Happy 2014 from Sunny Guatemala

Innovative Tool in Micro-finance

From this article in the NYT

Banks in 16 countries are using a psychometric test to predict future behavior — specifically, whether someone will pay back a loan. Originally a Harvard doctoral project, the Entrepreneurial Finance Lab’s test has increasingly won the confidence of risk-averse bankers in places where, many economists believe, credit bottlenecks are severely stunting growth.

And

Since Standard Bank, Africa’s largest, first adopted E.F.L.’s model in Kenya in 2008, bankers around the world have used it to lend more than $200 million, in average amounts of $7,500, to entrepreneurs who would not have otherwise qualified, the finance lab’s founders say. Now an independent company based in Lima with about 30 employees, the Entrepreneurial Finance Lab has grown with the help of grants, including a $3.6 million prize for being among the winners of a G-20 challenge for small-business financing in 2011.

Some of the questions are

“I plan for every eventuality,” “I’m in between” or “Planning takes the fun out of life.”

Facinating! Some illustrative videos of how it works are in the Lab's website. 

In Haiti, and probably in most of the developing countries, banks do not lend to new (small) businesses - businesses that have not gotten credit before, which perpetuates a circle of poverty. This new test can help to change that. The test might create a secondary market of information, in the sense that if I need a credit I can ask successful entrepreneurs who have passed the test in the past. Of course the test can change the questions, but just the fact that I can learn what kind of answers or attitudes make people pass the test can be very useful. 

Why do the majority of micro-loans go to women?

More than 70 percent of loans go to women clients according to a paper [if the link does not work you can try the first link here] by Sugato Chakravarty, S. M. Zahid Iqbal, & Abu Zafar M. Shahriar. The abstract 

We use controlled experiments to identify the proximal causes of gender differences in the repayment of microcredit. We recruit male and female subjects from a patriarchal and a matrilineal community in Bangladesh, who live in the same villages, and find that the female subjects have a greater willingness to repay microcredit in every society irrespective of the type of loan. Thus, the observed gender differences in the repayment of microcredit cannot be explained by the different roles that women play in different societies. In other words, women are “naturally” better credit risks than men in microcredit. We confirm that our results are not driven by the common culture and values among our subjects that stem from geographical proximity. 

The title of the paper is "Are Women “Naturally” Better Credit Risks in Microcredit?  Evidence from Field Experiments in Patriarchal and Matrilineal Societies in Bangladesh." Many questions remain but culture does not seem to be the answer. 
HT: Michele Battisti 

"Google Trends" e "Indicadores Adelantados"

De un paper sobre Google Trends escrito por Jillie Chang & Andrea Del Río. 

En este documento se analiza si la información proporcionada por Google Trends puede reflejar el comportamiento de variables macroeconómicas de Perú, como el Índice de Empale de Lima para Empresas de 100 y más Trabajadores (IE100). Utilizando esta fuente de información se construyó un índice que representa a la población que busca trabajo, el dual fue denominado Índice de Google de Desempleo (IGD). Los resultados indican que el model que incluye este índice mejora la predicción del IE100. Asimismo, se encuentra que este permite realizar predicciones contemporáneas y un periodo hacia adelante; empero, no permite anticipar la senda futura para más de un periodo. La importancia de estos hallazgos radical en que Google Trends es una fuente de información con una frecuencia más alta (semanal) que está disponible cuatro meses antes que las fuentes oficiales. En tal sentido, resulta una herramienta útil para toma de decisiones de los hacedores de política en particular en épocas de crisis, en donde el seguimiento y predicción de las variables de la actividad económica en tiempo real es fundamental.

Google Trends puede ser muy útil para empresas que quieren saber más de su industria. Es decir puede ser más útil a nivel micro, que a nivel macro. Por ejemplo, se puede tratar de predecir la demanda de construcción y bienes raíces, transporte, etc. Una buena explicación, en inglés, sobre como usar Google Trends en economía, esta aquí. 

Por otro lado, en el artículo de Chang & Del Río hay gráficas interesantes como el porcentaje de la población en Perú que tiene acceso a Internet, arriba del 35%. Aquí puede ver porcentajes de acceso alrededor del mundo. Los más altos en America Latina parecen ser Chile y Argentina. Y en África, al sur del Sahara, el más alto parece ser las Islas Mauricio.

Social Divisions and Access to Public Goods

This is an example of how caste heterogeneity - or just a caste system - can complicate economic development:

Our empirical analysis documents that communities that are heterogeneous in terms of caste within the majority Hindu religion are likely to have lower access to tap water than correspondingly homogeneous communities. Historical divisions created by the caste system in India may generate rivalry associated with the usage and sharing of public goods, and thereby reduce the coordination required to get the state to provide more public goods. By contrast, communities that are fragmented across religions are likely to have more access to tap water than correspondingly homogeneous communities. This may be because the risk of internal conflict due to religious divisions (a common source of violent riots in India) cause the state to send more public goods to areas fragmented by religion. 

