Results for “concentration” 218 found
Why (and How) Young People Should Go Into Debt to Buy Stocks
In 2022, I highlighted Ian Ayres and Barry Nalebuff’s proposal that young people should borrow to invest in the stock market. Why? Most people invest gradually, which leads to a concentration of stock holdings late in life. By borrowing early, young investors can spread market risk more evenly across their lifetime, much like diversifying across assets. Put differently, a young person’s biggest asset is their future labor income. Borrowing to invest reduces overexposure to that single asset, effectively diversifying their portfolio away from specific human capital and toward financial capital.
I supported the idea writing that “I agree with Ayres and Nalebuff that young people should be [at least] 100% in equities” but I didn’t expect people to go beyond this until the idea became standardized in a similar way to home mortgages. I wrote, “It could be standardized, however, with retirement planning products.”
Well, we now have our first product in this category, Basic Capital. Basic Capital is a mortgage for investing in stocks and bonds. You put in $1 and you get $5 of investment. Moreover, you cannot lose more than you put in. How is that possible? The investments are constrained–85% of it goes to bonds and 15% to equity but remember that 15% is on $5 rather than $1 so instead of investing $1 in stocks you are investing $.75 in stocks and $4.25 in bonds. The net result is broader exposure at lower individual risk. Whether it’s a compelling product depends on fees and execution, which seem high, but the underlying idea is innovative, and I’m excited to see how products in this new category evolve.
Addendum: Matt Levine offers further commentary. On the general topic of innovative financial products, see also my previous post on Shiller’s Macro Markets.
Hat tip: Naveen.
Institutional ownership of single-family housing
In the last decade, large financial institutions in the United States have purchased hundreds of thousands of homes and converted them to rentals. This paper studies the welfare consequences of institutional ownership of single-family housing. We build an equilibrium model of the housing market with two sectors: rental and homeownership. The model captures two key forces from institutional purchases of homes: changes in rental concentration and reallocation of housing stock across sectors. To estimate the model, we construct a novel dataset of individual homes in metropolitan Atlanta, identifying institutional owners of each house and scraping house-level daily prices, rents, vacancies, web page views, and customer contacts from Zillow. We find that institutional acquisitions increase average renter welfare by $2,760 per year (with rents decreasing by 2.3%). This net benefit reflects two opposing effects: higher concentration raises rents by 3.8%, but higher rental supply lowers rents by 6.1%. On the other hand, the welfare of the average homebuyerdecreasesby$49,950. Onthesupply side, institutional acquisitions benefit house sellers but harm the average landlord.
That is a job market paper by Felix Barbieri, co-authored with Gregory Dobbels. Via Quan Le.
Place Effects on Fertility Decision: Evidence from Mover Design
This paper investigates the causal impact of place-based factors on fertility decision using mover design and data from the Panel Study of Income Dynamics (1968-2019). We find that moving to a state with a 1 percentage point higher birth rate increases the probability of childbirth by 0.9 percentage points, with cumulative effects reaching 3.8 percentage points three years post-move. The response demonstrates concentration among first births and exhibits systematic variation across demographic characteristics—with particularly pronounced effects observed among white women who are married, younger, and have higher income levels. Our variance decomposition shows the contribution of place effects to fertility variance increased from 4.7 percent to 26.0 percent before and after the Great Recession, with geographical variation in contraceptive access and healthcare infrastructure showing the strongest correlations with these place effects. This research emphasizes the importance of considering contextual factors in fertility research and policy interventions.
That is from a new paper by Hantao Wu and Man Zhu. Via the excellent Kevin Lewis.
The circulation of elites, sort of
Is the top tail of wealth a set of fixed individuals or is there substantial turnover? We estimate upper-tail wealth dynamics during the Gilded Age and beyond, a time of rapid wealth accumulation and concentration in the late 19th and early 20th centuries. Using various wealth proxies and data tracking tens of millions of individuals, we find that most extremely wealthy individuals drop out of the top tail within their lifetimes. Yet, elite wealth still matters. We find a non-linear association between grandparental wealth and being in the top 1%, such that having a rich grandparent exponentially increases the likelihood of reaching the top 1%. Still, over 90% of the grandchildren of top 1% wealth grandfathers did not achieve that level.
