tag:blogger.com,1999:blog-75653728309785609472024-03-19T19:59:52.119+13:00Sex, Drugs and EconomicsAuthentic, hand-crafted artisanal blog posts on economics and other stuff. Warning: May contain traces of nuts.Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.comBlogger1784125tag:blogger.com,1999:blog-7565372830978560947.post-48262069679433907952024-03-18T19:23:00.001+13:002024-03-18T19:23:08.702+13:00What happiness data tells us about whether life is getting better or worse over time<p>If you believed everything you read online, or in the media, you might get the impression that that state of the world is not only bad, but getting worse over time. It's gotten so bad, that<a href="https://sex-drugs-economics.blogspot.com/2022/06/when-everythings-crisis-is-anything.html" target="_blank"> everything seems to be in crisis</a>. If it was the case that life is getting worse over time, we would expect to be able to see this reflected in people's subjective evaluations of their wellbeing - that is, their reported happiness. If life is worse now, surely people are reporting being less happy?</p><p>That is the research question at the heart of <a href="https://personal.eur.nl/veenhoven/Pub2020s/2023b-full.pdf" target="_blank">this new working paper</a> by Ruut Veenhoven (Erasmus University Rotterdam) and Silke Kegel (University of Konstanz). Veenhoven and Kegel look at the happiness data from the <a href="https://worlddatabaseofhappiness.eur.nl/" target="_blank">World Database of Happiness</a>, <a href="https://worlddatabaseofhappiness.eur.nl/wp-content/uploads/TrendReport-AverageHappinessInNations1946-2021-4.pdf" target="_blank">Report on Average Happiness in Nations</a>, tracking changes in happiness measures over time for countries where the data:</p><blockquote><p>...cover at least 20 years and involve at least 10 data-points... This left us with 80 timeseries in 50 nations over ranges of 71 to 20 years in the period 1945-2021.</p></blockquote><p>They then apply some fairly simple comparisons (average happiness at the end of the time-series compared with average happiness at the start of the time-series), and simple linear regressions, to identify time trends in average happiness. If life is getting worse over time, the time trend should be negative. Instead, they find that:</p><blockquote><p>...average happiness changed significantly only in 37 nations, of which 26 changed to greater happiness and 11 to less, the average size of the chances being similar. So again, more rise than decline.</p></blockquote><p>In their linear time trends analysis, there was very little evidence of decreasing happiness. As they note, 11 nations (and 19 time trends) were statistically significant and negative, compared with 26 countries (and 62 times trends) that were statistically significant and positive, while 35 countries (and 119 time trends) were not statistically significant at all.</p><p>And when you look at which countries and time trends are positive or negative, they results seem to make some intuitive sense. For example, Japan since the 1960s shows a significant positive increase in happiness, but Japan since the 1990s shows no significant change, consistent with improvements in wellbeing that occurred mainly from the 1960s to the 1980s. Venezuela since the 1990s shows a large negative change, consistent with the basket case that country has become over that time. Ireland since the 1980s shows a positive change. And so on.</p><p>What we can take away from this (provided we suspend disbelief of all happiness data, which should be a real concern - see <a href="https://sex-drugs-economics.blogspot.com/2020/01/happiness-is-dead.html" target="_blank">here</a>, and <a href="https://sex-drugs-economics.blogspot.com/2022/06/more-evidence-that-life-satisfaction.html" target="_blank">here</a>, but for a counterargument see <a href="https://sex-drugs-economics.blogspot.com/2024/01/the-reports-of-death-of-life.html" target="_blank">here</a>), is that life may not be getting worse after all.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-21717395124054415002024-03-16T20:25:00.003+13:002024-03-16T20:25:29.963+13:00Causation vs. correlation in the relationship between ultra-processed food and mental health<p>The New Zealand Herald <a href="https://www.nzherald.co.nz/travel/which-countries-are-the-happiest-report-reveals-countries-with-the-best-mental-wellbeing/T73ZDJWXTBFODGWKPMHXFW4GBI/" target="_blank">reported earlier this week</a>:</p><blockquote><p>According to an annual global report, if you’re after <a href="https://www.nzherald.co.nz/topic/health-wellbeing/" target="_blank">mental wellbeing</a> and a <a href="https://www.nzherald.co.nz/lifestyle/the-conversation-three-ways-we-can-move-from-languishing-to-flourishing-in-a-pandemic/GJE5ID7V6EZJVCEKHPD5NBVB54/" target="_blank">flourishing life</a>, you should pay attention to those who live in the Dominican Republic, <a href="https://www.nzherald.co.nz/topic/sri-lanka/" target="_blank">Sri Lanka</a>, Tanzania and Panama.</p></blockquote><p>The report, by Sapiens Labs, is available <a href="https://mentalstateoftheworld.report/2023_read/" target="_blank">here</a>. However, it was this bit of the article that caught my eye:</p><blockquote><p>According to Sapien Labs, adults’ risk of mental health challenges is four times lower if you have close family relationships - but wealthier countries were least likely to say they were close with many adult family members, at just 23 per cent...</p></blockquote><blockquote><p>Similarly, there is a strong body of research on the impact of processed food and a growing number of studies around technology use.</p></blockquote><blockquote><p>“We found that over half of those who eat ultra-processed food daily are distressed or struggling with their mental wellbeing, compared to just 18 per cent of those who rarely or never consume ultra-processed food,” the report stated. This is almost a three-fold increase.</p></blockquote><p>I just talked about the difference between causation and correlation with my ECONS101 class a couple of weeks ago. Everything that Sapiens Labs has found is correlation. Sure, you can tell a plausible story about how ultra-processed foods lower mood and lead to worse mental wellbeing. However, there is also a plausible story going in the other direction (<i>reverse causation</i>) - people with worse mental health might comfort eat, thereby consuming more ultra-processed foods. Just because we observe a correlation between higher ultra-processed food consumption and lower mental wellbeing (a <i>negative correlation</i>), it doesn't mean that ultra-processed food consumption causes decreases in mental wellbeing.</p><p>Even worse than that, the report itself (but not the New Zealand Herald article) tries to suggest a link between higher consumption of single-use plastics and lower mental wellbeing. I'm not even sure that you can tell a plausible story linking those two variables in that direction - how would plastic straws, forks, and grocery bags make our mental health worse? This could well be <i>spurious correlation</i>. However, I'd be surprised if there is even a correlation there at all. Many countries (including New Zealand) have recently banned single-use plastics. Have we seen an immediate improvement in mental health in those countries? I thought not.</p><p>Just because two variables are moving together (either in the same direction, or opposite directions) that doesn't mean that changes in one variable are causing changes in the other one. No matter how much you might want them to, or how much you are looking for a simple explanation. Correlation is not the same as causation.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-53031660301577599622024-03-15T20:43:00.001+13:002024-03-16T20:07:12.208+13:00This week in research #14<p>Here's what caught my eye in research over the past week:</p><p></p><ul style="text-align: left;"><li><a href="https://onlinelibrary.wiley.com/doi/full/10.1111/jors.12683" target="_blank">Badunenko and Popova</a> (open access) find that in Germany from 1985 to 2015, while income inequality has increased significantly, migration did not contribute to that increase</li><li><a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1467-8454.12303" target="_blank">Adabor</a> (open access) finds that the COVID-19 support payment in Australia is positively associated with gambling, with larger effects on male gamblers and online gamblers (I guess gambling is a normal good?)</li><li><a href="https://www.aeaweb.org/articles?id=10.1257/jel.20221653" target="_blank">Hadavand, Hamermesh, and Wilson</a> show that economics publishing proceeds much more slowly than in the natural sciences, and more slowly than in the other social sciences and finance, and that much of the lag is the result of authors taking a long time to complete revisions (time for economists to stop complaining, and start revising-and-resubmitting their papers!)</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0165176524000582" target="_blank">Eugster and Uhl</a> (open access) show that sentiment data, based on 730.000 news articles between Q1 2003 and Q4 2021, is able to forecast inflation more accurately than a naive random walk</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0165176524000673" target="_blank">Tomlin</a> (open access) finds in a field experiment that tenant applicants that reveal their pronouns are less likely to receive a response from a landlord, regardless of whether the pronouns signalled that the applicant was cisgender or transgender</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0921800924000454" target="_blank">Brander et al.</a> (open access) estimate from a survey that households would be willing to pay US$79 per year to conserve marine turtles, implying that taking policy action to conserve, manage and protect marine turtles would generate US$55 billion in value</li></ul><p>Finally, I am giving a <a href="https://events.waikato.ac.nz/events/professorial-lecture-by-professor-michael-cameron" target="_blank">Professorial Lecture at the University of Waikato</a> on Tuesday 26 March. This public lecture is titled <i>Beyond the Buzz: The Sobering Economics of Alcohol,</i> and it builds on my last 15-plus years of research on the social impacts of alcohol. All new professors must give one of these lectures, and I've been dodging it for over a year! The event is free (and they'll even feed you beforehand), but to go you need to register <a href="https://www.eventbrite.co.nz/e/professorial-lecture-by-professor-michael-cameron-tickets-779085735407" target="_blank">here</a>. I'm not just adding a sales pitch when I say that tickets have been selling fast, so if you want to come along you need to get your ticket sooner rather than later.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-15135260659495539072024-03-13T20:38:00.001+13:002024-03-13T20:39:11.123+13:00One way that dynamic pricing in retail or fast food is different from Uber's surge pricing<p>I had an interesting discussion after <a href="https://sex-drugs-economics.blogspot.com/2024/03/the-difficulty-of-regulation-to-prevent.html" target="_blank">yesterday's post</a> about the difficulty of regulation to prevent dynamic pricing. It highlighted a key difference between Uber surge pricing and otherwise similar dynamic pricing in retail or fast food contexts.</p><p>As I noted in <a href="https://sex-drugs-economics.blogspot.com/2015/10/ubers-surge-pricing-works.html" target="_blank">this 2015 post</a>:</p><blockquote><p>...surge pricing is used to manage excess demand - when the quantity of Uber rides demanded by users exceeds the quantity of rides available from drivers at that time. In other words, there is a shortage of available Uber drivers.</p></blockquote><p>Surge pricing solves a market problem - a shortage of Uber drivers. Increasing the price of Uber rides induces more drivers to make themselves available, increasing the quantity of Uber rides supplied. This reduces the shortage of Uber drivers, and makes it easier for Uber customers to find a ride (albeit, a more expensive ride).</p><p>The dynamic pricing I've been blogging about this week doesn't work that way. It doesn't solve a market problem. There is no shortage of Wendy's burgers, where raising the price would induce Wendy's to offer more burgers for sale, reducing the shortage.</p><p>So, while you could argue that Uber's surge pricing may make some consumers better off (since they don't have to wait as long for a ride), it's more difficult to make that case for Wendy's dynamic burger pricing. As <a href="https://sex-drugs-economics.blogspot.com/2024/03/the-future-of-fast-food-may-include.html" target="_blank">I noted on Monday</a>, maybe the burgers will be cheaper in periods of low or elastic demand, making consumers who are buying at those times better off. But the burgers will be more expensive in periods of high or inelastic demand, making those consumers worse off.</p><p>Now, none of this means that the appropriate response is for government to regulate dynamic pricing. As <a href="https://sex-drugs-economics.blogspot.com/2024/03/the-difficulty-of-regulation-to-prevent.html" target="_blank">I noted yesterday</a>, that regulation would likely break a bunch of things that we wouldn't want broken, and may simply end up with consumers all worse off as a result. However, that just means that there isn't anything easy that <i>government</i> can do to intervene. Consumers themselves have some power here too. And indeed, that's exactly what happened with Wendy's. After consumer backlash, they <a href="https://gizmodo.com/wendys-surge-pricing-is-off-menu-after-internet-beef-1851292911?utm_source=vip" target="_blank">walked back any plans</a> to roll out dynamic burger pricing.</p><p>I still think it's coming eventually. Obviously, just not yet.</p><p>Read more:</p><p></p><ul><li><a href="https://sex-drugs-economics.blogspot.com/2024/03/the-future-of-fast-food-may-include.html" target="_blank">The future of fast food may include surge pricing</a></li><li><a href="https://sex-drugs-economics.blogspot.com/2024/03/the-difficulty-of-regulation-to-prevent.html" target="_blank">The difficulty of regulation to prevent dynamic pricing</a></li></ul>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-73852952573178325702024-03-12T20:01:00.000+13:002024-03-12T20:01:20.481+13:00The difficulty of regulation to prevent dynamic pricing<p>It feels a bit like I jumped the gun on <a href="https://sex-drugs-economics.blogspot.com/2024/03/the-future-of-fast-food-may-include.html" target="_blank">yesterday's post about surge pricing in fast food</a>, because overnight the Financial Times published <a href="https://www.ft.com/content/3501800d-c1b1-410b-98d6-5c066c612f29" target="_blank">an article by Rana Faroohar</a> on surge pricing (gated), where she wrote:</p><blockquote><p>But I suspect that even more change — and more demands for tougher, clearer cut regulation — will come as online business models make their way into old-fashioned businesses where people are simply accustomed to much clearer rules. As consumers become more aware of how the tricks of surveillance capitalism are being used in businesses that they first used in the physical world, it may draw attention to the need for clear, straightforward rules — applying the existing laws of the physical world to online customer protection.</p></blockquote><blockquote><p>I’d love to see the FTC, for example, use its rulemaking power to stipulate a “thou shalt not discriminate” statue that makes it illegal to charge people different prices for different goods, no matter how and where they are buying them. What’s illegal in the physical world should also be illegal in the online world. This would put the onus on companies to prove that they are not causing harm, rather than forcing regulators to create a distinct and more complex system for a particular industry.