Results for “model this” 2739 found
Daniel A. Bell on the China model and political meritocracy
Stein Ringen reviews The China Model, here is Gideon Rachmann. He writes:
Daniel Bell, a Canadian political philosopher who has taught at Tsinghua University in Beijing for many years, is deeply influenced by this Chinese tradition. In his new book, he has set himself the ambitious task of making the case that Chinese-style meritocracy is, in important respects, a better system of governance than western liberal democracy.
I’ve been seeing a lot of emotional reactions to this book, here are a few points:
1. The United States probably should have less democracy along some margins, if only fewer referenda in California and no state and local elections of judges, dog catchers, and the like. If a writer cites “democracy” as obviously and always good for all choices, that writer isn’t thinking clearly.
2. More generally, the Western nations are relying on democracy less, as evidenced by the growing roles for central banks and also the European Union. That may or may not be desirable, but it’s worth considering our own trends before putting the high hat on.
2. The key to long-term living standards is stability of growth, just look at Denmark. There was never a heralded “Danish economic miracle,” but the country still has finished close to the top in terms of human welfare. Whether ostensibly meritocratic non-democratic systems can deliver such outcomes remains very much up for grabs, and Bell’s book hasn’t convinced me any that they can.
3. Arguably a country’s best chance of achieving meritocracy is to have many smart individuals who are culturally central. No system of government is going to overcome the lack of that.
4. Most humans in history seem to have favored meritocratic rule over democracy, and before the 19th century democracy was rare, even in the limited form of male-dominated or property owner-dominated republics. It is possible that the current advantage of democracy is rooted in technology, or some other time-specific factor, which ultimately may prove temporary. That said, I still observe plenty of democracies producing relatively well-run countries, so I don’t see significant evidence that a turning point against democracy has been reached.
5. To consider comparisons which hold a greater number of factors constant, I haven’t seen many (any?) serious people argue that Taiwan or South Korea would have done better to resist their processes of democratization.
Here you can buy The China Model: Political Meritocracy and the Limits of Democracy.
An economic model of the mystery novel, and are sports suspense-optimal?
Those questions are considered by Jeffrey Ely, Alexander Frankel, and Emir Kamenica in their new JPE paper “Suspense and Surprise.” Here is one to the point excerpt:
In the context of a mystery novel, these dynamics imply the following familiar plot structure. At each point in the book, the readers thinks that the weight of evidence suggests that the protagonist accused of murder is either guilty or innocent. But in any given chapter, there is a chance of a plot twist that reverses the reader’s beliefs. As the book continues along, plot twists become less likely but more dramatic.
In the context of sports, our results imply that most existing rules cannot be suspense-optimal. In soccer, for example, the probability that the leading team will win depends not only on the period of the game but also on whether it is a tight game or a blowout…
Optimal dynamics could be induced by the following set of rules. We declare the winner to be the last team to score. Moreover, scoring becomes more difficult as the game progresses (e.g., the goal shrinks over time). The former ensures that uncertainty declines over time while the latter generates a decreasing arrival rate of plot twists. (In this context, plot twists are lead changes.)
There are ungated versions of the paper here. Note that at the very end of the paper…well, I’ll just let you read it for yourselves.
Does the Egertsson and Mehrotra model of secular stagnation work?
Their new paper is here, ungated here (pdf), here is the key passage:
We have shown that in the model with capital, the presence of productive assets carrying a positive marginal product does not eliminate the possibility of a secular stagnation. The key assumption is that capital has a strictly positive rate of depreciation. In the absence of depreciation, capital can serve as a perfect storage technology which places a zero bound on the real interest rate. It is straightforward to introduce other type of assets, such as land used for production, and maintain a secular stagnation equilibrium. For these extensions, however, it is important to ensure that the asset cannot operate as a perfect storage technology as this may put a zero bound on the real interest rate.
