Results for “control premium”
50 found

How large is the control premium?

Cass Sunstein on Twitter directs us to this paper (AEA gate), by David Owens, Zachary Grossman, and Ryan Fackler, entitled “The Control Premium: A Preference for Payoff Autonomy.”  The abstract is here:

We document individuals’ willingness to pay to control their own payoff . Experiment participants choose whether to bet on themselves or on a partner answering a quiz question correctly. Given participants’ beliefs, which we elicit separately, expected-money maximizers would bet on themselves in 56.4 percent of the decisions. However, participants actually bet on themselves in 64.9 percent of their opportunities, reflecting an aggregate control premium. The average participant is willing to sacrifice 8 percent to 15 percent of expected asset-earnings to retain control. Thus, agents may incur costs to avoid delegating and studies inferring beliefs from choices may overestimate their results on overconfidence.

There are ungated versions here.

Is the college wealth premium *zero*?

Now this one is a stunner:

The college income premium—the extra income earned by a family headed by a college gra duate over an otherwise similar family without a bachelor’s degree—remains positive but has declined for recent graduates. The college wealth premium (extra wealth) has declined more noticeably among all cohorts born after 1940. Among non-Hispanic white family heads born in the 1980s, the college wealth premium is at a historic low; among all other races and ethnicities, it is statistically indistinguishable from zero [emphasis added]. Using variables available for the first time in the 2016 Survey of Consumer Finances, we find that controlling for the education of one’s parents reduces our estimates of college and postgraduate income and wealth premiums by 8 to 18 percent. Controlling also for measures of a respondent’s financial acumen—which may be partly innate—, our estimates of the value added bycollege and a postgraduate degree fall by 30 to 60 percent. Taken together, our results suggest that college and post-graduate education may be failing some recent graduates as a financial investment. We explore a variety of explanations and conclude that falling college wealth premiums may be due to the luck of when you were born, financial liberalization and the rising cost of higher education.

That paper is by William R. Emmons, Ana H. Kent and Lowell R. Ricketts, and comes from the St. Louis Fed, not from some bunch of (college-educated) cranks.

Via the excellent Samir Varma.

On the so-called “beauty premium”

Very unattractive respondents always earned significantly more than unattractive respondents, sometimes more than average-looking or attractive respondents. Multiple regression analyses showed that there was very weak evidence for the beauty premium, and it disappeared completely once individual differences, such as health, intelligence, and Big Five personality factors, were statistically controlled.

…Past findings of beauty premium and ugliness penalty may possibly be due to the fact that: 1) “very unattractive” and “unattractive” categories are usually collapsed into “below average” category; and 2) health, intelligence (as opposed to education) and Big Five personality factors are not controlled. It appears that more beautiful workers earn more, not because they are beautiful, but because they are healthier, more intelligent, and have better (more Conscientious and Extraverted, and less Neurotic) personality.

That is from Satoshi Kanazawa and Mary C. Still, probably not the last word on this topic but still an advance in knowledge.  Via Kevin Lewis.

How much of the attractiveness premium is really about grooming?

For women, most of it, at least according to Wong and Penner:

This study uses data from the National Longitudinal Study of Adolescent to Adult Health (Add Health) to (1) replicate research that documents a positive association between physical attractiveness and income; (2) examine whether the returns to attractiveness differ for women and men; and 3) explore the role that grooming plays in the attractiveness-income relationship. We find that attractive individuals earn roughly 20 percent more than people of average attractiveness, but this gap is reduced when controlling for grooming, suggesting that the beauty premium can be actively cultivated. Further, while both conventional wisdom and previous research suggest the importance of attractiveness might vary by gender, we find no gender differences in the attractiveness gradient. However, we do find that grooming accounts for the entire attractiveness premium for women, and only half of the premium for men.

Those results are consistent with my intuition, and here is some Ana Swanson discussion of the results.  That is via Samir Varma, and here is Allison Schrager on whether female scientists should try to look frumpy.

The Ebola risk premium

Underpaid or overpaid?:

They’re looking for the few, the proud — and the really desperate.

For a measly $19 an hour, a government contractor is offering applicants the opportunity to get up close and personal with potential Ebola patients at JFK Airport — including taking their temperatures.

