Wednesday, June 29, 2011
Here's the resulting plot of counts of contacts by casino responsibility order.
The gender differences in casino management are striking, but my impression is that this is a rather typical distribution of responsibilities by gender. For example, see this NY Times article on gender differences in management, which also explores compensation differences by gender.
Tuesday, June 28, 2011
The real puzzle is how large measured marginal returns to education are consistent with the continuing observed failures of the American educational system. Why does the low-hanging fruit persist or is it low-hanging at all? The traditional liberal view is that further educational subsidies are needed, but a possible alternative is that some people simply do not wish to step across to the other side of the divide to a “better life,” at least as defined by middle class values and income statistics. Or is there some other hypothesis? Whichever way you cut it, a big improvement in this area does not seem about to happen and arguably we are moving in the opposite direction. Whatever gains are there “in the data,” we don’t seem able or willing to capture them.I also found the graphics in this Economix blog post to be especially interesting.
Wednesday, June 22, 2011
I designed it, so I should feel that way. Let me know if you can think of any other coffee-and-econometrics-themed phrases to put on a mug.
Tuesday, June 21, 2011
Click through to see the discussion of this graph, which is rather insightful. If you are technically inclined, there is a link to the code and data behind this simulation.
Monday, June 20, 2011
For some kinds of information it may be beneficial to hide the source. For example, pure rhetoric. My ability to judge whether it is convincing or not is based purely on the logical connections between premise and conclusion and my prior beliefs about the plausibility of the premises. Knowing the author of the rhetoric provides no additional information. And if, for psychological reasons, knowing the source biases my interpretation then I am strictly better off having it hidden from me. (At least temporarily)I like the perspective in this post. I enjoy reading a wide variety of economics blogs on my phone (where it is harder to tell who is the author) whereas I conduct more directed searches on my desktop computer. This post offers one explanation.
Sunday, June 19, 2011
I’m a committed neoclassical economist. I learned it when I was at a point in my life when rational self-interest (broadly defined) seemed the right way to understand the world. But what kind of economists would we be if we learned our economics only after we were parents? It’s an interesting thought experiment, and truth is, I don’t know the answer. But slivers of evidence—my own introspection, conversations with other economist-parents, and even intriguing research showing the impact that daughters have on Congressman-dads—all tell me that it would be different.Here is Robin Hanson in an excellent response:
But none of that makes me doubt the value of neoclassical econ. How could it? First, econ makes sense of a complex social world by leaving important things out, on purpose – that is the point of models, to be simple enough to understand. More important, econ models almost never say anything about consciousness or emotional mood – they don’t at all assume people choose via a cold calculating mindset, or even that they choose consciously. As long as choices (approximately) fit certain consistency axioms, then some utility function captures them. So how could discovering emotional and unconscious choices possibly challenge such models?I find myself conflicted upon reading this interaction. I don't always agree with Wolfers, but I don't always disagree either. This is one of those times where I am somewhere in between.
On one hand, I think Wolfers makes an interesting point that something as profound as fatherhood can shape how an economist views the world. On the other hand, I agree with Hanson that we need not reject the fundamental axioms of neoclassical economics to accept the humanity of fatherhood. A model is a simplification of the world that should not include every detail (otherwise, the problem is intractable).
Maybe Wolfers' post is really just suggesting that we economists value research on preference formation a little more highly, such as this paper on addiction:
The authors develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time. Strong addiction to a good requires a big effect of past consumption of the good on current consumption. Such powerful complementarities cause some steady states to be unstable. They are an important part of the authors' analysis be-cause even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention. Their theory also impies that "cold turkey" is used to end strong addictions, that addicts often go on binges, that addicts respond more to permanent than to temporary changes in prices of addictive goods, and that anxiety and tensions can precipitate an addiction.As I understand it, a father can be addicted to kids. And, contrary to the tone in this abstract, not all addictions are bad. Happy Father's Day.
Update (6/22/11): Wolfers posted a followup in which he describes an e-mail exchange he had with Robin Hanson about the public exchange of blog posts. An interesting read.
Thursday, June 16, 2011
On its face, this seems like a contradiction to the oft-repeated economics maxim, "There Ain't No Such Thing as a Free Lunch." It's not. After all, the company has to pay for the food and the catering services (setting the food out and cleaning up afterwards). There is also a special room where they set out the food. That room has an alternative purpose, which creates some opportunity cost to using it as the place where we pick up our free lunch. All of this is to say that my "free" lunch isn't a "free lunch."
But, this lack of free-ness raises an interesting related question. Why would the company provide the lunch in the first place? It is too easy/fuzzy to say that providing the free lunch builds employee morale. Even if it does, does employee morale necessarily benefit the company? Though plausible, I don't believe it. I also don't believe that the company is doing it to boost employee health through paternalistic food provision. There's plenty of good-for-you food, but also some bad-for-you food (and no prices to keep you away from taking two cookies instead of one).
I think a better explanation is that the free lunch makes lunchtime more efficient. Because everyone partakes in the provided lunch, there's no rush to a crowded elevator to go find a big restaurant/ cafeteria nearby. Employees don't waste time going to and from some eating establishment in the middle of the workday. To the extent that the company values the employee's time around lunch, it makes sense to help employees economize on time by making lunch available just down the hall. And, just to be sure that this is everyone's best option, the company throws the food in for free.
In the end, the company benefits because workers get back to work sooner than otherwise and employees get a wonderfully-prepared lunch that is delicious and as nutritious as they choose without having to search for it. That's not a bad deal all around.
Monday, June 13, 2011
In a related paper, Alice Schoonbroodt and Michele Tertilt say that, “There is overwhelming empirical evidence that fertility is negatively related to income in most countries at most times.” They are right. Whether you cut the data across countries, through time, or across people at a point in time, the same fact arises: The richer you get, the fewer kids you have.
