Abhijit Banerjee reminiscenses

by  Tyler Cowen in

Abhijit and I were in the same first year class at Harvard, and I have two especially strong memories of him from that time.

First, he was always willing to help out those who were not as advanced in the class work as he was.  Furthermore, that was literally everyone else.  He was very generous with his time.

Second, when it came to the first-year Macro final (I don’t mean the comprehensive exams), Andy Abel wrote a problem with dynamic programming, which was Andy’s main research area at the time.  Abhijit showed that the supposed correct answer was in fact wrong, that the equilibrium upon testing was degenerate, and he re-solved the problem correctly, finding some multiple equilibria if I recall correctly, all more than what Abel had seen and Abel wrote the problem.  Abhijit got an A+ (Abel, to his credit, was not shy about reporting this).

One of my favorite Abhijit papers is “On Frequent Flyer Programs and other Loyalty-Inducing Economic Arrangements,” with Larry Summers.  I believe it was published QJE 1987, but somehow the jstor link does not show up from google searches.  This was one of the first papers to show how consumer loyalty programs could segment the market and have collusive effects.

Another favorite Abjihit paper of mine is his job market paper, “The Economics of Rumours,” later published in ReStud 1993.  Have you ever wondered “if this rumor is true, why haven’t I heard it before?”  Abhijit works through the logic of the model on that one, in a scintillating performance.  It turns out this paper is now highly relevant for analyzing information transmission through social media.

Abhijit is the clearest case I know of a brilliant theorist who decided the future was with empirical work — he was right.  Nonetheless his early theory papers are still worthy of attention.  When Abhijit went on the job market, his letter writers suggested he might someday win a Nobel Prize, so strong were his talents.  They were right, but I suspect they had no idea for what the prize in fact would turn out to be.

The Nobel Prize in Economic Science Goes to Banerjee, Duflo, and Kremer

by  Alex Tabarrok in

The Nobel Prize goes to Abhijit Banerjee, Esther Duflo and Michael Kremer (links to home pages) for field experiments in development economics. Esther Duflo was a John Bates Clark Medal winner, a MacArthur “genius” award winner, and is now the second woman to win the economics Nobel and by far the youngest person to ever win the economics Nobel (Arrow was the previous youngest winner!). Duflo and Banerjee are married so these are also the first spouses to win the economics Nobel although not the first spouses to win Nobel prizes–there was even one member of a Nobel prize winning spouse-couple who won the Nobel prize in economics. Can you name the spouses?

Michael Kremer wrote two of my favorite papers ever. The first is Patent Buyouts which you can find in my book Entrepreneurial Economics: Bright Ideas from the Dismal Science. The idea of a patent buyout is for the government to buy a patent and rip it up, opening the idea to the public domain. How much should the government pay? To decide this they can hold an auction. Anyone can bid in the auction but the winner receives the patent only say 10% of the time–the other 90% of the time the patent is bought by the government at the market price. The value of this procedure is that 90% of the time we get all the incentive properties of the patent without any of the monopoly costs. Thus, we eliminate the innovation tradeoff. Indeed, the government can even top the market price up by say 15% in order to increase the incentive to innovate. You might think the patent buyout idea is unrealistic. But in fact, Kremer went on to pioneer an important version of the idea, the Advance Market Commitment for Vaccines which was used to guarantee a market for the pneumococcal vaccine which has now been given to some 143 million children. Bill Gates was involved with governments in supporting the project.

My second Kremer paper is Population Growth and Technological Change: One Million B.C. to 1990. An economist examining one million years of the economy! I like to say that there are two views of humanity, people are stomachs or people are brains. In the people are stomachs view, more people means more eaters, more takers, less for everyone else. In the people are brains view, more people means more brains, more ideas, more for everyone else. The people are brains view is my view and Paul Romer’s view (ideas are nonrivalrous). Kremer tests the two views. He shows that over the long run economic growth increased with population growth. People are brains.

Oh, and can I add a third Kremer paper? The O-Ring Model of Development is a great and deep paper. (MRU video on the O-ring model).

The work for which the Nobel was given is for field experiments in development economics. Kremer began this area of research with randomized trials of educational policies in Kenya. Duflo and Banerjee then deepened and broadened the use of field experiments and in 2003 established the Poverty Action Lab which has been the nexus for field experiments in development economics carried on by hundreds of researchers around the world.

