what does it take to improve institutions?

I just came back from Hong Kong, where the annual INET conference was held. I was speaking in the session on austerity and polarization. Niall Ferguson was at the conference as the dinner speaker on day 2, and peddled ideas from his latest book - The Great Degeneration. He basically argued that Western institutions were getting decaying (generational imbalances, "bowling alone", etc.). He also showed some interesting slides on East Asian countries getting better over time.

I had to ask Niall how he could explain the seeming contradiction with his ideas from 10 years ago (in Colossus), where he argued that colonialism was a splendid thing because it exported good institutions to "lesser breeds without the law". Now, we learn that developing countries are doing fine without help from those spiffing chaps in khaki painting the world red, while the West is decaying on its own. Niall's answer? That if I had read the book, I would realize that in Colossus he warned that the US was not as good a colonizer as Britain had been. Huh? That wasn't the question, was it? Seems like he just dodged the issue. Anyway, you can read the resident INET blogger taking up the issue here. 

glad to be in good company

The QJE Excellence in Refereeing Awards are out.

vampires

[via economic logic...] There is a new wp on human-vampire interactions, by Dan Farhat. I always stayed away from this phenomenon, but it seems like economics is ready for the final frontier...

Vampires are a prominent feature of modern culture. Past research identifies the ecological and economic relationship between vampires and living humans under the assumption that 'representative agents' are capable of characterising entire communities. Whether populations of individuals can coordinate themselves sufficiently or not to achieve the same outcomes as the representative agent is not addressed. The purpose of this study is to create a human-vampire ecosystem using artificial social simulation. An agent-based computational model is constructed in which heterogeneous vampire and human individuals engage in one-on-one interaction within a virtual landscape. These interactions result in the emergence of aggregate-level phenomena. Simulating alternative virtual economies under different model calibrations shows under what conditions these emergent phenomena are similar to those produced by the representative agents in previous studies. This article contends that growing human-vampire economies can shed light on an array of social and economic issues even if vampires never existed at all.

Economic logic makes some insightful observations about agent-based modelling in the case of vampire-human interactions... 

just listen

to the right music, and your age will change. Apparently, this is scientifically proven. Psychological Science reports a study where subjects were asked to give their birthday after listening to different songs; listening to the Beatles ("When I'm 64") actually reduces your age...

Huh? The paper (by Simmons et al.) is actually meant to show how easy it is to get even absurd hypothesis above the threshold for statistically significant rejection. In this case, the researchers a. kept adding to the sample until the "right" result emerged b. used a variety of control variables, only one of which actually produced the desired significance level on the coefficient for the main exogenous variable. It is not quite as wild as the IG Nobel - award winning study that demonstrating (using MRI imaging) that there was brain activity in a dead salmon, but it is close...

The authors also propose an interesting list of "best practices" to avoid this kind of data mining. Among them is one that economic history journals would do well to implement - the requirement to deposit the data used for a study in an online archive, where other researchers can try to replicate the results. Most leading economics journals already have such a policy; but economic history journals - despite their emphasis on data (or because of it?) - do not require the posting of data, descriptions, or do-files. 

Foreign policy

profiles Nico's and my forthcoming paper on the indirect (and positive) effects of the Black Death...

French roast

Here is a paper I wish I had written... this time by two Indian scholars (Pandya and
Venkatesan) working in the US, about the effect of the Iraq war squabbles between France and the US on sales of French-sounding consumer goods. Here is the abstract:

International conflicts frequently prompt boycott calls but scholars dispute whether consumers participate. Theories of conflict and economic interdependence fail to account for marketing that distorts consumers’ perception of product origin. For the 2003 US-France dispute over the Iraq invasion we analyze weekly supermarket sales data from 2500 supermarkets for 8729 grocery brands. Our difference-in-difference estimates show that in weeks with more intense boycott calls sales of French-sounding brands declined. For just the week of March 16 the boycott cost over forty-four million dollars in lost sales. This finding is robust to controls for pro-French sentiment, gas price fluctuations, and possible xenophobic responses. We also find no change in sales of French-owned US-trademarked brands. This study highlights new dimensions of economic integration along which conflict’s effects manifest and contributes precise tests of underlying causal mechanisms. More generally we demonstrate the untapped potential of consumer behavior as a metric of political sentiment.

another lament about economic history in Germany...

