Economists in schools of public affairs, and compensating differentials

New Zealand doesn't have any schools of public affairs, but they are a reasonably common feature of U.S. universities (Victoria University does have a School of Government, but I'm not sure that is quite the same). Economists in the U.S. are employed in both economics departments, and in schools of public affairs. You would think that they would be paid the same (conditional on their 'quality' as an academic) regardless of which school or department they are employed in. Not so, according to this 2019 working paper by Lori Taylor, Kalena Cortes, and Travis Hearn (all Texas A&M University).

They first compile salary and demographic data from 2152 academics employed in schools of public affairs, economics departments, or political science departments, from the 33 public universities with schools of public affairs ranked in the top 50 in the U.S. (the other 17 are private universities, where data on salaries are not readily available). Their data demonstrate three key facts:

First, leading schools of public affairs employ a large number of economists. The 33 leading public affairs departments in our sample employed more than 100 economists, or 12 percent of the economists in the sample.

Second, a disproportionate number of the economists employed by schools of public affairs were female... 19 percent of the faculty in departments of economics were female; whereas 23 percent of the economists in departments of political science were female and 35 percent of the economists in schools of public affairs were female...

Third, average salaries in schools of public affairs were lower than those in traditional economics departments. On average—and without adjustment for faculty rank or institution reporting differences—salaries were 33.5 percent higher in departments of economics than they were in schools of public affairs. Among economists, average salaries were 11 percent higher in departments of economics than they were in schools of public affairs.

Taylor et al. then go on to explore the differences in salaries between schools of public affairs and departments of economics (and political science) in a bit more detail. In particular, they are interested in whether, given that schools of public affairs employ more women, and there is a gender gap in salaries, the proportion of female faculty makes a difference. It turns out it doesn't, and they report that:

...we found a significant, negative differential for female faculty members, but controlling for gender did not eliminate the public affairs discount...

...female faculty members were paid significantly less than male faculty members regardless of discipline or department.

Interestingly, there was no difference arising from the seniority of faculty in the schools or departments either. However, then they go on to investigate measures of 'research productivity' (or quality) and find that:

...controlling for citation metrics as well as years since degree and faculty rank, we estimated that economists in schools of public affairs earned at least 28 percent more than otherwise similar faculty members, and economists in departments of economics earned 17 percent more than economists in schools of public affairs. On the other hand, political scientists were better paid in a school of public affairs than in a traditional department of political science, even after controlling for research productivity.

Including citation metrics (as a measure of research productivity) rendered the gender difference in salaries statistically insignificant, suggesting that the difference in salaries was capturing differences in research productivity. That is quite a different result from much of the earlier literature on this topic (for example, see my earlier post here).

This working paper seems a bit unfocused to me. It starts with the premise of comparing salaries between schools of public affairs and departments of economics, but quickly strays into evaluating the gender gap in salaries. The analysis and the exposition would be a lot clearer if they could distinguish those two aims. The finding that the gender gap is explained by differences in research productivity needs a bit more unpacking, especially given that it contradicts the previous literature.

However, the most interesting finding to me is the salary penalty for economists who work in schools of public affairs, and that the penalty remains statistically significant even after controlling for research productivity. Departments of economics have been labelled a toxic environment for women (for example, see my earlier post here). Could the public affairs salary penalty reflect a compensating differential? Are (female) economists willing to accept a reduction in salary in order to locate in a department that has a more welcoming environment (and in reverse, do they require a higher salary to compensate for the toxic working environment in a department of economics)? The public affairs salary penalty for economists was higher for women than men, and was statistically significant in some (but not all) of Taylor et al.'s results, after controlling for research productivity (see Table 4 in the working paper). That provides some further evidence that the salary penalty might be capturing a compensating differential that is more salient for women than for men.