Much has been learned in field experiments about what does and also doesn’t work. In Incentives Work, Dufflo, Hanna and Ryan created a successful program to monitor and reduce teacher absenteeism in India, a problem that Michael Kremer had shown in Missing in Action was very serious with some 30% of teachers not showing up on a typical day. But when they tried to institute a similar program for nurses in Putting a Band-Aid on A Corpse the program was soon undermined by local politicians and “Eighteen months after its inception, the program had become completely ineffective.” Similarly, Banerjee, Duflo, Glennerster and Kinnan find that Microfinance is ok but no miracle (sorry fellow laureate Muhammad Yunus). A frustrating lesson has been the context dependent nature of results and the difficult of finding external validity. (Lant Pritchett in a critique of the “randomistas” argues that real development is based on macro-policy rather than micro-experiment. See also Bill Easterly on the success of the Washington Consensus.)

Duflo, Kremer and Robinson study How High Are Rates of Return to Fertilizer? Evidence from Field Experiments in Kenya. This is an especially interest piece of research because they find that rates of return are very high but that farmers don’t use much fertilizer. Why not? The reasons seem to have much more to do with behavioral biases than rationality. Some interventions help:

Our findings suggest that simple interventions that affect neither the cost of, nor the payoff to, fertilizer can substantially increase fertilizer use. In particular, offering farmers the option to buy fertilizer (at the full market price, but with free delivery) immediately after the harvest leads to an increase of at least 33 percent in the proportion of farmers using fertilizer, an effect comparable to that of a 50 percent reduction in the price of fertilizer (in contrast, there is no impact on fertilizer adoption of offering free delivery at the time fertilizer is actually needed for top dressing). This finding seems inconsistent with the idea that low adoption is due to low returns or credit constraints, and suggests there may be a role for non–fully rational behavior in explaining production decisions.

This is reminiscent of people in developed countries who don’t adjust their retirement savings rates to take advantage of employer matches. (A connection to Thaler’s work).

Duflo and Banerjee have conducted many of their field experiments in India and have looked at not just conventional questions of development economics but also at politics. In 1993, India introduced a constitutional rule that said that each state had to reserve a third of all positions as chair of village councils for women. In a series of papers, Duflo studies this natural experiment which involved randomization of villages with women chairs. In Women as Policy Makers (with Chattopadhyay) she finds that female politicians change the allocation of resources towards infrastructure of relevance to women. In Powerful Women (Beaman et al.) she finds that having once had a female village leader increases the prospects of future female leaders, i.e. exposure reduces bias.

Before Banerjee became a randomistas he was a theorist. His A Simple Model of Herd Behavior is also a favorite. The essence of the model can be explained in a simple example (from the paper). Suppose there are two restaurants A and B. The prior probability is that A is slightly more likely to be a better restaurant than B but in fact B is the better restaurant. People arrive at the restaurants in sequence and as they do they get a signal of which restaurant is better and they also see what choice the person in front of them made. Suppose the first person in line gets a signal that the better restaurant is A (contrary to fact). They choose A. The second person then gets a signal that the better restaurant is B. The second person in line also sees that the first person chose A, so they now know one signal is for A and one is for B and the prior is A so the weight of the evidence is for A—the second person also chooses restaurant A. The next person in line also gets the B signal but for the same reasons they also choose A. In fact, everyone chooses A even if 99 out of 100 signals are B. We get a herd. The sequential information structure means that the information is wasted. Thus, how information is distributed can make a huge difference to what happens. A lot of lessons here for tweeting and Facebook!

Banerjee is also the author of some original and key pieces on Indian economic history, most notably History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India (with Iyer).

Duflo’s TED Talk. Previous Duflo posts; Kremer posts; Banerjee posts on MR.

Before last year’s Nobel announcement Tyler wrote:

I’ve never once gotten it right, at least not for exact timing, so my apologies to anyone I pick (sorry Bill Baumol!). Nonetheless this year I am in for Esther Duflo and Abihijit Banerjee, possibly with Michael Kremer, for randomized control trials in development economics.

As Tyler predicted he was wrong and also right. Thus, this years win is well-timed and well-deserved. Congratulations to all.

Monday assorted links

by  Tyler Cowen

1. Portuguese political path dependence.

2. Japanese ninja student gets top marks for writing essay in invisible ink.  “Eimi Haga followed the ninja technique of “aburidashi”, spending hours soaking and crushing soybeans to make the ink.  The words appeared when her professor heated the paper over his gas stove.”

