Why are Japanese farms so small and so inefficient/ As usual under such circumstances, this is because they are protected through subsidies and zoning laws. But why? No matter what the country, agriculture enjoys protection. Some reasons, depending on the country, may include resistance to change, preservation of the landscape, preservation of traditions and securing wartime food for the country. All this can explain why the agricultural sector is subsidized and then inefficient, but that does not explain why Japanese farms are small. They could still merge.
Yoshihisa Godo finds an explanation from political economy. Japanese farmers can make more money from manipulating farmland regulation than from farming itself. In other words, they are extracting rents from holding a regulated asset. For example, as a land-owner, you get money if you preserve its agricultural purpose, and the more prone to conversion to other uses the location is, the more you get. That explains why you would find rice paddies in the middle of dense cities. But when an opportunity arises, farmers convince ("manipulate") authorities to convert the classification of the land to cash in on its market value.
Godo links this to a misunderstanding of democracy, in that people only care for themselves and do not see the consequences for the others. While it may be true that people in Japan a century ago may have been less selfish, the current problem is one of deficient institutions, not deficient people. That institutions cannot be changed may very well be an issue of lobbying and rent-seeking, but you cannot blame it on citizen having little regard on the duties in participatory democracy. Godo's main point is that people complain when a zoning change hurts them, and then exploit other zoning changes for their own gain. He also complains that those hurt ask for compensation. Yet, good economics would precisely ask for such compensation, a very Coasian argument. It would also ask for those who gain to pay for such privilege. This is where Japan is lacking, and once this is implemented, land would be used much more efficiently. Making this happen could very well be a political problem, but it has nothing to do with an implied lack of servitude of the average voter.
PS: I hate it when a paper starts on page 9.
Wednesday, March 17, 2010
Tuesday, March 16, 2010
Is birthright citizenship any good?
Some countries give citizenship to anybody born on their soil. For others, only the citizenship of parents matters (with various degrees of discrimination against mothers). Whether a kid is citizen or not may matter for his future in the country, in particular how he is integrated in the job market. That seems quite obvious. What about the integration of the parents?
Ciro Avitabile, Irma Clots-Figueras and Paolo Masella take the case of Germany, which recently switched to birthright citizenship. In turns out this change had a positive impact, in that parents tried more to make contact with locals and to use German (as measured by reading German newspapers). The first effect was especially true for parents with less human capital, while the second was stronger for those with more. In other words, once locals are more willing to accept immigrants (by granting their kids citizenship), immigrants return the favor.
Ciro Avitabile, Irma Clots-Figueras and Paolo Masella take the case of Germany, which recently switched to birthright citizenship. In turns out this change had a positive impact, in that parents tried more to make contact with locals and to use German (as measured by reading German newspapers). The first effect was especially true for parents with less human capital, while the second was stronger for those with more. In other words, once locals are more willing to accept immigrants (by granting their kids citizenship), immigrants return the favor.
Monday, March 15, 2010
Biases from returnees in experimental economics
Performing economic experiments in a laboratory setting is tricky business. You want to make sure to get an environment that is clear of any uncontrolled influences so that you can concentrate on what you want to test. You want participants to care about outcomes so that results have some meaning. And you want to make sure that each wave of participants gets exactly the same conditions. And what about participant selection?
It is quite difficult to get people to come and participate. To get them through the door, you promise some prize or payment, which you make dependent on performance to entice active participation. Who are you going to get, those that have a low opportunity cost of there time. This obviously biases the sample population. One may try to counteract this by dropping some, but one is usually just happy of getting the required number of people that one cannot afford to lose some.
But wait, you get another population bias for free! As Pablo Guillén and Róbert Veszteg report, returnees are not a random draw either. Rules may prevent them to come back for the same experiment, but they may attend a different experiment. Guillén and Veszteg find that males who have been successful in previous experiments and study social sciences are more likely to return. The experimental literature needs to find a way to control for this bias.
It is quite difficult to get people to come and participate. To get them through the door, you promise some prize or payment, which you make dependent on performance to entice active participation. Who are you going to get, those that have a low opportunity cost of there time. This obviously biases the sample population. One may try to counteract this by dropping some, but one is usually just happy of getting the required number of people that one cannot afford to lose some.
But wait, you get another population bias for free! As Pablo Guillén and Róbert Veszteg report, returnees are not a random draw either. Rules may prevent them to come back for the same experiment, but they may attend a different experiment. Guillén and Veszteg find that males who have been successful in previous experiments and study social sciences are more likely to return. The experimental literature needs to find a way to control for this bias.
Saturday, March 13, 2010
Libel suits prevent publication of research
I just read in the Times about a disturbing development in the United Kingdom. A firm managed to get an article slated for publication in the International Journal of Speech, Language and the Law to be withdrawn because it would taint the reputation of this firm. In short, a Swedish professor got a an article accepted for publication that was pointing out that lie detectors are very unreliable. The manufacturer got a court order to get the paper removed from the website of the UK-based publisher, appealing to UK libel law.
It is well known that UK libel law has a very broad definition of libel, even leading to some libel litigation tourism. One can also claim that the chosen title of the incriminated article, "Charlatanry in Forensic Speech Science", may go a little bit far. However, there is such a thing called academic freedom, and if this article has been peer-reviewed, industry interests should not prevent it from getting published. In fact, there is every reason to publish it if it highlights a problem.
