The Australian economist Joshua Gans, who has shown up on this blog before, has published a new book called Information Wants to Be Shared. It “looks at the struggles facing information content industries — most notably, publishing (books and newspapers) — and examines the underlying economics of those industries.” Gans and his publisher, HBR Press, are also running a pricing experiment:
HBR eBooks are all DRM-free but, in this case, if someone were to purchase the book (from HBR or from, say, Amazon or Apple), then they will find on the last page a coupon that they can send to a friend. The friend can then buy the book for only $0.99 directing from HBR. In other words, when you share with a friend, your friend gets a great deal. The usual price of the book is $4.99. I have outlined the rationale behind this at my blog Digitopoly. Basically, it is the sort of thing I advocate for information businesses in general.
Predictions?
A new working paper (abstract; PDF) from William N. Evans, Timothy J. Moore, and Craig Garthwaite presents one explanation for the decline in black high-school graduation rates beginning in the 1980s:
We propose the rise of crack cocaine markets as an explanation for the end to the convergence in black-white educational outcomes beginning in the mid-1980s. After constructing a measure to date the arrival of crack markets in cities and states, we show large increases in murder and incarceration rates after these dates. Black high school graduation rates also decline, and we estimate that crack markets accounts for between 40 and 73 percent of the fall in black male high school graduation rates. We argue that the primary mechanism is reduced educational investments in response to decreased returns to schooling.
How did crack cocaine depress schooling returns? “Crack markets had three primary impacts on young black males: an increased probability of being murdered, an increased risk of incarceration, and a potential source of income,” explain the authors. “Each limits the benefits of education.” In other words, high school looks less attractive when you’re more likely to end up dead or in jail, or earn money.
This finding echoes a passage from Freakonomics
In this month’s American Economic Journal, David Card and Ana Rute Cardoso explore the relationship between military service and future wages (abstract; PDF):
We provide new evidence on the long-term impacts of peacetime conscription, using longitudinal data for Portuguese men born in 1967. These men were inducted at age 21, allowing us to use preconscription wages to control for ability differences between conscripts and nonconscripts. We find a significant 4-5 percentage point impact of service on the wages of men with only primary education, coupled with a zero effect for men with higher education. The effect for less-educated men suggests that mandatory service can be a valuable experience for those who might otherwise spend their careers in low-level jobs.
Last year, we put out a podcast called “The Power of Poop,” which looked at the use of fecal transplants (a.k.a. “transpoosions”) to treat everything from multiple sclerosis to Parkinson’s disease. A fascinating Scientific American article explores how gut bacteria may have even further-reaching functions:
In the past few years scientists have been discovering that these microscopic inhabitants of our body may be subtly altering our moods, emotions and perhaps even our personalities. Gut microbiota appear to alter gene activity in the brain and the development of key regions involved in memory and learning. These denizens of our intestines could help explain why psychiatric symptoms vary among individuals, as well as their responses to medications. Gut microbes could also account for some of the differences in mood, personality and thought processes that occur within and among individuals.
(HT: Market Design)
We’ve written before about Claudia Goldin and Larry Katz‘s research on the persistent gender wage gap in the U.S. Now Goldin and Katz are back with a new working paper (abstract; PDF) on “the most egalitarian of all U.S. professions today”:
Pharmacy has become a female-majority profession that is highly remunerated with a small gender earnings gap and low earnings dispersion relative to other occupations. We sketch a labor market framework based on the theory of equalizing differences to integrate and interpret our empirical findings on earnings, hours of work, and the part-time work wage penalty for pharmacists. Using extensive surveys of pharmacists for 2000, 2004, and 2009 as well as samples from the American Community Surveys and the Current Population Surveys, we explore the gender earnings gap, the penalty to part-time work, labor force persistence, and the demographics of pharmacists relative to other college graduates. We address why the substantial entrance of women into the profession was associated with an increase in their earnings relative to male pharmacists. We conclude that the changing nature of pharmacy employment with the growth of large national pharmacy chains and hospitals and the related decline of independent pharmacies played key roles in the creation of a more family-friendly, female-friendly pharmacy profession. The position of pharmacist is probably the most egalitarian of all U.S. professions today.
