1. Emily Oster and Rebecca Thorton have an interesting new paper that uses individual-level randomization to understand, among other things, how peers affect a woman's decision to utilize newly introduced menstrual cups in Nepal.
2. Enrico Moretti looks at the importance of social learning from peers in consumption decisions - particularly the decision to see different movies. I really like this paper: Moretti starts with a theoretical model and uses the uniqueness of the film industry to test it. It's great stuff. And he goes on to find that social learning is non-trivial:
Overall, social learning appears to be an important determinant of sales in the movie industry, accounting for 32% of sales for the typical movie with positive surprise. This implies the existence of a large “social multiplier” such that the elasticity of aggregate demand to movie quality is larger than the elasticity of individual demand to movie quality.
3. Behavioral economics strikes again! Apparently a good way to save money is to carry around Benjamins over Abes and Georges.
4. The Economist is right on about the decision to move the Indian Premier League cricket matches to South Africa because of the upcoming election in India. What kind of aspiring superpower justifies moving a thriving capitalist enterprise by claiming that they cannot guarantee the safety of the players and spectators? Isn't this exactly what terrorists want to happen?
Monday, March 30, 2009
Thursday, March 26, 2009
Is the Row Over AIG Bonuses Getting Ridiculous?
Yes.
Certainly, handing out a bonus package running in the hundreds of millions of dollars during a recession seems like poor form. Especially so when the firm involved played a big role in bringing the house of cards down. However, the public vitriol over this mess has taken on a disturbing character.
A recent open resignation letter by a former AIG VP printed in the New York Times does a pretty good job of laying out the argument. Basically:
(1) Salaries at AIG are low and most people make money through bonuses.
(2) The people responsible for the failure of AIG are no longer working there. The contended bonuses weren't meant to be given out to people in unrelated divisions doing unrelated things.
(3) The bonuses were part of a contractual obligation to get good workers to stay on during tough times. But more fundamentally, the bonuses were part of a compensation package promised to employees before AIG became the demon.
My beef with the whole row hinges on (3). It's ridiculous for people to demand the bonuses to be paid back (or to try and tax these at the rate of 90% or something like this). Nobody should be able to meddle with contracts retroactively. This is because this kind of activity could discourage people from generating real wealth during these tough times: why would anyone try to make money in this climate if they believe they are going to be demonized and that the government will try to take their money away. The bonuses row could serve as a huge disincentive for undertaking the kind of economic activities that we desperately need now.
Reason (2) also deserves some attention. While I don't see it as the best argument against the retroactive penalities (the whole company as a team argument), we need to think about how a few people could derail an entire financial system despite being around a majority of people who were engaged in activities that ostensibly generated real wealth. Perhaps the Geithner regulatory plan, to be announced sometime soon, will address this in a constructive way that doesn't hamper wealth creation.
Whatever the case may be, it is time to put down the pitchforks and start thinking about these issues in a more constructive (and less obviously destructive) manner.
Certainly, handing out a bonus package running in the hundreds of millions of dollars during a recession seems like poor form. Especially so when the firm involved played a big role in bringing the house of cards down. However, the public vitriol over this mess has taken on a disturbing character.
A recent open resignation letter by a former AIG VP printed in the New York Times does a pretty good job of laying out the argument. Basically:
(1) Salaries at AIG are low and most people make money through bonuses.
(2) The people responsible for the failure of AIG are no longer working there. The contended bonuses weren't meant to be given out to people in unrelated divisions doing unrelated things.
(3) The bonuses were part of a contractual obligation to get good workers to stay on during tough times. But more fundamentally, the bonuses were part of a compensation package promised to employees before AIG became the demon.
My beef with the whole row hinges on (3). It's ridiculous for people to demand the bonuses to be paid back (or to try and tax these at the rate of 90% or something like this). Nobody should be able to meddle with contracts retroactively. This is because this kind of activity could discourage people from generating real wealth during these tough times: why would anyone try to make money in this climate if they believe they are going to be demonized and that the government will try to take their money away. The bonuses row could serve as a huge disincentive for undertaking the kind of economic activities that we desperately need now.
Reason (2) also deserves some attention. While I don't see it as the best argument against the retroactive penalities (the whole company as a team argument), we need to think about how a few people could derail an entire financial system despite being around a majority of people who were engaged in activities that ostensibly generated real wealth. Perhaps the Geithner regulatory plan, to be announced sometime soon, will address this in a constructive way that doesn't hamper wealth creation.
Whatever the case may be, it is time to put down the pitchforks and start thinking about these issues in a more constructive (and less obviously destructive) manner.
