Month: February 2020

Age and high-growth entrepreneurship

Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms. Integrating administrative data on firms, workers, and owners, we study start-ups systematically in the United States and find that successful entrepreneurs are middle-aged, not young. The mean age at founding for the 1-in-1,000 fastest growing new ventures is 45.0. The findings are similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits. Prior experience in the specific industry predicts much greater rates of entrepreneurial success. These findings strongly reject common hypotheses that emphasize youth as a key trait of successful entrepreneurs.

That is from a newly published AER paper by Pierre Azoulay, Benjamin F. Jones, J. Daniel Kim, and Javier Miranda.

My 2013 NYT column on pandemics

The government should resist the strong temptation to skimp on rewards. Many health care breakthroughs come through university research programs and government grants, but bringing an innovation to fruition and managing wide and rapid distribution usually requires the profit-seeking private sector. In any single instance, the government could save money by confiscating rights, but in the longer run this would discourage the search for additional remedies.

If anything, the American government — or, better yet, a consortium of governments — should pay more for pandemic remedies than what market-based auctions would yield. That’s because, if a major pandemic does arise, other countries may not respect intellectual property rights as they scramble to copy a drug or vaccine for domestic distribution. To encourage innovations, policy makers need to bolster the expectation of rewards.

I agree with the circulating critiques of current Trump administration policy, but the Democrats are no angels in this matter either.  For instance:

Unfortunately, the United States lacks strong political coalitions for many beneficial public health measures. The Democratic Party has focused on insurance coverage and Medicaid expansion as political issues, while often wishing to lower prices of drugs or to weaken patent protection. The Obama administration’s new budget lowers spending on pharmaceuticals by an estimated $164 billion over 10 years, mostly through bargaining down Medicare drug prices. That makes it hard for the Democrats to embrace lucrative rewards for pharmaceutical companies or vaccine producers.

Here is the full column.

Cultural biases in equity analysis

Vesa Pursiainen covers this topic in a new paper.  Most concretely:

My estimates suggest that a Norwegian analyst is 8.4 %-points more likely to assign a buy rating to a Danish firm than an Austrian analyst. Similarly, a Norwegian analyst is 6.7 %-points more likely to assign a buy-recommendation to a British firm than a French analyst.

And here is the abstract:

A more positive cultural trust bias by an equity analyst’s country of origin toward a firm’s headquarter country is associated with significantly more positive stock recommendations, controlling for analyst-month and firm-month fixed effects. The cultural bias effect is stronger for eponymous firms whose names mention their home country. The bias effect varies over time, increasing with negative sentiment. I find evidence of a negative North-South bias emerging during the European debt crisis, a UK-Europe divergence amid Brexit, and a Franco-British bias during the Iraq war. The share price reaction to buy recommendations by more positively biased analysts is weaker.

And from the conclusion:

This paper provides evidence that cultural biases have a significant effect on equity analysts’ stock recommendations. I further find that there is substantial time variation in the effect of such biases, and that the strength of the bias effect is highly correlated with the general sentiment. In other words, bad economic times, when the level of pessimism is high and con- sumer confidence low, are also the times when cultural biases have the largest effect. These findings are all the more significant since equity analysts are financial market professionals that are often supposed to be less susceptible to behavioral biases than non-professionals. To the extent that these results generalize to the rest of the population, they suggest a link between times of economic hardship and increased cultural biases. This might contribute to the rise of nationalism and populism during economic downturns.

My finding that the salience of the firm’s nationality affects the strength of analysts’ cultural biases is also novel in the finance literature. While there is a vast literature on priming effects in psychology literature and, to a lesser extent, in experimental economics, my results suggest that there might be interesting new applications in financial markets and in non-experimental settings that have not been fully explored.

Finally, I find evidence that significant political events can introduce new cultural biases that are strong enough to affect stock recommendations. The much-discussed North-South divide in Europe and the stereotypes of lazy Mediterraneans invoked during the European debt crisis created a clearly visible negative bias in the stock recommendations of North European analysts on South European companies. Similarly, the diplomatic rifts between the UK and the rest of Europe amid the Brexit process, as well as between France and the UK over the Iraq war can be seen in analyst stock recommendations. 

For the pointer I thank the excellent Samir Varma.