A hilarious depiction of Greece and Germany as a bickering couple:
The environment has taken a back seat to the economy this election season. But timely new research looks at the intersection of politics, economics and the environment: the actual cost of environmental regulations.
A new working paper (abstract; PDF) by Michael Greenstone, John List, and Chad Syverson analyzes the economic cost of air-quality regulations. From the abstract:
The economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago. Using detailed production data from nearly 1.2 million plant observations drawn from the 1972-1993 Annual Survey of Manufactures, we estimate the effects of air quality regulations on manufacturing plants’ total factor productivity (TFP) levels. We find that among surviving polluting plants, stricter air quality regulations are associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly large negative effects on productivity, though effects are also evident among particulates and sulfur dioxide emitters.
1. Is lap dancing taxable? (HT: K. Wells)
2. A graphic novel about economic theory.
3. A new paper on last meals: most requested items were meat, fried food, desserts, and soft drinks.
4. Principal tries new incentive program for students: no cellphones or cars if they’re failing. (HT: V. Brenner)
5. Honest Tea’s National Honesty Index this year: 93 percent of participants were honest.
6. Is shrimp too cheap?
Putting people in prison helps drive down crime but it’s not cheap, a fact that is troubling some states. So is there a way to cut incarceration rates without spiking crime? Yes, says economist Ben Vollaard in a recent article (long version) arguing in favor of “selective incapacitation”:
The idea of selective incapacitation is to make a distinction between offenders with a high and with a low propensity to commit crime. Those of the high propensity type – the prolific offenders – are responsible for a large share of violent and property crime (Tracy et al. 1990). To them, the default penalties have little deterrent effect. By making the length of a prison sentence conditional upon an offender’s criminal record, enhanced prison sentences can be targeted at this population. After all, by repeatedly breaking the law, these offenders reveal themselves to be of the prolific type (Polinsky and Rubinfeld 1991). Once the harsher sentences apply, the penalties may begin to make a difference, if not through deterrence, then by way of incapacitation in prison.
Resource-rich developing countries have long struggled to overcome the “resource curse,” which includes a strong streak of corruption, but now they’re getting a little help from the SEC. Here‘s Jeff Colgan of Foreign Policy:
[T]he SEC finally enacted long-overdue regulations requiring any oil company that is publicly listed on a U.S. stock exchange to report the tax, royalty, and other payments it shells out to foreign governments where it operates. Previously, companies were able to conceal this information, enabling a culture of corrupt payoffs that kept the petrodollars flowing into authoritarian leaders’ coffers — even where it directly contravened U.S. interests.
Colgan argues that in addition to helping developing countries, the regulation will reduce violence, which is good news for the U.S. as well. “Research shows that oil-producing states led by revolutionary governments like that of ousted Libyan leader Muammar al-Qaddafi are more than three times as likely to instigate militarized international conflicts as a typical state,” he writes.
1. Do images of babies help curb crime? A graffiti social experiment in southeast London. (HT: Alex Berezow)
2. Stanford startup Maykah creates toys for girls that encourage them to study math and science.
3. Amazon’s election map. (HT: Flowing Data)
4. Brown University’s student radio show also looks at whether college is worth it.
5. FREAK-shot: an ATM machine that offers risk-free gambling. (HT: Lou Wigdor)
The AP reports that Brazilian drug lords are colluding to get rid of crack cocaine even though it will result in millions of lost dollars. Why? Because crack customers have made their jobs unmanageable:
“Rio was always cocaine and marijuana,” [former police chief Mario Sergio Duarte] said. “If drug traffickers are coming up with this strategy of going back to cocaine and marijuana, it’s not because they suddenly developed an awareness, or because they want to be charitable and help the addicts. It’s just that crack brings them too much trouble to be worth it.”