Angel Staffing Inc. is hiring brave souls with basic EMT or paramedic training to assist Customs and Border Protection officers and the Centers for Disease Control and Prevention in identifying possible victims at Terminal 4, where amped-up Ebola screening started on Saturday.

EMTs will earn just $19 an hour, while paramedics will pocket $29. Everyone must be registered with the National Registry of Emergency Medical Technicians.

The medical staffing agency is also selecting screeners to work at Washington Dulles, Newark Liberty, Chicago O’Hare and Hartsfield-Jackson Atlanta international airports.

There is more here, via Matthew E. Kahn.  How much does the regular (non-Ebola) staff earn?

*Three Identical Strangers*

Few movies serve up more social science.  Imagine three identical triplets, separated at a young age, and then reared separately in a poor family, in a middle class family, and in a well-off family.  I can’t say much more without spoiling it all, but I’ll offer these points: listen closely, don’t take the apparent conclusion at face value, ponder the Pareto principle throughout, read up on “the control premium,” solve for how niche strategies change with the comparative statics (don’t forget Girard), and are they still guinea pigs?  Excellent NYC cameos from the 1980s, and see Project Nim once you are done.

Definitely recommended, and I say don’t read any other reviews before going (they are mostly strongly positive).

Friday assorted links

1. Will wild puffins go extinct?

2. Do neurotics spend more time doing choresIs the control premium” lowest in Japan?

3. Is this good or bad advice?  (“Don’t mention the war!”)  And “The University of Colorado’s Board of Regents will consider a proposal to remove the word “liberal” from a description of the university’s academic freedom principles.

4. How Lebron James masters the media.

5. Alternatives to detention are usually cheaper.

6. Further update on EU internet regulation.

7. How corrupt are judges at musical competitions barter markets in everything?

Coin flip experiments as a measure of status quo bias

That is what the new Steve Levitt paper looks at and it does seem people stick with their current circumstances too much:

Little is known about whether people make good choices when facing important decisions. This paper reports on a large-scale randomized field experiment in which research subjects having difficulty making a decision flipped a coin to help determine their choice. For important decisions (e.g. quitting a job or ending a relationship), those who make a change (regardless of the outcome of the coin toss) report being substantially happier two months and six months later. This correlation, however, need not reflect a causal impact. To assess causality, I use the outcome of a coin toss. Individuals who are told by the coin toss to make a change are much more likely to make a change and are happier six months later than those who were told by the coin to maintain the status quo. The results of this paper suggest that people may be excessively cautious when facing life-changing choices.

Of course not all coin flips turn out the right way.  And furthermore we all know that the control premium is one of the most underrated ideas in economics…

Gender Differences in Peer Recognition by Economists

Card et al. study the selection of fellows to the prestigious Econometrics Society showing essentially that prior to about 1980 there was modest discrimination against women. Between 1980 and 2005 about equal access but since 2005 a large bias towards women. Not surprising but citation metrics give us a way of comparing selection with achievement.

The key result can be seen in the raw data–compare the green line of at least 3 top-5s with the red line of selection as an ES fellow.

Here is the abstract to the paper with more details.

We study the selection of Fellows of the Econometric Society, using a new data set of publications and citations for over 40,000 actively publishing economists since the early 1900s. Conditional on achievement, we document a large negative gap in the probability that women were selected as Fellows in the 1933-1979 period. This gap became positive (though not statistically significant) from 1980 to 2010, and in the past decade has become large and highly significant, with over a 100% increase in the probability of selection for female authors relative to males with similar publications and citations. The positive boost affects highly qualified female candidates (in the top 10% of authors) with no effect for the bottom 90%. Using nomination data for the past 30 years, we find a key proximate role for the Society’s Nominating Committee in this shift. Since 2012 the Committee has had an explicit mandate to nominate highly qualified women, and its nominees enjoy above-average election success (controlling for achievement). Looking beyond gender, we document similar shifts in the premium for geographic diversity: in the mid-2000s, both the Fellows and the Nominating Committee became significantly more likely to nominate and elect candidates from outside the US. Finally, we examine gender gaps in several other major awards for US economists. We show that the gaps in the probability of selection of new fellows of the American Academy of Arts and Sciences and the National Academy of Sciences closely parallel those of the Econometric Society, with historically negative penalties for women turning to positive premiums in recent years.

