Month: November 2016

How much are charities a scam?

Silvana Krasteva and Huseyin Yildirim have a new and interesting series of results on this question:

Drawing upon the all-pay auction literature, we propose a model of charity competition in which informed giving alone can account for the significant quality heterogeneity across similar charities. Our analysis identifies a negative effect of competition and a positive effect of informed giving on the equilibrium quality of charity. In particular, we show that as the number of charities grows, so does the percentage of charity scams, approaching one in the limit. In light of this and other results, we discuss the need for regulating nonprofit entry and conduct as well as promoting informed giving.

The paper title is “Information, competition, and the quality of charities.”  In the basic model, informed donors encourage a “race to the top,” but that competition also consumes excess resources through signaling to get good ratings.  An optimum is therefore some mix of informed donors and uninformed donors.  As the number of charities becomes very large, however, the chance of attracting informed donors goes to zero, and charity scams end up dominating.  According to one cited study, over 90 percent of donors claim to care about quality, but only about 3 percent of them seek out the highest rated charity for a given task.

Under some assumptions, only a single charity provides the public good and all the others end up as scams.  Overall I would say that informed donors can be thought of as a scarce resource who cannot be easily leveraged.

For the pointer, I thank the excellent Kevin Lewis.

Wednesday assorted links

1. “Though so much younger, Methfessel was the more practical of the two, “brave & sensible,” as Bishop readily acknowledged.”  Link here.

2.  The NFL ratings malaiseThe Wall Street Journal malaise.

3. Jayson Lusk on GMOs.

4. How the Chinese view current American politics.  And J.D. Vance on social decay.  And a poker champ on the tells of Clinton and Trump.

5. Does technology substitute for nurses? (pdf).

6. TPP import benefits by state.

My Conversation with Steven Pinker

Here is the audio, video, and transcript.  Steven of course was in top form. We started with irregular verbs, and then moved on to Chomsky, theories of language, the mind and Jon Haidt’s modules, reason, what unifies the thought and work of Steven Pinker, rap music, William Shatner (underrated, “although maybe not his singing”), Sontag on photography, the future of world peace, and the Ed Sullivan show.

Here is one bit:

COWEN: Let me now put on my economist’s hat and ask you about this. As you know, in George Orwell’s 1984, the Party bans all irregular verbs. It’s a kind of excess regulation. But from a social point of view, are there too many or too few irregular verbs in English?

PINKER: [laughs] I like the irregular verbs. I’d like to see more of them.

…One distinction that is vanishing that I think is sad is the three-way distinction in verbs like sink, sank, sunk; stink, stank, stunk; shrink, shrank, shrunk; where the shrank and the stank are giving way to their participle forms shrunkand stunk.

COWEN: No shrank and stank.

PINKER: No shrank and stank. Admittedly it would have been hard to have a movie called Honey, I Shrank the Kids instead of Honey, I Shrunk the Kids. In my style manual, The Sense of Style, I recommend hanging on to them. I think they’re nice.

And on Chomsky:

PINKER: It’s a moving target. Also, as you say, it was neither specified in a precise way nor field‑tested against a dataset of language variation, which I think is unfortunate in terms of ordinary scientific practice.

On peace:

COWEN: Let me ask you a general question. Let’s say it were possible by spending $10,000 and devoting a few months of your life to it that any person on earth could blow up a significant part of a major city.

They could buy something, some kind of explosive. It would cost them $10,000. How long would it take before someone actually did this?

PINKER: I don’t know. My optimism doesn’t consist of prophecy in that sense. That is, my optimism consists of looking at what has happened and noting that, first of all, the pessimistic view is factually incorrect. Namely, people believe that we’re living in unusually violent times and we’re not.

How to project that into the future is a separate set of questions. There are many unknowns that I’m not arrogant enough to know the answer to. It’s something that we could debate. We could explore them. I am not an optimist in the sense of saying, “Well, let’s just extrapolate the curves in the future without asking questions like that.”

Self-recommending, to be sure…

The long-term consequences of Brexit

Britain’s service sector will see its exports drop up to 60 per cent after leaving the European single market, even with a free-trade agreement with the EU in place, according to research from a leading think-tank.

A new study from the National Institute of Economic and Social Research, to be published on Wednesday, says that signing a free-trade agreement with the EU will not recoup any loss in services exports, but would reduce the long-term fall in goods exports from between 58-65 per cent to between 35-44 per cent.