The German weekly Wirtschaftswoche has a small article about the decline of economic history in Germany. Apart from the fact that they got the offers that some people declined wrong (tough business that, Munich is not Berlin), it is also interesting in a number of dimensions. It laments the fact that some German economic historians now teach abroad. The article is right that chairs are being closed down or re-designated, and that there is little love of economic history in most German economics departments. But in my view, it gets two crucial things wrong.

First, the fact that some Germans teach abroad in itself is not a sign of crisis or decline; it is perfectly normal in a globalized world. What is problematic is the fact that there are almost no foreigners going to Germany to take up teaching positions there - it's the inflows, darling, not the outflows. In this day and age, there is nothing natural about locals teaching local students in their local university; it's a recipe for provincialism.

The fact that only Germans - by and large - teach at German universities of course has something to do with terms and conditions (lots of teaching, lousy pay). If you want to do research, look no further than the May issue of the AER (gated). Every year, they publish the results of their salary survey. The pay rate for full professors at first-tier US research universities (rank 1-15) was $224,000 - for 9 months of the year (that means you can earn another 2/9 of that if you have grant or your employer is generous - we are talking around $273,000 p.a.). The st.dev. is 47,000, meaning that most salaries fall in the interval $150-300,000. From what I hear and see, not many German offers exceed €100,000 by a healthy margin, if they ever get there [and with much higher taxes to boot). Put another way, if you paid the players in Bayern Munich in relative terms what German professors earn compared to the international market wage, they would be kicking balls in the local league. Why expect a different outcome in academia?

The inability to hire foreigners also has to do with the use of German as a language of instruction. Let's face it (with apologies to the French): English is the lingua franca of the modern age; it is to economists, physicists, and statisticians what Latin was to Erasmus. At UPF, all graduate instruction (and 1/4 of undergrad instruction) is in English. You can really only hire foreigners if you forget about the idea that they have to learn one of the hardest grammars in the world.

The second mistake, in my view, is that many German economic historians ended up in an intellectual no-man's land -- not economics, but not really history, either, where echist is thoroughly unloved by historian colleagues increasingly smitten by the weird and wonderful babble of the linguistic turn. Put another way, before people pound the lectern with their clogs demanding to be loved by all and sundry, they could perhaps try to contribute a little more to the intellectual debate in economics. The article cites Davide Cantoni, who - for a year that was much too short - was my colleague here at UPF - to the effect that economic history can thrive if it integrates more into economics. I think that is exactly right: I am actually quite sanguine that the better German econ departments would welcome first-rate applied researchers like Davide with open arms, independent of whether they use old data or not. Now, if only the government found it within its heart to pay professors a reasonable premium relative to school teachers... (the constitutional court the other day declared professor's pay illegal in Germany because it is too low - no joke).

extremely good

and equally disturbing: Cormac O'Grada's latest wp is on cannibalism during famies, Eating People is Wrong:

Cannibalism is one of our darkest secrets and taboos. It is the ultimate measure of the resilience or otherwise of civilizational processes to extreme conditions. How common was cannibalism in times of famine in the past? Both the nature of the evidence for famine cannibalism and the silences about it challenge the empirical historian to the limit. After a review of the global historiography, this talk will attempt to assess the evidence for cannibalism during Ireland’s many famines, culminating in the Great Irish Famine of the 1840s.

click here

and lose your will to live. Whoever invented web-based forms should be a non-believer (and right about the absence of an afterlife)...Personally, I think that one of the choice circles of hell should be reserved for them. You see: There was a time when providing a reference for a student or submitting a paper was straightforward. You printed it and mailed it. It took 30 seconds. Sure, it took time to arrive. But since admission decisions take ~6 months, and journals can take up to 2 years easily, it didn't matter.