3. New part of Tale of Genji found.

4. An ecologist on tree thinning and wildfires.

5. Why was Nepal never colonized?

6. Young people who are convinced they should give away all of their inherited wealth.

How to Work and Sleep at the Same Time

by  Alex Tabarrok in

An amazing result:

Many people have claimed that sleep has helped them solve a difficult problem, but empirical support for this assertion remains tentative. The current experiment tested whether manipulating information processing during sleep impacts problem incubation and solving. In memory studies, delivering learning-associated sound cues during sleep can reactivate memories. We therefore predicted that reactivating previously unsolved problems could help people solve them. In the evening, we presented 57 participants with puzzles, each arbitrarily associated with a different sound. While participants slept overnight, half of the sounds associated with the puzzles they had not solved were surreptitiously presented. The next morning, participants solved 31.7% of cued puzzles, compared with 20.5% of uncued puzzles (a 55% improvement). Moreover, cued-puzzle solving correlated with cued-puzzle memory. Overall, these results demonstrate that cuing puzzle information during sleep can facilitate solving, thus supporting sleep’s role in problem incubation and establishing a new technique to advance understanding of problem solving and sleep cognition.

Hat tip: Kevin Lewis.

China fact of the day

by  Tyler Cowen in

Any Chinese person who has gone to elementary school or watched television news can explain the tale of China’s 100 years of humiliation. Starting with the Opium Wars in the 19th century, foreign powers bullied a weak and backward China into turning Hong Kong and Macau into European colonies. Students must memorize the unequal treaties the Qing dynasty signed during that period.

There’s even a name for it: “national humiliation education.”

Here is more from Li Yuan at the NYT.

What I’ve been reading

by  Tyler Cowen in

Peter Gatrell, The Unsettling of Europe: How Migration Reshaped a Continent.  A very nice history of earlier post-war European migration, such as Turks and Greeks moving to West Germany, Cape Verdeans settling in Portugal, and so on.  Excellent background for the current debates.

Cristiano Bianchi and Kristina Drapić, Model City Pyongyang.  An excellent picture book, mostly of architecture, presenting Pyongyang as yet another installment in the 20th century series of deeply weird cities.

Jason Lyall, Divided Armies: Inequality and Battlefield Performance in Modern War.  Perhaps the most thorough look at how cohesion has made some armies and fighting forces stronger than others.  For instance there is a chapter “African World Wars: Ethiopia and the Democratic Republic of Congo on the Modern Battlefield.”  I view this more as a cohesion story than an “inequality” story (current U.S. forces seem pretty sharp), in any case a good integration of military history with modern social science.

Paul Blustein, Schism: China, America and the Fracturing of the Global Trading System.  Given the import and timing on the topic, I am surprised this book has not received more attention.  It is “more boring” than Blustein’s earlier works, such as on Argentina, but full of facts and substance on every page.  For now it is the go-to book on this topic.

Four very good books!

The modern world has not yet abolished slavery and forced deprivation

by  Tyler Cowen

The health service has said that it will stop locking up, isolating and physically restraining autistic children after an inquiry stated that it was damaging to their health.

NHS England has committed to make radical changes within 18 months, including a pledge not to place children with autism and learning difficulties in psychiatric wards unless they have a mental illness.

Matt Hancock, the health secretary, commissioned an inquiry led by Teresa Fenech, director of nursing at NHS England, after a series of scandals that involved the abuse of vulnerable patients, enforced medication and the use of seclusion cells.

In one case a girl with autism, Bethany, then aged 17, was held in isolation for 21 months at a private psychiatric hospital in Northampton.

Here is more from The Times of London, via Michelle Dawson.

“Two big names in European writing win literature Nobels”

by  Tyler Cowen

I chuckled at that FT headline, fortunately the on-line version names Olga Tokarczuk and Peter Handke in its header.

Can you imagine a sports header: “Big name wins NBA most valuable player award.”  No, they would name the “big name” because that big name is in fact big.

I still think Stephen King should get one.  I didn’t enjoy trying to read Tokarczuk, though I suspect she is a very good writer in Polish.  By Handke I can recommend his Sorrow of Dreams, a memoir of his mother dying, and also a book that influenced Knausgaard.  But mostly I am find him boring, pessimistic, and nasty, perhaps consistent with his support for Milosevic and the tyranny in Serbia.  I don’t think that disqualifies him from the prize per se, but neither do I see him as an author who had to win, though he is indeed “a big name in European writing.”  The thing is, he is nothing more than that.

