Friday, November 02, 2007

Labor market institutions

Next spring, in my political economy course, I want to cover some major public policy areas: education, health, pensions, poverty-alleviation, taxation, energy, trade and competition policy, and obviously, labor regulation. This would be a nice reading assignment:
Labor Market Institutions Around the World
Richard B. Freeman
NBER Working Paper No. 13242, July 2007

The paper documents the large cross-country differences in labor institutions that make them a candidate
explanatory factor for the divergent economic performance of countries and reviews what economists
have learned about the effects of these institutions on economic outcomes. It identifies three ways
in which institutions affect economic performance: by altering incentives, by facilitating efficient bargaining,
and by increasing information, communication, and trust. The evidence shows that labor institutions
reduce the dispersion of earnings and income inequality, which alters incentives, but finds equivocal
effects on other aggregate outcomes, such as employment and unemployment. Given weaknesses
in the cross-country data on which most studies focus, the paper argues for increased use of micro-data,
simulations, and experiments to illuminate how labor institutions operate and affect outcomes.

Friday, October 19, 2007

Campaign Advertising and Election Outcomes

The recent electoral reform in Mexico will surely change the use of TV and radio ads in political campaigns.  Will this make "media effects" larger or smaller?  The Brazilian experience seems to say larger.
By: Bernardo S. da Silveira (Department of Economic, New York University)
João Manoel Pinho de Mello (Department of Economics, PUC-Rio)
Despite the "minimal effects" conventional wisdom, the question of whether campaign advertising influence elections outcome remains open. This is paradoxical because in the absence of a causal link from advertising to candidate performance, it is difficult to rationalize the amounts spent on campaigns in general, and on TV advertising in particular. Most studies using US data, however, suffer from omitted variable bias and reverse causality problems caused by the decentralized market-based method of allocating campaign spending and TV advertising. In contrast with received literature, we explore a quasi-natural experiment produced by the Brazilian electoral legislation, and show that TV and radio advertising has a much larger impact on election outcomes than previously found by the literature. In Brazil, by law, campaign advertising is free of charge and allocated among candidates in a centralized manner. Guber natorial elections work in a runoff system. While in the first round, candidates' TV and radio time shares are determined by their coalitions' share of seats in the national parliament, the two most voted candidates split equally TV time if a second round is necessary. Thus, differences in TV and radio advertising time between the first and second rounds are explored as a source of exogenous variation to evaluate the impact of TV advertising on election outcomes. Estimates suggest that a one percentage point increase in TV time causes a 0.241 percentage point increase in votes. Since TV advertising is the most important item in campaign expenditures, this result sheds light on the more general question of the effect of campaign spending on elections outcome.
Keywords: Campaign Expenditures, Election Outcomes, Endogeneity, Quasi-Natural Experiments
JEL: G12 C22 C53 E44

Tuesday, October 09, 2007

Rational chimps?

Luego de 20 mil años (o más) de evolución, científicos alemanes comprueban que los chimpancés juegan con más egoísmo juegos de ultimátum que los homo sapiens.  ¿Cómo interpretar esta evidencia?  Algunas posibilidades:
a) Los modelos de teoría de juegos son para chimpancés.
b) Los humanos son "rule utilitarians" mientras que los chimpancés son "act utilitarians"
c) Los chimpancés juegan "one shot strategies" mientras que los humanos como si fuera un juego repetido.
d) Los chimpancés tienen horizontes muy cortos o son más impacientes que los humanos. 
e) Los chimpancés no tienen noción alguna de "justicia" o no han desarrollado la convención social de reciprocidad.
Noten que empíricamente es muy difícil distinguir cuál es el mecanismo subyacente pues las opciones anteriores nos llevan a una predicción similar.

LEIPZIG, Germany, Oct. 8 (UPI) -- German researchers have demonstrated chimpanzees make choices that protect their self-interest more consistently than do humans.

Researchers from the Max Planck Institute of Evolutionary Anthropology in Leipzig studied the chimp's choices by using an economic game with two players. In the game, a human or chimpanzee who receives something of value can offer to share it with another. If the proposed share is rejected, neither player gets anything.
Humans typically make offers close to 50 percent of the reward. They also reject as unfair offers of significantly less than half of the reward, even though this choice means they get nothing.
The study, however, showed chimpanzees reliably made offers of substantially less than 50 percent, and accepted offers of any size, no matter how small.  The researchers concluded chimpanzees do not show a willingness to make fair offers and reject unfair ones. In this way, they protect their self interest and are unwilling to pay a cost to punish someone they perceive as unfair.

The study appeared in the Oct. 5 issue of the journal Science.

Saturday, October 06, 2007

Il liberismo è di sinistra?

In Mexico the so called right-wing ruling party wants to raise higher tax revenues (to increase social spending, for instance), to allow private investments in energy (to promote growth and employment)--and many more so called neoliberal reforms—all of which the lefty oppositon party adamantly oppose.  Granted, such means and ends are somewhat debatable but remind me again which party is more concerned about the poor?  Indeed, the "left vs. right-wing" policy label brings more confusion than clarity in many countries.  This VoxEU short op-ed by Alesina and Giavazzi (authors of The future of Europe, MIT 2006) is right on the mark.  (By the way, I will surely refer back to VoxEU, the new and notable blog with "research-based policy analysis and commentary from Europe's leading economists", in my political economy class.)


Why the Left should learn to love liberalism

By Alberto Alesina  and Francesco Giavazzi (5 October 2007)


"Anti-reformists in Europe claim to be protecting Europe's weak and poor. Nothing could be further from the truth. Labour-market flexibility, deregulation of the service industry, pension reforms and greater competition in university funding might harm the interest of well-connected, privileged citizens but it would open up opportunities for Europe's youth and disadvantaged groups. A real left-wing agenda would embrace reform.

Continental Europe is in the midst of a burning discussion about the pros and cons of market-friendly reforms and greater economic liberalism. We all know what the package contains – competition, labour-market flexibility, liberalisation of services, lower taxes, and privatisations.

The traditional debate runs as follows. These reforms are "right wing" policies. They may increase efficiency – perhaps even economic growth – but they also tend to increase inequality and to be detrimental for the poorest in society. Therefore – and here comes the typical "socially compassionate" European argument – be very careful moving in that direction. Governments should proceed cautiously and be ready to backtrack at any point.