Let me recapitulate the basic problem. Secular stagnation models are supposed to exhibit persistent negative real rates of return, but how is this compatible with economic growth and positive investment? Just hold onto stuff if need be and of course the goverment can help you do this with safe assets, if need be. The earlier models had no capital, which ruled out this possibility. The new model assumes storage costs for capital are fairly high, or alternatively the depreciation rate for capital is high. Since you can’t sit on your wealth, you might as well invest it at negative real rates of return.
But at the margin, storage costs for goods (and some capital) are not that high. My cupboard is full of beans and cumin seed, but I eat the stuff only slowly. In the meantime it is hardly a burden, nor is it risky since I know it will be tasty once I make the right brew. Art has negative storage costs (for the marginal buyer it is fun to look at), although its risk admittedly makes this a more complicated example. Advances in logistics, and the success of Amazon, show that storage costs are getting lower all the time.
Secular stagnation might be a good model for Liberia and Venezuela and Mad Max, but not for the United States today or other growing economies with forward momentum. But a credible stagnation model for America needs to recognize that rates of return will be lower than usual but not negative in real terms. And there won’t be a long-run shortfall of demand because eventually market prices will adjust so that demand meets the supply we have. That is a supply-side stagnation model of the sort promoted by myself, Robert Gordon, Peter Thiel, Michael Mandel, and others. In the secular stagnation model as it is now being discussed by Keynesian macroeconomists, you end up twisting yourself in knots to force that real rate of return into permanently negative territory. Of course if you allow the real rate of return to be positive albeit low, the economy is not stuck in a perpetual liquidity trap as people move out of cash into investment assets. The demand-side stagnation mechanisms fade away into irrelevance once prices have some time to adjust.
Izabella Kaminska comments here. Josh Hendrickson has a very good blog post on the model here. I’ve already cited Stephen Williamson here, he notes the model is really about a credit friction and would be remedied with a greater supply of safe assets for savings, an easy enough problem to solve, for instance try the Bush tax cuts. Here is Ryan Decker on the model, and here is Ryan arguing that investment is aggregate demand also and many of us seem to have forgotten that, a very good post.
This is an important and interesting paper, but only because it shows the model doesn’t really hold and requires such contortions. The discussion of policy results is premature and way off the mark. The authors should have included sentences like “storage costs aren’t very high, and the economy as a whole does not exhibit negative real rates of return, so these policy conclusions are not actual recommendations.”
Score one for the signaling model of education
In the new AER there is a paper by Melvin Stephens Jr. and Dou-Yan Yang, the abstract is this:
Causal estimates of the benefits of increased schooling using US state schooling laws as instruments typically rely on specifications which assume common trends across states in the factors affecting different birth cohorts. Differential changes across states during this period, such as relative school quality improvements, suggest that this assumption may fail to hold. Across a number of outcomes including wages, unemployment, and divorce, we find that statistically significant causal estimates become insignificant and, in many instances, wrong-signed when allowing year of birth effects to vary across regions.
In other words, those semi-natural experiments for the return to education, when some regions move with extra doses of compulsory schooling before others and we estimate differential wage effects, maybe don’t show as much as we used to think. As I’ve remarked to Bryan Caplan, if there is a criticism of a famous or politically correct result (or better yet both) getting published in the AER, you can up your Bayesian priors on that criticism being on the mark.
There are ungated copies of the paper here.
*The Supermodel and the Brillo Box*
The author is Don Thompson and the subtitle is Back Stories and Peculiar Economics from the World of Contemporary Art. It is a very enjoyable book on the economics of the contemporary art world, here is one bit:
The size of his art empire allows Gagosian to take full advantage of the economic oddity that when an artist is hot, the relationship of supply and demand reverses. If an artist creates enough work to show simultaneously in several galleries and at several art fairs, greater buzz produces higher prices. Each show, each fair, each art magazine mention produces more critical appraisal, more buzz, and more collectors on the waiting list. The reassurance of the dealer is reinforced by the behavior of the crowd. Greater supply produces greater demand.
Andy Warhol was one of the artists who understood this best.
