Department of Economics

The central theme in Lloyd’s research is an overriding concern for the economic role of incentives in understanding alternative policy regimes. Lloyd’s research did not start with that focus, but began like most research programs with several papers based on his doctoral dissertation. Thus, Lloyd’s first publications focused on macroeconomics and money and his thesis topic of firms’ sales and inventory investment.

Lloyd followed his dissertation work with several studies of the economics of electric automobiles. This work stimulated Lloyd to pursue research in environmental economics. Lloyd was the first to show that setting effluent charges – special taxes paid by polluters based on the volume of their effluent discharges – could not be efficiently set using a trial-and-error method. There would be no way to know if that process would ever calculate the effluent charge that gave the polluter the incentive to reduce its waste levels to the desired level. This was an important observation since effluent charges were the economics profession’s primary answer to the high costs of the direct pollution control standards and regulation then common in the U.S. and Western Europe and only gradually giving way to more cost effective policies. Lloyd’s research showed that implementation of appropriate effluent charges would be more difficult than most economists assumed – but also less crucial because of a growing consensus that their greatest superiority over direct regulation is in the inducement of environmentally beneficial technological change rather than in static efficiency. This is an advantage that does not require charges to be established at an “optimal” level in the usual sense.

Lloyd’s interest in the environment also appears in his work on the use of standardized containers in reusable packing systems. As with effluent charges, Lloyd was concerned with the efficiency of alternative means of recycling material.

Lloyd’s interest in Sam Peltzman’s work in risk analysis led to a shift in focus to the related area of safety policy. Peltzman’s theoretical and empirical research suggested that people choose their own level of risk to an important extent, and will therefore adapt their behavior to changes in the risk environment. This has important implications for safety policies – particularly in situations where behavior is an important component of the hazard. With an alternative data set, Lloyd confirmed Peltzman’s conclusions on the limited effects of automobile safety regulations up to that time. He also did theoretical work on moral hazard and optimal insurance strategies in the presence of risk compensation.

In a twist of risk compensation theory, Lloyd joined with other researchers in advocating changes in policies toward drinking and driving. Risk compensation tells us that moderate drinking and driving are compatible. This is confirmed by solid empirical evidence. Individuals with low blood-alcohol levels actually lower their risk of a fatal accident. However, in the U.S. the safety media messages have historically equated all drinking and driving with drunk driving, thus blurring the distinction between the two and creating a cognitive dissonance that has made enforcement of reasonable drunk driving statutes very difficult. The most public outcome of this work is the substitution of “know your limits” or “if you drink, don’t drive.” It has moved toward a more effective enforcement strategy and a greater willingness to convict in a situation where the average arrest for drunk driving has remained at a blood-alcohol level that is roughly twice the legal limit. In the absence of political feasibility for a strict policy of prohibition as in Sweden, this has been a productive policy move.

Lloyd served as Arts and Sciences Associate Dean for budget from 1970-73. This was during the “interesting” time of transition from the relatively generous budgets of the 1960s to the more stringent budgets that have been the rule since that period. He served as Chair of the Economics Department from 1985-88. His term saw many improvements in the Economics Department that enhanced its international reputation.

Since his most recent administrative assignment, Lloyd has conducted research on the incentive structure of the welfare transfer system. This work concentrated on the feasibility and relatively favorable incentive structure of a targeted wage rate subsidy – compared to the existing welfare systems and the frequently debated negative income tax proposal. Experiments with wage rate subsidies and other welfare transfer proposals are now much more likely with the devolution of more responsibility to the states in the welfare reform act of l996.

Lloyd plans to continue teaching during the early years of his retirement and to continue service on administrative and faculty committees that deal with freeing benefits and issues of academic standards. His immediate plans for writing are in the area of energy availability and sustainable economic development. This fundamental issue about the long run use of our scarce natural resources, the associated environmental problems, and how resource depletion affects economic development is a return to an earlier interest. His friends and colleagues expect to find Lloyd around the office for many more years.

Memories of Lloyd Orr upon his Passing on January 24, 2019

By Robert Becker

I met Lloyd shortly after arriving at IU in August 1976. My recollection is he had just returned to the department full time following a term as an associate dean in the college. I suspect he was a budget dean (there being no executive associate dean at the time) as that is the job usually given to economists.

Lloyd was a very good applied public sector economist with good insights about incentives and disincentives in existing policies. I too recall his interest in the AFDC program.

Lloyd taught undergrad public econ classes and always included a bullseye on the cover page of the syllabus. The concentric circles were labelled with letter grades – A in the center. His instruction to the students was something like aim for the center and you might hit a B, and so on. He was, of course, trying to incentivize the students in his way.

I recall that Lloyd and Scott Gordon owned a private plane housed at the Monroe County Airport. There was a third person in their ownership circle. Lloyd did fly it – indeed, when on sabbatical leave he was teaching as well at Oberlin College and used the plane to commute from time-to-time.

I frequently interacted with Lloyd when he became Department Chair – my memory is that he succeeded Mike Klein and preceded Phil Saunders, but I may be off on this timeline. In any event, I thought Lloyd was an excellent chair. He was a real consensus builder and was always consulting the faculty outside of formal meetings. One consequence is that we had very few (if any) real controversies during this period.

Lloyd was the Director of Graduate Studies sometime in the early 1980s. He made one very big decision that benefited both the department and as it turned out, me. He admitted John Boyd on a fellowship at mid-year. He went to the campus for funding. It really helped that Paul Halmos, Distinguished Professor of Mathematics, wrote a stunning letter on John’s behalf. Lloyd had the prescience to understand the special nature of the situation and sell it to the administrators. He really knew how to make the system work for us at that time. It is a negative commentary on our current times that this event would not be replicated given similar circumstances. A midyear admission with full funding simply would not happen. Budgetary rules today are designed to avoid discretionary decisions such as the one taken then. This also occurred before the graduate fees were treated as if they were real money in the case of doctoral programs.

Editor’s note: The following two paragraphs are quoted from Lloyd’s obituary.

“Lloyd had eclectic and broad interests that filled his life. The trombone and participation in Bloomington Community Band and the Tuesday night trombones were weekly gigs. There were several ad hoc groups and bands including visiting nursing homes regularly with the Mark Weidemeyer music ministry. Over the years he undertook several leadership roles with the band. In addition to participation as a trombonist, he loved all kinds of music including swing, having opera season tickets and attending bluegrass festivals. Some would have been surprised to see him in front of the stage at a bluegrass festival.

Lloyd was a long-time member of the Unitarian Universalist Church of Bloomington, IN. He did whatever was needed and might have been best known for his financial wizardry at getting things done. In recent years, he participated weekly in the Humanist and Free Thinkers Forums. He also was a strong supporter of social justice and was active in habitat builds; even went on a trip to El Salvador, volunteering at the Walnut Grove Food Pantry and at the Interfaith Winter Shelter. He was an active member of CCL, Citizens Climate Lobby.”

Robert Becker says “These paragraphs really capture Lloyd’s interests and community activities. They were an important part of his personality and remind us of his life’s impact well beyond doing his job well.”