Much of this reasoning is fundamentally wrong. Labour-market flexibility, deregulation of the service industry, pension reforms and greater competition in university funding is not anti-equality. Such reforms shift financing from taxpayers to the users themselves and, as such, tend to eliminate rents. They tend to increase productivity by basing rewards on merit rather than on being an insider. They tend to open up opportunities for younger workers who are not yet well-connected. Pursuing pro-market reforms does not imply facing a trade-off between efficiency and social justice. In this sense, pro-market policies are "left wing", if that means reducing the economic privileges enjoyed by "insiders".


Read the whole thing.


Friday, September 28, 2007

Should Economists Rule the World?

"Should Economists Rule the World?
Trends and Implications of Leadership Patterns in the Developing World, 1960—2005
Anil Hira, Political Science, Simon Fraser University.
International Political Science Review, Vol. 28, No. 3, 325-360 (2007)
Abstract: This article examines more carefully the oft-made hypotheses that (1) "technocrats" or politicians with an economics background are increasingly common and (2) that this "improvement" in qualifications will lead to improvements in economic policy. The article presents a database on the qualifications of leaders of the world's major countries over the past four decades. The article finds that while there is evidence for increasing "technification," there are also distinct and persistent historical patterns among Asian, African, Middle Eastern, and Latin American leaders. Using statistical analysis, the article finds that we cannot conclude that leadership training in economics leads to better economic outcomes.
Por supuesto, no podemos dar crédito alguno a este análisis: obviamente este tipo de cosas no se pueden medir estadísticamente.  El autor, un politólogo, está sesgado por su agenda "anti-economista".  Lo que pasa es que los políticos y los poderes fácticos no permiten a los economistas implementar "fist best policies".  Es toda una conspiración... :-)

Sullivan's liberal mantra

A bit of motivational reading, for a change...
Life, Liberty and the Pursuit of Happiness - by Andrew Sullivan
Link (audio version included)  
"I believe in life. I believe in treasuring it as a mystery that will never be fully understood, as a sanctity that should never be destroyed, as an invitation to experience now what can only be remembered tomorrow.
(...) I believe in liberty. I believe that within every soul lies the capacity to reach for its own good, that within every physical body there endures an unalienable right to be free from coercion. I believe in a system of government that places that liberty at the center of its concerns, that enforces the law solely to protect that freedom, that sides with the individual against the claims of family and tribe and church and nation, that sees innocence before guilt and dignity before stigma. I believe in the right to own property, to maintain it against the benign suffocation of a government that would tax more and more of it away. I believe in freedom of speech and of contract, the right to offend and blaspheme, as well as the right to convert and bear witness.
(...) I believe in the pursuit of happiness. Not its attainment, nor its final definition, but its pursuit. I believe in the journey, not the arrival; in conversation, not monologues; in multiple questions rather than any single answer. I believe in the struggle to remake ourselves and challenge each other in the spirit of eternal forgiveness, in the awareness that none of us knows for sure what happiness truly is, but each of us knows the imperative to keep searching. I believe in the possibility of surprising joy, of serenity through pain, of homecoming through exile.
(...) And I believe in a country that enshrines each of these three things, a country that promises nothing but the promise of being more fully human, and never guarantees its success. In that constant failure to arrive -- implied at the very beginning -- lies the possibility of a permanently fresh start, an old newness, a way of revitalizing ourselves and our civilization in ways few foresaw and one day many will forget."


Friday, September 21, 2007

Krugman on political journalism

Paul Krugman has a blog now: "The conscience of a liberal".  Which is good news because, unlike his NYT column, the blog does not require a paid subscription.  For starters, I agree with his criticism of political journalism (which is slightly related to the troubles "narrative explanations in general).

What I Hate About Political Coverage

Warning: this is a bit (actually, more than a bit) of a rant.

One of my pet peeves about political reporting is the fact that some of my journalistic colleagues seem to want to be in another business – namely, theater criticism. Instead of telling us what candidates are actually saying – and whether it’s true or false, sensible or silly – they tell us how it went over, and how they think it affects the horse race. During the 2004 campaign I went through two months’ worth of TV news from the major broadcast and cable networks to see what voters had been told about the Bush and Kerry health care plans; what I found, and wrote about, were several stories on how the plans were playing, but not one story about what was actually in the plans.

There are two big problems with this kind of reporting. The important problem is that it fails to inform the public about what matters. In 2004, very few people had any idea about the very real differences between the candidates on domestic policy. It remains to be seen whether 2008 is any better.

The other problem, which has become very apparent lately, is that this sort of coverage often fails even on its own terms, because the way things look to inside-the-Beltway pundits can be very different from the way they look to real people.


Monday, September 17, 2007

El enfoque Nirvana

En muchos debates de política pública, aunque menos de lo que uno desearía, es común recurrir a criterios de eficiencia (también llamado criterio costo-beneficio) para evaluar arreglos institucionales. Como tantas cosas, el uso descuidado de los criterios de eficiencia puede conducir a razonamientos falaces. En un famoso paper de 1969, Harold Demsetz criticó duramente el enfoque de eficiencia usado por algunos economistas (en particular, su argumento iba contra Kenneth Arrow, premio nobel de economía) Demsetz llamó a esto el "Nirvana approach".

La idea básica es que si uno compara los arreglos institucionales del mundo real con una "norma ideal" (a menudo inexistente o irrealizable) es muy fácil concluir que el mundo real es ineficiente. Como sabemos, un enfoque comparado más útil consiste en evaluar los arreglos institucionales alternativos del mundo de real y, quizá usando la norma ideal como criterio, concluir que el arreglo que menos discrepe de esta norma es second-best efficient.

La sutil distinción entre estos enfoques es importante pues mientras el Nirvana approach te lleva a concluir que (casi) todo el mundo es ineficiente, el segundo enfoque te permite hallar (algunos) casos relativamente eficientes, dadas las restricciones del mundo real.

