People associate behavioral economics with some biases and effects that do not go in line with classical economic theory. The important thing is that behavioral findings could be used to improve empirical prediction and policies’ design. This pragmatic perspective is described in R. Chetty's paper Behavioral Economics and Public Policy: A Pragmatic Perspective.
The author distinguishes the implication of behavioral economics in three areas:
1. Introduction of new policy tools. In the example of retirement savings, the author compares neoclassical subsidies and behavioral default and automatic enrolment. The evidence suggests that defaults could achieve results that are unattainable by subsidies. Also, the benefits of this theory include possibilities to extrapolate the results and using the model for the analysis of savings. Other new tools provided by behavioral economics are simplification and reduction of numbers of offers health plans, providing information (for example, about the application process to improve students’ enrolment), framing (loss-framing to stimulate teachers), social-comparison (information about neighbors’ actions to adjust a household's behavior).
2. The provision of better predictions for existing policies. Here R. Chetty focuses on the Earned Income Tax Credit (EITC) to show that the effect of EITC varies across the country, which cannot be explained by neoclassical theory. The implication of behavioral features in the model improves the predictions (in this case - income reporting behavior). Besides, it can be used for generating counterfactuals for the policy’s estimation.
3. Generating new welfare implications. The author provides the case of neighborhood choice. According to empirical results, children's future well-being varies across neighborhoods conditional on parent income. Another result shows that moving to a better neighborhood has little or no impact on adults' earnings. Also, it was found that living in a place where children benefit from the neighborhood does not relate to higher costs of living. First, the behavioral theory provides several explanations of this phenomenon: present bias (long-term benefit vs immediate costs for moving), luck information about the effect on children, projection bias (people do not recognize opportunities to find new friends, for example), scarcity in cognitive capacity (poor people concern about immediate needs). Second, we obtain new tools to measure welfare. In this perspective, introducing the model R. Chetty shows the difference between experienced utility (actual well-being as a function of choices) and decision utility (the objective that a person maximizes making the choice), which is explained by the presence of biases. Then, this gap resembles the externalities, and, similarly, could be regulated by new tools without causing distortions. Also, the author describes several methods to measure experienced utility: subjective well-being (data on self-reported happiness; limitations: this measure could be distorted), sufficient statistics (revealed preference in an environment where agents are known to maximize experienced utility; limitations: such environment without biases may not be founded), structural model (to estimate the demand as a function of the degree of behavioral bias and extrapolate to the case with no bias; limitations: it depends on the model assumptions).
Thus, the paper provides an overview of the possibilities that behavioral economics provides for practical goals, including creating new tools, improving analysis of existing policies, and suggests models for measuring variables and explaining the observed behavior.
Chetty, R. (2015). Behavioral Economics and Public Policy: A Pragmatic Perspective. The American Economic Review, 105(5), 1-33. Retrieved January 16, 2021, from http://www.jstor.org/stable/43821845
The author distinguishes the implication of behavioral economics in three areas:
1. Introduction of new policy tools. In the example of retirement savings, the author compares neoclassical subsidies and behavioral default and automatic enrolment. The evidence suggests that defaults could achieve results that are unattainable by subsidies. Also, the benefits of this theory include possibilities to extrapolate the results and using the model for the analysis of savings. Other new tools provided by behavioral economics are simplification and reduction of numbers of offers health plans, providing information (for example, about the application process to improve students’ enrolment), framing (loss-framing to stimulate teachers), social-comparison (information about neighbors’ actions to adjust a household's behavior).
2. The provision of better predictions for existing policies. Here R. Chetty focuses on the Earned Income Tax Credit (EITC) to show that the effect of EITC varies across the country, which cannot be explained by neoclassical theory. The implication of behavioral features in the model improves the predictions (in this case - income reporting behavior). Besides, it can be used for generating counterfactuals for the policy’s estimation.
3. Generating new welfare implications. The author provides the case of neighborhood choice. According to empirical results, children's future well-being varies across neighborhoods conditional on parent income. Another result shows that moving to a better neighborhood has little or no impact on adults' earnings. Also, it was found that living in a place where children benefit from the neighborhood does not relate to higher costs of living. First, the behavioral theory provides several explanations of this phenomenon: present bias (long-term benefit vs immediate costs for moving), luck information about the effect on children, projection bias (people do not recognize opportunities to find new friends, for example), scarcity in cognitive capacity (poor people concern about immediate needs). Second, we obtain new tools to measure welfare. In this perspective, introducing the model R. Chetty shows the difference between experienced utility (actual well-being as a function of choices) and decision utility (the objective that a person maximizes making the choice), which is explained by the presence of biases. Then, this gap resembles the externalities, and, similarly, could be regulated by new tools without causing distortions. Also, the author describes several methods to measure experienced utility: subjective well-being (data on self-reported happiness; limitations: this measure could be distorted), sufficient statistics (revealed preference in an environment where agents are known to maximize experienced utility; limitations: such environment without biases may not be founded), structural model (to estimate the demand as a function of the degree of behavioral bias and extrapolate to the case with no bias; limitations: it depends on the model assumptions).
Thus, the paper provides an overview of the possibilities that behavioral economics provides for practical goals, including creating new tools, improving analysis of existing policies, and suggests models for measuring variables and explaining the observed behavior.
Chetty, R. (2015). Behavioral Economics and Public Policy: A Pragmatic Perspective. The American Economic Review, 105(5), 1-33. Retrieved January 16, 2021, from http://www.jstor.org/stable/43821845
www.jstor.org
Behavioral Economics and Public Policy: A Pragmatic Perspective on JSTOR
Raj Chetty, Behavioral Economics and Public Policy: A Pragmatic Perspective, The American Economic Review, Vol. 105, No. 5, PAPERS AND PROCEEDINGS OF THE One Hundred Twenty-Seventh Annual Meeting OF THE AMERICAN ECONOMIC ASSOCIATION (MAY 2015), pp. 1-33
Social media plays an important role in politics nowadays. Among other things, it provides a space for political communication, since users could easily share facts and opinions. At the same time, lower costs for generating and sharing content extend the threat of falsehood or alternative facts. One of the tools that are devoted to dealing with alt-facts’ expansion is fact-checking, and a paper Checking And Sharing Alt-facts by E. Henry, S. Guriev, and E. Zhuravskaya shed light on the effects of fact-checking.
The paper analyses the results of a randomized experiment conducted in the period of the European Election Campaign in France (2019). The experiment included two waves. Each part was organized as follows: a representative sample of the French population eligible to vote was divided into three groups. The first was exposed to alt-facts, the second was imposed with fact-checking, and the third had a choice whether to see fact-checking or not. Also, participants were allowed to share alt-facts on their page on Facebook, or people participating in the first wave could share the news with participants from the second one. Also, people who viewed the fact-checking were able to share it as well. The important notion here is that sharing the news required several clicks (to show the will to share, to affirm the action, and to share on FB). Besides, the authors collected the socio-demographic information and characteristics that illustrated a person's style of using social media, political view, and altruism level.
The insights from the paper are the following:
- Fact-checking information reduces the sharing of alt-facts by about 30%, and the effect is significant for both viewers and non-viewers. Besides, the authors construct an analytical model showing the viewers, who choose it voluntarily, have a higher propensity to share fact-checking. Also, the reduction in sharing alt-facts is bigger for this group if we adjust actual sharing for ex ante predicted propensity to share.
- Exploring the mechanisms of reduction sharing of alt-facts, the author defined two categories of cost and benefits obtained by sharing: 1) those depend on the type and size of the audience, a) those related to altruism, religiosity, social image concerns. As the authors conclude, there is no effect on the decision to share alt-checks concerning type and size of auditory (FB friends vs other participants), therefore the mechanism could be explained by increased moral costs from sharing potentially incorrect facts.
- Socio-economics characteristics matter: men share both alt-facts and fact-checking more, people whose motivation of sharing is the intention to influence share more, altruistic and religious people share more. The ideological alignment plays a role.
- Each step of sharing the news (number of clicks) reduces the number of users who get to the next page by about 75%.
Thus, this paper draws insights on effects brought by fact-checking mechanisms on the scale of sharing alt-facts, that could be used by policymakers or companies.
Henry, Emeric, Sergei Guriev, And Ekaterina Zhuravskaya. “Checking And Sharing Alt-facts.” Sciences Po Economics Discussion Papers 2020–06. Paris: Département D’économie De Sciences Po, June 2020.
The paper analyses the results of a randomized experiment conducted in the period of the European Election Campaign in France (2019). The experiment included two waves. Each part was organized as follows: a representative sample of the French population eligible to vote was divided into three groups. The first was exposed to alt-facts, the second was imposed with fact-checking, and the third had a choice whether to see fact-checking or not. Also, participants were allowed to share alt-facts on their page on Facebook, or people participating in the first wave could share the news with participants from the second one. Also, people who viewed the fact-checking were able to share it as well. The important notion here is that sharing the news required several clicks (to show the will to share, to affirm the action, and to share on FB). Besides, the authors collected the socio-demographic information and characteristics that illustrated a person's style of using social media, political view, and altruism level.
The insights from the paper are the following:
- Fact-checking information reduces the sharing of alt-facts by about 30%, and the effect is significant for both viewers and non-viewers. Besides, the authors construct an analytical model showing the viewers, who choose it voluntarily, have a higher propensity to share fact-checking. Also, the reduction in sharing alt-facts is bigger for this group if we adjust actual sharing for ex ante predicted propensity to share.
- Exploring the mechanisms of reduction sharing of alt-facts, the author defined two categories of cost and benefits obtained by sharing: 1) those depend on the type and size of the audience, a) those related to altruism, religiosity, social image concerns. As the authors conclude, there is no effect on the decision to share alt-checks concerning type and size of auditory (FB friends vs other participants), therefore the mechanism could be explained by increased moral costs from sharing potentially incorrect facts.
- Socio-economics characteristics matter: men share both alt-facts and fact-checking more, people whose motivation of sharing is the intention to influence share more, altruistic and religious people share more. The ideological alignment plays a role.
- Each step of sharing the news (number of clicks) reduces the number of users who get to the next page by about 75%.
