Results for “prizes”
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Saturday assorted links

1. The tyranny of ideas.

2. Does psychedelic therapy work?  And psychedelics, and prizes.

3. Speculative: “These findings provide preliminary evidence that a propensity to exhibit the sunk cost bias may be an important feature associated with cannabis use.

4. Knausgaard’s secular confession.

5. “Still, while Ms. Sorokin made excuses for her actions, she did not apologize for her character: “I’m not a good person.”” (NYT)

Cohort effects and life expectancy and many other facts about the history of American medicine

The cohort reaching age 55 around 1982 (born around 1927) has significantly higher mortality than the cohort 10 years younger. That higher mortality continues through the cohort passing through that age range in the mid-1990s, roughly, when the cohort born in 1933 reaches age 65. That same cohort also has higher mortality when they are 65-74 and 75-84. The story is not one of selection – a handful of less healthy people who die and leave behind healthier stock. Rather, it seems that an entire generation was rendered vulnerable by being born during and just before the Great Depression (Lleras-Muney and Moreau, 2018).

That is from a new NBER history of health care paper by Maryaline Catillon, David Cutler, and Thomas Getzen.  This piece is interesting on virtually every page.  For instance, on the rise of American science:

Of the 18 Nobel Prizes in Physiology or Medicine awarded 1901-1920, none went to US researchers. Over the next two decades, four out of twenty-four did, then for the rest of the century, more than half.

Then:

…our analysis of Massachusetts data does not support a large impact of medical care supply on mortality in the pre-antibiotic era.

Using the best data I’ve seen to date, apart from RCTs, the authors conclude from their statistical work:

…there is little evidence that access to medical care plays a role in mortality over the entire 1965-2015 period, but it appears to have had an effect during recent years.

That is from p.33

Death rates from influenza/pneumonia and cancer seem most responsive to access to medical care.  And I had not known this:

The period from 1935 to 1950 saw the most…decline in infant and child mortality of any time period since 1900.  It is unclear how much of this change would have happened without antibiotics, but blood banking and advances in surgical techniques were among the host of distinct and incremental improvements that added to life expectancy while the health share of GDP increased only slightly.

Recommended.

Cam Girl Economics

Former Cam Girl Aella offers a detailed, analytical, and interesting guide to the economics of the industry.

My credentials: I was a camgirl for five years. My highest earning month was $50,000, and my highest rank (on MFC) was #7, meaning I earned the 7th most money that month. I was, at one point, one of the most (if not the most) widely known working camgirls thanks to some viral content. My average income per hour was $200. Getting there was not easy and took a ton of mistakes and work, so I hope this helps you.

I was initially surprised that a cam girl can make more money than a prostitute. But the reason is simple, a cam girl is selling a non-rival good and can thus have more customers at a point in time than a prostitute. (In other words, the same economics as online education!) I suspect women would prefer to be cam girls than prostitutes so we should expect the supply of cam girls to increase and the supply of prostitutes to decrease thus raising the price of hiring a prostitute.

Male psychology plays an important role for the clever cam girl:

Men want a few things, and probably one of the biggest is winning a competition.

You see, you’re not just trying to get a guy to pay you – you’re trying to get a guy to pay you in front of a bunch of other guys. This is a super key. A man wants to feel attention from an attractive women on him, and this is made even more satisfying when it’s to the exclusion of those around him. He is showing off his power by buying your happiness.

So, when tipped, make sure you say his name (or username). A lot of girls use subtly masculine-competition language when referring to high tippers, such as “hero,” “champion,” or “winner”. I often would ask questions like “who is going to save my night?” or “who is going to be the one to make me feel x”?

The ‘control show’ I mentioned above plays into this. Give men a way to fight against each other, with tokens. A common tactic is to have guys buy into “teams”, and whichever team tips the most, wins (with the prize being a video or literally anything – you’d be surprised at how many competition prizes are just the guy’s name being listed on the girl’s profile). Have guys fight to put on or off your clothes, or force you/rescue you from doing something gross.

