Category: Education
Yglesias on Occupational Licensing
I am outsourcing this post entirely to Matt Yglesias because it's awesome and it made me very happy to see how public choice has moved out in the world:
A number of people, including many commenters here and even alleged
conservative James Joyner think you should need a professional license to become
a barber because you might hurt
someone with a straight razor. Uh huh. At best this would be an argument for
regulating people who do shaves with a straight razor, which would be
considerably narrower than current comprehensive regulation of hair
stylists.Meanwhile, though “torts and the free market will take care of it” isn’t the
answer to everything, it’s surely the answer to some things. Getting
some kind of training before you shave a dude with a straight razor is obviously
desirable in terms of strict self-interest. If you screw it up in a serious way,
you’ll face serious personal consequences and the only way to make money doing
it–and we’re talking about a very modest sum of money–is to do it properly.
People also ought to try to think twice about whether their views are being
driven by pure status quo bias. Barbers are totally unregulated in
the United Kingdom, is there some social crisis resulting
from this? Barber regulations differ from state to state, are the stricter
states experiencing some kind of important public health gains?Last you really do need to look at how these things play out in practice. If
you just assume optimal implementation of regulation, then regulation always
looks good. But as I noted
in the initial post the way this works in practice is the boards are
dominated by incumbent practitioners looking to limit supply. One result is that
in Michigan (and perhaps elsewhere) it’s hard for
ex-convicts to get barber licenses which harms the public interest not only
by raising the cost of haircuts, but by preventing people from making a
legitimate living. States generally don’t grant reciprocity to other states’
licensing boards, which limits supply even though no rational person worries
about state-to-state variance in barber licensing when they move to a New Place.
In New Jersey, you need to take the
straight razor shaving test to cut women’s hair because they’re thinking up
arbitrary ways to incrementally raise the barrier to entry.In principle, you could deal with all these problems piecemeal. But
realistically this sort of problem is inevitably going to arise when you pit the
concentrated interest of incumbent haircutters against the diffuse interest of
consumers. It’s hard enough to make sure that really important regulatory
functions related to environmental protection, public safety, and financial
stability are done properly.
Betting markets in everything
Think you're going to ace freshman year? Want to put money on that?
A website called Ultrinsic is taking wagers on grades from students at 36 colleges nationwide starting this month.
Just as Las Vegas sports books set odds on football games, Ultrinsic will pay you top dollar for A's, a little less for the more likely outcome of a B average or better, and so on. You can also wager you'll fail a class by buying what Ultrinsic calls "grade insurance."
CEO Steven Wolf insists this is not online gambling, which is technically illegal in the United States, because wagers with Ultrinsic involve skill.
Student users claim it motivates them to work harder. Here is the full story, here is another. Here is an Andrew Gelman post.
How do they avoid adverse selection? Is it that they lure failing fools, who think that money will make such a difference?
For the pointer I thank Max Levine, a loyal MR reader.
My dialogue at Ess-a-Bagel
That's the excellent bagel and smoked fish shop at 3rd Ave., just north of 50th St.
I order my bagel from a gentleman with a thick New York accent and he eyes me suspiciously. Finally he grunts out, in a tone slightly less than that of accusation:
Server: "Where are you from?"
(I pause. There are different answers to this question, depending who is asking and where you are. Is it about where you were born, where you grew up, where you live now, and in the latter case how specific should the location be? In Ghana I should say "Washington," though in Portland that answer fails. In North Carolina I can say "northern Virginia." In Arizona I should say "Virginia." In El Salvador I try "Falls Church.")
I answered, after a pause, with a feeling of insecurity:
TC: "New Jersey"
Server: "Really. You look like a farmer!" (pronounced as if the concept were a deeply alien one)
"I thought you were from California or something."
My 2010 Industrial Organization reading list
Industrial Organization I, Tyler Cowen (x2312, 4910), [email protected]
METHODS OF EVALUATION:
There will be weekly quizzes, a paper, and a final exam.
I. Firm behavior, antitrust, and vertical and horizontal control.
Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.
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.
Timothy Bresnahan, “Empirical Studies of Industries with Concentrated Power,” Handbook of Industrial Organization, vol.II.
Tirole, Jean. “Vertical Control.” In Theory of Industrial Organization, Chapter 4.
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).
McKenzie, Richard B. and Lee, Dwight, In Defense of Monopoly, chapter four, “Welfare-Enhancing Monopolies,” on reserve.