A lawyer for the gangs confirms this:
A new paper from Nicola Lacetera, Mario Macis, and Sarah S. Stith (abstract; PDF) looks at whether various incentives are helping in getting more organ donations and bone-marrow donations:
In an attempt to alleviate the shortfall in organs and bone marrow available for transplants, many U.S. states passed legislation providing leave to organ and bone marrow donors and/or tax benefits for live and deceased organ and bone marrow donations and to employers of donors. We exploit cross-state variation in the timing and passage of such legislation to analyze its impact on organ donations by living and deceased persons, on measures of the quality of the organs transplanted, and on the number of bone marrow donations. We find that these provisions did not have a significant impact on the quantity of organs donated. The leave legislation, however, did have a positive impact on bone marrow donations. We also find some evidence of a positive impact on the quality of organ transplants, measured by post-transplant survival rates. Our results suggest that these types of legislation work for moderately invasive procedures such as bone marrow donation, but may be too low for organ donation, which is riskier and more burdensome to the donor.
Are we perhaps inching closer to a legal market in organs?
Economists, long inspired by Milton Friedman and others, generally embrace the concept of school choice. But actual evidence on its efficacy has been thin.
A new working paper by Justine S. Hastings, Christopher A. Neilson, and Seth D. Zimmerman, using data from a low-income urban school district, offers some encouraging news for choice advocates:
[W]e use unique daily data on individual-level student absences and suspensions to show that lottery winners have significantly lower truancies after they learn about lottery outcomes but before they enroll in their new schools. The effects are largest for male students entering high school, whose truancy rates decline by 21% in the months after winning the lottery.
How do the authors interpret this finding?
1. The behavioral economics of online passwords.
2. Economists estimate all the spam in the world costs society $20 billion for $200 million revenue. (HT: Eric M. Jones)
3. Food diplomacy in East Asia.
4. Mike Mularkey‘s incentive plan to stop touchdown celebrations. (HT: Will Carr)
Our latest Freakonomics podcast, “The Season of Death,” explored the relative danger of some favorite summertime activities — all of which claim many more lives than the much-feared shark attack. Foreign Policy has compiled a list of 10 things that kill more people than sharks. Our favorites: trampolines, roller coasters, and vending machines. Also on the list: aggressive TVs or furniture:
Crushed by television or furniture: 26.64 deaths per year. As I’ve noted, this is a bigger killer of Americans than terrorism, which led to this Colbert Report Threat Down warning against the perils of “terrorist furniture.”
A new paper by psychologists E.J. Masicampo and David Lalande finds that an uncanny number of psychology findings just barely qualify as statistically significant. From the abstract:
We examined a large subset of papers from three highly regarded journals. Distributions of p were found to be similar across the different journals. Moreover, p values were much more common immediately below .05 than would be expected based on the number of p values occurring in other ranges. This prevalence of p values just below the arbitrary criterion for significance was observed in all three journals.
The BPS Research Digest explains the likely causes:
The pattern of results could be indicative of dubious research practices, in which researchers nudge their results towards significance, for example by excluding troublesome outliers or adding new participants. Or it could reflect a selective publication bias in the discipline – an obsession with reporting results that have the magic stamp of statistical significance. Most likely it reflects a combination of both these influences.
“[T]he field may benefit from practices aimed at counteracting the single-minded drive toward achieving statistical significance,” say Masicampo and Lalande.
1. German startup “Schimpf-los” (“swear away”) provides telephone therapy for those who want to blow off steam by cursing. (HT: V. Brenner)
2. The “left-digit” effects for cigarettes.
3. Tim Harford‘s book Undercover Economist
4. China rounds up 2,000 people for fake pharmaceuticals.
5. Major League Soccer set to create a “smart league” with a microchip on each player that records “more than 200 data records per second.” (HT: Michael Kesterton)
6. Nice new blog called Spreadsheet Journalism from Abbott Katz.
In Nieman Journalism Lab blog post, Ken Doctor explores the possible effects of Amazon’s shift into same-day delivery on newspaper advertising revenues:
Here’s what most hurts most about the new Amazon threat: It aims directly at the one category of newspaper advertising that has fared the best, retail.
Classifieds has decimated by interactive databases. National has migrated strongly digital. Retail, which made up of just 47 percent of newspaper ad revenues 10 years ago, is now up to 57 percent of newspaper totals. Now that advertising, albeit in just a few markets initially, will have to compete with Amazon-forced marketplace change.