Wednesday, March 18, 2009
Experiments, Natural Experiments and Learning about Development Policy - I
A while back I blogged about the Jameel Poverty Action Lab, a non-profit organization started and run by economists carrying out randomized field experiments all over the developing world. The purpose of these experiments is to build an evidence base to inform policy-making, and randomization as a tool towards this end has become quite popular of late. Proponents of randomization, now called "randomistas", argue that, as with medical clinical trials, field experiments are the "gold standard" in development policy evaluation.
But is this really so? In two recent pieces, Angus Deaton and Martin Ravallion argue that the answer is "no." One of their main arguments centers around the idea of heterogeneity in treatment effects, which basically refers to how policies do not have the same impacts for everyone. Consider an example where we are thinking about implementing some large policy and want to learn whether it might be effective. To do so, we consult data from a recent experiment in which some individuals in the sample have been randomized to receive "treatment." We then compare the treatment and control group outcomes.
Randomization of individuals to treatment gives us confidence that the results of the experiments are not biased. However, the concern is whether one can learn something useful about the policy from this experiment. In most field experiments, individuals in the treatment group are either enrolled in a program or incentivized to participate in some way. In most cases, not everyone complies, and some groups of individuals tend to be more likely to comply than others.
The important thing to note is that the program effects that are recovered from the experiment is most reflective of the returns to the group of compliers. This is referred to as a "local average treatment effect", or LATE. Here is where the problem comes in: the LATE that an experiment recovers may not always be policy relevant and, unlike the issue of limited external validity (experimental results in one setting may not apply to others), it is not clear that replications will help get around this problem. To reiterate, the benefits of the program that infer from an experiment may or may not be informative about this program on a larger scale.
Ultimately, this is problem of experiments being "atheoretical." That is, simply looking at experimental averages is not enough: we have to understand who in the treatment group actually responds to the randomization and takes up treatment and whether this group is of interest to the broader policy picture. Building this understanding brings us back to economic theory: we need a model. In this sense, the argument goes, proponents of randomization who argue that field experiments are "easy" by obviating the need for models or (strong) assumptions are badly mistaken.
I find this argument compelling. Indeed, there is a parallel literature in the "natural experiments" world that makes similar points. Ultimately, policy design and resource allocation decisions require a great deal of information, only some of which we can get from randomized experiments. Experiments that incorporate theory and heterogeneity, Deaton argues, will be good step towards making the method more useful towards policy decisions. In the next post, I will list a few examples of experimental and quasi-experimental studies that take an approach more grounded in theory.
But is this really so? In two recent pieces, Angus Deaton and Martin Ravallion argue that the answer is "no." One of their main arguments centers around the idea of heterogeneity in treatment effects, which basically refers to how policies do not have the same impacts for everyone. Consider an example where we are thinking about implementing some large policy and want to learn whether it might be effective. To do so, we consult data from a recent experiment in which some individuals in the sample have been randomized to receive "treatment." We then compare the treatment and control group outcomes.
Randomization of individuals to treatment gives us confidence that the results of the experiments are not biased. However, the concern is whether one can learn something useful about the policy from this experiment. In most field experiments, individuals in the treatment group are either enrolled in a program or incentivized to participate in some way. In most cases, not everyone complies, and some groups of individuals tend to be more likely to comply than others.
The important thing to note is that the program effects that are recovered from the experiment is most reflective of the returns to the group of compliers. This is referred to as a "local average treatment effect", or LATE. Here is where the problem comes in: the LATE that an experiment recovers may not always be policy relevant and, unlike the issue of limited external validity (experimental results in one setting may not apply to others), it is not clear that replications will help get around this problem. To reiterate, the benefits of the program that infer from an experiment may or may not be informative about this program on a larger scale.
Ultimately, this is problem of experiments being "atheoretical." That is, simply looking at experimental averages is not enough: we have to understand who in the treatment group actually responds to the randomization and takes up treatment and whether this group is of interest to the broader policy picture. Building this understanding brings us back to economic theory: we need a model. In this sense, the argument goes, proponents of randomization who argue that field experiments are "easy" by obviating the need for models or (strong) assumptions are badly mistaken.
I find this argument compelling. Indeed, there is a parallel literature in the "natural experiments" world that makes similar points. Ultimately, policy design and resource allocation decisions require a great deal of information, only some of which we can get from randomized experiments. Experiments that incorporate theory and heterogeneity, Deaton argues, will be good step towards making the method more useful towards policy decisions. In the next post, I will list a few examples of experimental and quasi-experimental studies that take an approach more grounded in theory.