Tirole, Jean. “Information and Strategic Behavior: Reputation, Limit Pricing, and Predation.” In Theory of Industrial Organization, Chapter 9, on reserve.
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.
Hazlett, Thomas W. “Is Antitrust Anticompetitive?” Harvard Journal of Law and Public Policy, (Spring 1986).
Crandall, Robert and Whinston, 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.
Holmstrom, Bengt and Tirole, Jean. “The Theory of the Firm,” in Handbook of Industrial Economics, vol.I.
Holmstrom, Bengt and Roberts, John. “The Boundaries of the Firm Revisited.” Journal of Economic Perspectives 12, 4 (Fall 1998): 73-94.
Gibbons, Robert. “Incentives in Organizations.” Journal of Economic Perspectives (Fall 1998): 115-132.
Montgomery, Cynthia. “Corporate Diversification,” Journal of Economic Perspectives (Summer 1994): 163-178.
Hansemann, Henry. “The Role of Non-Profit
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.
Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.
Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.
AER Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?,” runs pp.620-633.
Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf
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.
Charness,
Cowen,
III. Capital structure and control
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.
Hart, Oliver. “Financial Contracting.” Journal of Economic Literature (December 2001): 1079-1100.
Easterbrook, Frank H. “Two Agency-Cost Explanations of Dividends.” American Economic Review (September 1984).
Baker, Malcolm and Wurgler, Jeffrey. “A Catering Theory of Dividends,” Journal of Finance (2004), available at http://pages.stern.nyu.edu/~jwurgler/.
Baker, Malcolm and Ruback, Richard. “Behavioral Corporate Finance: A Survey,” found at http://www.wcfia.harvard.edu/seminars/pegroup/BakerRubackWurgler.pdf
MacKinlay, A.C. (1997), “Event Studies in Economics and Finance”, Journal of
Economic Literature 35(1), 13-39.
Andrade, Gregor, et. al. “New Evidence and Perspective on Mergers.” Journal of Economic Perspectives (Spring 2001): 103-120.
Holmstrom, Bengt and Kaplan, Steven. “Corporate Governance and Merger Activity in the
Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.
Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.
Stein, Jeremy C. “Takeover Threats and Managerial Myopia.” Journal of Political Economy (1988): 61-80.
Scharfstein, David S. and Stein, Jeremy C. “Herd Behavior and Investment.” American Economic Review 80 (June 1990): 465-479.
Hall, Brian and Murphy, Kevin J, “The Trouble with Stock Options,” Journal of Economic Perspectives, Summer 2003, also at http://www-rcf.usc.edu/~kjmurphy/HMTrouble.pdf.
Murphy, Kevin J. and Zaboznik, Jan. “CEO Pay and Appointments,” American Economic Review, May 2004, also at http://www-rcf.usc.edu/~kjmurphy/CEOTrends.pdf
Jensen, Michael, Murphy, Kevin J., and Eric Wruck. “Remuneration: Where We've Been, How We Got to Here, What are the Problems, and How to Fix Them,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=561305#PaperDownload.
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
McKay, Alisdair and Reis, Ricardo, “The Brevity and Violence of Contractions and Expansions,” NBER Working Paper, 12400, 2010.
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.
IV. Theory and Regulation of Natural Monopolies
pp. 21-275.
Demsetz, Harold. “Why Regulate Utilities?” Journal of Law and Economics (April 1968): 347-359.
Williamson, Oliver. “Franchise Bidding for Natural Monopolies – in General and with Respect to CATV.”
Crandall, Robert W. “An End to Economic Regulation?” available at http://www.brookings.org/views/papers/crandall/20030721.pdf.
Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.” American Economic Review 89, 5 (December 1999): 1216-1233.
Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.
Chang, Roberto, Constantino Hevia, and Norman Loayza, “Privatization and Nationalization Cycles,” NBER Working Paper 16126, June 2010.
Berg and Tschirhart, pp. 480-522.
Associated other topics in regulation, depending on your interests; reading suggestions will follow later in the semester.