That is from a new NBER working paper by Priti Kalsi and Zachary Ward.
Those new service sector jobs, LDS edition
Bob Sagers was walking around an indie music festival in Salt Lake City when a friendly stranger approached and asked for his number.
“Has anyone ever told you that you have a Jesus look to you?” the man asked, according to Sagers, a 25-year-old who works as a cheesemonger at a grocery store. It wasn’t a pickup line—the man’s wife was an artist looking for religious models.
“I didn’t really get that a lot,” says Sagers, who is 6-foot-5 with dirty-blonde, shoulder-length hair and a beard he says gives Irish and Scandinavian vibes. “I make for a pretty tall Jesus.”
And so it was that Sagers began a side hustle as a savior.
Models who look like Jesus are in high demand in Utah. That’s because for a growing number of people in the state, a picture isn’t complete without Him. They are hiring Jesus look-alikes for family portraits and wedding announcements. Models are showing up to walk with a newly engaged couple through a field, play with young children in the Bonneville Salt Flats, and cram in with the family for the annual Christmas card.
Since being recruited about four years ago, Sagers has posed as Jesus nearly a dozen times. Others have done so far more often, charging about $100 to $200 an hour to pose with children, families and couples at various locations in the Beehive state.
For the newly sought-after models, the job can be freighted with meaning and responsibility. Look-alikes find that people expect them to embody Jesus in more ways than the hair and beard. Some models said they feel like a celebrity when they don the robe—and get treated like one too. (One felt compelled to remind an onlooker he wasn’t the real Jesus.) Others said they’ve had their own semireligious experiences on the job.
And note this:
Finding a model can be difficult. Areas of Utah with high concentrations of Mormons—who also call themselves Latter-day Saints or LDS—tend to lack potential Jesus doppelgängers. Some men who work or volunteer for the church, one of the state’s largest employers, are required to shave every day and keep their hair short.
Here is more from the WSJ. Via The Wisdom of Garett Jones.
*Gray Matters*
The author is Theodore M. Schwartz and the subtitle of this excellent book is A Biography of Brain Surgery. Excerpt:
Whil there is no proven ideal age for a brain surgeon, let’s just say that during the first five years after residency, we are still getting our sea legs. Over time, as with any learned skill, a subtle transition occurs. Suddenly, surgeries seem to take less effort. Movements become second nature as wel enter what psychologist Mihaly Csikszentmihalyi called a “flow state,” where pursuit of a single goal creates a transcendental state of purposeful concentration the task.
…One well-known neurosurgeon was once asked how he became so good at his craft. His answer? “there’s a graveyard full of my mistakes behind the hospital.”
Definitely recommended, the book also offers considerable detailed information about how brain surgery is done, which maladies lie behind brain surgery, and much more.
Big business is better than you think (rooftops)
We characterize optimal product market policy in an unequal economy in which firm ownership is concentrated and markups increase with firm market shares. We study the problem of a utilitarian regulator who designs revenue-neutral interventions in the product market. We show that optimal policy increases product market concentration. This is because policies that encourage larger producers to expand improve allocative efficiency, increase the demand for labour and equilibrium wages. We derive these results both in a static Mirrleesian setting in which we impose no constraints on the shape of interventions, as well as in a dynamic economy with wealth accumulation. In our dynamic economy optimal policy reduces wealth and income inequality by redistributing market share and profits from medium-sized businesses, which are primarily owned by relatively rich entrepreneurs, to larger diversified corporate firms.
That is a recent piece from Review of Economic Studies, by Corina Boar and Virgiliu Midrigan.
