Category: Economics
“Displacement in the Criminal Labor Market: Evidence from Drug Legalizations”
Legalizing drugs harms some black markets but spurs activities in others:
It is widely hypothesized that legalization disrupts illicit markets and displaces illegal suppliers, but the consequences for those who are displaced remain poorly understood. In this paper, I use comprehensive administrative data from three states that legalized marijuana covering all individuals released from prison in the years immediately before and after the policy change to estimate the effect of legalization on the subsequent criminality of convicted dealers. I find that marijuana legalization increased the 9-month recidivism rate of marijuana offenders by 6 percentage points relative to a baseline rate of 10 percent. The increased recidivism is largely driven by a substitution to the trafficking of other drugs, which is consistent with a Becker-style model where individuals develop human capital specific to the drug industry. To learn about potential mechanism behind these results, I use detailed drug transaction price data to estimate the effect of legalization on average prices and price dispersion, and I find suggestive evidence that both the average level and residual variance decline following legalization, which is consistent with legalization eroding rents earned in the illicit marijuana market. Lastly, I explore the generalizability of my findings in a distinct legalization experiment from history: the end of National Prohibition. I replicate the main insights at an organizational level and show that, in response to the repeal of Prohibition, the Italian-American Mafia shifted personnel from bootlegging to narcotics. Overall, the results in this paper suggest that an unintended consequence of drug legalization is a re-allocation of drug criminals to other illicit activity.
That is from Heyu Xiong, who is currently on the job market from Northwestern.
MR sentences to ponder
Also, I finally had a chance to meet Tyler Cowen and tell him that his blog played a bit part in how I ended up dating my now-wife. Back when we were messaging on OKCupid (to clarify: my wife and I were messaging; I have not contacted Tyler Cowen on OKC), I wanted to establish my Internet-nerd bona fides, so I mentioned that I’d been linked by a prominent economics blog. She mentioned that she had been linked by a very prominent economics blog. It was Marginal Revolution, both times. (Her post: on taking oneself seriously. My post is lost to history, but I believe it was about the causes and consequences of onion futures being illegal.)
Since Cowen is an expert on many topics, it should come as no surprise that he’s an export on MR lore, so he informed me that at least one couple has gotten married on the site. One economic story you can tell about the last hundred or so years is that, as economies globalize, we compete head-to-head with more people, and need to define our domains ever more narrowly if we hope to be #1. Apparently “used Marginal Revolution to get married” was, in fact, far too broad a domain for me to have any hope of excelling.
That is from Byrne Hobart, with the essay mostly on his recent visit to Bloomberg and the Bloomberg AI panel.
Why do women earn less than men? Evidence from train and bus operators
Even in a unionized environment, where work tasks are similar, hourly wages are identical, and tenure dictates promotions, female workers earn $0.89 on the male-worker dollar (weekly earnings). We use confidential administrative data on bus and train operators from the Massachusetts Bay Transportation Authority (MBTA) to show that the weekly earnings gap can be explained entirely by the workplace choices that women and men make. Women value time and flexibility more than men. Women take more unpaid time off using the Family Medical Leave Act (FMLA) and work fewer overtime hours than men. Men and women plan to work similar overtime hours when they are scheduled three months in advance, but men actually work nearly 50% more overtime hours than women. Women with dependents value time away from work more than do men with dependents. When selecting work schedules, women try to avoid weekend, holiday, and split shifts more than men. To avoid unfavorable work times, women prioritize their schedules over route safety and select routes with a higher probability of accidents. Women are less likely than men to game the scheduling system by trading off work hours at regular wages for overtime hours at premium wages. Conditional on seniority, which dictates choice sets, the weekly earnings gap can be explained entirely by differences in operator choices of hours, schedules, and routes.
That is the Harvard job market paper of Valentin Bolotnyy, co-authored with Natalia Emanuel.
Can Token Curated Registries Actually Work?
A Token Curated Registry (TCR) is a mechanism to incentivize the creation of high quality lists in a decentralized setting. TCRs are becoming popular in the token space. As part of advisory work on mechanism design for the startup Wireline, I wrote a research note on TCRs. I am not as enthused as many others. Here are some takeaways:
Token Curated Registries can work but there is no guarantee that voters will coordinate on the truth as a Schelling point so care needs to be taken in the design stage to imagine other Schelling points. The less focal or more costly it is to discover the truth, the more vulnerable the mechanism will be to biases and manipulation via coordination or collusion.
