You have heard or read the public opinion theories that the oil companies are acting like monopolies (i.e., they conspire) to manipulate gas prices. While I have yet to see hard evidence that they collude, I find it troubling that little production capacity has been added despite higher prices. But that could be due to environment regulation, as is credibly claimed.
Jose Azar adds a troubling observation to the debate. He finds that whenever interest in electric cars increases, oil prices happen to decline. And not just a little, half of oil price changes can be explained by the frequency of Google searches about electric cars. But that can also show that markets really work: when there is interest in substitute goods, prices decline.
Friday, September 18, 2009
Thursday, September 17, 2009
Child labor and trade liberalization
There are two simple prerequisites to get of child labor: high returns to education and sufficient parental income. The difficulty is to satisfy these conditions. Would the trade liberalization that comes with globalization help?
Krisztina Kis-Katos and Robert Sparrow study child labor outcomes in Indonesia as a consequence of heterogeneous decreases in tariffs. As the latter have different impacts on difference districts, and they measure child labor in those districts, they can identify the impact of trade liberalization on child labor. It turns out the advantages of globalization play through and help reduce child labor. The dynamics are tricky, though, as there may be a short term burst in child labor after a tariff decrease. One can imagine that a sudden increase in labor demand tempts children to work, but as parent income increases and future income prospects improve, children go back to school for good.
This is one more reason people should stop blaming child labor on globalization. While the latter is a new phenomenon, child labor was always present. And if you want poor countries to benefit from world wealth, the barriers should be reduced.
Krisztina Kis-Katos and Robert Sparrow study child labor outcomes in Indonesia as a consequence of heterogeneous decreases in tariffs. As the latter have different impacts on difference districts, and they measure child labor in those districts, they can identify the impact of trade liberalization on child labor. It turns out the advantages of globalization play through and help reduce child labor. The dynamics are tricky, though, as there may be a short term burst in child labor after a tariff decrease. One can imagine that a sudden increase in labor demand tempts children to work, but as parent income increases and future income prospects improve, children go back to school for good.
This is one more reason people should stop blaming child labor on globalization. While the latter is a new phenomenon, child labor was always present. And if you want poor countries to benefit from world wealth, the barriers should be reduced.
Wednesday, September 16, 2009
The punishment of unemployment insurance cheaters
A worker on unemployment insurance is supposed to actively look for a job and accept suitable job offers. If caught cheating, one is subject to penalties, going from forfeiting future eligibility to repaying received benefits and more. But there could be indirect consequences as well.
Gerard van den Berg and Johan Vikström use Swedish data to study the impact of cheating on the future labor market history of a cheater. It looks like a stigma is at work, as future jobs are likely to be paying less and even in a lower occupational level. The latter is quite important, as it implies a human capital loss that has consequences throughout the remaining working life.
The analysis is based on comparing he jobs before and after the unemployment spells. Van den Berg and Vikstr&oum;l also observe the job several years later to see whether there is any persistence, and there is. I am, however, not sure on how to interpret the results. One could view them as the consequence of a stigma, that the worker is not reputable and only worse jobs get offered to him. But it could also be that he scrambles to accept the first offer after being sanctioned, either because of the reduction in benefits or as a natural reaction after being caught with the hand in the cookie jar. The first interpretation means that the sanction leads to a societal welfare improvement: there is a clear signal about the quality of the worker. The contrary applies to the second interpretation, as it seems a mis-allocation of talent is at work. It would be important to sort that out.
Gerard van den Berg and Johan Vikström use Swedish data to study the impact of cheating on the future labor market history of a cheater. It looks like a stigma is at work, as future jobs are likely to be paying less and even in a lower occupational level. The latter is quite important, as it implies a human capital loss that has consequences throughout the remaining working life.
