Wednesday, 14 November 2018

The emphasis on publishing in the top five economics journals

James Heckman and Sidharth Moktan (both University of Chicago) have a new NBER Working Paper (ungated version here) on publication in the "Top Five" economics journals. The top five (T5) journals are generally considered to be the American Economic Review, Econometrica, the Journal of Political Economy, the Quarterly Journal of Economics, and the Review of Economic Studies (although some would quibble over the latter, preferring the Review of Economics and Statistics). Why worry about this topic? Heckman and Moktan explain:
Publication in the T5 journals has become a professional standard. Its pursuit shapes research agendas. For many young economists, if a paper on any topic cannot be published in a T5 outlet, the topic is not worth pursuing. Papers published in non-T5 journals are commonly assumed to have descended into their "mediocre" resting places through a process of trial and failure at the T5s and are discounted accordingly... Pursuit of the T5 has become a way of life for experienced economists as well. Falling out of the T5 is a sign of professional decline. Decisions about promotions, recognitions, and even salaries are tied to publication counts in the T5.
There are many points of interest in the working paper, where Heckman and Moktan show that:
...publishing three T5 articles is associated with a 370% increase in the rate of receiving tenure, compared to candidates with similar levels of publications who do not place any in the T5. Candidates with one or two T5 articles are estimated to experience increases in the rate of receiving tenure of 90% and 260% respectively, compared to those with the same number of non-T5 publications.
Their results are based on data on the job and publication histories of tenure-track faculty hired by the top 35 U.S. economics departments between the years 1996 and 2010. This makes them of less relevance to non-U.S. PhD students going into the job market (although publishing in T5 journals will still be a strong signal of quality for those students).

Of interest to many are the results by gender, which make for disturbing reading. In particular, Figure 9 shows the probability of moving to tenure for different numbers of T5 publications, by gender:

Based on that figure, it is no surprise to find that:
...male faculty reap greater rewards for T5 publication - the same quantity of T5 publications is associated with greater reductions in time-to-tenure for male faculty compared to their female counterparts. Gender differences in T5 rewards are not attributable to gender differences in the quality of T5 articles.
The last point is particularly troublesome. Female faculty producing the same quality of research are clearly not being treated the same (not a unique finding - see some of my earlier posts on this point here and here).

The figure above clearly shows that, regardless of gender, T5 publications are valuable. Heckman and Moktan stop short of calculating how valuable they are though. A 2014 article published in the journal Economic Inquiry (ungated earlier version here), by Arthur Attema, Werner Brouwer, and Job van Exel (all Erasmus University Rotterdam), provides a partial answer to this. Based on survey data from 85 authors of economics journal articles, they used a contingent valuation survey to answer the question of whether economists would be willing to 'give their right arm' for a publication in the American Economic Review. They found that:
...sacrificing half a right thumb appears to be a better approximation of the strength of preference for a publication in the AER than sacrificing a right arm.
Given the lower payoff from a T5 publication, presumably women would be willing to give up much less than half a thumb.

[HT: Marginal Revolution]

Sunday, 11 November 2018

Inequality, policy and some cause for optimism

The causes underlying inequality are extraordinarily complex. If the causes were simple to tease apart, the policy prescription to address inequality would also be simple to identify. In my ECONS102 class, we devote a substantial amount of time just to list a number of the most high-profile causes of inequality. Teasing out which causes contribute the most to current inequality seems like an impossible task.

However, it may be possible to look at differences in inequality over time, or between countries, and identify some of the contributions to those differences. For instance, in New Zealand there was a big jump in inequality in the late 1980s and early 1990s, as shown here (which is Figure D.14 from this report, and shows the changes in two measures of inequality for New Zealand from 1981 to 2017):