To understand whether a TCR will work in practice attention needs to be placed on the information environment. The key practical issues are the cost of acquiring high-quality information and the value to an applicant of getting on the registry. Put simply, TCRs are likely to work when high quality information is available at low cost. Vitalik Buterin’s examples of Schelling points were (wisely) all of this kind. Extensions of the Schelling point model to TCRs which are trying to surface information that is much more uncertain, variable and disputed need to recognize the limitations.
It will often be more important to put effort into lowering the cost of acquiring high quality information than it will be to modify the particulars of the mechanism. If high-quality, low-cost information is available many mechanisms will work tolerably well. If high-quality, low-cost information isn’t available, perhaps none will.
Read the whole thing at Medium.
And do check out Wireline. Wireline isn’t going to Mars but it is creating what could be a significant and very useful protocol to find and connect software services to quickly produce decentralized applications that can scale on demand.
Blockchains in Space!
As far as I can tell, this is Not From the Onion.
Blockchain venture production studio ConsenSys, Inc. has acquired the pioneering space company Planetary Resources, Inc. through an asset-purchase transaction. Planetary Resources’ President & CEO Chris Lewicki and General Counsel Brian Israel have joined ConsenSys in connection with the acquisition.
…Ethereum Co-founder and ConsenSys Founder Joe Lubin said, “I admire Planetary Resources for its world class talent, its record of innovation, and for inspiring people across our planet in support of its bold vision for the future. Bringing deep space capabilities into the ConsenSys ecosystem reflects our belief in the potential for Ethereum to help humanity craft new societal rule systems through automated trust and guaranteed execution. And it reflects our belief in democratizing and decentralizing space endeavors to unite our species and unlock untapped human potential. We look forward to sharing our plans and how to join us on this journey in the months ahead.”
As Eli Dourado quipped, cryptocurrency mining, asteroid mining, pretty much the same thing, right? ¯\_(ツ)_/¯
The best job market paper I have seen so far this year
From Hyejun Kim at MIT”s Sloan School:
Knitting Community: Human and Social Capital in the Early Transition into Entrepreneurship
The process by which individuals become entrepreneurs is often described as a decisive moment of transition, yet it necessarily involves a series of smaller steps. This study examines how human capital and social capital are accumulated and deployed in the earliest stages of the entrepreneurial transition in the setting of “user entrepreneurship.” Using the unique dataset from Ravelry—the Facebook of knitters—I study why and how some knitters become entrepreneurs. I show that knitters who make the entrepreneurial transition are distinctive in that they have experience in fewer techniques and more product categories. I also show that this transition is facilitated by participation in offline social networks where knitters garner feedback and encouragement. Importantly, social and human capital appear to complement each other with social capital producing the greatest effect on the most skilled users. Broader theoretical implications on user innovation, the role of social capital, and entrepreneurship research are discussed.
Here is part of the concluding summary:
…the critical factor explaining why some creative knitters transition to designers is the feedback and encouragement they receive from fellow knitters and friends. With a carefully matched sample, difference-in-difference analysis verifies that the participation in an offline local networking group increases the likelihood of transition by 25%. Furthermore, the results suggest that social capital effect is largest among those with entrepreneurial human capital, as social capital complements human capital in knitters’ transition to
designers.
I have read through the entire paper and the whole thing is a gem.
Do female department chairs matter?
Appointing female managers is a common proposal to improve women’s representation and outcomes in the workplace, but it is unclear how well such policies accomplish these goals. Using newly-collected panel data on academic departments, I exploit variation in the timing of transitions between department chairs of different genders with a difference-in-differences research design. For faculty, I find female department chairs reduce gender gaps in publications and tenure for assistant professors and shrink the gender pay gap. Replacing a male chair with a female chair increases the number of female students among incoming graduate cohorts by ten percent with no evidence of a change in ability correlates for the average student.
That is from a new paper by Andrew Langan, who is a job market candidate from Princeton this year. He has another paper with Leah Boustan, here is an excerpt from the abstract:
We find that schools with better outcomes for women also hire more women faculty, facilitate advisor-student contact, provide collegial research seminars, and are notable for senior faculty with awareness of gender issues.
In yet another piece he estimates the value of unpaid cooking time in Mexico, always higher than you think I would say.
Can You Outsmart an Economist?
