD students can’t afford to attend conferences that are vital for their career as they become more advanced in their student journey. “So, we’ve are planning to append another small funding stream – an add on if you like to the main Keynes Fund. This is for PhD students to attend conferences and workshops which is run outside the mainstream funding model.”

The Keynes Fund has significant reserves, and runs two calls for project proposals annually. However, the Fund is much quicker and nimble from an application point of view than other funding bodies, and can turn around an application and provide resources within just a few days when required. For example, the fund had a very quick response to the Covid crisis.

Dr Aidt says “it was clear there was an urgent need to collect raw data right at the start of the pandemic. So, we had a quick round of applications as soon as we spotted the first wave of the virus. An example of this was the research on Religion and Covid-19 by Dr Sriya Iyer, to understand how religious gatherings and religious networks spread infectious diseases such as Covid.



Decisions on which projects gain funding are made by a board with external members from MIT and the London School of Economics which meets every six months. “Ideally, we want the process to be fairly quick and easy for those applying for research funding. Other external organisations like the Economic and Social Research Council can provide much larger grants, but naturally they want a lot of paperwork in advance. We’d like to hear from people who have the genesis of a good theory or a good design for an empirical question that they would like to research. Applicants may not have a long academic background or vast amounts of research already, but they have what the fund likes to see – a good idea.”

Dr Aidt says the fund has had several successful applicants looking at the hot topic of the moment, the economic impact of global warming, with considerations of the Faculty’s Professor Dasgupta, and The Economics of Biodiversity: The Dasgupta Review. He says this is a great example of the empirical observation of the behaviour of market participants leading to a massive market failure, which the fund was set up to study, and draw on relevant work in the other social sciences such as biology and history.

“While we didn’t fund Dasgupta’s review, it has sparked other researchers to take into account the environmental consequences of what their research might imply for policy,” he says. For example, Professor Andrew Harvey asks what econometric tools are suited to studying climate change and its adverse consequences in his research project, Persistence and Forecasting in Climate and Environmental Econometrics, sponsored by the Keynes Fund.



“The project aims to develop techniques to study a warming planet and forecast the result,” says Dr Aidt. “It really is a very good example of many of the research projects we will ideally be funding for many years to come.”

Each September the Keynes Fund holds a Research Day; an annual celebration of the high-quality projects sponsored by the fund and the research these projects have produced. Video of the event in 2020 is available here:

Videos of seven of the most recent projects are available online:

Each year the Fund hosts the annual Keynes Lecture which has featured Jean Tirole, Hyun Song Shin and Cristina Romer. The next Keynes lecture will be given by Professor Helene Rey in January 2022.
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Applied Economics

Market Allocations