The most profitable thing I ever did was have a ‘war’ with another camgirl, and it became my tipping members vs. hers. Competition is bread and butter. Competition is love. Competition is life. Competition is your key to a life full of luxury handbags and butlers.

Just don’t be too obvious about it. All of this stuff I’m saying can be done with too heavy a hand, and then guys feel gross and leave.

Intrinsic and extrinsic incentives:

Divorce what you’re doing from money as much as you can. Never refer to tokens as money!! Refer to tokens as little as you can while still being clear. One of my camgirl friends would use the technique where she’d say, “This is  like – I’m sitting at a bar, all alone over here. Is someone gonna be a gentleman and get me a drink?” And then someone would tip and she’d drink.

Classic marketing advice:

How do you get whales? A lot of it is high variance – a tiny fraction of the camwatching population is made out of very rich men, and so you might get one passing through your cam room once a week without you ever knowing, and you have no idea when or if you’ll be doing something interesting at that point.

But one technique to help is to give them something to do. If you have listed tip options as “40 tokens spank! 20 tokens kiss the mirror!” and your whale has 40,000 tokens he wants to drop today, then the best he’s going to get from you is some crying and screaming.

Thus, always have the absurd “nobody would ever buy that that would be insane” option.

Hat tip: Emil O W Kirkegaard.

Science is getting less bang for its buck

By Patrick Collison and Michael Nielsen in The Atlantic:

…we ran a survey asking scientists to compare Nobel prizewinning discoveries in their fields. We then used those rankings to determine how scientists think the quality of Nobel prizewinning discoveries has changed over the decades…

Our graph stops at the end of the 1980s. The reason is that, in recent years, the Nobel Committee has preferred to award prizes for work done in the 1980s and 1970s. In fact, just three discoveries made since 1990 have yet been awarded Nobel Prizes. This is too few to get a good quality estimate for the 1990s, and so we didn’t survey those prizes.

However, the paucity of prizes since 1990 is itself suggestive. The 1990s and 2000s have the dubious distinction of being the decades over which the Nobel Committee has most strongly preferred to skip back and award prizes for earlier work. Given that the 1980s and 1970s themselves don’t look so good, that’s bad news for physics…

Why has science gotten so much more expensive, without producing commensurate gains in our understanding?

There is much more evidence and argument at the linkThis appendix provides more detail on their empirical work.  Self-recommending, if there ever was such a thing.

Whiners, in this case whiners about Airspace

We could call this strange geography created by technology “AirSpace.” It’s the realm of coffee shops, bars, startup offices, and co-live / work spaces that share the same hallmarks everywhere you go: a profusion of symbols of comfort and quality, at least to a certain connoisseurial mindset. Minimalist furniture. Craft beer and avocado toast. Reclaimed wood. Industrial lighting. Cortados. Fast internet. The homogeneity of these spaces means that traveling between them is frictionless, a value that Silicon Valley prizes and cultural influencers like Schwarzmann take advantage of. Changing places can be as painless as reloading a website. You might not even realize you’re not where you started…

The profusion of generic cafes and Eames chairs and reclaimed wood tables might be a superficial meme of millennial interior decorating that will fade with time. But the anesthetized aesthetic of International Airbnb Style is the symptom of a deeper condition, I think.

Why is AirSpace happening? One answer is that the internet and its progeny — Foursquare, Facebook, Instagram, Airbnb — is to us today what television was in the last century…

That is all from Kyle Chayka at The Verge.  I found this article interesting, well-written, and making a valid point.  Still, is it not mostly your fault if you are stuck in “Airspace,” as it is called?  Northern Virginia has some of the wealthiest counties in the United States, yet most of the terrain still is not Airspace or anything close to it.  Nor is most of San Francisco this way, or most of Manhattan, much less the other boroughs.  (And might you not prefer Airspace for the NYC subway?)  Seoul is a city which has its share of Airspace, but again is hardly dominated by it — the dense, low-slung neighborhoods of small restaurants are fascinating and mostly retro.

