On the marriage markets, virgins have been valuable throughout human history. One can conjecture that this is due to the sexual exclusivity that the husband enjoys. Why? Some claim that rich people care, and thus daughters of rich people will try to remain virgin in order to be eligible for marriage within their class. Poor people cannot afford virgins, and thus do not care, and sexual promiscuity before marriage is common.
All these arguments sound crude, but they reflect the fact that virginity is indeed a trait more common, historically, in the upper class. One consequence is that virginity should be more valued in societies that are more stratified. This is what Fabio Mariani studies using a model with a marriage market where poor girls can move up through love and virginity. This model is capable of explaining the recent decrease of the value of virginity as a consequence of the stronger social stratification (which makes matching across classes more difficult), the increase of female labor market participation (which gives new opportunities for women to strike it rich) and the reduced inequality. Interesting ideas, and I would love to see all this put to data more systematically than through anecdotal evidence.
Thursday, May 7, 2009
Wednesday, May 6, 2009
Who benefits from agricultural subsidies?
Plenty of governments are dishing out large subsidies to their farmers. But are they really benefiting from them? If they rent the land, classic theory would indicate the land owner who be able to extract the whole subsidy from the renting farmer, simply because of the inelastic supply of land, assuming perfect competition for land.
Barrett Kirwan answers this question using US data and exploiting changes in farm subsidies. Kirwan finds that tenants actually manage to keep 75% of the subsidy. Why? Because the rental market is not perfect competition after all, something that is confirmed by the fact that tenants manage to extract more where there is less competition.
While I find it hard to justify agricultural subsidies, they are targeted towards those who farm the land, not those who own it. And it appears that this is working.
Barrett Kirwan answers this question using US data and exploiting changes in farm subsidies. Kirwan finds that tenants actually manage to keep 75% of the subsidy. Why? Because the rental market is not perfect competition after all, something that is confirmed by the fact that tenants manage to extract more where there is less competition.
While I find it hard to justify agricultural subsidies, they are targeted towards those who farm the land, not those who own it. And it appears that this is working.
Tuesday, May 5, 2009
The proper way to create education vouchers
Education vouchers are supposed to create competition among schools to improve the level of education within a school district. In particular, it is supposed to help students get out of particularly bad schools and into better ones. The reality is, however, quite different. The best schools get even better because they can afford to become more choosy, and the differences across schools become even larger. So how could this be fixed?
Dennis Epple and Richard Romano suggest that school voucher should not be just blank checks. You need to be subtle. If you want to achieve high and equal quality education, the amount of the voucher needs to decrease with student ability, and the school need to accept them as full tuition. This requires large vouchers, and thus high taxes to finance them. Epple and Romano show that a less expensive system is possible, all you need is attach various constraints to the use and amount of the voucher. And this still works if students or schools can choose to opt out.
The key to all this is to prevent schools from making too much profit from vouchers. Essentially, vouchers increase the paying capacity of schooling demand, and schools exploit this. To counteract this, they need to be constrained, either by disallowing them to accept payments in addition to the voucher (or they would just charge the usual tuition plus voucher and laugh all the way to the bank), or allow side payments with more strings attached. The former seems much easier to implement and monitor, though. Also critical is that voucher amounts should not depend on the income or wealth of parents. Then, one can prevent richer schools from getting even richer with more rich kids.
Dennis Epple and Richard Romano suggest that school voucher should not be just blank checks. You need to be subtle. If you want to achieve high and equal quality education, the amount of the voucher needs to decrease with student ability, and the school need to accept them as full tuition. This requires large vouchers, and thus high taxes to finance them. Epple and Romano show that a less expensive system is possible, all you need is attach various constraints to the use and amount of the voucher. And this still works if students or schools can choose to opt out.
The key to all this is to prevent schools from making too much profit from vouchers. Essentially, vouchers increase the paying capacity of schooling demand, and schools exploit this. To counteract this, they need to be constrained, either by disallowing them to accept payments in addition to the voucher (or they would just charge the usual tuition plus voucher and laugh all the way to the bank), or allow side payments with more strings attached. The former seems much easier to implement and monitor, though. Also critical is that voucher amounts should not depend on the income or wealth of parents. Then, one can prevent richer schools from getting even richer with more rich kids.