Según Demsetz, el Nirvana approach puede conducir a tres falacias adicionales:

The grass is always greener fallacy. Una vez que detectas una ineficiencia en el mundo real (digamos, una falla de mercado) inmediatamente asumir que una intervención (gubernamental, colectiva, divina, oenegera, etc.) puede llevarte a un mundo mejor. El problema es suponer que una alternativa aún no examinada es necesariamente superior al statu quo.

The fallacy of the free lunch. Suponer que tal intervención puede llevarse a cabo sin costos sociales significativos o sin distorsión alguna en los incentivos (a veces perversos) del mundo real. El problema es que si estos costos son más elevados que la ineficiencia detectada, a veces lo eficiente es dejar las cosas tal y como están.

The people could be different fallacy. Suponer que la mentada ineficiencia del mundo real desaparecería por arte de magia si tan sólo la gente fuera "mejor" (o más consciente, altruista, civilizada, sensata, educada, etc.) El problema es que es poco probable que la naturaleza humana cambie.

Las primeras dos falacias casi siempre aparecen juntas en muchos argumentos populares y académicos, mientras que la tercera puede aparecer sola o acompañada. Por otro lado, noten que la argumentación de Demsetz puede conducir a conclusiones conservadoras. En cualquier caso, sería deseable que nuestros analistas consideraran este tipo de problemas a la hora de evaluar el mundo o hacer propuestas de política para mejorarlo.

Referencia: Demsetz, Harold (1969). "Information and Efficiency: Another Viewpoint", Journal of Law and Economics 12(1), p. 1-22.

Los ricos cada vez son MENOS ricos...

Si comparamos la riqueza, en el mejor momento de sus vidas, de los multimillonarios norteamericanos y la traemos a valor presente (dólares de 2006), John D. Rockefeller sería varias veces más rico que Bill Gates.  Estos son algunos datos:
Ratio vs. Rockefeller
John D. Rockefeller (1839-1937) 305.3 1.0
Andrew Carnegie (1835-1919) 281.2 1.1
Cornelius Vanderbilt (1794-1877) 168.4 1.8
Richard Mellon (1858-1933) 82.3 3.7
Sam Walton (1918-1992) 58.6 5.2
Henry Ford (1863-1947) 54.3 5.6
Bill Gates (1955- ) 53 5.8
*Cifras en "2006 US billion dollars"
Una lista más detallada está aquí: The all-time richest Americans. Estas cifras provienen de All the Money in the World -- How the Forbes 400 Make -- And Spend -- Their Fortunes, de Peter W. Bernstein y Annalyn Swan.

Sunday, August 26, 2007

Evolutionary psychology and human nature

Ten Politically Incorrect Truths About Human Nature

"Human nature is one of those things that everybody talks about but no one can define precisely. Every time we fall in love, fight with our spouse, get upset about the influx of immigrants into our country, or go to church, we are, in part, behaving as a human animal with our own unique evolved nature—human nature.
This means two things. First, our thoughts, feelings, and behavior are produced not only by our individual experiences and environment in our own lifetime but also by what happened to our ancestors millions of years ago. Second, our thoughts, feelings, and behavior are shared, to a large extent, by all men or women, despite seemingly large cultural differences.
Human behavior is a product both of our innate human nature and of our individual experience and environment. In this article, however, we emphasize biological influences on human behavior, because most social scientists explain human behavior as if evolution stops at the neck and as if our behavior is a product almost entirely of environment and socialization. In contrast, evolutionary psychologists see human nature as a collection of psychological adaptations that often operate beneath conscious thinking to solve problems of survival and reproduction by predisposing us to think or feel in certain ways. Our preference for sweets and fats is an evolved psychological mechanism. We do not consciously choose to like sweets and fats; they just taste good to us.
The implications of some of the ideas in this article may seem immoral, contrary to our ideals, or offensive. We state them because they are true, supported by documented scientific evidence. Like it or not, human nature is simply not politically correct."

Read the whole thing!

Sunday, July 29, 2007

Social science and the public

Fabio Rojas, a Sociologist at discusses why does sociology have such a bad reputation?  I believe these sort of concerns apply, perhaps to different degrees, to the disarray of disciplines we now call social science:

"I am always shocked at our profession’s poor public image. Basically, the educated public barely knows that sociology is actually a real social science, and among those that do, sociology has a fluffy image. (...)  This is frustrating because we study important questions and we actually come up with some good answers. So here are some hypotheses about why we have such poor PR:

  1. Politics: As a group, we simply are too far from the average person in political outlook. People write us off as kooks.
  2. Great Books: At the undergraduate level, we teach too much from old, musty texts. It gives the impression that sociology is like English lit class - a tedious exercise in decoding the writings of dead guys. Not real science.
  3. No science: Although sociology is taught as an empirical social science at the graduate level, many undergraduates don’t get this at all. We should turn intro soc into a version of intro econ (core theories + exercises in analytical reasoning).
  4. We hate math: I’m not talking about statistics, I’m talking about the near absence of formal theory building in sociology. It’s relegated to various small pockets like formal soc psych, math soc, networks, rational choice, etc. The average sociologist doesn’t acquire formal theory as a tool. At a deep level, most insight in social science is not mathematical, but by completely tossing math, we throw out something that is quite useful and brings credibility.
  5. No Levitts: For some reason, we fail to produce people who act as the spokesperson of sociology. We have no Levitts, Krugmans, Friedmans, etc. Why are economists so friggin’ good at producing prominent public intellectuals, while sociology goes for *years* between NY Times op-eds? What do we do to suprress the production of PR savvy sociologists? Of course, we occasionally make the news with a clever article or book, but we fail to gain a permanent slot in public discussion. Why?
  6. The problem is social problems (not the journal!): By emphasizing social dysfunction, we become associated with dysfunction. A basic finding in the study of the professions is that the prestige of your clients is a big predictor of your prestige. Also, if that’s what the average college student takes away from sociology - that it’s the field of social problems - then that’s the image they’ll have about us for the rest of our lives.
  7. Post-modernism: This one isn’t our fault, but a lot of people make the link “hard French guys= sociology.” And yes, we all owe much to Bourdieu, but the overwhelming bulk of modern sociology is regular scientific hypothesis testing and thick description. The public thinks that we just sit around and play word games.
  8. Bad recruits: Let’s admit it - the kids who scores a perfect SAT score doesn’t immediately rush to sociology. We just don’t get the best recruits. This point was made in Halliday and Janowitz’ Sociology and Its Publics in the chapter on recruitment into sociology. We spend too much time trying to fill large lecture halls of intro soc and not enough time going for totally high caliber students. The result - the field suffers as a whole."
Also related, Fabio ponders What is “public sociology?”
"Here are some different versions of “public sociology” that I could imagine:
  1. Publicity: In this model, you don’t do anything different, but you just make a better effort at explaining yourself to people. “Newsworthiness” is your goal.
  2. Applied work: You switch from basic science research to policy driven work. Public sociology is sociology that tells you if program X makes a difference. If you take this view of public sociology seriously, then sociology quickly veers into social work and public policy studies.
  3. Problem advocacy: You use social science research techniques to draw attention to your personal causes.
  4. “Social problem” research: You do basic science, but on topics you deem politically relevant.
  5. Political selections of theory: I think this is closer to what Burawoy raises in “The Critical turn to Public Sociology.” You study the same things as other folks, but you substitute theories inspired by your political view. E.g, you dump stratification research and go to Marxian class analysis."
IMHO, at the core of these problems lie two basic trade-offs: 
1. Passion versus method.  Some (lots of?) people enter social sciences with a genuine concern to make a difference on the issues they care the most (call it the we gotta do something! spirit).  But there is a trade off between passionate advocacy and cold-minded research.  Not many of us are willing to take evidence that runs against our deeply held beliefs (at least not immediately)--which one of the many reasons why its is useful to stick to a defensible research method: when making a judgement call during research you have to trust your method rather than your instincts because the former are less value-ladden than the latter. 
2. Broad versus focused discourse.  Some people enter social sciences because they want to be the next hot public intellectual, that is, they want to be famous within more or less sophiticated circles (call it the barely sophisticated spotlight spirit).  But then again, there is a trade off between the sort of discourse that will get you media attention or put your book in bestseller lists (if you don't believe this, check out any non-fiction bestseller list in the world) and the dismal stuff that will make the grade in peer reviewed journals and/or get you the recognition of the few hundreds of people that share your research interests.
Of course, there is some middle ground and a handful of scholars are able to move back and forth between popular and narrow outlets.  A tad more of them start narrow and then go public as they get older and famous: by the time these scholars become famous, they already made their mark in academia, if at all.  But the vast majority pick their fields early on and just stick to it in order to exploit the gains from specialization.

Thursday, July 26, 2007

Future research: Foreign soccer players / Narco-campaigning

If I had infinite (ok, just twice more) time I would like to investigate the following:

What is the effect of limiting the number of foreign players in soccer leagues? A cross-country study.

Ideally, this should be a panel with TSCS variation on the legal limits variable.
DepVar: domestic players competitiveness (measured by performance of the country-i team on FIFA tournaments through time)
IndepVars: Number of foreign players allowed or average foreigners enrolled, initial competitiveness, GDP per capita, number of teams in top tier league or number of large stadiums per country... etc.

Logic: if foreign players crowd out domestic talent, local teams should underperform when more foreigners are allowed. But if foreign players raise competitive standards and complement local talent (think of the self-selection and screening effects on the pool of domestic players), then national teams may become more competitive in the presence of foreigners.

Comment: I am not enough of a sports fan to care a lot about this--but whatever the finding, it would give a good economics lesson to all those sports-pundits out there.

Narco-campaigning? Drug money and local democracy in México (or Colombia for that matter)

This also has to be a panel where some localities become "treated" by drug dealers.

DepVar: Turnout or closeness in local elections.

IndepVars: Some sort of index of drug dealing activity at the local level (maybe proxied by drug-related crime?), typical political controls within state and municipality, two-way fixed effects, etc.

Logic: Ok, we know/suspect that drugdealers may want to buyout local authorities. They can do this at the electoral or post-electoral stage. If they give out money to candidates, and we assume some common campaigning technology, you could expect (i) that the extra money leads to higher turnout (compared to state and municipal averages), or (ii) maybe more lopsided elections returns. If the effect is significant it would be indirect evidence of "narco-campaigning". If the effect is not significant, we would still face many possibilities: either narco campaigning is not affecting election outcomes because drug dealers don't care much about the electoral stage (vis a vis post-electoral maneuvering)--or maybe drug dealers giving is indistinguishable from other donors elsewhere, or maybe candidates optimize their spending to just about what they need to win, and pocket the rest, etc. (yes, there are many explanations for any nonsignificant outcome!).

Comment: Getting a good proxy for drug-activity may be hard (but who knows, maybe the AFI got some data at hand). But the real downside is worse: if the narc variable turns out to be positive and significant, your life is in danger.

Wednesday, July 25, 2007

In defense of dangerous ideas

Steve Pinker lists a good number of unsettling ideas (all ripe for research if you are brave enough):

Do women, on average, have a different profile of aptitudes and emotions than men?
Were the events in the Bible fictitious -- not just the miracles, but those involving kings and empires?
Has the state of the environment improved in the last 50 years?
Do most victims of sexual abuse suffer no lifelong damage?
Did Native Americans engage in genocide and despoil the landscape?
Do men have an innate tendency to rape?
Did the crime rate go down in the 1990s because two decades earlier poor women aborted children who would have been prone to violence?
Are suicide terrorists well-educated, mentally healthy and morally driven?
Would the incidence of rape go down if prostitution were legalized?
Do African-American men have higher levels of testosterone, on average, than white men?
Is morality just a product of the evolution of our brains, with no inherent reality?
Would society be better off if heroin and cocaine were legalized?
Is homosexuality the symptom of an infectious disease?
Would it be consistent with our moral principles to give parents the option of euthanizing newborns with birth defects that would consign them to a life of pain and disability?
Do parents have any effect on the character or intelligence of their children?
Have religions killed a greater proportion of people than Nazism?
Would damage from terrorism be reduced if the police could torture suspects in special circumstances?
Would Africa have a better chance of rising out of poverty if it hosted more polluting industries or accepted Europe's nuclear waste?
Is the average intelligence of Western nations declining because duller people are having more children than smarter people?
Would unwanted children be better off if there were a market in adoption rights, with babies going to the highest bidder?
Would lives be saved if we instituted a free market in organs for transplantation?
Should people have the right to clone themselves, or enhance the genetic traits of their children?