Thus, this paper draws insights on effects brought by fact-checking mechanisms on the scale of sharing alt-facts, that could be used by policymakers or companies.
Henry, Emeric, Sergei Guriev, And Ekaterina Zhuravskaya. “Checking And Sharing Alt-facts.” Sciences Po Economics Discussion Papers 2020–06. Paris: Département D’économie De Sciences Po, June 2020.
The need for redistribution could be motivated by ethical criteria like in the case of income inequality. Also, it could be implemented to fix market failure connected, for example, with externalities. There are cases in which these explanations do not work, so is it effective to redistribute resources here?
(Acemoglu & Robinson, 2001) build a formal model of ineffective redistribution of resources. Two main assumptions are the following: 1) the political system cannot commit to the future policy, 2) the political power of the group positively depends on its size. They mention several arguments for presence of inefficient redistribution:
1. Such methods are harder to reverse, and serve as commitment;
2. The amount of redistribution endogenous, and inefficient methods are used to reduce redistribution;
3. It is possible to exploit uncertainty about policy efficiency to support a particular group.
Authors consider a two-period economy with two industries - farming and manufacturing. In the basic model, people are divided between sectors, and they cannot change the occupation, and in the first period, newcomers decide which job to get. Manufacturers are taxed, and farmers receive a subsidy that can be provided in two forms - to agents who are farmers at the beginning of the period and to all farmers. Existing farmers prefer the second option, but the first one could be the case when we consider that farmers have political power and extend it in the next period by attracting new farmers. (Acemoglu & Robinson, 2001) show that there are efficient equilibria where political power is not contested and inefficient in another case.
The authors extend the model to analyze situations in which workers could switch the occupation at some costs. The higher these costs are, the more specific skills a worker has, and that makes change harder. Interesting results in that a lower degree of skills’ specificity may increase the level of inefficiency of redistribution.
(Acemoglu & Robinson, 2001) mention several applications of their theory:
1. Agricultural policy: literature denied the opportunity to use lump-sum transfers, but authors connect it with the desire to save political power.
2. Labor market policy: creating higher firing costs could be explained in this framework as well - such policies maintain future political power and engage workers in collective actions.
3. International trade policy: most economists agree that tariffs and quotas for domestic industries are inefficient tools, and the model could explain the implementation of such policies by a wish to attract new workers who, otherwise, would be more productive in the other sectors.
Acemoglu, D., & Robinson, J. (2001). Inefficient Redistribution. The American Political Science Review, 95(3), 649-661. Retrieved February 8, 2021, from http://www.jstor.org/stable/3118239
(Acemoglu & Robinson, 2001) build a formal model of ineffective redistribution of resources. Two main assumptions are the following: 1) the political system cannot commit to the future policy, 2) the political power of the group positively depends on its size. They mention several arguments for presence of inefficient redistribution:
1. Such methods are harder to reverse, and serve as commitment;
2. The amount of redistribution endogenous, and inefficient methods are used to reduce redistribution;
3. It is possible to exploit uncertainty about policy efficiency to support a particular group.
Authors consider a two-period economy with two industries - farming and manufacturing. In the basic model, people are divided between sectors, and they cannot change the occupation, and in the first period, newcomers decide which job to get. Manufacturers are taxed, and farmers receive a subsidy that can be provided in two forms - to agents who are farmers at the beginning of the period and to all farmers. Existing farmers prefer the second option, but the first one could be the case when we consider that farmers have political power and extend it in the next period by attracting new farmers. (Acemoglu & Robinson, 2001) show that there are efficient equilibria where political power is not contested and inefficient in another case.
The authors extend the model to analyze situations in which workers could switch the occupation at some costs. The higher these costs are, the more specific skills a worker has, and that makes change harder. Interesting results in that a lower degree of skills’ specificity may increase the level of inefficiency of redistribution.
(Acemoglu & Robinson, 2001) mention several applications of their theory:
1. Agricultural policy: literature denied the opportunity to use lump-sum transfers, but authors connect it with the desire to save political power.
2. Labor market policy: creating higher firing costs could be explained in this framework as well - such policies maintain future political power and engage workers in collective actions.
3. International trade policy: most economists agree that tariffs and quotas for domestic industries are inefficient tools, and the model could explain the implementation of such policies by a wish to attract new workers who, otherwise, would be more productive in the other sectors.
Acemoglu, D., & Robinson, J. (2001). Inefficient Redistribution. The American Political Science Review, 95(3), 649-661. Retrieved February 8, 2021, from http://www.jstor.org/stable/3118239
www.jstor.org
Inefficient Redistribution on JSTOR
There are many well-developed theories that explain why governments redistribute income, but very few can explain why this often is done in a socially inefficie...
Thinking about the organization of payment cards or operating industries we consider the model of two-sided markets to describe their work. In The Economics of Two-Sided Markets, R. Marc describes several features of synch markets and provides their implications for antitrust regulation.
Two-sided markets are defined as a market structure where two sets of agents interact via a platform and the decision of each of them affects the outcomes of the other. So, the difference from one-sided markets that also could have intermediaries is that sellers gain from the platform’s success with the buying side. The emphasis on intermediaries creates a distinction between the literature on two-sided markets and works devoted to the network effect.
R. Marc mentions two strategies that a platform chooses - pricing and openness exemplifying their manifestation in media, payment card, and operating system industries. The price depends not only on demand and costs, as it is on a one-sided market, but also on the effect of customers’ participation on the other side and profit extracted from that participation. For example, lowering prices could attract customers from the other platform, which degenerates the value of competitors’ platforms, and therefore increases the new customers’ influx. The important notion here is that two-sided markets are prone to evolve towards a situation where one side uses a single platform whereas the other - several. That creates a monopoly of the platform over the access to members that do not use other intermediaries. It can explain favor to customers in pricing. Within two-sided markets, standard price discrimination allows capturing more of the surplus due to demand heterogeneity.
The openness refers to two strategic issues - the number of sides and the relation to competing platforms. In the first case, the platform should determine whether it plans to be one-sided, two-sided, or multi-sided, and here there is a trend to switch from a one-sided model to two-sided when the firm becomes more established. Within the second issue firms may seek incompatibility, compatibility, or integration.
Among other strategies, R. Marc mentions innovations, advertising, and quality investments that allow platforms to shape the market structure.
In the final part, R. Marc addresses the public policy issues arguing that such markets could tip to a single dominant platform that draws the attention of regulators. The important issue is that regulation should take into account the influence of the intervention on both sides and other platforms, which creates additional difficulties in resolutions of antitrust cases.
Thus, the article provides the definition of a two-sided market and several features relating to the platforms’ strategies in pricing, openness, advertising, innovation, and quality investments. Relying on them, R. Marc states several arguments regarding the public policy on platforms’ operation.
Rysman, Marc. 2009. "The Economics of Two-Sided Markets." Journal of Economic Perspectives, 23 (3): 125-43. DOI: 10.1257/jep.23.3.125
Two-sided markets are defined as a market structure where two sets of agents interact via a platform and the decision of each of them affects the outcomes of the other. So, the difference from one-sided markets that also could have intermediaries is that sellers gain from the platform’s success with the buying side. The emphasis on intermediaries creates a distinction between the literature on two-sided markets and works devoted to the network effect.
R. Marc mentions two strategies that a platform chooses - pricing and openness exemplifying their manifestation in media, payment card, and operating system industries. The price depends not only on demand and costs, as it is on a one-sided market, but also on the effect of customers’ participation on the other side and profit extracted from that participation. For example, lowering prices could attract customers from the other platform, which degenerates the value of competitors’ platforms, and therefore increases the new customers’ influx. The important notion here is that two-sided markets are prone to evolve towards a situation where one side uses a single platform whereas the other - several. That creates a monopoly of the platform over the access to members that do not use other intermediaries. It can explain favor to customers in pricing. Within two-sided markets, standard price discrimination allows capturing more of the surplus due to demand heterogeneity.
The openness refers to two strategic issues - the number of sides and the relation to competing platforms. In the first case, the platform should determine whether it plans to be one-sided, two-sided, or multi-sided, and here there is a trend to switch from a one-sided model to two-sided when the firm becomes more established. Within the second issue firms may seek incompatibility, compatibility, or integration.
Among other strategies, R. Marc mentions innovations, advertising, and quality investments that allow platforms to shape the market structure.
In the final part, R. Marc addresses the public policy issues arguing that such markets could tip to a single dominant platform that draws the attention of regulators. The important issue is that regulation should take into account the influence of the intervention on both sides and other platforms, which creates additional difficulties in resolutions of antitrust cases.
Thus, the article provides the definition of a two-sided market and several features relating to the platforms’ strategies in pricing, openness, advertising, innovation, and quality investments. Relying on them, R. Marc states several arguments regarding the public policy on platforms’ operation.
Rysman, Marc. 2009. "The Economics of Two-Sided Markets." Journal of Economic Perspectives, 23 (3): 125-43. DOI: 10.1257/jep.23.3.125
In years of rapid technological developments, the issues of intellectual property protection and patent law became increasingly important. In particular, we observe some tensions between the US and China on this ground. In Quid Pro Quo: Technology Capital Transfers for Market Access in China Holmes et al. investigate the influence of China's quid pro quo policy on investments and transfers of technological capital.
Quid pro quo (QPQ) policy is aimed at increasing internal innovations via restricting market access. Foreign firms should transfer their technologies in order to be able to operate on the market. Previously, it was a common practice among developing countries since it brought innovations to their economies, but after they liberalize such requirements. Nevertheless, according to firms’ surveys, today China de facto continues to follow this policy.
Authors apply the multicountry general equilibrium model to assess the influence of this policy on China and the rest of the world. They look at several entities: China (which includes mainland China, Hong Kong, Taiwan, and Macao), developed countries including the U.S., Western Europe, Japan, that are the main sources of foreign direct investments (FDI), a combined entity consisting of Brazil, Russia, and India (BRI), and a combined entity of non-Caribbean countries that had FDIs in China in excess of 0.1 billion U.S. dollars in 2007 (ROW).