The Parent Trap–Review of Hilger

Nate Hilger has written a brave book. Almost everyone will find something to hate about The Parent Trap. Indeed, I hated parts of it. Yet Hilger is willing to say truths that are often not said and for that I would rather applaud than cancel.

Hilger argues that the problems of poverty, pathology and inequality that bedevil the United States are not primarily due to poor schools, discrimination, or low incomes per se. The primary cause is parents: parents who are unable to teach their children the skills that are necessary to succeed in the modern world. Since parents can’t teach the necessary skills, Hilger calls for the state to take their place with a dramatic expansion of not just child care but collective parenting.

Let’s unpack some details. Begin with schooling. It’s very common to bemoan the state of schools in the “inner city” or to complain about “local financing” which supposedly guarantees that poor counties will have underfunded schools. All of this, however, is decades out-of-date.

A hundred years ago there really were massive public-school resource gaps by class and race. These days, however, state and federal spending play a larger role than local property tax revenue and distribute educational resources more progressively….In fact, when we include federal aid, 42 states spent more on poor school districts than on rich school districts in 2012. The same pattern holds between schools within districts

….The highest spending districts are large urban centers such as New York City, Boston and Baltimore. These cities spend large sums to educate rich and poor children alike. p. 10-11

Hilger is correct. No matter what you saw on The Wire, Baltimore spends more than sixteen thousand dollars per student, among the highest in the nation in large school districts and above average for the nation as a whole. Public schools are quite egalitarian in funding with any bias running towards more funding for poorer districts.

Schools, Hilger writes are “actually the smallest and most equalizing part of a much larger skill-building system.” The real problem, says Hilger, are parents.

But what about discrimination? When it comes to wage discrimination, Hilger is brutally honest:

If we compare individuals with similar cognitive test scores, Black college graduates earn higher wages than white college graduates. Studies that don’t control for test score differences but examine earnings gaps within specific professions—lawyers, physicians, nurses, engineers, scientists—tend to find Black workers earn zero to 10 percent less than white workers. These gaps could reflect discrimination, unmeasured skill differences, or other factors such as geography. In any case, such gaps are small compared to the 50 percent overall Black-white earnings gap and reinforce the idea that closing skills gaps would go a long way toward closing income gaps.

Hilger argues that racism does play an important role in explaining Black-white wage differentials but it’s the historical racism that made black parents less skilled and less able to pass on skills to their children. In the twentieth century, Asians, Hilger argues, were discriminated against in the United States at least much as Black Americans. But the Asians that came to the United States had high skills while the legacy of slavery meant that Black Americans began with low skills. Asians, therefore, were better able to overcome discrimination. The success of Nigerians and Jamaican immigrants in the United States also speaks to this point.  (Long time readers may recall that in 2016 I dubbed Hilger’s paper on Asian Americans and Black Americans the Politically Incorrect Paper of the Year .)

Parental investment is surely important but Hilger overstates his case. He writes as if poorer parents have neither the abilities nor the time to teach their children while richer, better educated parents simply invest lots of hours and money imbuing their children with skills:

…the enormous variation in parents’ own academic skills has big implications for kids because we also demand that parents try to be tutors. During normal times, parents in America spend an average of six hours per week helping—or trying to help—their kids with school work. Six hours per week is more than K12 math and English teachers get with children…good tutoring by parents for six hours a week, every week, year after year of childhood could raise children’s future earnings by as much as $300,000.

The data on the effectiveness of SAT test-prep suggests that these efforts are not nearly so effective as Hilger argues. The parental investment story also doesn’t fit my experience. I didn’t spend six hours a week helping my kids with their homework. I doubt most parents do. I simply assumed my kids would do their work. I do recall that we signed my kids up for tutoring at Kumon, the Japanese math education center. My kids would complain bitterly when we took them for drill on the weekend. It was mostly filling out rote forms and my kids would hide or bury their drill sheets so we were always behind. Driving my kids to the Kumon center, monitoring them. and forcing them to do the work when they rebelled like longshoreman on work-to-rule was time consuming and it was ruining our weekends. I felt guilty, but after a while, my wife and I gave up. Today one of my sons is a civil engineer and the other is a math and economics major at UVA.