This essay was first posted at Edge ( and it is the Preface to the book 'What Is Your Dangerous Idea?: Today's Leading Thinkers on the Unthinkable,' published by HarperCollins.

Where do the super wealthy come from?

...Not from Wall Street nor Main Street, at least not as many as you would have thought, that is.

Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
by Steven N. Kaplan, Joshua Rauh

We consider how much of the top end of the income distribution can be
attributed to four sectors -- top executives of non-financial firms
(Main Street); financial service sector employees from investment
banks, hedge funds, private equity funds, and mutual funds (Wall
Street); corporate lawyers; and professional athletes and
celebrities.  Non-financial public company CEOs and top executives do
not represent more than 6.5% of any of the top AGI brackets (the top
0.1%, 0.01%, 0.001%, and 0.0001%).  Individuals in the Wall Street
category comprise at least as high a percentage of the top AGI
brackets as non-financial executives of public companies.  While the
representation of top executives in the top AGI brackets has
increased from 1994 to 2004, the representation of Wall Street has
likely increased even more.  While the groups we study represent a
substantial portion of the top income groups, they miss a large
number of high-earning individuals.  We conclude by considering how
our results inform different explanations for the increased skewness
at the top end of the distribution.  We argue the evidence is most
consistent with theories of superstars, skill biased technological
change, greater scale and their interaction.

Thursday, June 14, 2007

Bayesian articles in JSTOR

De pura curiosidad hice unas busquedas en JSTOR sobre artículos con el keyword "bayesian" en el titulo o bien en el abstract, publicados entre 1980 y hoy dia, en diferentes grupos de journals. Estos son los resultados:
JSTOR search:  for « (ab:(bayesian) OR ti:(bayesian)) AND ty:FLA AND (year:[1980 TO 3000]) in multiple journals »
Journal group                            Number of hits
Statistics (23 journals)                           1641
Economics (52 journals)                             333
Philosophy (26 journals)                            109
Political Science (43 journals)                      30
Sociology (46 journals)                              23
Public Policy & Administration (11 journals)          1
La lista habla por si sola.  No cabe duda que la onda bayesiana ha conquistado amplio terreno entre los estadísticos y que no le va tan mal en economía.  Los hits en filosofia son toda una sopresa pero consideren que esta lista incluye journals de filosofia de la ciencia.  
En Ciencia Política y Sociología apenas está haciendo su caminito--lo cual en parte explica el fervor con que predican su evangelio los bayesianos (please, please, this is THE WAY!!  stop doing OLS and MLE!!).  En cuanto a PP&A mejor me ahorro el comentario.
Otra interpretación es que aún le faltan sus añitos para que esto cuaje en el mainstream de CP--por ejemplo, cuando aparezca software amigable, tipo stata, que haga estas cosas.  Otra interpretación es que hay grandes rendimientos por treparse al vagón justo ahora...   Food for thought...

Tuesday, June 05, 2007

Miscellaneous papers

On political economy:  1. Swedish social scientists are more right leaning than American ones.  2. Long lasting democracy impacts growth more than you think.   3. Now, under the right circumstances, killing your country leader produce institutional change and moves to democracy.   4. Finally, perceptions of corruption are a poor indicator of corruption actual incidence.  Read on!

The Political Opinions of Swedish Social Scientists
Berggren, Niclas (The Ratio Institute), Jordahl, Henrik (IFN), Stern, Charlotta (SOFI, Stockholm University)
We study the political opinions of Swedish social scientists in seven disciplines. A survey was sent to 4,301 academics at 25 colleges and universities, which makes the coverage of the disciplines included more or less comprehensive. When it comes to party sympathies there are 1.3 academics on the right for each academic on the left—a sharp contrast to the situation in the United States, where Democrats greatly dominate the social sciences. The corresponding ratio for Swedish citizens in general is 1.1. The most left-leaning disciplines are sociology and gender studies, the most right-leaning ones are business administration, economics, and law, with political science and economic history somewhere in between. The differences between the disciplines are smaller in Sweden than in the more polarized U.S. We also asked 14 policy questions. The replies largely confirm the pattern of a left-right divide – but overal l the desire to change the status quo is tepid.   

The growth effect of democracy: Is it heterogenous and how can it be estimated?
Torsten Persson and Guido Tabellini
We estimate the effect of political regime transitions on growth with semi-parametric methods, combining difference in differences with matching, that have not been used in macroeconomic settings. Our semi-parametric estimates suggest that previous parametric estimates may have seriously underestimated the growth effects of democracy. In particular, we find an average negative effect on growth of leaving democracy on the order of -2 percentage points implying effects on income per capita as large as 45 percent over the 1960-2000 panel. Heterogenous characteristics of reforming and non-reforming countries appear to play an important role in driving these results. 

Hit or Miss? The Effect of Assassinations on Institutions and War
Benjamin F. Jones and Benjamin A. Olken
Assassinations are a persistent feature of the political landscape. Using a new data set of assassination attempts on all world leaders from 1875 to 2004, we exploit inherent randomness in the success or failure of assassination attempts to identify assassination's effects. We find that, on average, successful assassinations of autocrats produce sustained moves toward democracy. We also find that assassinations affect the intensity of small-scale conflicts. The results document a contemporary source of institutional change, inform theories of conflict, and show that small sources of randomness can have a pronounced effect on history. 

How Much Do Perceptions of Corruption Really Tell Us?
Weber Abramo, Claudio
Regressions and tests performed on data from Transparency International Global Corruption Barometer 2004 survey show that personal or household experience of bribery is not a good predictor of perceptions held about corruption among the general population. In contrast, perceptions about the effects of corruption correlate consistently among themselves. However, no consistent relationship between opinions about general effects and the assessments of the extent with which corruption affects the institutions where presumably corruption is materialized is found. Countries are sharply divided between those above and below the US$ 10,000 GDP per capita line in the relationships between variables concerning corruption. Among richer countries, opinions about institutions explain very well opinions concerning certain effects of corruption, while among poorer countries the explanatory power of institutions for the effects of corruption falls. Furthermore, tests for dependence applied between the variables in the sets of respondents for each of 60 countries also show that, for most of them, it is likely that experience does not explain perceptions. On the other hand, opinions tend to closely follow the trend of other opinions. Additionally, it is found that in the GCB opinions about general effects of corruption are strongly correlated with opinions about other issues, as much as to justify the hypothesis that it would suffice to measure the average opinion of the general public about human rights, violence etc. to accurately infer what would be the average opinion about least petty and grand corruption. The findings reported here challenge the value of perceptions of corruption as indications of the actual incidence of the phenomenon.