</p></blockquote><p>Tougher, clearer cut regulation is certainly possible here, but I don't think most consumers would be happy about the obvious unintended consequences. Depending on how the regulations are worded, there are a lot of things that consumers would be giving up in order to have price parity for everyone. </p><p>Let's start with making price discrimination (charging consumers difference prices for the same good or service) illegal. This would be the most heavy-handed regulation, and have the most severe unintended consequences. Haggling with your appliance store or car dealer? Probably no longer possible, because that would lead to some consumers (the non-hagglers) paying a higher price than others (the hagglers). Free trials? Loyalty card discounts? Special deals for subscribers? Daily deals websites (like Grabone)? All gone. Quantity discounts? By-two-get-one-half-price? Coffee cards that give you your tenth coffee for free? It's hard to see how any form of block pricing would survive this regulation. 'No claims discounts' for insurance? Probably also gone.</p><p>So, eliminating price discrimination entirely is obviously problematic and it would be difficult for policy-makers to write exceptions for those cases that wouldn't create big loopholes that sellers could exploit. Moreover it isn't clear that eliminating price discrimination would result in lower prices for consumers. If government makes Gold Card discounts for seniors, or discounts for students or staff members, illegal, then it seems to me that prices go up, not down.</p><p>What about more focused regulation? What if the government simply made charging different prices at different times of the day, or different days, illegal? That would be the end of 'early bird' price discounts. Late-comers end up paying a higher price than the early birds, so they would be regulated out of existence. Similarly flights could no longer be cheaper if purchased well in advance. Cheap matinees for shows or movies? Happy hour drinks? Also gone. Could market stalls or bakeries still sell the leftover goods at the end of the day for a discount? It seems unlikely.</p><p>So, the regulation would have to be even more specific than that. What about regulation that prevents rapid or frequent changes in price. Let's put aside the difficulty of how this would be policed. Would firms have to apply to the Commerce Commission before they were allowed to change price? Or would there be limits on how often prices can be changed (like the law in Scotland that prohibits changing the price of drinks within 72 hours of the last price change [*]). Anyway, how would this most focused regulation deal with auction sites? Not only is it next to impossible to have auctions where every buyer pays the same price, it is next to impossible to ensure that auctions for the same item don't fluctuate widely in price, even within the same day. You could carve out an exception for financial markets, but you couldn't have an innovative firm like <a href="https://sex-drugs-economics.blogspot.com/2021/07/a-novel-pricing-strategy-for-stock.html" target="_blank">The Beer Exchange</a> (although given that <a href="https://www.freep.com/story/entertainment/nightlife/2024/01/18/detroit-beer-exchange-closes/72267997007/" target="_blank">at least one site has recently closed down</a>, maybe it isn't a successful business model anyway).</p><p>There's a reason that governments don't already regulate dynamic pricing. It's in the too-hard basket, and for good reason. 'Fixing' problems caused by dynamic pricing would break so many other things that consumers actually benefit from. As another example, it's not clear to me that government should be making Gold Card discounts for seniors, or discounts for students or staff members, illegal.</p><p>Current discrimination laws already protect consumers from discrimination on the basis of protected characteristics, such as gender, ethnicity, sexual orientation, and so on. It's not clear what we gain if the government institutes further protections from dynamic pricing. But as consumers, we could certainly lose a lot.</p><p>*****</p><p>[*] This led to a whole different set of unintended consequences, with <a href="https://www.scotsman.com/news/happy-hours-stretch-to-happy-days-as-drink-law-loophole-exposed-2443429" target="_blank">happy hours stretching out to become happy days</a>!</p><p>Read more:</p><p></p><ul style="text-align: left;"><li><a href="https://sex-drugs-economics.blogspot.com/2024/03/the-future-of-fast-food-may-include.html" target="_blank">The future of fast food may include surge pricing</a></li></ul><p></p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-6403691018091234032024-03-11T19:08:00.002+13:002024-03-11T19:08:56.089+13:00The future of fast food may include surge pricing<p>Back in 2017, I wrote a post about <a href="https://sex-drugs-economics.blogspot.com/2017/07/surge-pricing-is-coming-to-supermarket.html" target="_blank">the future of supermarket pricing</a>, concluding that:</p><blockquote><p>...surge pricing is coming. When you see the traditional price sticker replaced by a small LCD or LED display, you'll know it has probably arrived.</p></blockquote><p>So, I was not surprised to read t<a href="https://www.usatoday.com/story/money/2024/02/27/wendys-menu-surge-pricing/72761277007/" target="_blank">his USA Today story</a> from a couple of weeks ago:</p><blockquote><p>More fast-food joints, restaurant chains and brick-and-mortar retailers are taking advantage of technological advances to tap into real-time trends and swiftly adjust prices, sometimes in seconds.</p></blockquote><blockquote><p>It’s a tempting proposition for big businesses that can dramatically increase revenue with slight pricing changes.</p></blockquote><blockquote><p>Wendy’s was the latest to say it will <a href="https://www.usatoday.com/story/money/food/2024/02/27/wendys-surge-pricing-dynamic-pricing-uber/72755552007/" target="_blank">fluctuate prices of chicken nuggets</a> or a classic chocolate Frosty based on demand.</p></blockquote><blockquote><p>In a conference call earlier this month, Wendy’s CEO Kirk Tanner said the fast-food chain would experiment with dynamic pricing as early as next year...</p></blockquote><blockquote><p>“Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and daypart offerings, along with AI-enabled menu changes and suggestive selling,” he said. “As we continue to show the benefit of this technology in our company-operated restaurants, franchisee interest in digital menu boards should increase, further supporting sales and profit growth across the system.”</p></blockquote><p>So, how does this dynamic pricing work? When demand is high, or when consumers have fewer alternatives (so that demand is less elastic), the profit-maximising price is higher. So, in those periods of high or inelastic demand, the firm can increase profits by raising the price. On the other hand, when demand is low, or when consumers have more alternatives (so that demand is more elastic), the profit-maximising price is lower. In those periods of low or elastic demand, the firm can increase profits by lowering the price. Changing the price to better match demand conditions offers a way for the firm to increase profits both when demand is high, and when demand is low. This is essentially how Uber's surge pricing works (as I noted <a href="https://sex-drugs-economics.blogspot.com/2015/10/ubers-surge-pricing-works.html" target="_blank">here</a>).</p><p>Of course, constantly changing prices comes with problems. There are <i>menu costs</i> for the firm, which are the direct costs of changing prices (they are called menu costs because, when a restaurant changes prices, it needs to print new menus). But there are also more strategic problems for the firm. Second, changing prices creates uncertainty for consumers, and if they are uncertain what the price will be on a given day, perhaps they choose not to purchase (in other words, the cost of price discovery for consumers makes it not worth their while to find out the price). Third, consumers may see such price changes as unfair. This came out in research by Nobel Prize winner Daniel Kahneman and others (and described in his book <i><a href="https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555/" target="_blank">Thinking, Fast and Slow</a></i>). That research showed that consumers are willing to pay higher prices when sellers face higher costs (consumers are willing to share the burden), but consumers are unwilling to pay higher prices when they result from higher demand - they see those price increases as unfair.</p><p>All of that might explain why Wendy's almost immediately <a href="https://gizmodo.com/wendys-surge-pricing-is-off-menu-after-internet-beef-1851292911?utm_source=vip" target="_blank">changed its plans</a> after customer outcry. They issued a <a href="https://www.wendys.com/blog/wendys-digital-news-update" target="_blank">statement</a> that said:</p><blockquote><p>We have no plans to do that and would not raise prices when our customers are visiting us most.</p></blockquote><p>Maybe not now, but perhaps sometime in the future. Dynamic pricing is coming to fast food. Watch this space.</p><p>[HT: <a href="https://marginalrevolution.com/marginalrevolution/2024/02/dynamic-surge-pricing-for-wendys.html" target="_blank">Marginal Revolution</a>] </p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-5635885007206138832024-03-09T20:43:00.001+13:002024-03-12T18:51:53.869+13:00It's not a surprise that medical practices might try to avoid sick patients<p>The New Zealand Herald <a href="https://www.nzherald.co.nz/nz/cream-skimming-full-up-gp-practices-selecting-their-new-patients-raising-concerns-about-discrimination/W232D7AVVVGCZFRHYEFKBG7IJQ/" target="_blank">reported yesterday</a>:</p><blockquote><p>Some GP clinics which are nearly at capacity say they are selecting which patients they enrol, raising concerns they could be discriminating against some groups or excluding difficult patients.</p></blockquote><blockquote><p>A survey of 220 general practice staff in New Zealand found four out of five had stopped or limited their enrolments over the previous three years.</p></blockquote><blockquote><p>Some staff reported they had selectively enrolled patients by refusing those with high health needs - a practice known as “cream-skimming”.</p></blockquote><blockquote><p>Associate Professor Mona Jeffreys, an epidemiologist at Victoria University, said previous studies had focused narrowly on <a href="https://www.nzherald.co.nz/nz/patients-waiting-up-to-4-weeks-to-see-a-gp-while-half-of-clinics-in-urban-centres-are-full/HRHHSE5BKRENNBVEIYFXSSBKDE/" target="_blank">how many practices were open or closed</a>, without considering how many had limited their enrolment and how...</p></blockquote><blockquote><p>“Some are only taking family members, some are taking people who are new to the area. But some are making decisions based on health, which means that people who have … poorer health are less likely to be enrolled because practices know there is a greater burden.”</p></blockquote><p>The research that this article was based on, published in the <i>New Zealand Medical Journal</i>, is <a href="https://nzmj.org.nz/journal/vol-137-no-1591/closed-books-restrictions-to-primary-healthcare-access-in-aotearoa-new-zealand-reporting-results-from-a-survey-across-general-pr" target="_blank">here</a> (gated). Now, medical practices making a decision to exclude patients with poorer health might seem a bit surprising. However, it is quite rational behaviour on the part of those practices. That's because, as <a href="https://www.nzherald.co.nz/bay-of-plenty-times/news/papamoa-pines-clinic-to-close-due-to-gp-shortage-lack-of-government-funding/OR4L54NCXZDZHGFMSPLTPFL7Z4/" target="_blank">this Bay of Plenty Times story from yesterday</a> notes:</p><blockquote><p>[Pāpāmoa Pines Medical Centre’s co-owner and partner Pamela] Sheahan said government funding for GPs through the capitation model was “not fit for purpose” and needed to be “significantly overhauled”.</p></blockquote><blockquote><p>Capitation-based payments are based on the numbers of people enrolled with individual general practices who belong to a primary health organisation population, the Te Whatu Ora website says.</p></blockquote><blockquote><p>“We’re paid for four visits per year per patient. If you get children and older people, they come to the GP far more than four times … sometimes up to 20 times a year,” Sheahan said.</p></blockquote><blockquote><p>“We just don’t get paid for any of those visits so we have to claw that back by charging patients over the counter the additional fees.”</p></blockquote><blockquote><p>Sheahan said the only way the business made money – apart from government funding – was charging patients.</p></blockquote><p>A rational (and profit-maximising, or at least loss-minimising) medical practice will take on a patient as long as the benefits (to the practice) of that patient exceed the costs. The benefit the practice receives is the government capitation funding plus any patient fees. The capitation funding covers the cost of the first four visits for any patient. The practice will break even if every patient visited exactly four times per year (and the practice charged no fees). The practice will make a profit from patients that visit fewer than four times per year (typically the most healthy patients), and from patient fees charged to those that visit four or fewer times per year.</p><p>However, patients that visit more than four times per year pose a problem. Patient fees might be enough to ensure that the practice breaks even on patients visiting maybe six times per year (as an example). Patients that visit more times than those (typically the patients in the poorest health) will be a net loss to the practice. For those patients, the cost of providing care exceeds the benefits that the practice receives (in terms of capitation funding plus patient fees).</p><p>A rational and profit-maximising medical practice would therefore make an assessment of each potential patient, and take on only those patients that are likely to visit four or fewer times per year (or maybe six or fewer times). They would reject any patients that would be likely to visit more often than that. This is the 'cream-skimming' that the first article mentions.</p><p>Fortunately, medical practices are not quite that cold-hearted. There will certainly be some cross-subsidisation, with the profits that the practice receives from some patients covering the shortfall on the care provided to other patients. However, there are limits to the amount of cross-subsidisation that can occur. Eventually, the profits from the healthy patients are overwhelmed and at that point the medical practice has few options left. They can raise the patient fees, they can limit their exposure to patients in poor health (as noted above), or they can shut down.</p><p>It would be easy to blame the medical practices here, but it really isn't their fault. The health system, and in particular the funding model and funding level for general practice, are the real problem (see <a href="https://businessdesk.co.nz/article/business-of-health/gps-need-funding-increase-of-up-to-231-to-be-viable-review-finds" target="_blank">here</a> and <a href="https://newsroom.co.nz/2022/12/12/650m-needed-for-equitable-gp-care-govt-report/" target="_blank">here</a>, for example). If the government continues the chronic underfunding of general practice, then we will simply continue to see more of this rational behaviour from medical practices.