Hilger has an answer to this line of objection, or at least he says he does, but to my mind it’s a very odd answer. He argues, relying heavily on Sacerdote, that adoption studies show that more skilled parents result in more skilled kids. I find that answer odd because my reading of Sacerdote is that the effect of parents are small after you control for genetics—this is, as Hilger acknowledges, the conventional wisdom among psychologists. (See Caplan for an excellent review of the literature). It is true that Sacerdote plays up the effect of parents, but it looks small to me. Here is the effect of the adopted mother’s maternal education on the child’s education.

As you can see there is an effect but it is almost all from the mother going from having less than a high school education to graduating high school (11 to 12 years). In contrast, the mother can move from graduating high school to having a PhD and there is very little change in the education level of an adoptee. Note, however, that the effect on non-adoptees, i.e. biological children, is much larger throughout the entire range which suggests the influence of nature not nurture.

I am not surprised that there is some effect of parental education on child’s education because going to college is in part a cultural issue. Parents can influence cultural aspects of their children’s identity such as whether a child grows up up nominally Catholic, Mormon, or Hindu but they have relatively little effect on child religiosity, let alone personality or IQ. I think that a large fraction of the college wage premium is signaling (50% is a moderate estimate, Caplan thinks 90% is closer to the truth), so I am also not overly excited about college attendance as a marker of success.

The effect of parental income on the income of child adoptees is even more dramatic than on education—which is to say negligible. The income of the adopted parents has zero effect (!) on child’s income even as parent’s income varies by a factor of 20! The only correlation is with non-adoptee income—which again suggests the influence of nature not nurture.

At this point in the book, it was almost inevitable that we were going to get yet another paean to the Perry Preschool Project and indeed Hilger waxes enthusiastically about Perry. Seriously? The Perry Preschool project started in the 1960s and had just 123 participants (58 in treatment and 65 in control!). There are more papers about the Perry Preschool project than there were participants. I am jaded.

Aside from the small sample size, the project had imperfect randomization and missing data and most importantly limited external validity. The Perry Preschool project treated a small group of disadvantaged African American children with low-IQs (IQs of 70-85 were part of the selection criteria). The treatment is usually described as “active learning pre-school” but it was more intrusive than that. Every week counselors would go to the homes of the kids to teach the parents (mostly mothers) how to raise their children. The training was important to the program. Indeed, Hilger notes, without sense of irony, that “facilitating greater skill growth in low-income children was so complicated that it required home visitors with advanced postsecondary degrees.” (p. 89). And what were the results?

The results were good! (Heckman et al. 2010, Belfield et al. 2006). But in the popular literature the impression one gets is that the program took a bunch of disadvantaged kids and helped them read and write, making them more middle-class and successful. Some of that happened but the big gains actually happened because the participants, especially the boys, were so socially dangerous and destructive that even a bit of normalization made life substantially better for everyone else. In particular 82% of the treated group of 33 males had been arrested by age 40, including for one murder, 4 rapes, 8 robberies, 11 assaults and 14 burglaries. The control group were worse. In the control group of 39 males there were 2 murders. Indeed the reduction of one murder in the treatment group accounts for a significant benefit of the entire Perry PreSchool project.

Hilger, to his credit, is reasonably clear that what is really needed is an intensive program for disadvantaged African Americans, especially males. In a stunning sentence he writes:

The more we rely on families rather than professionals to build skills in children, the tighter we link people’s current prospects to the prospects of their ancestors. p. 134

But he soon forgets or papers over the context of the Perry Preschool project and like everyone else in the literature uses this to support a national program for which there is no external validity. It’s hard to believe, given the lack of external validity, but Heckman et al. (2010) only exagerate mildly when they write:

The economic case for expanding preschool education for disadvantaged children is largely based on evidence from the HighScope Perry Preschool Program…

Hilger’s case for the difficulty of parenting is well taken—the FAFSA was a nightmare that taxed two PhDs in my family. But the bottom line is that most parents do just fine. Moreover, it’s shocking that in recounting the difficulties of parenting Hilger says hardly one word about an obvious factor which makes parenting more than twice as hard. Namely, single parenting. I was a single parent. Once for a whole week. Don’t do it. Get married, stay married. Perhaps Hilger didn’t want to appear to be too conservative.

Instead of recommending marriage and small targeted programs and more experiments, Hilger goes full Plato.