Wednesday, May 30, 2007

Revising homo economicus from within

If you believe that the homo economicus caricature is just too obscure and dismal, you are probably right: people cooperate much more than what a simple PD game predicts...  But before you run away searching for an "heterodox answer", you should probably read two nice papers by Samuel Bowles and Herbert Gintis on the compelling evidence for "other-regarding, process-regarding, and endogenous preferences" sorts of behavior.
Homo Economicus and Zoon Politikon: Behavioral Game Theory and Political Behavior
Oxford Handbook of Contextual Political Analysis, 2006
The Evolutionary Basis of Collective Action
Oxford Handbook of Political Economy2006
By the way, this is Gintis on the false promise of post-autistic / heterodox economics:
"In June 2000, several Parisian economics students circulated a petition calling for the reform of their economics curriculum. Their complaint was the inability of the neoclassical economics they were studying to satisfy their need for a deep understanding of the operation of real-life economies. They called for a reform of the university curriculum that would tolerate analytical diversity and foster critical dialogue across contrasting approaches to economics. (...) This reform movement has grown in Europe, under the rubric of "post-autistic economics."

(...) the post-autistic economics critique is incapable of leading to positive change in how economics is done and taught. The central critique is that neoclassical economics does not describe real-world economies, and must be replaced by or supplemented with other approaches. This is just wrong. While the elementary courses are far from the real world, advanced courses in such areas as labor, international finance, macroeconomic policy, economic development, law and economics, environmental economics, and so on, are quite real-world. If an undergraduate students left with a degree in economics that allowed them to understand The Economist and the Journal of Economic Perspectives, the level of economic awareness in the world would be considerably higher. If the undergraduate curriculum does not bring students to this level, the curriculum is, to my mind, faulty. Perhaps less stress on arcane theories that are relevant only to professional economists should be replaced by a more historical, institutional, and hands-on approach to microeconomic and macroeconomic issues. But, this is a critique of pedagogy, not of economic theory.

Neoclassical theory has displaced other approaches around the world because it is currently the only promising approach to economics. Marxism, Keynesianism, Institutionalism, Syndicalism, Austrian economics, and the like developed strongly for a while and then foundered. They certainly do not present analytically interesting alternatives to neoclassical economics. It is not an accident that all over the world, including India, Japan, China, and many countries in Latin America, the reform of higher education has involved the introduction of modern neoclassical economic theory. With all its flaws, it is the only credible starting point for serious economic analysis.

Neoclassical economics has profound problems, but they can only be addressed from within, not by embracing any "heterodox" alternative that I know of. The pleas for democracy, toleration, and pluralism by the "heterodox" is simply an admission that they can't win the intellectual battle by having better theories, only by having more troups. "

Tuesday, May 29, 2007

Direct democray and conservative policy

Some uncommon(?) wisdom from John Matsusaka (USC), author of For the Many or the Few: The Initiative, Public Policy, and American Democracy (U. Chicago Press, 2004). 

Direct Democracy and Social Issues
John Matsusaka
Entrydate:  2007-05-29 18:49:17
Keywords:   Direct democracy, initiative, social issues, representation

Abstract:   This paper explores the connection between the initiative process--the most potent form of direct democracy--and social issues by examining laws on seven social issues in all 50 American states. Initiative states are 18 percent more likely than noninitiative states to choose a conservative than a liberal policy on the median issue after controlling for public opinion, demographic, and regional variables. The conservative shift is majoritarian: initiative states are 8 percent more likely than noninitiative states to choose laws that reflect the majority's preference. The initiative effect does not appear to depend on the institutional features that scholars and reformers often discuss.

Direct Democracy and Public Employees
John Matsusaka
Entrydate: 2007-05-29 18:51:41
Keywords:   Direct democracy, public employees, initiative, patronage, interest groups

Abstract:   In the public sector, employment may be inefficiently high because of patronage, and wages may be inefficiently high because of the strength of public employee interest groups. This paper explores whether the initiative process, a direct democracy institution of growing importance, can control these political economy problems, as proponents and some research suggests. Based on a sample of 500+ cities in 2000, I find that when public employees are allowed to bargain collectively, driving up wages, the initiative appears to cut wages by about 5 percent but has no measurable effect on employment. When public employees are not allowed to bargain collectively and patronage is a problem, initiatives appear to cut employment but not wages.

A brief summary of Matsusaka's work is available here:  "Direct Democracy Works" Journal of Economic Perspectives, Spring 2005. [PDF]

Sunday, May 20, 2007

World income distribution, poverty, and inequality

La semana pasada discutimos, en mi clase de economía política, temas de pobreza y desigualdad a nivel global y cross-country.  Estos son algunos de los  materiales
Syllabus y powerpoints de un curso corto sobre "Inequality, Poverty and Income Distribution" impartido por Frank Cowell, director of the Distributional Analysis Research Programme at the London School of Economics, and editor of Economica.
Esther Duflo, del Poverty Action Lab de MIT, quiere salvar al mundo con ayuda del método científico y los diseños experimentales.  Veanla responder la pregunta: Fighting Poverty: What Works?  (35min video). No dejen de ver los ambiciosos projectos del centro.
Conozcan a Jeffrey D. Sachs, Director of The Earth Institute, Professor of Sustainable Development, Health Policy and Management at Columbia University, and fomer Director of the UN Millennium Project. He is author of The End of Poverty: Economic Possibilities for Our Time.

Saturday, May 12, 2007

Special Interests and The Myth of the Rational Voter

This is Bryan Caplan on his latest book, The Myth of the Rational Voter, on The Wall Street Journal:

Special-Interest Secret

May 12, 2007; Page A11
Mr. Caplan, an associate professor of economics at George Mason University, is the author of "The Myth of the Rational Voter: Why Democracies Choose Bad Policies" (Princeton University Press, 2007).

