Month: August 2018
Do not infer causality, but here is what the data yield:
Recent findings demonstrate that heterogeneity of long-history migration predicts present-day emotion behaviors and norms. Residents of countries characterized by high ancestral diversity display emotion expressions that are easier to decode by observers, endorse norms of higher emotion expressivity, and smile more in response to certain stimuli than residents of countries that lack ancestral diversity. We build on the extant findings and investigate historical heterogeneity as a predictor of daily smiling, laughter, and positive emotion across the world’s countries and the states of the United States. Study 1 finds that historical heterogeneity is positively associated with self-reports of smiling, laughter, and positive emotions in the Gallup World Poll when controlling for GDP and present-day population diversity. Study 2 extends the findings to effects of long-history migration within the United States. We estimated the average percentage of foreign-born citizens in each state between 1850 and 2010 based on US Census information as an indicator of historical heterogeneity. Consistent with the world findings of Study 1, historical heterogeneity predicted smiling, laughter, and positive, but not negative, emotion. The relationships remained significant when controlling for per capita income and present-day population diversity of each state. Together, the findings further demonstrate the important role of long-history migration in shaping emotion cultures of countries and states, which persist beyond the original socio-ecological conditions, and open promising avenues for cross-cultural research.
That is the topic of my latest Bloomberg column, the deal will be “good enough,” but the method costly. Here is one excerpt:
At what price? Canadians and Canadian politicians now feel slighted, and it will be harder for Canada to support U.S. initiatives, especially those led by Trump, in the future. It may be a long time before Canada feels like an even vaguely equal partner again. In the meantime, the U.S. and Canada have ongoing dealings and negotiations concerning water rights, border and migration issues, intelligence sharing, terror prevention, and presenting a (relatively) united front against other foreign powers, including Russia in the Arctic. The marginal gains in trade just don’t seem worth the deterioration in the relationship.
And should Mexico really feel elevated by getting the first crack at the deal? Surely it must know that it might not be the favored party the next time around.
Do read the whole thing. The best extraction of rent policy, of course, is simply to let Canada keep its gains from trade right now, but later demand larger concessions when it comes to Arctic policy, which will really matter. That’s assuming nationalism, of course, as a kind of second best rejoinder. I am more comfortable with the alternative position that the citizens in the other NAFTA member countries count for just as much as Americans.
Nearly thirty years ago my GMU colleague Robin Hanson asked, Could Gambling Save Science? We now know that the answer is yes. Robin’s idea to gauge the quality of scientific theories using prediction markets, what he called idea futures, has been validated. Camerer et al. (2018), the latest paper from the Social Science Replication Project, tried to replicate 21 social-science studies published in Nature or Science between 2010 and 2015. Before the replications were run the authors run a prediction market–as they had done on previous replication research–and once again the prediction market did a very good job predicting which studies would replicate and which would not.
Ed Yong summarizes in the Atlantic:
Consider the new results from the Social Sciences Replication Project, in which 24 researchers attempted to replicate social-science studies published between 2010 and 2015 in Nature and Science—the world’s top two scientific journals. The replicators ran much bigger versions of the original studies, recruiting around five times as many volunteers as before. They did all their work in the open, and ran their plans past the teams behind the original experiments. And ultimately, they could only reproduce the results of 13 out of 21 studies—62 percent.
As it turned out, that finding was entirely predictable. While the SSRP team was doing their experimental re-runs, they also ran a “prediction market”—a stock exchange in which volunteers could buy or sell “shares” in the 21 studies, based on how reproducible they seemed. They recruited 206 volunteers—a mix of psychologists and economists, students and professors, none of whom were involved in the SSRP itself. Each started with $100 and could earn more by correctly betting on studies that eventually panned out.
At the start of the market, shares for every study cost $0.50 each. As trading continued, those prices soared and dipped depending on the traders’ activities. And after two weeks, the final price reflected the traders’ collective view on the odds that each study would successfully replicate. So, for example, a stock price of $0.87 would mean a study had an 87 percent chance of replicating. Overall, the traders thought that studies in the market would replicate 63 percent of the time—a figure that was uncannily close to the actual 62-percent success rate.