And today? Every university (and every journal) has its own web-based form, with radio buttons neatly arranged so that you can click on whether the student is in the top 10%, top 5%, in terms of motivation, skill, technical knowledge, etc. Mind you, the categories are always subtly different. Sometimes, you need to provide exact class rank. Sometimes, you can compare with multiple cohorts. I am sure it is tremendously important that one university asks about motivation for proposed course of study, and the next one about interest and enthusiasm for research. And so on. No way to delegate this. What took 5 minutes now takes 20-25 minutes, every time. The effect? I limit references to no more than 5, and that is getting to be too much. So far, so simple, so bad.

Now, let's think about the economics of this. I am sure the web-based forms save somebody's time. Probably that of the secretary of the institution receiving applications. Instead of assembling packages with multiple letters and the application form, they can now just look at the web application - already all in one place. In other words, we found a way to use professors' time on a vast scale to save a tiny bit of secretarial time. I am sure nobody in the admissions office got fired because we can now deal with the applications in half the time. The net result is that a precious - and unpriced - resource is wasted, and a relatively cheap and easily replaced resource - administrator time - is saved. This outcome is thoroughly negative in terms of mapping people's time into output, and using precious resources for what they are best at; it is division-of-labor in reverse. Of course, it would take a social planner to undo this; every single admissions office loves the new system, I am sure, and the professors' mostly don't scream bloody murder about it because everyone is doing it.

Of course, this is only a tiny bit of one's academic duties; why think about it? Because it stands pars pro toto for many other examples of seeming productivity improvements that simply push costs elsewhere, and distort outcomes and incentives. Submitting a paper? You have a manuscript with tables and figures, all where they should be? Please take them apart for the web-based submission. You had a single file? You will now please produce 17 files - one for the manuscript, one for the title page, one for each table and figure - and then the online system produces an integrated pdf with your files (which you already had ready to go).

On hold on the phone when calling your airline or bank? Surely, the average person on hold has a higher opportunity cost of their time than the average operator (more often than not, in India). Total welfare goes down, but some productivity statistic somewhere is being flattered. A huge part of economics is about how individual optimizing behavior can produce sub-optimal outcomes in the aggregate; me thinks someone should consider seriously if the internet and web-based solutions have not just multiplied the "waste someone else's time" form of seeming productivity gains by a factor of 10.

time for a change

It is time for a change - I will join the Economics Department at the University of Zurich, starting January 2014. UPF gave me my first job out of grad school, and I have been happy and productive here. In Zurich, I will join a distinguished and growing group of scholars working in several of my active areas of interest, including the evolution of social norms, macroeconomics, and economic history. I will take fond memories of UPF colleagues and students with me, and I look forward to working in an exciting new environment.

there is something about that flyout list...

spot the only (!) European place on the Princeton list (via the jmwiki):

Agarwal (Harvard), Morales (Columbia), McQuade (Harvard), Diamond (Harvard), Morten (Yale), Chetverikov (MIT), Kolesar (Harvard), Varas (Stanford), da Silverira (NYU), Persson (Columbia), Oberfield (Chicago), Dovis (Minnesota), Dobbie (Harvard), Larsen (MIT), Abito (Northwestern), Rossin-Slater (Columbia), Ponticelli (UPF), Di Tella (MIT), Golub (Stanford), Xandri (MIT)

more fan blogging...

a friend just alerted me to a (quite dated) blog post by one Dr. Duke, apparently a former member of the House of Representatives, about Nico's and my research on anti-semitism. It's polemical and silly... as one would expect from a white suprematist who is selling titles like the following through his website:

JEWISH DOMINATION OF WEIMAR GERMANY 

Originally published in 1933 by The General League of Anti-Communist Associations. Shows that during the period of the Weimar Republic, Jews heavily dominated industry, finance, commerce, medicine, law and theater, yet made up only 1% of the population. The Jews became apostles of communism and carriers of corruption, which forced the Government of Germany to adopt certain legal measures to curtail the authority exercised by Jews. Contains many pictures and charts. 8 1/2" x 11", 32 pages.

