Month: September 2017
Tuesday assorted links
1. Robert H. Bates, The Development Dilemma: Security, Prosperity, & a Return to History, provides an interesting look at Kenya vs. Zambia with regard to state capacity, and drawing some parallels to earlier England vs. France.
2. Stephen Williamson on the Phillips Curve.
3. Catching up on the Chinese economy.
The Gender Gap in STEM is NOT What You Think
In a new NBER working paper David Card and Abigail Payne have a stunning new explanation of the gender gap in STEM at universities. The conventional wisdom is that the gender gap is about women and the forces–discrimination, sexism, parenting, aptitudes, choices; take your pick–that make women less likely to study in STEM fields. Card and Payne are saying that the great bulk of the gap is actually about men and their problems. At least that is my interpretation of their results, the authors, to my mind, don’t clearly state just how much their results run against the conventional wisdom. (Have I misunderstood their paper? We shall see.)
The authors are using a large data set on Canadian high school students that includes data on grade 12 (level 4) high school classes and grades and initial university program. Using this data, the authors find that females are STEM ready:
…At the end of high school, females have nearly the same overall rate of STEM readiness as males, and
slightly higher average grades in the prerequisite math and science courses. The mix of STEM related courses taken by men and women is different, however, with a higher concentration of women in biology and chemistry and a lower concentration in physics and calculus.
Since females are STEM-ready when leaving high school you are probably thinking that the gender gap must be a result either of different entry choices conditional on STEM-readiness or different attrition rates. No. Card and Payne say that entry rates and attrition rates are similar for males and females. So what explains why males are more likely to take a STEM degree than females?
The main driver of the gender gap is the fact that many more females (44%) than males (32%) enter university. Simply assuming that non‐STEM ready females had the same university entry rate as non‐STEM ready males would
narrow the gender gap in the fraction of university entrants who are STEM ready from 14
percentage points to less than 2 percentage points.
Moreover:
On average, females have about the same average grades in UP (“University Preparation”, AT) math and sciences courses as males, but higher grades in English/French and other qualifying courses that count toward the top 6 scores that determine their university rankings. This comparative advantage explains a substantial share of the gender difference in the probability of pursing a STEM major, conditional on being STEM ready at the end of high school.
Put (too) simply the only men who are good enough to get into university are men who are good at STEM. Women are good enough to get into non-STEM and STEM fields. Thus, among university students, women dominate in the non-STEM fields and men survive in the STEM fields. (The former is mathematically certain while the latter is true only given current absolute numbers of male students. If fewer men went to college, women would dominate both fields). I don’t know whether this story will hold up but one attractive feature, as a theory, is that it is consistent with the worrying exit from the labor market of men at the bottom.
If we accept these results, the gender gap industry is focused on the wrong thing. The real gender gap is that men are having trouble competing everywhere except in STEM.
Hat tip: Scott Cunningham.
Will China invest $30 billion in Haiti?
The People’s Republic of China is preparing to carry through with plans to invest a massive US$30 billion in developing Haiti’s infrastructure, including power plants, sanitation works, water systems, railways, affordable housing, and marketplaces, in an agreement that is expected to have a major social, economic, and developmental impact.
This week, workers have started to be contacted for the approximately 20,000 jobs needed to carry out the ambitious initiative, Haitian press has reported.
Here is further information. To put the sum in perspective, Haitian gdp is about $8 billion at market exchange rates.
*Gorbachev: His Life and Times*
That is the new biography by William Taubmann, who won a Pulitzer for his Khruschev book. At first I didn’t want to read it, feeling I was already too familiar with the topic, but it was a fascinating treatment throughout, with many revelations. It is perhaps the best overall treatment of how the Soviet Union collapsed, and the parts on Gorbachev’s early career provide a superior look at how Soviet bureaucracy and the Communist Party actually functioned.