Behind every policy that does more harm than good, there's a special interest that favors it anyway. The steel tariff was bad for consumers, steel-using industries and foreign steel producers, but the steel lobby still pushed for it. Farm subsidies are bad for both taxpayers and unsubsidized farmers, but in 2002 the American farm lobby got a 70% increase in government support. The minimum wage is bad for consumers, employers and low-skill workers who get priced out of their jobs, but unions are hard at work to raise it again.

When special interests talk, politicians listen and the rest of us suffer. But why do politicians listen? Social scientists' favorite explanation is that special interests pay close attention to their pet issues and the rest of us do not. So when politicians decide where to stand, the safer path is to satisfy knowledgeable insiders at the expense of the oblivious public.

This explanation is appealing, but it neglects one glaring fact. "Special-interest" legislation is popular.

Keeping foreign products out is popular. Since 1976, the Worldviews survey has always found that Americans who "sympathize more with those who want to eliminate tariffs" are seriously outnumbered by "those who think such tariffs are necessary." Handouts for farmers are popular. A 2004 PIPA-Knowledge Networks Poll found that 58% agree that "government needs to subsidize farming to make sure there will always be a good supply of food." In 2006, the Pew Research Center found that over 80% of Americans want to raise the minimum wage. It is safe to assume, then, that few people want to abolish it. These results are not isolated. It is hard to find any "special interest" policies that most Americans oppose.

Clearly, there is something very wrong with the view that the steel industry, farm lobby and labor unions thwart the will of the majority. The public does not pay close attention to politics, but that hardly seems to be the problem. The policies that prevail are basically the policies that the public approves.

No wonder special interests so often get their way. They do not have to force their policies down the public's throat, or sneak them through Congress unnoticed. To succeed, special interests only need to persuade politicians to swim with the current of public opinion.

Why would the majority favor policies that hurt the majority? There is a good reason. The majority favors these policies because the average person underestimates the social benefits of the free market, especially for international and labor markets. In a phrase, the public suffers from anti-market bias.

Economists have spent centuries explaining how markets channel greedy intentions into socially desirable results; how trade is mutually beneficial both within and between countries; how using price controls to redistribute income inflicts a lot of collateral damage. These are the lessons of every economics textbook. Contrary to the stereotype that they can't agree, economists across the political spectrum, from Paul Krugman to Greg Mankiw, see eye to eye on these basic lessons.

Unfortunately, most people resist even the most basic lessons of economics. As every introductory teacher of the subject knows, students are not blank slates. On the first day of class, they arrive with strong -- and usually misguided -- beliefs about economics. Convincing students to rethink their anti-market views is no easy task.

The principles of economics are intellectually compelling; but emotionally, they fall flat. It feels better to believe that greedy intentions imply bad consequences, that foreigners destroy our prosperity and that price controls are a harmless way to transfer income. Given these economic prejudices, we should expect policies like steel tariffs, farm subsidies and the minimum wage to be popular.

None of this means that special interests don't matter, but it does put their activities in a new light. Special interests do not have to sneak behind the majority's back; they just need to ask for the right favor in the right way. The steel lobby could have demanded a big handout from the federal government. But that would have struck many voters as welfare for the rich; steel-makers can't expect the same treatment as farmers, can they? Instead, the steel lobby took the crowd-pleasing route of blaming foreigners and asking for tariffs. Tariffs were less direct than a naked subsidy from Washington, but they enriched the steel industry without alienating the majority.

If special-interest legislation were fundamentally unpopular, public relations campaigns would be futile. They would serve only to warn taxpayers about plans to pick their pockets. Since the public shares interest groups' critique of the free market, however, there is room for persuasion. Left to its own devices, the public is unlikely to spontaneously fret about the plight of the steel industry. But a good public relations campaign can -- and often does -- change the public's mind. Once the public actively supports an interest group, even politicians who would prefer to leave the market alone find it awkward to block government intervention.

In many cases, though, a public relations campaign is overkill. Special interests can make money by maneuvering around the indifference of the majority. Even though most people are protectionists, for example, they are fuzzy about specifics. Which industries need protection? How much? Should we use tariffs, quotas or what? To most citizens, these are mere details; within broad limits, they will accept whatever happens. As far as special interests are concerned, however, these details mean the difference between feast and famine. When it is time to determine details, special interests have a lot of influence -- in large part because no one else cares enough to quibble.

In a monarchy, no one likes to blame the king for bad decisions. So instead of blaming the king himself, critics point their fingers at his wicked, incompetent and corrupt advisers. While this is a good way to keep your head, it is hard to take seriously. Kings often make bad decisions; and in any case, if his advisers are hurting the country, isn't it the king's fault for listening to them?

In a democracy, similarly, no one likes to blame the majority for bad decisions. So instead of blaming the majority, critics point their fingers at special interests. But this too is hard to take seriously. The majority often makes bad decisions; and in any case, if special interests are hurting the country, isn't it the majority's fault for listening to them?

We often ponder special-interest politics in order to solve a mystery: "Why aren't policies better?" Realizing how many bad policies are here by popular demand turns this question upside down. The real mystery is not why policies aren't better. The real mystery of politics is why policies aren't a lot worse.

Tuesday, May 08, 2007

Unions: heroes or a XXth century bubble?

An Alternative Theory of Unions
by Paul Graham

"People who worry about the increasing gap between rich and poor generally look back on the mid twentieth century as a golden age. In those days we had a large number of high-paying union manufacturing jobs that boosted the median income.

...In a rapidly growing market, you don't worry too much about efficiency. It's more important to grow fast. If there's some mundane problem getting in your way, and there's a simple solution that's somewhat expensive, just take it and get on with more important things.

...Difficult though it may be to imagine now, manufacturing was a growth industry in the mid twentieth century. This was an era when small firms making everything from cars to candy were getting consolidated into a new kind of corporation with national reach and huge economies of scale. You had to grow fast or die. Workers were for these companies what servers are for an Internet startup. A reliable supply was more important than low cost.

If you looked in the head of a 1950s auto executive, the attitude must have been: sure, give 'em whatever they ask for, so long as the new model isn't delayed.