I think of Airspace as a 2-3% of our living space condition, yet a 2-3% that you can immerse yourself in if you are so inclined.

Which I am not.

Via edmundogs.

My Fall Industrial Organization reading list

This is only part one for the class, do not panic over whatever you think might be completely left out. That said, suggested additions are welcome, here goes:

Competition

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.

Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.

Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.

“Benefits of Competition and Indicators of Market Power,” Council of Economic Advisors, April 2016.

Jan De Loecker and Jan Eeckhout, “The Rise of Market Power and its Macroeconomic Implications,” http://www.janeeckhout.com/wp-content/uploads/RMP.pdf.  My comment on it is here: https://marginalrevolution.com/marginalrevolution/2017/08/rise-market-power.html

Me on intangible capital, https://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html.

Traina, James. “Is Aggregate Market Power Increasing?: Production Trends Using Financial Statements,” https://research.chicagobooth.edu/-/media/research/stigler/pdfs/workingpapers/17isaggregatemarketpowerincreasing.pdf

Shapiro, Carl. “Antitrust in a Time of Populism.” UC Berkeley, working draft from 24 October 2017, forthcoming in International Journal of Industrial Organization.

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).

Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.

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.

Crandall, Robert and Winston, 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.

FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml., an optional browse, perhaps read about some current cases and also read the merger guidelines.

Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.

Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

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. 

Strictly optional most of you shouldn’t read this: Ariel Pakes and dynamic computational approaches to modeling oligopoly: http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf

http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf

 

Economics of Tech 

Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.

Weyl, E. Glenn. “A Price Theory of Multi-Sided Platforms.” American Economic Review, September 2010, 100, 4, 1642-1672.

Tech companies as platforms, Tyler Cowen chapter, to be distributed.

Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.

Paul Graham, essays, http://www.paulgraham.com/articles.html, and on Google itself, http://www.slate.com/blogs/blogs/thewrongstuff/archive/2010/08/03/error-message-google-research-director-peter-norvig-on-being-wrong.aspx

Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607

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

Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” CEP discussion Paper no. 1354, May 2015.

Andrews, Dan, Chiara Criscuolo and Peter N. Gal. “Frontier firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries.”  OECD working paper, 2015.

Mueller, Holger M., Paige Ouimet, and Elena Simintzi. “Wage Inequality and Firm Growth.” Centre for Economic Policy Research, working paper 2015.

Readings on blockchain governance, to be distributed.

Haltiwanger, John, Ian Hathaway, and Javier Miranda. “Declining Business Dynamism in the U.S. High-Technology Sector.” Ewing Marion Kauffman Foundation, February 2014.

 

Organization and capital structure

Ronald Coase and Oliver Williamson on the firm, if you haven’t already read them, but limited doses should suffice.

Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.

Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490. 

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.

Tyler Cowen chapter on CEO pay, to be distributed.

Cowen, Tyler, Google lecture on prizes, on YouTube.

Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.

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

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.

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

Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.

Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students.  Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826

 

Production

American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633. 

Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf

 Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro, “The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss. 

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides.

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.

Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.

David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.

Casselman, Ben. “Corporate America Hasn’t Been Disrupted.” FiveThirtyEight, August 8, 2014.

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone?  The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.

Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.

http://evansoltas.com/2016/05/07/pro-business-reform-pro-growth/

Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.

 

Sectors: finance, health care, education, others

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. 

Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011. 

Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.

More to be added, depending on your interests.

The Most Momentous Place?

The old city of Jerusalem is astonishingly small for a city with so many momentous places. One can walk from Christianity’s holiest site to the holiest site of Judaism, pausing to look at one of the holiest sites of Islam, in less time than it takes to walk from my office on the campus of George Mason University to the campus Starbucks. Jerusalem is actually smaller than the GMU campus. GMU has had a few big events to its credit–two Nobel Prizes, several presidential speeches and so forth–but few people come here on pilgrimage. GMU doesn’t compete with Jerusalem.