Here is one bit:
In retrospect, his best chance to prevent Communism from collapsing, taking with it the whole Soviet alliance system in Europe, would have been to encourage reformers like himself to take command of their countries with the support of their people. Instead, he gave every appearance in his public meetings with the old guard [Honecker, Husák, Zhivkov] of backing them…
One of the best parts of the book is when Taubmann shows how Gorbachev’s treatment of the Nagorno-Karabakh Armenian-Azerbaijani conflict reflected both Gorby’s strengths and weaknesses early on.
Here is another bit:
“She [Raisa Gorbachev] displayed an extraordinary knowledge of British history and philosophy,” then British ambassador to Moscow Bryan Cartledge remembered. “When she came across a portrait of David Hume, she knew all about him.”
Mrs. Thatcher was stunned, and later Nancy Reagan was envious and tried to keep up. As for Ronald Reagan, to prepare for his meetings with Gorbachev, for a while he was receiving several two-hour tutoring sessions a week from Russian historians and other experts.
Perhaps the most startling part of the book is when the reader learns that even during the height of the Eastern Europe crisis, foreign policy received no more than five or six percent of the time of Gorbachev and the Politburo; the focus instead was on domestic issues and reforms.
Strongly recommended, this will be one of the two or three best books of the year, compulsively readable, fun, and informative all at once. Here is a rave New York Times review. You can order it here.
The “Trade Talks” podcast series
Chad Bown writes to me:
“I write and take the liberty of drawing your attention to a new and weekly podcast series called Trade Talks that Soumaya Keynes (The Economist) and I are publishing.
According to the iTunes description, we promise to
cohost a weekly podcast on developments in international trade and policy. From trade wars to trade deals, this podcast covers the week’s trade news with insights and economic analysis from two of the world’s top trade geeks.
What more could you want from a couple of economists?
How to find the podcast?
- Subscribe (for free) to Trade Talks in iTunes, Google Play, Stitcher, TuneIn, or from most anywhere you find podcasts, whether on an iOS or Android device.
- Either click through one of the blue links above, or type “Trade Talks” into the search bar of your podcast directory (and look for our logo, below).
Here are our episodes thus far:
Monday assorted links
1. UK fact of the day: the NHS uses 10 percent of the world’s pagers.
2. Did they steal the de Kooning just for themselves? (NYT)
3. “Fruit names do not invite ghosts, [Taiwanese] food official says”
4. Modeled Behavior argues for Amazon in Philly.
5. Japanese managers are complacent.
6. Exit interview with Richard Posner (NYT).
Parenting by Panopticon?
The cameras record the families’ lives — conversations, arguments, every interaction. If something is amiss, Cognition Builders can provide instant direction on how to remedy the situation, either verbally through a microphone in the camera or by sending a text to the parent.
Jessica Yuppa, Cognition Builders’ director of curricula and assistant clinical director, said the Nest Cams give CB an “unfiltered look” at what goes on inside the home. “Families think they know about themselves, but they don’t. Cameras give us a beat-for-beat of interactions. If a parent is struggling to communicate with a child, for example, we can watch a conversation and say, ‘Okay, why do you think he looked away when you said this?’” Yuppa said it doesn’t take long for families to adapt to the scrutiny. “My experience is the self-consciousness goes away very quickly,” she said. “People live their lives and forget we’re there.”
…A new rule was thus established. When an adult comes into the room and says hello to one of the children, the child stops what he or she is doing, looks the adult in the eye, shakes his or her hand, returns the greeting, and asks the adult how he or she is doing. This became the new expectation. If any member of the household failed to meet this expectation, he would receive a strike.
…At the end of each day, Elizabeth and Jason would receive a detailed, many-paged report on everything the family architects had observed.
Here is the article by Kim Brooks. Yikes! Read the last paragraph.