Monday, May 4, 2009
Mom should stay at home
New working mothers always face the question of when to return to work. While their concern is the immediate well-being of the newborn, what about its long term prospects? It is now well establish that adult outcomes (education, wages) are largely set in the first years of life, especially in pre-school years. The empirical literature on the subject is largely inconclusive, but suffers of several issues: 1) mothers who work and use child care may be different from the others; 2) the child's cognitive abilities may influence the mother's choices.
Raquel Bernal corrects for these issues by avoiding the ominous reduced-form regression. She estimates a full-blown dynamic employment and child care choice model using data from the National Longitudinal Survey of Youth, the same dataset others used without clear results. Bernal obtains clear and significant results, though, showing that using child care during one of the first five years reduces the test score for cognitive ability at the start of schooling by 1.8%. While this does not seem much, this amounts to one eighth of the standard deviation of this score. For high ability kids, the impact is even stronger.
The nice thing with a structural model is that one can perform meaningful policy experiment. For example, introducing a 35% child care subsidy encourages the use of child care, but also reduces test scores by about 1% (it ranges for 0.23% to 1.87% depending on the test). Not particularly encouraging. A maternal leave policy is detrimental as well: as the mother can then rejoin the workforce under the same conditions as when she left it, it increases the opportunity cost of staying at home and she rejoins the labor market even earlier. Cognitive skills of the child are reduced by 0.1% to 1%. However, giving a baby bonus (a quarterly $250 lump sum) increases significantly the number of stay-at-home moms and test scores.
So much for all these policies encouraging women to work. They have perverse effect to slow the development of the youngest. One needs thus to complement these policies with incentives to stay at home during the pre-school years.
Raquel Bernal corrects for these issues by avoiding the ominous reduced-form regression. She estimates a full-blown dynamic employment and child care choice model using data from the National Longitudinal Survey of Youth, the same dataset others used without clear results. Bernal obtains clear and significant results, though, showing that using child care during one of the first five years reduces the test score for cognitive ability at the start of schooling by 1.8%. While this does not seem much, this amounts to one eighth of the standard deviation of this score. For high ability kids, the impact is even stronger.
The nice thing with a structural model is that one can perform meaningful policy experiment. For example, introducing a 35% child care subsidy encourages the use of child care, but also reduces test scores by about 1% (it ranges for 0.23% to 1.87% depending on the test). Not particularly encouraging. A maternal leave policy is detrimental as well: as the mother can then rejoin the workforce under the same conditions as when she left it, it increases the opportunity cost of staying at home and she rejoins the labor market even earlier. Cognitive skills of the child are reduced by 0.1% to 1%. However, giving a baby bonus (a quarterly $250 lump sum) increases significantly the number of stay-at-home moms and test scores.
So much for all these policies encouraging women to work. They have perverse effect to slow the development of the youngest. One needs thus to complement these policies with incentives to stay at home during the pre-school years.
Wednesday, April 29, 2009
Safe haven currencies
Whenever trouble brews in the global economy, some currencies tends to becaome the refuge of worried investors. There is plenty of opportunities to panic right now (rightly or wrongly), and these safe haven currencies are again being sought. So, which are they?
Angelo Ranaldo and Paul Söderlind document that these currencies vary little by circumstances. Whenever US stock markets tank, US bond prices increases or currency markets become more volatile, the euro, the British pound and especially the Swiss franc appreciate. Interestingly, such movements are visible in the data at all sorts of frequencies, including hourly data.
While I can understand why non-US currencies appreciate when there are sign of trouble in the United States, I am somewhat mystified why the Swiss franc would appreciate more that the others. While Switzerland has indeed the reputation of being a very stable country, its monetary policy follows very closely that of the Europen Central Bank (and the German Bundesbank before that). In fact, the Swiss National Bank does not like at all such appreciations, which are bad for trade in a country relying very much on its export sector. Does anybody have insights?