The traders’ instincts were also unfailingly sound when it came to individual studies. Look at the graph below. The market assigned higher odds of success for the 13 studies that were successfully replicated than the eight that weren’t—compare the blue diamonds to the yellow diamonds.
Stanley emails me:
Since Google Maps and even most paper maps don’t help navigate a visitor around the Fez Medina (particularly the inner non-tourist parts), it creates an interesting markets in directions. Gentleman (nearly all as far as I can tell) stand around the various pedestrian-only streets* (if you can call them that) and offer to help, which usually ends up with them walking alongside you in the direction they think you might want to go (or the place you requested thinking it was simply a free helping hand). At the end of the partnered walk they ask for money (even though they insisted it was free or pretend they didn’t hear you ask before embarking). While most people would see this as a “tourist trap” (and it certainly is), the more interesting part to me (as a former econ major and MR enthusiast) is the the market problem – that is, lack of technology/tools and asymmetric information – is paired with a market solution, which is the locals providing only the information they know (directions)…In very minimal engagement in the market I found a piece of information cost between 5 to 20 dirham ($0.50 to $2.00) depending on the length of service (how far they walk with you) and your ability to negotiate.
In case you’ve been sleeping:
Tournament prize pools now rival those for some of the biggest events in traditional sports, and global audiences for some big gaming events have surpassed 100 million viewers, driven largely by esports’ exploding popularity in Asia.
The lion’s share of esports revenue comes from corporate sponsorships, according to industry analysis firm Newzoo, with ticket sales, merchandising and broadcasting rights bringing in additional revenue. Newzoo estimates that esports will generate $345 million in revenue in North America this year, in addition to more than half a billion dollars in revenue overseas.
You will note that total is much less than for major league football or baseball, which exceed $10 billion each. Still, “more service for less gdp” is a common theme in the internet economy. Consider this:
The 2017 League of Legends world championship, held in Beijing, drew a peak of over 106 million viewers, over 98 percent of whom watched from within China, according to industry analyst Esports Charts. That’s roughly on par with the audience for the 2018 Super Bowl.
In other words, the nation without the traditional “locked in” major sport franchises is choosing to jump to eSports. And:
This year’s total DOTA 2 championship audience was roughly the same size as the total number tuning into the Kentucky Derby, and considerably larger than the peak Wimbledon, Daytona 500, U.S. Open or Tour de France audiences.
All of a sudden, more and more of the world is “stuff I never really heard of before.”
The Chicago Council on Global Affairs has completed its 2018 survey on American attitudes toward trade (full disclosure: I serve on board of advisers for the Chicago Council survey), and a funny thing happened to U.S. opinions on the subject. As Dina Smeltz and Craig Kafura write in their latest policy brief, Americans love trade way more than they love Trump…
The survey itself reports:
The highest percentages ever registered in this survey (since 2004) say that trade is good for the US economy (82%), good for consumers like you (85%), and good for creating jobs in the US (67%).
That is from Daniel Drezner. I would raise the cautionary note that perhaps these newfound positions will not survive the removal of Trump from office, most of all among Democrats.
6. “Exploiting plausibly exogenous variation in U.S. suffrage laws, we show that children from economically disadvantaged backgrounds who were exposed to women’s political empowerment during childhood experienced large increases in educational attainment, especially blacks and Southern whites.” Link here.
Wash Post: The world is on the brink of a historic milestone: By 2020, more than half of the world’s population will be “middle class,” according to Brookings Institution scholar Homi Kharas.
Kharas defines the middle class as people who have enough money to cover basics needs, such as food, clothing and shelter, and still have enough left over for a few luxuries, such as fancy food, a television, a motorbike, home improvements or higher education.
It’s a critical juncture: After thousands of years of most people on the planet living as serfs, as slaves or in other destitute scenarios, half the population now has the financial means to be able to do more than just try to survive.
