This week in research #145

Here's what caught my eye in research over the past week:

• Guzman, McGuinness, and Turner investigate 16 'mega-universities' in the US, and report that students at these mega-universities have lower average completion rates and leave with higher average student loan debt compared to students at other schools
• Melo et al. (open access) find little evidence that higher minimum wages increase job search for low-skilled jobs, and more evidence that higher minimum wages decrease the number of workers seeking employment in these jobs (file this under surprising results on the supply side of the labour market)
• Malesky et al. (with ungated earlier version here) find that cohorts exposed to the university expansion in Vietnam are 87% more likely to have a university education, but that education increases the incidence of bribe requests and perceptions of corruption

Minimum wages and the adoption of robots

Manufacturing firms typically have a choice of various production technologies. Some production technologies involve more labour. Others involve more automation (robots, as in this post). If labour becomes relatively more expensive compared with robots, firms have a greater incentive to adopt robots. That suggests that higher minimum wages, which make labour relatively more expensive for firms, may not only decrease employment (see the links at the end of this post for more on that point), but may increase the adoption of robots.

The extent to which firms adopt robots in the face of increasing minimum wages is the subject of this recent NBER Working Paper by Erik Brynjolfsson (Stanford University) and co-authors (ungated version here). They look at this question in two ways. First, Brynjolfsson et al. create a state-level measure of exposure to robots, which captures the extent to which robots are over- or under-adopted in each state, given the state's mix of industries and employment. They then correlate changes in that measure with changes in the state-level minimum wage over the period from 2003 to 2015. That correlation is illustrated in Figure 1(c) from the paper:

The regression line in the figure implies that a 10 percent increase in the minimum wage is associated with an increase in robot exposure equivalent to about 8 percent of the sample mean level of robot exposure.

Second, Brynjolfsson et al. use microdata from the US Census Bureau, including the Longitudinal Business Database and Longitudinal Firm Trade Transactions Database (LFTTD), to construct a panel dataset of robot adoption among US manufacturing firms from 1992 to 2021. They use the LFTTD data to identify which firms imported industrial robots. They then compare robot adoption between firms in adjacent counties on opposite sides of state borders, which face different state-level minimum wages but are likely to share many local economic conditions. Their measure of robot adoption in this analysis is simply whether a given firm adopted a robot in a given year, or not. In this second analysis, they find that:

...a 10% increase in minimum wage leads to an 8.4% rise in robot adoption relative to the sample average...

Notice how similar in magnitude the effects from their two analyses are, despite being quite different in nature, as well as covering different time periods. Both analyses suggest that higher minimum wages are associated with greater levels of robot adoption. The state-level relationship in the first analysis is clearly correlational, rather than causal. However, the comparison between firms in adjacent counties provides some plausibly causal effects (at least, there are plenty of other research papers that use a similar approach to estimate the causal effects of minimum wages). More generally, this research provides another example of how firms may respond to minimum wages on margins other than employment (see the links at the end of this post for more). When the relative price of labour increases, firms may change not only how many workers they employ, but also the production technology they use.

[HT: Marginal Revolution, back in February] 

Read more:

• A bunch of research findings on minimum wages in New Zealand
• The disemployment effects of Canadian minimum wages
• Jeffrey Clemens on the disemployment effects of the minimum wage
• The impact of an online minimum wage
• Seattle's minimum wage, revisited
• The latest evidence supports negative employment effects of the minimum wage
• Latest research suggests the minimum wage DOES reduce employment
• More empirical support for the disemployment effects of the minimum wage
• The minimum wage and job vacancies
• The minimum wage and hiring standards
• The employment effects of the minimum wage, from American Community Survey data
• The minimum wage and homelessness
• New York restaurants find a new way to respond to the minimum wage
• The minimum wage and workplace safety
• How employers respond to minimum wage increases
• Minimum wage increases and employer noncompliance
• Higher minimum wages and poverty revisited
• Minimum wages and health
• Effects of the minimum wage on the nonprofit sector
• 15 years of US research on the minimum wage elasticity of employment
• Local minimum wages and low-quality housing rents in Japan
• Minimum wages and student summer employment

Evidence that tradeable pollution permits can work

This week, my ECONS102 class covered externalities. As part of the topic, we spent a bit of time considering the economics of pollution control, where the government has three main options: (1) regulation (command-and-control); (2) Pigovian taxes; or (3) tradeable pollution permits. I've posted before about the latter two options (see here and here).

Tradeable pollution permits often attract attention from my students, as it seems surprising that granting polluters 'the right to pollute' might be an effective way of reducing pollution. However, economic theory suggests that this can be both an effective and a cost-effective way of reducing pollution. And the research reported in this 2025 article by Michael Greenstone (University of Chicago) and co-authors, published in the Quarterly Journal of Economics (ungated earlier version here), provides some compelling evidence that tradeable pollution permits are effective.

Greenstone et al. collaborated with the Gujarat Pollution Control Board (GPCB) in India to design and experimentally evaluate a particulate-matter emissions market, the first market of its type anywhere. They describe the experiment as follows:

GPCB launched the market for industrial plants in and around Surat, Gujarat, a rapidly growing city of 7 million people, in 2019. Under the command-and-control status quo, plants are mandated to install abatement equipment and are sporadically inspected in person by government regulators and auditors to check that they meet limits on the concentration of pollution emissions... For the present experiment, GPCB mandated a sample of 318 large, coal-burning plants to install continuous emissions monitoring systems (CEMS) to measure the total mass of particulate matter (PM) emitted, compared with the measurement under the status quo of pollution concentrations during spot visits... The emissions market experiment then randomly assigned 162 out of 318 plants to the market and 156 control plants stayed under the command- and-control regime.