That is from the conclusions of the draft of this article by Divya Balasubramaniam, Santanu Chatterjee, & David B. Mustard, in Economica (January 2014).  A draft (September 2012) is here. The name of the article is "Got Water? Social Divisions and Access to Public Goods in Rural India."

We should think about how to promote cohesion within societies with high degree of heterogeneity. The answer might be to build (more) trust, which is easier to say than do. 

Wikipedia has a fascinating entry of the Caste System in India. 

Transferencias y Criminalidad (Bogotá)

Daniel Mejía es uno de los economistas-investigadores mas rigurosos y creativos de América Latina. Ha hecho estudios sobre el efecto de la guerra contra las drogas, entre otros. En este artículo él y su coautora, Adriana Camacho, analizan el efecto de un programa gubernamental de transferencias condicionadas, llamado Familias en Acción, sobre la criminalidad en la ciudad de Bogotá. Del abstract: 

En este trabajo estudiamos los efectos indirectos del mayor Programa de Transferencias Condicionadas (PTC) en Colombia, Familias en Acción, sobre los niveles de criminalidad en el área urbana de la ciudad de Bogotá. Para realizar este estudio combinamos las siguientes dos fuentes de información: el Sistema de Información de beneficiarios de Familias en Acción (SIFA) y los reportes administrativos de criminalidad de la Policía Nacional. En el estudio evaluamos dos posibles canales por los cuales Familias en Acción puede afectar los niveles de criminalidad. Por un lado, el efecto ingreso, para el cual explotamos la variación existente en las fechas de pago del programa. Nuestros resultados indican que a través de este efecto el programa reduce el crimen a la propiedad. Específicamente, encontramos que las transferencias del programa reducen la tasa de hurto a personas y de hurto a vehículos en 7.2% y 1.3%, respetivamente, en los días posteriores a las trasferencias de Familias en Acción. Por otro lado, estudiamos si las condicionalidades de asistencia escolar como requisito para obtener los subsidios que otorga el programa “incapacitan” (o impiden) que los adolescentes se vinculen a actividades delictivas. Para estimar dicho efecto hacemos uso de las fechas de vacaciones del sistema educativo y las fechas de los paros del principal sindicato de trabajadores del sector educación (FECODE). Nuestros resultados indican que el programa Familias en Acción no tiene efectos sobre la criminalidad a través del efecto incapacitación. Con esto, los resultados muestran que las transferencias que otorga el programa Familias en Acción disminuyen el crimen (efecto ingreso), pero el efecto a través de la incapacitación de los adolescentes de vincularse a actividades delictivas no parece operar.

Es decir la incondicionalidad de la transferencia funcionó mejor que la condicionalidad sobre el crimen. 

Do more distant collaborations have more citation impact?

Some evidence for you to look for co-authors located far away from home:

We find that citation impact increases with the geographical distance between the collaborating counties.

The key seems to be more creativity and more diffusion of findings. The study is here and the authors are Nomaler, Frenken, & Heimeriks. 

The study is for the European countries only, and the authors say:

Russia is a very productive country but its citation impact tends to be low. And reversely, Denmark’s output is only a seventh of Germany’s output, yet Denmark’s citation impact is the highest among all countries.

Imagine for example collaborative studies Guatemala-Rwanda, or Guatemala-Sri-Lanka, or Salvador-Colombia-Sierra Leone on issue of conflict and recovery. Or think about Guatemala City-Nairobi on apps and technology. Or Haiti-Liberia on economic growth. Or Alberta-Caracas on exploiting mineral resources successfully. Etc. Which is only speculation - but worth trying - because the authors restrict their sample to Europe.  

HT: Jonas Holmstrom

Cultura de Plagio

Una de las consecuencias del plagio es que genera una cultura en la que “copiar y pegar,” sin atribución, es una práctica más usada y aceptada que la de pensar creativamente. La creatividad en una sociedad puede estar relacionada con las actitudes ante el plagio en escuelas y universidades. 

Alejandro Miranda da algunos consejos en su artículo “Plagio y Ética en la Investigación Científica”

• Un buen investigador identifica claramente lo que recoge de otros autores, y da crédito incluso a las buenas ideas que ha recibido verbalmente de otros. 

• Un buen investigador domina adecuadamente los sistemas de citación y de elaboración de notas. 

• Un buen investigador está al día en su propia disciplina: conoce a los principales autores y conoce la discusión relevante. De esta manera evita presentar erróneamente, como novedosas y originales, teorías que ya han sido formuladas por otros, y, de paso, disipa toda sospecha de plagio. 