Angelo Ranaldo and Paul Söderlind document that these currencies vary little by circumstances. Whenever US stock markets tank, US bond prices increases or currency markets become more volatile, the euro, the British pound and especially the Swiss franc appreciate. Interestingly, such movements are visible in the data at all sorts of frequencies, including hourly data.
While I can understand why non-US currencies appreciate when there are sign of trouble in the United States, I am somewhat mystified why the Swiss franc would appreciate more that the others. While Switzerland has indeed the reputation of being a very stable country, its monetary policy follows very closely that of the Europen Central Bank (and the German Bundesbank before that). In fact, the Swiss National Bank does not like at all such appreciations, which are bad for trade in a country relying very much on its export sector. Does anybody have insights?
Monday, April 27, 2009
Welfare-to-work programs work, sort of
Labor market reform seems to be an eternal buzzword among policy makers in Europe as they try to deal with chronically high unemployment rates. They continually come up with new ideas on how to undo what labor laws, labor practices and poor labor mobility have done. On favorite are active labor market policies, which try to prepare unemployed workers for new jobs through various channels such as reschooling, phantom businesses or job searching skill classes.
Looking at the recent reform in Germany, where substantial welfare-to-work programs were introduced, Martin Huber, Michael Lechner, Conny Wunsch and Thomas Walter find that these initiatives work in the short term, sort of. They highlight that results differ a lot across people, and that this count be exploited to better target the programs. Implicit in this statement is that active labor market policies are wasted on some people, while quite efficient for others, and one should truly discriminate. Indeed, while thses policies seem to improve overall job market prospects, they also cost, something that is typically ignored in this type of study.
Looking at the recent reform in Germany, where substantial welfare-to-work programs were introduced, Martin Huber, Michael Lechner, Conny Wunsch and Thomas Walter find that these initiatives work in the short term, sort of. They highlight that results differ a lot across people, and that this count be exploited to better target the programs. Implicit in this statement is that active labor market policies are wasted on some people, while quite efficient for others, and one should truly discriminate. Indeed, while thses policies seem to improve overall job market prospects, they also cost, something that is typically ignored in this type of study.
Friday, April 24, 2009
Taxing drunk drivers
Policies to reduce drunk driving do not appear to work. There are still many accidents caused by them, and threats of imprisonment (rarely credible) or loss of driving privileges (recanted when the offender needs to drive for a living) do not have the necessary bite. Indeed, drunk driving has only real consequences when an accident occurs. Are there better solutions?
An economist always looks whether there are market based solutions that would properly drive incentives. In particular, one would want (potential) drunk drivers to internalize the cost they exert on others with their behavior. That is, one would want to impose the appropriate tax. Steven Levitt and Jack Porter looked at this in their 2001 JPE piece. Considering only fatal crashes, they estimate that drivers with alcohol in their blood multiply the probability of a crash by 7, legally drunk (above (0.10%) ones even by 13. Now, using fatalities and traffic statistics, as well as measures of the statistical value of life, they then are argue that driving with alcohol should be taxed at US$0.15 a mile, the double for legally drunk, for the costs of fatalities to be covered. Of course, such a tax would be impossible to enforce. But one could fine people when caught, even when no accident is involved. That fine would amount to US$8000,given typical arrest rates. Now enforce that.
An economist always looks whether there are market based solutions that would properly drive incentives. In particular, one would want (potential) drunk drivers to internalize the cost they exert on others with their behavior. That is, one would want to impose the appropriate tax. Steven Levitt and Jack Porter looked at this in their 2001 JPE piece. Considering only fatal crashes, they estimate that drivers with alcohol in their blood multiply the probability of a crash by 7, legally drunk (above (0.10%) ones even by 13. Now, using fatalities and traffic statistics, as well as measures of the statistical value of life, they then are argue that driving with alcohol should be taxed at US$0.15 a mile, the double for legally drunk, for the costs of fatalities to be covered. Of course, such a tax would be impossible to enforce. But one could fine people when caught, even when no accident is involved. That fine would amount to US$8000,given typical arrest rates. Now enforce that.
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