</p><p>[Update: <a href="https://www.nzherald.co.nz/nz/finding-a-doctor-chronically-ill-rotorua-woman-struggles-to-find-gp/BSZT62QZGRBNRGLEFYX6DC7USU/" target="_blank">More evidence of cream skimming</a> from the New Zealand Herald]</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-88852021194336758842024-03-08T17:35:00.004+13:002024-03-15T20:16:46.520+13:00This week in research #13<p>Here's what caught my eye in research over the past (clearly, very active) week:</p><p></p><ul style="text-align: left;"><li><a href="https://www.aeaweb.org/articles/pdf/doi/10.1257/aer.20221413" target="_blank">Exley and Nielsen</a> (with ungated earlier version <a href="https://kirbyknielsen.com/wp-content/uploads/kirby/ConfidenceGap.pdf" target="_blank">here</a>) use experimental data to show that the gender gap in confidence (with women being less confident than men) causes evaluators to form overly pessimistic beliefs about women (happy International Women's Day, I guess?)</li><li><a href="https://onlinelibrary.wiley.com/doi/full/10.1111/aehr.12281" target="_blank">Chapple</a> (open access) finds that previous estimates of a pre-European-contact Māori population of 100,000 may be underestimated by more than half</li><li><a href="https://www.sciencedirect.com/science/article/pii/S1090944324000085" target="_blank">Bertola</a> (open access) shows theoretically that opportunities to re-take an exam generally increase the probability of eventually passing a given threshold at given competence, but decrease preparation for exams (no surprises there)</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0167487024000175" target="_blank">Parshakov et al.</a> (open access) find a statistically significant beauty premium among Major League Soccer players, with players with greater facial symmetry being paid a higher salary</li><li>On a somewhat similar note, <a href="https://www.sciencedirect.com/science/article/pii/S0167268123004572" target="_blank">Pieper and Schulze</a> look at the social media popularity of all female soccer players who took part in the European Championship 2022, and find that while beauty has no statistically significant direct effect on players’ market values, it indirectly affects their values through the effect on social media popularity</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0167487024000199" target="_blank">Basiglio, Foresta, and Turati</a> (with ungated earlier version <a href="https://www.econstor.eu/bitstream/10419/264299/1/1777391784.pdf" target="_blank">here</a>) find a positive association between impatience and crime, using data from the National Longitudinal Survey of Youth 1997 in the US</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0927537124000022" target="_blank">Elass</a> (open access) uses data from the UK, France and Finland, and a novel microsimulation method, and finds that disparities in the gender wage gap between these countries are driven by occupational segregation (clustering of men and women in different occupations) and public spending on families</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0167268123004481" target="_blank">Abrahams</a> finds that on average, firms didn't cut wages when the minimum wage in St. Louis fell in nominal terms in 2017 (interesting because we rarely see the effects of <i>decreases</i> in the minimum wage)</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0167268123004420" target="_blank">Reis, Godinho de Matos, and Ferreira</a> (open access) find that batch DNS filtering of copyright-infringing websites leads to a significant reduction in Internet traffic, which they argue represents a significant decrease in internet piracy</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0167268123004298" target="_blank">Cotofan, Dur, and Meier</a> (with ungated earlier version <a href="https://papers.tinbergen.nl/22047.pdf" target="_blank">here</a>) look at US General Social Survey data, and find that experiencing bad macroeconomic circumstances between the ages of 18 and 25 strengthens anti-immigration attitudes for life</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0167268123004389" target="_blank">Collins and Lundstedt</a> (with ungated earlier version <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4509082" target="_blank">here</a>) use Swedish data to show that more granular grading scales discourage students, with students less likely to graduate from high school, from academic high school tracks, and from STEM and art high school tracks, and less likely to enrol in STEM courses at university</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0167268123004341" target="_blank">Goulão et al.</a> (open access) find using a field experiment that job applications with a photo manipulated to make a person seem overweight results in fewer callbacks for men (compared with a photo showing normal weight), and that this effect is especially pronounced in female dominated occupations, but the results are opposite for women</li></ul><p></p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-60065859841566515132024-03-06T20:23:00.000+13:002024-03-06T20:23:16.600+13:00Book review: The Worldly Philosophers<p>I just finished reading Robert Heilbroner's excellent book <i><a href="https://www.amazon.com/Worldly-Philosophers-Economic-Thinkers-Seventh/dp/068486214X/" target="_blank">The Worldly Philosophers</a></i>. I forget who recommended it to me, but perhaps it was a mention in <a href="http://www.enlightenmenteconomics.com/blog/index.php/2015/01/unhistorical-economics/" target="_blank">this blog</a> by Dianne Coyle. Anyway, the book was first published in 1953 and has been through seven editions, with the last edition (which was the one I read) published in 1999. No doubt, Heilbroner would have written further editions, but he passed away in 2005.</p><p>The book is a great primer on the history of economic thought. It doesn't have as broad a coverage as <i><a href="https://www.amazon.com/New-Ideas-Dead-Economists-Introduction/dp/0593183541/" target="_blank">New Ideas from Dead Economists</a></i> (which I reviewed <a href="https://sex-drugs-economics.blogspot.com/2021/08/book-review-new-ideas-from-dead.html" target="_blank">here</a>) or <i><a href="https://www.amazon.com/Economics-Book-Xenophon-Cryptocurrency-Milestones-ebook/dp/B07PF2HGYM/" target="_blank">The Economics Book</a></i> (which I reviewed <a href="https://sex-drugs-economics.blogspot.com/2023/02/book-review-economics-book-steven-medema.html" target="_blank">here</a>). Heilbroner limits consideration to the truly big names in economics - Adam Smith, Thomas Malthus, David Ricardo, John Stuart Mill, Karl Marx, Alfred Marshall, Thorsten Veblen, John Maynard Keynes, and Joseph Schumpeter. And there is a fairly large cast of supporting actors. But what the book lacks in breadth it more than makes up in depth, as well as in the sheer quality of the writing. Heilbroner writes in an easy and engaging style, and large parts of the book read more like a historical novel than an exposition of some of the great thinkers in economics. For example, consider this passage, part of a longer section introducing the reader to Keynes:</p><blockquote><p>But this is only a sample of his many-sidedness. He was an economist, of course - a Cambridge don with all the dignity and erudition that go with such an appointment; but when it came to choosing a wife he eschewed the ladies of learning and picked the leading ballerina from Diaghilev's famous company. He managed to be simultaneously the darling of the Bloomsbury set, the cluster of Britain's most avant-garde intellectual brilliants, and also the chairman of a life insurance company, a niche in life rarely noted for its intellectual abandon. He was a pillar of stability in delicate matters of international diplomacy, but his official correctness did not prevent him from acquiring a knowledge of other European politicians that included their mistresses, neuroses, and financial prejudices. He collected modern art before it was fashionable to do so, but at the same time he was a classicist with the finest private collection of Newton's writings in the world. He ran a theater, and he came to be a Director of the Bank of England. He knew Roosevelt and Churchill and also Bernard Shaw and Pablo Picasso. He played bridge like a speculator, preferring a spectacular play to a sound contract, and solitaire like a statistician, noting how long it took for the game to come out twice running. And he once claimed that he had but one regret in life - he wished he had drunk more champagne.</p></blockquote><p>As you can see, Heilbroner gives much insight into the private lives of the great economists (or worldly philosophers, as the book is titled), which you wouldn't normally see in a book on the history of economic thought. Heilbroner does a good job of linking together the key sites of agreement and disagreement, as well as the development of economic theory and philosophy over time. However, he is efficient enough in his writing that the economists' lives outside of economics can be given far more colour. Indeed, he makes them come alive in a way that I hadn't appreciated before, and it was those parts of the book that I especially enjoyed. Of course, that could just be because the history of economic thought was mostly not new to me.</p><p>The book is not without its flaws though. He repeats a discredited idea that Thomas Carlyle labelled economics the 'dismal science' after reading the work of Thomas Malthus, when in fact Carlyle was decrying that economists were not in favour of reintroducing slavery in the West Indies (see <a href="https://en.wikipedia.org/wiki/The_dismal_science" target="_blank">Wikipedia</a> on this point). Also, I wonder about this point:</p><blockquote><p>Purely by way of curious illustration, it is reported that among the New Zealand Maoris you cannot ask how much food a bonito hook is worth, for such a trade is never made and the question would be regarded as ridiculous.</p></blockquote><p>Heilbroner is relying there on the doctoral work of the ethnologist Raymond Firth from the 1920s (I have Firth's book on the economics of Māori, but haven't read it as yet), but I strongly suspect that work has not aged well, and trade was certainly not unknown to Māori even earlier than Firth's writing.</p><p>Nevertheless, I did really enjoy this book. If you are looking for a nice gentle introduction to the history of economic thought, with a bit more history and biography, and a bit less of the economics, this would be a great book to try.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2zci1S9vT7v3YHVlq6cS1hQI3QOxFiGDVBwHIENWTj69cZOHSQ1U4DvGY25UXDIb0B3y1LjZTF_kPJy62M8w57TXCxUulDe-SKcUo9zjPciP9KMhagwPi0L9JpP72SzcBMC4AseTODFNwupRl660tZ-d3ZXzJovoNKxondLJiu_lvbYT1pBKeGvGJRq9w/s1360/20240306.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1360" data-original-width="893" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2zci1S9vT7v3YHVlq6cS1hQI3QOxFiGDVBwHIENWTj69cZOHSQ1U4DvGY25UXDIb0B3y1LjZTF_kPJy62M8w57TXCxUulDe-SKcUo9zjPciP9KMhagwPi0L9JpP72SzcBMC4AseTODFNwupRl660tZ-d3ZXzJovoNKxondLJiu_lvbYT1pBKeGvGJRq9w/s320/20240306.jpg" width="210" /></a></div>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-41595935237934957642024-03-05T20:14:00.000+13:002024-03-05T20:14:32.928+13:00Missed opportunity by the New Zealand Herald on school fees and student performance<p>I was interested to hear the New Zealand Herald's <a href="https://www.iheart.com/podcast/1049-the-front-page-30038501/episode/are-private-schools-worth-their-increasingly-156142450/" target="_blank">Front Page podcast</a> this morning, which focused on two issues: (1) the high and increasing cost of private schools; and (2) the close correlation between student performance at high schools (as measured by NCEA pass rates) and a measure of socioeconomic status (the <a href="https://www.education.govt.nz/our-work/changes-in-education/equity-index/" target="_blank">Equity Index</a>, or EQI, which replaced the decile ranking system at the start of last year). The first issue was interesting but uninspiring. It's hard to feel sorry for the rich families who have to pay even more to send their kids to private school. You could try to argue that it makes private school even more unaffordable for low-income families. But, newsflash! Private school is already unaffordable for those families. When something is already so expensive that some people can't afford to buy it, making it even more expensive doesn't make those people any worse off.</p><p>What I want to focus on is the second issue (which is based on <a href="https://www.nzherald.co.nz/nz/politics/how-nz-secondary-schools-rank-on-ncea-level-3-and-university-entrance-results/ITJFFEL225GATGRSI464TRYAE4/" target="_blank">this paywalled article</a>). As New Zealand Herald head of data Chris Knox noted in the podcast, there is a very strong correlation between NCEA (and University Entrance) pass rates and the Equity Index (in fact, a student group project in BUSAN205 last year showed this quite clearly). Higher socio-economic schools have higher pass rates. On top of that, Knox noted that private schools have higher pass rates than public schools.</p><p>The combination of those last two results makes me wonder. What is the cost, to parents, of sending a child to a school with a higher pass rate? In other words, what is the parental willingness-to-pay for an additional percentage point of pass rate? It would actually be relatively easy to work out the correlation between school fees and NCEA pass rates, controlling for the EQI and other relevant school-level variables. All we would need is data on pass rates, EQI, and other school variables (all available from the <a href="https://www.educationcounts.govt.nz/home" target="_blank">Education Counts website</a>), and data on school fees (which might need to be hand-collected from school websites - I don't think that data is collated anywhere [*]). The results of this analysis would provide a lower-bound on how much parents are willing to pay for additional pass rates (it is a lower bound, because it is what they actually pay - they might be willing to pay even more, if the school was bold enough to charge higher fees).</p><p>This was definitely a missed opportunity by the Herald team. Their results are interesting but, aside from showing correlation rather than any causal relationship (as my ECONS101 class covered last week), they don't show us something that would be of great interest to economists. And not only economists. No doubt schools themselves would be interested to know how much parents are willing to pay for higher pass rates. That way, schools that have high pass rates would feel justified in charging higher fees.</p><p>*****</p><p>[*] That's the main reason why I haven't already done this analysis. Education Counts has some data on <a href="https://www.educationcounts.govt.nz/statistics/school-donations" target="_blank">school donations</a> (that is, fees), but it's really just a collation of how many schools in each region have opted into the government scheme that gives them higher funding if they make school fees voluntary for parents.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-88488724133257743982024-03-03T20:34:00.000+13:002024-03-03T20:34:53.087+13:00Reason to be sceptical about trends in adult height in India<p>A couple of years ago, I read <a href="https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0255676" target="_blank">this 2021 article</a> by Krishna Kumar Choudhary, Sayan Das, and Prachinkumar Ghodajkar (Jawaharlal Nehru University), published in the journal <i>PLoS ONE</i> (open access). I've been holding off blogging about it, in the hopes that I could get one of my past PhD students interested in exploring this data and testing the claims further, but no one seems too interested (or, at least, they're too busy doing other exciting things). So, here we go.