The intergenerational transmission of IQ

Here are some recent results, from Sandra Black, Paul Devereux, and Kjell Salvanes.

More able parents tend to have more able children. While few would
question the validity of this statement, there is little large-scale
evidence on the intergenerational transmission of IQ scores. Using a
larger and more comprehensive dataset than previous work, we are able
to estimate the intergenerational correlation in IQ scores, examining
not just average correlations but also how this relationship varies for
different subpopulations. We find that there is substantial
intergenerational transmission of IQ scores; an increase in father’s IQ
at age 18 of 10% is associated with a 3.2% increase in son’s IQ at the
same age. This relationship holds true no matter how we break the data.
This effect is much larger than our estimated elasticity of
intergenerational transmission of income of approximately .2.

Here are ungated versions, or here.  Note that a) this is based on Norwegian data, b) income elasticity declines with birth order, c) intergenerational IQ elasticities are broadly the same across different levels of education for the father, d) the sample size is much larger than usual, and e) the author caution against assuming this is entirely a genetic effect; in another study large family size lowers IQ for instance, adjusting for parental IQ.

The experience trap

Around the blogosphere you will see many left-wing writers criticizing Palin for lack of experience.  Maybe this criticism is correct, but these commentators are falling into The Trap.  Most American voters do not themselves know much detail about foreign affairs and their vision of an experienced leader does not require such knowledge.  Was it demanded from Reagan?  Doesn’t everyone agree that Cheney and Rumsfeld knew plenty?  Rightly or wrongly, many American voters will view Palin’s stint as mayor of small town, her background in sports, her role in a beauty contest (yes), her trials raising teenage children, and her decision to stick with her priinciples and have a Downs Syndrome baby as all very valuable and relevant forms of experience.  The more the word "experience" is repeated, no matter what the context, the more it will hurt Obama.  Palin needs to appear confident and capable on TV and in the debates, but her ticket is not going to lose votes if she cannot properly spell Kyrgyzstan or for that matter place it on a map.

Addendum: Here is early response over at The Clinton Forum.

Voters trust good-looking extremists

Trying to appear moderate is not always the best strategy for capturing votes during an election, reveals a new study. Extreme positions can build trust among an electorate, who value ideological commitment in times of uncertainty.

Here is the full story, with a hat tip to Eduardo Pegurier.  And here’s Robin Hanson:

In a TV game show, pretty contestants were not better or more cooperative players, but other contestants seemed to act as if they were.

I don’t know much about the substance or qualifications of Sarah Palin, but I believe that Democrats should be a little worried right now.  The otherwise-expected Romney and Pawlenty gifts have been taken off the table.

Addendum: Here’s Palin talking economics with Larry Kudlow.

Sarah Palin

Now over 80 percent in the betting markets.  And here is the gossip behind that.  Electorally this is a very effective pick I think (if indeed it is true), though it is hard for me to imagine a President with five (young) kids.

Addendum: No, that wording isn’t quite right.  How should I put this…?

Second addendum: Her stock in the market is now plummeting, now down to about 35, as there is a report she is still in Alaska.  I am told that last night Pawlenty was up to about 85 but then fell dramatically as well.  It has been a wild ride in this market.  And now Palin is back up again, etc.  Whatever.  Now it’s at 96.  Now confirmed.

More: Credible signals, in one link or less.

What is your dream book?

I want you to tell me.  It’s a book that doesn’t currently exist.  It is a work of non-fiction.  The author must be living.  It must be a work the author could plausibly write.  It doesn’t have to be a close cousin of a book the author has already written.

So you could request "Jared Diamond on sexual selection" but not "Joseph Stiglitz on the early history of Ghenghis Khan."

Do please tell us your pick.  Comments are open…

Mean and Lowly Things

The two Pygmies persuaded to work for me have reputations as the worst guides in the village.  Their cooking often includes rotting fish, which they serve cold for breakfast if I don’t finish it at dinner.  They are supposed to do my laundry, but they find women’s underwear too embarrassing to contemplate.  They won’t go out after dark, and they consider wading in the swamp to be absolute folly.  So I’m almost late one night when I fall over a log and scrape my left leg, on my way back from the swamp with a bag of treefrogs.

I think nothing of the scrape until 5 days later, when my temperature shoots to 104F and my leg swells and turns red.  Some microbe from the swamp has entered through the scrape and spread to infect my whole body.  Perhaps the Pygmies had some sense in refusing to wade in the swamp.

That is from Kate Jackson’s Mean and Lowly Things: Snakes, Science and Survival in the Congo.  It is an excellent and very fun book on fieldwork and on the topics mentioned in its subtitle.  I think of this as "a Chris Blattman book" and yes you should be reading Chris’s blog.