• Un buen investigador conoce la ley sobre propiedad intelectual que rige en su país. Puesto que esta ley es relevante para su trabajo y se presume justa si procede de autoridad legítima (que es lo normal), el investigador debe conocerla a lo menos en general (Véase Grisez (1997) pp. 687-688). Con todo, puesto que las prohibiciones que se establecen en este tipo de leyes no son siempre absolutas desde el punto de vista moral, ciertas circunstancias pueden eximir de su cumplimiento.  

• Un buen investigador, cuando envía a publicación una obra substancialmente idéntica a otra que ha publicado previamente, siempre expresa esta circunstancia. Desde luego al editor, pero también a los potenciales lectores. Y siempre en un lugar de fácil acceso.  

• En su lista de publicaciones (por ejemplo, en un curriculum vitae), un buen investigador identifica claramente las reimpresiones o nuevas versiones de una publicación previa. Si la nueva es substancialmente igual a la anterior, el buen investigador la agrega dentro del mismo número, para evitar que una publicación en duplicado cuente como si fueran dos trabajos diversos. Finalmente:  

• Un buen académico investigador no deja sin sanción el plagio que descubre en sus alumnos. La condescendencia con el plagio solo cauteriza la conciencia del plagiario y torna más difícil el combate contra esta práctica que, como se indicó anteriormente, pone en serio riesgo el prestigio de la labor científica y de la institución universitaria como el lugar propio de ella.

Retornos de la Educación Técnica y Tecnológica (Colombia)

Esto es de un articulo publicado en la Revista Desarrollo y Sociedad, de la Universidad de los Andes:

La educación superior no universitaria (ESNU), que comprende los programas técnicos y tecnológicos, puede ser una opción de política pública para disminuir la brecha salarial y evitar la concentración de la riqueza. Mediante estimaciones tipo pool de la ecuación de Mincer para los años 2007-2011 y la descomposición del ingreso por componentes factoriales en la que se toma como insumo la ecuación del ingreso, se encuentra que la educación técnica y tecnológica tiene una tasa de retorno superior a la de la educación media en 19,5% y, además, la tasa de crecimiento de este retorno entre 2007 y 2011 fue superior a la de la educación universitaria en 0,4%. Así mismo, la ESNU incrementa la probabilidad de empleo con respecto a no poseer ningún título o tener educación superior universitaria en 1,7% y 0,2% respectivamente. Este tipo de educación favorece principalmente a mujeres, jóvenes y población ubicada en los estratos socioeconómicos más bajos.

Lo que también constituye una oportunidad para emprendedores educativos, y muy probablemente está en la mayoría de países en LA.

Indian Entrepreneurial Success in the US

Of all immigrant groups, entrepreneurs from India are the most successful in the US, across different dimensions, and that is because they have higher levels of education, and also because returns to education are higher in the US. That is one of the conclusions of this interesting paper. There is a lot of specific and interesting information in the paper, for example: 

We find that Indian entrepreneurs are much more successful than the national average in the United States. Indian businesses also perform well in Canada and the United Kingdom, but the evidence is not as strong. In the United States, Indian entrepreneurs earn 60 percent more than white entrepreneurs and have the highest average business income of any immigrant group. (pp. 23-24)

The name of the paper is "Indian Entrepreneurial Success in the United States, Canada and the United Kingdom," by Robert W. Fairlie, Harry A. Krashinsky, Julie M. Zissimopoulos, & Krishna B. Kumar.
At the same time, however, there are some entrepreneurs returning home, and others are being successful somewhere else.  

The Best 10 Economics Papers of 2013

According to the number of visits to this blog - some of them came out as working papers in 2013, or they were published in 2013.

1. The Wealth of Subnations: Geography, Institutions, and Within-Country Development. (Working paper 2013). By Todd Mitton.
2. Better than Ploughing. (PSL Quarterly Review 2013). By James M. Buchanan.
3. MIT’s Openness to Jewish Economists. (Working paper 2013). By E. Roy Weintraub.
4. Gold Returns. (Working paper 2013). By Barro & Misra. 
5. Riding in Cars with Boys: Elinor Ostrom's Adventures with the Police. (Journal of Institutional Economics), (working paper 2013). By Boettke, Palagashvili, & Lemke. I did not find an ungated version of this paper. 
6. Some Perspectives on Linked Ecosystems and Socio-Economic Systems. (Working paper 2013). By Arrow, Ehrlich, & Levin.
7. The Impact of Parental Death on Child Well-Being: Evidence from the Indian Ocean Tsunami. (Working paper 2013). By Cas, Frankenberg, Suriastini, & Thomas.
8. Family Ties. (Working paper 2013). By Alesina & Giuliano.
9. The economic impact of Special Economic Zones: Evidence from Chinese municipalities. (Journal of Development Economics 2013) (working paper 2009). By Jin Wang.
10. Does Urbanization Affect Rural Poverty? Evidence from Indian Districts. (Working paper 2013). By Calì & Menon. 

