Month: January 2012

What are the effects of private equity?

There is a recent two-part series by Steve Kaplan, arguably the leading researcher in the area.  Here is part one and here is an excerpt:

Some, including presidential candidates Newt Gingrich and Rick Perry, criticize private equity for gutting companies and destroying jobs. The private equity industry and Mitt Romney argue that private equity creates jobs. The best empirical evidence—co-authored by one of my colleagues, Steve Davis—says the answer is that private equity both creates and eliminates jobs.3After a buyout, employment in existing operations tends to decline relative to other companies in the same industry by about 3 percent. Many of those job losses are undoubtedly painful.

At the same time, however, employment in new operations tends to increase relative to other companies in the same industry by more than 2 percent. Davis et al. conclude that “the overall impact of private equity transactions on firm-level employment growth is quite modest.”

Here is part two, which focuses on Bain.

An Economic and Rational Choice Approach to the Autism Spectrum and Human Neurodiversity

That is a new paper of mine, you will find the link here.  Here is the abstract:

This paper considers an economic approach to autistic individuals, as a window for understanding autism, as a new and growing branch of neuroeconomics (how does behavior vary with neurology?), and as a foil for better understanding non-autistics and their cognitive biases. The relevant economic predictions for autistics involve greater specialization in production and consumption, lower price elasticities of supply and demand, a higher return from choosing features of their environment, less effective use of social focal points, and higher relative returns as economic growth and specialization proceed. There is also evidence that autistics are less subject to framing effects and more rational on the receiving end of ultimatum games. Considering autistics modifies some of the standard results from economic theories of the family and the economics of discrimination. Although there are likely more than seventy million autistic individuals worldwide, the topic has been understudied by economists. An economic approach also helps us see shortcomings in the “pure disorder” models of autism.

Some of you have asked me about the recent debates over the forthcoming DSM-V and autism (and here pdf) , here is one bit:

It is still possible to adhere to a DSM approach for practical fieldwork, and “autism identification,” while rejecting it as our best possible understanding of autism.  Under one view, DSM does not “define” autism but rather the DSM standards provide useful information for identifying autistics who require assistance. Alternatively, in the context of both insurance companies and schools, DSM standards allow payments to be triggered if an individual is judged to be autistic according to the specified criteria. For systems of financial transfer to prove workable, perhaps the relevant legal definitions have to cite unfavorable outcomes rather than defining autism in a more fundamental way. We’ll return to this issue when we consider discrimination. For now the point is that the DSM standards don’t have to be applied to every autism-relevant question and should not be viewed as necessarily trumping other approaches.

The DSM standards also evolve. DSM-III defined autism differently than did DSM-IV and DSM-V will differ as well. It’s well known that the DSM process itself is, for better or worse, heavily influenced by various interest groups, including pharmaceutical lobbies. So DSM approaches have to be judged by some external standard and the cognitive profile approach (and a concomitant rational choice approach) can assist in this endeavor. Again, the DSM standard should not be construed as ruling out competing or more fundamental approaches.

Have we reached peak TV?

Probably not, but right now American ownership is going down:

The Nielsen Company announced the 2012 Advance/Preliminary TV Household Universe Estimate (UE) is 114.7 million, down from 115.9 million in 2011. Marking the first integration of the 2010 Census counts, the 2012 UEs reflect an aging population, as Baby Boomers increasingly shift out of the 35-49 demographic, as well as greater ethnic diversity.

The 2012 UEs also reflect a reduction in the estimated percent of U.S. homes with a television set (TV penetration), which declined to 96.7 percent from 98.9 percent.

There is much more at the link, and for the pointer I thank Mark Thorson.

Why isn’t the iPhone made in America?

This is an excellent article, and perhaps it will win one of David Brooks’s Sidney Awards, excerpt:

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

…Foxconn employs nearly 300 guards to direct foot traffic so workers are not crushed in doorway bottlenecks. The facility’s central kitchen cooks an average of three tons of pork and 13 tons of rice a day. While factories are spotless, the air inside nearby teahouses is hazy with the smoke and stench of cigarettes.