Since then, there really hasn't been much change, despite any media rhetoric to the contrary (a point made many times by Eric Crampton - see here and here and here for example - or see this post of mine from last year). In a recent article in Scientific American, Nobel Prize winner Joseph Stiglitz looks at the case of the U.S. His article is worth a complete read, but I'll pull out the most relevant bits:
Since the mid-1970s the rules of the economic game have been rewritten, both globally and nationally, in ways that advantage the rich and disadvantage the rest. And they have been rewritten further in this perverse direction in the U.S. than in other developed countries—even though the rules in the U.S. were already less favorable to workers. From this perspective, increasing inequality is a matter of choice: a consequence of our policies, laws and regulations.
In the U.S., the market power of large corporations, which was greater than in most other advanced countries to begin with, has increased even more than elsewhere. On the other hand, the market power of workers, which started out less than in most other advanced countries, has fallen further than elsewhere. This is not only because of the shift to a service-sector economy—it is because of the rigged rules of the game, rules set in a political system that is itself rigged through gerrymandering, voter suppression and the influence of money. A vicious spiral has formed: economic inequality translates into political inequality, which leads to rules that favor the wealthy, which in turn reinforces economic inequality...
Political scientists have documented the ways in which money influences politics in certain political systems, converting higher economic inequality into greater political inequality. Political inequality, in its turn, gives rise to more economic inequality as the rich use their political power to shape the rules of the game in ways that favor them—for instance, by softening antitrust laws and weakening unions...
Rigged rules also explain why the impact of globalization may have been worse in the U.S. A concerted attack on unions has almost halved the fraction of unionized workers in the nation, to about 11 percent. (In Scandinavia, it is roughly 70 percent.) Weaker unions provide workers less protection against the efforts of firms to drive down wages or worsen working conditions...
Many other changes to our norms, laws, rules and regulations have contributed to inequality. Weak corporate governance laws have allowed chief executives in the U.S. to compensate themselves 361 times more than the average worker, far more than in other developed countries. Financial liberalization—the stripping away of regulations designed to prevent the financial sector from imposing harms, such as the 2008 economic crisis, on the rest of society—has enabled the finance industry to grow in size and profitability and has increased its opportunities to exploit everyone else...
Other means of so-called rent extraction—the withdrawal of income from the national pie that is incommensurate with societal contribution—abound. For example, a legal provision enacted in 2003 prohibited the government from negotiating drug prices for Medicare—a gift of some $50 billion a year or more to the pharmaceutical industry. Special favors, such as extractive industries' obtaining public resources such as oil at below fair-market value or banks' getting funds from the Federal Reserve at near-zero interest rates (which they relend at high interest rates), also amount to rent extraction...
Notice the similarity in some of the arguments Stiglitz is making, to the market-based reforms that happened in New Zealand in the late 1980s to early 1990s. Many economists argue that there is a trade-off between market efficiency (the size of the economic pie) and equity (how evenly the pie is distributed). The reforms were designed to increase the size of the pie, so that all groups could have more, even if the shares were less evenly distributed. Stiglitz takes on those arguments as well:
Some economists have argued that we can lessen inequality only by giving up on growth and efficiency. But recent research, such as work done by Jonathan Ostry and others at the International Monetary Fund, suggests that economies with greater equality perform better, with higher growth, better average standards of living and greater stability. Inequality in the extremes observed in the U.S. and in the manner generated there actually damages the economy. The exploitation of market power and the variety of other distortions I have described, for instance, makes markets less efficient, leading to underproduction of valuable goods such as basic research and overproduction of others, such as exploitative financial products.
Stiglitz's policy prescription has many facets to it. Of most relevance to New Zealand are reform of political financing to reduce the influence of lobby groups, progressive taxation, increased access to high-quality education, modern competition laws, labour laws that better protect workers (see here for a related post of mine), and reforms to corporate governance laws and affordable housing. Much of that sounds like the policy goals of the current New Zealand government. So, if Stiglitz is right, then there may be cause for optimism for those who would prefer that inequality was lower in New Zealand.

Wednesday, 7 November 2018

Legalised prostitution and crime

Earlier in the year, I wrote a post about red light districts and house prices. Based on data from Amsterdam, Erasmo Giambona and Rafael Ribas found in a working paper that: next to prostitution windows are sold at a discount as high as 24%, compared to similar properties outside the RLD...
And they found that half or more of the price discount related to crime. The argument is that red light districts attract crime, and that crime reduces local property values. An interesting related question is, if crime is displaced and concentrated in the red light district, what happens to crime overall in the city?

In a 2017 article published the American Economic Journal: Economic Policy, Paul Bisschop (SEO Economisch Onderzoek), Stephen Kastoryano (University of Mannheim), and Bas van der Klaauw (VU University Amsterdam) look at what happened to city-level crime in the 25 largest cities in the Netherlands when tippelzones were introduced. To be clear:
[a] tippelzone is a designated legal street prostitution zone where soliciting and purchasing sex is tolerated between strict opening and closing hours at night.
Using data from 1994 to 2011, and accounting for the fact that nine Dutch cities opened tippelzones between 1983 and 2004 (and three closed their tippelzones in that time), they find that:
...opening a tippelzone reduces sexual abuse and rape. These results are mainly driven by a 30–40 percent reduction in the first two years after opening the tippelzone... For tippelzones with a licensing system, we additionally find long-term decreases in sexual assaults and a 25 percent decrease in drug-related crime, which persists in the medium to long run.
This accords with a theory that prostitution and rape (or sexual abuse) are substitutes for some men. This theory is not new - it actually dates to Thomas Aquinas (according to this paper - sorry, I don't see an ungated version anywhere).

If the effect (a 30-40 percent reduction in rape and sexual abuse) seems large, consider the results of a second article, by Scott Cunningham (Baylor University) and Manisha Shah (UCLA), published in the journal Review of Economic Studies earlier this year (ungated version here). Cunningham and Shah look at the surprising case of Rhode Island, where indoor prostitution (e.g. massage parlours) was accidentally legalised in 1983 (as part of a reform of prostitution laws), but this fact wasn't picked up until a judge's ruling in 2003. After that, it took six years for the Rhode Island legislature to re-criminalise indoor prostitution. In the meantime, indoor prostitution was legal in the state.