*Neoconservatism: An Obituary for an Idea*
The author is C. Bradley Thompson and this new book is in broad terms an Objectivist ("Randian") critique of neoconservatism and Leo Strauss. Here is one summary bit:
Inevitably, the neocons are epistemological relativists (though of an anti-egalitarian nature), which is the source, as we shall see momentarily, of their moral relativism. Because the political good in their world is mutable and always changing, the neoconservatives do not want fixed principles to which they are hbeholden, nor do they strive to be morally or politically consistent. Their power and authority is generated and sustained by the illusion that the world is in a state of constant change and that it is governed by what Machiavelli called fortuna. The truth or falsity of an idea is, according to the neocons, determined by its usefulness in a particular situation and for particular people. What is true today, they argue, may not be true tomorrow if an idea or an action fails to work in new and different situations. In such a world, there can be no certainty, no absolutes, no fixed moral principles.
The author writes — correctly – "hoi polloi," instead of the redundant "the hoi polloi."
Thompson argues that Leo Strauss showed sympathies for the Italian fascism of Mussolini, at least relative to liberalism and religion.
At times the book sounds like Bryan Caplan criticizing me, though I take such ripostes to say more about Bryan than about me.
When I was young, I very much enjoyed reading John Robbins's Calvinist answer to Ayn Rand (revised here), even though I did not agree with much of it. I often learn more when ideas clash in relatively stark forms.
In my view, principles and politics don't always mix but the problem is neither epistemological nor moral. Ill-informed voters, especially in diverse societies, can only swallow so much in the form of principle. If one is committed to intellectual discourse, but within the range of the politically feasible, a lot of intellectual principle is difficult to sustain. I do believe in principles, but I don't see that any point of view has overcome this quite general problem. In that sense I do not blame neoconservatism per se. But am I a neoconservative? No, and Brad's book gives some of the reasons why not.
Does Beer Make Bud Wiser?
Here from Razib Khan at Gene Expression is a chart of percentage alcohol drinkers against score on the Wordsum test (0-10 score; a quick and dirty correlate .71 of adult IQ.). I will let you debate causality.
What if universities get rid of tenure?
Here's an NYT forum on the issue. Here is a recent Megan McArdle blog post. Traditionally I've been sympathetic to tenure (disclaimer: I have it), in part because the schools which have done away with it — the for-profits — have carved out a big niche but they have not displaced traditional non-profit, tenure-driven higher education in most fields. Few parents dream of sending their kids there. My point today is simply to note that tenure critics have yet to spell out what the alternative — and thus the debate — really looks like.
If you argue "abolish tenure" the real question is this: under what conditions will professors be fired? For instance, if you abolish tenure but never fire a professor, the change is maybe not so large (though the threat to fire still can change equilibria).
Here's a thought experiment: take a 53-year-old professor, at a moderate quality university, who goes from publishing three articles a year to one article a year, and in somewhat lesser journals than before. His teaching evaluations slip steadily, though he never becomes a disaster in the classroom. In the no-tenure world, does that person get fired? (And what's his chance of finding another job?)
If firing is in order, how much higher do initial wage offers have to be? (Recall that you're asking the new hire to take a $$ wage lower than his human capital would otherwise indicate; btw Megan covers that query here.) Is this deal worth it for universities? If that guy doesn't get laid off, who does? Only the convicted felons?
If you believe in abolishing tenure, and yet tenure won't go away, do you also think schools should cut entry-level wages for new professors, as a second-best means of lowering their total compensation? How do you feel about the achievement paths of the schools that are already trying this strategy? Will abolishing tenure involve any compensation scheme other than that already used by current for-profits in higher education?
With the pro-tenure arguments, you might wonder how higher education is supposed to differ from other sectors of the economy. I believe it is this: given that higher education is in part about signaling and certification, socialization and networking of students, "warm glow" of the donors, and research superstars, the later-period shirking of the typical laggard doesn't hurt actual productivity nearly as much as the schools themselves might like to think.
This also suggests that schools themselves will never make an intellectually convincing case for tenure, since they can't come out and admit that "in the longer run, most of us don't really matter, we only pretended our productivity was worth something in the first place." Education as theatre, and all that; see my The Age of the Infovore.
When I hear answers to the above questions, namely what the alternative to tenure looks like, then the tenure debate will be getting somewhere.
To some extent the proposed gains from abolishing tenure can be reaped simply by increasing teaching load, relying more on on-line instruction and/or reintroducing mandatory retirement.
Is Creativity Declining?
Nobody would argue that Torrance’s tasks, which have become the gold standard in creativity assessment, measure creativity perfectly. What’s shocking is how incredibly well Torrance’s creativity index predicted those kids’ creative accomplishments as adults. Those who came up with more good ideas on Torrance’s tasks grew up to be entrepreneurs, inventors, college presidents, authors, doctors, diplomats, and software developers. The correlation to lifetime creative accomplishment was more than three times stronger for childhood creativity than childhood IQ.