</p><p>Choudhary et al. use data across multiple waves of the Indian <a href="https://rchiips.org/nfhs/" target="_blank">National Family Health Survey</a>, and track trends in adult height in Indian provinces over the period from 1998-99 (NFHS-II) to 2015-16 (NFHS-IV). They found that:</p><blockquote><p>Between NFHS-III and NFHS-IV, the average height of women in the age group of 15–25 showed a decline by 0.12 cm [95% CI, -0.24 to 0.00, p-0.051] while in the 26–50 years age strata it demonstrated significant improvement in the mean height by 0.13 cm [95% CI, 0.02 to 0.023, p-0.015]. However, Between NFHS III and IV, the average height of women in the poorest wealth index category registered a significant decline [-0.57cm, 95% CI, -0.76 to -0.37, p-0.000]. Between NFHS III and IV, the average height of Scheduled Tribe (ST) women in the age group of 15–25 years also exhibited a significant decline by 0.42 cm, [95% CI, -0.73 to -0.12, p-0.007]. Among men, between the two surveys, both the age groups of 15–25 years and 26–50 years showed significant decline in average height: 1.10 cm [95% CI, -1.31 to -.099 cm, p-0.00] and 0.86 cm [95% CI, -1.03 to -0.69, p-0.000], respectively.</p></blockquote><p>You read that right. According to Choudhary et al., people in India are shorter in 2015-16 than they were in 2005-06 (NFHS-III). The distribution of mean height by age for those two surveys is given in Figure 4 in the paper:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYb-W1w_ryRVvFbm5ihKAuvS2oEvKdaAj3exsJgZbrYGMvq3XiaNyfml3x98muz3g84ZOfg7A26BP-zu0VdHAiWZkzQcANkKJpI7hp3Gx6Bw6SfCYcxeHpmZoGgtcvQGyWZk9wUOJAubP_F36D0bdnytLGRVBWOv1Kps90x-a3YKpEvI6Cfu7vYY4PcA5k/s1155/20240303.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="710" data-original-width="1155" height="246" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYb-W1w_ryRVvFbm5ihKAuvS2oEvKdaAj3exsJgZbrYGMvq3XiaNyfml3x98muz3g84ZOfg7A26BP-zu0VdHAiWZkzQcANkKJpI7hp3Gx6Bw6SfCYcxeHpmZoGgtcvQGyWZk9wUOJAubP_F36D0bdnytLGRVBWOv1Kps90x-a3YKpEvI6Cfu7vYY4PcA5k/w400-h246/20240303.png" width="400" /></a></div><p>Notice that, within every age group, the mean height is lower in 2015-16 than in 2005-06. However, here is where I have severe doubts about this analysis. The sample of Indian men in 2015-16 is (for the most part) the same as the sample of men ten years younger in 2005-06. So, if you compare a given age group's mean height in 2015-16, it shouldn't be too much different from the mean height of the age-group ten years younger in 2005-06. And yet, that doesn't appear to be true for almost <i>any</i> comparison in Figure 4. Look at the mean height for any age on the bold line in the figure, move to the right by ten years, and you will never intersect with the dashed line.</p><p>So, one of three things is going on here. Either, Indian men are shrinking, there are measurement errors that are changing over time, or there are compositional changes in the sample that explain the differences. It seems unlikely that people are genuinely shrinking. So, that leaves the other two explanations.</p><p>Although the NFHS is a 'nationally representative survey', there are serious issues with the survey (as documented by Sylvia Karpagam <a href="https://idronline.org/the-problems-with-the-national-family-health-survey-nfhs/" target="_blank">here</a>). That suggests that measurement error might be at play. However, it would have to be measurement error that occurs in a way that heights were either systematically under-reported in NFHS-IV, systematically over-reported in NFHS-III, or both. That does seem a little unlikely.</p><p>What about compositional changes? There may be differences in survey coverage (see <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4794301/" target="_blank">here</a>), especially between women in NFHS-II (which only included ever-married women) and NFHS-III (which included both ever-married women and never-married women). However, it is less clear that the changes affected men in the sample. On the other hand, this bit from the Choudhary et al. caught my attention:</p><blockquote><p>The samples drawn for analysis of women’s height were 83876 out of 90303 from NFHS-II, 121728 out of 138592 from NFHS-III, and 700602 out of 749344 from NFHS-IV. For men’s height, sample of 66468 out of 74396 from NFHS- III and 105783 out of 126543 from NFHS-IV were drawn.</p></blockquote><p>Notice that the sample for women increases nearly six-fold between NFHS-III and NFHS-IV, but the sample for men increases only by about 60 percent. That might be accurate, but it strikes me as odd, unless men are only surveyed in a subset of households, and the proportional subset that were selected was different (and much smaller) in NFHS-IV than in NFHS-III. That could cause a change in the composition of the survey sample, and might explain the results for men (less so for women). Anyway, there is reason to doubt these results, and it might be an interesting project for a suitably motivated Honours or Masters student to follow up on.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-87801419154950987582024-03-01T20:01:00.000+13:002024-03-01T20:01:19.434+13:00This week in research #12<p> Here's what caught my eye in research over the past week:</p><p></p><ul style="text-align: left;"><li><a href="https://www.sciencedirect.com/science/article/pii/S0305750X23003340" target="_blank">Milanovic</a> (with ungated earlier version <a href="https://files.osf.io/v1/resources/yg2h9/providers/osfstorage/636bd5d766c72408b59df423?action=download&direct&version=1" target="_blank">here</a>) documents three eras of global inequality: (1) between 1820 and 1950, when inequality increased both between and within countries; (2) between 1950 and the 1990s, where inequality was high; and (3) since the 1990s, when inequality has fallen mostly thanks to increases in income in Asia, and particularly China (see <a href="https://sex-drugs-economics.blogspot.com/2015/09/the-last-two-centuries-of-global.html" target="_blank">here</a> or <a href="https://sex-drugs-economics.blogspot.com/2016/02/chinese-growth-and-global-inequality.html" target="_blank">here</a> or <a href="https://sex-drugs-economics.blogspot.com/2023/01/book-review-global-inequality-branko.html" target="_blank">here</a> for more of Milanovic's work on related topics)</li><li><a href="https://www.cambridge.org/core/journals/journal-of-wine-economics/article/can-a-wine-be-feminine-gendered-wine-descriptors-and-quality-price-and-aging-potential/881E1681DC9EA393B28D8B836166A299" target="_blank">Masset, Terrier, and Livat</a> (open access) find that wines that use more feminine descriptors sell for similar prices to wines that use more masculine descriptors, but are perceived as having more limited ageing potential (in other words, more wine bullshit, like <a href="https://sex-drugs-economics.blogspot.com/2022/02/the-willingness-to-pay-for-wine-bullshit.html" target="_blank">here</a> or <a href="https://sex-drugs-economics.blogspot.com/2022/03/more-on-value-of-words-in-wine.html" target="_blank">here</a>)</li><li><a href="https://www.cambridge.org/core/journals/journal-of-wine-economics/article/in-cervisia-veritas-the-impact-of-repealing-sunday-blue-laws-on-alcohol-sales-and-retail-competition/451C870035C85724A612F8F12808AEF9" target="_blank">Connolly et al.</a> (open access) find that allowing Sunday beer sales in Connecticut had a short-term impact on beer sales, but no impact on the number of grocery retailers or liquor stores</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0304407623003433" target="_blank">Cattaneo et al</a>. summarise the papers in a special issue of the <i>Journal of Econometrics</i> in honour of Jianqing Fan, devoted to data science in economics and finance (the papers themselves tend to be quite technical, but the summary, including on the work of Fan, seems good)</li></ul><p></p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-33453915207468134542024-02-29T21:01:00.001+13:002024-02-29T21:01:57.356+13:00The effect of Netflix on illegal streaming<p>Consider two goods (Good A and Good B) that are substitutes for each other. Consumers consume one of the goods, or the other. When one of those goods becomes more expensive, some (but not all) consumers will switch to the other good. When one of those goods becomes less available (or unavailable), many (but not all) consumers will switch to the other good.</p><p>So, what happens when a movie is no longer available on Netflix? Some consumers will simply watch other movies instead. Other consumers will try to find the movie that they really wanted to watch on some other service. Those other services include illegal streaming. How much will illegal streaming increase when a movie is removed from Netflix? That's essentially the question that <a href="https://www.sciencedirect.com/science/article/pii/S0167268123000793" target="_blank">this 2023 article</a> by Sarah Frick (UC Berkeley), Deborah Fletcher (Miami University), and Austin Smith (Bates College), published in the <i>Journal of Economic Behavior and Organization</i> (sorry I don't see an ungated version online) tries to answer.</p><p>Frick et al. focus on a particular natural experiment:</p><blockquote><p>Epix is an entertainment cable network that features movies and TV shows distributed by Paramount, Lionsgate, and Metro-Goldwyn-Mayer, and its movie content varies from large blockbusters such as <i>The Wolf of Wall Street</i> to smaller independent films... Epix and Netflix upheld an exclusive licensing agreement from 2010 until September 2015 when Netflix announced its decision not to renew the licensing contract with Epix, citing the company’s plan to shift towards hosting its own original content... In response to this, Epix entered into a multi-year agreement with Hulu... Thus, all titles owned by Epix were removed from Netflix on October 1st, 2015 and appeared on Hulu for streaming that same day.</p></blockquote><p>The shift of movies from Netflix to Hulu represents a reduction in availability because:</p><blockquote><p>At the time of the switch, Netflix had roughly 4 times as many subscribers as Hulu, and between July 2015 and December 2016 (the time frame for this study) Google trend searches for “Netflix” were, on average, 5.6 times higher than searches for “Hulu”...</p></blockquote><p>Frick et al. then look at the effect of this change on Google searches of free streaming of each movie that was removed from Netflix as a result of the change. Specifically:</p><blockquote><p>We measure searches in the United States for “watch <i>movie title</i> free online” per month for each movie using Google Ads Keyword Search Planner. This tool provides the absolute number of searches rounded to the nearest tens for values less than 1000 and rounded to the nearest hundreds for values greater than 1000.</p></blockquote><blockquote><p>...we collect piracy search rates from July 2015 to December 2016 - three months prior to the switch and 15 months after the switch.</p></blockquote><p>They use a difference-in-differences approach, which compares the difference in searches between movies that were, and were not, removed from Netflix, between the time before removal and the time after removal. The control group contains 501 movies that were never removed from Netflix over the period considered (and were also not available on Hulu), while the treatment group includes 141 movies that moved from Netflix only to Hulu only. In this analysis, Frick et al. find that:</p><blockquote><p>...moving Epix movies from Netflix to Hulu results in a 20-22% increase in intent to pirate those movies compared to movies that remained on Netflix. There are distinct heterogeneous effects by movie release year; older movies experience almost three times the increase in piracy following their removal from Netflix compared to newer movies.</p></blockquote><p>Frick et al. go a bit further than that, estimating the cost of illegal streaming:</p><blockquote><p>We calculate that the annual piracy streaming in 2015 for a popular movie in our sample, <i>Hunger Games: Catching Fire</i> was approximately 100 million streams... Assuming each view is linked with at least one search, our 20% result yields an expected 20 million additional piracy searches after this movie was removed from Netflix. Applying estimates from Blackburn, Eisenach, and Harrison (2019) that each illegal viewing displaces 0.14-0.34 paid viewing, the implied impact of removing a movie as popular as <i>Hunger Games: Catching Fire</i> from Netflix is a reduction of 2.8-6.8 million paid viewings annually. To arrive at a dollar cost of these lost viewings for content producers, we multiply these lost views by the $0.41 average revenue per viewing on a streaming platform from Blackburn, Eisenach, and Harrison (ibid.), which yields an average annual lost revenue per movie of $1.15 -$2.79 million.</p></blockquote><p>Given that some 141 movies were moved by Epix from Netflix to Hulu, that may have cost Netflix hundreds of millions of dollars in lost revenue. Of course, there are lots of assumptions embedded in that estimate, not least of which is that subscribers to Netflix don't pay per movie viewing, so actually the marginal revenue to Netflix from one additional viewing is actually zero. The real question is whether losing access to the Epix movies caused Netflix to lose subscribers, since that would be what would really impact their revenue.</p><p>So, putting the lost revenue aside since the estimate isn't particularly robust, these results really tell us that when movies are no longer available on Netflix, there is more illegal streaming of those movies. That also implies that having a movie available on Netflix decreases illegal streaming. Which is pretty much exactly how we should expect things to work for substitute goods. </p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-68159515640270896722024-02-28T20:53:00.000+13:002024-02-28T20:53:05.648+13:00Challenges in establishing causality in the relationship between alcohol outlets and crime<p>In my ECONS101 class this week, among other things we discussed the 'faulty causation fallacy'. That occurs when you observe two variables (A and B) that appear to be moving together (either in the same direction or opposite directions), and you assume that a change in Variable A is causing a change in Variable B. You might even be able to tell a really good story about why it is that changes in Variable A cause changes in Variable B. But that doesn't mean that your observation and story about causality is true.</p><p>What we observe when we see two variables moving together is <i>correlation</i>. When the two variables move in the same direction, that is <i>positive correlation</i>. When the two variables move in opposite directions, that is <i>negative correlation</i>. [*] Sometimes, when we observe correlation, there really is a causal relationship between the variables. When I push down on the accelerator in my car, my car goes faster. Pushing the accelerator (Variable A) causes a change in the car's speed (Variable B).</p><p>However, not all correlations that we observe arise because a change in Variable A causes a change in Variable B. Sometimes, it is the other way around - a change in Variable B causes a change in Variable A. We call this <i>reverse causation</i>. Sometimes, there is some third variable (Variable C), and it is a change in that variable that causes both a change in Variable A and a change in Variable B. We refer to Variable C as a <i>confounder</i> (or a confounding variable). Alternatively, we can say that Variable C is a <i>common cause</i> for both Variable A and Variable B. Finally, the correlation that we observe might be entirely by random chance. In that case, we would say that we have observed a <i>spurious correlation</i> (as in the excellent Tyler Vigen website <a href="https://www.tylervigen.com/spurious-correlations" target="_blank">spurious correlations</a>, which offers up a new classic in the form of correlation #2,204: The number of global pirate attacks is highly correlated with the number of downloads of the Firefox browser - perhaps pirates use Firefox?).