Tuesday, February 21, 2006

Statistical Quote of the day

This is Tyler Cowen offering personal advice (the emphasis is mine):
"...If she splits with him, she will be "drawing from the urn without replacement," as they say.  And what a very special urn it is.  Should she think that simply making another choice will yield something much better?  At least this first pick a) plays at least two musical instruments, and b) is taking medication, which is more than you can say for the median impotent, nervous, obsessive-compulsive, alcoholic musician."

Wednesday, February 08, 2006

Assessing (un)observables: culture, abilities, and ugliness

Does Culture Affect Economic Outcomes?
by Paola Sapienza, Luigi Zingales - #11999 (CF EFG)

Abstract: Economists have been reluctant to rely on culture as a possible
determinant of economic phenomena. The notion of culture is so broad
and the channels through which it can enter the economic discourse so
vague that it is difficult to design testable hypotheses. In this
paper we show this does need to be the case. We introduce a narrower
definition of culture that allows for a simple methodology to develop
and test cultural-based explanations. We also present several
applications of this methodology: from the choice to become
entrepreneur to that of how much to save, to end with the political
decision on income redistribution.

The Effects of Cognitive and Noncognitive Abilities on Labor
Market Outcomes and Social Behavior
by James J. Heckman, Jora Stixrud, Sergio Uzrua - #12006 (CH ED)

This paper establishes that a low dimensional vector of cognitive and
noncognitive skills explains a variety of labor market and behavioral
outcomes. For many dimensions of social performance cognitive and
noncognitive skills are equally important. Our analysis addresses the
problems of measurement error, imperfect proxies, and reverse
causality that plague conventional studies of cognitive and
noncognitive skills that regress earnings (and other outcomes) on
proxies for skills. Noncognitive skills strongly influence schooling
decisions, and also affect wages given schooling decisions.
Schooling, employment, work experience and choice of occupation are
affected by latent noncognitive and cognitive skills. We study a
variety of correlated risky behaviors such as teenage pregnancy and
marriage, smoking, marijuana use, and participation in illegal
activities. The same low dimensional vector of abilities that
explains schooling choices, wages, employment, work experience and
choice of occupation explains these behavioral outcomes.

Ugly Criminals
by Naci Mocan, Erdal Tekin - #12019 (CH HE LS)

Abstract: Using data from three waves of Add Health we find that being very
attractive reduces a young adult's (ages 18-26) propensity for
criminal activity and being unattractive increases it for a number of
crimes, ranging from burglary to selling drugs. A variety of tests
demonstrate that this result is not because beauty is acting as a
proxy for socio-economic status. Being very attractive is also
positively associated adult vocabulary test scores, which suggests
the possibility that beauty may have an impact on human capital
formation. We demonstrate that, especially for females, holding
constant current beauty, high school beauty (pre-labor market beauty)
has a separate impact on crime, and that high school beauty is
correlated with variables that gauge various aspects of high school
experience, such as GPA, suspension or having being expelled from
school, and problems with teachers.
These results suggest two handicaps faced by unattractive
individuals. First, a labor market penalty provides a direct
incentive for unattractive individuals toward criminal activity.
Second, the level of beauty in high school has an effect on criminal
propensity 7-8 years later, which seems to be due to the impact of
the level of beauty in high school on human capital formation,
although this second avenue seems to be effective for females only.

Does your government make you happy?

Democracy and Development: The Devil in the Details
by Torsten Persson, Guido Tabellini  -  #11993 (EFG)

Abstract: Does democracy promote economic development? We review recent
attempts to address this question, which exploit the within-country
variation associated with historical transitions in and out of
democracy.  The answer is positive, but depends -- in a subtle way --
on the details of democratic reforms.  First, democratizations and
economic liberalizations in isolation each induce growth
accelerations, but countries liberalizing their economy before
extending political rights do better than those carrying out the
opposite sequence.  Second, different forms of democratic government
and different electoral systems lead to different fiscal trade
policies: this might explain why new presidential democracies grow
faster than new parliamentary democracies.  Third, it is important to
distinguish between expected and actual political reforms:
expectations of regime change have an independent effect on growth,
and taking expectations into account helps identify a stronger growth
effect of democracy.

How's Your Government? International Evidence Linking Good
Government and Well-Being

by John F. Helliwell, Haifang Huang  -  #11988 (EFG)

Abstract: In this paper we employ World Values Survey measures of life
satisfaction as though they were direct measures of utility, and use
them to evaluate alternative features and forms of government in
large international samples.  We find that life satisfaction is more
closely linked to several World Bank measures of the quality of
government than to real per capita incomes, in simple correlations
and more fully specified models explaining international differences
in life satisfaction.  We test for differences in the relative
importance of different aspects of good government, and find a
hierarchy of preferences that depends on the level of development.
The ability of governments to provide a trustworthy environment, and
to deliver services honestly and efficiently, appears to be of
paramount importance for countries with worse governance and lower
incomes.  The balance changes once acceptable levels of efficiency,
trust and incomes are achieved, when more value is attached to
building and maintaining the institutions of electoral democracy.

Growth, Initial Conditions, Law and Speed of Privatization in
Transition Countries: 11 Years Later

by Sergio Godoy, Joseph Stiglitz  -  #11992 (EFG LE)

Abstract: This paper examines alternative hypotheses concerning the
determinants of success in the transition from Communism to the
market.  In particular, we look at whether speed of privatization,
legal institutions or initial conditions are more important in
explaining the growth of the transition countries in the years since
the end of the Cold War.  In the mid 90s a large empirical literature
attempted to relate growth to policy measures.  A standard conclusion
of this literature was the faster countries privatized and
liberalized, the better.  We now have more data, so we can check
whether these conclusions are still valid six years later.
Furthermore, much of the earlier work was flawed since it did not
adequately treat problems of endogeneity, confused issues of speed
and level of privatization, and did not face up to the problems of
multicollinearity.  Our results suggest that, contrary to the earlier
literature, the speed of privatization is negatively associated with
growth, but is confirms the result of the few earlier studies that
have found that legal institutions are very important.  Other
variables, which seemed to play a large role in the earlier
literature, appear to have at most a marginal positive effect.