Like intelligence tests, Torrance’s test–a 90-minute series of discrete tasks, administered by a psychologist–has been taken by millions worldwide in 50 languages. Yet there is one crucial difference between IQ and CQ scores. With intelligence, there is a phenomenon called the Flynn effect–each generation, scores go up about 10 points. Enriched environments are making kids smarter. With creativity, a reverse trend has just been identified and is being reported for the first time here: American creativity scores are falling.
From Newsweek. I am not at all convinced that creativity is on the decline. The study cited seems to be unpublished and there isn't much on the author's website which is a little, well, too creative for my tastes. Nevertheless, the Torrance test and its correlation with lifetime creative is interesting and a good reminder of what IQ tests do not reveal. I also liked this bit:
When faculty of a major Chinese university asked Plucker to identify trends in American education, he described our focus on standardized curriculum, rote memorization, and nationalized testing. “After my answer was translated, they just started laughing out loud,” Plucker says. “They said, ‘You’re racing toward our old model. But we’re racing toward your model, as fast as we can.’ “
How to watch and rewatch movies
Andrew Fischer Lees, a loyal MR reader, asks:
Tyler and Alex, do either of you find yourself re-watching movies?
If you see it in the theatres, will you re-watch it on your own home TV? My personal rules is to watch each movie only once in theatres, so as to have the most entertaining recollection of the movie as possible. That said, movies that are quite plot or character driven, and that contain minimal audio/visual candy (e.g. Goodnight and Good Luck), often are exceptions to this rule. Any strategy that you (or your readers) employ?
I have a few (loose) principles here:
1. I will rewatch action movies, but preferably on a big screen. I don't like to downgrade my experience of a movie, if I can help it. Avoiding the downgrade is the #1 principle for movie rewatching.
2. It is rare that I enjoy rewatching comedies, no matter how good they were the first time around.
3. I am most likely to benefit from rewatching slow and complex dramas, especially those not in English. I am interested in learning something from the rewatch, not just replicating a familiar experience of cackling pleasure or glee. Tarkovsky movies are my nomination for those which bear the highest returns from rewatching, Godard movies too. Rewatching good Hitchcock movies does not bore me.
Here are informal data on the most rewatched movies. What principles can you all suggest?
Gender Parity in Schooling Around the World
The world has reached gender parity in schooling and in a few years we will see a schooling ratio in favor of women. Using UNESCO statistics (more detail here) on school life expectancy, the average country has a parity level of 1.01 in favor of women or, weighting by population, .991. In other words, at current rates women can be expected to get the same number of years of education as men, as a world average.
Equal life expectancy of schooling on a world level does not mean that all is well – basically we have a relatively small number of countries in which women get much less education than men and a large number of countries in which women get somewhat more education than men. On the vertical axis in the figure below (click to enlarge) is total life expectancy in school and on the horizontal axis the ratio of female to male life expectancy in school. The figure tells us a number of interesting things. First, the largest imbalances are against women and these tend to occur in countries with a low level of total education. South Korea is an interesting outlier.
Second, in India parity is below 1 and in China it is above 1. In India female school life expectancy increased by a huge 2.5 years between 2000 and 2007 and the parity ratio increased from .77 to .9 so we can expect the (weighted) world parity level to easily tip over 1 in the next few years (if it has not done so already). The graph suggests that a ratio around 1.09 is the "norm" towards which countries are trending with development.
Interestingly, some of the Muslim countries, such as Pakistan and Afghanistan (no data for 2007-2008 but in 2004 the parity ratio was less than 0.5), are below parity but Qatar and Iran have some of the highest ratios in the world, both above US levels.
The Solow Model with Mathematica
In Modern Principles Tyler and I explain the Solow model of economic growth and show how the model can easily be run using Excel. I have also written a fun Mathematica demonstration of the Solow model.
You can see a quick animation of what the demonstration does by clicking "watch web preview" at the link above but anyone can also run the demo interactively by downloading a free copy of Mathematica Player. The Player is actually a stripped down version of Mathematica so what you see in the demo is not an animation but a computation of the equilibrium on the fly. Many of the other demonstrations in science, math, economics and other fields are also of interest.
The demographics of web search: which groups search for what?