Friday assorted links

1. How Cuba manipulates infant mortality and life expectancy statistics.

2. “Drivers of higher cost cars were less likely to yield to pedestrians at a midblock crosswalk.”  And: “Of 461 cars, 27.98% yielded to pedestrians. Cars yielded more frequently for females (31.33%) and whites (31.17%) compared to males (24.06%) and non-whites (24.78%). Cost of car was a significant predictor of driver yielding (OR = 0.97; p = 0.0307); odds of yielding decreased 3% per $1000 increase.”

3. New biosciences stuff you can buy on-line.

4. Path-dependence in 18th century jury decisions?

5. Why are women running more and running faster? (NYT)  “He also cited the Shalane Flanagan Effect, noting how women, in particular, are pulling one another up to new levels of sub-elite running through communities found both online and in real life.”  Quite an interesting thesis.

6. How Chinese bookstores are surviving the coronavirus (awesome photos too).

Contagion Themes

Good post from Nicholas Bagley in 2016 at the Incidental Economist.

Every disease provokes its own unique dread and its own complex public reaction, but themes recurred across outbreaks.

  1. Governments are typically unprepared, disorganized, and resistant to taking steps necessary to contain infectious diseases, especially in their early phases.
  2. Local, state, federal, and global governing bodies are apt to point fingers at one another over who’s responsible for taking action. Clear lines of authority are lacking.
  3. Calibrating the right governmental response is devilishly hard. Do too much and you squander public trust (Swine flu), do too little and people die unnecessarily (AIDS).
  4. Public officials are reluctant to publicize infections for fear of devastating the economy.
  5. Doctors rarely have good treatment options. Nursing care is often what’s needed most. Medical professionals of all kinds work themselves to the bone in the face of extraordinary danger.
  6. In the absence of an effective treatment, the public will reach for unscientific remedies.
  7. No matter what the route of transmission or the effectiveness of quarantine, there’s a desire to physically separate infected people.
  8. Victims of the disease are often thought to deserve the affliction, especially when those victims are mainly from marginalized groups.
  9. We plan, to the extent we plan at all, for the last pandemic. We don’t do enough to plan for the next one.
  10. Historical memory is short. When diseases fall from the headlines, the public forgets and preparation falters.

Not every one of those themes was present for every disease; the doughboys who died of the Spanish flu, for example, were not thought to deserve their fate. But the themes were persistent enough over time to establish a pattern.

The books we assigned were outstanding. If you want to learn about the intersection of infectious disease, history, and public health, you could do worse than to start with them:

How has my thinking on prizes vs. grants evolved?

Chris, a loyal MR reader, writes to me:

I’ve been turning to your insights on prizes vs. grants over the years. Your Google talk from 2007 is without question the best discussion I’ve found of their respective merits…I was wondering if your thinking on prizes vs. grants has evolved, and in particular [TC has added the numbers here]:

1. In the Google talk, you talked about an equilibrium in which there would be a growing ecosystem of big prizes complementing one another. I’m not sure it has turned out this way. Do you agree, and what happened? Did the “failure” of some high profile prizes (e.g. the Google Lunar XPrize) dampen down the enthusiasm?

2. More generally, there seemed to be an expectation in the 2000s and early 2010s that prizes would take off and become a more significant feature of the R&D funding landscape. Again, I don’t think that has really happened. What explains that?

3. Looking specifically at government funding of R&D, do you think there is an equilibrium in which grants can coexist with prizes? Or do grants squeeze out prizes through some form of adverse selection (the best researchers opting for grants over prizes)?

4. How important do you think public choice reasons are for us being in a grant-dominated equilibrium? It seems that the science sector has done a great job of positioning itself as something other than an interest group, with its interests squarely aligned with the public good. (Even suggesting that the science sector is also an interest group seems slightly heretical. It’s interesting that Dominic Cummings, for all his radicalism, seems to see little need for any reform of the science/research ecosystem beyond ARPA).

First a general remark: I now see the current scientific (and cultural) establishment as having more implicit prizes than I used to realize.  In fact, getting a grant is one of the biggest prizes you can receive, if the grant is sufficiently prestigious.  By an “implicit prizes,” I mean a prize where the target achievement is not quite spelled out, but if “we” (however defined) judge you to have achieved enough, we will pour grants, status, and high quality social networks into your lap.  For instance, Alex and I have received significant “prizes” for writing MR, although none of those prizes have names or bring explicit public recognition, as opposed to general recognition.  We have in contrast never received a grant to write MR, so are prizes really so under-provided?

