Month: June 2006

Here is my New York Times column today.  The focus is on how we often make bad charitable decisions.  Excerpt:

…before we can improve our charity, we must first understand it. John A. List, an economist at the University of Chicago,
is studying fund-raising campaigns toward this end. Professor List,
combining his career as a researcher with a role as part-time
consultant, introduces variations into real world fund-raising
campaigns and studies the results. This reflects his core method of the
"field experiment," which he has applied to topics as diverse as
competition between the genders, how contestants cooperate on
television game shows and how markets work in baseball card trading.
Steven D. Levitt, co-author of "Freakonomics" and a colleague at the
University of Chicago, refers to Professor List as the young economist
most likely to win a Nobel Prize.

Here is another bit:

For purposes of contrast, Professor List and his team then increased
the attractiveness of the woman who asked for the money. The more
attractive women (a "one standard deviation increase in
attractiveness," in statistical terms) had as big a positive impact on
giving – in the range of 50 to 100 percent – as moving from the least
successful fund-raising method to the most successful.

Here is one recent ranking, courtesy of Newmark’s Door.  My view is simple.  The American Economic Review and Journal of Political Economy are the two most important journals.  The former will have more pieces with careful testing and design, but the latter has more conceptually important articles.  I find the JPE more enjoyable.  The Quarterly Journal of Economics has brilliant pieces which can tend toward the unsound or have imperfect execution.  Econometrica, while it remains a clear third or fourth in rank, is less important than it used to be, perhaps because pure theory has declined in influence.  For this same reason, the Rand Journal and Review of Economic Studies, while both still very good journals, have lost their previous luster.  Journal of Economic Theory mattered in the 1970s, but it has fallen off a cliff.  After that you have the top field journals, which of course vary by field.  Journal of Economic Perspectives and Journal of Economic Literature serve important functions, and are both fun and instructive to read, but they are rarely venues for presenting new ideas.  They report how new ideas have been interpreted and digested.

Science journals, especially Nature, are starting to become more important for economics.  My favorite field journal is the Journal of Law and Economics.  Journal of Finance is of very high quality, though finance is a world unto itself.  The relative returns to the top few journals have risen greatly in the last fifteen years; many more schools require publications in those journals for tenure than before.

Henry Manne says yes:

The implications of what we already know of this “wisdom of crowds”
approach to price formation, as against the traditional marginal
pricing/arbitrage approach, are apt to be startling. We should rethink
any current policies based on a view of pricing in which we exclude the
best-informed traders and discard the wisdom of the many. For instance,
we now have a new and more powerful argument than we had in the past
for legalizing most insider or informed trading.

Since such trading clearly makes the market process work more
efficiently, it aids capital allocation decisions and informs business
executives through market-price feedback of the best predictions about
the value of new plans. Furthermore, the Supreme Court’s “fraud on the
market” theory of civil liability under the federal securities laws and
Congress’s ideas of correct civil damage claims for insider trading no
longer have any intellectual merit. The same is true of any other part
of our securities laws implicitly based on the notion of the marginal
trader as a rational arbitrageur of price.

The new approach would suggest that it is undesirable to have laws
discouraging stock trading by anyone who has any knowledge relevant to
the valuation of a security.

Here is one summary; here is the (gated) WSJ piece.  I find it hard to believe that legalized insider trading would boost the level of equity prices in the United States; I would be willing to bet against that view.  Some new developments would be reflected in stock prices more quickly but, given that most marginal investment decisions are financed by a) retained earnings, and b) debt, I doubt if this would improve resource allocation very much.  Also keep in mind that another function of equity markets is to share risk and help people save for their retirement.  Even if it is only an issue of perception, legalized insider trading won’t serve either of those ends.

For the pointer, I am grateful to Chris F. Masse.

Earlier this spring…Burgess agreed to
indemnify England fan Paul Hucker for more than 1 million pounds
in case he suffers “mental trauma” resulting from the team’s
first-round games against Paraguay, Trinidad and Tobago, and
Sweden. The premium costs about $195 and is one of hundreds of
similar shelter-from-the-Sven policies his Essex-based firm has
established for England fans.

For about the same price, Burgess says he’s insured the
virginity of three women in Inverness, Scotland, who believe they
will immaculately conceive the second coming of Christ.         

“I have Scottish fans taking out mental-health policies
that pay for treatment if England wins the World Cup,” says
Burgess, who has also sold 30,000 policies to California
residents fearful of being abducted by aliens.

Here is the full story.  Thanks to John de Palma for the pointer.