Month: December 2019

Superstar firms and market concentration

A new paper by Autor, Dorn, Katz, Patterson and Van Reenen (some real heavyweights) rebuts the notion that market concentration is rising because of inadequate antitrust concentration:

The fall of labor’s share of GDP in the United States and many other countries in recent decades is we ll documented but its causes remain uncertain. Existing empirical assessments typically rely on industry or macro data obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes push sales towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value-added. We empirically assess seven predictions of this hypothesis: (i) industry sales will increasingly concentrate in a small number of firms; (ii) industries where concentration rises most will have the largest declines in the labor share; (iii) the fall in the labor share will be driven largely by reallocation rather than a fall in the unweighted mean labor share across all firms; (iv) the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; (v) the industries that are becoming more concentrated will exhibit faster growth of productivity; (vi) the aggregate markup will rise more than the typical firm’s markup; and (vii) these patterns should be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.

Here is coverage from Peter Orszag.  As I’ve said before, people are opting for Philippon’s Great Reversal story because of ideology and convenience and mood affiliation, but it is not supported by the facts.

Tuesday assorted links

1. “We find a small hot hand effect for free throws, concentrated in second and third shots in a free throw sequence, in players shooting at least 100 free throws in a season, and in games where players shoot four to five free throws. We find the opposite results for field goal attempts. If a player makes a field goal, he is less likely to make his next field goal attempt. These results are robust to controlling for the characteristics of the previous shot. Interestingly, both offenses and defenses respond to made field goals as if the hot hand effect exists.”  Link here.

2. “[German labor in the boardroom] …lowers outsourcing, while moderately shifting employment to skilled labor.

3. Do good teachers make you taller?

4. Claudia Sahm podcast with David Beckworth.

5. Alex Bell is now awesome and not just apparently awesome (NYT).

Nigeria and other Japan-Congo facts of the day

In 2018, the Nigerian government spent more on subsidies for petrol than on health, education, or defence.

And:

CD sales still make up 78% of music revenue in Japan (compared with less than 30% in the UK).

And:

80% of prisoners released late 2018 in a presidential pardon have opted to return to Kinshasa’s infamous Makala jail due to lack of means to live.

And:

Some blind people can understand speech that is almost three times faster than the fastest speech sighted people can understand. They can use speech synthesisers set at at 800 words per minute (conversational speech is 120–150 wpm). Research suggests that a section of the brain that normally responds to light is re-mapped in blind people to process sound.

That is all from 52 things Tom Whitwell learned this year.  Hat tip goes to The Browser — do subscribe!

Is Cebu the most typical city in the world?

Yes, Cebu, Philippines.  That is the topic of my latest Bloomberg column, here is one excerpt:

Now consider some non-economic factors. What is the world’s most important and widely spoken language? English. Along with the native Cebuano and Tagalog, English is widely spoken in Cebu, and present on most of the signs. And what about religion? Christianity registers as the most common religion in the world, and the dominant religion in Cebu is — you guessed it — Christianity.  Islam, Hinduism and various native religions are also represented, as well as variants of folk Catholicism and folk Islam, mirroring the syncretic nature of religious belief in so many other countries.

Asia is the world’s most populous continent by far, and the Philippines (of course) is in Asia. Score another point for the typicality of Cebu. Yet there are also Spanish and Spanish colonial influences, and at times I felt like I was in Latin America more than Asia. That broadens the global connections of Cebu.

Also notable is Cebu’s North American heritage, as the Philippines was a de facto U.S. colony from 1898 to 1935. The native culture is still very much its own, but there are more superficial markers of U.S. cultural influence in Cebu, and in the Philippines more generally, than in almost any other emerging economy. There are lots of fast food restaurants, American casual dress is widespread, and basketball is much beloved.

What else? Most of the world’s population now lives in cities, and Cebu is the second largest metropolitan area in the Philippines.

Cebu is also pretty close to global median income.  And here is the penultimate line:

I therefore nominate a 30-year-old Cebu mother as the epicenter of human existence.

Rico Lechon and Cafe Laguna are two places you might consider eating at.

Markets and comedic performance bonds in everything

Comedian Pete Davidson put on a show Wednesday in San Francisco—but ticketholders weren’t allowed in unless they signed a non-disclosure agreement with a $1 million penalty if broken.

Some attendees said that locking up your cell phone and signing a document that says you won’t share any part of the show on social media is just part of seeing a live show these days.

…Fans who did not want to sign the agreement could get a refund, but it appeared nobody took that option.

Here is the full story, via Ted Gioia.

Income Share Agreements

Mitch Daniels, former Governor of Indiana and now President of Purdue University, writes about income share agreements in the Washington Post:

In an ISA, a student borrows nothing but rather has his or her education supported by an investor, in return for a contract to pay a specified percentage of income for a fixed number of years after graduation. Rates and time vary with the discipline of the degree achieved and the amount of tuition assistance the student obtained.

An ISA is dramatically more student-friendly than a loan. All the risk shifts from the student to the investing entity; if a career starts slowly, or not at all, the student’s obligation drops or goes to zero. Think of an ISA as equity instead of debt, or as working one’s way through college — after college.

An excellent point. If you watch Shark Tank the entrepreneurs are always wary about debt because debt puts all the risk on them and requires fixed payments regardless. Yet when it comes to financing the venture of one’s own life suddenly equity becomes akin to slavery and debt bondage becomes freedom! It’s very peculiar.

Another advantage of ISAs is that they provide feedback. Is the university willing to educate you for free in return for a share of future earnings? That’s a good signal!

