Friday, August 19, 2005

Commercial Television and Voter Information

"Commercial Television and Voter Information"
London School of Economics - Department of Economics
Stockholm University

What is the effect of liberalizing a country's broadcasting system on the
level of information of its citizens? To analyze this question, we first
construct a model of state monopoly broadcasting where the government
selects the amount of television news coverage of different public policy
outcomes, and then sets public policy and political rents. Voters vote
retrospectively given the news provided. In equilibrium, the incumbent
provides some news coverage, and more so to groups for which reducing policy
uncertainty is more important.

We then introduce a profit-maximizing commercial channel. It provides more
news coverage to groups of voters valuable to advertisers or underprovided
by the state monopoly. We test our predictions on a panel of individuals
interviewed in the elections before and after the entry of commercial TV in
Sweden. We find that people who start watching commercial TV news increase
their level of political knowledge more than those who do not. They also
increase their political participation more. The positive informational
effects are particularly valuable since commercial TV news attracts ex ante
uniformed voters.

JEL Classification: L33

Tuesday, August 16, 2005

Culture shifts in corporations?

Quote of the day:

Question: "Did the increased emphasis on “primary responsibility to the shareholders” since the mid-1980s bring about a marked change in what are considered acceptable profit margins for big American companies?... "

[DeLong gives four possible explanations... concluding that:]

"I find that I'm 30% a finance economist, 20% a Galbraithian, 20% a follower of the Summers-Shleifer "breach of trust", and 30% a believer that the high unemployment of the Volcker disinflation was the key in its shift of power away from workers.

You will observe that I give 0% weight to the hypothesis that it was a shift in culture--a rise in the belief that managers had "primary responsibility to the shareholders"--that was responsible for the very real change that you ask about. This is a professional deformation: for 27 years I have been trained to look first at changes in technologies, resources, institutions, forms of organization, and incentives, and only after all of these have failed to give answers to throw up my hands and disappear in a "blaze of amateur sociology."

Thursday, August 11, 2005

Recent NBER papers

The Collection Efficiency of the Value Added Tax: Theory and
International Evidence
by Joshua Aizenman, Yothin Jinjarak  -  #11539 (ITI PE)


This paper evaluates the political economy and structural factors
explaining the collection efficiency of the Value Added Tax [VAT]. We
consider the case where the collection efficiency is determined by
the probability of audit and by the penalty on underpaying.
Implementation lags imply that the present policy maker determines
the efficiency of the tax system next period. Theory suggests that
the collection efficiency is impacted by political economy
considerations greater polarization and political instability would
reduce the efficiency of the tax collection. In addition, collection
is impacted by structural factors affecting the ease of tax evasion,
like the urbanization level, the share of agriculture, and trade
openness. Defining the collection efficiency of the VAT as the ratio
of the VAT revenue to aggregate consumption divided by the standard
VAT rate, we evaluate the evidence on VAT collection efficiency in a
panel of 44 countries over 1970-99. The results are consistent with
the theory - a one standard deviation increase in durability of
political regime, and in the ease and fluidity of political
participation, increase the VAT collection efficiency by 3.1% and
3.6%, respectively. A one standard deviation increase in
urbanization, trade openness, and the share of agriculture changes
the VAT collection efficiency by 12.7%, 3.9%, and - 4.8%,
respectively. In addition, a one standard deviation increase in
GDP/Capita increases the tax efficiency by 8.1%. Qualitatively
identical results apply for an alternative measure of VAT collection
efficiency, defined by the ratio of VAT revenue to GDP divided by the
standard VAT.

Do Macro Variables, Asset Markets or Surveys Forecast Inflation
by Andrew Ang, Geert Bekaert, Min Wei  -  #11538 (AP EFG)


Surveys do! We examine the forecasting power of four alternative
methods of forecasting U.S. inflation out-of-sample: time series
ARIMA models; regressions using real activity measures motivated from
the Phillips curve; term structure models that include linear,
non-linear, and arbitrage-free specifications; and survey-based
measures. We also investigate several optimal methods of combining
forecasts. Our results show that surveys outperform the other
forecasting methods and that the term structure specifications
perform relatively poorly. We find little evidence that combining
forecasts using means or medians, or using optimal weights with prior
information produces superior forecasts to survey information alone.
When combining forecasts, the data consistently places the highest
weights on survey information.