Is there another parcel of land of similar size to the old city of Jerusalem that can lay claim to being similarly momentous? The signing of the Declaration of Independence in Philadelphia was pretty important but not much has happened there since. Cape Canaveral gets a nod but doesn’t span multiple fields of endeavor. Rome was important for a long time but its momentous events have faded compared to those that occurred in Jerusalem.

My best guess for a momentous parcel of land of similar size to old Jerusalem would be Cambridge University in the UK. Cambridge can lay claim to being the place of Newton, Darwin, Maxwell, Babbage, Turing, Oppenheimer, and Crick and Watson and many others in the fields of politics, literature and the social sciences including economists such as Keynes, Marshall and Sen. Overall, Cambridge gives Jerusalem a run for its money. Jerusalem had its momentous period between say the building of the first temple in 957 BCE and Muhammad’s night journey around 621 CE, a period of roughly 1600 years, while Cambridge has had only an 800 year run since being built in 1231 so controlling for a time a case can be made that Cambridge beats Jerusalem. Perhaps you disagree but then Cambridge is still racking up momentous events while Jerusalem hasn’t had much in the past 1400 years so Cambridge is certainly catching up. Of course, one big event could put Jerusalem back on top.

Aside from Cambridge, cases can be made for other universities such as Oxford, Harvard and even newcomer Chicago. But it’s interesting that universities come to mind as perhaps the only places in real competition with Jerusalem. Are there others?

Simplifiers vs. constructors in science

Simplifiers give one a better overall picture of how the world works, whereas constructors are trying to build something.  The balance seems to be shifting, for instance in physics:

Within the Physics label…we find the simplifiers dominated three quarters of the Nobel Prizes from 1952 to 1981, but more recently constructors have edged the balance with more than half of those from 1982 to 2011.

There is also a shift toward constructors in chemistry, though it is less abrupt.  In the fields of physiology and medicine, however, simplifiers reign supreme and there has been no shift across time.  Three-quarters of the prizes are still going to simplifiers.

Does that mean we should be relatively bullish about progress in those areas, based on forthcoming fundamental breakthroughs?

All these points are from Jeremy J. Baumberg’s new and interesting The Secret Life of Science: How It Really Works and Why It Matters.

The excellent Kevin A. Bryan on innovation

He has a forthcoming JET paper with Jorge Lemus, here is the abstract:

We construct a tractable general model of the direction of innovation. Competition leads firms to pursue inefficient research lines, because firms both race toward easy projects and do not fully appropriate the value of their inventions. This dual distortion will imply that any directionally efficient policy must condition on the properties of hypothetical inventions which are not discovered in equilibrium, hence common R&D policies like patents and prizes generate suboptimal innovation direction and may even generate lower welfare than laissez faire. We apply this theory to radical versus incremental innovation, patent pools, and the effect of trade on R&D.

Here is a slightly different version of the abstract, along with other research papers.  Here is Kevin on travel.  Kevin is at the University of Toronto, and also is author of the excellent blog A Fine Theorem.

Here is Kevin’s reading list on innovation, recommended.

Nobel Prize awarded to Richard Thaler

This is a prize that is easy to understand.  It is a prize for behavioral economics, for the ongoing importance of psychology in economic decision-making, and for “Nudge,” his famous and also bestselliing book co-authored with Cass Sunstein.

Here are previous MR posts on Thaler, we’ve already covered a great deal of his research.  Here is Thaler on Twitter.  Here is Thaler on scholar.google.com.  Here is the Nobel press release, with a variety of excellent accompanying essays and materials.  Here is Cass Sunstein’s overview of Thaler’s work.