</p><p>Anyway, I want to illustrate these with an example related to my own research, on the relationship between alcohol outlets and crime. I've published articles on this <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/dar.12295" target="_blank">here</a> and <a href="https://www.sciencedirect.com/science/article/pii/S1326020023018861" target="_blank">here</a>, with another report <a href="https://hpa.org.nz/sites/default/files/HPA%20Outlets%20Report%20January%202017.pdf" target="_blank">here</a>. That research establishes a generally positive correlation between the number (or density) of alcohol outlets and crime. The strength of the correlation varies depending on context - it is different for different locations, and different for different types of alcohol outlets. However, the correlation suggests that where there are more alcohol outlets, there is more crime.</p><p>Is this relationship causal though? My earlier research doesn't establish this. However, we can tell a good story, using what is termed <i>availability theory</i>. Availability theory suggests that alcohol consumption depends on the 'full cost' of alcohol - which is made up of the price of alcohol, plus the travel cost of getting to and from the alcohol (such as driving to the alcohol outlet and home). When there are more alcohol outlets in an area, they may compete more vigorously on price, meaning that the first part of the full cost of alcohol is lower. And, when there are more alcohol outlets in an area, consumers don't have to travel as far to get the alcohol, lowering the second part of the full cost of alcohol as well. When there are more alcohol outlets in an area, the full cost of alcohol is lower. And when the full cost of alcohol is lower, people will drink more. And when people drink more, then the amount of crime increases (either because there are more alcohol-impaired victims, or more alcohol-affected offenders). So, this observed relationship <i>could </i>be causal.</p><p>On the other hand, there could be reverse causation here. In areas where there is more crime, commercial property rents are lower, and there may be more vacant storefronts. Retailers (including alcohol retailers) looking to set up a store are looking for a vacant storefront, and they will tend to be attracted to low rents. So, perhaps an increase in crime would cause an increase in alcohol outlets, as the crime forces other businesses out of an area?</p><p>On the third hand, there could be confounding here. As I noted <a href="https://sex-drugs-economics.blogspot.com/2022/06/social-disorganisation-and-crime-over.html" target="_blank">here</a>, social disorganisation theory is the idea that differences (or changes) in family structures and community stability are a key contributor to differences (or changes) in crime rates between different places (or times). Areas that are more socially disorganised have more crime. Areas that are more socially disorganised are also less able to act collectively to prevent alcohol outlets from opening (or remaining open) in their area. So, social disorganisation might be a confounding variable in the relationship between alcohol outlets and crime, because social disorganisation causes more outlets and more crime.</p><p>Finally, the observed relationship could just be a spurious correlation, but spurious correlations tend to arise when you have two variables that are trending over time. In this case, the number of outlets doesn't have an obvious time trend (in some areas it is increasing, and in others it is decreasing), and similarly for crime. So, it seems like there is something more than random chance that leads alcohol outlets and crime to be correlated.</p><p>So, we can tell a good story for a causal relationship. However, we can also tell a good story for reverse causation, and a good story for confounding. It requires some careful statistical analysis to disentangle these potential explanations, and that is something that researchers (including myself) will continue to work on. I had <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/add.15880" target="_blank">an article</a> published in the journal <i>Addiction</i> last year (open access, and I blogged about it <a href="https://sex-drugs-economics.blogspot.com/2022/06/the-relationship-between-alcohol.html" target="_blank">here</a>) that shows that at least one potential confounding variable, retail density, doesn't explain the relationship. I also presented at the NZAE Conference a couple of years ago on some further analysis which tentatively suggests that the causal relationship is statistically insignificant (although that research is somewhat hampered by the low quality of alcohol outlets data in New Zealand). There will be more to come on this topic in the future.</p><p>*****</p><p>[*] This is just one way of conceptualising a correlation between Variable A and Variable B (and I think it is the easiest way). There are other ways we can conceptualise a correlation. For example, if we ignore changes over time, we can observe correlations by looking at variables across different individuals or different areas. In that case, if individuals (or areas) with higher values of Variable A also have higher values of Variable B, that is a positive correlation. And if individuals (or areas) with higher values of Variable A have lower values of Variable B, that is a negative correlation.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-58241808857867058022024-02-26T20:01:00.000+13:002024-02-26T20:01:53.610+13:00Judges are more lenient on defendants' birthdays<p>Are you nice to people on their birthdays? Probably you are. Most people are. It's a social norm. It turns out that this social norm also extends to judges' decisions about sentencing defendants, as shown in <a href="https://www.sciencedirect.com/science/article/pii/S0167268123001488" target="_blank">this recent article</a> by Daniel Chen and Arnaud Philippe (both University of Toulouse Capitole), published in the <i>Journal of Economic Behavior and Organization</i> (ungated version <a href="https://users.nber.org/~dlchen/papers/Clash_of_Norms_JEBO.pdf" target="_blank">here</a>).</p><p>Chen and Philippe first look at judicial decisions in France, using data on 4.2 million sentencing decisions over the period from 2003 to 2014. Importantly, in this context:</p><blockquote><p>Judges in correctional courts (for misdemeanor) have no control over their schedule. For each case, when the investigations are finished, the prosecutor in charge chooses the type of procedure (accelerated/normal) and, based on this, picks the next session of the relevant type. The weekly schedule of the sessions is fixed and decided at the beginning of the year by the head of the court with little discretion to select trial dates on defendant birthdays.</p></blockquote><p>So, whether a defendant is sentenced on their birthday or not is effectively random (and Chen and Philippe establish this with some statistical checks in the paper), and which judge the case is assigned to is unrelated to whether it is a defendant's birthday or not. Are judges more lenient on defendants' birthdays? The results are neatly summarised in Figure 2 from the paper:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi32qtYUV6oy4CGuVXMr-wm21D3CI-NCebVwy45imDAT7LIiyNK3OVafxkQ-U2z6H9OuEV7pWL-b6xlzeQ-GHDvy1dVpGBTY3mpYkADhoIaXQYk2gLtg8IouAzaOfSGF9LRZETKdRZ1sCUYWczIDV5QRP60h1i0tckdNXvYrXjUXBsJBgQFMRqEywKia75D/s852/20240226a.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="581" data-original-width="852" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi32qtYUV6oy4CGuVXMr-wm21D3CI-NCebVwy45imDAT7LIiyNK3OVafxkQ-U2z6H9OuEV7pWL-b6xlzeQ-GHDvy1dVpGBTY3mpYkADhoIaXQYk2gLtg8IouAzaOfSGF9LRZETKdRZ1sCUYWczIDV5QRP60h1i0tckdNXvYrXjUXBsJBgQFMRqEywKia75D/w400-h272/20240226a.png" width="400" /></a></div><p>Notice that the average sentence is substantially lower on a defendant's birthday (the red column) compared to days on either side of their birthday (the blue columns). Statistically:</p><blockquote><p>Results are consistent and indicate that sentences are reduced by roughly four days... On average, sentences are up to 6.2% shorter on defendant birthdays.</p></blockquote><p>So, judges in France are more lenient on defendants' birthdays. Chen and Philippe then turn their attention to the US, where judges have a bit less discretion. As they explain:</p><blockquote><p>Cases are randomly assigned to a single judge. The United States Sentencing Commission (USSC) produces sentencing guidelines for federal judges. The judges are given a guideline range for the criminal sentence that is based on the severity of the crime and the defendant’s criminal history. Due to these guidelines, the largest factor determining sentence range is the criminal charges brought to the judge by the prosecutor. Therefore, we expect the effect of a birthday to be more limited than in France, where judges have more discretion.</p></blockquote><p>Because of the sentencing guidelines, judges have little discretion over the length of the sentence (measured in months), but can vary the number of additional days in the sentence (so, for example, a sentence of 15 months and six days is more lenient than a sentence of 15 months and 20 days). Chen and Philippe therefore focus on differences in the day component of the sentence for US defendants. Their US data is based on over 600,000 sentencing decisions between 1991 and 2003. And their results look very similar to those for France, and are best summarised in Figure 4 from the paper:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9_8QmzXBsB_6sH1mf3LhMwSlAOmA6ss8UyNBKAoDvU02CYP3EgPD0l1K8ryH3WtXtf4z6LEksn6IvyoU7TGEwdo37_wjrS_10g3sWG0Y0ZOEwpiI_aK9JSM2fVcedxZZiMviKZG_pvNV-qvJUZTW9MPERCa-xXZRYaHucbsi40RYohtCwlr9Mlpx1n10c/s839/20240226b.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="577" data-original-width="839" height="275" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9_8QmzXBsB_6sH1mf3LhMwSlAOmA6ss8UyNBKAoDvU02CYP3EgPD0l1K8ryH3WtXtf4z6LEksn6IvyoU7TGEwdo37_wjrS_10g3sWG0Y0ZOEwpiI_aK9JSM2fVcedxZZiMviKZG_pvNV-qvJUZTW9MPERCa-xXZRYaHucbsi40RYohtCwlr9Mlpx1n10c/w400-h275/20240226b.png" width="400" /></a></div><p>Notice again that the red column is much smaller than the blue columns. Statistically:</p><blockquote><p>...the number of days in a federal sentence declines on defendant birthdays, but not on the days before or after birthdays... We find that judges assign 0.13 fewer days if the decision occurs on the defendant’s birthday, all else equal. The effect is about one-third of the average number of days (0.36). We also see no impact on the days before or after the birthday.</p></blockquote><p>So, judges in the US are more lenient on defendants' birthdays. Interestingly, with the US data Chen and Philippe dig a little bit deeper into judicial thinking, since within that data they know which sentences were given by which judges. They also have a dataset of their written judicial decisions. Using those data:</p><blockquote><p>We measure judges’ use of deterrence language and consider it as a proxy for “economic reasoning”... We find that judges below-median in economic thinking are affected by birthdays, decreasing the day component by 0.17, while those above-median in economic thinking are essentially unaffected by birthdays.</p></blockquote><p>Now, if we interpret Chen and Philippe's measure of 'economic reasoning' as a measure of whether judges make decisions in a rational way (in the economic sense), then it appears that judges who are more rational are less affected by the social norm of favouritism on birthdays. That is what we might expect from rational decision-making, which should be based on the costs and benefits of the alternatives (and this applies in sentencing, just as it does in other decision contexts).</p><p>Now, Chen and Philippe bury a lot of the detail on this analysis into Appendix C to the paper, but to some extent this is the most interesting of their results. In fact, it would be really interesting to explore this further. Judges' decisions have previously been shown to be affected by whether the decision is made <a href="https://en.wikipedia.org/wiki/Hungry_judge_effect" target="_blank">before or after lunch</a>, or affected by <a href="https://eprints.whiterose.ac.uk/137050/8/sentencing%20weather%200.9.9.4%20revised%20anonymous_JD.pdf" target="_blank">weather conditions</a>. It would be interesting to see whether judges who are more rational are less affected by those irrelevant factors as well. There is definitely an opportunity for future research in this area.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-47803472120282767382024-02-24T21:16:00.000+13:002024-02-24T21:16:35.539+13:00The effect of inequality on crime<p>A rational choice (economic) model of crime would suggest that higher inequality leads to more property crime. This is because, as the disparity between the rich and poor increases, the poor have more incentive to commit property crime, because there is more to gain from such crime, and the opportunity cost of committing crime is lower for the poor than for the rich. Now, this model is easily criticised as unrealistic, as even the relatively wealthy may commit crimes that have an economic motive (Bernie Madoff being the obvious example). The model also doesn't do a good job of explaining violent and other crimes that do not have an obvious economic motive.</p><p>Criminologists have a different view of the relationship between inequality and crime. One criminological theory that may be used to explain the relationship is <a href="https://en.wikipedia.org/wiki/Social_disorganization_theory" target="_blank">social disorganisation theory</a>. This theory suggests that higher inequality reduces social cohesion, which in turn increases crime - not just property crime, but crime more generally.</p><p>Given how easy it is to criticise the economic model of crime, I was interested to read <a href="https://www.sciencedirect.com/science/article/pii/S0305750X23003388" target="_blank">this new article</a> by Matteo Pazzona (Brunel University London), published in the journal <i>World Development</i> (open access). Pazzona conducts a meta-analysis of studies of the relationship between inequality and crime, limiting the analysis to empirical studies in the economics literature (more on that point later). They identified 43 studies, with 1341 estimates of the relationship between inequality and crime (it is not unusual for a study to report multiple estimates, with different covariates and spread across main results and robustness checks). Meta-analysis provides a method of combining those results to estimate an overall effect. In this case, Pazzona finds that:</p><blockquote><p>Firstly, the true values of the partial correlation coefficients – net of publication bias – are statistically but not economically significant. They are in the range 0.007–0.123, which represents non-existent or small effects, according to the guidelines provided by Doucouliagos (2011). Secondly, I also find some limited evidence of positive publication bias (preference for positive results), but its presence is limited.</p></blockquote><p>So, Pazzona concludes at that point in the paper that there is basically no effect of inequality on crime. However, the Doucouliagos paper that he cites says that effects between 0.070 and 0.173 represent a 'small effect', and three of the six point estimates in Pazzona's preferred model fit within this range. So, perhaps there is a small effect of inequality on crime. Which, to be fair to Pazzona, is what he concludes by the end of the paper:</p><blockquote><p>It is safe to say that, if inequality affects crime, its effect is – at best – small.</p></blockquote><p>However, this is clearly not the last word on this topic. Pazzona limits the analysis to include only studies published in the economics literature. That leaves out many studies within the criminological or sociological literature (and possibly other literatures as well). As he notes, three past meta-analyses conducted by criminologists:</p><blockquote><p>...found correlation coefficients higher than the ones found in this research and no evidence of publication bias.