What would it look like if we [asked]…less not more of parents? It would look like professional experts managing more than the meagre 10 percent of children’s time currently managed by our public K12 system—much more. p. 184

And why should we do this? Because we are all part slaves and part slave-owners on a giant collective farm:

As fellow citizens who benefit from tax revenue, we all—even those of us without children—collectively own about 30 percent of any additional income other people’s children wind up earning. p. 197

Ugh. We own ourselves, not one another. Society isn’t about maximizing the collective it’s about free individuals coming together to produce rules so that we can enjoy the benefits of collective action while still living in a diverse society that respects individual rights, beliefs, and ways of living.

I told you I hated parts of The Parent Trap but Hilger has written an interesting and challenging book and he is mostly right that neither schooling nor labor market discrimination play a major role in the black-white wage gap. Hilger is probably also right that we spend too much on the elderly relative to the young. The idea of greater state involvement in the raising of children is on the table today in a way it hasn’t been for some time. See also Dana Susskind’s recent book Parent Nation. Changes on the margin may be warranted. Nevertheless, I stand with Aristotle and not Plato in thinking that raising children is better done by parents than by the state.

There is No Pink Tax

The so-called pink tax is an alleged tendency for products consumed by women to be more expensive than similar products consumed by men. In 2015 NYC put out a study under mayor Bill DeBlasio alleging a 7% pink tax across a range of goods. The pink tax is implausible. Products produced in competitive markets will be close to marginal cost. Even if firms have monopoly power it’s not obvious that women have systematically more inelastic demand curves–indeed, the stereotype tends to be that women are the more careful shoppers. Preferences differ systematically across genders leading to subtly different products even in categories which appear similar on the surface. To give just one example, the NYC study compared the price of a single 2-in-1 men’s shampoo+conditioner product to the combined price of a women’ shampoo plus a women’s conditioner (oz per oz). Give me a break. There are reasons why a one-and-done hair product appeals to men more than to women and why this will also be correlated with other characteristics which make the all in one product different and likely of lower quality.

In anycase, economists Sarah Moshary, Anna Tuchman and Natasha Bhatia have done a much more complete and careful study and they find that once you control for ingredients and compare like-to-like there is no pink tax. Indeed, sometimes men pay a bit more. Overall, there are no big savings from cross-buying. Women and men could save money by buying products primarily marketed to the opposite gender–like 2-in-1 shampoo+conditioner–but only by buying products that they prefer less than the products they choose to buy.

We find that the pink gap is often negative; men’s products command higher per-product prices in six of nine categories that we study and higher unit prices in three of nine categories. We then estimate the pink tax via a comparison of products manufactured by the same firm and comprising the same leading ingredients. Men’s products are more expensive in three of five categories when we control for ingredients. These findings do not support the existence of a systematic price premium for women’s products, but our results do reveal that gender segmentation in personal care is pervasive and operates through product differentiation. A back-of-the-envelope calculation implies that the average household would save 1% by switching to substantially similar products targeted to a different gender.

New Year’s assorted links

1. Galbraith on Krugman and price controls, channeled through Kelton.  Guess which side I agree with?  And PK follow-up.

2. It is appropriable cereal gains that lead to the state.

3. I can’t review it without spoiling it, but The Lost Daughter (Netflix, based on Ferrante) is a very good movie.

4. “We find that blue and red paintings command a premium: blue (red) paintings generate 18.57% (17.28%) higher bids.

5. MIE: “Mothers are memorializing their breastfeeding experiences with stones made from the liquid.” (NYT)

6. Scott Sumner on progress.

David Card on the return to schooling

Card is best known amongst intellectuals for his minimum wage work, but he also has been central in estimating the returns to higher education, using superior methods.  In particular, he has induced many economists to downgrade the import of the signaling model of education.  Here is one excerpt from his Econometrica paper, appropriately entitled “Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems:

A review of studies that have used compulsory schooling laws, differences in the accessibility of schools, and similar features as instrumental variables for completed education, reveals that the resulting estimates of the return to schooling are typically as
big or bigger than the corresponding ordinary least squares estimates. One interpretation of this finding is that marginal returns to education among the low-education subgroups typically affected by supply-side innovations tend to be relatively high, reflecting their high marginal costs of schooling, rather than low ability that limits their return to education.