So my current thinking is a bit less “grants vs. prizes,” and somewhat more “implicit prizes vs. explicit prizes, each combined with grants to varying degrees.”  Implicit prizes are more flexible, but they also are easier to cheat with, since the standard of achievement is never quite clear.  Implicit prizes also are much more valuable to people who can use, build, and exploit their social networks, and of course that is not everyone (but shouldn’t we be giving more prizes to those people?).  Implicit prizes also can be revoked through subsequent loss of status.  Implicit prizes are more likely “granted” by the hands of social networks rather than judging panels, all of those features being both cost and benefit.

Now to the specific points:

1. As the venture capital ecosystem grows, and as the value of publicity rises (it is easier to monetize scientific and other sources of fame), and there are more “influencers in the broad sense,” there are more implicit prizes to be had.  And did the Lunar XPrize fail?  If an end is not worth accomplishing, a prize is one way to find that out.

2. In addition to my point about the proliferation of implicit prizes, the scientific, academic, and political communities are far too conservative in the literal sense of that word.  How many top schools experiment with different tenure procedures?  Different ways of running a department?  It is sad how difficult it is to experiment with changes in academia and science, whether the topic be prizes or not.

3. The best researchers get both grants and prizes (one hopes).

By the way, here is a recent piece on the empirics of prizes, mostly positive results.

The Russo-Turkish Wars

Russo-Turkish wars, series of wars between Russia and the Ottoman Empire in the 17th–19th century. The wars reflected the decline of the Ottoman Empire and resulted in the gradual southward extension of Russia’s frontier and influence into Ottoman territory. The wars took place in 1676–81, 1687, 1689, 1695–96, 1710–12 (part of the Great Northern War), 1735–39, 1768–74, 1787–91, 1806–12, 1828–29, 1853–56 (the Crimean War), and 1877–78. As a result of these wars, Russia was able to extend its European frontiers southward to the Black Sea, southwestward to the Prut River, and south of the Caucasus Mountains in Asia.

That is from the Encyclopedia Britannica, here is Wikipedia on the same.

How the coronavirus is changing the culture of science and publication

A torrent of data is being released daily by preprint servers that didn’t even exist a decade ago, then dissected on platforms such as Slack and Twitter, and in the media, before formal peer review begins. Journal staffers are working overtime to get manuscripts reviewed, edited, and published at record speeds. The venerable New England Journal of Medicine (NEJM) posted one COVID-19 paper within 48 hours of submission. Viral genomes posted on a platform named GISAID, more than 200 so far, are analyzed instantaneously by a phalanx of evolutionary biologists who share their phylogenetic trees in preprints and on social media.

“This is a very different experience from any outbreak that I’ve been a part of,” says epidemiologist Marc Lipsitch of the Harvard T.H. Chan School of Public Health. The intense communication has catalyzed an unusual level of collaboration among scientists that, combined with scientific advances, has enabled research to move faster than during any previous outbreak. “An unprecedented amount of knowledge has been generated in 6 weeks,” says Jeremy Farrar, head of the Wellcome Trust…

The COVID-19 outbreak has broken that mold. Early this week, more than 283 papers had already appeared on preprint repositories (see graphic, below), compared with 261 published in journals. Two of the largest biomedical preprint servers, bioRxiv and medRxiv, “are currently getting around 10 papers each day on some aspect of the novel coronavirus,” says John Inglis, head of Cold Spring Harbor Laboratory Press, which runs both servers. The deluge “has been a challenge for our small teams … [they] are working evenings and weekends.”

Here is the full story, via Michael Nielsen.

Thursday assorted links

The Advance Market Commitment

NBER: Ten years ago, donors committed $1.5 billion to a pilot Advance Market Commitment (AMC) to help purchase pneumococcal vaccine for low-income countries. The AMC aimed to encourage the development of such vaccines, ensure distribution to children in low-income countries, and pilot the AMC mechanism for possible future use. Three vaccines have been developed and more than 150 million children immunized, saving an estimated 700,000 lives. This paper reviews the economic logic behind AMCs, the experience with the pilot, and key issues for future AMCs.

That’s Kremer, Levin and Snyder. Definitely deserving of a Nobel and kudos to Bill and Melinda Gates for being early and major supporters.

Inequality protest sentences to ponder

In countries that did experience mass protests (Chile, Colombia, Ecuador and Bolivia) on the other hand, inequality was either constant or continued to decline in the last few years for which data is available.

Here is the full World Bank blog post by Francisco Ferreira and Marta Schoch.  That is via Gonzalo Schwarz of the Archbridge Institute, Gonzalo just wrote this excellent piece on economic mobility.