Social Value of Public Information: Morris and Shin (2002) Is
Actually Pro Transparency, Not Con
by Lars E.O. Svensson  -  #11537 (ME)


The main result of Morris and Shin (2002) (restated in papers by
Amato, Morris, and Shin (2002) and Amato and Shin (2003) and
commented upon by Economist (2004)) has been presented and
interpreted as an anti-transparency result: more public information
can be bad. However, some scrutiny of the result shows that it is
actually pro transparency: except in very special circumstances, more
public information is good. Furthermore, for a conservative benchmark
of equal precision in public and private information, social welfare
is higher than in a situation without public information.

Economic Analysis of Corporate and Personal Bankruptcy and Law
by Michelle J. White  -  #11536 (LE)


This paper surveys research on the economics of corporate and
personal bankruptcy law. Since the literatures on the two types of
bankruptcy have developed in isolation of each other, a goal of the
survey is to draw out parallels between them. Both theoretical and
empirical research are discussed.

Incentives and Prosocial Behavior
by Roland Benabou, Jean Tirole  -  #11535 (PE)


We develop a theory of prosocial behavior that combines heterogeneity
in individual altruism and greed with concerns for social reputation
or self-respect. Rewards or punishments (whether material or
image-related) create doubt about the true motive for which good
deeds are performed and this "overjustification effect" can induce a
partial or even net crowding out of prosocial behavior by extrinsic
incentives. We also identify settings that are conducive to multiple
social norms and those where disclosing one's generosity may
backfire. Finally, we analyze the choice by public and private
sponsors of incentive levels, their degree of confidentiality and the
publicity given to agents' behavior. Sponsor competition is shown to
potentially reduce social welfare.

Thursday, August 04, 2005

Closing the discourse to outsiders

Brad De Long is a super-smart guy, a top economist and top blogger. Unlike
many economists, he takes the time to argue with *non-economists* (that
weird super super majority of humankind).

I agree with him: Every discipline develops a specialized language both as
an analytical tool but also as an entry barrier for "unsophisticated
outsiders"... The real challenge is to read between the lines and beyond
the entry barriers to beat pseudo-arguments with real arguments--this is a
large portion of the "fun" in academia.

"It's beginning to look as if people calling [Jared Diamond's] "Guns, Germs,
and Steel" "quasi-racist" and that it "perpetuates racism" may simply be
aping their elders.

It appears to be a thing their sub-group does in order to close the circle
of discourse against outsiders--just as economists close the discourse to
outsiders by saying "they don't have a mathematical model" and historians
close to discourse to outsiders by saying "they don't have any new
primary-source evidence."

If so, Ozma's and Tak's claims that Diamond is "quasi-racist," or
"perpetuates racism" should not be understood as empirical claims about the
world but merely as markers of their own commitment to a group that seeks to
close the discourse to outsiders."

(...) "And here we have why, in Holberg's eyes, Diamond is a racist:
Diamond (in Guns, Germs, and Steel) focuses not on how human agency is
culturally-inflected, but on how it is geographically-inflected and
environmentally-inflected. That's materialism. That's reductionism. That's
determinism. That's not racism."

New papers on everything

Food for google: These are some new NBER papers on political economy, social networks and Mexican entrepreneurs.  Summer or not, economists keep pushing the envelope...

Why Do Politicians Delegate?
by Alberto Alesina, Guido Tabellini - #11531 (ME PE)
Opportunistic politicians maximize the probability of reelection and rents from office holding. Can it be optimal from their point of view to delegate policy choices to independent bureaucracies? The answer is yes: politicians will delegate some policy tasks, though in general not those that would be socially optimal to delegate. In particular, politicians tend not to delegate coalition forming redistributive policies and policies that create large rents or effective campaign contributions. Instead they prefer to delegate risky policies to shift risk (and blame) on bureaucracies.