…In theory, the falls in exports could be reduced if Britain managed to sign a deep bilateral agreement with the EU, including good coverage of the services sector. But Monique Ebell, the author of the report, said: “The average FTA for services at the moment is not very comprehensive and tends not to do very much.”

In 2014, 40 per cent of Britain’s services trade, and 56 per cent of its goods trade, was with other European Economic Area members, meaning that the overall fall in British exports would be 24 per cent for services and 20-25 per cent for goods.

That is from Alan Beattie at the FT.

Low-skilled labor markets are not about bargaining power

I am intrigued by this recent paper (pdf) by Jeffrey Clemens at UCSD (visiting UT Austin), here is part of the abstract:

Institutions-centric counterfactuals, which emphasize weaknesses in workers’ bargaining positions, predict that this period’s minimum wage increases would have significantly increased the number of low-skilled individuals with wage rates near or below the minimum wage. The data are inconsistent with this prediction. By contrast, counterfactuals that emphasize the effects of trade, technology, and other competitive market forces are able to match long-run employment changes. My framework highlights that the minimum wage’s effects evolve with labor market conditions. In addition to their relatively direct effects, labor replacing developments in trade and technology exacerbate the minimum wage’s effects on employment. Importantly, this observation holds whether labor markets are competitive or subject to significant bargaining frictions at baseline.

If bargaining power shifts against you because supply and demand factors have changed, that cannot always usefully be undone by a hike in the minimum wage.  Here is a key observation:

I find that the fraction of individuals with wage rates near or below the minimum wage changed little from 2002 to 2014 in spite of substantial minimum wage increases and stagnant nominal wages within low-skilled groups.

More generally, he finds that “…the employment and wage rates of low experience, low education individuals deteriorated more dramatically during the Great Recession than is widely recognized.”  There are many points of interest in this paper, one of my favorite of this year.  Here is the home page of Jeffrey Clemens.

Chicago faculty recruiting in 1946 who is Roy Blough how well did these voters do?

In 1946 the University of Chicago economics department considered the following individuals for job offers: John Hicks, Paul Samuelson, Friedrich A. Hayek, Milton Friedman, Lionel Robbins, A. G. Hart, and George Stigler.

The names making the final vote were Hicks, Hart, Stigler, Friedman, and Samuelson.  The Borda point count method was used, and Hicks turned out to be the clear number one choice.  Neither Friedman nor Samuelson were the number one choices of any departmental voter, while Stigler won three first-choice votes (see Table one in the paper).

The voters themselves were quite prestigious, including Hazel Kyrk, Lloyd Mints, Jacob Marschak, Henry Simons, Tjalling Koopmans, H. Gregg Lewis, Frank Knight, and T.W. Schultz.  If you are wondering, Knight’s first choice was Stigler.  Friedman and Samuelson came in fourth and fifth, respectively, with Samuelson as a distant last place pick.  Schultz however put Friedman dead last.

The winner Hicks was not interested, and that year, Chicago ended up with Friedman and Roy Blough.  Here is the NYT obituary for Roy Blough:

Roy Blough, an economist who served in the Roosevelt and Truman administrations, died on Friday at a retirement home in Mitchellville, Md. He was 98.

From 1938 to 1946, Mr. Blough was director of tax research at the Treasury Department and assistant to the treasury secretary. From 1950 to 1952, he was a member of the president’s Council of Economic Advisers.

Later in the 1950’s, he was principal director of the economic affairs department at the United Nations. He also taught at several universities, including the University of Chicago, from 1946 to 1952, and Columbia University, from 1955 to 1970, when he retired.

He wrote several books, including ”The Federal Taxing Process” and ”International Business: Environment and Adaptation.”

That is all catalogued in this fascinating David Mitch piece, in the latest JPE.  Here are ungated copies and some related information.

Addendum, via Doug Irwin:

Arnold Harberger on Roy Blough: “he came to Chicago and he was a very boring professor. He didn’t inspire anybody to do anything, and he didn’t do very much himself. And he was a little pompous, but nice, a decent analyst, not very deep analytically, didn’t really command the theory of the subject. Then he was named a member of the Council of Economic Advisors and he left Chicago. And all the colleagues sighed a sigh of relief and said, “Gee, we found a way to get rid of him.”

To replace Blough, they hired Arnold Harberger, I am told.