Tuesday, March 3, 2009
Private Equity Firms, Orange Juice, and Other Interesting Links
1. Private equity firms spent much of the last decade throwing around large sums of money buying out companies and selling them out for profit after a series of adjustments. The high profile nature of these buyouts and the sheer amount of capital being thrown around begs the following question: what is/was it all for? In a recent working paper, Philip Leslie and Paul Oyer ask whether private equity firms "create value." Their results depressingly suggest than the answer is "no."
2. Steven Levitt has a great post on the intersection between orange juice, environmentalism, and behavioral economics.
3. Will the financial downturn mean less US money for global health? Karen Grepin reports that these outlays are safe for now.
4. Bouts of occasional stupidity are apparently very good for your development as a researcher (summary of the article here). I have yet to see any returns from this. (HT: Melanie Elliot)
2. Steven Levitt has a great post on the intersection between orange juice, environmentalism, and behavioral economics.
3. Will the financial downturn mean less US money for global health? Karen Grepin reports that these outlays are safe for now.
4. Bouts of occasional stupidity are apparently very good for your development as a researcher (summary of the article here). I have yet to see any returns from this. (HT: Melanie Elliot)
Thursday, February 26, 2009
Kenya to Deworm, Female Bank Robbers and Other Random Links
I'm in full-scale dissertation writing mode, so all you're getting from me between now and March 16th are links (if that). Enjoy!
1. Kenya has decided to roll-out a nationwide, school-based deworming program. The impetus for this likely came from some now famous experimental research carried out by Poverty Action Lab researchers Edward Miguel and Michael Kremer, showing that deworming (a) has large effects on school attendance and that these impacts are underestimated if one doesn't account for externalities (i.e., worms are infectious) and (b) is a highly cost effective way to improve schooling.
2. Martin Anderson, a former Yale MPHer and now a PhD student in Health Economics at Harvard, has started writing for the Social Science Statistics Blog (linked in the sidebar). His first post, on Medicaid drug procurement and the market for pharmaceuticals, is awesome.
3. Will tax credits stimulate the economy? Evidence from 2008 suggests not.
4. The number or share of bank robberies committed by women: a new leading or coincident indicator?
1. Kenya has decided to roll-out a nationwide, school-based deworming program. The impetus for this likely came from some now famous experimental research carried out by Poverty Action Lab researchers Edward Miguel and Michael Kremer, showing that deworming (a) has large effects on school attendance and that these impacts are underestimated if one doesn't account for externalities (i.e., worms are infectious) and (b) is a highly cost effective way to improve schooling.
2. Martin Anderson, a former Yale MPHer and now a PhD student in Health Economics at Harvard, has started writing for the Social Science Statistics Blog (linked in the sidebar). His first post, on Medicaid drug procurement and the market for pharmaceuticals, is awesome.
3. Will tax credits stimulate the economy? Evidence from 2008 suggests not.
4. The number or share of bank robberies committed by women: a new leading or coincident indicator?
Friday, February 20, 2009
Rising Incomes and Health Care Expenditures
We all know that health care expenditures as a percentage of GDP (per capita) has increased greatly over the last few decades and that this phenomenon has been observed in the US and foreign countries alike. Recent research has tried to understand the determinants of this increase and one common explanation is that health care is a luxury good: that is, as incomes rise people demand more and more of it. In some sense, this might make rising health care expenditures less ominous: we spend more only because it is an expression of our preferences.
Empirical evidence linking incomes to health generally supports the luxury good hypothesis and is based on establishing correlations between the two in micro and aggregate data. However, in a recent working paper, Daron Acemoglu, Amy Finkelstein, and Matthew Notowidigdo argue that this evidence may be misleading for two reasons. First, simple correlations do not capture other unobserved factors associated with income that might affect health. Second, such models do not distinguish between/account for partial and general equilibrium effects: for example, rising demand for health care generated by income may increase spending both through increased local demand, but also through supply side changes in medical technology or practices that respond to changes in demand. In addition, rising incomes and demand may lead to changes in the politics around health care and health services. In either case, it is important to understand both partial and general equilibrium t truly characterize the relationship between income and health.
Acemoglu, Finkelstein and Notowidigo try to get around both of these issues by utilizing shocks to oil prices. The basic idea of their paper is the following:
1) Look at a bunch of smaller areas which may or may not have pre-existing oil industries.