In a recent research paper, Weber and Castillo report:
How does the web search behavior of "rich'' and "poor'' people differ? Do men and women tend to click on different results for the same query? What are some queries almost exclusively issued by African Americans? These are some of the questions we address in this study. Our research combines three data sources: the query log of a major US-based web search engine, profile information provided by 28 million of its users (birth year, gender and zip code), and US-census information including detailed demographic information aggregated at the level of ZIP code. Through this combination we can annotate each query with, e.g., the average per-capita income in the ZIP code it originated from….
Here are a few details:
What kind of web results would you personally want to see for the query "wagner"? Well, if you are a typical female US web user you probably have pages about the composer Richard Wagner in mind. However, if you are a male US web user you are more likely to be referring to a company called Wagner which produces paint sprayers. Similarly, the term most likely to complete the beginning "hal" is in general "lindsey," [an evangelist and Christian writer] whereas for people living in areas with an above average education level the most likely completion is "higdon." [an American writer and runner]
And what are the "most discriminating" search queries for various demographic groups? Suddenly I felt awkward reading this piece. Do note that the method of construction means the list will be dominated by demographically skewed neighborhoods, which need not be representative of the group as a whole.
Below the poverty line:
slaker [seems to be an informal misspelling of "slacker"]
kipasa [Spanish-language animation site]
I had never heard of any of those.
If you have a BA, the most discriminating search query is
"spencer stuart executive search," followed by some other boring-sounding choices, such as "four seasons jackson hole." To continue with some groups:
Whites:
pulloff.com [concerns tractors and motorsport]
central boiler wood furnace
firewood processors
midwest super cub
African-Americans:
trey songs bio [should be "songz"]
def jam records address
s2s magazine
madinaonline [sells body oils]
There is more information on p.5 of the paper. Can you guess which group is well-predicted by the search query "jingos para baby shower"?
For the pointer I thank David Curran.
What’s an economics major good for?
This is a few years old, but I don't recall having covered it already. From Patricia Flynn and Michael Quinn:
It is often suggested that Economics is a good major for individuals interested in becoming business leaders. Despite this widespread assertion, little research has been conducted on this topic. Using the Standard and Poor (S&P) 500 companies, this paper examines the validity of such a claim. We find evidence that Economics is a good choice of major for those aspiring to become a CEO. Economics ranked third with 9% of the CEOs of the S&P 500 companies in 2004 being undergraduate Economics majors, behind Business Administration and Engineering majors, each of which accounted for 20% of the CEOs. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major. That is, the share of graduates who were Economics majors who were CEOs in 2004 was greater than that for any other major, including Business Administration and Engineering. The findings also show that a higher percentage of CEOs who were Economics majors subsequently completed a graduate degree – often an MBA – than did their counterparts with Business Administration and Engineering degrees. The paper demonstrates that while women now comprise over half of all bachelors and masters degrees awarded, they remain a minority in terms of undergraduate degrees awarded in Economics and in MBA degrees conferred. Economics programs may try to appeal to more women students as a stepping stone to becoming a CEO, especially as women continue to account for less than 2 percent of the S&P 500 CEOs.
For the pointer I thank Pablo Halkyard.
Dictionary of Received Ideas
That's the name of a feature by Justin Evans in the new periodical The Point (issue two, Winter 2010). It's a bit like Ambrose Bierce's Devil's Dictionary and I found it to be the funniest article I have read this year. (It doesn't seem to be on-line.) Here is one set of consecutive entries:
Economics: actually explains everything
Economy, the: completely incomprehensible
I also liked this one:
Debt: i) public — is inexcusable;
private — drives the economy.
ii) public — drives the economy;
private — is a failure of social safety nets.
They're not mostly about economics, by the way. Most magazines bore me, especially those with an arty or intellectual feel to them. Yet I have read half an issue of The Point (found browsing in a Berlin bookstore) and, based on that data, I think it is excellent and I will be starting a subscription.
How do higher-IQ people choose?
Our main finding is that risk aversion and impatience both vary systematically with cognitive ability. Individuals with higher cognitive ability are significantly more willing to take risks in the lottery experiments and are significantly more patient over the year-long time horizon studied in the intertemporal choice experiment.
The link is here, gated for most of you (non-gated is here), and the authors are Thomas Dohmen, Armin Falk, David Huffman, and Uwe Sunde. The subjects, by the way, were Germans. The results held somewhat less strongly for females and younger individuals.