The analysis is based on comparing he jobs before and after the unemployment spells. Van den Berg and Vikstr&oum;l also observe the job several years later to see whether there is any persistence, and there is. I am, however, not sure on how to interpret the results. One could view them as the consequence of a stigma, that the worker is not reputable and only worse jobs get offered to him. But it could also be that he scrambles to accept the first offer after being sanctioned, either because of the reduction in benefits or as a natural reaction after being caught with the hand in the cookie jar. The first interpretation means that the sanction leads to a societal welfare improvement: there is a clear signal about the quality of the worker. The contrary applies to the second interpretation, as it seems a mis-allocation of talent is at work. It would be important to sort that out.
Tuesday, September 15, 2009
Family environment and IQ
There has been a long discussion in the literature on whether intelligence is inherited or acquired, the nature versus nurture debate. The traditional empirical strategy has been to look at twins separated at birth and raised in different families. While this seems to be a perfect data set for this kind of study, it suffers from at least two drawbacks: samples are very small, and there could be a selection bias, as twins given for adoption may not be representative of twins, and furthermore, twins may not be representative of the general population.
Anders Björklund, karin Hederos Eriksson and Markus Jäntti focus on the correlation of IQ across siblings as it compares with father-to-son IQ correlation. For Sweden they find that they are 0.473 respectively 0.347 from a data set of military conscripts (all male). As siblings share genes and environment, whereas father and son only share genes, they argue that this is evidence that the environment is important. An environment that may include the mother and her genes, by the way.
These results look interesting, but I do not quite know where to go from there. Does this mean that we have less to worry about the intergenerational persistence of skills? Or that the high correlation of earnings within a family is OK and not a sign of mis-allocated opportunities in society?
Anders Björklund, karin Hederos Eriksson and Markus Jäntti focus on the correlation of IQ across siblings as it compares with father-to-son IQ correlation. For Sweden they find that they are 0.473 respectively 0.347 from a data set of military conscripts (all male). As siblings share genes and environment, whereas father and son only share genes, they argue that this is evidence that the environment is important. An environment that may include the mother and her genes, by the way.
These results look interesting, but I do not quite know where to go from there. Does this mean that we have less to worry about the intergenerational persistence of skills? Or that the high correlation of earnings within a family is OK and not a sign of mis-allocated opportunities in society?
Monday, September 14, 2009
How to select presidential candidates based on their biography
Every party would like to find a way to find the perfect candidate to run for office. In some way, this is the goal of primaries in the United States. But in most states, this only determines the preferred candidate among sympathizers, but the most electable in the general population may be different. Any other criteria we could use?
Scott Armstrong and Andreas Graefe looked at detailed biographies of US presidential candidates and claim to have found the formula that works 25 times out of 28. You can start now looking for the perfect candidate: coming from a political family, first-born, single-child, lost a parent in childhood, is still married with children, some adopted, went to a military academy, then received a graduate degree from an Ivy League school, is a member of Phi Beta Kappa, held political office (the more the better) and was never defeated in an election, has written books, was a movie or sports celebrity, has military experience, survived a major disease, is tall and heavy, has common first and last names, is attractive and looks competent, comes from a large state and is affiliated with a large region. All in all, the paper mentions 34 criteria. My score is 15, so I am afraid politics is not for me.
The unpredictable ones? Truman, Carter and Clinton (first term).
Scott Armstrong and Andreas Graefe looked at detailed biographies of US presidential candidates and claim to have found the formula that works 25 times out of 28. You can start now looking for the perfect candidate: coming from a political family, first-born, single-child, lost a parent in childhood, is still married with children, some adopted, went to a military academy, then received a graduate degree from an Ivy League school, is a member of Phi Beta Kappa, held political office (the more the better) and was never defeated in an election, has written books, was a movie or sports celebrity, has military experience, survived a major disease, is tall and heavy, has common first and last names, is attractive and looks competent, comes from a large state and is affiliated with a large region. All in all, the paper mentions 34 criteria. My score is 15, so I am afraid politics is not for me.
The unpredictable ones? Truman, Carter and Clinton (first term).
Friday, September 11, 2009
Cattle as self-insurance in modern economies
We have all used this example in class: in economies with no credit markets or serious banking, people may use cattle as a means of storage of value and to self-insure against future eventualities. But could such a thing happen in a modern economy with well-functioning financial markets?