Inefficiency in Legislative Policy-Making: A Dynamic Analysis
by Marco Battaglini, Stephen Coate - #11495 (PE)
This paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining. The policy space incorporates both productive and distributive public spending and distortionary taxation. The productive spending is investing in a public good that benefits all citizens (e.g., national defense or air quality) and the distributive spending is district-specific transfers (e.g., pork barrel spending). Investment in the public good creates a dynamic linkage across policy-making periods. The analysis explores the dynamics of legislative policy choices, focusing on the efficiency of the steady state level of taxation and allocation of tax revenues. The model sheds new light on the efficiency of legislative policy-making and has a number of novel positive implications.

Law, Endowments, and Property Rights
by Ross Levine - #11502 (IFM LE)
While scholars have hypothesized about the sources of variation in property rights for over 2500 years, it is only very recently that researchers have begun to test these theories empirically. This paper reviews both the theory and empirical evidence supporting and refuting the law and endowment views of property rights. The law view holds that historically determined differences in national legal traditions continue to shape cross-country differences in property rights. The endowment view argues that during European colonization, differences in climate, crops, the indigenous population, and the disease environment influenced long-run property rights.

by Edward L. Glaeser - #11511 (PE)
This paper reviews five striking facts about inequality across countries. As Kuznets (1955) famously first documented, inequality first rises and then falls with income. More unequal societies are much less likely to have democracies or governments that respect property rights. Unequal societies have less redistribution, and we have little idea whether this relationship is caused by redistribution reducing inequality or inequality reducing redistribution. Inequality and ethnic heterogeneity are highly correlated, either because of differences in educational heritages across ethnicities or because ethnic heterogeneity reduces redistribution. Finally, there is much more inequality and less redistribution in the U.S. than in most other developed nations.

Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers
by B. Douglas Bernheim, Antonio Rangel - #11518 (HE PE)
This paper has two goals. First, we discuss several emerging approaches to applied welfare analysis under non-standard
("behavioral") assumptions concerning consumer choice. This provides a foundation for Behavioral Public Economics. Second, we illustrate applications of these approaches by surveying behavioral studies of policy problems involving saving, addiction, and public goods. We argue that the literature on behavioral public economics, though in its infancy, has already fundamentally changed our understanding of public policy in each of these domains.

Aid and Growth: What Does the Cross-Country Evidence Really Show?
by Raghuram G. Rajan, Arvind Subramanian - #11513 (IFM)
We examine the effects of aid on growth--in cross-sectional and panel data--after correcting for the bias that aid typically goes to poorer countries, or to countries after poor performance. Even after this correction, we find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings, which relate to the past, do not imply that aid cannot be beneficial in the future. But they do suggest that for aid to be effective in the future, the aid apparatus will have to be rethought. Our findings raise the question: what aspects of aid offset what ought to be the indisputable growth enhancing effects of resource transfers? Thus, our findings support efforts under way at national and international levels to understand and improve aid effectiveness.

How Do Friendships Form?
by Bruce Sacerdote, David Marmaros - #11530 (CH)
We examine how people form social networks among their peers. We use a unique dataset that tells us the volume of email between any two people in the sample. The data are from students and recent graduates of Dartmouth College. First year students interact with peers in their immediate proximity and form long term friendships with a subset of these people. This result is consistent with a model in which the expected value of interacting with an unknown person is low (making traveling solely to meet new people unlikely), while the benefits from interacting with the same person repeatedly are high. Geographic proximity and race are greater determinants of social interaction than are common interests, majors, or family background. Two randomly chosen white students interact three times more often than do a black student and a white student. However, placing the black and white student in the same freshman dorm increases their frequency of interaction by a factor of three. A traditional "linear in group means" model of peer ability is only a reasonable approximation to the ability of actual peers chosen when we form the groups around all key factors including distance, race and cohort.

Mexican Entrepreneurship: A Comparison of Self-Employment in Mexico and the United States
by Robert Fairlie, Christopher Woodruff - #11527 (ITI LS)
Nearly a quarter of Mexico's workforce is self employed. But in the U.S. rates of self employment among Mexican Americans are only 6 percent, about half the rate among non-Latino whites. Using data from the Mexican and U.S. population census, we show that neither industrial composition nor differences in the age and education of Mexican born populations residing in Mexico and the U.S. accounts for the differences in the self employment rates in the two countries. Within the U.S., however, the data show self employment rates are much higher in ethnic enclaves. In PUMAS with a high percentage of residents of Latino origin, rates of self employment are comparable to rates among non-Latino whites. The data also indicate that the lack of English language ability and the lack of legal status among Mexican American immigrants helps account for their lower rates of self employment.