Can You Outsmart an Economist? is an excellent book of puzzles put together by Steven Landsburg. Steve includes a lot of classics such as the Girl Named Florida Problem, the Potato Paradox and Newcomb’s paradox, the former two problems are presented in slightly different and in the first case improved forms so you might not recognize them on first reading. Steve also includes many economic puzzles, Bayes puzzles, common knowledge problems and more. Readers of this blog will certainly know some of the puzzles but will also find lots of novel problems and puzzles. Also included are philosophical paradoxes. For example, the headache problem.
A billion people are experiencing fairly minor headaches, which will continue for another hour unless an innocent person is killed, in which case the headaches will cease immediately. Is it okay to kill that innocent person?
The puzzle here isn’t the answer. The answer is obvious. The puzzle is that smart people can’t agree which answer is obvious.
Overall, this is the best and most diverse collection of puzzles that I know. It’s meant to be dipped into and sampled at leisure. My only complaint is that the puzzles are followed by answers which makes it too easy to fool yourself into thinking you always knew the answer! Answers in the back of the book would have been a minor form of commitment. Recommended.
Will the decline of galleries reshape art?
Heidi Mitchell reports (NYT):
“The gallery is a format that is struggling,” said the Argentine curator Ximena Caminos, formerly of the Malba museum in Buenos Aires and now chief creative officer of the Honey Lab cultural space in Miami’s Blue Heron hotel and residential project, which is now under development. “It’s transactional; the artist doesn’t have that much creative freedom, and there is a lot of pressure to make money in a short period of time.” Artists, she said, are seeking new places to showcase their work, especially if the pieces are large in scale.
If the number and relevance of galleries were to decline (continue to decline?), how might this affect artistic content? Here are a few hypotheses:
1. More artists will commission pieces for corporate lobbies and condominiums, as the article reports. That will tend to favor mainstream abstract art and disfavor political statements and obscenities.
Erica Samuels notes:
“There is a great responsibility on the real estate developers that maybe they don’t even realize, while at the same time, the stigma of an artist working with a rich developer is fading.”
2. Corporate-owned works are usually less liquid and may not be sold at all, short of bankruptcy or liquidity crunches, when they are sold under panic conditions. Artists therefore will be less likely to have dominant dealers who prop up their prices and cultivate markets for them. That will likely encourage greater artistic output, though also lower quality output, as might be defined by elites. The resulting art will have to appeal to buyers at first glance, as the artist cannot count upon “sophisticated” galleries to persuade or educate potential buyers.
3. Some artists will take their craft directly to the street, as is done in Belfast or Newark, New Jersey. They will paint for local community status, and for the joy of it, and for political self-expression, rather than for pay. They will use cheaper materials, brighter colors, and indulge in themes and images with strong local meaning. Political art and paid art will separate further.
4. Galleries pursue their own coherent reputations, which encourages carried artists to fit into slots which match gallery reputations. So there are “conceptual art galleries,” “Pop Art galleries,” and so on, and artists in turn target those styles, so as to achieve entry to galleries. When galleries are weaker, the slottable categories are created by some other set of intermediaries — might it someday be Instagram hashtags? eBay search terms? Something else? In any case, those new slots or styles might have to be less “you know it when you see it” and more “you can type those words into a search function.”
5. The decline of browsing has hit published books as well, especially fiction, which saw a big decline in sales over 2013-2017: “The most commonly shared view is that it has become extremely difficult to generate exposure for novels. Fiction, more than nonfiction, depends on readers discovering new books by browsing. Now, with the number of physical stores down from five years ago (despite a rise in ABA membership), publishers cannot rely on bricks-and-mortar stores providing customers with access to new books.” It is easier to type the topic of a non-fiction book into a search function. In this world it is harder to develop new authors [artists], and the link directly above, while about books, is a good way to start thinking about the galleries issue.
6. Most galleries, either intentionally or not, create a distinction between what is shown on the floor and what is held in the back room. Non-gallery art is less likely to be bifurcated in the same way, even if some pieces are more prominent on the home page than others. That may make internet-displayed art less “bubbly,” less subject to elite manipulations and prejudices and enlightenments, and also both fuzzier and lower in price.
7. If there are fewer galleries, perhaps more will be bought and sold at auction. The winning bidder will be less likely to be ripped off by say 3x on the price, so it will be easier to experiment with buying unfamiliar styles: “I liked the Persian carpet I saw at Sotheby’s, and figured the winning bid wouldn’t have too much winner’s curse in it.” You can’t say the same when you go to a gallery relatively uninformed.