The post on the paper "Childhood Socialization and Political Attitudes: Evidence from a Natural Experiment" has had many visits as well. (The Journal of Politics 2013). By Healy & Malhotra.

Of course there is top research in economics out there that is not in the list.

The 2011 list is here.

The 2012 list is here. 

Dealing with prostitution across Europe

The Guardian posted an interesting article regarding how politicians are dealing with ever-lasting prostitution and the externalities of this social phenomenon. The answer to why prostitution has been around since forever is fairly logic and easy: there´s  an actual market for it; buyers and sellers, services and products...and prices. But the 21st century calls for a new approach to get a hold on social behaviors the likes of prostitution, and it seems that the efforts made by politicians to "solve" them need help from an economic way of thinking.

The Guardian article reads: 

Politicians across Europe are considering reforming prostitution laws as part of the fight against human trafficking and sexual exploitation. France has criminalised the purchase of sex, a model they have taken from Sweden, which has pioneered a hard-line approach to prostitution since 1999. But where do European countries stand now? -The Guardian. 

The interactive map shows how politicians attempt to regulate prostitution in European countries. However, what can we say from an economic point of view? How can economics shed a light on the regulations concerned with prostitution and its externalities? 

What is the Alberta Effect?

. . . [W]here resource abundant regions exploit the fiscal advantage, provided by the resource rents, to compete more aggressively in the inter-regional competition over capital, and as a result attract vast amounts of capital– which in turn mitigates and even reverses Dutch Disease symptoms (and, following Wahba's (1998) model, transmits them to factor exporting regions) so that eventually Resource Blessing effects are observed within federations. 

That is from this paper by Ohad Raveh, and the title is "Dutch Disease, Factor Mobility, and the Alberta Effect: The case of federations." 

Redesigning a Public Agency (Morocco)

The case is part of the Innovation for Successful Societies project, which has good cases for teaching, etc. The abstract

Until 2001, Morocco’s Caisse Nationale de Sécurité Sociale (CNSS, or National Social Security Fund) did its job unevenly, inefficiently, and, critics said, often unfairly. Although the fund was meant to provide insurance for all private sector employees, it covered only about half of them. It had no proper accounting and was mismanaged and corrupt to the extent that it had lost the trust of companies, workers, and politicians. In 2001, the CNSS’s new director general, Mounir Chraïbi, moved to improve service delivery and increase enrollment in response to a parliamentary investigation committee report that had revealed the agency’s shortcomings. Chraïbi and his successor, Saïd Ahmidouch, reorganized the CNSS to enhance accountability and efficiency, rebuilt the staff to raise skill levels, introduced an electronic system for handling many of the fund’s interactions with businesses, and changed the design of the auditing process. By 2010, when Ahmidouch implemented the final measures of the reform plan, the agency had sharply increased its enrollment of private sector companies and their employees and regained the trust of its partners. 

Are Ethicists More Likely to Pay Their Fees?

Lists of paid registrants at Pacific Division meetings of the American Philosophical Association from 2006–2008 were compared with lists of people appearing as presenters, commentators or chairs on the meeting programme those same years. These were years in which fee payment depended primarily on an honour system rather than on enforcement. Seventy-four per cent of ethicist participants and 76% of non-ethicist participants appear to have paid their meeting registration fees: not a statistically significant difference. This finding of no difference survives scrutiny for several possible confounds. Thus, professional ethicists seem no less likely to free-ride in this context than do philosophers not specializing in ethics. These data fit with other recent findings suggesting that on average professional ethicists behave no morally better than do professors not specializing in ethics.

That is from this article by Eric Schwitzgebel in Economic and Philosophy (November 2013). A draft is here. 

Festivals and economic growth (Italy)

In this paper we show how the investment in cultural events may encourage the building of social capital and foster the development of local communities. We rely on a case study we conducted on the socio-economic impact of “La Notte della Taranta” Festival, one of the most important European festivals dedicated to traditional music (about 170,000 participants per year), on the sub-region of southern Italy where it is held. Our evidence is based on a large survey, consisting of nearly 10,000 interviews to Festival attendees over a span of five editions (2007–2011). A primary result is that the initial economic investment in the Festival has brought a short-term return in terms of touristic attraction worth more than two times as much. More importantly, our results indicate that a cultural festival, despite being a mass gathering, is able to create strong bonds among its participants and between them and the area where the event takes place. Although these bonds are “instantaneous”, i.e. temporally restricted to the duration of the event, they are positively correlated with the economic impact of the event on the territory.

The abstract from this paper in the Journal of Socioeconomics (December 2013). The paper is by Giuseppe Attanasi, Fortuna Casoria, Samuele Centorrino, & Giulia Urso. And the title is "Cultural investment, local development and instantaneous social capital: A case study of a gathering festival in the South of Italy."