The roots of Beatlemania — egomania?

The Beatles even cultivated this sort of personal connection to their audience.  In their early songs, Paul McCartney says, he and John intentionally — somewhat calculatingly — tried to inject personal pronouns into as many of the early lyrics as they could.  They took seriously the task of forging a relationship with their fans in a very personal way.  "She Loves You," "I Want to Hold Your Hand," "P.S. I Love You," "Love Me Do," "Please Please Me," "From Me to You."

Don’t forget "And I Love Her," among a bunch of others.  And by egomania I am referring to the audience not (only) the performers.  This passage is from Daniel J. Levitin’s new and quite interesting The World in Six Songs: How the Musical Brain Created Human Nature.

What is worth its weight in gold?

Here is a list of stuff worth more than its weight in gold, expressed in terms of price per pound:

Platinum $20,679
Fifty Dollar Bills $22,680
Cocaine $22,680
Hundred Dollar Bills $45,359
Rhodium $77,292
Good-quality, one-carat diamonds $11.4 M
LSD $55 M
Antimatter $26 Quadrillion

Here is the link, with much more information.  Here is a short article on the market for rhodium.  Here is an earlier post on the economics of antimatter.  Thanks to Jen Smith for the pointer

Eating local

Will Wilkinson serves up his wisdom:

How far your food travels matters a lot less than what kind of food it is, or how it was produced. According to a recent study out of Carnegie Mellon University, the distance traveled by the average American’s dinner rose about 25 percent from 1997 to 2004, due to increasing global trade. But carbon emissions from food transport saw only a 5 percent bump, thanks to the efficiencies of vast cargo container ships.  [TC: do note that precedes the rapid run-up of oil prices.]

A tomato raised in a heated greenhouse next door can be more carbon-intensive than one shipped halfway across the globe. And cows spew a lot more greenhouse gas than hens, or kumquats, so eating just a bit less beef can do more carbon-wise than going completely local. It’s complicated.

Addressing the cool folks, Will adds:

Should we minimize our “music miles” and boycott bands on tour? Thankfully, our next-door neighbors have a band, Dead Larry. We don’t have to go anywhere to hear them.

Here is the full CMU study cited by Will on food miles.  In my view we do have duties to behave more responsibly at the dinner table but the simple admonition "eat less meat" will do.  Maybe you don’t like tofu but sardines are delicious, or use Goya small red beans with shredded Mexican cheese (even the Kraft package is decent) and ground chile on a corn tortilla.  Don’t forget the lime on top.

Lowering the drinking age

Here is another reader request:

There’s been recent talk about what would happen if the legal drinking age were lowered to 18. Would there be a net increase or decrease in risky binge drinking, accidents, etc?

New Zealand lowered its drinking age to 18 in 1999 and bad consequences followed, including a higher rate of drinking-related car crashes.  Illegality, even when it can be circumvented, really does raise the price of an activity in many instances. 

Nonetheless I still think that 20-year-olds — legal adults in just about every other way — have the right to drink alcohol.  Sometimes I call myself a "two-thirds utilitarian."  I am a pluralist who thinks that utility is often but not always the primary consideration behind policy choice.

There’s always another paternalist intervention to save children’s lives but no one is for all of them.  We could ban swimming pools and buckets for instance.  We could ban high school football.  We could raise the drinking age to 25.  How about a drinking age of 50?  How about a driving age of 21?

I see at least two major analytical questions.  First, how much normative force should "extra death" have in a policy argument?  Second, what is special about the number 18?  Consistent with the latter question, I think that 15-year-olds should be able to drink in a restaurant when clear parental permission is present.

The Case for Big Government

That’s the title of the forthcoming Jeff Madrick book.  "Don’t we already have big government?" was my first reaction.  This book is a good summary of one point of view, but if you’re already familiar with the basic arguments it won’t extend your understanding of the debates.  There’s not much on the public choice arguments (e.g., self-serving special interests and irrational and underinformed voters) against growing state power, only a general sense that we "should" do good things with government.  Nor is there much realization that Americans are skeptical about government, in large part, because of their daily experiences with it.  We’re also told that many of the proposed progressive measures will nearly pay for themselves.

Yana’s reaction was: "Why didn’t he publish it with a government press?"

Kay Bailey Hutchison on economics

Here are some of her votes.  Her ACU voting lifetime record is 91 percent.  She is strong on free trade and seems to be a relatively conservative and corporatist Republican on economic issues.  She’s way up in the betting markets for the Republican VP spot, about 30 percent last I looked.  Note that she is not pro-life according to conservatives.  She has been very pro-drilling and very active on energy issues.  Since picking Mitt Romney would violate all known economic models of rational choice, and picking a woman would pop the Democrats’ post-convention bounce, I suppose this is a rumor to be taken seriously.  Here is her Wikipedia page.