On the face of it, the salary penalty for working in a school of public affairs would tend to suggest that economists should avoid working there. That probably holds true for male economists. However, if it reflects a positive compensating differential, which it probably does for women, then that changes the parameters of the decision and may favour jobs at the schools of public affairs. The problem with taking that interpretation though, is that it may 'lock in' the cultural differences between schools and departments that are the very source of the compensating differential. Food for thought.

[HT: Marginal Revolution, last year]

The story of sexual economics should not be written by psychologists

On Thursday, I posted about the economics of sex robots. In particular, I drew attention to search models as a way of thinking through the economics related to sex. The key driver in a search model is the relative bargaining power of the parties to the agreement. If some change gives a party more relative bargaining power, they will get a better deal.

However, search models are not the only way to think about the economics of sex. This 2017 article by Roy Baumeister (Florida State University) and co-authors, published in the Journal of Economic Psychology (open access), instead uses the workhorse model of microeconomics - supply and demand. They note that:

Sexual economics theory rests on standard basic assumptions about economic marketplaces, such as the law of supply and demand. When demand exceeds supply, prices are high (favoring sellers, that is, women). In contrast, when supply exceeds demand, the price is low, favoring buyers (men)...

Importantly, they aren't describing the market for sexual services (i.e. prostitution). Instead:

 ...often what is sold is not just sex but exclusive access to sex with a particular person.

How do Baumeister et al. justify their theory? As follows:

The core idea is that women are the sellers and men are the buyers. This starts with the abundant evidence that ‘‘everywhere sex is understood to be something females have that males want”...

Because the man typically wants sex more than the woman, she has a power advantage. According to the ‘‘principle of least interest,” the person who desires something less has greater control and can demand that the other (more desirous) person sweeten the deal by offering additional incentives or concessions... Hence sexual economics theory begins with the assumption that female sexuality has exchange value, whereas male sexuality does not...

In return for sex, women can obtain love, commitment, respect, attention, protection, material favors, opportunities, course grades or workplace promotions, as well as money. Throughout the history of civilization, one standard exchange has been that a man makes a long-term commitment to supply the woman with resources (often the fruits of his labor) in exchange for sex — or, often more precisely, for exclusive sexual access to that woman’s sexuality. Whether one approves of such exchanges or condemns them is beside the point. Rather, the key fact is that these opportunities exist almost exclusively for women. Men usually cannot trade sex for other benefits.

The onset of a sexual relationship thus involves the man and woman choosing each other. In perhaps overly simple terms, he chooses her presumably on the basis of her sex appeal, that is, how much he expects to enjoy having sex with her. Meanwhile, she chooses him on the basis of the resources he can provide, that is, on the basis of nonsexual benefits he can furnish to her. This exchange defines the nature of the same-sex competition. Women compete to seem more sexually attractive than their rivals. Men compete to seem a better provider than their rivals.

The rest of the article describes differences in competition between women, and between men. It is interesting to read, but I'm more concerned about the framing of the model. It's not clear to me that the authors, all of whom are psychologists of various types, have really thought through the plausibility of the economic model they are attempting to use.

The basic model of supply and demand relates to a perfectly competitive market, which has a number of characteristics: (1) many buyers and sellers; (2) homogeneous 'products'; (3) complete information; and (4) no barriers to entry into or exit from the market. Under those conditions, neither buyers nor sellers have any control over the price - they are 'price takers', and the market 'price' is determined by the interaction of supply and demand.

Now, thinking about sexual economics, it's not clear to me that either (2) or (3) is satisfied. Every person is different, with different preferences. So, the assumption of homogeneous products cannot be fulfilled. Also, we don't know everything about other people we might like to match with (at least, not at first, so complete information is also not available. So, the market is not perfectly competitive, and therefore cannot be described by supply and demand curves. [*]

Another important problem is that, in the supply and demand model, sellers can sell more than one unit of the product (in fact, they will continue to sell until the point where their marginal cost of production is equal to the price), and can sell to more than one buyer. And buyers will buy more than one unit of the product. None of this seems to be a fair characterisation of sex (unless psychologists inhabit quite a different world from the rest of us).