“There was almost no middle class before the Industrial Revolution began in the 1830s,” Kharas said. “It was just royalty and peasants. Now we are about to have a majority middle-class world.”
(Kharas’s definition of middle class takes into account differences in prices across countries.)
It’s interesting that middle class values are also expanding, especially in Asia, even as they may be declining in the United States:
According to the World Values Survey (2015), people in countries with burgeoning middle classes do not feel that governments are responsible for theirsuccess, but rather that it is thrift, hard work, determination, and perseverance that count.
“Realizing this, we decided to turn the standard solution to self-control on its head: What if instead of seeking advice, we asked struggling people to give it,” write Eskreis-Winkler and Fishbach. To answer this question, they conducted a series of experiments that appointed people struggling with self-control to advise others on the very problems they themselves were encountering. The population samples they studied included unemployed adults struggling to find a job, adults struggling to save money, adults struggling with anger management, and children falling behind in school.
“Although giving advice confers no new information to the advice giver, we thought it would increase the advice giver’s confidence,” they write. “Confidence in one’s ability can galvanize motivation and achievement even more than actual ability.”
This is only part one for the class, do not panic over whatever you think might be completely left out. That said, suggested additions are welcome, here goes:
Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.
Bresnahan, Timothy and Reiss, Peter C. “Entry and Competition in Concentrated Markets,” Journal of Political Economy, (1991), 99(5), 977-1009.
Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.
Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.
“Benefits of Competition and Indicators of Market Power,” Council of Economic Advisors, April 2016.
Jan De Loecker and Jan Eeckhout, “The Rise of Market Power and its Macroeconomic Implications,” http://www.janeeckhout.com/wp-content/uploads/RMP.pdf. My comment on it is here: https://marginalrevolution.com/marginalrevolution/2017/08/rise-market-power.html
Me on intangible capital, https://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html.
Traina, James. “Is Aggregate Market Power Increasing?: Production Trends Using Financial Statements,” https://research.chicagobooth.edu/-/media/research/stigler/pdfs/workingpapers/17isaggregatemarketpowerincreasing.pdf
Shapiro, Carl. “Antitrust in a Time of Populism.” UC Berkeley, working draft from 24 October 2017, forthcoming in International Journal of Industrial Organization.
Klein, Benjamin and Leffler, Keith. “The Role of Market Forces in Assuring Contractual Performance.” Journal of Political Economy 89 (1981): 615-641.
Breit, William. “Resale Price Maintenance: What do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics (1991).
Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.
Sproul, Michael. “Antitrust and Prices.” Journal of Political Economy (August 1993): 741-754.
McCutcheon, Barbara. “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?” Journal of Political Economy (April 1997): 336-350.
Crandall, Robert and Winston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,” Journal of Economic Perspectives (Fall 2003), 3-26, available at http://www.brookings.org/views/articles/2003crandallwinston.htm.
FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml., an optional browse, perhaps read about some current cases and also read the merger guidelines.
Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.” American Economic Review 89, 5 (December 1999): 1216-1233.
Demsetz, Harold. “Why Regulate Utilities?” Journal of Law and Economics (April 1968): 347-359.
Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.
Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.
Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545.
Strictly optional most of you shouldn’t read this: Ariel Pakes and dynamic computational approaches to modeling oligopoly: http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf
Economics of Tech
Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.
Weyl, E. Glenn. “A Price Theory of Multi-Sided Platforms.” American Economic Review, September 2010, 100, 4, 1642-1672.
Tech companies as platforms, Tyler Cowen chapter, to be distributed.
Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.
Paul Graham, essays, http://www.paulgraham.com/articles.html, and on Google itself, http://www.slate.com/blogs/blogs/thewrongstuff/archive/2010/08/03/error-message-google-research-director-peter-norvig-on-being-wrong.aspx
Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607
Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,”http://www.people.fas.harvard.edu/~idew/papers/BPEA_final_ineq.pdf
Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” CEP discussion Paper no. 1354, May 2015.
Andrews, Dan, Chiara Criscuolo and Peter N. Gal. “Frontier firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries.” OECD working paper, 2015.