The tradeable pollution permits market worked much as we describe in class:

GPCB set a cap on the total mass of particulates that could be collectively emitted by all treatment plants over a compliance period. They allocated permits to treatment plants, with permits summing to 80% of the cap distributed for free, in proportion to plant emissions potential, and 20% sold off in weekly auctions. Thereafter, treatment plants could trade permits with each other. At the conclusion of each compliance period, any treatment plant that did not hold enough permits to cover their emissions was subject to fines based on the size of the shortfall.

As I note in my ECONS102 class, the advantage of allowing pollution permits to be traded is that plants with relatively low abatement costs (low costs of reducing pollution) have an incentive to sell their surplus permits and abate pollution instead, while plants with relatively high abatement costs have an incentive to buy permits rather than undertake costly abatement. Transferability is one of the important features of efficient property rights, and having permits that are tradeable helps to ensure that.

Greenstone et al. look at compliance (did they have enough permits to cover their emissions), and then compare treatment and control plants in order to estimate the effect of the permit scheme on particulate emissions and variable abatement costs. They find that:

Treatment plants complied—held enough permits to cover their emissions—in 99% of plant-periods. By contrast, the compliance rate with concentration standards at baseline was 66%...

Second, the treatment reduced particulate emissions by 20%–30%, relative to control-plant emissions in the command- and-control regime...

Our third main finding is that the market reduced variable abatement costs by 11% at a constant level of emissions.

Taken altogether, those results provide strong field experimental evidence that the permits scheme worked as intended, that treatment plants were compliant, and that emissions decreased while also decreasing abatement costs. Greenstone et al. then conduct a cost-benefit analysis of an expansion of the market. Based on a range of assumptions on the mortality effects of particulate pollution, they estimate that the benefits of the market are at least 25 times larger than the costs. Needless to say, that suggests that tradeable pollution permits have been strongly worthwhile in this setting, and that they would be worth exploring in other settings as well. And in a postscript in the conclusion to the paper, Greenstone et al. note that the GPCB has launched another particulate market in the largest city in the state, Ahmedabad. So clearly, the GPCB was sufficiently convinced that they decided to extend the approach elsewhere.

[HT: Marginal Revolution, back in 2024]

Read more:

• The inefficiency of New Zealand's emissions trading scheme
• Pigovian taxes vs. tradeable pollution permits when clean technology becomes available
• The Greens vs. Labour on carbon emissions, taxes and permits

Taking window shopping to the next level online

When a consumer consumes a good or service, they receive utility (satisfaction, or happiness) from that consumption. That is part of the standard theory underlying consumer behaviour in neoclassical economics. Behavioural economists like the Nobel Prize winner Richard Thaler, in contrast, may distinguish between two types of utility that a consumer receives when they buy a good or service. First, there is acquisition utility, which is the net benefit from acquiring the good or service relative to what the consumer gives up to get it. This is essentially the neoclassical utility from the good or service, after allowing for the cost of purchasing it. Second, there is transaction utility, which is the utility received from how good or bad the deal itself feels to the consumer, compared to what they expected to pay for the good or service.

Transaction utility arises when consumers feel like they are 'getting a good deal'. The better the deal, the greater the transaction utility. One problem is that transaction utility is largely temporary. While acquisition utility essentially lasts as long as the good or service that is purchased, transaction utility may last only as long as the transaction. For that reason, transaction utility may explain the phenomenon of 'buyer's remorse'. The purchase seems like a great idea at the time of purchase, but later, once the transaction utility has dissipated, the purchase doesn't seem like such a great idea at all.

Ordinarily, acquisition utility and transaction utility come as a bundle. When you buy a good or service, you get both. That is, until now. An article in Rest of World reported last month:

This week, I placed orders for a $44,860 Patek Philippe hand-engraved watch, a $12,500 Hermès handbag, a $9,800 Tiffany diamond ring, and a $7,350 Cartier Love bracelet in yellow gold.

I don’t need any of them. I certainly can’t afford them. Thankfully, they’ll never arrive.

Instead of Amazon, I spent the past week browsing a new breed of websites known as “dopamine sites,” a trend that emerged in South Korea. These websites — like Dopamine Shop and FoodNeverComes — recreate the entire ritual of online shopping: You search for products, compare reviews, add items to your cart, enter a shipping address, place an order, and even track your delivery. 

Then … nothing happens. No money changes hands. No package arrives...

Purchasing and shopping are not necessarily the same act. The former is about acquiring and the latter is more of a ritual. The pleasure from dopamine websites comes from the ritual.

In some ways, this is just a high-tech version of window shopping. People have always been able to get some enjoyment from browsing goods that they have no intention of buying. But these websites go a step further by recreating the transaction itself, right through to placing the order and tracking its delivery, while removing the actual receipt of the good or service that was 'purchased'.

The article argues that the pleasure comes from ritual. However, at least some of the pleasure may be transaction utility. There is no acquisition utility here. The consumer knows from the outset that they will never receive the watch or handbag. But the 'consumer' still receives some value from the 'transaction'. These websites may come about as close as possible to offering transaction utility on its own. And since consumers are never charged for their purchase, this is a low-cost way for consumers to receive that transaction utility. All it costs is the opportunity cost of their time spent browsing the website.

It is interesting to consider what the business model of Dopamine Shop or FoodNeverComes might be. The Rest of World article is silent on this point. One possibility is advertising or affiliate links to real products and retailers. After all, retailers might value the attention of people who are shopping without buying, in the hope that some of that activity eventually spills over into 'real' purchasing behaviour.

Whatever the business model, these websites provide an interesting example that demonstrates just how much utility consumers may get from the process of buying, even if they don't actually buy anything.

[HT: Marginal Revolution]