Fischer Black’s classic 1986 essay “Noise”
Here is the pdf link, every now and then I feel I should put up an “oldie but goodie.” This is one of the essays that has influenced my thought the most, noting that Fischer had his own language and could be quite opaque. Here is the abstract of his 17 pp. essay:
The effects of noise on the world, and on our views of the world, are profound. Noise in the sense of a large number of small events is often a causal factor much more powerful than a small number of large events can be. Noise makes trading in financial markets possible, and thus allows us to observe prices for financial assets. Noise causes markets to be somewhat inefficient, but often prevents us from taking advantage of inefficiencies. Noise in the form of uncertainty about future tastes and technology by sector causes business cycles, and makes them highly resistant to improvement through government intervention. Noise in the form of expectations that need not follow rational rules causes inflation to be what it is, at least in the absence of a gold standard or fixed exchange rates. Noise in the form of uncertainty about what relative prices would be with other exchange rates makes us think incorrectly that changes in exchange rates or inflation rates cause changes in trade or investment flows or economic activity. Most generally, noise makes it very difficult to test either practical or academic theories about the way that financial or economic markets work. We are forced to act largely in the dark.
Both of Black’s books are worth studying, as well as the Perry Mehrling biography of Black.
Would North Korea consider a first strike?
Vipin Narang says yes:
The strategy turns on Kim’s main calculation that the United States will say it’s not worth losing a major American city to get rid of him.
Of course he could not knock out a major American or allied target, but he could use them somewhere. And the use would boost his, uh…credibility. In fact Charles Murray is worried.
I think of the model this way. If Kim is irrational, we have obvious reason to worry, and of course a first strike could not be ruled out. Remember Pearl Harbor? (Or is that “Remember Pearl Harbor!”)
Alternatively, say all involved parties are fully rational in the selfish sense. Fully rational agents make purely forward-looking calculations. So if Kim used a nuke to kill a sparrow in North Korea, we would not attack because fear of losing an American city would far outweigh desire to retaliate for the loss of the sparrow.
How about one sparrow in the DMZ? In Japan? In the Arctic? In a Malaysian airport? Or maybe one sparrow, three sled dogs, and thirty Inuit?
At what point do we give it a go, and risk a poorly aimed North Korean ICBM being shot off into the sky?
What if Kim uses “only” a biological or chemical weapon, designed for minimum but noticeable impact, on a nearby country? You should think of Kim’s strategy space as a continuous variable, with some noise added of course.
Is the space of “boosts his credibility and domestic stature, but without too much upping the risk of massive American retaliation” really the empty set?
Maybe. Maybe not. I give it about one percent, which in expected value terms is still a real worry.
Tesla’s Damaged Goods Problem
TechCrunch: Tesla has pushed an over-the-air update to some of its vehicles in Florida that lets those cars go just a liiiittle bit farther, thus helping their owners get that much farther away from the devastation of Hurricane Irma.
Tesla owners in Florida may be grateful for this mileage boost as they escape the ravages of Irma but I suspect that some of them will be upset when they have more time to reflect. How could Tesla increase the mileage at the flick of a switch? The answer is that owners of the Tesla 60kWh version of its Model S and Model X actually have the same battery as the 75kWh vehicles but the battery has been purposely limited or “damaged” to provide only 60KWh of mileage. But why would Tesla damage its own vehicles?
The answer to the second question is price discrimination! Tesla knows that some of its customers are willing to pay more for a Tesla than others. But Tesla can’t just ask its customers their willingness to pay and price accordingly. High willing-to-pay customers would simply lie to get a lower price. Thus, Tesla must find some characteristic of buyers that is correlated with high willingness-to-pay and charge more to customers with that characteristic. Airlines, for example, price more for the same seat if you book at the last minute on the theory that last minute buyers are probably business-people with high willingness-to-pay as opposed to vacationers who have more options and a lower willingness-to-pay. Tesla uses a slightly different strategy; it offers two versions of the same good, the low and high mileage versions, and it prices the high-mileage version considerably higher on the theory that buyers willing to pay for more mileage are also more likely to be high willingness-to-pay buyers in general. Thus, the high-mileage group pay a higher price-to-cost margin than the low-mileage group. A familiar example is software companies that offer a discounted or “student” version of the product with fewer features. Since the software firm’s costs are mostly sunk R&D costs, the firm can make money selling a low-price version so long as doing so doesn’t cannibalize its high willingness-to-pay customers–and the firm can avoid cannibalization by carefully choosing to disable the features most valuable to high willingness-to-pay customers.