2) Changes in world oil prices, which are not driven by small industry in any single area will affect localities with oil industries differently than those without them. Thus, these two types of areas will experience different "shocks" to income. (Thus, the effect of income on health care demand is identified by the interaction between pre-existing oil industries and world oil price shocks). The next step is to look at the association between predicted income from oil price shocks and measures of health care demand.
3) Establish that general equilibrium effects occur at the level of localities and that it is unlikely that changes in local demand have equilibrium effects on larger regions (such as nations or the world).
The authors findings strongly suggest that health care is NOT a luxury good and that rising incomes likely cannot explain an important portion of the rise in health care expenditures.
Neat paper on an interesting area of research, and definitely worth reading.
Empirical evidence linking incomes to health generally supports the luxury good hypothesis and is based on establishing correlations between the two in micro and aggregate data. However, in a recent working paper, Daron Acemoglu, Amy Finkelstein, and Matthew Notowidigdo argue that this evidence may be misleading for two reasons. First, simple correlations do not capture other unobserved factors associated with income that might affect health. Second, such models do not distinguish between/account for partial and general equilibrium effects: for example, rising demand for health care generated by income may increase spending both through increased local demand, but also through supply side changes in medical technology or practices that respond to changes in demand. In addition, rising incomes and demand may lead to changes in the politics around health care and health services. In either case, it is important to understand both partial and general equilibrium t truly characterize the relationship between income and health.
Acemoglu, Finkelstein and Notowidigo try to get around both of these issues by utilizing shocks to oil prices. The basic idea of their paper is the following:
1) Look at a bunch of smaller areas which may or may not have pre-existing oil industries.
2) Changes in world oil prices, which are not driven by small industry in any single area will affect localities with oil industries differently than those without them. Thus, these two types of areas will experience different "shocks" to income. (Thus, the effect of income on health care demand is identified by the interaction between pre-existing oil industries and world oil price shocks). The next step is to look at the association between predicted income from oil price shocks and measures of health care demand.
3) Establish that general equilibrium effects occur at the level of localities and that it is unlikely that changes in local demand have equilibrium effects on larger regions (such as nations or the world).
The authors findings strongly suggest that health care is NOT a luxury good and that rising incomes likely cannot explain an important portion of the rise in health care expenditures.
Neat paper on an interesting area of research, and definitely worth reading.
Friday, February 13, 2009
Financial Crisis Trickling Down...
Time Magazine recently put out a piece identifying "25 People to Blame for the Financial Crisis." Actually, their piece should be retitled "300 Million People to Blame..." because one of the parties they accuse is the set of American consumers. The charge? Living beyond their means.
On this note, I've noticed recently that everyone is taking small steps to try and survive the downturn, sometimes in the most unexpected places/ways. Consider what happened to me yesterday:
1) I was told that I would have to provide my own cake for my upcoming thesis defense because the Graduate School was no longer making such purchases.
2) I was kicked out of Au Bon Pain because the management wanted to close up shop an hour early. One of the employees told me that the reason for this was that the cost of paying him for the extra hour and using the electricity far exceeded anything they would get from additional business. He went on to mention that, recently, the store would close early if number of customers was low, and urged me to bring my friends to ABP as well as to the nearby also suffering Gourmet Heaven.
Will the forthcoming tax breaks/credits and wages paid out to the labor force soaked up in infrastructure related jobs induce us to stimulate the economy by spending more money at ABP or on cakes? Only time will tell. At present though, the difference between our habits last year this time and our actions now are striking. I wonder if our new found parsimony will persist even after the crisis weathers: some recent research by Ulrike Malmendier and Stefan Nagel (see here for a summary) has shown that recession/depression era cohorts do have different investment habits (those experiencing macroeconomic hardship at young ages tend to be less risky and are less likely to participate in the stock market). Perhaps this extends to savings and spending behaviors, as well. Thoughts?
On this note, I've noticed recently that everyone is taking small steps to try and survive the downturn, sometimes in the most unexpected places/ways. Consider what happened to me yesterday:
1) I was told that I would have to provide my own cake for my upcoming thesis defense because the Graduate School was no longer making such purchases.
2) I was kicked out of Au Bon Pain because the management wanted to close up shop an hour early. One of the employees told me that the reason for this was that the cost of paying him for the extra hour and using the electricity far exceeded anything they would get from additional business. He went on to mention that, recently, the store would close early if number of customers was low, and urged me to bring my friends to ABP as well as to the nearby also suffering Gourmet Heaven.