The model parameters were justified by assumptions derived from data. The first finding here is that foreign companies gained access to China’s market via creating joint ventures with local companies. Moreover, such contracts require approval by government officials. Second, analyzing patent data authors examine initial ownership of new patents by large multinational firms that are doing FDI in China. It turns out that such firms have shared ownership with Chinese companies within the country, but it stops at the border. Holmes et al. show that only 21 out of 10184 shared patents ( 0.2%) include Chinese ownership of shared technology with foreign multinationals in outside applications. Third, most foreign-owned patents in China are filed first in foreign countries and then are transferred to China.
Under the assumption that China imposes QPQ on inward FDI from the advanced countries, and the same policy is used by BRIC (baseline), the analysis of the fitted model provides the following results:
— China's non-transferred technology capital level has increased from 0,1 % share in 1990 to 6.1% in 2010, which is still less than half of Japan's level.
— Firms invest more without the QPQ tax. FDI in China, the intensity level increases from 0.21 to 0.41 over the years 1990-2000 due to productivity growth, but there is a decline in investments because of higher QPQ tax.
— Modeling unilateral change in China’s QPQ, Holmes et al. conclude that China benefits from QPQ even when China has become more open. Concerning the influence on developed countries, authors state there is a negative effect that level of which depends on the importance on the Chinese market. The significant finding here is that the Chinese market is now large enough such that the welfare effect of China's QPQ policy is non-negligible. In particular, the U.S., Western Europe, and Japan are harmed by Chinese QPQ by -0.32% to -0.45% of consumption. Also, QPQ helps to achieve the Chinese explicit policy goal of having self-owned innovations.
Quid pro quo (QPQ) policy is aimed at increasing internal innovations via restricting market access. Foreign firms should transfer their technologies in order to be able to operate on the market. Previously, it was a common practice among developing countries since it brought innovations to their economies, but after they liberalize such requirements. Nevertheless, according to firms’ surveys, today China de facto continues to follow this policy.
Authors apply the multicountry general equilibrium model to assess the influence of this policy on China and the rest of the world. They look at several entities: China (which includes mainland China, Hong Kong, Taiwan, and Macao), developed countries including the U.S., Western Europe, Japan, that are the main sources of foreign direct investments (FDI), a combined entity consisting of Brazil, Russia, and India (BRI), and a combined entity of non-Caribbean countries that had FDIs in China in excess of 0.1 billion U.S. dollars in 2007 (ROW).
The model parameters were justified by assumptions derived from data. The first finding here is that foreign companies gained access to China’s market via creating joint ventures with local companies. Moreover, such contracts require approval by government officials. Second, analyzing patent data authors examine initial ownership of new patents by large multinational firms that are doing FDI in China. It turns out that such firms have shared ownership with Chinese companies within the country, but it stops at the border. Holmes et al. show that only 21 out of 10184 shared patents ( 0.2%) include Chinese ownership of shared technology with foreign multinationals in outside applications. Third, most foreign-owned patents in China are filed first in foreign countries and then are transferred to China.
Under the assumption that China imposes QPQ on inward FDI from the advanced countries, and the same policy is used by BRIC (baseline), the analysis of the fitted model provides the following results:
— China's non-transferred technology capital level has increased from 0,1 % share in 1990 to 6.1% in 2010, which is still less than half of Japan's level.
— Firms invest more without the QPQ tax. FDI in China, the intensity level increases from 0.21 to 0.41 over the years 1990-2000 due to productivity growth, but there is a decline in investments because of higher QPQ tax.
— Modeling unilateral change in China’s QPQ, Holmes et al. conclude that China benefits from QPQ even when China has become more open. Concerning the influence on developed countries, authors state there is a negative effect that level of which depends on the importance on the Chinese market. The significant finding here is that the Chinese market is now large enough such that the welfare effect of China's QPQ policy is non-negligible. In particular, the U.S., Western Europe, and Japan are harmed by Chinese QPQ by -0.32% to -0.45% of consumption. Also, QPQ helps to achieve the Chinese explicit policy goal of having self-owned innovations.
— Looking at multilateral changes, when the U.S., Western Europe, and Japan all adopt the same QPQ policy, authors show that the advanced nations gain by multilaterally initiating QPQ against each other and against China and BRI. If we compare situations where all countries introduce QPQ and none does, we see that the U.S. and Western Europe are net losers when QPQ is adopted in this broad multilateral fashion, as is Western Europe. In contrast, China and BRI are net winners. The intuition for the asymmetry is that China and BRI originate disproportionately less technology capital than the advanced economies, so they do better under QPQ policy. The fact that the U.S. and Western Europe are net losers from multilateral QPQ explains their initiative to create limits on the use of QPQ via WTO regulations.
Thomas J. Holmes, Ellen R. McGrattan, Edward C. Prescott, Quid Pro Quo: Technology Capital Transfers for Market Access in China, The Review of Economic Studies, Volume 82, Issue 3, July 2015, Pages 1154–1193, https://doi.org/10.1093/restud/rdv008
Thomas J. Holmes, Ellen R. McGrattan, Edward C. Prescott, Quid Pro Quo: Technology Capital Transfers for Market Access in China, The Review of Economic Studies, Volume 82, Issue 3, July 2015, Pages 1154–1193, https://doi.org/10.1093/restud/rdv008
OUP Academic
Quid Pro Quo: Technology Capital Transfers for Market Access in China
Abstract. By the 1970s, quid pro quo policy, which requires multinational firms to transfer technology in return for market access, had become a common practice
The Blackmailer Paradox by R. Aumann
Assume there are two agents - Ann and Bob, who are supposed to divide 100$. They are free to negotiate. Ann confidently state that she will not agree on getting less than 90$. Ann is a blackmailer, even if she behaves irrationally, Bob should agree on getting 10. But he can state the same ultimatum and refuse and division where he gets less than 90. The paradox arises since both agents behave rationally on individual level, but making such commitment together is irrational.
This model seems especially interesting in its application to international conflicts. R. Aumann provides an example of Israel-Syria conflict, where Syrians make such commitment saying that disputed territories are sacred for them, and Israel’s ‘security reasons’ are a form of this commitment as well.
Assume there are two agents - Ann and Bob, who are supposed to divide 100$. They are free to negotiate. Ann confidently state that she will not agree on getting less than 90$. Ann is a blackmailer, even if she behaves irrationally, Bob should agree on getting 10. But he can state the same ultimatum and refuse and division where he gets less than 90. The paradox arises since both agents behave rationally on individual level, but making such commitment together is irrational.
This model seems especially interesting in its application to international conflicts. R. Aumann provides an example of Israel-Syria conflict, where Syrians make such commitment saying that disputed territories are sacred for them, and Israel’s ‘security reasons’ are a form of this commitment as well.
Inside The Economist’s Mind Conversations With Eminent Economists
Edited By Paul A. Samuelson And William A. Barnett
This book is a collection of interviews with economists about their careers, research, and state of art. There is a bias to macroeconomics, but this book contains interviews on econometrics and game theory as well. I am not a big fan of memoirs and interviews, but this collection differs from what I read before. There are several aspects making this book interesting from my perspective:
— Educational facet: It cannot be treated as an economics textbook but each interview contains plenty of references to fundamental theories on which these scientists worked, main definitions, and research approaches. There are detailed descriptions of how academics come to their findings, who influenced them, etc. For example, Franco Modigliani tells how the Modigliani-Miller theorem was created, and how part of its proof appeared after Modigliani’s reading of David Durand’s works. Also, after the texts of the conversations, there are lists of articles that were mentioned. Thus, you get a brief overview of theories and their development with materials that are useful for a deeper understanding of a theme. In addition, the book provides a good description of the history of economic science: main figures, change of trends, interconnections of ideas and approaches, and development of the agenda.
— Career facet: During conversations, scientists also pay attention to information that is useful for the understanding of careers in economics and graduate education. First, telling about career and education, academics highlight the specificity of different universities that is useful for choosing a program and place for work, for example in the part Conversations with James Tobin and Robert J. Shiller on the “Yale Tradition” in Macroeconomics these two interviews are devoted to the description of features of Yale economics tradition. Second, interviewees worked not only as academics but also in governmental organizations as well as in private companies, and they highlight some specifics of their work in different places, that also provide a fuller picture of available career paths. Regarding the academic track, scientists mention plenty of topics of past research as long as current trends and white spots in economic science can lead to ideas for your project.
— Personal experience facet: Of course, there is a biographical component in these conversations that supply the reader with an understanding of how differently people can come to economics research, and how various backgrounds influence further career paths. Also, during the reading you see how the world changed in terms of numbers of economists, connections between students and top-researchers, available technical tools, and popular research questions.
Overall, I find this book particularly useful to find new topics in economics and fundamental literature corresponding to them, understand the development of economics art, and get the illustration of an academic career in economics.
Edited By Paul A. Samuelson And William A. Barnett
This book is a collection of interviews with economists about their careers, research, and state of art. There is a bias to macroeconomics, but this book contains interviews on econometrics and game theory as well. I am not a big fan of memoirs and interviews, but this collection differs from what I read before. There are several aspects making this book interesting from my perspective:
— Educational facet: It cannot be treated as an economics textbook but each interview contains plenty of references to fundamental theories on which these scientists worked, main definitions, and research approaches. There are detailed descriptions of how academics come to their findings, who influenced them, etc. For example, Franco Modigliani tells how the Modigliani-Miller theorem was created, and how part of its proof appeared after Modigliani’s reading of David Durand’s works. Also, after the texts of the conversations, there are lists of articles that were mentioned. Thus, you get a brief overview of theories and their development with materials that are useful for a deeper understanding of a theme. In addition, the book provides a good description of the history of economic science: main figures, change of trends, interconnections of ideas and approaches, and development of the agenda.
— Career facet: During conversations, scientists also pay attention to information that is useful for the understanding of careers in economics and graduate education. First, telling about career and education, academics highlight the specificity of different universities that is useful for choosing a program and place for work, for example in the part Conversations with James Tobin and Robert J. Shiller on the “Yale Tradition” in Macroeconomics these two interviews are devoted to the description of features of Yale economics tradition. Second, interviewees worked not only as academics but also in governmental organizations as well as in private companies, and they highlight some specifics of their work in different places, that also provide a fuller picture of available career paths. Regarding the academic track, scientists mention plenty of topics of past research as long as current trends and white spots in economic science can lead to ideas for your project.
