interpreting scientific claims

Nature has a great list of

20 concepts that should be part of the education of civil servants, politicians, policy advisers and journalists — and anyone else who may have to interact with science or scientists. Politicians with a healthy scepticism of scientific advocates might simply prefer to arm themselves with this critical set of knowledge.

Let's improve the "education of civil servants, politicians, policy advisers and journalists"--they seem to need it!

keeping the doctor away

New research investigates the effect of preventive health using field experiments.

Results have important policy conclusions:
1. poor households do not take preventative health measures because they are unwilling to pay for them.
2. information campaigns have relatively low impact
3. peer effects matter, however, only when information asymmetry is likely to matter

There is more: Jennifer M. Meredith, Jonathan Robinson, Sarah Walker, Bruce Wydick, "Keeping the Doctor Away: Experimental Evidence on Investment in Preventative Health Products", NBER Working Paper No. 19312.

Who can afford to discriminate against women?

Short answer: only firms that operate in a non-competitive environment can afford to discriminate (unfairly), a competitive market forces firms that are not profit-maximizing to leave the market.

To find convincing evidence for this is difficult, however, economists have come up with several strategies (e.g., the degree of competion in an industry, variation over time, et cetera).

My colleagues Mario Lackner and Christine Zulehner have a new working paper where they exploit a market where some firms have market power due to an institutionalized cartel: Universites that automatically qualify for the Bowl Championship Series (BCS) in collegiate football have greater market power than those which do not qualify automatically.

They show that a higher market share results in a greater wage difference between male and female head coaches. In addition, female coaches are being crowded out by men.

Only firms with market power can sustain the cost disadvantages resulting from discriminating against a certain type of employee.

some history of mortgage-covered bonds

Kirsten Wandschneider describes the history of mortgage-covered bonds by looking at "Landschaften", public non-profit institutions that issued covered bonds and formalized the mortgage market in Prussia. These bonds still serve as a template for todays financial intermediaries.

What is particularly striking is the success of these bonds as the market was dominated by borrowers who were a poor credit risk, aka "lemons", hence the title of the paper "Lending to Lemons". The landed gentry after the Seven Years War and the credit crisis of 1763 was heavily indebted and to overcome adverse selection, the risk of lending was spread over a larger area, the "Landschaften", automatically including all noble estates.

The historical example highlights successful financial innovation but also shows, which institutional features made covered bonds successful to this day.

big data and economic research

Liran Einav and Jonathan D. Levin highlight how "big data" could change economic research. Being a regular data cruncher myself, this is a welcome contribution as (applied micro-)economists have been skilled in the use of large data for quite some time.

Some highlights:

• "Government administrative data are almost certainly under-utilized, both by government agencies and, because of limited and restricted access, by researchers" [my emphasis!]--hear, hear!
  
• "Many government agencies are increasingly smart about using data analytics to improve their operations and services. However, most agencies almost surely lag behind"...
  

For all my students, this is good news---quantitative skills and analytical minds will be in demand, probably increasingly so, whether you'll be working in a private firm, in the public administration or as an academic.

boys and girls

Maybe parents treat their female and male children differently. Previous evidence indicates that parents spend more time with pre-teen sons than with pre-teen daughters, a difference that is caused by fathers spending more time with their sons.

Michael Baker and Kevin Milligan have new evidence that this extra time from fathers only emerges with age, and is not present when children are very young:

It is [pre-school] girls, not boys, who systematically, in three leading developed countries [i.e., Canada, the UK, and the US], receive more of these time inputs from their parents

But does this matter for academic achievement? They show that these differences in time are indeed important:

in each country the boy-girl difference in inputs can account for a non-trivial proportion of the boy-girl difference in preschool reading and math scores

We need more experiments

The assistence job seekers receive from Unemployment Offices to find jobs is perhaps not as good as we might hope. A Study by Bruno Crépon, Esther Duflo, Marc Gurgand, Roland Rathelot, and Philippe Zamora (QJE; working paper version here) assesses youth unemployment policy in France using a controlled experiment:

"Job counselling" – a key French policy that prepares some job seekers for the recruitment process, and connects them with potential employers – seems to only marginally improve graduate’s chances of employment. Moreover, the evidence suggests that what’s good for one graduate may be bad for another: the beneficiaries of intensive job counselling are more likely to find employment simply at the expense of other job seekers. (Job placement and displacement.)

We need more experiments.

Weights in Regressions

Solon et al. have a new paper on the use of weights in empirical analysis. Not only does the paper have a great title, but it addresses one of the more hairy issues in empirical work, when and how to use weights:

We discuss three distinct potential motives for weighting when estimating causal effects: (1) to achieve precise estimates by correcting for heteroskedasticity, (2) to achieve consistent estimates by correcting for endogenous sampling, and (3) to identify average partial effects in the presence of unmodeled heterogeneity of effects. In each case, we find that the motive sometimes does not apply in situations where practitioners often assume it does.

There is, of course, no foolproof recipe:

In situations in which you might be inclined to weight, it often is useful to report both weighted and unweighted estimates and to discuss what the contrast implies for the interpretation of the results. And, in many of the situations we have discussed, it is advisable to use robust standard error estimates.

politikberatung durch ökonomInnen--Caveat emptor!

Haucap und Mödl, "Zum Verhältnis von Spitzenforschung und Politikberatung":

"Ökonomen agieren mit ihrer Forschung also im Wesentlichen auf zwei Märkten: Zum einen auf dem Markt für wissenschaftliche Publikationen im engeren Sinne, also den Fachzeitschriften, und zum anderen auf dem Markt für wirtschaftspolitische Beratung."