A draft is here. 

Do Return Migrants Make Better Leaders?

While migration per se is not found to affect the quality of political institutions, it appears that leaders who studied abroad are associated with higher levels of democracy (p. 3).

That is from this interesting paper by Marion Mercier.

. . . unmarried women are spectacularly loyal to the Democrats.

Yet unmarried women are spectacularly loyal to the Democrats.

And more from this The Economist article 

. . . unmarried women are one of America’s fastest-growing groups, leaping from 45m in 2000 to around 53m today—making them, in theory, a larger block of eligible voters than blacks and Hispanics put together (though in reality the groups overlap).

And in a related topic from an article in Demography (October 2013)

Results show that increases in the proportion of women unmarried by age 40 contributed most to the increase in childlessness in the late twentieth century, although these increases were offset somewhat by increased childbearing among unmarried women. The rising proportion of women with a college degree also explained a substantial amount of the increase in childless women.

The article is titled "Marriage (Still) Matters: The Contribution of Demographic Change to Trends in Childlessness in the United States," and it is by Sarah R. Hayford. 

Some illustrative graphs are here. 

How to build with clay

Very impressive

HT: Dumega Torgbui Akaba.

Simple Development Policy

This is not from a new paper but it is reminder that economic development policy is increasingly moving toward advising direct transfers, in many spheres

Noting that Africa’s resource-rich countries have not translated their wealth into sustained economic growth and poverty reduction, this paper shows that by transferring a portion of resource-related government revenues uniformly and universally as direct payments to the population, some countries could increase both private consumption and the provision of public goods, and thereby reduce poverty and enhance social welfare. We make the case based on theoretical considerations and explore how these direct dividend payments would look in practice in a group of selected African countries.

The paper is by Shantayanan Devarajan, Marcelo M. Giugale, Helene Ehrhart, Tuan Minh Le & Huong Mai Nguyen.

Savings by and for the Poor: A Research Review and Agenda

This paper by Dean S. Karlan, Aishwarya Ratan & Jonathan Zinman has an interesting discussion of the behavioural bias that affect the usage of saving products. An introduction in the section

The behavioral social sciences suggest several cognitive tendencies that can lead to undersaving or more broadly to “present-bias”. Behavioral research has documented biases in preferences (costly self-control, loss aversion, anticipatory utility); in expectations/perceptions of prospects (e.g., over-optimism); in price perceptions (e.g., exponential growth bias); and in whether and how to make a decision conditional on all other variables (e.g., limited attention, planning fallacies). Understanding these biases can help us identify more and less malleable drivers of undersaving, and design products and processes that help people save as they aspire to in their more reflective moments. Our review below focuses on field (not lab) evidence linking specific behavioral biases to savings behavior in developing countries; see DellaVigna (2009) for a broader review, and Zinman (forthcoming) for a complementary review of behavioral theories and evidence related to over-borrowing.

It also gives ideas for relevant research that needs to be done.  

Cash versus Food Transfers (Niger)

From a paper by John Hoddinott, Susanna Sandstrom, & Joanna Upton (December 2013, new version). The title of the paper is "The Impact of Cash and Food Transfers: Evidence from a Randomized Intervention in Niger"

We assess the relative impacts of receiving cash versus food transfers using a randomized design. Drawing on data collected in eastern Niger, we find that households randomized to receive a food basket experienced larger, positive impact on measures of food consumption and diet quality than those receiving the cash transfer. Receiving food also reduced the use of a number of coping strategies. These differences held both at the height of the lean season and after the harvest. However, households receiving cash spent more money on agricultural inputs. Less than five percent of food was sold or exchanged for other goods. Food and cash were delivered with the same degree of frequency and timeliness but the food transfers cost 15 percent more to implement.

And from the conclusions (pp. 19-20)

The food transfers, however, cost 15 percent more to implement, as the monthly transfer value was roughly 55 USD and the modality- specific cost was 12.91 USD per food transfer and only 4.00 USD per cash transfer. This implies that had all transfers been provided in cash, coverage could have been increased by 15 percent. Given the scale of this program, that could have meant providing cash assistance to 741 additional households (roughly 5041 individuals). 

While food recipients experienced greater food security benefits in the short term, we cannot assess the relative benefits in the long term; the fact that households receiving cash spent more on agricultural inputs may mean that these households have higher incomes in the future. Finally, the specific context of this study is important. Our results are informative about the relative impacts of food and cash transfers in an extremely poor, rural setting, which is important for a number of food assistance and safety net programs. Caution should be exercised, however, in extrapolating these results to settings much different than those found in rural Niger.

Niger

I have a student from Niger, a country which I don't know anything about. From the WDI, not a very nice graph below. It is the GDP per capita in 2005 US$. 