Will the forthcoming tax breaks/credits and wages paid out to the labor force soaked up in infrastructure related jobs induce us to stimulate the economy by spending more money at ABP or on cakes? Only time will tell. At present though, the difference between our habits last year this time and our actions now are striking. I wonder if our new found parsimony will persist even after the crisis weathers: some recent research by Ulrike Malmendier and Stefan Nagel (see here for a summary) has shown that recession/depression era cohorts do have different investment habits (those experiencing macroeconomic hardship at young ages tend to be less risky and are less likely to participate in the stock market). Perhaps this extends to savings and spending behaviors, as well. Thoughts?
Thursday, February 12, 2009
Prospects for the Stimulus Package and Other Links
1. I lot of people have asked me what I think about the stimulus package and I have no idea what to tell them. Bigwig economists are of little help, as well: everyone has a different view on whether this thing will work or not. Some recent pieces in The Economist's Voice illustrate the diversity of opinions on the plan. All well written and worth checking out.
2. I'm sure by now you've heard about PETA's banned Super Bowl ad, which unabashedly claims that "vegetarians have better sex." Justin Wolfers at Freakonomics checks this contention out in the data, providing an interesting discussion on the whole correlation vs. causation angle to boot (it's not what you think).
3. The link between vaccines and autism (which has some frighteningly strident supporters) always seemed a bit dodgy to me. Turns out that at least parts of the original Lancet article this whole movement was based on may have been falsified. A good lesson on responsible science: said paper precipitated a drop in MMR vaccination coverage from over 90% to just 80% in Britain. It's worth being careful in publishing results that will induce people to do potentially unwise things based on tenuous evidence.
2. I'm sure by now you've heard about PETA's banned Super Bowl ad, which unabashedly claims that "vegetarians have better sex." Justin Wolfers at Freakonomics checks this contention out in the data, providing an interesting discussion on the whole correlation vs. causation angle to boot (it's not what you think).
3. The link between vaccines and autism (which has some frighteningly strident supporters) always seemed a bit dodgy to me. Turns out that at least parts of the original Lancet article this whole movement was based on may have been falsified. A good lesson on responsible science: said paper precipitated a drop in MMR vaccination coverage from over 90% to just 80% in Britain. It's worth being careful in publishing results that will induce people to do potentially unwise things based on tenuous evidence.
Monday, February 9, 2009
"Dakar to Port Loko"
I recently went to a screening of Yale political science graduate student Nathaniel Cogley's extremely well-done and worthwhile documentary "Dakar to Port Loko: Perspectives from West Africa". I highly recommend this film. Nathaniel spent a few years in West Africa after college, camcorder in tow, with his goal being to "let Africans speak for themselves." And, boy, do they: the film covers everything from opinions on US international policy, to civil war, to microcredit. It's eye opening stuff all around.
Chris Blattman with more about the film and Nathaniel's very interesting background (as well as video of the film's trailer).
Chris Blattman with more about the film and Nathaniel's very interesting background (as well as video of the film's trailer).
Friday, February 6, 2009
Risky Behaviors and HIV
An interesting paper by Pascaline Dupas looks at information provision and their impacts on HIV-related risk behaviors among youngsters and has something to say about what works and what doesn't (here is a non-gated version):
I use a randomized experiment to test whether information can change sexual behavior among teenagers in Kenya. Providing information on the relative risk of HIV infection by partner's age led to a 28% decrease in teen pregnancy, an objective proxy for the incidence of unprotected sex. Self-reported sexual behavior data suggests substitution away from older (riskier) partners and towards protected sex with same-age partners. In contrast, the national abstinence-only HIV education curriculum had no impact on teen pregnancy. These results suggest that teenagers are responsive to risk information but their sexual behavior is more elastic on the intensive than on the extensive margin.
That information might be more useful in making existing behaviors less risky but not eliminating them altogether was a point critics of PEPFAR made most vociferously. Indeed, this is a finding that is probably in line with most people's priors.
I use a randomized experiment to test whether information can change sexual behavior among teenagers in Kenya. Providing information on the relative risk of HIV infection by partner's age led to a 28% decrease in teen pregnancy, an objective proxy for the incidence of unprotected sex. Self-reported sexual behavior data suggests substitution away from older (riskier) partners and towards protected sex with same-age partners. In contrast, the national abstinence-only HIV education curriculum had no impact on teen pregnancy. These results suggest that teenagers are responsive to risk information but their sexual behavior is more elastic on the intensive than on the extensive margin.
That information might be more useful in making existing behaviors less risky but not eliminating them altogether was a point critics of PEPFAR made most vociferously. Indeed, this is a finding that is probably in line with most people's priors.
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