— Personal experience facet: Of course, there is a biographical component in these conversations that supply the reader with an understanding of how differently people can come to economics research, and how various backgrounds influence further career paths. Also, during the reading you see how the world changed in terms of numbers of economists, connections between students and top-researchers, available technical tools, and popular research questions.
Overall, I find this book particularly useful to find new topics in economics and fundamental literature corresponding to them, understand the development of economics art, and get the illustration of an academic career in economics.
Ranking languages in the European Union: Before and after Brexit
by Victor Ginsburgh, Juan D. Moreno-Ternero, and Shlomo Weber
Language is the main tool of human communication, therefore it inevitably accompanies any social interactions. It opens many approaches to study languages - from classical linguistics to economics and political research. Thus, (Ginsburgh & Moreno-Ternero & Weber, 2017) analyze different rankings for choosing official languages and implement this framework to look at Brexit’s influence on the English language’s dominance in Europe.
The motivation of the study relates to the need of restricting the number of official languages for multilingual countries since many inefficiencies occur without this measure. This need presents the problem to choose the set of official languages. The authors define 5 main principles for building language ranking. The first is Minimal Disenfranchisement that counts the number of individuals who do not speak any of the languages from the list. The second - Communicative Benefits (Selten & Pool, 1991) - asserts that the knowledge of the language is more beneficial the more other people know it, therefore this approach calculates the number of people that know the language perfectly. Aggregate Knowledge is the third one that takes into account the intermediate level of knowledge: it accumulates all levels of a language’s knowledge in the score. The authors also mention two game-theory-based ranking - Shapley Value and Weighted Shapley Value. First ranking for a language is constructed in the following way: each individual divides her vote equally between languages that she knows, then for each language we calculate the sum. Weighted methods imply the adjustment to the level of knowledge. (Ginsburgh & Moreno-Ternero & Weber, 2017) introduces several axioms which proposed ranking methods satisfy.
Then, using this framework, the authors calculate these rankings for European official languages and some others (e.g. Russian, Catalan, etc.) using the data from Special Eurobarometer 243 (2006) survey. The results show the difference in languages’ importance in the European region. Authors also discuss some features that could explain the rankings: for example, Shapley ranking downwards of Dutch because the number of Netherlanders and Flemish (in Belgium) who speak foreign languages (English, German and French essentially) is large, which reduces the Shapley Value of Dutch.
Next, the authors compare the rankings before and after hypothetical de-listing of English from official European languages. It means that we should omit from the data the population of the UK (a large share of natives) and migrants from the UK. According to Minimal Disenfranchisement, English still keeps its lingua franca influence in the EU, Communicative Benefits considers English the same as the other languages due to the drop of natives, Aggregate Knowledge results in a more beneficial situation for German and French. Thus, English will be influential after Brexit.
The question that was open at that time is whether it will remain an official European language? From today's perspective, we know that Europarlament saved its status.
To sum up, the paper provides 5 principles to construct a ranking of languages in the multilingual entity, calculate these rankings for several European languages, and analyze the impact of Brexit on the English language’s dominance. Also, (Ginsburgh & Moreno-Ternero & Weber, 2017) discuss the political sides of the decision to keep English in such status and opportunities to include Catalan or Galician to this list.
Ginsburgh, Victor & Moreno-Ternero, Juan & Weber, Shlomo. (2017). Ranking Languages in the European Union: Before and After Brexit. European Economic Review. 93. 10.1016/j.euroecorev.2017.01.009.
by Victor Ginsburgh, Juan D. Moreno-Ternero, and Shlomo Weber
Language is the main tool of human communication, therefore it inevitably accompanies any social interactions. It opens many approaches to study languages - from classical linguistics to economics and political research. Thus, (Ginsburgh & Moreno-Ternero & Weber, 2017) analyze different rankings for choosing official languages and implement this framework to look at Brexit’s influence on the English language’s dominance in Europe.
The motivation of the study relates to the need of restricting the number of official languages for multilingual countries since many inefficiencies occur without this measure. This need presents the problem to choose the set of official languages. The authors define 5 main principles for building language ranking. The first is Minimal Disenfranchisement that counts the number of individuals who do not speak any of the languages from the list. The second - Communicative Benefits (Selten & Pool, 1991) - asserts that the knowledge of the language is more beneficial the more other people know it, therefore this approach calculates the number of people that know the language perfectly. Aggregate Knowledge is the third one that takes into account the intermediate level of knowledge: it accumulates all levels of a language’s knowledge in the score. The authors also mention two game-theory-based ranking - Shapley Value and Weighted Shapley Value. First ranking for a language is constructed in the following way: each individual divides her vote equally between languages that she knows, then for each language we calculate the sum. Weighted methods imply the adjustment to the level of knowledge. (Ginsburgh & Moreno-Ternero & Weber, 2017) introduces several axioms which proposed ranking methods satisfy.
Then, using this framework, the authors calculate these rankings for European official languages and some others (e.g. Russian, Catalan, etc.) using the data from Special Eurobarometer 243 (2006) survey. The results show the difference in languages’ importance in the European region. Authors also discuss some features that could explain the rankings: for example, Shapley ranking downwards of Dutch because the number of Netherlanders and Flemish (in Belgium) who speak foreign languages (English, German and French essentially) is large, which reduces the Shapley Value of Dutch.
Next, the authors compare the rankings before and after hypothetical de-listing of English from official European languages. It means that we should omit from the data the population of the UK (a large share of natives) and migrants from the UK. According to Minimal Disenfranchisement, English still keeps its lingua franca influence in the EU, Communicative Benefits considers English the same as the other languages due to the drop of natives, Aggregate Knowledge results in a more beneficial situation for German and French. Thus, English will be influential after Brexit.
The question that was open at that time is whether it will remain an official European language? From today's perspective, we know that Europarlament saved its status.
To sum up, the paper provides 5 principles to construct a ranking of languages in the multilingual entity, calculate these rankings for several European languages, and analyze the impact of Brexit on the English language’s dominance. Also, (Ginsburgh & Moreno-Ternero & Weber, 2017) discuss the political sides of the decision to keep English in such status and opportunities to include Catalan or Galician to this list.
Ginsburgh, Victor & Moreno-Ternero, Juan & Weber, Shlomo. (2017). Ranking Languages in the European Union: Before and After Brexit. European Economic Review. 93. 10.1016/j.euroecorev.2017.01.009.
Difference-in-differences (DD) analysis is highly popular for empirical research that tries to establish a causal link between a treatment (often it is a policy) and a variable of interest. This method uses two samples - the treatment group that was influenced and the control group - to calculate the effect of treatment. Thus, for such analysis researchers use panel data (data about different cross-sections across time). Nevertheless, there are some limitations of this approach that became the topic of the study by Marianne Bertrand, Esther Duflo, and Sendhil Mullainathan.
Authors highlight several limitations of DD estimations including the endogeneity of interventions, but they mostly focus on other problems:
1. DD in literature relies on quite long time series;
2. Frequently used dependent variables are serially correlated;
3. Treatment variables change very little within the state over time.
All these factors lead to the fact that standard error for the estimated coefficient of interest could understate its standard deviation. And, according to the authors, many papers ignore adjusting for these issues.
To assess the scale of the problem authors look at how DD performs on placebo laws, which were randomly assigned to states and years. The authors use the dataset of female surveys about wages testing the null hypothesis of no effect. If OLS were to provide consistent standard errors, we would expect to reject the null hypothesis of no effect approximately 5% of the time, but it is not the case.
After making exercises with placebo treatment on wages data and the Monte Carlo studies (state-level empirical distribution of the survey data and AR(1) model with normal disturbances), authors show that conventional DD estimation leads to gross over-estimation of t-statistics and significance levels.
Then, (Bertrand & Duflo & Mullainathan, 2002) suggests possible solutions to described problems:
1. Specify an auto-correlation structure for the error term, estimate its parameters, and use these parameters to compute standard errors.
Results: This technique does little to solve the serial correlation problem: the rejection rate stays high at 24 percent (instead of the expected 5).
Why it does not work? The downward bias in the estimator of the auto-correlation coefficient, parametric correction may be that we have not correctly specified the auto-correlation process.
2. Block bootstrap (maintains the autocorrelation structure by keeping all the observations that belong to the same group together).
Results: work well for data with 50 groups (6.5% of rejections in survey data and 5% for CPS+ AR(1) data). But the quality of performance decreases with a lower number of groups (13% for 20 groups, 23% for 10)
3. Ignore the time-series information when computing standard errors. It suggests averaging data before and after treatment.
Results: work for laws passed at the same time. However, if it is not true, one may modify the technique: regress Y_st on group fixed effects, year dummies, and any relevant covariates, then divide the residuals of the treatment states into two groups: residuals from years before the laws, and residuals from years after the laws. The estimate of the laws’ effect and its standard error can then be obtained from an OLS regression in this two-period panel. The authors state that it performs well for a small number of groups (5.3% for 10 states). The disadvantage is that power is low and declines with sample size.
4. Empirical variance-covariance matrix.
Results: poor performance for small sample size (8% for 10 groups, 15% for 6). The limitation is that it is consistent under the assumption of cross-sectional homoskedasticity, which often is violated.
Authors highlight several limitations of DD estimations including the endogeneity of interventions, but they mostly focus on other problems:
1. DD in literature relies on quite long time series;
2. Frequently used dependent variables are serially correlated;
3. Treatment variables change very little within the state over time.
All these factors lead to the fact that standard error for the estimated coefficient of interest could understate its standard deviation. And, according to the authors, many papers ignore adjusting for these issues.
To assess the scale of the problem authors look at how DD performs on placebo laws, which were randomly assigned to states and years. The authors use the dataset of female surveys about wages testing the null hypothesis of no effect. If OLS were to provide consistent standard errors, we would expect to reject the null hypothesis of no effect approximately 5% of the time, but it is not the case.
After making exercises with placebo treatment on wages data and the Monte Carlo studies (state-level empirical distribution of the survey data and AR(1) model with normal disturbances), authors show that conventional DD estimation leads to gross over-estimation of t-statistics and significance levels.