Doctor also considers the implications of the move for Google, cityscapes and shopping centers, and employment.
(HT: Marginal Revolution)
Health care reformers often argue that increasing patients’ access to doctors (especially primary care doctors) can actually lower health care costs in the long run, as these doctors can help diagnose and manage conditions before they lead to more expensive treatments and hospitalizations. But a new paper by economists Robert Kaestner and Anthony T. Lo Sasso disputes that theory. Here’s the abstract:
By exploiting a unique health insurance benefit design, we provide novel evidence on the causal association between outpatient and inpatient care. Our results indicate that greater outpatient spending was associated with more hospital admissions: a $100 increase in outpatient spending was associated with a 2.7% increase in the probability of having an inpatient event and a 4.6% increase in inpatient spending among enrollees in our sample. Moreover, we present evidence that the increase in hospital admissions associated with greater outpatient spending was for conditions in which it is plausible to argue that the physician and patient could exercise discretion.
The authors further conclude that “the implication of these findings is that expanding health insurance, as recent federal reform (Patient Protection and Affordable Care Act) proposes, will be cost increasing.”
A Bloomberg article by Virginia Postrel explores a discouraging trend in income inequality. For decades, incomes across states in the U.S. converged — i.e. poor states caught up to rich ones — just as Robert Solow‘s growth theory predicted:
Poor places are short on the capital that would make local labor more productive. Investors move capital to those poor places, hoping to capture some of the increased productivity as higher returns. Productivity gradually equalizes across the country, and wages follow. When capital can move freely, the poorer a place is to start with, the faster it grows.
That steady convergence, however, has stopped. One possible explanation? High housing prices in rich cities, caused by government regulation:
Over at the Big Think, eight young economists weigh in on the future of the profession, including our own Justin Wolfers. Here’s Justin:
Specifically, the tools of economics will continue to evolve and become more empirical. Economic theory will become a tool we use to structure our investigation of the data. Equally, economics is not the only social science engaged in this race: our friends in political science and sociology use similar tools; computer scientists are grappling with “big data” and machine learning; and statisticians are developing new tools. Whichever field adapts best will win. I think it will be economics. And so economists will continue to broaden the substantive areas we study.
A New England Journal of Medicine article explores the history of the Olympic Games as an object of “medical scrutiny,” with some interesting highlights:
Physicians have been interested in the Olympics for many reasons. In the 1920s, they probed the limits of human physiology. One group studied the Yale heavyweight rowers who won gold in Paris. An ingenious contraption revealed that at their racing speed — 12 mph — the eight men produced four horsepower, a 20-fold increase over resting metabolism (1925). A 1937 study published in the Journal showed that athletes at the 1936 Berlin games consumed 7300 calories each day (1937).
Of course, physicians are currently most fascinated by the effects and progress of performance-enhancing drugs:
The last three months have seen several large corporate fines levied in response to various high-profile financial scandals, but an article in The Economist asks if fines are still not high enough to actually deter crime:
The economics of crime prevention starts with a depressing assumption: executives simply weigh up all their options, including the illegal ones. Given a risk-free opportunity to mis-sell a product, or form a cartel, they will grab it. Most businesspeople are not this calculating, of course, but the assumption of harsh rationality is a useful way to work out how to deter rule-breakers.
Extremely high and extremely low fines both carry costs, so The Economist suggests a middle ground: fines that offset the benefits of the crime itself.
A new study looks at how ideological and political beliefs affect people’s perceptions of the weather. The authors surveyed 8,000 people across the U.S. between 2008 and 2011 and found that while floods and droughts were remembered correctly, temperature changes were a different story. From Ars Technica:
In fact, the actual trends in temperatures had nothing to do with how people perceived them. If you graphed the predictive power of people’s perceptions against the actual temperatures, the resulting line was flat—it showed no trend at all. In the statistical model, the actual weather had little impact on people’s perception of recent temperatures. Education continued to have a positive impact on whether they got it right, but its magnitude was dwarfed by the influences of political affiliation and cultural beliefs.