My Bloomberg debate with Noah Smith on free trade

Here are a few sentences from me:

I take the contrarian view that the benefits of trade deals are more typically underappreciated.


But Noah, you are my Exhibit A for my claim that many economists are still undervaluing the benefits of trade. You’ve written on losers from globalization, but not sufficiently stressed the point that tariffs are an especially regressive tax. They tend to be applied to food and clothing, which the poor spend a disproportionate share of their income on. A lot of the poor also have service jobs that aren’t hurt so much by trade with lower-wage nations. In other words, free trade is (usually) a good antipoverty remedy.

Noah had some sentences too.


I am amazed that the latest New Yorker contains a fair, knowledgeable and informative review-essay of Jason Brennan’s Against Democracy, Ilya Somin’s Democracy and Political Ignorance, and Bryan Caplan’s The Myth of the Rational Voter. The author, Caleb Crain, has done his homework and he engages seriously with the literature. Here is one bit but read the whole thing both for what it says and what its publication in the New Yorker says about our times.

Brennan has a bright, pugilistic style, and he takes a sportsman’s pleasure in upsetting pieties and demolishing weak logic. Voting rights may happen to signify human dignity to us, he writes, but corpse-eating once signified respect for the dead among the Fore tribe of Papua New Guinea. To him, our faith in the ennobling power of political debate is no more well grounded than the supposition that college fraternities build character.

Implied marginal tax rates

For the elderly:

Consider, for example, the implications for those 60-64 of earning $20,000 more for one year.  Among the lowest quintile, 51 percent will lose more than 80cen ts of every extra dollar earned, 8 percent will lose between 61 and 80cent s, and 7 percent will lose between 51 and 60 cents…Among those in the top quintile, 39 percent are in a 61 to 80 percent marginal net tax bracket.

That is from a new NBER paper by Auerbach, Kotlikoff, Koehler, and Yu.  And for the poor:

But families participating in two or more programs, while still facing negative or modest positive rates at low earnings, usually face considerably higher MTRs [marginal tax rates] at higher earnings ranges, often up to 80 percent and even occasionally over 100 percent. While the fraction of families in this category is not large, they constitute about one-fifth of single parent families.

That is from Kosar and Moffitt.

And finally for the disabled there seems to be greater policy effectiveness.  In the latest AER Manasi Deshpande considers SSI as it is paid out to low-income youth with disabilities, and here is the crux of her conclusion:

Using a regression discontinuity design based on a 1996 policy change in age 18 medical reviews, I find that youth who are removed from SSI at age 18 recover one-third of the lost SSI cash income in earnings. SSI youth who are removed and stay off SSI earn on average $4,400 annually, and they lose $76,000 in present discounted observed income over the 16 years following removal relative to those who do not receive a review.

Here are ungated versions of the paper.  Income volatility goes up as well for those removed from the rolls, and giving them higher benefits does not seem to shrink their labor supply much.

At the very least reallocating more of America’s transfer payments to the disabled seems worthy of consideration.  Do note the caveat that these results apply to those classified as disabled under earlier (and tougher) standards, not the standards of today.

Abortion by medication is rising

This seems like one of many under-reported stories of this year, and I think that holds no matter what is your point of view on abortion:

Although many limitations remain, innovative dispensing efforts in some states, restricted access to surgical abortions in others and greater awareness boosted medication abortions to 43 percent of pregnancy terminations at Planned Parenthood clinics, the nation’s single largest provider, in 2014, up from 35 percent in 2010, according to previously unreported figures from the nonprofit.

The national rate is likely even higher now because of new federal prescribing guidelines that took effect in March. In three states most impacted by that change – Ohio, Texas and North Dakota – demand for medication abortions tripled in the last several months to as much as 30 percent of all procedures in some clinics, according to data gathered by Reuters from clinics, state health departments and Planned Parenthood affiliates.

Among states with few or no restrictions, medication abortions comprise a greater share, up to 55 percent in Michigan and 64 percent in Iowa.

…Studies have shown medical abortions are effective up to 95 percent of the time.

Approved in France in 1988, the abortion pill was supposed to be a game changer, a convenient and private way to end pregnancy. In Western Europe, medication abortion is more common, accounting for 91 percent of pregnancy terminations in Finland, the highest rate, followed by Scotland at 80 percent, according to the Guttmacher Institute, a nonprofit research organization that supports abortion rights.

Here is the full account, via a loyal MR reader.