Then, (Bertrand & Duflo & Mullainathan, 2002) suggests possible solutions to described problems:
1. Specify an auto-correlation structure for the error term, estimate its parameters, and use these parameters to compute standard errors.
Results: This technique does little to solve the serial correlation problem: the rejection rate stays high at 24 percent (instead of the expected 5).
Why it does not work? The downward bias in the estimator of the auto-correlation coefficient, parametric correction may be that we have not correctly specified the auto-correlation process.
2. Block bootstrap (maintains the autocorrelation structure by keeping all the observations that belong to the same group together).
Results: work well for data with 50 groups (6.5% of rejections in survey data and 5% for CPS+ AR(1) data). But the quality of performance decreases with a lower number of groups (13% for 20 groups, 23% for 10)
3. Ignore the time-series information when computing standard errors. It suggests averaging data before and after treatment.
Results: work for laws passed at the same time. However, if it is not true, one may modify the technique: regress Y_st on group fixed effects, year dummies, and any relevant covariates, then divide the residuals of the treatment states into two groups: residuals from years before the laws, and residuals from years after the laws. The estimate of the laws’ effect and its standard error can then be obtained from an OLS regression in this two-period panel. The authors state that it performs well for a small number of groups (5.3% for 10 states). The disadvantage is that power is low and declines with sample size.
4. Empirical variance-covariance matrix.
Results: poor performance for small sample size (8% for 10 groups, 15% for 6). The limitation is that it is consistent under the assumption of cross-sectional homoskedasticity, which often is violated.
5. Arbitrary variance-covariance matrix (generalization of previous method).
Result: rejection rates increase significantly above 5% with the decline of the number of groups (11.5 % with 6 states, 8 % with 10 states) that is comparable with the empirical variance-covariance matrix correction method for small samples, less extreme than with block bootstrap, but higher than with the time series aggregation.
Thus, (Bertrand & Duflo & Mullainathan, 2002 ) highlight the problems of DD’s implementation that were also present (and, in many cases, were not addressed) in literature before. They explain the nature of over-rejection that takes place when researchers use the DD approach and provide empirical evidence for it via implementing placebo treatment on the data. Also, they propose 4 approaches to deal with described issues: block bootstrap, ignoring series information (aggregation), usage of empirical variance-covariance matrix, or arbitrary one.
Marianne Bertrand, Esther Duflo & Sendhil Mullainathan (2002) How Much Should We Trust Differences-in-Differences Estimates? NBER Working paper 8841 DOI 10.3386/w884, https://www.nber.org/papers/w8841
2003 version: https://economics.mit.edu/files/750
Result: rejection rates increase significantly above 5% with the decline of the number of groups (11.5 % with 6 states, 8 % with 10 states) that is comparable with the empirical variance-covariance matrix correction method for small samples, less extreme than with block bootstrap, but higher than with the time series aggregation.
Thus, (Bertrand & Duflo & Mullainathan, 2002 ) highlight the problems of DD’s implementation that were also present (and, in many cases, were not addressed) in literature before. They explain the nature of over-rejection that takes place when researchers use the DD approach and provide empirical evidence for it via implementing placebo treatment on the data. Also, they propose 4 approaches to deal with described issues: block bootstrap, ignoring series information (aggregation), usage of empirical variance-covariance matrix, or arbitrary one.
Marianne Bertrand, Esther Duflo & Sendhil Mullainathan (2002) How Much Should We Trust Differences-in-Differences Estimates? NBER Working paper 8841 DOI 10.3386/w884, https://www.nber.org/papers/w8841
2003 version: https://economics.mit.edu/files/750
NBER
How Much Should We Trust Differences-in-Differences Estimates?
Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, and business professionals.
The Climate Casino is devoted to the question of climate change, in particular, W. Nordhaus discusses the science frontier on this topic as well as provides an analysis of possible solutions to problems related to the forecasted environmental situation. Overall, this book is a concise representation of the thesis about climate change from climate and social science, that helps to create a comprehensive vision on the issue. I will highlight some of them following the book’s chapters.
1. The first part describes the genesis of climate change - greenhouse gases, including CO2, accumulate in the atmosphere that leads to the warming of land and oceans. Change in temperature influences precipitation patterns, storm location and frequency, snowpacks, river runoff, water availability, and ice sheets. From this, we can expect impacts on biological and human activities that are sensitive to the climate. The important definition here is tipping points - thresholds of temperature level after which sudden or irreversible changes occur. Accumulation of GHG is related to emissions, or, more generally, anthropogenic interference.
2. The second is devoted to the impact on humans and other living systems. W. Nordhaus introduces the distinction between managed, where societies try to use resources in an efficient and sustainable way, for example, indoor living, and unmanaged systems that operate without human interactions, such as oceans. Agriculture, being an important sphere for humanity, could be highly managed. The climate change impact on it is unambiguous: from one hand, we can inspect growth in harvest under warmer conditions, but, on the other hand, it is true within some limits of temperature rise, also farmers should adapt to new conditions that also require investments.
Climate change could impact human health via increasing environmental stress, indirectly through lowering living standards due to an increase of the geographical range of some infectious diseases.
Regarding unmanaged threats, the author mentions sea-level rise (SLR), ocean acidification, hurricane intensification, and ecosystem losses.
3. The ways to slow climate change are discussed in the third part of the book. Three approaches are presented:
— Adaptation: learning to cope with climate change, but it won’t solve the problem;
— Geoengineering: introducing cooling systems - partially efficient way, but there are dangerous and uncertain consequences, therefore W. Nordhaus consider this approach as salvage therapy;
— Mitigation: reducing the concentration of GHG emissions (reduce energy consumption or storing emissions).
The important part here is the discussion of costs - new electricity could be more expensive as well as systems for storing, and if costs are high enough, then such policies won’t be effective. W. Nordhaus provides a detailed discussion on discounting and future value.
4. The practical side is located in the fourth part that discusses the issues of policy design and implementation. First, since climate change is a global problem, international policies should be adopted, but there are no successive examples in history so far due to the obvious opportunistic behavior of countries. As a solution for ensuring cooperative behavior, W. Nordhaus suggested the incorporation of trade sanctions for deviation from climate agreements. By the way, partially we see it in EU Carbon Border Tax. Also, there is a discussion of national policies, in particular - carbon tax, cap and trade, and intermediary measures. From pure economics, we expect the same outcome in equilibrium (raise carbon price), but there are some interesting differences, for example, establishing a market in allowances is to ensure that emissions are used in the most productive manner, but under this system, we expect higher volatility, but limited quantity, while carbon tax ensures stable price and unlimited emissions.
1. The first part describes the genesis of climate change - greenhouse gases, including CO2, accumulate in the atmosphere that leads to the warming of land and oceans. Change in temperature influences precipitation patterns, storm location and frequency, snowpacks, river runoff, water availability, and ice sheets. From this, we can expect impacts on biological and human activities that are sensitive to the climate. The important definition here is tipping points - thresholds of temperature level after which sudden or irreversible changes occur. Accumulation of GHG is related to emissions, or, more generally, anthropogenic interference.
2. The second is devoted to the impact on humans and other living systems. W. Nordhaus introduces the distinction between managed, where societies try to use resources in an efficient and sustainable way, for example, indoor living, and unmanaged systems that operate without human interactions, such as oceans. Agriculture, being an important sphere for humanity, could be highly managed. The climate change impact on it is unambiguous: from one hand, we can inspect growth in harvest under warmer conditions, but, on the other hand, it is true within some limits of temperature rise, also farmers should adapt to new conditions that also require investments.
Climate change could impact human health via increasing environmental stress, indirectly through lowering living standards due to an increase of the geographical range of some infectious diseases.
Regarding unmanaged threats, the author mentions sea-level rise (SLR), ocean acidification, hurricane intensification, and ecosystem losses.
3. The ways to slow climate change are discussed in the third part of the book. Three approaches are presented:
— Adaptation: learning to cope with climate change, but it won’t solve the problem;
— Geoengineering: introducing cooling systems - partially efficient way, but there are dangerous and uncertain consequences, therefore W. Nordhaus consider this approach as salvage therapy;
— Mitigation: reducing the concentration of GHG emissions (reduce energy consumption or storing emissions).
The important part here is the discussion of costs - new electricity could be more expensive as well as systems for storing, and if costs are high enough, then such policies won’t be effective. W. Nordhaus provides a detailed discussion on discounting and future value.
4. The practical side is located in the fourth part that discusses the issues of policy design and implementation. First, since climate change is a global problem, international policies should be adopted, but there are no successive examples in history so far due to the obvious opportunistic behavior of countries. As a solution for ensuring cooperative behavior, W. Nordhaus suggested the incorporation of trade sanctions for deviation from climate agreements. By the way, partially we see it in EU Carbon Border Tax. Also, there is a discussion of national policies, in particular - carbon tax, cap and trade, and intermediary measures. From pure economics, we expect the same outcome in equilibrium (raise carbon price), but there are some interesting differences, for example, establishing a market in allowances is to ensure that emissions are used in the most productive manner, but under this system, we expect higher volatility, but limited quantity, while carbon tax ensures stable price and unlimited emissions.
5. The last chapter captures issues related to public opinion on climate change and critiques the science of climate change. The authors emphasize the meaning of scientific consensus and how society’s opinion on this topic forms and changes over time. Also, some obstacles for climate policy implementation are mentioned: present bias, economic self-interest, unequal distribution of losses and gains.
To sum up, the topic of climate change is full of uncertainties, but there is scientific consensus that the rise of temperature takes place, and it relates to human actions. Due to its impact on living systems, it becomes a policy that requires proper measures and international cooperation for mitigating risks of most dangerous scenarios.
The Climate Casino: Risk, Uncertainty, and Economics for a Warming World
By William Nordhaus
2015
https://yalebooks.yale.edu/book/9780300212648/climate-casino
To sum up, the topic of climate change is full of uncertainties, but there is scientific consensus that the rise of temperature takes place, and it relates to human actions. Due to its impact on living systems, it becomes a policy that requires proper measures and international cooperation for mitigating risks of most dangerous scenarios.
The Climate Casino: Risk, Uncertainty, and Economics for a Warming World
By William Nordhaus
2015
https://yalebooks.yale.edu/book/9780300212648/climate-casino
Uncommon Sense: economic insights, from marriage to terrorism.