Exciting economics is often misguided economics
In my latest Bloomberg column, I weigh in on the issues surrounding the latest David Deming piece in The Atlantic. Here is one excerpt:
…economics is a relatively mature science, and even surprising results are typically consistent with the laws of supply and demand. Innovations tend to be subtle — they could also be described, less generously, as underwhelming — concerning the relative size of effects. So it is hard for radical new ideas to come out of nowhere, and that does lead to some geographic concentration, centered in the highest-reputation schools…
Can economics come up with truly novel remedies or ideas? Probably not. If there is a recession, or say hyperinflation, there is a standard kit of tools involving monetary policy, fiscal policy, deregulation and some other policy changes. Economists can and do argue about the right mix of those policies in a particular case. But there is no “new drug” waiting to be discovered.
And:
As for microeconomics, if there is too much traffic on a highway, congestion pricing usually works. If there isn’t enough housing, deregulating construction or eliminating rent control are worth a try. No brilliant outsider will come along and say, “The way to get more housing is for everyone to drink two shots of vodka,” or some other novel or wild idea.
The point is not that economists have all the answers. It’s that we have a pretty exhaustive list of possible remedies.
And in sum:
The good news is that economists have already achieved a lot. The bad news is that a lot of the remaining work is doomed to be pretty boring and marginal. So one lesson is simply to appreciate the dullness of economics, because exciting economics is often misguided economics.
There is further content at the link.
Friday assorted links
1. Which books, papers, and blogs are in the Bayesian canon?
2. “All fields, EXCEPT FOR ECONOMICS, exhibit a low and decreasing concentration, which suggests a trend toward decentralized knowledge production.” Link here.
3. David Perell interviews Ben Thompson.
4. Boudreaux and McKenzie on price controls (WSJ). And most climate policies are ineffective in cutting emissions (WSJ).
5. NYT on the Harris tax plan.
6. Chickens per capita, in some Anglo countries.
7. John Woo remakes The Killer but set in Paris and with a female lead, reviews are good.
8. Model this pelican capabara interaction (are they trying to eat him? I don’t think so).
Does increasing division of labor lead to greater credentialism?
That is the theme of my latest Bloomberg column, here is one excerpt:
Consider business. For decades now, big businesses have been on the rise in the US, which means employment in large corporations that use a team approach is increasingly likely. One effect of this is that individual outputs are harder to measure. If a product does well, it is often not clear who should get the credit, because the inputs of so many people were involved in creating it.
It is difficult to recalibrate incentives to reflect this changing reality. Often companies respond by enforcing greater credentialism, trying to ensure that everyone is a worthwhile contributor. That could involve looking for an Ivy League education or a standout GitHub profile. Either way, companies are more likely to look for ex ante signals of quality and less likely to take chances on true outsiders, because if the outsider isn’t pulling their weight, it might not be evident for a long time.
And this:
The real losers in the team system are those who do not have the temperament for all the schooling and credential-gathering. Those credentials of course include recommendations from well-known contacts, so networking and socializing have become increasingly important. This is a workable situation for most people but a frustrating arrangement for others.
Some recent evidence indicates this problem is especially serious in the world of science. The number of authors on scientific papers has been rising sharply, a trend I have observed in my own field of economics. It was once rare for the research paper of a fresh job-market candidate to be co-authored; now it is common. The work may be wonderful, but how can you tell how much any one author contributed? In the natural and biological sciences, one paper can have dozens of co-authors.
Again, credentialism will become more important, not less. In relative terms, someone from MIT listed on a multiple-authored paper is more attractive than someone from Iowa State University.
The latter part of the piece also explains why we underinvest in databases, and in turn in LLMs. It is difficult to reward people, under current structures, for contributing to such a broad collective enterprise.
Not the worst news…
We find that markups increased by about 30 percent on average over the sample period. The change is primarily attributable to decreases in marginal costs, as real prices only increased slightly from 2006 to 2019. Our estimates indicate that consumers have become less price sensitive over time.
That is from a new NBER working paper by
…the empirical evidence relating to concentration trends, markup trends, and the effects of mergers does not actually show a widespread decline in competition. Nor does it provide a basis for dramatic changes in antitrust policy. To the contrary, in many respects the evidence indicates that the observed changes in many industries are likely to reflect competition in action.
