Is chocolate milk hip?

Sports and energy drink have become popular in the past decades or rather dubious grounds, as the recover and boost effect claimed in ads are in many cases false. See for example Vitamin water and Gatorade. In fact, plain water has much better recuperating properties than most of these sports drinks. And so does apparently chocolate milk, which has prompted marketing campaigns in the US with many athletes as spokespersons.

Senarath Dharmasena and Oral Capps, Jr. try to find the determinants of the demand for chocolate milk using a Heckman two-step demand model. Unfortunately, no regression results are presented, but the authors hint at a few interesting results. A quarter of all US households consume chocolate milk, with an average of 12 liters a year per household. Then they claim a number of household characteristics are significant, but with no indication in which way they are. For example, education of the household head is significant, and Hispanic household head as well. It would be interesting to know whether the relationship is positive or not. And as the authors ask in their title whether chocolate milk is the new-age sports drink, I am intrigued as how they could have answered this question. There is nothing in the paper itself about it.

Why am I reporting on such a thin paper? Because it always struck me how Europeans view adults drinking milk and especially chocolate milk as childish, while is it perfectly accepted in the US. I was wondering whether this difference could be seen in an empirical demand equation. Not in that one, though.

On the cost of financial crises

Are financial crises costly? To answer this question, one should not look at the cost of a bailout, a drop in GDP or missing tax revenue, but at what people care about: consumption. In this regard, the current crisis is too young to be analyzed, but other ones are available. Two recent papers look at this for Japan and Norway.

Yasuyuki Sawada, Kazumitsu Nawata, Masako Ii and Mark Lee use panel data from Japan that spans over the 1997 banking crisis and estimate Euler equation that allow for credit constraints. While in normal times, 7.82% of households are credit constraint, this increases only to 8.44% during the credit crunch. In other words, the ability for households to smooth out consumption was only negligibly affected.

Eilev Jansen studies Norway, but prefers a VAR approach linking current wealth and income to consumption, which appears to work better than Euler equation approaches for the recent years. But again, the impact of the crisis on consumption is negligible: the elasticity of equity income on consumption is 2%.

Thus, the impact on consumption seems to be minimal. So why again are we seeing these huge interventions?

Facts for heterogeneous agent macroeconomics

I rarely discuss material published in journals because I usually have seen it before in a working paper form. But sometimes you come across a great article, and in this case a special issue of the Review of Economic Dynamics. Nowadays, macroeconomics, at least the fresh water variety, is all about agent heterogeneity, and thus it is important to understand well the data these models are supposed to replicate. The special issue does this for nine countries, in an effort that tries to use uniform definitions and treatment of the data. In addition, data and programs are made available.

There is too much to write about for the whole special issue, so I will concentrate on the introduction by Dirk Krueger, Fabrizio Perri, Luigi Pistaferri and Giovanni Violante. They highlight that:

1. Wage disparity is lower where the labor market faces more institutional constraints.
   
2. The college premium is high everywhere.
   
3. Income inequality has increased.
   
4. Earnings inequality is larger than wage inequality.
   
5. Asset income and private transfers have no impact on inequality.
   
6. Government transfers affect inequality at the bottom, taxes at the top of the distribution.
   
7. Inequality in disposable income is larger than inequality in consumption.
   
8. Long-run changes in the inequality of discposable income are also larger than for consumption.
   
9. In recessions, inequality of earnings is more pronounced at the bottom of the distribution.
   
10. The same holds true for consumption.
    
11. Recessions have no impact on wealth inequality (we have to wait and see for the last one, though).
    
12. Inequality over the life cycle varies considerably across countries.
    

I found of particular interest the effort to reconcile micro-level consumption data with the national accounts. It is well known that there are discrepancies in the US and the UK for the growth of consumption, but apparently not elsewhere.

Posting calories in restaurants is Pareto improving

With increasing frequency, it is proposed that restaurants should post on their menus nutritional information. The restaurants resist this because they think it may shoo customers away, or at least make them eat less (assuming they underestimated the calories, which may not be always true). But if they eat less, why not make portions smaller and thus reduce costs and possibly increase profits?

Bryan Bollinger, Phillip Leslie and Alan Sorensen observed Starbucks outlets in New York City as such a calorie posting policy was implemented. They got data about each transaction in a NYC outlet for a 14-month period, including 11 months with calorie postings, as well as in Boston and Philadelphia, which act as control groups. They finding that the posting reduced calories per transaction by 14 units, 10 coming from fewer purchases and 4 from switching to a lower calorie item. You may think this would be bad for Starbucks? Think again, there was no significant change in revenue, in fact there was even a 3% increase for Starbucks outlets close to Dunkin Donuts: the calorie posting attracted clients from competitors.

Who buys online porn?

Not you, I know, but everyone must be curious about who would buy such a thing, especially as so much of it is available for free (and sometimes even without asking for it). Benjamin Edelman uses zip (postal) code data from subscriptions at a major provider of online adult entertainment to reveal some interesting insights. While he cannot know anything about the characteristics of those buying the services, he knows the characteristics of those living within the same zip code. Thus, we may learn something about the likely characteristics of the buyers, or about the composition of the social environment applying "peer-pressure" on the buyer.

Edelman finds that the highest share of buyers lies in Utah, a results well publicized in the media. But there is more to learn than this. In particular, religiosity has no impact, except that Sunday subscription starts are lower is religious zip codes. Political inclination, as measured by presidential votes, also has no impact (which may surprise people on way or the other). However, states that enacted more conservative provisions regarding the defense of marriage or were people have more conservative views of religion tend to have more subscribers. Other characteristics that lead to higher subscription rates: broadband access (although there could be reverse causality here), higher average household income, more young residents, more college degrees, less graduate degrees, urban areas, not yet married, more people engaged in community initiatives.

But one has to keep in mind that there is little variation of subscription rates, for example across states. The results above should therefore not allow you to establish whether your neighbor subscribes to dirty sites with much certainty.

Who bears the cost of fluctuations?

Now we are in a recession, who are those who will reduce their consumption the most? There are two obvious candidates: those who get unemployed and those were consuming a lot to start with. We know since the work of Jonathan Gruber, that consumption drops by 7% at the start of an unemployment spell despite unemployment insurance, and with a recession more people are unemployed. But, usually, those most likely to become unemployed in a recession are lower-skilled workers, who earn and consume less than average. A drop in aggregate consumption cannot be solely attributed to them.

Jonathan Parker and Annette Vissing-Jorgensen argue that those at the top of the consumption distribution suffer from very large fluctuations in consumption. Why would we care about the very rich? Because they influence aggregates and we seem to care about those. Also, this means that consumption inequality will be reduce considerably during this recession, even more than usual as the incomes of the very rich appear to be more affected than typically.

In their study, Parker and Vissing-Jorgensen find that the high correlation of individual and aggregate consumption of the very rich is a recent phenomenon. This is not due to the composition of their income, which is increasingly wage-based, as both individual capital and labor income are procyclical, and became more so recently. This should lay to rest the idea that rich households are able to smooth much better their consumption over the business cycle.