8. Galleries offer high implicit returns to regular buyers, who end up getting a crack at the best works in advance, even before the show opens. That encourages buyer specialization, whereas internet and auction-based methods of selling do not.
9. What else?
*Persecution and Toleration: The Long Road to Religious Freedom*
That is the forthcoming book by my excellent colleagues Noel Johnson and Mark Koyama, due out next January, you can now pre-order here.
Here is the Amazon summary:
Religious freedom has become an emblematic value in the West. Embedded in constitutions and championed by politicians and thinkers across the political spectrum, it is to many an absolute value, something beyond question. Yet how it emerged, and why, remains widely misunderstood. Tracing the history of religious persecution from the Fall of Rome to the present-day, Noel Johnson and Mark Koyama provide a novel explanation of the birth of religious liberty. This book treats the subject in an integrative way by combining economic reasoning with historical evidence from medieval and early modern Europe. The authors elucidate the economic and political incentives that shaped the actions of political leaders during periods of state building and economic growth.
I have read the entire thing (a slightly earlier draft), very definitely recommended.
Young “stars” in economics
We use a novel dataset of job flyouts for junior economists to investigate three aspects of the market for “stars”. First, what is the background of students who become stars? Second, what type of research does the top of the market demand? Third, where do these students take jobs? Among other results, we show that stars are more international and less female than PhDs overall, that theoretical and semi-theoretical approaches remain dominant, that American programs both produce the most stars and hire even more, that the private sector is largely uncompetitive, and that there is a strong shift toward stars having pre-PhD full-time academic research jobs.
That is the abstract of a new paper from Kevin A. Bryan, also known as A Fine Theorem. Via Beth Popp Berman.
And here is a point on the stickiness of academic rankings over time:
In economics, among the 13 programs with the most published pages in a Top 5 journal by their faculty between 2002 and 2009, all 13 were among the top 18 in the same ranking for publications between 1974 and 1978 (McPherson [2012])!
“!” is right! And this:
…almost 80% of the faculty at a top 10 economics department did their PhD in a top 10, compared to 58% in mathematics and 63% in literature.
!!
Shopping While Black: Past, Present and Future?
The original Sears mail-order catalogue changed how African Americans in the South shopped:
…the catalogue format allowed for anonymity, ensuring that black and white customers would be treated the same way.
“This gives African Americans in the Southeast some degree of autonomy, some degree of secrecy,” unofficial Sears historian Jerry Hancock told the Stuff You Missed in History Class podcast in December 2016. “Now they can buy the same thing that anybody else can buy. And all they have to do is order it from this catalogue. They don’t have to deal with racist merchants in town and those types of things.”
More recently, Uber has alleviated many of the traditional difficulties that blacks have had hailing taxis.
In a heartfelt essay Ashlee Clark Thompson explains how the “grab and go” technologies now being tested at Amazon Go made her confront lessons learned from decades of shopping while black:
The idea of walking into a store, taking an item or several off the shelves and strolling right back out again boggled my mind. It ran counter to everything I had learned about being black and shopping.
…I grabbed one of the orange Amazon Go bags and began to make my way around the perimeter of the store. I was studying the various bottled waters and debating whether to get fizzy or still, or a bottle of kombucha, when I realized what I was really doing: I was stalling. The fear I had carried with me for decades reared its head as I stood in front of the refrigerated display. I was afraid to make a choice, remove it from a shelf and put it in my bag. I was afraid someone would pop out from behind a display of Amazon-branded merch and scream, “Get your hands off that!” And I was mad that this fear couldn’t even let me fully enjoy an experience that’s designed for everyone to grab and go, no questions asked.
Eff this, I thought. I’m getting some Vitamin Water.
Once the plastic bottle hit the bottom of my reusable bag, I glanced around to see if anyone noticed. The Amazon employees shuffled around the small store and restocked shelves. Tourists chatted in small groups as they pointed and looked for the sensors that were keeping track of our every move. One guy with his phone on a selfie stick recorded himself as he selected snacks. And then there were the folks for whom the novelty had worn off and just wanted a vegetarian banh mi sandwich.
No one cared what I was doing. Is this what it feels like to shop when you’re not black?