La Ciccia (and some thoughts on role models in universities)
That is a Sardinian restaurant in San Francisco, and it was my pick from the San Francsico dining bleg from last week. I recommend it highly, focus on the appetizers and the pastas (uni!), as the meat dishes are less interesting.
Much of the table talk was on whether the true function of universities is to expose us to a wide array of vivid role models, so we could reject most of them and accept a few, thereby giving us a motivated path forward in life. One implication of this is that (lower-level) university athletics might be undervalued, because coaches and even fellow athletes can serve as useful role models in a way that most professors cannot. The question also arises whether we might have more efficient ways of exposing people to vivid role models than through college or university attendance. The “so many professors” approach of the university seems stifling and inefficient, not to mention lacking in diversity, once you view the question in these terms.
Is there such a thing as a “professional role model”? That would mean a person who hasn’t done very much but somehow reflects a lot of positive qualities and can inspire others. Or is that a contradiction in terms? Must the role model have actually done something significant? I believe that professional role models are possible and indeed they exist right now, even if they are not labeled as such.
Is the main function of role models to be accepted and emulated, or to be rejected? Do not underrate the latter possibility.
The Dutch experiment with an iTunes model for journalism
The Netherlands’ biggest newspaper and magazine publishers have agreed to start selling individual articles for as little as €0.10 through a start-up called Blendle that aims to be the “iTunes of journalism”.
The Dutch initiative highlights how publishers are searching for new ways to make money from online content as their print businesses face declining readership and advertising revenues.
Blendle was founded in 2012 by Marten Blankesteijn and Alexander Klöpping, both aged 27.
It plans to launch in the Netherlands in April and has signed up the vast majority of publishers that produce newspapers and magazines in the country, including De Persgroep, Sanoma, Hearst and Reed Elsevier.
From the FT there is more here.
The “devalue and dismiss” fallacy, methodological pluralism, and DSGE models
One of the most common fallacies in the economics blogosphere — and elsewhere — is what I call “devalue and dismiss.” That is, a writer will come up with some critique of another argument, let us call that argument X, and then dismiss that argument altogether. Afterwards, the thought processes of the dismisser run unencumbered by any consideration of X, which after all is what dismissal means. Sometimes “X” will be a person or a source rather than an argument, of course.
The “devalue” part of this chain may well be justified. But it should lead to “devalue and downgrade,” rather than “devalue and dismiss.”
“Devalue and dismiss” is much easier of course, because there then will be fewer constraints on what one can believe and with what level of certainty. “Devalue and downgrade” keeps a lot of balls in the air and that can be tiresome and also unsatisfying, especially for those of us trained to look for neat, intuitive explanations.
Enter DSGE models. There are plenty of good arguments against them. Still, they provide a useful discipline and they pinpoint rather ruthlessly what it is they we still do not understand. We can and should devalue them in a variety of ways, and for a variety of reasons, but still we should not dismiss them. Better yet than “devalue and downgrade” might be “devalue, downgrade, and…yet…de-dogmatize,” because these models usually point out the limits of our understanding. Those models defeat us, and thus it is odd when we attempt to portray the situation as us defeating them.
Note that very smart people are often good at “devalue and dismiss” because they can come up with a lot of good reasons to devalue the arguments or frameworks of others. But still they should not leap so quickly to the “dismiss.”
I would mention that Alex, while he did criticize DSGE models yesterday, also appreciates their uses.
Addendum: Here is Chris House, defending DSGE models.
Earth orbit debris: an economic model
That is a 2013 paper by Adilov, Alexander, and Cunningham, here is the abstract:
Space debris, an externality generated by expended launch vehicles and damaged satellites, reduces the expected value of space activities by increasing the probability of damaging existing satellites or other space vehicles. Unlike terrestrial pollution, debris created in the production process interacts with firms’ final products, and is, moreover, self-propagating. Collisions between debris or extant satellites creates additional debris. We construct an economic model to explore private incentives to launch satellites and to mitigate space debris. The model predicts that, relative to the social optimum, firms launch too many satellites and under-invest in debris mitigation technologies. We discuss remediation strategies and policies, and calculate a socially optimal Pigovian tax.