Markets in everything

Or will there be?

Robert Burns’s poetry might have been dismissed as "sentimental
doggerel" by Jeremy Paxman but that hasn’t stopped diminutive I’m A
Celebrity contestant David Gest and pop legend Michael Jackson from
recording an album of the much-loved Scottish poet’s work. Gest’s
spokesman said the album is a modern musical take on some of Burns’
classic poems, and had been a long cherished project.

Here is the full story.  Here is the evolution of earnings on some of MJ’s other albums.  Here is a man who just died.

My IO reading list

Industrial Organization I, Tyler Cowen (x2312, 4910), [email protected]

BOOKS:

Gordon, John Steele – An Empire of Wealth: An Epic History of American Economic Power

Lowenstein, Roger – When Genius Failed: The Rise and Fall of Long-Term Capital Management

METHODS OF EVALUATION:

There will be weekly quizzes, a midterm, and a final exam.

READINGS:

I. The Firm

Holmstrom, Bengt and Tirole, Jean.  “The Theory of the Firm,” in Handbook of Industrial Economics, vol.I.

Rotemberg, Julio. “A Theory of Inefficient Intrafirm Transactions.” American Economic Review (March 1991).

Holmstrom, Bengt and Roberts, John.  “The Boundaries of the Firm Revisisted.” Journal of Economic Perspectives 12, 4 (Fall 1998): 73-94.

Demsetz, Harold and Lehn, Kenneth.  “The Structure of Corporate Ownership: Causes and Consequences.”  Journal of Political Economy  93 (December 1985): 1155-1177.

Gibbons, Robert. “Incentives in Organizations.” Journal of Economic Perspectives (Fall 1998): 115-132.

Chapters from Discover Your Inner Economist, by Tyler Cowen.

Montgomery, Cynthia.  “Corporate Diversification,” Journal of Economic Perspectives (Summer 1994): 163-178.

Rasmusen, Eric.  “Mutual Banks and Stock Banks.”  Journal of Law and Economics 31 (1988): 395-422.

Hansemann, Henry.  “Ownership of the Firm,” Journal of Law, Economics and Organization (Fall 1988).

Hansemann, Henry.  “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.

Cowen, Tyler. “Response to David Friedman,” Economics and Philosophy, at http://www.gmu.edu/jbc/Tyler/TYLER.doc.

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.

Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf

II. 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).

Fudenberg, Drew and Tirole, Jean. “A Theory of Income and Dividend Smoothing.”  Journal of Political Economy (February 1995): 75-93.

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.

“Symposium on Takeovers,” edited by Hal Varian, Journal of Economic Perspectives (Winter 1988): 1-82.

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 United States,” Journal of Economic Perspectives (Spring 2001): 121-149.

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

III. Vertical control, antitrust, and related issues.

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.

Klein, Benjamin and Murphy, Kevin. “Vertical Restraints as Contract Enforcement Mechanisms,” Journal of Law and Economics (October 1988).

Breit, William. “Resale Price Maintenance: What do Economists Know and When Did they Know It?” Journal of Institutional and Theoretical Economics (1991).

Bernheim, R. Doug and Whinston, Michael.  “Exclusive Dealing.” Journal of Political Economy (February 1998): 64-103.

Rasmusen, Ramseyer and Wiley, 1991, “Naked Exclusion,” American Economic Review, 1137-45.      

Bittlingmayer, George.  “Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Case,” Journal of Law and Economics (October 1982).

Klein, Benjamin, and Kenney, Roy. “The Economics of Block Booking,” Journal of Law and Economics, (1983), 27, 3, 497-540.

Tirole, Jean.  “Information and Strategic Behavior: Reputation, Limit Pricing, and Predation.”  In Theory of Industrial Organization, Chapter 9.

Timothy Bresnahan, “Empirical Studies of Industries with Concentrated Power,” Handbook of Industrial Organization, vol.II.

Pakes, Ariel. “Theory and Empirical Work on Imperfectly Competitive Markets,” NBER Working Paper 14117, June 2008.

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.

IV. Theory and Regulation of Natural Monopolies

Sanford Berg and John Tschirhart, Natural Monopoly Regulation, Cambridge University Press.

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.” Bell Journal of Economics (Spring 1976): 73-104.

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.

Berg and Tschirhart, pp. 480-522.

Associated other topics in regulation, depending on your interests; reading suggestions will follow later in the semester.