Perhaps unknown to many, Thaler’s most heavily cited piece is on whether the stock market overreacts.  He says yes this is possible for psychological reasons, and this article also uncovered some of the key evidence in favor of the now-vanquished “January effect” in stock returns, namely that for a while the market did very very well in the month of January.  (Once discovered the effect went away.)  Another excellent Thaler piece on finance is this one with Shleifer and Lee, on why closed end mutual funds sell at divergences from their true asset values.  This too likely has something to do with market psychology and sentiment, as the same “asset package,” in two separate and non-arbitrageable markets, can sell for quite different prices, sometimes premia but usually discounts.  This was one early and relative influential critique of the efficient markets hypothesis.

Another classic early Thaler piece is on a phenomenon known as “mental accounting,” for instance you might treat a dollar in your pocket as different from a dollar in your bank account.  Or earned money may be treated different from money you just chanced upon, or won that morning in the stock market.  This has significant implications for predicting consumer decisions concerning saving and spending; in particular, economists cannot simply measure income but must consider where the money came from and how it is perceived by consumers, namely how they are performing their mental accounting of the funds.  Have you ever gone on a vacation with a notion that you would spend so much money, and then treated all expenditures within that range as essentially already decided?  The initial piece on this topic was published in a marketing journal and it has funny terminology, a sign of how far from the mainstream this work once was.  It is nonetheless a brilliant piece.  Here is more Thaler on mental accounting.

Thaler, with Kahneman and Knetsch, was a major force behind discovering and measuring the so-called “endowment effect.”  Once you have something, you value it much more!  Maybe three or four times as much, possibly more than that.  It makes policy evaluation difficult, because as economists we are not sure how much to privilege the status quo.  Should we measure “willingness to pay” — what people are willing to pay for what they don’t already have?  Or “willingness to be paid” — namely how eager people are to give up what they already possess?  The latter magnitude will lead to much higher valuations for the assets in question.  This by the way helps explain status quo bias in politics and other spheres of life.  People value something much more highly once they view it as theirs.

This phenomenon also makes the Coase theorem tricky because the final allocation of resources may depend quite significantly on how the initial property rights are assigned, even when the initial wealth effect from such an allocation may appear to be quite small.  See this Thaler piece with Knetsch.  It’s not just that you assign property rights and let people trade, but rather how you assign the rights up front will create an endowment effect and thus significantly influence the final bargain that is struck.

With Jolls and Sunstein, here is Thaler on a behavioral approach to law and economics, a long survey but also constructive piece that became a major trend and has shaped law and economics for decades.  He has done plenty and had a truly far-ranging impact, not just in one or two narrow fields.

Thaler’s “Nudge” idea, developed in conjunction with Cass Sunstein over the course of a major book and some articles, has led policymakers all over the world to focus on “choice architecture” in designing better systems, the UK even setting up a “Nudge Unit.”  For instance, one way to encourage savings is to set up pension systems for employees so that the maximum contribution is the default, rather than an active choice people must make.  This is sometimes referred to as a form of “soft” or “libertarian paternalism,” since choice is still present.  Here is Thaler responding to some libertarian critiques of the nudge idea.

I first encountered Thaler’s work in graduate school, in the mid-1980s, in particular some of his pieces in the Journal of Economic Behavior and Organization; here is his early 1980 manifesto on how to think about consumer choice.  I thought “this is great stuff,” and I gobbled it up, as it was pretty consistent with some of what I was imbibing from Thomas Schelling, in particular Thaler’s 1981 piece with Shefrin on the economics of self-control, a foundation for many later discussions of paternalism.  I also thought “a shame this work isn’t going to become mainstream,” because at the time it wasn’t.  It was seen as odd, under-demonstrated, and often it wasn’t in top journals.  For some time Thaler taught at Cornell, a very good school but not a top top school of the kind where many Laureates might teach, such as Harvard or Chicago or MIT.  Many people were surprised when finally he received an offer from the University of Chicago Business School, noting of course this was not the economics department.  Obviously this Prize is a sign that Thaler truly has arrived at the very high levels of recognition, and I would note Thaler has been pegged as one of the favorites at least since 2010 or so.  When Daniel Kahneman won some while ago and Thaler didn’t, many people thought “ah, that is it” because many of Thaler’s most famous pieces were written with Kahneman.  Yet as time passed it became clear that Thaler’s work was holding up and spreading far and wide in influence, and he moved into a position of being a clear favorite to win.