</p></blockquote><p>So, that suggests that leaving the criminological literature out of this meta-analysis probably biases the overall effect downwards. Pazzona gives only a very weak rationale for ignoring the studies outside of economics:</p><blockquote><p>By focusing exclusively on economics, I can also limit the large differences in theoretical and methodological approaches with other sciences.</p></blockquote><p>Yes, but at a cost of probably biasing the estimates. We could try to argue that economics has a larger publication bias problem than many other fields (see <a href="https://sex-drugs-economics.blogspot.com/2023/01/does-economics-have-bigger-publication.html" target="_blank">here</a>), and so the small effect of inequality on crime from the economics literature overall might even <i>over-estimate</i> the true effect. However, Pazzona has very carefully controlled for publication bias in the meta-analysis, </p><p>Coming back to the choice to limit the analysis to economics studies alone, this was an especially inexplicable choice, given that in subsequent analysis in the paper, Pazzona controls for a variety of features of the studies. That analysis could have dealt with the range of methodological approaches that were applied, and actually been helpful in understanding the differences between the findings in the economics literature and those in criminology. In that heterogeneity analysis, Pazzona found that, when looking at the type of crime that was analysed across the 43 studies:</p><blockquote><p>...the coefficient for <i>Property crime</i> is negative and relatively small... The lack of a positive and statistically significant impact on property crime categories implies that inequality does not primarily influence economically motivated criminal behaviour as predicted by the rational choice model.</p></blockquote><p>Score another one against the economists, since the economic model of crime suggests that the effects of inequality on crime should be largest for property crime. How the variables are measured matters, with studies that use crime victimisation survey data reporting larger estimates than those using police data, and using a measure of inequality that is more sensitive to income differences at the bottom of the distribution also increases the estimated relationship with crime. On the latter point, Pazzona notes that:</p><blockquote><p>This provides some evidence that crime incentives are the highest when criminal payoff increases, rather than when the opportunity cost decreases.</p></blockquote><p>I guess, if you believe the economic model of crime, which the other results might give us reason not to. The other variables that are included in a model matter too. Including unemployment and a measure of police deterrence increases the observed effect, while including measures of income or poverty decrease the observed effect. Cross-sectional studies also seem to inflate the observed effect. These results are important, as they show the consequences of methodological choices in the analysis (and, as per my point above, could have helped us understand the differences with the criminology literature).</p><p>Overall, this paper is a good case study of how to conduct and report a meta-analysis (and for that reason I have shared it with one of my PhD students who is doing a meta-analysis in quite a different research area). However, the choice to exclude non-economics literature from the analysis leaves the key research question of the relationship between inequality and crime incompletely answered. Clearly, there is more work to do in this area.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-24124301901049997372024-02-23T20:09:00.000+13:002024-02-23T20:09:38.480+13:00This week in research #11<p>Here's what caught my eye in research over the past week (which was relatively quiet, as teaching prep has consumed much of my week):</p><p></p><ul style="text-align: left;"><li><a href="https://www.sciencedirect.com/science/article/pii/S0048733324000052" target="_blank">Abeliansky, Beulmann, and Prettner</a> (open access) look at German Socioeconomic Panel data and find that higher robot intensity in a manufacturing sector is associated with deteriorating mental health among workers in that sector, and that the effect that is mainly driven by worries about job security and a lower sense of achievement on the job</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0022199624000151" target="_blank">Blanchard, Bown, and Chor</a> (with ungated earlier version <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3497031" target="_blank">here</a>) find that the US-China trade war affected political outcomes in the US, with Republican House candidates losing support in counties more exposed to tariff retaliation, but receiving no appreciable gains in counties that received more direct US tariff protection</li><li><a href="https://onlinelibrary.wiley.com/doi/full/10.1111/labr.12263" target="_blank">Neumark</a> (open access) reviews the effects of minimum wages on health outcomes and health-related behaviours, and shows somewhat mixed effects, but in their view strong enough to conclude that policy conclusions that minimum wages improve health are unwarranted</li></ul><p></p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-55415824187842296132024-02-22T20:46:00.000+13:002024-02-22T20:46:12.668+13:00Book review: Whatever It Is, I'm Against It<p>Working in academia can be a really frustrating experience. Don't get me wrong. It's a <a href="https://sex-drugs-economics.blogspot.com/2023/05/the-compensating-differential-for.html" target="_blank">great job</a>. But there are some seriously frustrating aspects to it. One of those is the <a href="https://sex-drugs-economics.blogspot.com/2023/09/the-evils-of-academic-bureacracy-and.html" target="_blank">academic bureaucracy and bullshit work</a>. Another is that getting meaningful change is a little like turning a supertanker. You need to have an excessive amount of patience, because nothing changes quickly.</p><p>That is essentially the theme underlying Brian Rosenberg's book <i><a href="https://www.amazon.com/Whatever-Im-Against-Resistance-Education/dp/1682538281/" target="_blank">Whatever It Is, I'm Against It</a></i>, which I just finished reading. Rosenberg is former president at Macalester College in the US, a position he held for 17 years, so is well placed to talk about intransigence and inertia in academia. These are serious problems, and they run deep throughout the industry. As Rosenberg notes early in the book:</p><blockquote><p>The resistance to anything like serious change is profound. By "change" I don't mean the addition of yet another program or the alteration of a graduation requirement, but something that is truly transformational and affects the way we do our work on a deep level.</p></blockquote><p>The book starts by making the case for change. The industry faces both demographic and pedagogical challenges, and the pandemic and technological change have simply doubled down on those challenges. Then, Rosenberg turns to outlining a number of factors that contribute to the resistance to change. None of these will surprise any reader with a passing familiarity with higher education. The culprits are a mixture of institutional complacency, resistance to change from presidents, faculty with loyalties split between their institution and their discipline, shared governance (with faculty having a large amount of decision-making power), strategic planning processes, and tenure. Not all of these are features of the higher education landscape in New Zealand (shared governance is limited, and tenure is non-existent), and yet the problems described in the book apply as much in New Zealand as they do in the US (which is where the vast majority of the examples that Rosenberg uses are drawn from).</p><p>Rosenberg resists the urge to try and rank the various contributing factors in any order of importance, which is just as well. It seems likely that the causes are over-determined, even with that small set of factors. Nevertheless, a larger fraction of the book is devoted to discussing tenure than is probably warranted. That chapter came across a more of a general complaint about tenure (not surprising, coming from a former university president), than a tightly argued explanation for the contribution of tenure to resistance to change in higher education. The remainder of the book was much better in that respect.</p><p>I especially liked the section on strategic planning, which highlighted that every university or college wants to argue that they are distinctive, and yet by arguing their distinctiveness they really demonstrate that they are so much the same. And this bit made me cringe:</p><blockquote><p>Every institution in search of enrollment and revenue, it seems, is looking to move somehow into the world of online education, but in doing so they are stepping into the world of bigger, better-known, more well-funded providers or contracting with for-profit online program managers, who take up to 50 percent of online revenue and have a less than admirable history...</p></blockquote><p>So many universities seem to think that they can be distinctive by moving more education into online modes. And yet, commoditising education in that way will simply lead to greater competition, lowering prices until only the lowest cost operator is left. Most universities will not be the last institution standing, and none of them seem to understand it. And that is in spite of the increasing number of university council or governing board members with business experience. Anyway, I digress.</p><p>I enjoyed this book, but not for the reasons that I expected before I read it. I was anticipating more micro-level stories of resistance at the level of individual faculty and within departments (which I have seen first-hand). Instead, the resistance that Rosenberg was most concerned with was resistance to change at the institutional level. That reflects Rosenberg's background and extensive industry experience, and for that reason alone this is an informative book to read, if you are interested in the challenges and impediments to change in higher education generally. Rosenberg has clearly had a lot of frustrating experiences as an academic administrator. I hope that he found the writing of this book cathartic. It certainly seems like it was.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgS5GOb4qSYVPm7LdnOeJJv2zktglOsIcsIwU5IqdCWnXOHrNAhx0HpwcN85vPv9OPM_0HZoJQW97LTo5bw189zWLNN8dDGVAkoCW0ExosPrfF-0hrB8PVdgJ3jVtdrdsrzV_QcQ2QxtBiVP6fd8Qvu8Z53lgD-WCFvqj890N8PmY_tqviMSulGTZLOtbS2/s1500/20240222.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1500" data-original-width="1000" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgS5GOb4qSYVPm7LdnOeJJv2zktglOsIcsIwU5IqdCWnXOHrNAhx0HpwcN85vPv9OPM_0HZoJQW97LTo5bw189zWLNN8dDGVAkoCW0ExosPrfF-0hrB8PVdgJ3jVtdrdsrzV_QcQ2QxtBiVP6fd8Qvu8Z53lgD-WCFvqj890N8PmY_tqviMSulGTZLOtbS2/s320/20240222.jpg" width="213" /></a></div>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-41637114118964763372024-02-21T20:31:00.000+13:002024-02-21T20:31:20.777+13:00Korean doctors are trying to protect their market power<p>In my ECONS101 and ECONS102 classes, we define <i>market power</i> as the ability of the seller (or sometimes the buyer) to have an influence over market prices. How do sellers (or buyers) get market power? Essentially, a seller (or buyer) has market power if they don’t face a lot of competition from other sellers (or buyers). The fewer competitors a seller (or buyer) has, the more market power they will have, and that generally means that they can set a higher price (if they are a seller, or a lower price if they are a buyer).</p><p>With that in mind, <a href="https://www.reuters.com/world/asia-pacific/south-korea-pm-asks-doctors-not-quit-over-planned-medical-student-increase-2024-02-18/" target="_blank">this report from Reuters</a> should come as no surprise:</p><blockquote><p>South Korea's prime minister pleaded on Sunday with doctors not to take people's lives hostage, a day before scores of trainee doctors are expected to quit to protest a plan to increase medical school admissions and the number of physicians.</p></blockquote><blockquote><p>Trainee doctors at the country's five biggest hospitals, all in Seoul, have said they would tender their resignation on Monday, raising <a href="https://www.reuters.com/world/asia-pacific/south-korea-trainee-doctors-quit-protest-over-plan-add-physicians-2024-02-16/" target="_blank">concerns</a> about the impact on medical service as the system relies heavily on them for emergency and acute care.</p></blockquote><p>Let's be clear. Whatever 'concerns' the trainee doctors are raising are secondary to their desire to protect themselves from competition. If you've spent several years in medical school, possibly running up a large <a href="https://en.wikipedia.org/wiki/Student_loans_in_South_Korea" target="_blank">student loan</a> debt, the last thing you want is lots of competitors arriving in the market in a few years' time, driving down the price of your services. This type of coordinated behaviour, trying to protect a position of market power, is a form of <i>rent seeking</i>. Economists call it rent seeking because another term for economic profit for sellers is the sellers' economic rent.</p><p>What's interesting to me is that this is essentially the same behaviour that we see in some specialised labour markets in New Zealand. When the Nursing Council imposes a <a href="https://www.stuff.co.nz/pou-tiaki/300653949/international-nurses-coming-to-nz-hampered-by-entry-course-research-shows" target="_blank">"long and costly bridging course"</a> on foreign-trained nurses, that's rent seeking. When foreign-trained teachers have to <a href="https://www.nzherald.co.nz/nz/dont-come-to-new-zealand-british-teachers-warn-colleagues-back-home/WXLWNJUHIZV4CACTQV2B52HCYQ/" target="_blank">jump through multiple hoops</a>, some of which are imposed by the Teaching Council, that's rent seeking.</p><p>Some of the most effective rent seekers are engaged in occupational licensing. The sad thing is that these are exactly the occupations (like doctors, nurses, and teachers) where New Zealand (along with many other countries) is facing labour shortages. Those labour shortages are being perpetuated by the occupational in-group, at the expense of everyone else.</p><p>I hope that the Korean government doesn't give in. It shouldn't. Governments should resist obvious rent seeking behaviour from firms. They should also resist obvious rent seeking behaviour from occupational groups.</p><p>[HT: FirstFT Asia morning newsletter]</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-12622354151253458962024-02-20T20:30:00.000+13:002024-02-20T20:30:29.002+13:00The global price of nickel collapses, and Australian miners are hurting<p><a href="https://theconversation.com/whats-behind-the-collapse-in-the-price-of-nickel-and-how-can-the-industry-survive-223814" target="_blank">This article</a> in The Conversation yesterday by Mohan Yellishetty (Monash University) discussed the state of the global market for nickel:</p><blockquote><p>Nickel is a metal crucial for the production of stainless steel, alloys, electroplating and the batteries used in electric vehicles.</p></blockquote><blockquote><p>The global price has dived from a high of US$50,000 in 2022 to just <a href="https://markets.businessinsider.com/commodities/nickel-price?op=1" target="_blank">US$16,400</a> per tonne on Monday in response to a huge increase in supply from Indonesia, much of it from Chinese-owned and operated mines.