The empirical problem arises of course because intrinsic talent and degree of schooling are highly correlated, so the investigator needs some recourse to superior identification.  How can you tell if apparent returns to schooling simply reflect a higher talented cohort in the first place?  So you might for instance look for an exogenous change to compulsory schooling laws that affects some children but not others (a few of those have come in the Nordic countries).  That likely will be uncorrelated with child talent, and so it will help you separate out the true causal return to additional schooling, because you can measure whether the kids with that extra year end up earning more, controlling for other relevant variables of course.  And see Alex’s discussion of the Angrist and Card paper on similar questions.

See also Card’s survey of this entire field, written for Handbook of Labor Economics.  One impressive feature of these pieces is they show how many disparate methods of measurement all point toward a broadly common conclusion.  Whether or not you agree, these papers have been extremely influential, and they are one reason why Claudia Goldin, in my recent CWT with her, asserted that very little of higher education was about the signaling premium.

The regulatory state and the passage of time

The mere passage of time as an explanatory factor is underrated in public choice and regulatory economics, though Mancur Olson understood it well.  Here is an update on the new CDC guidelines for school reopening:

For months, President Biden has been urging schools to reopen, and promised that guidelines from the Centers for Disease Control and Prevention would help them do so safely.

At the same time, public health experts including some at the CDC said available evidence suggested schools could safely open as long as precautions were in place. That raised expectations that the nation’s K-12 education system might accelerate its return to in-person learning.

But the much-anticipated guidelines released Friday were, in fact, more measured than some expected, with full in-person schooling recommended only when levels of community transmission are quite low, a standard that almost no place in the U.S. meets today.

Here is the full article.  The American Federation of Teachers is happy, but six feet between all students for virtually all districts is a non-starter.  No matter what you think of the substance of the school reopening issue, it takes only a modicum of sense to realize if you tell people that six feet of distance is needed, in essence you are saying that a safe reopening is impossible altogether.  Here is the rant of a “progressive” parent.

You will notice that these regulatory factors are another reason why the speed premium during a pandemic is so high — if you wait too long to fix the core problem, the regulators, slow though they may be, will encumber just about everything.

Tuesday assorted links

1. “Using the Current Population Survey (CPS), we find strong evidence that higher minimum wages lead to a greater prevalence of subminimum wage payment.

2. Senators are not good at stock picking, even when related to their committee assignments.

3. Economic analysis of optimal lockdown.  I definitely think this exercise is worth doing, but the researchers, as economists, ignore most of the critical public choice and sustainability issues, much as other researchers do.

4. What makes Ringo a great drummer (video).  And is music getting better or worse? (data from streaming)

5. “The village on Java island has deployed a cast of “ghosts” to patrol the streets, hoping that age-old superstition will keep people indoors and safely away from the coronavirus.

6. How testing works, or doesn’t work, in New Jersey.

7. An epidemiologist addresses my questions (something Twitter was unable to do), bravo to him.

8. Apichatpong Weerasethakul plum tree update.  And ““This is the first transnational geopolitical Twitter war Thais have engaged in,” said Prajak Kongkirati of Bangkok’s Thammasat University.” (NYT)

9. Markets in everything: “Hamas Willing to Trade Information on Israelis Held in Gaza for Ventilators.”

10. Reopening guidelines from John Cochrane.

11. Sarah Constantin on variolation.

12. David Henderson argues for liberation from lockdown.  Not my view, but I think his strongest argument is that greater freedom will induce us to rush with innovation in test and trace, masks, etc.

13. How soon does it end?  Preliminary results, but very important.  There is so much interesting in that link, including the possibility that California needs to worry more than does New York.  Recommended.  I’ll be saying more about these issues soon and of course waiting for the final results.

14. Why serology is more difficult than it looks.  And look at these pictures.

15. “We estimate that 4-14% (1.5%-10%) of actual infections had been reported in US up to March 16, accounting for an assumed reporting lag of 8 (5) days.

16. Superspreaders (NYT): ““The MERS-CoV outbreak in South Korea was driven primarily by three infected individuals, and approximately 75 percent of cases can be traced back to three superspreaders who have each infected a disproportionately high number of contacts,” wrote George F. Gao, an immunologist and virologist at the Chinese Centers for Disease Control and Prevention in Beijing, in a recent paper.

17. The Wolfram Physics Project, lots there.