Mueller, Holger M., Paige Ouimet, and Elena Simintzi. “Wage Inequality and Firm Growth.” Centre for Economic Policy Research, working paper 2015.
Readings on blockchain governance, to be distributed.
Haltiwanger, John, Ian Hathaway, and Javier Miranda. “Declining Business Dynamism in the U.S. High-Technology Sector.” Ewing Marion Kauffman Foundation, February 2014.
Organization and capital structure
Ronald Coase and Oliver Williamson on the firm, if you haven’t already read them, but limited doses should suffice.
Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.
Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.
Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010.
Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.
Tyler Cowen chapter on CEO pay, to be distributed.
Cowen, Tyler, Google lecture on prizes, on YouTube.
Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.
Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf
Miller, Merton, and commentators. “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.
Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.
Hansemann, Henry. “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.
Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.
Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students. Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826
American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633.
Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf
Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro, “The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss.
Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.
Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides.
Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.
Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.
David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.
Casselman, Ben. “Corporate America Hasn’t Been Disrupted.” FiveThirtyEight, August 8, 2014.
Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.
Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.
Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.
Scharfstein, David S. and Stein, Jeremy C. “Herd Behavior and Investment.” American Economic Review 80 (June 1990): 465-479.
Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.
Sectors: finance, health care, education, others
Gorton, Gary B. “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009.
Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011.
Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.
More to be added, depending on your interests.
The old city of Jerusalem is astonishingly small for a city with so many momentous places. One can walk from Christianity’s holiest site to the holiest site of Judaism, pausing to look at one of the holiest sites of Islam, in less time than it takes to walk from my office on the campus of George Mason University to the campus Starbucks. Jerusalem is actually smaller than the GMU campus. GMU has had a few big events to its credit–two Nobel Prizes, several presidential speeches and so forth–but few people come here on pilgrimage. GMU doesn’t compete with Jerusalem.
Is there another parcel of land of similar size to the old city of Jerusalem that can lay claim to being similarly momentous? The signing of the Declaration of Independence in Philadelphia was pretty important but not much has happened there since. Cape Canaveral gets a nod but doesn’t span multiple fields of endeavor. Rome was important for a long time but its momentous events have faded compared to those that occurred in Jerusalem.
My best guess for a momentous parcel of land of similar size to old Jerusalem would be Cambridge University in the UK. Cambridge can lay claim to being the place of Newton, Darwin, Maxwell, Babbage, Turing, Oppenheimer, and Crick and Watson and many others in the fields of politics, literature and the social sciences including economists such as Keynes, Marshall and Sen. Overall, Cambridge gives Jerusalem a run for its money. Jerusalem had its momentous period between say the building of the first temple in 957 BCE and Muhammad’s night journey around 621 CE, a period of roughly 1600 years, while Cambridge has had only an 800 year run since being built in 1231 so controlling for a time a case can be made that Cambridge beats Jerusalem. Perhaps you disagree but then Cambridge is still racking up momentous events while Jerusalem hasn’t had much in the past 1400 years so Cambridge is certainly catching up. Of course, one big event could put Jerusalem back on top.
Aside from Cambridge, cases can be made for other universities such as Oxford, Harvard and even newcomer Chicago. But it’s interesting that universities come to mind as perhaps the only places in real competition with Jerusalem. Are there others?
But on tech, Congress lacks real expertise. Of the 3,500 legislative staff on the Hill, I’ve found just seven that have any formal technical training.
Here is the source, Travis Moore, via Robert Dietrich.
Excess reserves held at the Fed are down from their peak of about $2.8 trillion, but still close to $2 trillion, massively higher than their long-run historical average.
Inflationary pressures are modestly higher than they had been, but still in the range of roughly two percent.
The liquidity trap is gone, with 10-year rates around 3 percent and short rates at around two percent. In fact, from these rates there is significant pressure on emerging market currencies.
Since the liquidity trap is gone, and inflation remains well under control, the liquidity trap does not seem to be the reason why inflation did not explode post-2008, following the Fed’s stabilization measures.
No one is admitting this simple reality, which is staring us in the face.