Here is Thaler’s book on the making of behavioral economics.  Excerpt:

…my thesis advisor, Sherwin Rosen, gave the following as an assessment of my career as a graduate student: “We did not expect much of him.”

Very lately Thaler on Twitter has been making some critical remarks about price gouging, suggesting we also must take into account what customers perceive as fair.  Here is his earlier piece about fairness constraints on profit-seeking, still a classic.

Thaler has written many columns for The New York Times, here is one on boosting access to health care.  Here are many more of them.  Here is “Unless you are Spock, Irrelevant Things Matter for Investment Behavior.”  Here is Thaler on making good citizenship fun.  He also told us that trading up in the NFL draft isn’t worth it.

Thaler is underrated as a policy economist, here is an excellent NYT piece on the “public option” for health insurance, excerpt: “…instead of arguing about whether to have a public option, argue about the ground rules.”

His last pre-Nobel tweet was: “The web site is using lots of . Advertised rates include cashing in of “points”, cancellation policies not salient if bad…”

A well-deserved prize and one that is relatively easy to explain, and most of Thaler’s works are easy to read even if you are not an economist.  I would stress that Thaler has done more than even many of his fans may realize.

My Fall 2017 Ph.d Industrial Organization reading list

It is long, and thus below the fold…

  1. Competition

 

Einav, Lira and Levin, Jonathan, “Empirical Industrial Organization: A Progress Report,” Journal of Economic Perspectives, (Spring 2010), 145-162.

Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.

Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.

Bresnahan, Timothy and Reiss, Peter C. “Entry and Competition in Concentrated Markets,” Journal of Political Economy, (1991), 99(5), 977-1009.

Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.

“Benefits of Competition and Indicators of Market Power,” Council of Economic Advisors, April 2016.

Klein, Benjamin and Leffler, Keith.  “The Role of Market Forces in Assuring Contractual Performance.”  Journal of Political Economy 89 (1981): 615-641.

Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.

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.

Crandall, Robert and Winston, 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.

FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml.  Read about some current cases and also read the merger guidelines.

Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.

Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.

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. 

 Strictly optional: Ariel Pakes and dynamic computational approaches to modeling oligopoly: http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf

http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf

 

2. Organization

Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.

“Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information,” by George P. Baker and Thomas N. Hubbard, American Economic Review, (June 2003), 551-572.

Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.

 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.

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

Optional: Charness, Gary and Kuhn, Peter J. “Lab Labor: What Can Labor Economists Learn From the Lab?” NBER Working Paper, 15913, 2010, 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.

Cowen, Tyler, Google lecture on prizes, on YouTube.

 

3. Production 

American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633. 

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides. 

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.

Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.

Diego Restuccia and Richard Rogerson, “The Causes and Costs of Misallocation,” Journal of Economic Perspectives, Summer 2017, 31, 3, 151-174. 

Dani Rodrik, “A Surprising Convergence Result,http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf

Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro,The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss.

David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.

Casselman, Ben. “Corporate America Hasn’t Been Disrupted.” FiveThirtyEight, August 8, 2014.

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone?  The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.  NB: This paper and the three that follow have some repetition, so read them selectively rather than exhaustively.

 Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “The Secular Business Dynamism in the U.S.” Working paper, June 2014.

Haltiwanger, John, Ian Hathaway, and Javier Miranda. “Declining Business Dynamism in the U.S. High-Technology Sector.” Ewing Marion Kauffman Foundation, February 2014.