</p></blockquote><p>To see how this works, consider the diagram below, which represents the market for nickel. Before the increase in supply from Indonesian nickel mines, the supply was S<span style="font-size: xx-small;">0</span>, and demand was D<span style="font-size: xx-small;">0</span>. The equilibrium price of nickel was P<span style="font-size: xx-small;">0</span> (US$50,000), and the equilibrium quantity of nickel traded was Q<span style="font-size: xx-small;">0</span>. The increase in the global supply of nickel to S<span style="font-size: xx-small;">1</span> decreased the equilibrium price to P<span style="font-size: xx-small;">1</span> (US$16,400), and increased the equilibrium quantity of nickel traded to Q<span style="font-size: xx-small;">1</span>.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRemH1uWd3Xg6ZqDdr4pO8CT8Lru37geGxVAx3u3dNEgCQvYBdZUc5hQ8rkUz0hVyUz-RUu9XFDsLHafuhIyb3Znk_EXRkXEP64N9gNHduG5QKXa03Y3CnvQvcynTiML-O4fY0vqHEfkrlFNGhuqn2C4YypWlPUVaxze4pr4J5I9tuCLP6OlQd4zf8F50Q/s643/20161018.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="550" data-original-width="643" height="274" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRemH1uWd3Xg6ZqDdr4pO8CT8Lru37geGxVAx3u3dNEgCQvYBdZUc5hQ8rkUz0hVyUz-RUu9XFDsLHafuhIyb3Znk_EXRkXEP64N9gNHduG5QKXa03Y3CnvQvcynTiML-O4fY0vqHEfkrlFNGhuqn2C4YypWlPUVaxze4pr4J5I9tuCLP6OlQd4zf8F50Q/s320/20161018.png" width="320" /></a></div><br /><p>Should we be worried about this situation? Yellishetty clearly is:</p><blockquote><p>Australia is a leading producer of critical minerals, supplying all ten of the elements needed for lithium-ion batteries, and has the advantage of better environmental, social, and governance (ESG) standards that make it an attractive destination for investment.</p></blockquote><blockquote><p>But it lacks the capacity to refine all of its own production, meaning it has to <a href="https://theconversation.com/australia-has-rich-deposits-of-critical-minerals-for-green-technology-but-we-are-not-making-the-most-of-them-yet-182331" target="_blank">dispose</a> of many of the critical minerals it extracts as byproducts...</p></blockquote><blockquote><p>Until Australia can find a way to break free of the market stranglehold of our biggest customer, those investments will remain at risk.</p></blockquote><p>Australian nickel producers are now receiving a much lower price for their nickel. Clearly, that makes them worse off. Nickel is less profitable, and: </p><blockquote><p>On Thursday BHP wrote down the value of its West Australian nickel division Nickel West to <a href="https://www.bhp.com/news/media-centre/releases/2024/02/half-year-2024-exceptional-items-update" target="_blank">zero</a> and said it was considering placing the entire division into a “period of care and maintenance”.</p></blockquote><p>Some Australian producers (like BHP) may shut down operations, albeit temporarily (in mining terminology, <a href="https://en.wikipedia.org/wiki/Care_and_maintenance" target="_blank">"care and maintenance"</a> refers to a temporary closure).</p><p>However, the negative impact on Australian miners isn't the end of the story. Nickel consumers are clearly better off, because they are now buying more nickel (the equilibrium quantity has increased), and they are paying a lower price per tonne. Since nickel is an input into the production of a number of products, such as electric vehicle batteries, lower nickel prices lower the production costs of those products. That flows through into lower prices of the final products that include nickel as an input, meaning lower prices for electric vehicles and replacement batteries. [*] So, it's not all bad.</p><p>Some people may be concerned that the nickel profits are going to Chinese-owned mining firms. However, that concern would need to be weighed up against the fact that consumers (including Western consumers) will benefit from lower nickel prices. The Australian mines aren't going away completely, unless for some reason they lose the capability necessary to re-start production. If that were to happen, then maybe governments might decide to act, but not right now.</p><p>*****</p><p>[*] The relevant market diagram for the electric vehicle battery market is exactly the same as the one shown above. Lower costs of production lead to an increase in supply (because the supply curve shows the marginal costs of production, and lower costs shift that curve down and to the right), which decreases the equilibrium price and increases the equilibrium quantity of electric vehicle batteries.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-32550377034334346342024-02-19T20:43:00.002+13:002024-02-19T20:43:33.983+13:00'Swiftonomics' and the optimal number of Taylor Swift examples<p>I was interested to read <a href="https://www.insidehighered.com/news/students/academics/2024/02/07/professors-combine-taylor-swift-and-econ-swiftonomics" target="_blank">this recent article</a> on Inside Higher Education, about 'Swiftonomics':</p><blockquote><p>Paul Krugman, a New York Times columnist, Nobel Prize winner and Distinguished Professor of economics at the CUNY Graduate Center, began working on the curriculum for the course last summer. Swift’s massive Eras Tour had just kicked off, creating such a frenzy among fans that it caused Ticketmaster’s website to crash.</p></blockquote><blockquote><p>Most of the course’s 12 economic principles feature a Swift example, from her impact on supply and demand with ticket prices to the discussion of monopolies, since Ticketmaster was the sole seller of her concert tickets. Krugman said he designed his course to make it relatable to college-age students—even if they are not exactly fans of the pop star.</p></blockquote><blockquote><p>“There’s always been a problem with principles books, where you have middle-aged authors trying to relate to college students, and it comes across as condescending or fake,” Krugman said. “In this case, it’s a natural connection that matters with a lot of students. It wasn’t ‘This is trendy; let’s put it in [our curriculum].’”</p></blockquote><p>My ECONS101 and ECONS102 classes are filled with real-world examples. Indeed, one of the purposes of this blog <a href="https://sex-drugs-economics.blogspot.com/2013/10/why-sex-drugs-and-economics.html" target="_blank">from the beginning</a> has been to demonstrate to my students how economics applies to real world situations and problems. Am I missing a trick by not including more Taylor Swift examples in those classes? Now, I'm pretty sure that I could come up with a Taylor Swift example for each of the microeconomics topics in ECONS101, which I start teaching next week. [*] It might be a bit more challenging for some of the macroeconomics topics (although for inflation, perhaps a <a href="https://www.cbsnews.com/news/beyonce-renaissance-tour-inflation-sweden-economist-says/" target="_blank">Beyoncé example</a> would suffice?).</p><p>How many Taylor Swift examples should be included? We can actually apply some <i>marginal analysis</i> (from my ECONS102 class) to consider this question. This is illustrated in the diagram below. <i>Marginal benefit</i> (MB) is the additional benefit of one more Taylor Swift example. The marginal benefit of Taylor Swift examples is downward sloping. Not all Taylor Swift examples provide the same benefit for student learning, and students would get bored if I trundled out variations on the same tired examples over and over, even if the source material is interesting. So, each additional Taylor Swift example must provide less additional benefit (lower marginal benefit) than the previous one. <i>Marginal cost</i> (MC) is the additional cost of one more Taylor Swift example. The marginal cost of Taylor Swift examples is upward sloping - the more Taylor Swift examples that are used, the higher the opportunity costs of repairing one more Taylor Swift example. Some of the existing examples I use are better than others. We can replace the less-good examples with Taylor Swift examples at relatively low opportunity cost. However, as more and more Taylor Swift examples are squeezed in, the better previous examples start to be squeezed out. So, the marginal cost of Taylor Swift examples increases as we include more Taylor Swift examples. The 'optimal quantity' of Taylor Swift examples occurs at the quantity where MB meets MC, at Q* Taylor Swift examples in the diagram.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5qMMtyCBWOfIf8aZRrqJMJwlvxg9KloLHsqpw9u9IR-GZW-Yc9tsKZDm4EtXP36Tq26W9KKXwl_7MFoNOin2KKNxo-gCWpu8rBQl33vUXnmc1oSIyWK_UOwXsELGTX3TNcpewV6CS6Wmn9mypV38fkPamDpaNYeCJj-PiGw_6ugjcN-WSkzp8rx3J7Fwl/s573/20190707a.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="502" data-original-width="573" height="350" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5qMMtyCBWOfIf8aZRrqJMJwlvxg9KloLHsqpw9u9IR-GZW-Yc9tsKZDm4EtXP36Tq26W9KKXwl_7MFoNOin2KKNxo-gCWpu8rBQl33vUXnmc1oSIyWK_UOwXsELGTX3TNcpewV6CS6Wmn9mypV38fkPamDpaNYeCJj-PiGw_6ugjcN-WSkzp8rx3J7Fwl/w400-h350/20190707a.png" width="400" /></a></div><p>Now, consider what happens if more than Q* Taylor Swift examples are included in the paper, such as Q<span style="font-size: xx-small;">2</span>. For every Taylor Swift example beyond Q*, the extra benefit (MB) of each example is less than the extra cost (MC) of each example, making the students worse off. So, it is clear that it <i>is</i> possible to include too many Taylor Swift examples in a paper.</p><p>Now, this doesn't tell us exactly how many Taylor Swift examples is the right number for a paper. But it does tell us that we can go overboard in our enthusiasm for Taylor Swift. Coming back to the Inside Higher Education article, note that for Krugman's course, "most of the course’s 12 economic principles feature a Swift example". That suggests that, for Krugman at least, Q* is fairly low, even in a course titled 'Swiftonomics'. [**]</p><p>Do I need more Taylor Swift examples in my papers? Perhaps my students will tell me.</p><p>[HT: <a href="https://marginalrevolution.com/marginalrevolution/2024/02/wednesday-assorted-links-439.html" target="_blank">Marginal Revolution</a>]</p><p>*****</p><p>[*] In fact, there are a couple of Taylor Swift examples that I <i>do</i> use in class, one in ECONS101 and one in ECONS102.</p><p>[**] Which raises a question about the credibility of titling a course 'Swiftonomics', when it maybe includes one Taylor Swift example in each topic.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-89282525790918114582024-02-18T20:24:00.000+13:002024-02-18T20:24:03.593+13:00Terrorism and international air travel<p>When a terrorist attack occurs in a country, it seems natural to expect that international tourists would be dissuaded from visiting that country. How big an effect does terrorism have in reducing international tourism arrivals? That is essentially the question addressed in <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/twec.12680" target="_blank">this 2018 article</a> by Devashish Mitra (Syracuse University), Cong Pham (Deakin University), and Subhayu Bandyopadhyay (Federal Reserve Bank of St. Louis), published in the journal <i>The World Economy</i> (ungated version <a href="https://www.researchgate.net/profile/Cong-Pham-2/publication/326270794_Terrorism_and_International_Air_Travel_A_Gravity_Approach/links/5b4357420f7e9bb59b189335/Terrorism-and-International-Air-Travel-A-Gravity-Approach.pdf" target="_blank">here</a>).</p><p>Their data covers the period 2000-2014, with bilateral air passenger travel between 58 source countries and 26 destination countries, drawn from the <a href="https://unstats.un.org/wiki/display/comtrade/UN+ServiceTrade+Data+Collection" target="_blank">UN Service Trade Database</a>, and terrorism data from the <a href="https://www.start.umd.edu/gtd/" target="_blank">Global Terrorism Database</a> maintained by the University of Maryland. They limit the terrorism data to:</p><blockquote><p>...all non-state terrorist attacks that the GTD can classify without uncertainty as terrorist incidents to construct the measure of terrorism as our main explanatory variable of interest...</p></blockquote><p>For the analysis, they employ a gravity model approach (which I have used in my own research, and previously described <a href="https://sex-drugs-economics.blogspot.com/2017/02/climate-change-wont-much-affect.html" target="_blank">here</a> and <a href="https://sex-drugs-economics.blogspot.com/2020/12/the-gravity-model-and-cultural-trade-in.html" target="_blank">here</a>). Mitra et al. find that:</p><blockquote><p>...terrorism adversely and significantly impacts bilateral air passenger travel. What is the economic significance of our estimates? According to the results... a 10% increase in the number of terrorist incidents in the source country <i>and </i>the destination country results in a reduction in bilateral air passenger travel <i>at least</i> approximately by 1% annually for pairs with bilateral distances of 1,000 km or less... It equivalently means that an additional terrorist incident, which usually is of very small scale and non-fatal, can cause average bilateral air passenger travel between those source and destination countries to decrease by at least 1.3% or US$0.9 million approximately... Similarly, for pairs of countries with bilateral distance being 2,000 km or less an additional terrorist incident causes approximately a 0.82% decrease in their bilateral air passenger travel.</p></blockquote><p>They also find that transnational terrorism has larger effects, and present a number of robustness checks of the results. However, I want to stop things right here, because there are two major problems with their analysis. First, their dependent variable is the <i>dollar value </i>of air passenger travel. That is problematic because the value of air passenger travel is made up of the number of air passengers multiplied by the cost of their travel. Theoretically, we might expect the number of air passengers to decrease due to terrorist attacks. However, the theoretical effect on the cost of travel is indeterminate. If the demand for air travel decreases, prices will decrease. However, if the supply of flights decreases, prices will increase. These effects offset each other. And besides that, I would argue that we should be more interested in the number of air passengers anyway, not the value of air passenger travel.</p><p>Second, the key explanatory variable (terrorism) is also problematic, because they measure it as the total number of terrorist attacks in both the origin (where the air passengers are coming from) <i>and</i> the destination (where the air passengers are going to). As noted at the start of this post, terrorism should dissuade international air travel. However, that applies to terrorist attacks at the destination. It doesn't apply to terrorist attacks at the origin. In fact, you could argue that terrorist attacks at the origin should <i>increase </i>international air travel, as people try to escape the risk of terrorism. So, again, the effect of terrorism as Mitra et al. measure it on air passenger travel is theoretically indeterminate.</p><p>Combining those two problems, I think the analysis doesn't really tell us much at all about how terrorism affects international air travel, because both the dependent variable and the key explanatory variable are both mis-measured. However, there is clearly an opportunity for some follow-up work by a good Honours or Masters student, using more appropriate data to explore the same research question.