(G. S. Becker & R. A. Posner, 2010)
From my experience, it can be difficult to find good popular scientific literature on economics. Uncommon Sense by G. S. Becker, R. A. Posner is a good example of a book that provides insightful economics perspectives on various social issues. The book is a set of authors’ blog posts accompanied by afterthoughts for each part. I want to highlight several features that I especially enjoyed:
1. The variety of topics covered.
In 7 parts authors discussed different facets of economic science providing clear arguments which draw on classic economic theory. There are themes of each part with some subtopics in parenthesis: gender issues (gay marriage, population balance), property rights (organs sales, files sharing, patents), universities (tenure, plagiarism), incentives (libertarian paternalism, taxes), labor economics (judicial term limits, income inequality), environmental economics (federalism, global warming, discounting), crime and terrorism drunk driving, preventive war), and global economics (international aid, microfinance). As one can see, the book comprises both classical economics questions and topics that are on the frontier.
2. Illustrative narration.
Since this book is popular science, there are not many literature references. Nevertheless, the authors provide multiple examples from real-world cases which allows the reader to look through the economic framework at real events. They also generally mention empirical literature as the evidence to their thoughts and suggest ideas for further research.
3. Discussion format and blog size.
Each question is discussed by both authors. In most cases, they agree with each other’s arguments and just add some thought and details to the provided arguments, but there are posts where they take opposite sides, and it is interesting to get a comprehensive opinion on a question from different perspectives. Also, each theme is discussed within the Also, each theme is discussed within the length of the blog post, which is pretty short. It makes authors concentrate only on the most important arguments leaving readers with a concise topic overview.
Overall, it is quite an interesting popular economic book that will be relevant to those who want to get a general overview of different economic topics or have a light (compared to scientific articles) but interesting reading.
(G. S. Becker & R. A. Posner, 2010)
From my experience, it can be difficult to find good popular scientific literature on economics. Uncommon Sense by G. S. Becker, R. A. Posner is a good example of a book that provides insightful economics perspectives on various social issues. The book is a set of authors’ blog posts accompanied by afterthoughts for each part. I want to highlight several features that I especially enjoyed:
1. The variety of topics covered.
In 7 parts authors discussed different facets of economic science providing clear arguments which draw on classic economic theory. There are themes of each part with some subtopics in parenthesis: gender issues (gay marriage, population balance), property rights (organs sales, files sharing, patents), universities (tenure, plagiarism), incentives (libertarian paternalism, taxes), labor economics (judicial term limits, income inequality), environmental economics (federalism, global warming, discounting), crime and terrorism drunk driving, preventive war), and global economics (international aid, microfinance). As one can see, the book comprises both classical economics questions and topics that are on the frontier.
2. Illustrative narration.
Since this book is popular science, there are not many literature references. Nevertheless, the authors provide multiple examples from real-world cases which allows the reader to look through the economic framework at real events. They also generally mention empirical literature as the evidence to their thoughts and suggest ideas for further research.
3. Discussion format and blog size.
Each question is discussed by both authors. In most cases, they agree with each other’s arguments and just add some thought and details to the provided arguments, but there are posts where they take opposite sides, and it is interesting to get a comprehensive opinion on a question from different perspectives. Also, each theme is discussed within the Also, each theme is discussed within the length of the blog post, which is pretty short. It makes authors concentrate only on the most important arguments leaving readers with a concise topic overview.
Overall, it is quite an interesting popular economic book that will be relevant to those who want to get a general overview of different economic topics or have a light (compared to scientific articles) but interesting reading.
One of the main problems that we face speaking about fighting with reduction of CO2 emission is the lack of coordination between countries in terms of policies. Due to the nature of the global warming issue international cooperation is a significant condition of success. Generally, people pay attention to direct restrictive measures, but J. S. Shapiro shed a line on how import tariffs and nontariff barriers (NTBs) affect the emissions of CO2. In particular, he showed that tariffs and NRBs are lower on dirty than on clean industries. This bias creates an implicit subsidy to CO2 emissions in internationally traded goods and so contributes to climate change.
In this paper J. S. Shapiro, first, shows this phenomenon, and, second, investigates political economy explanations for the covariance of upstreamsness and trade policy involving lobbying competition. According to the author, firms may lobby for high barriers on their own outputs and for low tariffs on the goods they use as inputs to decrease production costs. So politicians give the least protection to the upstream industries (dirtiest) and the greatest protection to the downstream industries (cleanest).
Analyzed the relationship between pollution and trade policy via econometric techniques. J.S. Shapiro introduced a more complex model that includes the following important features: pollution could influence utility, pollution creates transboundary damages, countries may have preexisting and suboptimal trade policy on any goods, tariffs generate revenue that is lump-sum redistributed, and industries are connected through input-output links, so dirty industries can be upstream. In the model, we have two symmetric countries and two industries (clean and dirty). Solving this model allows us to study counterfactuals both from theoretical and empirical perspectives.
Quantitative general equilibrium model was adapted to assess the effect of counterfactual trade policies on CO2 emissions and social welfare. The author analyzed the set of 6 counterfactual policies and got the following results:
1) If each country sets a single tariff per trading partner for all industries and implements a similar reform for NTBs, CO2 emissions will decrease while global real income remains unchanged or slightly increased which is the similar effect on CO2 as from the EU Emissions Trading System and the U.S. Waxman-Markey Bill.
2) If only the EU adopts the described policy, it will decrease global CO2 emissions by half the amount of the global policy with no significant changes in real income.
3)-4) Changing tariffs and NTBs to equal either the baseline level of the cleanest third or dirtiest third of industries decreases global CO2 emissions by several percentage points.
5) If every country adds a tariff proportional to goods’ CO2 intensity, we will get modest environmental benefits.
6) If countries completely eliminated tariffs and NTBs, both global CO2 emissions and real income would rise.
Also, the paper contains the detailed estimation of effects by region, fossil fuel, and decomposition of the change in CO2 emissions (the change in real output (scale), the change in the share of global output from each industry (composition), and the emissions intensity of each industry (technique)).
Thus, this article shows the presence of bias in tariffs between ‘clean’ and ‘dirty’ industries which can influence the pollution level. It provides the political explanation of such a phenomenon, mentioning the lobbying efforts of upstream industries. Apart from providing evidence of existing bias, this work contains a theoretical model that allows investigating the influence of trading policy on emissions level and social welfare. Applying this instrument to estimate contrafactual policies, J.S. Shapiro shows how social welfare and emission levels differ under different trade measures, therefore this work could have important policy implications.
In this paper J. S. Shapiro, first, shows this phenomenon, and, second, investigates political economy explanations for the covariance of upstreamsness and trade policy involving lobbying competition. According to the author, firms may lobby for high barriers on their own outputs and for low tariffs on the goods they use as inputs to decrease production costs. So politicians give the least protection to the upstream industries (dirtiest) and the greatest protection to the downstream industries (cleanest).
Analyzed the relationship between pollution and trade policy via econometric techniques. J.S. Shapiro introduced a more complex model that includes the following important features: pollution could influence utility, pollution creates transboundary damages, countries may have preexisting and suboptimal trade policy on any goods, tariffs generate revenue that is lump-sum redistributed, and industries are connected through input-output links, so dirty industries can be upstream. In the model, we have two symmetric countries and two industries (clean and dirty). Solving this model allows us to study counterfactuals both from theoretical and empirical perspectives.
Quantitative general equilibrium model was adapted to assess the effect of counterfactual trade policies on CO2 emissions and social welfare. The author analyzed the set of 6 counterfactual policies and got the following results:
1) If each country sets a single tariff per trading partner for all industries and implements a similar reform for NTBs, CO2 emissions will decrease while global real income remains unchanged or slightly increased which is the similar effect on CO2 as from the EU Emissions Trading System and the U.S. Waxman-Markey Bill.
2) If only the EU adopts the described policy, it will decrease global CO2 emissions by half the amount of the global policy with no significant changes in real income.
3)-4) Changing tariffs and NTBs to equal either the baseline level of the cleanest third or dirtiest third of industries decreases global CO2 emissions by several percentage points.
5) If every country adds a tariff proportional to goods’ CO2 intensity, we will get modest environmental benefits.
6) If countries completely eliminated tariffs and NTBs, both global CO2 emissions and real income would rise.
Also, the paper contains the detailed estimation of effects by region, fossil fuel, and decomposition of the change in CO2 emissions (the change in real output (scale), the change in the share of global output from each industry (composition), and the emissions intensity of each industry (technique)).
Thus, this article shows the presence of bias in tariffs between ‘clean’ and ‘dirty’ industries which can influence the pollution level. It provides the political explanation of such a phenomenon, mentioning the lobbying efforts of upstream industries. Apart from providing evidence of existing bias, this work contains a theoretical model that allows investigating the influence of trading policy on emissions level and social welfare. Applying this instrument to estimate contrafactual policies, J.S. Shapiro shows how social welfare and emission levels differ under different trade measures, therefore this work could have important policy implications.
Joseph S Shapiro, The Environmental Bias of Trade Policy, The Quarterly Journal of Economics, Volume 136, Issue 2, May 2021, Pages 831–886, https://doi.org/10.1093/qje/qjaa042
OUP Academic
The Environmental Bias of Trade Policy*
Abstract. This article describes a new fact, then analyzes its causes and consequences: in most countries, import tariffs and nontariff barriers are substa
Micromotives and Macrobehavior T.C. Schelling (1978)
T.C. Schelling won the Nobel Prize in 2005 for his contribution to the understanding of conflict and cooperation via game-theory analysis. His ideas on these topics are discussed in The Strategy of Conflict (1960) and Arms and Influence (1966). In 1969 and 1971 he published articles devoted to racial dynamics and segregation originating from people’s preferences for neighborhoods. In Micromotives and Macrobehavior T.C. Schelling provides generalized models describing how people making individual choices could come to the particular equilibrium distribution in place of living, school attendance, etc.
The first chapter starts with an example of people choosing seats in the auditorium skipping the first rows. Here authors discuss that such behavior could be driven by various individuals' motives. Then, the chapter provides a description of the market and non-market social interaction and introduces the concept of equilibrium analysis that will be used throughout the book.