Haltiwanger, John, Ron Jarmin and Javier Miranda. Where Have All the Young Firms Gone? Ewing Marion Kauffman Foundation, May 2012.

Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” CEP discussion Paper no. 1354, May 2015.

Andrews, Dan, Chiara Criscuolo and Peter N. Gal. “Frontier firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries.”  OECD working paper, 2015.

Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.

Mueller, Holger M., Paige Ouimet, and Elena Simintzi. “Wage Inequality and Firm Growth.” Centre for Economic Policy Research, working paper 2015.

http://evansoltas.com/2016/05/07/pro-business-reform-pro-growth/

Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://obamawhitehouse.archives.gov/sites/default/files/page/files/20150930_business_investment_in_us_facts_explanations_puzzles_policies_slides.pdf

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Chen, Peter, Loukas Karabarbounis, and Brent Neiman. “The Global Rise of Corporate Saving.” National Bureau of Economic Research Working Paper 23133, February 2017.

 

4. Incentives

Edmans, Adam, Xavier Gabaix, and Dirk Jenter, “Executive Compensation: A Survey of Theory and Evidence,” NBER Working Paper 23596, July 2017.

Kaplan, Steven N. “Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges.” Working paper, July 2012. 

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

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.

http://marginalrevolution.com/?s=short-termism

Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.

 

5. Sectors: finance, health care, tech, others

 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. 

Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011. 

Philippon, Thomas. “Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation.” Working paper, September 2014. 

Gompers, Paul and Lerner, Josh.  “The Venture Capital Revolution.” Journal of Economic Perspectives, Spring 2001, 145-168.

Paul Graham, essays, http://www.paulgraham.com/articles.html.

Optional: consider subscribing to Ben Thompson’s Stratechery, periodic emails on the tech industry, note it is expensive.

Friedman, Milton. “The Social Responsibility of Business is to Increase its Profits.” The New York Times Magazine, September 13, 1970.

Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.

More to be added, depending on your interests.

Should the federal government be paying more or less overhead to universities?

That is the topic of my latest Bloomberg column, here is one excerpt:

…it is possible to imagine an alternative vision where federal overhead allocations fall and the liberated money allows more scientists to get more (smaller) grants. Would that be a good idea?

If we look to the private sector as a model, maybe so. Private philanthropy is typically more oriented toward specific projects than toward overhead. One view is that makes federal government funding of overhead all the more important to fill in the gaps; an alternative take is that the private sector realizes a lot of overhead funding ends up wasted, and the federal government ought to see the same. There is some truth to both of these stories, but not surprisingly the academic scientific community is stressing the former.

Research funds spent on overhead strengthen the power and discretion of administrators (who capture and allocate the funds), senior scientists, the lab-based sciences and relatively expensive projects. They make universities more hierarchical and less egalitarian places, where the ability to bring in overhead funds yields status and influence.

Spending less on overhead and more on individual projects would favor small-scale research, and would decentralize authority and influence. Lower overhead allocations would give the government more authority over project choice, and the university less discretion, for better or worse. Overall, projects would have to prove themselves more in the broader world of prizes, donors and news coverage, rather than lobbying within the university for support.

A mixed bag of course — there is much more at the link.

“If only there were a vast empirical literature…”

Paul Krugman blogged on that, with initial impetus from Noah Smith.  Here is Noah:

If you and your buddies have a political argument, a vast literature can help you defend your argument even if it’s filled with vague theory, sloppy bad empirics, arguments from authority, and other crap. If someone smart comes along and tries to tell you you’re wrong about something, just demand huffily that she go read the vast literature before she presumes to get involved in the debate. Chances are she’ll just quit the argument and go home, unwilling to pay the effort cost of wading through dozens of crappy papers. And if she persists in the argument without reading the vast literature, you can just denounce her as uninformed and willfully ignorant. Even if she does decide to pay the cost and read the crappy vast literature, you have extra time to make your arguments while she’s so occupied. And you can also bog her down in arguments over the minute details of this or that crappy paper while you continue to advance your overall thesis to the masses.