He said the problem is uranium - Niger produces around 8% of world production. And from an article by Rasmus Kløcker Larsen in World Development

The role of development cooperation in fostering improved environmental governance of extractive industries in African countries exposed to the expanding global uranium frontier remains ambiguous. With primary data, this paper demonstrates how foreign aid to Niger has ignored grievances on grave environmental impacts and rampant institutional failures while a crisis discourse on desertification and food insecurity diverts attention from geopolitical interests in mineral wealth. We argue that aid delivery remains insufficient to address structural deficiencies cemented by decades of investment-friendly ‘politics of mining’ and conclude that domestic reforms must be backed by stronger transnational accountability mechanisms to overcome corporate impunity. 

National mythologies

Interesting developments in Mexico's oil industry:

The legislation, which won final congressional approval on Thursday afternoon, declares that Mexico still owns its oil. But it allows private businesses to drill for oil and natural gas in partnership with the state monopoly, called Pemex, or on their own, returning international oil companies to territory they were kicked out of 75 years ago.

. . . 

The goal, Mr. Peña Nieto’s aides say, is to stimulate Mexico’s sliding oil production and vault the country into the developed world by tapping vast pockets of oil and natural gas deep under the earth and sea. Foreign oil companies have quietly lobbied the government to open up for years. Pemex, short for Petróleos Mexicanos, is known for inefficiency at best and corruption at worst.

. . .

Mexico’s oil production has declined by 25 percent from its 2004 peak, to just over 2.5 million barrels a day. Pemex is spending more to pump less: Investment has more than doubled in the same period, to more than $20 billion a year.

That is from a NYT article by Randal C. Archibold.

Trust and the Growth of Government

A feature of post-World War II economic history is the growth in government, paradoxically accompanied by a decline in trust of government. How does a mistrusted institution continue to grow? We utilize key findings in the economics, behavioral, and psychology literatures to develop a model to understand how this can occur, as well as illuminating the interconnections between government, rent seeking, productivity, and trust. When an increase in government powers leads to more rent-seeking activity, mistrust of government is engendered, which lowers productivity and sows the seeds for more rent seeking and further government growth. Also, a version of our model has a “trust trap,” illustrating how an economy may become stuck in a low trust/high rent seeking/big government equilibrium.

That is from a paper by John E. Garen & Jeff R. Clark.

Higher Education and Economic Growth

Via Michael Clemens I saw this very interesting paper which claims that higher education contributes to economic growth. You might think that that is a pretty obvious link, however, if you look at economic development textbooks, or if you see the priorities in terms of education of international organizations and governments, you will see that more attention is given to elementary education, and relatively little - or none - to university education. Some textbooks even claim that investing in higher education is a waste of resources because educated people leave poor countries. Obviously not all educated people emigrate. And you might want to look at the benefits of emigration. 

The paper is written by Harvard scholars David Bloom, David Canning, Kevin Chan, and Dara Lee Luca, and it is titled "Higher Education and Economic Growth in Africa." 

In the paper this is the conceptual framework:

The main idea of the paper is that higher education helps poor countries to catch up with rich countries through the channels that you see in the conceptual framework above. 

We see the results of higher education in the long term, when university educated people start to occupy important leadership positions in society. In those positions university education can make a huge difference. For example in a basic microeconomics class a country leader can learn the negative effects of price controls. 

If university education is so important it will be good to ask why some countries have better higher education systems than others. From an economic point of view you can think about a higher education industry, which like any other, develops faster and better when there is free competition and fair opportunity of entry. And that is exactly what I think is harming this industry in developing countries. It is very hard for new entrants. They key lessons here is that we should make as easy as possible to new entrants to set up universities. Or at least much easier than it is right now. 

The Global Decline of the Labor Share

This is also highly technical paper. But the point it makes is interesting and worrisome  The paper argues that economies have been going through a process where labor has been substituted by capital since the 1970s. The Internet, new technologies, etc., are making it cheaper to employ more capital and less labor for production. A graph from the paper:

The paper is forthcoming in the prestigious Quarterly Journal of Economics. It is by Loukas Karabarbounis and Brent Neiman, and the title is "The Global Decline of the Labor Share." The question is what is happening or going to happen to the labor left outside the economy? That is a hard question and we might see more inequality. Which is actually one of the points in Tyler Cowen's book Average is Over. 

Unemployment and Crime (Germany)

I have not seen much literature on the way in which unemployment affects crime. One reason might be that unemployment might affect crime, and crime might affect unemployment as well. In other words these variables affect each other and isolating the effect of one over the other is difficult. 

This study researches exactly that. The paper is very technical but the main finding is that  unemployment explains housing burglary. 