Here you can buy The Stand for $8.30, by the way I love Houllebecq but the new one isn’t very interesting, as sadly it reads like a parody of his earlier, superior work.  Submission remains one of the truly great novels of recent times.

Cutting down a tree in California

by  Tyler Cowen in

”Anything that’s going to happen under this tree has to be addressed,” said Mr. Sartain, a third-generation arborist, surveying the tree’s 90-foot canopy with the cheerful, clinical detachment of your favorite pediatrician. ”There’s a lot of issues.”

Indeed, Mr. Sartain’s visit is only the first step in a process that will require the homeowner, who asked not to be named, to hire a private certified arborist at a cost of $500 to $2,000 to take pictures, prepare a report and perhaps to recommend protective pruning or other measures before a permit is issued and construction can proceed. Penalties for removing a tree like this, worth perhaps $100,000 under city guidelines because of its size and age, could force an offender to plant trees worth an equivalent amount.

Santa Clarita is not alone.

In the past 30 years, as development pressures increased, scores of California cities and counties from Thousand Oaks in the south to Santa Rosa in the north have passed ordinances protecting not only various species and sizes of oaks, but also sycamores, walnuts, eucalyptus and other trees with a zeal that might make the poet Joyce Kilmer blush.

The specifics vary widely, but the ordinances have one goal in common: protecting trees that are almost as storied in California as its redwoods and that have long been threatened by ranching, wine-making, suburban sprawl and, more recently, mysterious diseases.

Here is more from a 2001 NYT report.  Deregulating tree-cutting, of course, is one way to limit the number of California fires.

Via Elaine on Twitter.

The ebb and flow of political correctness doctrine

by  Tyler Cowen in

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

What caused the P.C. movement to stall after the ‘90s? One theory is that it was due to two particular events. First, a Democratic president was impeached for his sexual conduct with an intern. That made the left (at least temporarily) less interested in rooting out and punishing all abuses of power. Second, the attacks of Sept. 11, and the subsequent wars in Afghanistan and Iraq, created a new and different focal point for activist energy: first anti-terror, then anti-war.

The history of political correctness also shows that ideas can have a long genesis, as this essay by Musa al-Gharbi illustrates. The idea of sensitivity training, for instance, was created by Kurt Lewin in 1946-47, and later popularized by Carl Rogers in 1961. The notion of “safe spaces” started in gay and lesbian bars in the mid-1960s. The term “microaggressions” comes from Chester Pierce in 1974. It is possible that the phrase “identity politics” comes from the Combahee River Collective Statement of 1977.

The lesson here is clear: If you are dealing in the world of ideas, play the long game — don’t be too discouraged by momentary setbacks. For all the talk of America having a throwaway culture that moves rapidly from one idea to the next, the history of political correctness does not support that vision. It is possible for people to promote and sustain ideas to give them resonance and influence.

Please note I am trying to learn from the history of the movement, and it is not the point of this column to condemn it excesses (which are very real).

Do Social Media Harm the Mental Health of Youth? Probably Not.

by  Alex Tabarrok in

Time spent on social media has been blamed for increased suicides and depression, just as were other new technologies and pastimes such as phones and Dungeons and Dragons.

… but is social media the real culprit? Or are we engaged in a moral panic, perhaps not understanding the root of the problem? One major limitation of the current literature is that the vast majority of research on SNSs and mental health are cross sectional and cannot speak to developmental change over time or direction of effects. Additionally, research to date rely on traditional regression techniques that model between-person relations among variables. These techniques ignore individual processes that are vital to our understanding of the true relationship between these variables. Thus, the aim of the current study is to test a causal model of the associations between time spent using social media and mental health (anxiety and depression), using both between and within subjects analyses, over an 8-year-period of time, encompassing the transition between adolescence and emerging adulthood.

That’s from an impressive, 8-year long study. It’s not a random experiment but this is the most credible research on the question I have read to date.

Of course, this raises the question of why mental health is down and fragility is up among the young. One answer is that the evidence on mental fragility is flimsy, which is true in general, but the data on suicides is reasonably good and suicides among youth have increased a lot since 2000. I’m not sure of the answers but although social media fit the time trend I now down weight that explanation.

Hat tip: The awesome Rolf Degen.