</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-39346957121578175902024-02-17T21:30:00.002+13:002024-02-17T21:30:37.063+13:00The economics of time travel<p>Have you ever met a time traveller? I haven't. Or at least, not one who identified themselves as a time traveller. Why haven't we met any time travellers? Is it because time travel is impossible? Or, given the many choices of time period where a time traveller might choose to go to, perhaps our time just isn't worth visiting? Perhaps we just aren't that interesting or important to people from the future. These are the questions that Stuart Mills (University of Leeds) grapples with in <a href="https://www.theseedsofscience.org/2023-the-economics-of-time-travel" target="_blank">this recent and interesting article</a> published in <i>Seeds of Science</i> (open access). Mills' argument is simple, and summarised at the end of the introduction:</p><blockquote><p>I argue the main economic benefit which our descendants may receive via time travel is knowledge which we currently possess, but they have lost. Furthermore, this knowledge must be sufficiently critical to our descendants to justify the costs of time travel, which are likely to be dominated by energy costs. I posit that even assuming the energy requirements for time travel are met by a human civilisation in the future, it is highly unlikely that that same civilisation will come to depend on a piece of knowledge which we currently possess, but they have lost and cannot rediscover by other means. In other words, I argue that even assuming time travel is possible, our epoch is unlikely to offer any economic benefit to a future, time travelling civilisation.</p></blockquote><p>In other words, our time simply isn't worth travelling to. Mills supports this argument with a rough cost-benefit analysis. The costs and benefits are largely unknown, but the point is not to perfectly evaluate a benefit-cost ratio for time travel, but to establish an explanation for the empirical observation that time travellers have thus far never been observed. As Mills notes:</p><blockquote><p>...the reader is encouraged to regard the given inequality as a proposal along the lines of the Drake equation for estimating the number of intelligent civilisations in the universe—not necessarily accurate, but sufficient for provoking some thought and discussion.</p></blockquote><p>The paper is interesting, but I wonder if the premise itself is faulty. Just because time travellers have not been observed, that doesn't mean that there have been no time travellers. It just means that any time travellers have not been observed. A civilisation that is advanced enough to have developed time travel is almost certainly also advanced enough to have developed some form of cloaking technology, such that time travellers can avoid detection. Paraphrasing the American astronomer <a href="https://www.pbs.org/wgbh/nova/time/sagan.html" target="_blank">Carl Sagan</a>, we could be over-run with time travellers, and we wouldn't even know it.</p><p>To be fair to Mills, Footnote 1 in the paper does make note of a lot of reasons why we might not observe time travellers, but misses Sagan's suggestion. To some extent, I found that footnote to be one of the highlights of the paper, especially the seventh reason (which is something I have wondered about on occasion):</p><blockquote><p><i>Seventhly</i>, time travel may only affect time, not space. As the Earth is constantly moving around the Sun, and the Solar System shifting around the galaxy, and the galaxy moving throughout the universe, a time traveller may very well travel to attend the party, only to find themselves on the opposite side of the universe.</p></blockquote><p>Time travel is an interesting problem to ponder. I suspect we don't know enough to really answer this question yet. Mills has provided a starting point, but there are a lot of unjustified assumptions, and alternative assumptions would likely be equally unjustified. If you are interested in time travel, you should read the article. But also, read the comments at the end of the article, and Mill's response.</p><p>[HT: <a href="https://marginalrevolution.com/marginalrevolution/2023/12/friday-assorted-links-449.html" target="_blank">Marginal Revolution</a>]</p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-8701682733813993382024-02-16T21:14:00.000+13:002024-02-16T21:14:05.863+13:00This week in research #10<p>Here's what caught my eye in research over the past week:</p><p></p><ul style="text-align: left;"><li><a href="https://www.sciencedirect.com/science/article/pii/S0165176523005220" target="_blank">Charness and Rodriguez-Lara</a> (open access) use a simple experiment to show that people are more likely to lie when they disclose non-personal information (a number they thought of) compared with personal information (the last digit of their birth year)</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0165176524000260" target="_blank">Koivuranta, Korhonen, and Lehto</a> (open access) find using Finnish data that PM2.5 ambient air pollution reduces student exam performance in mathematical but not in verbal subjects</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0165176524000259" target="_blank">Rodriguez et al.</a> look at the abstracts of top five economics journals between 2000–2019, and find that abstracts with a higher proportion of women co-authors are more readable (which might sound like a good thing, but actually just reiterates earlier findings that female economists are held to a higher standard in publications than their male counterparts - see <a href="https://sex-drugs-economics.blogspot.com/2020/01/the-gender-gap-in-reviewing-and-editing.html" target="_blank">here</a>)</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0165176524000521" target="_blank">Lee, Lee, and Miyamoto</a> (with ungated earlier version <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4508961" target="_blank">here</a>) find a negative association between inflation and the speed of aging for both Japan and the US</li><li><a href="https://www.sciencedirect.com/science/article/pii/S0165176524000557" target="_blank">Alsultan, Kourtis, and Markellos</a> (open access) investigate the CryptoPunks NFT art collection, and find that buyers prefer NFTs with higher levels of colourfulness and texture complexity and lower levels of saturation and brightness</li></ul><p>Finally, you can now watch the recordings of sessions from the <a href="https://events.waikato.ac.nz/events/new-zealand-economics-forum-2024" target="_blank">New Zealand Economics Forum</a>. The Day One video is <a href="https://www.youtube.com/watch?v=wyDjj_03omQ" target="_blank">here</a>, with the tax session <a href="https://www.youtube.com/watch?v=DguQ0jS5OzI" target="_blank">here</a>. And the Day Two video is <a href="https://www.youtube.com/watch?v=tJA0BVv_IaQ" target="_blank">here</a>. The session I presented in (as part of a panel discussing social investment) is on Day One, starting at 4:55:00 or thereabouts. Maria English (ImpactLab) and Merepeka Raukawa-Tait (Whānau Ora) were the true stars of that session though!</p><p></p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0tag:blogger.com,1999:blog-7565372830978560947.post-76826571535237269392024-02-13T20:07:00.004+13:002024-02-16T20:52:56.948+13:00Willingness-to-pay for working from home<p>Jobs come with both monetary and non-monetary characteristics. The monetary characteristics include the salary or wage (obviously) and other monetary benefits. The non-monetary characteristics include how pleasant or unpleasant the job is, how clean or dirty, and how safe or risky. An important non-monetary characteristic of jobs that has become particularly important since the pandemic is the flexibility to work from home. However, it isn't clear whether working from home is a positive or negative characteristic. Many people prefer to work from home, but many others don't. Incidentally, I'm in the latter group, because we only have a small house, and working from home entails working at the dining room table.</p><p>Now, non-monetary characteristics of jobs can give rise to wage differences between jobs - what economists refer to as <i>compensating differentials</i>. Jobs with desirable non-monetary characteristics tend to have lower wages than jobs with undesirable monetary characteristics (for an extreme example, see <a href="https://sex-drugs-economics.blogspot.com/2022/10/rural-australia-sets-new-high-bar-for.html" target="_blank">here</a>). One way of explaining this is that many fewer workers want to work in jobs that have undesirable characteristics, and that lower supply of labour leads to higher wages. In other words, workers are essentially compensated for taking on jobs with undesirable non-monetary characteristics.</p><p>What does a compensating differential look like for working from home? I <a href="https://sex-drugs-economics.blogspot.com/2022/08/remote-work-wages-and-compensating.html" target="_blank">wrote about this last year</a>, but the research I referred to there didn't look specifically at compensating differentials. In contrast, <a href="https://www.sciencedirect.com/science/article/pii/S0167268123003074" target="_blank">this new article</a> by Akshay Vij (University of South Australia) and co-authors, published in the <i>Journal of Economic Behavior and Organization</i> (open access, with <a href="https://theconversation.com/whats-it-worth-to-work-from-home-for-some-its-as-much-as-one-third-of-their-wage-217554" target="_blank">non-technical summary</a> on <i>The Conversation</i>), does. They use data from a survey of 1113 employees conducted in Australia in 2020-21, where:</p><blockquote><p>Respondents with an on-site job that had some ability to be done remotely were presented with multiple stated preference experiments where they were offered a choice between job arrangements with different salaries, and differing degrees of flexibility with regards to when and where job tasks needed to be performed... Each respondent was shown 8 scenarios, and the job attributes were varied systematically across scenarios...</p></blockquote><p>This is what economists refer to as a <i>discrete choice experiment</i>, since research participants are asked to make a discrete choice among alternatives, which have different characteristics. Since each research participant makes many such choices, that data can be used to extract the marginal willingness-to-pay for each of the characteristics. In this case, the characteristics included the 'flexibility to work remotely on some days', and the 'flexibility to work remotely at some hours'. So, this research essentially worked out how much workers were willing to pay (that is, how much salary or wage they were willing to give up) in order to have the ability to work remotely.</p><p>Vij et al. then used a latent class model to identify four different groups of research participants based on their different responses, as shown in Table 2 from the paper:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgi2GvdbnJHTjcngRGrdd25ftPoPlDtQxwxMjKWqt3s9LchTXbia0PegBbayiVlQMviDB1zMJQo1EJB-Qihev47bbeCpjEusrbq_7tOUAZy2MMPKPWi9kj1oS_g4KZRS1xACGh_vmoMZ0AdPWgLiPJpZiLzuldOpp5_nvtZcEn1USQ8JmJpMvojZe30X_Ja/s1092/20240213.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="652" data-original-width="1092" height="239" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgi2GvdbnJHTjcngRGrdd25ftPoPlDtQxwxMjKWqt3s9LchTXbia0PegBbayiVlQMviDB1zMJQo1EJB-Qihev47bbeCpjEusrbq_7tOUAZy2MMPKPWi9kj1oS_g4KZRS1xACGh_vmoMZ0AdPWgLiPJpZiLzuldOpp5_nvtZcEn1USQ8JmJpMvojZe30X_Ja/w400-h239/20240213.png" width="400" /></a></div><p>Each class represents a roughly equal share of the sample of research participants. However, only two of the groups (Class III and Class IV) value the ability to work remotely some of the time. Vij et al. summarise the results as:</p><blockquote><p>Across our sample, the average worker is willing to forego roughly AUD$3000 - AUD$6000 in annual wages to have the ability to work remotely some workdays and/or workhours. Given that the average respondent in our sample earns roughly $73,000 in annual wages, this implies a compensating wage differential of 4 – 8 per cent. However, median values are lower at AUD$1000 - AUD$1800, or roughly 2 per cent of average annual wage, due to considerable heterogeneity across the four classes. Classes 1 and 2 together comprise 54.3 per cent of the sample population, and do not have a statistically significant preference for either the ability to work remotely some workdays and/or workhours, and therefore have a corresponding wage differential of $0. Class 3 is willing to forego roughly 3 - 5 per cent of average annual wages (AUD$2000 - AUD$4000) to have the ability to work remotely some workdays and/or workhours, and Class 4 is willing to forego 16 – 33 per cent (AUD$12,000 - AUD$24,000) for the same.</p></blockquote><p>Interestingly, the different classes differ on their beliefs about remote work, and Vij et al. note that:</p><blockquote><p>...we observe that Class 1 is less optimistic than the other classes about the quality and quantity of work that can be done remotely, explaining their lower marginal willingness to pay for the ability to work remotely, and Class 4 is most optimistic, explaining their higher marginal willingness to pay...</p></blockquote><blockquote><p>Next, we compare responses to attitudinal indicators measuring impacts on human relations. Here, Class 2 has significantly greater concerns than the other classes, explaining their lower marginal willingness to pay for the ability to work remotely. In particular, workers belonging to Class 2 are more concerned on average about the negative impacts on their relationships with their colleagues, supervisors and the firm as a whole, as well as opportunities for learning and career advancement.</p></blockquote><p>When you think about the types of jobs that each class predominantly engages in (from Table 2 above), this makes a lot of sense. Class 1 is mostly clerical and administrative workers, but Class 2 is mostly managerial workers, and the latter probably rely more on interpersonal relationships in their work that would be negatively impacts by remote work. In contrast, Class 3 and 4 workers are mostly professional workers, likely to be more self-directed and in some cases fairly autonomous.</p><p>However, in light of recent increases in remote work, this was interesting:</p><blockquote><p>Interestingly, in terms of experience with remote working, individuals belonging to Class 2 were more likely to have had greater experience with remote working arrangements prior to the pandemic than other classes...</p></blockquote><p>And yet, those workers had a zero compensating differential for remote work. That is, they didn't value working from home. The survey was conducted in 2020/21, when many of us were experiencing large-scale remote work for the first time. As other workers gain more experience with remote work, I wonder whether the Class 3 and Class 4 workers will be as positively inclined towards remote work in the future. This is something that deserves further investigation.</p><p>Finally, in terms of demographics, there was little difference between the classes, although:</p><blockquote><p>...we find that women are most likely to belong to Class 4, and have a significantly higher valuation for remote working. This is consistent with previous studies that have found that women value job flexibility more than men, due to greater caregiving and other responsibilities...</p></blockquote><p>This has interesting implications for the gender wage gap. Since women are more likely to choose flexible work arrangements, and are willing to pay (through lower wages) for the flexibility that remote work provides, should a zero gender wage gap be the appropriate goal, or a zero gap accounting for differences in flexible work arrangements? Again, this is something that deserves further consideration.</p><p>Remote work isn't going away any time soon. Some of us might think that the flexibility is a good thing for all workers, but it is clear that not all workers themselves feel that way.</p><p>Read more:</p><p></p><ul style="text-align: left;"><li><a href="https://sex-drugs-economics.blogspot.com/2022/08/remote-work-wages-and-compensating.html" target="_blank">Remote work, wages, and compensating differentials</a></li></ul><p></p>Michael Cameronhttp://www.blogger.com/profile/03901095087438726552noreply@blogger.com0