Now, if you read through the quote from the Baumeister et al. article above, and then go back and read my description of search models from Thursday's post, it should be immediately clear that the search model is a better characterisation of sexual economics. Moreover, it doesn't rely on the assumptions of homogeneous products or complete information, and definitely copes with faithful matches between single individuals.

The sad thing is that the rest of the Baumeister article is, as I said above, really interesting. And, the narrative probably stands up well if you take out the supply and demand framing, and replace it with a framing based on a search model. Someone needs to re-write an improvement on that article.

*****

[*] I'm being a little bit harsh here. As I note in my ECONS101 class, even though the demand and supply model relates to perfectly competitive markets, it still does a good job of describing qualitatively the changes in the price and quantity that will result from a change in market conditions, even when the market is not perfectly competitive.

The economics of sex robots

In my ECONS101 class, we cover search models of the labour market. Unlike the supply and demand model, search models do not rely on a concept of market equilibrium. Instead, it is the relative bargaining power of the parties (employers and workers) that determine the wage.

The simple explanation works like this. Each matching of a worker to a job creates a surplus that is shared between the worker and the employer. Because job matching creates a surplus, this provides the worker with a small amount of market power (or bargaining power). That is because if the worker rejects the job offer, the employer has to start looking for someone else to fill the vacancy. The employer is somewhat reluctant to start their search over, so the worker can use that to their advantage. The division of the surplus created by the match, and therefore the wage, will depend on the relative bargaining power of the worker and employer. If the worker has relatively more bargaining power, the wage will be higher. And if the employer has relatively more bargaining power, the wage will be lower.

This search model doesn't just apply to the labour market. You can also apply it to many situations that involve matching two or more parties. Which brings me to this post on sex robots by Diana Fleischman. Sex involves matching (unless you go it alone). The agreement on the what-where-how of sex will depend on the relative bargaining power of the sexual partners. The increasing availability of increasingly realistic sex robots looks likely to shake things up, because sex robots and women are substitutes (see also this earlier post on pornography and marriage as substitutes). As Fleischman explains:

What does this mean for women? When the sex ratio changes, so too do sexual norms; sex robots are going to emulate an increase in the ratio of women to men. Contrary to a prediction based on the idea that men would wield greater patriachal [sic] control if they were in higher numbers, a larger percentage of women relative to men on University campuses is associated with women who are more likely to have casual sex and less likely to be virgins. When there are more men than women, women are much less likely to have casual sex. The majority sex (in this case men) competes for the minority sex (in this case women) and the minority sex calls the shots. When there is a female majority in the population, women compete for access to mates with casual sex. Whereas a male majority competing for access to scarce women compete with long-term commitment.

Sex robots will emulate a majority women ratio, shifting women to compete for men’s attention by requiring less courtship and commitment in exchange for sex.

Taking a heteronormative perspective, the availability of sex robots reduces the relative bargaining power of women, and therefore increases the relative bargaining power of men. That means that men may be able to extract more of the surplus from potential sexual liaisons. That is, men may be able to get more of what they want. Fleischman notes that:

The long-term ramifications are unclear, especially the way long-term technologies and cultural norms will interact. Perhaps women will discover they have to make the costs of courtship both low and transparent to compete with sex robots.

Women, having to compete with sex robots, may have to offer men more. But not so fast:

Or, perhaps, new technology could enable women to recombine their genes with one another, making men enamored with sex robots (or men generally) totally redundant.

New technology for recombining genes and completely excluding men won't rebalance bargaining power back towards women. The technology necessary to reproduce without involving sex has existed for some time. Fleischman is conflating the reproductive goal of sex, with the pleasure goal of sex. To rebalance bargaining power back towards women, women need their own sex robots. Sex robots for all!