ISAs have emerged principally in response to the wreckage of the federal student debt system but they also represent an opportunity for higher education to address another legitimate criticism: that it accepts no accountability for its results. As the lead investor of the two funds Purdue has raised to date, our university is expressing confidence that its graduates are ready for the world of work.

Check out Lambda School. “We invest in you. Pay nothing until you get a job making over $50,000.”

At Purdue, the university I lead, hundreds of students have such contracts in place, and other colleges large and small are joining the ISA movement. Beyond traditional higher education, coding academies and other skill-specific schools are making the same offer: Study for free, and pay us back after you get the good job we are confident you’ll land.

Although the very nature of ISAs protects the participant, early adopters such as Purdue have built in safeguards. A user-friendly computer simulator provides quick, transparent comparisons with various public and private loan options. No investee pays anything for the first six months after graduation or until annual income exceeds $20,000. For those graduates who get off to fast career starts, a ceiling of 250 percent of the dollars that purchased their education limits total repayment.

I’ve been writing about income-contingent loans for years. Milton Friedman was an early advocate. It’s good to see forward movement.

Saudi facts of the day

Consanguineous marriage is preferred in many countries, especially by Muslims. Despite the increasing education rate in Saudi Arabia, the prevalence of consanguineous marriage does not seem to be decreasing as quickly as expected. The present study aimed to investigate the current prevalence of consanguineous marriage among educated married adults in Riyadh and to determine the factors favouring it. The cross-sectional study was conducted in 2017–18 using an online questionnaire. A total of 550 questionnaires were sent to married adults of both sexes and 417 responded, giving a response rate of 75.8%. The questionnaire consisted of two parts: the first section asked for demographic data such as age, sex, educational level, residential area and family size. The second part was about consanguineous marriage and its degree if present, family history of consanguineous marriage and level of awareness of its potential negative impact on offspring. It was found that the prevalence of consanguineous marriage among the participating educated adults was 39.8% and most of these were married to a first cousin. Neither level of education nor age affected the likelihood of consanguineous marriage, but predictors for the practice among the educated participating adults were having a family history of consanguineous marriage, having consanguineous parents and having a personal preference for consanguineous marriage.

That is from a new paper by Mahboub, Alsaqabi, Allwimi, and Aleissa.  Via the excellent Kevin Lewis.

Streets Vs Avenues Where to go to dinner in Manhattan model this

Abstract

Yelp data and statistical sampling was used to determine that the average restaurant is better on Manhattan streets than avenues, with an average rating of 3.62 on streets vs 3.49 on avenues. The difference was statistically significant. In addition, you are almost 50% more likely to find an outstanding restaurant while on a street compared to when you are on an avenue. 18% of restaurants on the streets had a score of 4.5 or higher, compared to 13% of restaurants on avenues.

Download Paper

or

SSRN

From the apparently awesome Alex Bell.

*Towards an Economics of Natural Equals*

The authors are David M. Levy and Sandra J. Peart, and the subtitle is A Documentary History of the Early Virginia School.  This is the true history, told by people who know, and with extensive citations from correspondence and primary documentation.

Excerpt:

Beginning quite early and throughout his long career, Buchanan studied, endorsed, and extended the Smithian economics of natural equals.

You will find the correspondence of Buchanan and Rawls, the dealings of Buchanan with a skeptical Ford Foundation, the real story behind the Buchanan and G. Warren Nutter “Universal Education” voucher plan, what actually happened in Buchanan’s Chile visit, Chicago vs. Virginia disputes, the anti-democratic views of Murray Rothbard, and the contested history of neoliberalism.  And much correspondence from Ronald Coase.

Self-recommending!

David Levy worked with Buchanan and Tullock from the late 1970s through their deaths, and he and Peart are extremely careful in their sourcing and quotation practices — get the picture?

Due out Februrary, leap year day, you can pre-order here.

What I’ve been reading

Ben S. Bernanke, Timothy F. Geithner, and Henry M. Paulson, editors, with Nellie Liang.  First Responders: Inside the U.S. Strategy For Fighting the 2007-2009 Global Financial Crisis.  Too many people will judge this volume by its editors, for better or worse.  In reality, almost everything here is by other people, and well-informed ones too.  This is one of the best comprehensive books on the crisis, and it is usefully organized by topic (“Crisis-Era Housing Programs,” or say Jason Furman on fiscal policy).  I haven’t read through the whole thing, but there is a good chance this is the best overall volume on the response to the crisis, though again I suspect opinions on the book will follow whatever opinions the reviewers have of the editors.

Justin Marozzi, Islamic Empires: Fifteen Cities that Define a Civilization.  Did the Islamic Middle East invent the notion of a truly splendid city?  This book makes the case for yes, starting with 7th century Mecca, moving to Damascus, Baghdad, and Cordoba, and finishing in 21st century Doha, “City of Pearls.”

Todd S. Purdum, Something Wonderful: Rodgers and Hammerstein’s Broadway Revolution.  Of course the music is worth learning about, but this volume is also a splendid take on managerial teamwork in a duo.

Greta Thunberg, No One is Too Small to Make a Difference. Some of her speeches, transcribed.  Call me crazy, but I think of her and Donald Trump as the two great orators of our generation, regardless of what you think of their content.

Vicky Pryce, Women vs. Capitalism: Why We Can’t Have It All in a Free Market Economy.  Compared to what, I am inclined to ask?  Still, if you are looking for a readable book on how and why capitalism does not lead to gender equality, this is now the place to go.

Matthew D. Adler’s Measuring Social Welfare: An Introduction is a very good take on its chosen topic.