And those cultural affiliations had about the effect you’d expect. Individualists, who often object to environmental regulations as an infringement on their freedoms, tended to think the temperatures hadn’t gone up in their area, regardless of whether they had. Strong egalitarians, in contrast, tended to believe the temperatures had gone up.
1. The cost of free donuts. (HT: Eric M. Jones)
2. Is it harder to make friends after the age of 30?
3. Repugnant? A crematorium installs turbines to generate electricity. (HT: Eric M. Jones)
4. Dave Berri on NPR discussing Jeremy Lin.
5. Science, sex, and the Olympics.
6. Nate Silver plays “Medalball“: how to score cheap Olympics medals. (HT: H.L.)
While pirate attacks worldwide are down so far this year, Foreign Policy reports that Africa’s blackbeards seem to have shifted their attention to West Africa and Indonesia, where attacks have increased. From a new report from the International Maritime Bureau:
The decline in Somali piracy, however, has been offset by an increase of attacks in the Gulf of Guinea, where 32 incidents, including five hijackings, were reported in 2012, versus 25 in 2011. In Nigeria alone there were 17 reports, compared to six in 2011. Togo reported five incidents including a hijacking, compared to no incidents during the same time last year.
The IMB report emphasized that high levels of violence were also being used against crew members in the Gulf of Guinea. Guns were reported in at least 20 of the 32 incidents. At least one crew member was killed and another later died as a result of an attack.
In our recent podcast “Riding the Herd Mentality,” we discussed how the actions of people around you significantly affects your behavior. A new paper studies garbage and litterers, and whether more garbage begets more garbage. Researchers Robert Dur and Ben Vollaard collected data for three months in a densely populated residential area in Rotterdam for some 4,000 households. The abstract:
Field-experimental studies have shown that people litter more in more littered environments. Inspired by these findings, many cities around the world have adopted policies to quickly remove litter. While such policies may avoid that people follow the bad example of litterers, they may also invite free-riding on public cleaning services. This paper reports the results of a natural field experiment where, in a randomly assigned part of a residential area, the frequency of cleaning was reduced from daily to twice a week during a three-month period. Using high-frequency data on litter at treated and control locations before, during, and after the experiment, we find strong evidence that litter begets litter. However, we also find evidence that some people start to clean up after themselves when public cleaning services are diminished.
An article in The Economist argues that a little auction theory might solve some of the British Bankers’ Association (BBA) current LIBOR problems:
Some of LIBOR’s failures also have echoes in auctions. Traders at involved banks are accused of aligning their LIBOR estimates in an attempt to affect the final rate. They were able to cross-check what others had done, since the BBA makes individual estimates public. These traders had, in effect, formed a “bidding ring,” analogous to a sort of cartel that is familiar to observers of auctions.
Fortunately, a variety of economists have researched how to break bidding rings. Their findings suggests that, in addition to relying on actual data (instead of estimates) and creating penalties for false bidding, the LIBOR system would benefit from a few changes focused on the weaknesses of bidding rings:
Once banks’ LIBOR bids actually have some commitment value, the system should focus on the weaknesses that auction cartels are known to have. The cartel-enforcement problem would be more acute if the BBA increased the number of submitting banks and kept those bids private. The entry of outsiders should be actively encouraged, by allowing other lenders to banks (money-market funds, say) to submit estimates, too.
Writing for Slate, Ray Fisman (who’s been on the blog before) explains why “the bottom 20 percent of American families earned less in 2010 than they did in 2006, the year before the recession began”:
There are two broad shifts that account for much of this decline: globalization and computerization. From T-shirts to toys, manufacturing jobs have migrated to low-wage countries like Vietnam, Bangladesh, and of course China. Meanwhile, many of the tasks that might have been done by middle-income Americans employed as bookkeepers or middle managers have been replaced by spreadsheets and data algorithms.
Fisman argues that in order to succeed in the new economy, American workers need to shift away from construction and manufacturing jobs to “high touch” professions. “If jobs are being lost to low-wage Indians and computer programs, then what today’s worker needs is a set of skills that offers the personal touch and judgment that can’t be provided by a machine or someone 12 time zones away,” writes Fisman.
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