Yep, kids aren’t normal.
Although the graphics are impressive, I was rather frustrated upon reading this post. It misses on on a subtle point about what it means for a good to be normal. A good is normal if greater income leads the individual (or household) to consume more of the product, holding constant prices of the good and other related goods.
In other words, children are a normal good if more income leads to more children ... at the same prices. If you like to see it in graphical form, here's what a normal good looks like:
Here's what children as an inferior good looks like:
None of the Wolfers' graphs hold constant the opportunity cost of raising children. These graphs are just comparisons of rich individuals with poor individuals or rich countries with poor countries. If being rich implies that you have to give up more to have children (not a foregone conclusion, but the opportunity cost seems higher), there is a price effect as well as an income effect. Either of which could explain why rich people have fewer children.
For example, consider the graph where children are a normal good (i.e., more income implies that the household selects B instead of A; more children), but the higher price implies fewer children. In the graph, the higher price more than offsets the positive income effect.
In the raw data on rich-poor fertility, we observe points A and C and we might be tempted to conclude (as Wolfers did) that children are an inferior good. But, effects go in opposite directions and the data in the plots are uninformative on this point. In fact, my graph depicts a normal good and would still generate graphs like the ones Wolfers presents.
The theoretical possibility of a price effect doesn't invalidate Wolfers' claim that children are an inferior good, but it does make it an empirical question. Bryan Caplan has an interesting post (incidentally, it is the one Wolfers is responding to) where he highlights that controlling for education may hold constant some of these omitted factors. After running some regressions, he concludes:
Controlling for education, higher income predicts higher fertility. (Adding age as a control variable slightly reduces the magnitude, but not too much). The simplest story is that the elite values typical of the well-educated depress fertility - but regardless of your values, the higher your income, the more kids you want.If you believe that controlling for education is an effective way to hold prices (read: opportunity cost) constant, this regression analysis suggests that children may be a normal good. The way I think about the problem, this seems much more sensible than connecting points A and C to conclude that children are an inferior good.
Sunday, June 12, 2011
Hang on, “thrilled” is putting it a bit strongly, isn’t it? I don’t know anyone whose pulse was set racing by the arrival of the Mach 3. It was, at best, mildly intriguing. Don’t get me wrong, it’s a decent razor. But let’s be clear, the main innovation wasn’t the progress from two to three blades, was it? It was from no blades at all to one. That’s really where the shaving revolution started. It’s what we economists call diminishing returns.I wonder if Harford's response will affect this reader's marginal propensity to shave.
Saturday, June 11, 2011
This paper empirically investigates the institutional determinants of whether a tribal government invests in a casino. I find that the presence of Indian casinos is strongly related to plausibly exogenous variation in reservations’ legal and political institutions. Tribal governments that can negotiate gaming compacts with multiple state governments, because tribal lands span state borders, had more than twice the estimated probability (.77 versus .32) of operating an Indian casino in 1999. Tribal governments of reservations where contracts are adjudicated in state courts, rather than tribal courts, have more than twice the estimated probability (.76 versus .34) of investing in an Indian casino, ceteris paribus. These findings suggest that states’ political pressures and predictable judiciaries affect incentives to invest in casinos. This study contributes, more generally, to the empirical literature on the effects of institutions by providing new evidence that low-cost contracting is important for taking advantage of substantial investment opportunities.
Thursday, June 9, 2011
Invest in specific skills
Success? It depends.
The link in the haiku is to the first in a series of 19 YouTube lectures on human capital given by the human capital master himself, Gary Becker. It is awesome that these lectures exist. So, if it is worth the cost of your time, invest in your human capital by watching some or all of this YouTube series.
Sunday, June 5, 2011
Did the beggar say thank you? Nope. He dumped the crackers on the floor of the bus and turned to the other patrons of the bus to see if they had anything better. Needless to say, my wife's friend was not happy with how her generosity was received.
This story reminded me of two loosely-related ideas on begging. The first is a link to a story about how panhandlers spend money from a while back (via Freakonomics).
Of the five cards, two were returned, one was stolen and used by the panhandler’s boyfriend, and three were never returned (one remained unused). Purchases included food (McDonald’s was a favorite), cigarettes, cell phone time and LCBO (Liquor Control Board of Ontario) purchases.I suppose crackers are not on the list of things to buy. Maybe they're too salty without also having something to drink.
Now, let's move to my second strand of thinking on beggars. This idea struck me when I ordered my Subway sandwich "to go" the other day. I bought the daily special 6-inch sub for $2.69. As I was paying for it, I was impressed with how inexpensive the sandwich was. On the other hand, I was thinking ahead to my walk toward campus. I was almost certainly going to encounter a beggar on my stroll past the 57th street restaurants (that spot is usually -- 50% to 75% of the time -- occupied by at least one beggar).
Even before I paid and left the store, I felt guilty that I would be strolling past a hungry person with my lunch swinging in the breeze. Just then, my two thoughts became one idea. Why not order two daily special sub sandwiches? Then, when the beggar asks for help, I could give him a sandwich without forgoing my lunch. Even before I heard the cracker story, I thought that my beggar might turn up his nose at the sandwich. After all, money is converted easily into other consumable products (cigarettes, liquor, meatball sandwiches) whereas 6-inch subs are not.
I'll leave this post with a question. My hypothetical sandwich isn't exactly a bag of crackers, but would it have met the same fate? I suspect my sandwich would be received with gratitude because I was surprised by the cracker story, but you never know.
Friday, June 3, 2011
"Of course we have this classic phrase now, 'too big to fail,'" Harford says. "That really tells you what was wrong with Wall Street: We created institutions that couldn't fail safely."The book is called Adapt and it sounds like an interesting book to me.