Rubbing people up the wrong way is normally not a good idea, but I, for one, am kind of proud of the hate mail and silly posts that continue to trickle in response to Nico's and my research.

oh no...

not the austerity paper again! Well, yes. La Vanguardia runs an annual competition for the best piece of scientific research in Spain... and Jacopo and I are finalists, out of a group of eight. Our joint paper investigagtes the effects of austerity on social unrest and instability:

Does fiscal consolidation lead to social unrest? Using cross-country evidence for the period 1919 to 2008, we examine the extent to which societies become unstable after budget cuts. The results show a clear correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the case. While autocracies and democracies show a broadly similar responses to budget cuts, countries with more constraints on the executive are less likely to see unrest after austerity measures. Growing media penetration does not strengthen the effect of cut-backs on the level of unrest.

one of the reasons

why Spain is poorer than the rest of most of Europe - lack of competition, protection of insiders, low competitive intensity. You want proof? I give you one image.

Like many European cities, Barcelona has a bike renting scheme, run by the city. You pay a modest fee per year, and you can rent bikes as often as you like, all over the city. Use it for less than 30 minutes each time, and you don't pay a penny extra. For the most part, it works great. Visitors are VERY keen to use this - and they can't. Why? Because the firms that rented bikes to tourists made sure through a major lobbying effort that they can't. The public system even advertises where to rent a bike if you are not a local (picture). The idea is to protect local businesses. Hmmm.

And it is not just the slightly unsavory let's-rip-off-the-foreigners; it costs the public system real money. Half the day, stations are either overflowing (with no place to leave your bike) or empty. Why? Because people live in one corner of the city, and work in another. If tourists used the system (as they can with great ease in Paris, say), there would be many more matching flows - tourists going one way, to areas with tourist attractions but where people live (Sagrada Familia, say), and citizens going the other (down to the sea, where many jobs + hotels are). So protecting insiders a. raises the cost of the public system, with lots of little vans driving around redistributing bikes (yes, all very ecological) b. costs revenue c. keeps firms in business that add nothing to social welfare, other than redistributing money.

another winner...

Jacopo Ponticelli is another UPF doctoral candidate on the job market... shooting all the lights out. We have had some spectacular successes in recent years, and I am very happy we have another winner. Jacopo works on the effects of financial reform on credit availability and firm productivity, looking at a natural experiment in Brazil. The abstract of this JMP is

Financial reform designed to improve creditor protection is often encouraged as a way to increase credit access for firms in developing countries. In this paper, I show that when court enforcement works poorly, financial reform is ineffective in fostering both credit access and the productivity of firms. In the empirical analysis, I exploit variation in the quality of court enforcement across Brazilian judicial districts and use a panel of manufacturing firms. I find that, after the introduction of a major pro-creditor bankruptcy reform, firms operating in districts with efficient court enforcement experienced substantially higher increase in capital investment and productivity than firms operating in districts with poor court enforcement. I provide evidence that this effect is due to a higher probability of external funds being used to finance investment in new technologies. To show that the results are not driven by district-level omitted variables, I use an IV strategy based on state laws establishing the geographical boundaries of judicial districts.

His fly-out list now includes Harvard BSchool, Stanford GSB, Berkeley, Princeton Econ, Chicago Booth (another flyout without an interview), Kellogg, Bocconi, LSE, Science Po. Of course, getting the fly-out is only half the job... fingers crossed. So far, I am thrilled. I am not his main advisor, but on the committee... and a co-author on a joint paper on the effects of austerity on social unrest and instability:

Does fiscal consolidation lead to social unrest? Using cross-country evidence for the period 1919 to 2008, we examine the extent to which societies become unstable after budget cuts. The results show a clear correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the case. While autocracies and democracies show a broadly similar responses to budget cuts, countries with more constraints on the executive are less likely to see unrest after austerity measures. Growing media penetration does not strengthen the effect of cut-backs on the level of unrest.