Wednesday, August 03, 2005

Bayesian superminds

Esto es bastante pedante pero igualmente divertido:

How To Be Much Cleverer Than All Your Friends (so they really hate you)

If you want to, you can learn Bayesian probability theory. Start with
Jaynes, it shouldn't take more than about ten years to finish the book,
assuming you don't waste time on anything else, making it excellent value
for money. If you do, you will be acquiring the skill of thinking in a
non-Aristotelian Logic, just as advertised. This will make it possible for
you to solve problems that are currently beyond your powers to even state
let alone solve. People who can reason in such a way about the world are
readily employable and useful members of society: we call them

I claimed that mastering a non-Aristotelian logic makes you smarter and able
to see things lesser mortals cannot. An example would help at this point;
you can see a small problem though: if you are still a lesser mortal, how
will you see it? Still, I shall give one anyway; it deals with the expected
lifetime of the human species. Papers have been written explaining that it
is very likely that the human race will be extinct within a few thousand
years. The argument is one which the simple minded non-Bayesian might find
convincing, but which the Bayesian super-mind can penetrate easily and
dispose of as a pile of dingo-droppings. Naturally, since you are not, as
yet, a Bayesian super-mind, you won't follow this - but you may get the
flavour of it.

Imagine that you are given a box which is fixed on a desk top and has a
button on top.

You are told that the box may contain either ten balls or a thousand balls.
All the balls are the same except that one and only one has your name
printed on it. You are asked to decide which box you have here, the thousand
ball box or the ten ball box. All you can do is to press the button, and you
are told that when you do, a ball will fall out of the box.

You reason that you have to press the button eleven times. If the eleventh
button press produces a ball, then it must have been the thousand ball box,
since the ten ball box wouldn't have anything to produce. So far we have
conventional Aristotelian type reasoning.

You press the button once and a ball comes out. You press it again and
another ball comes out. You press it again and a third ball comes out - and
this one has your name on it.

You can now make a pretty good guess as to which box you have. It is one
hundred times as likely to be the ten ball box as the thousand ball box.
This result should agree with your intuitions if you have any. The Bayesian
can provide a justification for this very quickly - but this is easy and
understandable only for superbeings and you aren't one yet. You should,
however, be able to see that getting your name up in the first three goes is
not too improbable if there are only ten balls in the box but is awfully
unlikely if there are a thousand. And if it is a hundred times as unlikely,
then the ten ball explanation ought to be about a hundred times as
believable. This is the intuitive, common sense approach. To a Bayesian, it
is not just plausible it is blindingly obvious - although it requires some
additional assumptions, which he or she can state precisely and you can't.
This is because as a result of using a powerful non-Aristotelian Logic, they
are smarter than you. Annoying, isn't it?

Now we come to the life of species...

(read the rest at the link!)

Monday, August 01, 2005

In defense of tradition

If you are ethically-minded, this is cool stuff to argue--for or against.

The Future of Tradition
By Lee Harris
(Lee Harris is the author of Civilization and Its Enemies: The Next Stage of

...the transgenerational duty to one's grandchildren may be put in these
terms: Members of each generation are committed to making sure that the
ethical baseline of their society does not move in a manner that their
visceral code instantly tells them is wrong. How much philosophical thought
is given in explaining this wrong, or in disputing its validity - all that
is irrelevant to the theory of tradition contained here.

But, once again, we confront the practical problem: How does a society go
about ensuring that the ethical baseline will be maintained at all costs,
and even when it is most tempting to depart from it in a downward direction?
Through appeals to enlightened self-interest, or through sermons and
philosophical tracts?


For us, it is imperative that an eight-year-old boy should have esteem for
himself, for the person that he is. We do not want him thinking, "I wish I
could be like John"; instead, we demand that he think, "I'm just fine the
way I am. I don't need to model my behavior on anyone else." But our
insistence on creating self-esteem in an eight-year-old boy comes with a
high price tag - by refusing to encourage the boy's dissatisfaction with
himself as he is, we are inadvertently taking from him the primary human
motivation to change oneself for the better. By pumping him full of
self-esteem, we rob him of the will to set himself transformative projects
and goals. Totally at peace with what he is, he ceases to have any reason to
become something more - and certainly no reason at all to become what he
could be.