…My solution to this problem is what I call the Two Paper Rule. If you want me to read the vast literature, cite me two papers that are exemplars and paragons of that literature. Foundational papers, key recent innovations – whatever you like (but no review papers or summaries). Just two. I will read them.

If these two papers are full of mistakes and bad reasoning, I will feel free to skip the rest of the vast literature. Because if that’s the best you can do, I’ve seen enough.

Those are both interesting posts, but my perspective is different, probably more as a matter of temperament than thinking they are objectively wrong.  Here are a few comments:

1. The best two papers on ethics are not very convincing.  Nonetheless people who have worked their way through a good amount of that literature are much better at ethical reasoning than those who have not.

2. The best two papers on global warming are not very convincing.  What is convincing is how many different perspectives and how many different branches of science point toward broadly similar conclusions.  In fact the aggregate effect here is quite overwhelming (don’t debate gw in the comments, not today; I’ll delete).  It is a question of many moats, not all of them being entirely muddy.

3. I see the Smith-Krugman standard as fairly economistic, and fairly MIT-late 20th century at that.  It is one vision of what a good literature looks like, and a fairly narrow one.  It will elevate simple answers in status, whether or not that is deserved.  It discriminates against dialogic knowledge, book-based knowledge, historical knowledge, and knowledge when the answers and methods are not very exact.  There is the risk of ending up too certain about one’s knowledge.

That all said, I do understand that specialized top researchers, including Nobel Laureates, often may do better holding relatively narrow methodological visions.  Look at all the Nobel Prizes that have been awarded to Chicago.  It might be entirely correct to insist that Becker’s treatise on the family pay more attention to anthropology, but that doesn’t mean he should have followed that advicee.

4. The standard seems to discourage reading, and I would not want to teach it to my students.  I teach something more like “always read more, unless you are writing or doing relevant quantitative work.  And one reason you write is to improve the quality of your reading.  Read more and write more, all the time.”  I still think that is better advice for most (not all) people.

5. Isn’t there a lot to be said for deferring to the opinions of those who have read through the “muddy moat”?  By no means are they all partisans, and the non-partisan ones care most of all about the truth.  After all, they did all that reading!  Defer, rather than trust so much in your ability to pick you the right two papers, or have someone pick them out for you.  I have a much more positive view of survey articles than does Noah, while understanding they do often leave you fairly agnostic on major issues.

6. If the truth of the matter is in fact muddy, you may need to dip into the muddy moat to learn that.

7. The difference between total value and marginal value may be relevant.  You might conclude a field literature has low total value, but the marginal value of learning more about that area still could be quite high.  That is in part because muddy fields and results don’t spread so readily, and so dipping into the muck can yield some revelations.  That is another reason why I would not offer the “two paper standard” as practical advice.

8. If anything, I would put the reading pressure on the other side, namely more rather than less.  Rather than encouraging readers to dismiss or downgrade fields, I would urge them to consult different disciplines altogether, including political science, sociology, and anthropology, others too.  This is much easier to do if you take a more positive attitude toward survey articles.

9. This is quite a subjective impression, but I worry that the dogmatic will use the two paper standard to dismiss or downgrade particular lines of investigation.

10. I don’t know if Noah and Paul were referring to my colleague Garett Jones, who frequently tweets “…if only there were a vast empirical literature” when he sees claims that he regards as empirically false.  Now, I am not the Garett Jones oracle, but I always took his use of the word “vast” to be slightly sarcastic.  Usually these are cases where even a fairly cursory knowledge of the literature in question would indicate something is wrong with the claim at hand.  In my view, Garett is not demanding “vastness” of effort, rather he is criticizing those who don’t grasp what the effort space looks like in the first place.