…Amazon Go isn’t going to fix implicit bias or remove the years of conditioning under which I’ve operated. But in the Amazon Go store, everyone is just a shopper, an opportunity for the retail giant to test technology, learn about our habits and make some money. Amazon sees green, and in its own capitalist way, this cashierless concept eased my burden a little bit.
The similarities in these cases are interesting but so are the differences. In the Sears case most of the effect of diminished discrimination was driven by greater competition in one-shop towns. In the one-shop town the owners sometimes took a share of their monopoly profits in invidious racism–this appears to explain why shop owners would prevent blacks from buying more expensive products (or perhaps the one-stop shop had to cater to racist customers who demanded invidious discrimination.)
In the Uber case my bet is that a large share of the reduction in discrimination was due to the fact that Uber drivers don’t carry cash and so are less worried about robbery and the app increases safety because it records in detail rider, driver and trip data. In other words, the Uber system reduced the value of statistical discrimination. It’s difficult to know for sure, however, because there was probably also some decline in invidious discrimination brought about by Uber hiding some rider information from drivers until trips are accepted.
The last case, the Amazon Go case, is in part a decline in the value of statistical discrimination since shoplifting is no longer a problem (in theory, assuming the technology works) but in this case the decline in statistical discrimination is driven by much finer discrimination. The moment a shopper enters the Amazon Go store, Amazon knows their name, address, entire shopping history, credit history and potentially much more. Moreover, a shopper’s every movement within the store is tracked to a level of detail that no store detective could ever hope to match. To the customer, especially the black customer, it may feel like they are no longer being watched but in fact they are watched more than ever before–the costs of technological monitoring, however, are mostly fixed which means that everyone is monitored equally. No need for statistical discrimination in the panopticon.
Addendum: A good dissertation might be to incorporates the cost of information, the value of statistical discrimination and the demand for invidious discrimination in a general theory that explains the various cases mentioned here and the effects of information bans such as ban the box.
Incentives matter
Chad Haag considered living in a cave to escape his student debt. He had a friend doing it. But after some plotting, he settled on what he considered a less risky plan. This year, he relocated to a jungle in India. “I’ve put America behind me,” Haag, 29, said.
He now lives in a concrete house in the village of Uchakkada for $50 a month. His backyard is filled with coconut trees and chickens. “I saw four elephants just yesterday,” he said, adding that he hopes to never set foot in a Walmart again.
His debt is currently on its way to default. But more than 9,000 miles away from Colorado, Haag said, his student loans don’t feel real anymore.
“It’s kind of like, if a tree falls in the woods and no one hears it, does it really exist?” he said.
The philosophy major concedes that his student loan balance of around $20,000 isn’t as large as the burden shouldered by many other borrowers, but he said his difficultly finding a college-level job in the U.S. has made that debt oppressive nonetheless. “If you’re not making a living wage,” Haag said, “$20,000 in debt is devastating.”
Here is the full story by Annie Nova, with photos and video. Via the excellent Samir Varma.
Quote of the Day
The state-the machinery and power of the state-is a potential resource or threat to every industry in the society. With its power to prohibit or compel, to take or give money, the state can and does selectively help or hurt a vast number of industries…The central tasks of the theory of economic regulation are to explain who will receive the benefits or burdens of regulation, what form regulation will take, and the effects of regulation upon the allocation of resources.
Regulation may be actively sought by an industry, or it may be thrust upon it. A central thesis of this paper is that, as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.
Stigler, George J. 1971. “The Theory of Economic Regulation.” Bell Journal of Economics Spring: 137–46.
My interview with Pioneer
Short, and mostly about boyhood, here is one bit:
If you became really good at something (physics, programming, art, music), how exactly did you first get hooked?
Learning is fun. I found that social sciences are a good vehicle for learning things all the time. That got me hooked. It made my travel more salient, and it enriched the time I spent with music and the arts. It helped me make sense of people, too. All that at once. That was a pretty potent brew, and it still is.
What are some weird things you worked on or did as a teenager?
These days, what’s weird? I play chess intensively for four years, ages 10 to 14. Then I studied economics for the rest of my life. Arguably I was less weird as a teenager than I am today. What’s weird is that I haven’t “matured” into a less intensive course of study.
Here is the full link, here is a link to Pioneer, a new venture capital enterprise to discover the “lost Einsteins.” That may be you, so go apply. Here is a Pioneer list of some specific projects of interest.