The abstract

More specifically, we find that youth unemployment plays a prominent role in explaining property crime, namely housing burglary. Our results are in line with previous research: neglecting endogeneity of unemployment understates its impact and employing the youth unemployment share instead of rate points to distinctive effects. The analysis offers important implications for countries that are currently undergoing fiscal consolidation and are experiencing high unemployment rates.

The study is by Povilas Lastauskas & Eirini Tatsi. And the name of the paper is "Spatial Nexus in Crime and Unemployment in Times of Crisis: Evidence from Germany." 

Notice the unemployment rate in what used to be East Germany.

To do a similar study in Latin America, Sub-Saharan Africa, or South Asia is very difficult because the data of unemployment is not usually reliable, and there is a lot of people employed in the informal sector. 

Immigration and wages

I did not find a draft of this paper, which looks at the effect of immigration on wages of unskilled labor using a natural experiment. The abstract

This study exploits the natural experiment, provided by the start of the second intifada, to measure the effect of immigration on the wage and employment of unskilled native workers. It finds that immigration has no effect on the wage or employment of unskilled Jewish workers. The wage and employment of the least-skilled Israeli Arab workers (with zero to five years of schooling) are adversely affected by immigration. The slightly more skilled Arab workers (with six to 11 years of schooling), in contrast, are positively affected by immigration, suggesting a complementarity effect with this group. Different explanations are proposed.

The abstract is taken from the current number of the Southern Economic Journal, which has other interesting articles.  

Poem

We look up at the stars and they are / not there. We see memory / of when they were, once upon a time. / And that too is more than enough.

Source. 

Tractors

From an interesting paper by Carrie Meyer (November 2013):

While economists generally assume that producers adopt new technology when it makes sense to do so, historians do not necessarily agree; and the views of the latter may have greater influence over popular thought. Deborah Fitzgerald, a historian of technology at MIT has argued that farmers were essentially bamboozled into buying tractors in the 1920s by “the industrial ideal” – a set of progressive ideas spread by business leaders, economists, engineers, and the county extension agents of land grant universities. This paper takes issue with the Fitzgerald thesis.

And from the text

The Fitzgerald thesis, that extension agents and business leaders persuaded farmers buy tractors in the 1920s, when it was not in their interest and they were ill-prepared to use them, is fallacious. It is safe to say that all farmers that bought tractors in the 1920s were already familiar with automobiles. There is no doubt that this eased their decision to purchase a tractor. If farmers were persuaded by a desire for modernity, I have argued that the impact of World War I and the letters from the American boys who fought in the war were far more important than the words of business leaders and extension agents. As Robert Williams argued in his history of the tractor, change was already traditional for the American farmer in the early twentieth century. It was only natural for farmers to participate in the modernization process. Farmers’ receptivity to change did not happen suddenly in the 1920s spurred on by an “industrial ideal.” The main reason that farmers bought tractors was that it made economic sense for them to do so. Tractors improved to the point that they finally surpassed the efficiency of the horse (p.14).

The title of the paper is "The Impact of World War I on Tractor Adoption: Reflections on the Industrial Ideal."

On Bitcoin

Bitcoin is here to stay. It seems right; it seems that this new currency "institution" is consistent with the times that we live in...What are your thoughts on Bitcoin? What are your thoughts on the following propositions made by Bank of America regarding the digital currency for the era of e-commerce? Expect more on Bitcoin here...

Tamper-proof, limited supply and divisibility

We believe Bitcoin can become a major means of payment for e-commerce and

may emerge as a serious competitor to traditional money transfer providers. As a

medium of exchange, Bitcoin has clear potential for growth, in our view.

Store of wealth for the underground economy?

It has been reported that Bitcoin may help users avoid high taxes, capital controls,

and confiscation. The correlation between CNY's share of volume of all Bitcoin

exchanges and price of Bitcoin is high and rising (Chart 1). That said, the fact that

all Bitcoin transactions are publically available and that every Bitcoin has a unique

transaction history that cannot be altered may ultimately limit its use in the black

market/underworld.

Volatility

Bitcoin’s role as a store of value can compromise its viability as a medium of

exchange. Its high volatility, a result of speculative activities, is hindering its general

acceptance as a means of payments for on-line commerce.

Fair value?

Is Bitcoin a bubble? Assuming Bitcoin becomes (1) a major player in both ecommerce

and money transfer and (2) a significant store of value with a reputation

close to silver, our fair value analysis implies a maximum market capitalization of

Bitcoin of $15bn (1BTC = 1300 USD). This suggests that the 100 fold increase in

Bitcoin prices this year is at risk of running ahead of its fundamentals.