People who think the labor movement was the creation of heroic union organizers have a problem to explain: why are unions shrinking now? The best they can do is fall back on the default explanation of people living in fallen civilizations. Our ancestors were giants. The workers of the early twentieth century must have had a moral courage that's lacking today.

In fact there's a simpler explanation. The early twentieth century was just a fast-growing startup overpaying for infrastructure. And we in the present are not a fallen people, who have abandoned whatever mysterious high-minded principles produced the high-paying union job. We simply live in a time when the fast-growing companies overspend on different things. "

Saturday, May 05, 2007

Growth in Latin America: abandon all hope?

Crises and Growth: A Latin American Perspective
Sebastian Edwards
NBER Working Paper No. 13019 , April 2007

In this paper I use historical data to analyze the relationship between crises and growth in Latin America. I calculate by how much the region's GDP per capita has been reduced as a consequence of the recurrence of external crises. I also analyze the determinants of major balance of payments crises. The main conclusion is that it is unlikely that Latin America will, on average, experience a major improvement in long run growth in the future. It is possible that some countries will make progress in catching up with the advanced nations. This, however, will not be the norm; most Latin American countries are likely to fall further behind in relation to the Asian countries and other emerging nations. Not everything, however, is grim. My analysis also suggests that fewer Latin America countries will be subject to the type of catastrophic crises that affected the region in the past. Latin America's future will be one of 'No crises and modest growth.' "

Colonial institutions matter, Brazilian style

Rent Seeking and the Unveiling of ‘De Facto’ Institutions: Development and Colonial Heritage within Brazil
Joana Naritomi, Rodrigo R. Soares, Juliano J. Assunção
March 2007

This paper analyzes the roots and implications of variations in de facto institutions, within a
constant de jure institutional setting. We explore the role of rent-seeking episodes in colonial
Brazil as determinants of the quality of current local institutions, and argue that this variation
reveals a de facto dimension of institutional quality. We show that municipalities with origins
tracing back to the sugar-cane colonial cycle – characterized by a polarized and oligarchic
socioeconomic structure – display today more inequality in the distribution of land.
Municipalities with origins tracing back to the gold colonial cycle – characterized by an overbureaucratic
and heavily intervening presence of the Portuguese state – display today worse
governance practices and less access to justice. Using variables created from the rent-seeking
colonial episodes as instruments to current institutions, we show that local governance and
access to justice are significantly related to long-term development across Brazilian

Friday, May 04, 2007

Trade policy

Dani Rodrik and Tyler Cowen debate about trade policy desirability...
Should economists be debating politics?
Question for Dani Rodrik
The devil is in the details.  Here is Rodrik again:

"is there any chance that we could actually move in the direction that I would like to see (which is not necessarily and always the unconditional free trade direction) without doing more damage than good?

The fact that we do not live in autarky is prima facie evidence that we are not at a corner solution where the political-economy equilibrium is concerned. That means that even relatively small changes in institutional design—with corresponding changes in incentives for political agents—can have important implications for the outputs of the political game. We actually have some control over how the political game is to be played, and therefore over the amount of rent-seeking that will be generated in equilibrium.

Here is one example where this generally works to our advantage. To prevent congressional log-rolling in tariff setting, we allow Congress to delegate the details of trade policy negotiations to the President (in the form of trade negotiating authority), with Congress limited to an up-or-down vote on the entire package. It is generally agreed that this delivers better trade policy than in the absence of delegation.

And here is another example where it works to our disadvantage (and does so again by design). Anti-dumping proceedings are explicitly designed to favor import-competing firms and to provide protection where none is really needed on sound economic grounds. That is because the government is instructed to determine whether firms are “injured,” but not whether the imposition of duties would engender greater hurt elsewhere. Their outcomes would be significantly different if we allowed beneficiaries of trade (consumers and downstream firms) to have standing in these proceedings."

Finally, Rodrik gives me a nice quote of the day:

"Scratch any strongly-held view about free trade, and you will find (typically) unexamined political assumptions underneath."


Thursday, April 12, 2007

Robert Fogel, nobel activist

This is an excerpt from an interview with 1993 nobel laureate Robert Fogel:

RF: There’s a large gap in your academic CV from 1948, when you finished your undergraduate degree, to the mid-1950s, when you enrolled in graduate school. What were you doing during that period?


Fogel: When I graduated from college, I had two job offers. One was from my father, to join him in the meat-packing business. That would have been quite lucrative. The other was as an activist for a left-wing youth organization. I chose the latter and worked as an activist from 1948 to 1956. At the time I was making that decision, my father told me: “If you really believe in that cause, come work with me. You will make a much higher wage and you could give your extra income to hire several people instead of just yourself.” I thought, well, that makes some sense. But I was convinced that this was a way to get me to change my views or at least lessen my commitment to an ideological cause that I found very important. Yes, the first year, I might give all of my extra money to the movement, but every year I would probably give less, and finally reach the point when I was giving nothing at all. I feared I would be co-opted. I thought this was my father’s way of indoctrinating me.


So I went to work as an activist. At first, I thought what I was doing was important. But over time, I started to become disillusioned. The Marxists had predicted a depression in 1947-1948. That didn’t happen, so they said, it will happen the next year. But it never came. So by the early 1950s, I began seriously reconsidering my position. I had been drawn to Marxism because I thought of it as a science. But it was pretty clear that its “scientific” predictions were wildly off the mark. I was ready to leave the movement, but then McCarthyism started to heat up and that led me to hesitate. I stayed a few more years to fight against McCarthyism. But by 1955 and 1956, the horrors that had occurred under Stalin, which we had all heard about but didn’t really believe, were confirmed by Khrushchev. That was the breaking point in a sense. I began to rethink my views and especially my involvement with Marxism. So I decided that I needed to receive more serious training in economics and the social sciences generally and went to Columbia.


RF: Did the failures of Marxism to accurately analyze the economic situation in the United States influence you to pursue work that was heavily data driven and empirical?


Fogel: There is no doubt about that. As I said, Marxism was sold as a science, but it became clear that it was not. It was more of an ideology than anything else. My early experiences made me very skeptical of ideologues of any persuasion. I’m willing to be surprised, to accept seemingly radical ideas, but there better be data to back up those claims, and Marxism could not provide that type of evidence.