Rooftops, people…
Large Firms in the South Korean Growth Miracle
We quantify the contribution of the largest firms to South Korea’s economic performance over the period 1972-2011. Using firm-level historical data, we document a novel fact: firm concentration rose substantially during the growth miracle period. To understand whether rising concentration contributed positively or negatively to South Korean real income, we build a quantitative heterogeneous firm small open economy model. Our framework accommodates a variety of potential causes and consequences of changing firm concentration: productivity, distortions, selection into exporting, scale economies, and oligopolistic and oligopsonistic market power in domestic goods and labor markets. The model is implemented directly on the firm-level data and inverted to recover the drivers of concentration. We find that most of the differential performance of the top firms is attributable to higher productivity growth rather than differential distortions. Exceptional performance of the top 3 firms within each sector relative to the average firms contributed 15% to the 2011 real GDP and 4% to the net present value of welfare over the period 1972-2011. Thus, the largest Korean firms were superstars rather than supervillains.
That is from a new NBER working paper by Jaedo Choi, Andrei A. Levchenko, Dimitrije Ruzic, and Younghun Shim.
The economics of Apple share repurchase
That is the topic of my latest Bloomberg column, and here is the basic setting:
Apple unveiled a record stock buyback plan last week even as it increased its dividend by 4%, to 25 cents per share. That made the market happy, and shares in the company are up about 10% since the announcement.
And this:
Given that the market approved of Apple sending more money outside the company, the market must think Apple shareholders are better at allocating funds than Apple is. Apple, to its credit, has realized this. Of course Apple still has plenty of cash on hand and some very strong market positions, most of all for its iPhones. So it’s not quite a case of the market telling Apple management it doesn’t know what it’s doing. Instead, the market is seeing that Apple is wise enough to rethink its most marginal plans. That is bullish for the overall value of Apple.
There is another aspect to this story that suggests a relatively bright future for Apple. By buying back shares, Apple management is signaling that those shares are underpriced. That means the company is relatively optimistic about the plans it already has underway, as it is willing to hold an extra concentration of equity in those plans. It is not trying to pawn off those returns on unsuspecting others, as a dishonest company might do if the whole enterprise were rotten. The market is rewarding this refreshing sign of honesty.
So the signaled skepticism about new, marginal plans for the most doubtful projects is combined with optimism about existing, presumably promising infra-marginal plans, to use economic terminology. No, Apple is saying, we cannot take over the world, but what we have in the works will go well. And the market believes it.
If you are worried about Big Tech taking over the world but want your favorite products to keep improving, all this is pretty positive news. It is a sign that Big Tech’s influence has peaked — but that its core products will remain popular and likely will get better.
I remain happy with my iPad Pro, but I am not sure how much better it is going to get.
Thursday assorted links
1. Works in Progress will be running an “Invisible College” in Cambridge, UK.
2. How much was Britain already industrializing in the 17th century?
3. Something, something, blah blah blah, but probably interesting? Research article is here.
5. Is the newly rediscovered Klimt portrait (NYT) a picture of Helene Lieser, a female Austrian economist who studied with Mises?
The Ability to Concentrate is Increasing?!
Distraction is everywhere. As I write this post, I pause to check twitter. Phones are omnipresent and demand our attention. Dopamine hits rule. Yet, despite the potential for greater distraction, a large study finds that on a standardized test, the ability to concentrate is up (modestly) for adults.
In the present cross-temporal meta-analysis, we investigate potential test score changes for attention as assessed by the d2 Test of attention. Based on data from 287 independent samples (N = 21,291) from 32 countries over a timespan of 31 years (1990–2021) we found evidence for moderate generational test score gains in concentration performance in adults, but not [statistically significantly, AT] children.
And while I wouldn’t put much weight on these results, since they are correlational and by country only, do note:
Internet use predicted concentration performance positively, yielding small effects for children but no meaningful effects for adults. This seems to be in contrast with findings that indicate adverse effects of digitalization in general, and video games, media multitasking, as well as overall increased screen time on attention capabilities in particular….
Of course, this is measuring attention on a test where presumably the phones have been taken away! In other words, the environment may have made deep work more difficult but we still retain the ability to concentrate in a distraction-free environment. Or, perhaps in the past, people just daydreamed more instead of checking their phones.