Foxconn Technology has dozens of facilities in Asia and Eastern Europe, and in Mexico and Brazil, and it assembles an estimated 40 percent of the world’s consumer electronics for customers like Amazon, Dell, Hewlett-Packard, Motorola, Nintendo, Nokia, Samsung and Sony.

“They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

Most of all, I like how the article shows that some Chinese economic advantages result from scale, speed, flexibility, and the supply chain, more than just from lower wages per se.  I believe we need a rethink of the current importance of economies of scale and scope, and what they actually consist of.

Some new books in my pile

I am learning a good deal from Stephen Bainbridge’s Corporate Governance After the Financial Crisis:

There seems little doubt that the monitoring model has influenced board behavior.  In 1995, only one in eight CEOs [of those stepping down] was fired or resigned under board pressure.  By 2006, however, almost a third of CEOs were terminated involuntarily.  Over the last several decades, the average CEO tenure has decreased, which also has been attributed to more active board oversight.

I cannot say I am personally so interested in the topic of Ed Leamer’s The Craft of Economics: Lessons from the Heckscher-Ohlin Framework, but he is a master of exposition for complex economic results and this book is no exception.

Daniel Hausman’s Preference, Value, Choice and Welfare reflects his characteristic intelligence and judgment and it should be read by anyone with an interest in economic methodology.

Johan van Overtveldt’s The End of the Euro is a very good book on the background leading up to the current euro crisis; also useful is David Marsh’s The Euro: The Battle for the New Global Currency.

I still think Michael Nielsen’s Reinventing Discovery: The New Era of Networked Science is an important book on an important topic.

*Life in the Sick-Room*

This neglected gem of a book was written by Harriet Martineau, best known for her 19th century tracts on political economy.  Now I learn she was a forerunner of behavioral economics, occupying a space somewhere between Burton’s Anatomy of Melancholy and the pain meditations of Dan Ariely, excerpt:

I have spoken of the relief afforded by visitations of severe pain.  These really the vital forces, and dismiss the temptation, by substituting torture for weariness — at times a welcome change.  The healthy are astonished at the good spirits of sufferers under tormenting complaints; and the most strait-laced preachers of fortitude and patience admit an occasional wonder that there is no suicide among that class of sufferers.  The truth is, however, that the influence of acute pain, when only occasional, and not extremely protracted, is vivifying and cheering on the whole.  The immediate anguish causes a temporary despair: but the reaction, when the pain departs, causes a relish of life such as the healthy and the gay hardly enjoy.  Though a slow death by a torturing disease is a lot unspeakably awful to meet, and even to contemplate, there can be no question to the experience, that illness in which severe pain sometimes occurs is less trying than some in which a different kind of suffering is not relieved by such a stimulus and its consequent sensations.

The Wikipedia page on Martineau is especially good.


Fifty is the smallest number that is the sum of two non-zero square numbers in two distinct ways: 50 = 12 + 72 = 52 + 52.[1] It is also the sum of three squares, 50 = 32 + 42 + 52. It is a Harshad number.

There is no solution to the equation φ(x) = 50, making 50 a nontotient. Nor is there a solution to the equation x – φ(x) = 50, making 50 a noncototient.

The aliquot sum of 50 is 43 and its aliquot sequence is (50,43,1,0). Fifty is itself the aliquot sum of 40 and 94.

There is more here.

Tale of a published article

From Joshua Gans:

But people are wrong on the Internet all of the time. So what really annoyed me was how Cowen ended the post:

“This counterintuitive conclusion is one reason why we have economic models.”

…Now where did all that lead? Frustrated by the blog debate, I decided to write a proper academic paper. That took a little time. In the review process, the reviewers had great suggestions and the work expanded. To follow through on them I had a student, Vivienne Groves, help work on some extensions and she did such a great job she became a co-author on the paper. The paper was accepted and today was published in the Journal of Economics and Management Strategy; almost 5 years after Tyler Cowen’s initial post. And the conclusion: everyone in the blog debate was a little right but also wrong in the blanket conclusions (including myself).

The rest of the story is here.  Stephen Williamson serves up a different attitude, and here is Paul Krugman’s very good post on open science and the internet.