While we are on this topic, I very much liked the movie Gravity, which although it has some dialogue hearkens back to the silent classics of the past. It has spectacular visuals, a “great stagnation” element, a don’t try to be Icarus, live in the mud, and be reborn and baptized in the water element, a reinterpretation of The Book of Job, and a “who builds the best infrastructure anyway?” theme. On top of all that, it is subtle running commentary on the 1969 film *Marooned* and how much the world has, and hasn’t, changed since then.
Unemployment and Business Cycles (and a rehabilitation of matching models)
That is a new and important paper by Christiano, Eichenbaum, and Trabandt which strengthens and rehabilitates matching models of the labor market. The abstract is this:
We develop and estimate a general equilibrium model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, wages are not subject to exogenous nominal rigidities. Instead we derive wage inertia from our specification of how firms and workers interact when negotiating wages. Our model outperforms the standard Diamond-Mortensen-Pissarides model both statistically and in terms of the plausibility of the estimated structural parameter values. Our model also outperforms an estimated sticky wage model.
A few points:
1. This model overcomes the empirical problems with matching models stressed by Shimer (2005).
2. In this model the distinction between structural and cyclical unemployment is ill-defined. To insist that today’s unemployment is one rather than the other is to commit a category mistake.
3. This model very naturally handles the distinction between “sticky wages for workers who already have jobs” and the situation of workers who do not have a job at all. For most traditional sticky wage theories this is an embarrassment, as quite good theories of incumbent theories cannot be stretched easily to cover sticky reservation wages for the unemployed.
4. This model does not require that any openly available, good for both sides wage bargain is left sitting on the table.
5. In this model money has a positive effect on output and employment, but only by lowering real interest rates and inducing more consumer spending. It does not in general appear to be a large effect, but there is a real positive effect. You will note that the underlying parameters of the labor matching model are defined in real terms.
6. This model derives wage inertia and thus matches observed data on “stickiness,” noting that “stickiness” now seems to be a misleading word.
7. It would be a mistake to think that this model (or any) captures the entirety of the U.S. labor market. Yet if the model reflects a big chunk of our labor market, at the expense of the standard nominal wage stickiness model, that would have significant implications for how we think about monetary and fiscal policies.
8. Unlike in the Keynesian model, I believe in this model it is possible for effective stimulus policy to both improve employment and boost real wages (possibly small amounts). That is a very common claim (“let’s get some stimulus to boost wages”), yet few people making it realize how much it conflicts with their underlying Keynesian foundations. Perhaps this is a new way forward. Please note, however, that is my intuition based upon reading the paper and not a result which the authors have proven formally.
It is oddly fashionable in the economics blogosphere to insist that microfoundations do not matter or are not a worthy matter of study. Papers like this show that in fact they matter a great deal.
An (earlier?) ungated version of the paper is here.
A new model for media paywalls?
The famous political science blog Monkey Cage will be joining The Washington Post (congratulations!) and apparently this will be the arrangement:
Actually, we negotiated a one year exemption from the paywall. So for first 12 months, not at all. After that, will continue to be open to anyone with .edu, .mil, and .gov accounts.
What is the implied model behind assortative mating?
In a fascinating new paper by Brant, et.al. on IQ, I read the following bit:
…we found that higher-IQ parents actually showed less assortative mating: the difference between parental IQ scores was positively correlated with mean parental IQ score.
My questions are numerous but I will start with two.
First, is this the correct metric for “less” assortative mating?
Second, do “straightforward” models predict such a result as a matter of course? For instance, higher-IQ individuals may have greater scope to choose mates on the basis of complementary skills. That may imply higher IQ gaps. Furthermore higher-IQ individuals may marry later in life, put more effort into choosing, and encounter a wider variety of potential partners. That may also imply wider gaps in IQ across partners, even if assortative mating (as defined in an all things considered way) remains strong.