Imagine if economists could get sued when they say that monetary policy is flawed, or that immigration policy is not optimal, or that Microsoft is behaving monopolistically. Or, say, sociologists writing that Scientology is a cult. Research may sometimes be flawed, but there is a scientific process that deals with that, through peer-review and further research. What is important is that there is a debate. And publishers should not bow to pressure from industry or government, be it when the research is against the industry's interests, or for it (see the abominal case of Elsevier.
It is well known that UK libel law has a very broad definition of libel, even leading to some libel litigation tourism. One can also claim that the chosen title of the incriminated article, "Charlatanry in Forensic Speech Science", may go a little bit far. However, there is such a thing called academic freedom, and if this article has been peer-reviewed, industry interests should not prevent it from getting published. In fact, there is every reason to publish it if it highlights a problem.
Imagine if economists could get sued when they say that monetary policy is flawed, or that immigration policy is not optimal, or that Microsoft is behaving monopolistically. Or, say, sociologists writing that Scientology is a cult. Research may sometimes be flawed, but there is a scientific process that deals with that, through peer-review and further research. What is important is that there is a debate. And publishers should not bow to pressure from industry or government, be it when the research is against the industry's interests, or for it (see the abominal case of Elsevier.
Thursday, March 11, 2010
How simultaneously borrowing and saving can be rational
Why would one have simultaneously debt and savings? We covered previously why people have simultaneously a savings acocunt and credit card debt, in which case it is perfectly rational. Can there another case be made for rationality?
Karna Basu claim that if you know you are time-inconsistent and want to do something about it, you can set up a scheme whereby you save your wealth and then borrow when investment opportunities arise. How would this make sense? The goal is to prevent over-consumption. To do this, you need some commitment device, and in this case it is unsafe lending. People save, but because of the uncertainty about losing their holdings, their are penalized when they fail to invest. This disciplines future selves. Indeed, one could simply indulge on current consumption using the loan. However, because this is borrowed, and savings may be lost, it is too risky to be caught bankrupt next period, and one limits one's consumption. Without the risk on the savings, nothing would prevent one from over-consuming. Thus, the risk on savings is beneficial. A subtle and counterintuitive conclusion.
Karna Basu claim that if you know you are time-inconsistent and want to do something about it, you can set up a scheme whereby you save your wealth and then borrow when investment opportunities arise. How would this make sense? The goal is to prevent over-consumption. To do this, you need some commitment device, and in this case it is unsafe lending. People save, but because of the uncertainty about losing their holdings, their are penalized when they fail to invest. This disciplines future selves. Indeed, one could simply indulge on current consumption using the loan. However, because this is borrowed, and savings may be lost, it is too risky to be caught bankrupt next period, and one limits one's consumption. Without the risk on the savings, nothing would prevent one from over-consuming. Thus, the risk on savings is beneficial. A subtle and counterintuitive conclusion.
Wednesday, March 10, 2010
Savings and religion
What is the impact of religion on economic growth? The basic Solow growth model tells us that there are three engines to economic growth: capital accumulation, population growth and technological progress. It is quite obvious that religion has an influence on population growth (mostly by favoring it) and technological progress (typically by inhibiting it), but what about capital accumulation? Different religions have different attitudes with respect to afterlife, to property rights and to bequests, so some interesting results could emerge from an empirical study of savings across religious beliefs.
Anja Klaubert uses PSID data to study savings behavior by religious affiliation. Compared to a cross-country study where institutions are endogenous to dominant religions, a study centered in the US should be able to concentrate the impact of religions on individual behavior. It turns out all blends of Christianity pretty much look alike. It should surprise no one that Jews are most likely to save, and they save the most. However, atheists are the least likely to save. Why would that be? As they can less rely on a church in case they fall on hard times, they should be doing more precautionary savings. The lack of belief in afterlife should not be material, as afterlife is immaterial. And it is the religious people believing the world will end soon who should not be saving. To the contrary, the frequency of church attendance seems to be positively associated with the likelihood of saving. All this is a real puzzle to me, and unfortunately the author does not address it. Do you have an idea?
Anja Klaubert uses PSID data to study savings behavior by religious affiliation. Compared to a cross-country study where institutions are endogenous to dominant religions, a study centered in the US should be able to concentrate the impact of religions on individual behavior. It turns out all blends of Christianity pretty much look alike. It should surprise no one that Jews are most likely to save, and they save the most. However, atheists are the least likely to save. Why would that be? As they can less rely on a church in case they fall on hard times, they should be doing more precautionary savings. The lack of belief in afterlife should not be material, as afterlife is immaterial. And it is the religious people believing the world will end soon who should not be saving. To the contrary, the frequency of church attendance seems to be positively associated with the likelihood of saving. All this is a real puzzle to me, and unfortunately the author does not address it. Do you have an idea?
Tuesday, March 9, 2010
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:
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.
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:
- Wage disparity is lower where the labor market faces more institutional constraints.
- The college premium is high everywhere.
- Income inequality has increased.
- Earnings inequality is larger than wage inequality.
- Asset income and private transfers have no impact on inequality.
- Government transfers affect inequality at the bottom, taxes at the top of the distribution.
- Inequality in disposable income is larger than inequality in consumption.
- Long-run changes in the inequality of discposable income are also larger than for consumption.
- In recessions, inequality of earnings is more pronounced at the bottom of the distribution.
- The same holds true for consumption.
- Recessions have no impact on wealth inequality (we have to wait and see for the last one, though).
- 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.
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