[HT: Marginal Revolution]

Charles Plott's strategies for getting published

There are plenty of critiques of peer review, one of which is that it is incremental and leads to the most novel research failing to get published. If you are a researcher doing incredibly novel research, using methods that reviewers don't fully understand because those methods are not yet widely employed, then you could have real difficulty in getting your best work into top journals. That has been the case for many emerging fields. In economics, in (relatively) recent times (prior to the 1990s), that applies to behavioural economics and to experimental economics. The challenge, then, is how to get your work accepted if you are one of these researchers employing novel or misunderstood methods.

In a new article published in the journal Oxford Economic Papers (ungated version here), Andrej Svorencik (University of Mannheim) documents how one of the pioneers of experimental economics, Charles Plott, overcame the reluctance of editors and journal reviewers to accept the validity of laboratory experiments. As Svorencik writes:

Whereas there were no public detractors of experimentation in economics, the early and most prolific experimenters, such as Charles Plott and Vernon Smith, encountered skeptics and systematic rejections of their submitted papers. Getting them published required tenacity on the writers’ part to go through several rounds of often heated discussions with editors and referees. These iterations present a unique perspective on the arguments raised against experiments in economics and the specific strategies developed by experimental economists to counter them.

Svorencik uses the 'research corpus' of Plott, covering letters and responses to editors and reviewers dating from the mid-1970s to the mid-1990s, and establishes nine different strategies that Plott employed to disarm reviewers and convince editors that his publications using experimental economics should be published:

S1 Asking for knowledgeable referees because previous referees were ignorant of experimental economics;
S2 Claiming that results are interesting, relevant for theory, and have applications;
S3 Claiming that the experiments present real situations;
S4 Claiming that the theory applies to simple cases;
S5 Citing basic research;
S6 Conducting more experiments;
S7 Shifting of the burden of proof;
S8 Steering clear of a specialized journal;
S9 Claiming that field has been confused with method.

One particular example of strategy S4 struck me as particularly important. From a 1979 letter that Plott wrote to George Borts, the editor of the American Economic Review:

The laboratory processes are simple and very special markets... but they are nevertheless real markets which should be governed by the same principles that are supposed to govern all markets. The justification for studying them is the same as the justification for studying the simple special cases and special types of any complicated phenomenon.

In order to see why these markets are real, one need only apply directly the theory of derived demand. It works as follows. Let Ri(xi) be the revenue received by individual i from some source expressed as a function of the number of units (xi) he has to sell. Standard derived demand theory tells us that δRi/δxi is limit price (inverse demand) function for this individual. It is important to note that the theory places no restriction upon the source of the revenue so when the source is an experimenter the derived limit price function for this individual is just as real as when the source is a business. Furthermore, the theory places no restriction on what x is called (unless the individual gets consumption pleasures from it) so the theory applies equally as xi becomes baseball cards, shirts, food, or ‘commodities’ created especially for the purposes of an experiment. There are no ‘side payments’ or incidental sources of enjoyment so as long as the individual prefers more money to less we can be assured the preferences for units of x have been induced. The individual is indeed a ‘demander.’

The supply side of the market is handled similarly. Each supplier, j, faces an individualized cost function Cj(xj) which indicates what j must pay the experimenter as a function of units purchased for resale. Profits to j, which are j’s to keep, are simply the revenues received by j over costs Cj(xj). Clearly that δCj(xj)/δxj is a real marginal cost function. The fact that it was constructed by the experimenter makes the concept no less relevant because the concept is intended to apply universally.

We have then a valued and scarce resource. Almost any textbook will say that those conditions are sufficient for the existence of an economic problem. The laboratory markets are thus real markets and the principles of economics should apply to them as readily as they are supposed to apply to any other market.

Plott's responses to editors and reviewers was very forceful, and it appears that more often than not, he got his way. And generations of experimental economists have benefited from his efforts, as by the 1990s economics research using laboratory experiments had been broadly accepted and was regularly being published in top journals. Svorencik's article provides a key insight into how this process happened, and is a really interesting contribution to the history of economic thought.