Simplicity wins

... title of a 1990s McKinsey management book. I don't remember much about it, except that some of it seemed, well, a bit simple. But in economics, there is actually such a strong tendency in favor of technique nowadays that we sometimes miss the really interesting, simple fact. Back fresh from an evaluators meeting of the new European Research Council (in true European style, nothing is ever simple there), I had to look up an article by Paola Sapienza and co-authors that I learned about over dinner last night: Culture, Gender, and Math [Science, May 08]. The fact that women are "bad at math" is universally repeated, with some unfortunate comments on possible causes for a possible gender gap in high performance thrown in by Larry Summers. In the US, the gap in math scores has been closing for a while. Paola and co-investigators look at the results from the comparative PISA project, and find that a) in some countries, the gap has disappeared, and even reversed b) that measures of female emancipation are a good predictor of the size of the gap -- the more women work, the more political power they have, and the more equality-minded the country acc. to the World Value Survey, the better women do in math. The results are striking, but I also thought that the paper would likely not make it in a top econ journal -- no bells and whistles, no funky model, no perfect identification that passes muster with the exogeneity policy. I know that all of these have their place, and happily play with some of these, but sometimes, you can learn more from a simple fact than from all the technical trickery.

Every silver lining has a cloud

or so the eternal pessimists' motto should run [with apologies to Spitting Image, who came up with the line]. As politicians wring their hands everywhere about the lower prices of assets, from housing and (less so now) equities, it's worth remembering that for every seller, there is a buyer. A friend of mine living in LA just bought himself a perfectly nice-looking Porsche Boxster S, a few years old, for a ridiculously low number of $$$. Apparently, amongst the wannabe newly rich in Southern Cal, this was the car de jour; and with distress come sales. While many people may have moral problems with vulture buying (in bond markets, say), I see nothing wrong with the prolific going a bit short and the prudent having their day. Sadly, Europeans cannot benefit from the windfall -- the import tariffs are too high (yes, I checked).

4 out of 5

I just finished attending the EHA meetings in Tucson, Arizona. Roman Studer, who was recently hired by the LSE, won the Alexander Gerschenkron Prize for the best dissertation in Un-American Economic History. His thesis on market integration in early modern Europe sure sounds like a major step ahead in terms of data availability, even if I worry a bit about how quickly some of these integration results reverse over time. I have to admit that I was also pleased since this now makes 4 economic historians from Nuffield College, Oxford, who won the prize -- my friend Tim Leunig (also LSE), Roman, Mary MacKinnon, and me. Given how small the place is, we must be punching way above our weight... 4 out of 5 of the prizes for Oxford D.Phils have gone to Nuffield so far. And just like in the boat race, we like to compare ourselves to Cambridge, where the score is now 5:1. Here is the totally informal League Table (since 1984, when the EHA published records start):

Oxford 5
Harvard 5
Stanford 4
(Nuffield 4)
Northwestern 2
Yale 1
Berkeley 1
Cambridge 1

Why do good institutions ever decline?

I have just been to the annual EHES conference in Geneva, superbly organized by the Graduate Institute. I attended, wearing my hat as an editor of the European Review of Economic History. There were many interesting papers; one in particular caught my eye. Income differences today are huge; Jones and Hall ten years ago told us that differences in „social institutions“ must be responsible. That sparked a lot of research. According to a highly influential paper by Stan Engerman and Ken Sokoloff, it’s easy enough to tell where good institutions come from – low inequality, as determined by geographic conditions. If you are unlucky, you start out with high inequality in land holdings, and end up with bad institutions. Acemoglu, Johnson and Robinson have a paper that argues that an area’s suitability for settlement by Europeans determined how good your institutions are. Their data analysis is highly original. In fact, it may have been a little too clever – there is a pretty thorough critique of what they did by David Albouy, who highlights many problems with the data.

In conceptual terms, the thing that will bother some people who think about institutional quality is that institutions change over time; climatic and other conditions determining settler mortality will largely stay the same (there is malaria or there isn’t). The same is largely true of inequality in land holdings. Into the debate steps Elena Nikolova, a PhD candidate from the Woodrow Wilson School in Princeton. She finds that the American South – which had high land inequality, and was pretty unhealthy at least by US standards – actually had relatively „good“ institutions in the early colonial period. In particular, suffrage restrictions were lower than in the North. Then, after 1700, things turned around, and we see the well-known pattern. She argues that initially, generous suffrage rules encouraged the movement of free (white) labor to the South (in part as a precommitment to decent working conditions). When the slaves started to be imported in large numbers, suffrage restrictions increased – the poor whites lost out. She shows that restrictions came hard and fast where the soil and climate was particularly good for slave agriculture. This finding matters since it offers an economic handle on the origins of institutional decline and reversal – essentially, competition in the market for labor initially keeps the South „honest“, before undermining suffrage institutions later in the period. If there is justice in the academic labor market this year (...), Elena should get a great job.