In the second chapter, T.C. Schelling elaborates on patterns that do not depend on the individual choices, such patterns are realized due to the characteristics of the aggregate as a whole: there always will be people who will be standing in the musical chairs game.
The third chapter discusses the usage of models in social science and comprises several models that can be applied to various topics: self-fulfilling prophecy, critical mass, the commons, the market of lemons, acceleration principle.
— Self-fulfilling prophecy stands for situations when expectation induces behavior that cause the expectation to be fulfilled. The basic examples are run on banks lending to banks’ insolvency or inflation. There are several types of self-fulfilling prophecy: self-equilibrating expectation (if we believe that everyone will bring food, we might turn around and bring drinks), self-confirming expectation (if smokers believe that mentholated cigarettes are in green packages, manufacturers may use such package), self-displacing prophecy (if everyone expects same average behavior, they will displace the average from where they thought it would be), self-negating prophecy (if everyone believes that an event is overcrowded and stays home, it would not be overcrowded), etc.
— Critical mass could be exemplified by the contrast between a research seminar that fades after several meetings and a volleyball game gathering enough people to maintain its existence. T.C. Schelling defines two subclasses of critical mass phenomena: tipping and lemons. Tipping is a concept that manifests itself in migration processes, occupation, colleges, public beaches, etc. It describes how people react to new entrants, for instance, the coming of a few members of a minority can cause the departure of a formerly homogeneous population, which frees new space for more minority members. Thus, we could obtain a new allocation of households. In the lemons market described by Akerlof, the market could disappear without the introduction of institutional arrangements like guarantees.
— Commons is a paradigm referring to the situation in which people impinge on each other in pursuing their interests, but they could be better off collectively if they could restrain. Nevertheless, no one gains individually by self-restraint. One example is water-saving in summer.
In the next two chapters, the author turns to the issues of mixing and segregation both on discrete characteristics like race or language and continuous ones - age, income, etc. Here we have a model explaining how people organize themselves depending on the proportions of different groups and preferences on the neighborhood's composition.
The sixth chapter looks at the hypothetical situation of the possibility to choose genes for kids. Parents' individual choices lead to the shift in demographics for the society on a macro level. The possible government intervention aimed at the return to balance is discussed.
T.C. Schelling won the Nobel Prize in 2005 for his contribution to the understanding of conflict and cooperation via game-theory analysis. His ideas on these topics are discussed in The Strategy of Conflict (1960) and Arms and Influence (1966). In 1969 and 1971 he published articles devoted to racial dynamics and segregation originating from people’s preferences for neighborhoods. In Micromotives and Macrobehavior T.C. Schelling provides generalized models describing how people making individual choices could come to the particular equilibrium distribution in place of living, school attendance, etc.
The first chapter starts with an example of people choosing seats in the auditorium skipping the first rows. Here authors discuss that such behavior could be driven by various individuals' motives. Then, the chapter provides a description of the market and non-market social interaction and introduces the concept of equilibrium analysis that will be used throughout the book.
In the second chapter, T.C. Schelling elaborates on patterns that do not depend on the individual choices, such patterns are realized due to the characteristics of the aggregate as a whole: there always will be people who will be standing in the musical chairs game.
The third chapter discusses the usage of models in social science and comprises several models that can be applied to various topics: self-fulfilling prophecy, critical mass, the commons, the market of lemons, acceleration principle.
— Self-fulfilling prophecy stands for situations when expectation induces behavior that cause the expectation to be fulfilled. The basic examples are run on banks lending to banks’ insolvency or inflation. There are several types of self-fulfilling prophecy: self-equilibrating expectation (if we believe that everyone will bring food, we might turn around and bring drinks), self-confirming expectation (if smokers believe that mentholated cigarettes are in green packages, manufacturers may use such package), self-displacing prophecy (if everyone expects same average behavior, they will displace the average from where they thought it would be), self-negating prophecy (if everyone believes that an event is overcrowded and stays home, it would not be overcrowded), etc.
— Critical mass could be exemplified by the contrast between a research seminar that fades after several meetings and a volleyball game gathering enough people to maintain its existence. T.C. Schelling defines two subclasses of critical mass phenomena: tipping and lemons. Tipping is a concept that manifests itself in migration processes, occupation, colleges, public beaches, etc. It describes how people react to new entrants, for instance, the coming of a few members of a minority can cause the departure of a formerly homogeneous population, which frees new space for more minority members. Thus, we could obtain a new allocation of households. In the lemons market described by Akerlof, the market could disappear without the introduction of institutional arrangements like guarantees.
— Commons is a paradigm referring to the situation in which people impinge on each other in pursuing their interests, but they could be better off collectively if they could restrain. Nevertheless, no one gains individually by self-restraint. One example is water-saving in summer.
In the next two chapters, the author turns to the issues of mixing and segregation both on discrete characteristics like race or language and continuous ones - age, income, etc. Here we have a model explaining how people organize themselves depending on the proportions of different groups and preferences on the neighborhood's composition.
The sixth chapter looks at the hypothetical situation of the possibility to choose genes for kids. Parents' individual choices lead to the shift in demographics for the society on a macro level. The possible government intervention aimed at the return to balance is discussed.
The concluding chapter discussed uniform multi-person prisoner’s dilemma showing how different equilibrium could be achieved under different preferences conditional on the behavior of others.
To sum up, the book covers some fundamental models that describe social equilibrium derived from individual choices. The latter depends on the actual behavior of others or the beliefs about their behavior since people comprise the social aggregate. Having different size groups and individual preferences we can obtain various equilibria, but not all of them will be efficient. In such cases, the introduction of institutional mechanisms could be socially beneficial.
To sum up, the book covers some fundamental models that describe social equilibrium derived from individual choices. The latter depends on the actual behavior of others or the beliefs about their behavior since people comprise the social aggregate. Having different size groups and individual preferences we can obtain various equilibria, but not all of them will be efficient. In such cases, the introduction of institutional mechanisms could be socially beneficial.
Governmental initiatives are considered important for solving environmental problems, therefore one can be interested in the assessment of such measures' environmental impact and economic efficiency. D. A. Keiser and J. S. Shapiro analyzes the Clean Water Act showing its impact on water quality, allocation of funds, and Act’s impact on housing values.
Clean Water Act is a federal law in the USA regulating water pollution. It introduces wastewater standards for industries, water quality criteria, etc. The paper is aimed to solve two controversies around the Clean Water Act: its impact on pollution levels and the relationship between its cost and benefits. To do this the authors use a comprehensive set of data: atlas mapping all U.S. surface waters, panel description of the country’s wastewater treatment plants, historic extract of the Grants Information and Control System describing each Clean Water Act grants the federal government gave to cities; the Survey of Water Use in Manufacturing, a confidential plant-level data set of large industrial water users; and around 50 million water pollution readings at over 240,000 pollution monitoring sites during the years 1962–2001
From econometric analysis including difference-in-difference and triple-difference models, the following results are obtained:
1. Most variables that show the level of water pollution declined over the period 1962–2001 with a slowing rate.
2. Using triple difference regression (before vs after investments, upstream vs downstream of recipient plants), the authors show that receiving the grant decreases the probability of violating the standards for being fishable by half a percentage point. Concerning the flow from federal to municipal budgets on fighting pollution, it was found that $1 of a federal grant led to about $1 more of municipal sewerage capital spending.
3. In the analysis of house values around rivers and streams, D. A. Keiser and J. S. Shapiro estimates the effects of grants on home values are about 25% of their costs. Nevertheless, for absolute values, the analysis of effects on housing demand leads to the conclusion that the value of homes increases, but the effect is modest and not significant in most specifications.
Possible explanations are the following: people may have incomplete information about changes in water pollution and their welfare; these numbers exclude nonuse values; grants may increase sewer fees; these estimates abstract from general equilibrium effects; and they exclude the 5% of most distant recreational trips.
David A Keiser, Joseph S Shapiro, Consequences of the Clean Water Act and the Demand for Water Quality, The Quarterly Journal of Economics, Volume 134, Issue 1, February 2019, Pages 349–396, https://doi.org/10.1093/qje/qjy019
Clean Water Act is a federal law in the USA regulating water pollution. It introduces wastewater standards for industries, water quality criteria, etc. The paper is aimed to solve two controversies around the Clean Water Act: its impact on pollution levels and the relationship between its cost and benefits. To do this the authors use a comprehensive set of data: atlas mapping all U.S. surface waters, panel description of the country’s wastewater treatment plants, historic extract of the Grants Information and Control System describing each Clean Water Act grants the federal government gave to cities; the Survey of Water Use in Manufacturing, a confidential plant-level data set of large industrial water users; and around 50 million water pollution readings at over 240,000 pollution monitoring sites during the years 1962–2001
From econometric analysis including difference-in-difference and triple-difference models, the following results are obtained:
1. Most variables that show the level of water pollution declined over the period 1962–2001 with a slowing rate.
2. Using triple difference regression (before vs after investments, upstream vs downstream of recipient plants), the authors show that receiving the grant decreases the probability of violating the standards for being fishable by half a percentage point. Concerning the flow from federal to municipal budgets on fighting pollution, it was found that $1 of a federal grant led to about $1 more of municipal sewerage capital spending.
3. In the analysis of house values around rivers and streams, D. A. Keiser and J. S. Shapiro estimates the effects of grants on home values are about 25% of their costs. Nevertheless, for absolute values, the analysis of effects on housing demand leads to the conclusion that the value of homes increases, but the effect is modest and not significant in most specifications.
Possible explanations are the following: people may have incomplete information about changes in water pollution and their welfare; these numbers exclude nonuse values; grants may increase sewer fees; these estimates abstract from general equilibrium effects; and they exclude the 5% of most distant recreational trips.