Sie zeigen:
* "nur jeder fünfte Artikel eines Ökonomen, der an einer Institution in Deutschland, Österreich oder der Schweiz forscht, [hat] einen besonderen Bezug zu spezifischen Problemen der Wirtschaftspolitik oder Ökonomie im deutschsprachigen Raum"

* "es [sind] primär nicht die forschungsstärksten Ökonomen ..., die sich in der Politikberatung engagieren"

Copyrighted Music

New research by Joel Waldfogel shows that the erosion of copyright does not necessarily lead to worse products. The study "Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music since Napster", published in the Journal of Law and Economics (working paper version), assesses the quality of recorded music since Napster.

Three different approaches are used (critics’ lists, music sales, and airplay data), assuming that if the music is better, it should be sold or played more often. Contrary to my own view, there is no evidence that the music released since Napster was of lesser quality. Copyright protection should therefore be weighted against producer surplus and consumer surplus.

boys and girls in the classroom

New evidence from Italy has strong implications for mixed high-school education. (See also this.) Anelli and Peri find that girls in single sex classes are more likely to study "hard" subjects (e.g., economics or engineering) at University than those in mixed-sex classes.

The policy conclusion are clear:

If an objective of schooling is to increase women’s career opportunities and thereby their salaries, our results would suggest that gender-separated classrooms would be an effective step in the right direction. Gender-separated classrooms would increase the probability of choosing high-earning majors for both women and men.

Similar evidence, for university students, have been obtained by Booth and Nolan: "after eight weeks in a single-sex environment, women were significantly more likely to choose the [risky] lottery".

While the Italian evidence is from a "natural experiment", the evidence by Booth and Nolan is from an actual field-experiment, following an earlier study in high-schools. Good schools should offer students the possibility of choosing single-sex classes or offer the possibility of a random lottery over single-sex or co-ed classes. (Which provides additional data for analyses of peer-effects and subsequent outcomes.)

Gender and Competition

Why do wages or occupations differ for men and women? There are several explanations for gender-specific differences, however, we do not have a convincing explanation yet. One possible explanation is that--for whatever reason--men are more likely to take risks than women. The analysis of differences in risk-taking has a strong experimental background, both in the laboratory and in the field. Eckel and Grossman (2008) and Croson and Gneezy (2009) provide surveys on experiments which investigate differences between the genders in their risk taking.

In a new working paper, "Evidence from Jumping Competitions", Mario Lackner and I analyze if female athletes differ from male athletes in their competitive behavior, using data from high jump and pole vault competitions. In these sports, we observe athletes choosing a risky strategy, namely the pass of a height. This is a risky strategy as the next jump is without doubt more difficult (the bar is raised). (Sport events are excellent "real-life" laboratories as they allow the analysis of behavior under clear rules, that is extremely difficult to observe in most other situations.)

While the rules for men and women are the same, we find striking differences in how often men and women use passes.



The returns to risk-taking are positive, which indicates underconfidence rather than overconfidence, for both men and women. Overconfident athletes would pass too often, reducing the probability to clear a height. The positive returns to taking risks, however, are much greater for women than for men, indicating that women are considerably less confident than men and could improve their outcomes by choosing to pass more often.

Patents

The current issue of the Journal of Economic Perspective has four papers on patents---and launches a "Case against Patents".

Michele Boldrin and David K. Levine, in the introductory paper:

The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity ... Our preferred policy solution is to abolish patents entirely ...

I suppose this is the start of a heated debate, I'm looking forward to the discussion. In the meantime, do read the excellent esseay on the historical perspective on patents by Petra Moser in the same issue. (Did you know that the Netherlands abolished its patent system in 1869 because patents were seen as a form of protectionism and rejected as a restriction on trade?)

The RAND Health Insurance Experiment

The RAND Health Experiment, carried out between 1974 and 1981, randomly assigned more than 2,000 families to different health insurance plans. These plans differed between free care and almost no co-payment. The project pioneered the way for field experiments in economics and Aviva Aron-Dine, Liran Einav, and Amy Finkelstein present a detailed summary and re-examination of the findings in a new NBER working paper, "The RAND Health Insurance Experiment, Three Decades Later":

This landmark and pioneering study was uniquely ambitious, remarkably sophisticated for its time, and entrepreneurial in the design and implementation of the then-new science of randomized experiments in the social sciences.

The importance of the findings from this large field-experiment cannot be overstated:

one of the central contributions of the RAND experiment is robust: the rejection of the null hypothesis that health spending does not respond to the out-of-pocket price

In other words, people react to costs, even when they consider their own health. (Remember, this was an almost revolutionary finding some 30 years ago!)

To quote the working paper once more, "it seems useful to remind a younger generation of economics of the details, and limitations, of the original work." Do read this.

Corrupt politicians

Yesterday, an Austrian court sentenced former Minister of Interior and MEP Ernst Strasser to four years in jail after being convicted of bribe-taking.

Recent economic research shows that corrupt politicians decrease overall welfare. In an analysis of 460 estimates of corruption on economic growth, Campos, Dimova, and Saleh find "negative and significant effects of corruption on growth [...] which seem to be stronger in academic than in nonacademic studies." (p15)

These effects may hit the poorest in society stronger. Using Indian data, Matthieu Chemin estimates that the election of a convicted criminal leads to an about 19 percent drop in consumption of the poorest in that area. (An older, ungated version is here.) Criminal politicians are perhaps more common in India than in Austria, Chemin quotes the Election Commission of India which states that 1,500 of nearly 14,000 candidates in the 1996 parliamentary election had criminal records.