Anne Borge Johannesen and Anders Skonhoft study Saami reindeer herding in northern Norway. The idea is to look at reactions to price fluctuations. For example, if meat prices increases and herders slaughter only few animals, it means that they keep them for other reasons than simply revenue: self-insurance or status. But one has to be careful. Price increases that are perceived to be permanent should lead in fewer slaughters in the short term, as herders beef up their animals. One needs to looks at temporary price changes.
Borge Johannesen and Skonhoft come to the conclusion that the price response is indeed weak for Saami herders. They also find that herd size is relevant for status, but that it does not appear to matter for slaughter decisions. Thus, there is a strong self-insurance component.
Anne Borge Johannesen and Anders Skonhoft study Saami reindeer herding in northern Norway. The idea is to look at reactions to price fluctuations. For example, if meat prices increases and herders slaughter only few animals, it means that they keep them for other reasons than simply revenue: self-insurance or status. But one has to be careful. Price increases that are perceived to be permanent should lead in fewer slaughters in the short term, as herders beef up their animals. One needs to looks at temporary price changes.
Borge Johannesen and Skonhoft come to the conclusion that the price response is indeed weak for Saami herders. They also find that herd size is relevant for status, but that it does not appear to matter for slaughter decisions. Thus, there is a strong self-insurance component.
Thursday, September 10, 2009
About estate subsidies and capital income taxation
There is an endless debate about estate taxation, especially in the United States. One side wants to repeal it because it discourages entrepreneurship, the other side wants to expand it, for fairness' sake. Here comes a paper that claims that both sides are wrong. Estates should be subsidized.
Carlos Garriga and Fernando Sánchez-Losada are the ones making this surprising claim. The logic is the following. Imagine that there are three potential sources of taxation: estates, capital income and labor income. You want to optimize the tax mix in order to minimize the distortions from raising taxes and maximize equity as measured by the distribution of wealth across agents. Factor also in that there is some cross-generational altruism and that one cannot bequest more than one has. One also has to realize that bequest have an important positive externality that the donor only partially takes into account: its effect on the recipient. Logically, the donor needs to be encouraged, hence the estate subsidy. But this needs to be financed somehow, hence the capital income tax. It is usually found that capital income should not be taxed, but here the pressure to raise taxes is too strong. In fact, capital income tax is significantly higher than labor income tax.
All this is done with a model that gets reasonably close to mimicking the existing distribution of skill, income and wealth in the population. Garriga and Sánchez-Losada even look into tax progression in their analysis, but qualitative results remain with constant tax rates. What I learned from this is that despite equity concerns, one has to factor in that people leave too little bequests. And that the combination of estate subsidy with capital income taxation essentially alters the intertemporal profile of wealth holding to a more egalitarian one.
Carlos Garriga and Fernando Sánchez-Losada are the ones making this surprising claim. The logic is the following. Imagine that there are three potential sources of taxation: estates, capital income and labor income. You want to optimize the tax mix in order to minimize the distortions from raising taxes and maximize equity as measured by the distribution of wealth across agents. Factor also in that there is some cross-generational altruism and that one cannot bequest more than one has. One also has to realize that bequest have an important positive externality that the donor only partially takes into account: its effect on the recipient. Logically, the donor needs to be encouraged, hence the estate subsidy. But this needs to be financed somehow, hence the capital income tax. It is usually found that capital income should not be taxed, but here the pressure to raise taxes is too strong. In fact, capital income tax is significantly higher than labor income tax.
All this is done with a model that gets reasonably close to mimicking the existing distribution of skill, income and wealth in the population. Garriga and Sánchez-Losada even look into tax progression in their analysis, but qualitative results remain with constant tax rates. What I learned from this is that despite equity concerns, one has to factor in that people leave too little bequests. And that the combination of estate subsidy with capital income taxation essentially alters the intertemporal profile of wealth holding to a more egalitarian one.
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