Using data from 1999 to 2009, they showed that unsurprisingly:
[m]assage provision by RI sex workers increases by over 200% after decriminalization. Transaction prices decrease 33% between 2004 and 2009, which is what economic theory would predict given the increase in supply. Both results are statistically significant at conventional levels.
The more important results though relate to crime and public health effects. For crime, they found that:
[d]ecriminalization reduces rape offences 31–34% from 2004–09. From 1999–2003 reported rape offences in the U.S. are 34 per 100,000 and 40 per 100,000 in RI. From 2004–09, rape rates decrease to 27.7 per 100,000 in RI while the U.S. remains the same at 34.1 per 100,000.
Notice the similarity in the size of effects with the Bisschop et al. study from the Netherlands. Legalisation of prostitution reduces rape by 30-40 percent in both studies. Cunningham and Shah have some good explanations for possible mechanisms explaining the results. In addition to the substitution theory noted above, they posit that:

...decriminalization of indoor prostitution could allow police resources to be reallocated away from indoor arrests towards other crimes. The freeing up of police personnel and equipment to other areas could ultimately cause other crime rates like rape to decrease...
In terms of public health, they find that:
...decriminalization decreases gonorrhoea incidence 47% from 2004–09. From 1999–2003 gonorrhoea incidence in the U.S. was 113.4 per 100,000 females compared to 81.4 per 100,000 females in Rhode Island. From 2004–09, the rate in the U.S. stays similar at 108.4 per 100,000 females but Rhode Island declines to 43.1 per 100,000 females.
The potential mechanism is interesting here too. Legalisation of indoor prostitution induces women to enter the industry, and the types of women entering the industry are lower risk (have lower gonorrhoea incidence). Also, indoor prostitution generally involves less risky sex acts (more manual stimulation, less anal sex).

Cunningham and Shah's study also covers the period after indoor prostitution was re-criminalised in Rhode Island. You would expect to see effects that are the opposite of those for when it was legalised. Unfortunately, that isn't the case, and the authors argue that:
...this is likely due to anticipatory effects and the short time period of data. Re-criminalization was anticipated, unlike the initial judicial decision that caused decriminalization; the push to re-criminalize started as early as 2006. Some claim that massage parlour owners and workers started leaving even before re-criminalization occurred, as they knew it was inevitable.
They also only had two years of data after the change, which would make quantitatively identifying any effects difficult.

Overall, the results of these two papers suggest that legalising prostitution, even if in a particular part of a city, may be a cost-effective way to reduce overall crime and improve public health. However, if it is to be legalised in only part of a city, the distributional effects need to also be considered, since crime would now be concentrated in a particular part of the city, which as we know from my earlier post, has a cost in terms of lower house values.

[HT: Marginal Revolution, in October last year]

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Monday, 5 November 2018

J.S. Bach vs. the cost disease

William Baumol argued that the cost of many services was destined to increase over time, including health care and education. When Baumol first described this 'cost disease' (that economists now refer to as 'Baumol's cost disease'), the example he used was a string quartet. A string quartet playing a piece of music in 2018 requires the same number of players (four) playing for the same amount of time, as a string quartet playing the same piece of music would have in 1918, or in 1718. In other words, the string quartet is no more productive now than a string quartet three centuries ago. Baumol argued that the only way to increase productivity of the string quartet (their output per unit of time) would be for the quartet to play the music faster, and that would reduce the quality of the musical output of the quartet.

So, because productivity of the string quartet would not increase over time, but their wages would increase (in line with the wages for manufacturing workers, who are becoming more productive over time), the cost per minute (or per hour) of the string quartet must increase over time. Baumol then extended this explanation to the case of health care (doctors can't easily be made more productive, i.e. seeing more patients in the same amount of time, without reducing the quality of care), and education (teachers can't easily be made more productive, i.e. teaching more students in the same amount of time, without reducing the quality of education). The 'cost disease' would lead to an increase in the cost of health care and education (and many other services) over time.

However, maybe the central tenet of Baumol's cost disease - the inability to increase productivity without reducing the quality of service - is now under fire, and in the particular case (classical music) that Baumol first used to illustrate it. Rolling Stone reports:
Pop and rap aren’t the only two genres speeding up in tempo in the breakneck music-streaming era: The quickening of pace seems to be affecting even the oldest forms of the art. Per research this weekend from two record labels, classical music performances of J.S. Bach have also gotten faster, speeding up as much as 30 percent in the last half century.
Universal-owned Deutsche Grammaphon and Decca conducted a study into multiple recordings of Bach’s famed Double Violin Concerto in celebration of the release of Bach 333, a box set marking the 333rd anniversary of the German composer’s birth. The labels found that modern recordings of the work have shaved off one-third of the length of recordings from 50 years ago, quickening by about a minute per decade.
In health care and education, technology has a potential role to play in reducing the impact of the cost disease (as I've blogged about before). However, in this case, the increased tempo increases the productivity of the orchestra, without reducing the quality of their output (from the audience's perspective), and may even increase the quality of output (if the audience prefers the faster tempo).

This development probably isn't fatal for the idea of the cost disease. Obviously, there are limits to the productivity gains from playing J.S. Bach pieces at a quicker tempo. After all, who would want to hear the Brandenburg Concertos (running times 10 to 22 minutes) played in three minutes?

[HT: Marginal Revolution]