The classic paper in this literature is Damaged Goods by Deneckere and McAfee who write:
Manufacturers may intentionally damage a portion of their goods in order to
price discriminate. Many instances of this phenomenon are observed. It may
result in a Pareto improvement.
Note the last sentence–damaging goods can be beneficial to everyone! Consider: Without selling to the high willingness-to-pay customers at the high price the good might not be produced at all because the profit from customers who are only willing to buy at a discount aren’t enough to support the R&D. Thus, the high willingness-to-pay customers aren’t worse off from the existence of a discounted version and the low willingness to pay customers and the firm are clearly better off.
Unfortunately, I fear that Tesla may have made a marketing faux-pas. When it turns off the extra mileage boost are Tesla customers going to say “thanks for temporarily making my car better!” Or are they going to complain, “why are you making MY car worse than it has to be?”
Hat tip: Monique van Hoek.
Florida price gouging by the airlines?
Maybe, but consider this:
Airfare data by Hopper shows that the price hikes that took place this past week are similar to those from two weeks ago, suggesting that the price changes are typical for a week of departure flights.
Here is the full NYT story.
Sunday assorted links
MIT to offer Degree in Computer Science + Economics
Designing electronic marketplaces will be the focus of a new degree to be offered jointly by MIT’s economics and computer science departments.
“This area is super-hot commercially,” says David Autor, the Ford Professor of Economics and associate head of the Department of Economics. “Hiring economists has become really prominent at tech companies because they’re filling market-design positions.”
Because these companies need analysts who can decide which objectives to maximize, what information and choices to offer, what rules to set, and so on, “companies are really looking for this skill set,” he says.
UBER, Airbnb and Amazon are familiar marketplaces that need computer scientist cum economist designers and online worlds like EveOnline join multiple marketplaces into entire economies.
I’d also note that an increasing number of marketplaces will need to be designed not for people but for non-human traders–this will create entirely new challenges.
Luxury canine markets in everything
How is making clothing for animals different than for humans?
“There is a whole different physiology when you’re designing for a pet. The animal has to be able to go to the bathroom without removing the clothing. The design must be comfortable, because you don’t want the dog chewing at it or taking it off on the runway.”
What’s the price range of your designs?
“Anywhere from $300 to $15,000. The most expensive item I did was a pageant dress for a Maltese for the New York Pet Fashion Show. It had a crown, a faux fur wrap covered in Swarovski crystals, and the gown was convertible — the skirt part came apart and the dog was still wearing the harness.”
How do you choose the dog models?
“I have a who’s who of the famous dogs of Instagram (including Norbert and Henry from Bideawee, a New York pet welfare organization). I use my clients’ dogs, and I always do a rags-to-riches story and feature a rescue animal that can be adopted.”
What’s it like being a dog clothing designer in New York?
“There was time when people would look at it weird, in the beginning when I was doing it. Now you can’t go anywhere where the dog is not wearing something. I mean, my dogs even wear shades.”
Is the Great Chocolate Stagnation over?
I say no, but some disagree:
There hasn’t been an innovation in the world of chocolate since the white variant was introduced in 1930, which is fine because — in the immortal words of Cogsworth in “Beauty and the Beast” — if ain’t baroque, don’t fix it.
But still, we’d never turn away a new kind of creamy, chocolate-y thing to munch on while we binge-watch Netflix.
And thanks to some Swiss chocolate scientists over at Barry Callebaut — the world’s leading manufacturer of the good stuff, producing 1.8 million tons of cocoa every year and with a revenue of almost $10 billion — that’s exactly what we’re getting. A brand new chocolate flavor called Ruby, developed from the Ruby Cocoa bean, colored a pleasingly millennial pink hue and that tastes like sweet, sweet berries despite having no added color or flavoring.
“Ruby chocolate is the fourth type of chocolate [after milk, white and dark] and is an intense sensorial delight,” a spokesperson for Barry Callebaut said after launching the chocolate to a panel of experts in China.
Here is the (noisy) link, via the excellent Samir Varma.