New drug for old insomnia

The FDA has been quite a controversial government agency, particulary regarding the process for new-drugs approval. Once again, a new drug has been developed; this time, Merck is trying to fight insomnia with an effective slepping pill without the common side effects of the existing sleep disorder medication. Ian Parker wrote an article regarding this matter in The New Yorker called "Big Sleep". In this article, Parker reviews the "sleeping pill" industry and provides an insight of the troubled, bureaucratic F.D.A drug approval process. What are the economic consequences of such approval processes? What should really be the role of the F.D.A, specially concerning the approval of medications that could benefit millions of people?

A few weeks later, the F.D.A. wrote to Merck. The letter encouraged the company to revise its application, making ten milligrams the drug’s starting dose. Merck could also include doses of fifteen and twenty milligrams, for people who tried the starting dose and found it unhelpful. This summer, Rick Derrickson designed a ten-milligram tablet: small, round, and green. Several hundred of these tablets now sit on shelves, in rooms set at various temperatures and humidity levels; the tablets are regularly inspected for signs of disintegration.

The F.D.A.’s decision left Merck facing an unusual challenge. In the Phase II trial, this dose of suvorexant had helped to turn off the orexin system in the brains of insomniacs, and it had extended sleep, but its impact didn’t register with users. It worked, but who would notice? Still, suvorexant had a good story—the brain was being targeted in a genuinely innovative way—and pharmaceutical companies are very skilled at selling stories.

Merck has told investors that it intends to seek approval for the new doses next year. I recently asked John Renger how everyday insomniacs would respond to ten milligrams of suvorexant. He responded, “This is a great question.” After the approval process is finished, the marketing division of Merck—a company whose worldwide sales last year totalled forty-seven billion dollars—will conduct a different kind of public trial. The study will address this question: How successfully can a pharmaceutical giant—through advertising and sales visits to doctors’ offices—sell a drug at a dose that has been repeatedly described as ineffective by the scientists who developed it? (Ian Parker, "Big Sleep"). 

Insomnia, far from being just a sleep disorder, has negative biological and cognitive consequences and, unfortunately, is terribly common. 

• About 30 percent of adults have symptoms of insomnia 

• About 10 percent of adults have insomnia that is severe enough to cause daytime 

consequences 

• Less than 10 percent of adults are likely to have chronic insomnia (according to the American Academy of Sleep Medicine.)

We can´t always rely on Bill

In this on-going philanthropic stage in his life, Bill Gates’ endeavor (along his beloved wife, Melinda) seeks to claim victory in the most difficult fights against the enemies of humanity.

Think what you like about economic theory and defend whichever standpoint you’ve chosen to defend but, regardless of left or right, libertarian or statist, the world cannot afford to build the sustainability o its economic systems and economic development based on the altruism and donations of the likes of Bill Gates.  In the essay titled:  “Here’s my plan to change the world”, Bill addresses some of the aching problems of our world that are killing millions of human lives and hopes… and the way he plans to solve them, something that only a person in his position can devote time to plan realistically with a shot to success. But, he also makes a case for philanthropy and tries to teach the whole world a lesson:

I have been sharing my idea of catalytic philanthropy for a while now. It works a lot like the private markets: You invest for big returns. But there’s a big difference. In philanthropy, the investor doesn’t need to get any of the benefit. We take a double-pronged approach: (1) Narrow the gap so that advances for the rich world reach the poor world faster, and (2) turn more of the world’s IQ toward devising solutions to problems that only people in the poor world face. Of course, this comes with its own challenges. You’re working in a global economy worth tens of trillions of dollars, so any philanthropic effort is relatively small. If you want to have a big impact, you need a leverage point—a way to put in a dollar of funding or an hour of effort and benefit society by a hundred or a thousand times as much.

We have to think beyond the immortal paradigm of economic inequality deriving from the idea of causality of the “immoral wealth of the rich” being accumulated at the expense of the "impoverish of the poor". Surely, not all (not even “most”, maybe just a “handful”) of the wealthiest people in the world are as committed as Bill in changing the world and helping the ones who suffer most, but let’s say we made the rich pay more and more taxes, diminishing their capital to amounts which become unattractive to engage in charity, who or what is going to fill up that void? Which government, institution or company is willing to do what the “Bill and Melinda Gates Foundation” is doing? If by any chance willing, which of them are capable of doing it? Ethically, power requires accountability and responsibility, which is not in any way synonym of “taxability” and definitively is no warranty for investment in charity. The other path is to enforce transparency and pressure our governments to be more efficient in their spending and commit to invest in their people, why not delegating such tasks to private institutions with public accountability.

We love you, Bill and Melinda Gates. The whole world is grateful for having you, the many lives you’ve saved and enhanced, the abundant knowledge you have shared and divulged; each and every one of the people that have strived and triumphed thanks to your charity and are now active in changing the world for the better. But even your philanthropy has a cost and that just might be people, companies and governments bailing out of charity and investment in education and social responsibility because that is “for the rich to give back to the communities of the world” and “Bill is already on his way”.