David A Keiser, Joseph S Shapiro, Consequences of the Clean Water Act and the Demand for Water Quality, The Quarterly Journal of Economics, Volume 134, Issue 1, February 2019, Pages 349–396, https://doi.org/10.1093/qje/qjy019
OUP Academic
Consequences of the Clean Water Act and the Demand for Water Quality*
Abstract. Since the 1972 U.S. Clean Water Act, government and industry have invested over ${\$}$1 trillion to abate water pollution, or ${\$}$100 per person-yea
The Church was a highly powerful institution in the Middle Ages and later, and one of the colonization’s rationale was proselytizing mission. Priests that came to Latin America patronized the local population and kept records that helped to get information about the colonization process. Also, it is worth remembering that religion at those times played first fiddle in the educational process. Thus, religious missions influenced the further development of areas where they were located. F. V. Caicedo analyzed whether it is a case, and what impact the Jesuit order’s mission had on the current human capital in some regions of Argentina, Brazil, and Paraguay.
The author uses archival records, census data, and household surveys to analyze this question. The explanatory variable is the distance to the nearest mission with controls for geographic features and weather, and the dependent variables are schooling years/literacy level and income, if available, or multidimensional poverty index as a substitute. The strong and significant effect is shown for both education and income: there is a 10% reduction in illiteracy when moving 100km closer to a mission, poverty is also lower for locations close to missions. PCA combining income and education variables provide the same results.
To prove the causation, F. V. Caicedo performs two tests. First, the author uses abandoned missions to address the potential endogeneity of missionary locations. She conducts placebo-type tests and finds no consistent effects on modern education and income. Second, F. V. Caicedo studies the Franciscan Guaranı missions, which was aimed to maximize the number of souls converted to Christianity and did not stress the formation of human capital in contrast to Jesuits. The results also have no significant influence on Franciscan Guaranı missions on modern education.
Then, the author investigates the persistence of human capital. Using the earlier censuses, F. V. Caicedo shows that the effect is larger for intermediate historical periods. Also, the literacy gap is higher for women that corresponds to historical evidence of female instructions.
The last part of the article provides and tests mechanisms of persistence of differences in human capital and incomes. The author focuses on the following mechanisms:
— Occupational specialization: individuals that attended religious missions, receiving instruction and technical training, moved away from agriculture to start a proto-artisan class. The empirical tests suggest that structural transformation is a mechanism of persistence for missionary effect.
For this part of the analysis, I have the following concern: it seems like there is no control for natural resources ( soil, minerals), distance to big cities which are a sales market, and other variables which can potentially explain the specialization. In my opinion, it could be a limitation for the results.
-- Technology adoption: the author uses the adoption of GE soy seeds in Brazil and tests whether areas with higher human capital—close to Jesuit missions—adopted this new agricultural technology faster. Empirical evidence supports the explanation.
-- Alternative mechanisms: population density, investments in infrastructure, and migration. It was found that places close to Jesuit missions are less dense today. There is a significant effect of missionary distance on modern road network density and the opposite effect on railroad density, reflecting the few tracks on the Brazilian coast. Analyzing health as a human capital investment, the author shows negative and significant coefficients on distance from a mission for the Brazilian health index. Concerning migration, it does not seem that people are sorting themselves into former missionary locations during modern times.
Felipe Valencia Caicedo, 2019. "The Mission: Human Capital Transmission, Economic Persistence, and Culture in South America," The Quarterly Journal of Economics, Oxford University Press, vol. 134(1), pages 507-556.
The author uses archival records, census data, and household surveys to analyze this question. The explanatory variable is the distance to the nearest mission with controls for geographic features and weather, and the dependent variables are schooling years/literacy level and income, if available, or multidimensional poverty index as a substitute. The strong and significant effect is shown for both education and income: there is a 10% reduction in illiteracy when moving 100km closer to a mission, poverty is also lower for locations close to missions. PCA combining income and education variables provide the same results.
To prove the causation, F. V. Caicedo performs two tests. First, the author uses abandoned missions to address the potential endogeneity of missionary locations. She conducts placebo-type tests and finds no consistent effects on modern education and income. Second, F. V. Caicedo studies the Franciscan Guaranı missions, which was aimed to maximize the number of souls converted to Christianity and did not stress the formation of human capital in contrast to Jesuits. The results also have no significant influence on Franciscan Guaranı missions on modern education.
Then, the author investigates the persistence of human capital. Using the earlier censuses, F. V. Caicedo shows that the effect is larger for intermediate historical periods. Also, the literacy gap is higher for women that corresponds to historical evidence of female instructions.
The last part of the article provides and tests mechanisms of persistence of differences in human capital and incomes. The author focuses on the following mechanisms:
— Occupational specialization: individuals that attended religious missions, receiving instruction and technical training, moved away from agriculture to start a proto-artisan class. The empirical tests suggest that structural transformation is a mechanism of persistence for missionary effect.
For this part of the analysis, I have the following concern: it seems like there is no control for natural resources ( soil, minerals), distance to big cities which are a sales market, and other variables which can potentially explain the specialization. In my opinion, it could be a limitation for the results.
-- Technology adoption: the author uses the adoption of GE soy seeds in Brazil and tests whether areas with higher human capital—close to Jesuit missions—adopted this new agricultural technology faster. Empirical evidence supports the explanation.
-- Alternative mechanisms: population density, investments in infrastructure, and migration. It was found that places close to Jesuit missions are less dense today. There is a significant effect of missionary distance on modern road network density and the opposite effect on railroad density, reflecting the few tracks on the Brazilian coast. Analyzing health as a human capital investment, the author shows negative and significant coefficients on distance from a mission for the Brazilian health index. Concerning migration, it does not seem that people are sorting themselves into former missionary locations during modern times.
Felipe Valencia Caicedo, 2019. "The Mission: Human Capital Transmission, Economic Persistence, and Culture in South America," The Quarterly Journal of Economics, Oxford University Press, vol. 134(1), pages 507-556.
Labor unions and shifts in inequality
David Card, Thomas Lemieux, and W. Craig Riddell studied the impact of unionization on wage inequality exploiting the survey data from the US, UK, and Canada. The choice of these countries is explained by similar organization of union systems and the large share of the non-unionized labor force which is needed for comparisons. They measure the inequality as a variance of wages within a skill group that was approximated by the observed characteristics such as age and education from the data. Also, they provide a comparison of unions’ effect between male and female workers. Here I would summarize some findings of the paper:
1. Unions tend to “flatten” wage differentials across skill groups. One explanation of this effect is related to unobserved skill differences between union and nonunion workers in different age-education groups. Union workers, as was shown in previous literature, are more skilled on average. Union wage structures do not fully compensate high-productivity individuals. Then, to reduce the burden of above-market wages, employers tend to be more selective. This induces a selectivity bias that manifests as the true union wage premium. Also, it leads to overestimation in “between-group” equalizing the effect of the union in the proposed theoretical framework.
2. Considering the effect on female workers, the authors show that the union wage gaps for women are roughly constant. Since the rate of unionization of women is rising across wages distribution, the absence of a “flattening” effect of unions on female wages implies that covariance between the nonunion wage and the union wage gain for a particular skill group is either zero or positive. Thus, the effect of unions on female inequality is limited.
3. Discussing the trends of unionization, the authors mention that for males the level of unionization has declined sharply while it is not the case for women. The reason is the shift of unionization from the private to the public sector where women, and unionized women, in particular, are concentrated.
4. The union wage gap is typically larger for women than for men. That can be explained by the fact that unionized women are more highly concentrated in the upper end of the skill distribution than unionized men. Thus, controlling for the skills reduces the union wage gap far more for women than for men.
5. Looking at the inequality trends, Card et. al. conclude that unions reduce the variance of wages for men. By contrast, the effect for women is pretty small and slightly positive, which means that unions raise inequality. Considering inequality in a broader context, the authors provide evidence that union wage compression effects help explain a reasonable fraction of the growth in male wage inequality and cross-country differences in male wage inequality. Nevertheless, the effect is not observed in Canada. They do not consider female workers since unions do not affect inequality for them much as was shown.
Card, David, Thomas Lemieux and W. Craig Riddell. “Unions and Wage Inequality.” Journal of Labor Research 25 (Fall 2004)
David Card, Thomas Lemieux, and W. Craig Riddell studied the impact of unionization on wage inequality exploiting the survey data from the US, UK, and Canada. The choice of these countries is explained by similar organization of union systems and the large share of the non-unionized labor force which is needed for comparisons. They measure the inequality as a variance of wages within a skill group that was approximated by the observed characteristics such as age and education from the data. Also, they provide a comparison of unions’ effect between male and female workers. Here I would summarize some findings of the paper:
1. Unions tend to “flatten” wage differentials across skill groups. One explanation of this effect is related to unobserved skill differences between union and nonunion workers in different age-education groups. Union workers, as was shown in previous literature, are more skilled on average. Union wage structures do not fully compensate high-productivity individuals. Then, to reduce the burden of above-market wages, employers tend to be more selective. This induces a selectivity bias that manifests as the true union wage premium. Also, it leads to overestimation in “between-group” equalizing the effect of the union in the proposed theoretical framework.
2. Considering the effect on female workers, the authors show that the union wage gaps for women are roughly constant. Since the rate of unionization of women is rising across wages distribution, the absence of a “flattening” effect of unions on female wages implies that covariance between the nonunion wage and the union wage gain for a particular skill group is either zero or positive. Thus, the effect of unions on female inequality is limited.
3. Discussing the trends of unionization, the authors mention that for males the level of unionization has declined sharply while it is not the case for women. The reason is the shift of unionization from the private to the public sector where women, and unionized women, in particular, are concentrated.
4. The union wage gap is typically larger for women than for men. That can be explained by the fact that unionized women are more highly concentrated in the upper end of the skill distribution than unionized men. Thus, controlling for the skills reduces the union wage gap far more for women than for men.
5. Looking at the inequality trends, Card et. al. conclude that unions reduce the variance of wages for men. By contrast, the effect for women is pretty small and slightly positive, which means that unions raise inequality. Considering inequality in a broader context, the authors provide evidence that union wage compression effects help explain a reasonable fraction of the growth in male wage inequality and cross-country differences in male wage inequality. Nevertheless, the effect is not observed in Canada. They do not consider female workers since unions do not affect inequality for them much as was shown.
Card, David, Thomas Lemieux and W. Craig Riddell. “Unions and Wage Inequality.” Journal of Labor Research 25 (Fall 2004)
NBER
Unionization and Wage Inequality: A Comparative Study of the U.S, the U.K., and Canada
Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, and business professionals.