Very often there is more variability at the tops of distributions rather than at the bottoms or in the middles. Yet “pull away” forces may continue to operate.
To present a simple analogy, income gaps between marrying couples are probably higher at the upper end of the distribution than at the lower end. Yet assortative mating with respect to income still may reenforce income inequality.
Toward a model of the therapist
In working with neurotics, the therapist must always express a desire for patients to continue, even if he or she feels that these patients have completed their work. Such patients will break off when their own desire to move on has become strong enough and determined enough.
…This obviously implies that the analyst is an actor or actress who plays a part which does not necessarily convey his or her “true feelings.”…The analyst may find a patient unpleasant and annoying, but of what use is it to let the patient know this? The patient may very well react to an expression of the analyst’s antipathy by leaving analysis altogether, or by trying to make him- or herself pleasant and interesting to the analyst, censoring certain thoughts and feelings which he or she thinks might annoy the analyst, instead of getting down to true analytic work. Counterproductive reactions to say the least! The analyst must maintain a position of desire — desire for the patient to talk, dream, fantasize, associate, and interpret — regardless of any dislike he or she may have for the patient.
That is from Bruce Fink’s often quite interesting A Clinical Introduction to Lacanian Psychoanalysis Theory and Technique, which I suppose also doubles as management advice.
By the way, here is today’s (closely related) David Brooks column. Alex passes along this link.
The GMU/UVa wage disparity and the signalling model of education
It’s a well-known fact — well-known around GMU that is — that GMU graduates earn higher average salaries than do UVA grads (direct link here), that is for four year undergrads in their first year of employment.
It’s not just that UVa is in decline, or that some of them end up richer later in life. Or others may use their wealthier parents to live in Williamsburg, Brooklyn and avoid direct employment. A major reason for the wage discrepancy is simply that a disproportionate chunk of GMU students are likely to get jobs in the relatively high-paying Washington, D.C. area.
OK, so how does this relate to the broader ongoing debate over the signaling theory of education and wages?
It is widely accepted that UVa is a more exclusive school than GMU by the usual standards. Yet here we see labor markets “seeing through” those credentials, and paying more to the GMU graduates. In other words, labor markets are seeing that GMU students are, on average, “less exclusive by origin but will have a higher marginal product very quickly.”
The signaling model, in its simplest, most stripped down form, assumes that employers cannot judge the marginal products of individual new hires but instead pay them according to their credentials. Yet here we have a case where employers seem quite willing to make a judgment about marginal product and indeed that is a judgment which contradicts data on exclusivity of academic origins. Once you postulate that employers are willing to make estimates of individual marginal products which differ from the rankings that might be given by “raw ability,” the signaling model is less applicable. I don’t want to claim that the wages converge exactly on marginal products, but the credentials clearly are just one factor of many. Employer judgments of expected marginal products are not dominated by credentials, and you can imagine that after having a worker for a year or two the credentials are even less important as a means of judging prospective marginal product.
Another way to put this point is that the speed of employer learning is in fact fairly rapid, and some of it happens before the job even starts.
The hybrid educational model works
This is from the new William G. Bowen book, Higher Education in the Digital Age:
…we found no statistically significant differences in standard measures of learning outcomes (pass or completion rates, scores on common final exam questions, and results of a national test of statistical literacy) between students in the traditional classes and students in the hybrid-online format classes…This finding, in and of itself, is not different from the results of many other studies. But it is important to emphasize that the relevant effect coefficients in this study have very small standard errors…what we have here are “quite precisely estimated zeros.” That is, if there had in fact been pronounced differences in outcomes between traditional-format and hybrid-format groups, it is highly likely that we would have found them.
Note also that this finding holds across various subgroups of the basic student population, including students from families with incomes below 50k a year, first-generation college students, non-white students, and students with GPAs below 3.0.
The core report is here.