The contemporary gospel of individual self-esteem is at odds with the
universal tradition of mankind - a tradition that the German poet, Rilke,
summed up in the concluding lines of a poem addressed to the torso of
Apollo, whose heroic perfection Rilke saw as a challenge to our own far from
perfect status quo - "Du must dein Leben andern." You must change your life.

...You must change yourself, as Rilke's poem tells us, but into what? A
tolerant person? A wise person?


This is how those fond of abstract reasoning can destroy the ethical
foundations of a society without anyone's noticing it: They throw up for
debate that which no one before ever thought about debating. They take the
collective visceral code that has bound parents to grandchildren from time
immemorial, in every culture known to man, and make of it a topic for
fashionable intellectual chatter.

...The intelligentsia have no idea of the consequences that would ensue if
middle America lost its simple faith in God and its equally simple trust in
its fellow men. Their plain virtues and homespun beliefs are the bedrock of
decency and integrity in our nation and in the world. These are the people
who give their sons and daughters to defend the good and to defeat the evil.
If in their eyes this clear and simple distinction is blurred through the
dissemination of moral relativism and an aesthetic of ethical frivolity,
where else will human decency find such willing and able defenders?

Even the most sophisticated of us have something to learn from the
fundamentalism of middle America. For stripped of its quaint and antiquated
ideological superstructure, there is a hard and solid kernel of wisdom
embodied in the visceral code by which fundamentalists raise their children,
and many of us, including many gay men like myself, are thankful to have
been raised by parents who were so unshakably committed to the values of
decency, and honesty, and integrity, and all those other homespun and corny
principles. Reject the theology if you wish, but respect the ethical
fundamentalism by which these people live: It is not a weakness of
intellect, but a strength of character.

Voting as signalling

If voting has signalling purposes, voting by mail "may" reduce total
turnout... but increase the share of informed voters...

"Theory and Evidence on the Role of Social Norms in Voting"
Stockholm School of Economics
Stockholm Institute of Transition Economics (SITE)
Date: March 2005

This paper investigates social norms and voting behavior. I argue that
social norms create incentives for signaling, i.e., voting for the purpose
of being seen at the voting act. Empirical evidence on signaling can be
gained by looking at the introduction of optional postal voting in
Switzerland. Even though the possibility of mail voting reduced voting costs
substantially, it didn't increase turnout. Consistent with my model's
predictions, voter turnout decreased more in the smaller communities, but in
the meantime, the share of cooperators (=interested voters) was more
positively affected there. Therefore, modern voting tools may decrease
average turnout, but nevertheless, increase the quality of the voting
outcome. Current models predict the opposite, but ignore the effect of
different voting systems on the incentive for signaling.

(This is her model:)

If voting is only possible by going to the polls, potential signaling
benefits thus originate from being seen (or not being seen) at the voting
both. However, in small communities, people know each other and gossip about
who was observed at the booth and who wasn't. Therefore, total signaling
benefits are assumed to decrease in community size (and) a nonpositive
relationship between voter turnout and community size.

(...) It can be shown that the introduction of postal voting has a
non-positive impact on turnout in small communities and a non-negative
impact on turnout in large communities (third result). The intuition behind
result three is that the introduction of postal voting has two
countervailing effects: a cost-reduction effect (with a positive effect on
turnout) and a reduced signaling effect (with a negative effect on turnout).

As for the latter, imagine a small community, where voting is only possible
at the polls. Due to the strong social pressure and the high signaling
benefits, a large share of defectors goes to the polls e.g. to avoid social
sanctions from non-voting. As soon as postal voting is allowed, cheating
becomes easy and defectors don't vote anymore. In large communities, on the
other hand, signaling was less rewarding (or necessary) under the old voting
system, so that the cost-reduction-effect of mail voting dominates.

These predictions from the signaling model stand in contrast to the
predictions of standard models of voting, which only consider the modern
voting tools' effect on the voting costs.