Dec 23, 2009
Dec 19, 2009
What is more striking is the respective change in the tax wedge once you marry and have children. Suddenly, Germany and Belgium do not seem to be that bad of a place anymore while things in France and Sweden change only marginally. Interestingly, most emerging markets do not discriminate that much and Greece confirms its rather odd ideas about how to design policies by favoring singles over couples with children. On the other hand the government of Luxembourg rewards your marriage with a salary increase of more than 20%! It would be interesting to see how many Belgian singles actually try to find a man/woman and a job in Luxembourg. The incentives are quite high since not only gross salaries are higher but you can increase your salary by over 30% even if your gross salary remains unchanged.
Dec 15, 2009
This is Krugman writing about the genious of Paul Samuelson.
Dec 14, 2009
Dec 13, 2009
He died today, age 94. As Ricardo Caballero puts it, “We will miss him and his unmatched wit very much, but his intellectual legacy is enormous and perennial. The world is different today because he was with us for many years."
Dec 7, 2009
Dec 6, 2009
Dec 5, 2009
Dec 3, 2009
One wealthy former pirate named Mohammed explains it best: "Four months ago, during the monsoon rains, we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking...The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials ... we've made piracy a community activity...Ransoms have even increased in recent months from between $2-3 million to $4 million because of the increased number of shareholders and the risks"
Nov 21, 2009
Last spring when I heard that we (the Swiss) would have to vote over the anti-minaret, I was surprised by such an initiative, because I believed that such a stupid proposal would not even be supported by all members of the Swiss People’s Party (UDC/SVP). Obviously, I was wrong. Although the latest polls still predict a stable majority of 53% will reject the initiative, the proportion of respondents in favor of a constitutional ban of minaret construction has grown to more than a third (35%).
Anyway, as I was working with Swiss data last spring, I made a little exercise that is not really original. I computed the probability to be employed in Switzerland with usual controls (age, number of years of education, civil status, type of permit, number of children, dummies for the linguistic region, type of communes and employment region) and dummies for region of origin for migrants of the first and second generation. Then I did the same thing, but with the additional distinction between Muslims and non-Muslims… the marginal effects of the dummies are plotted in the graphs below (sorry if they are in French, but that should not be a problem in our interdisciplinary and multikulti Institute :). Of course, the marginal effects are not equivalent to discrimination, but I don’t see a plausible alternative explanation for why all points are below the 45 degrees line. Any idea? Can Swiss employers have the benefit of the doubt?
The data used is from the census 2000. There is no issue of sample selection. The data is a little old, but after 9/11, it would be doubtful to claim that Muslims are enjoying specific sympathy in the Western countries…
Nov 20, 2009
No more visas, no more tariffs! Pretty incredible no? Let's see.
Salon Bungener (rue Rothschild 20, Geneva)
This project is part of a research program on social exclusion of the Inter‐American Development Bank (IADB). Producers of all countries in Latin‐America were invited to express their views about the main social issues in the region. In this event, a selection of the films received will be presented, with the comments of experts in each issue.
« Prestes Maia » (Brazil) - « Espejos» (Argentina)
Topic 2 : Informal work in Latin-America
« Circo Urbano » (Mexico) - « Gaspar » (Brazil)
Topic 3: The poverty trap (children outside the system)
« La Bajadita» (Peru) - « El Patron » (Colombia)
Topic 4: Forced displacement for civil conflicts
« El pequeño Sergio » (Colombia) - «Ori » (Suriname)
For more information:
Nov 18, 2009
Ban Ki Moon says "we must craft a single global vision ... to produce real results for people in real need". He makes it even vaguer: "There can be no food security without climate security," adding: "We must help the most vulnerable to adapt". Great! And how do we do that? What is better than a bunch of vague unachieavable goals no one can be held accountable for? We just need more money so we can do more summits and more shopping. And humanitarian NGOs blame rich governments for not showing up instead of focusing on solutions...all they want is more money. Isn't this ridiculous? Time to tick that box.
And now the UN is investigating the crash in the Sahara desert of a cargo plane, which is thought to have been carrying 10 tonnes of cocaine from Venezuela! Airplanes geeks are very impressed: "Trans-Atlantic ghostflying drugs-loaded plane bound for West-Africa! Very impressive. That takes cowboy 727 flying to a whole new level. Cowboy trans-oceaninc cargo jets! Wow. These people are living on the edge..."
Nov 12, 2009
But it doesn’t seem like the practice is only an economist’ problem. It is among Wikipedia’s words to avoid, and there is even a National Committee to Stamp-out the Word “Basically.”, whose Chairman wrote that the word “has turned into one of the most predominant, albeit useless, words of the last decade. Emulating a fast-spreading cancer, it has infiltrated the speech of the majority of the English-speaking world. In an attempt to sound erudite, and “groping toward imagined elegance” everyone from produce clerks to our leaders in Congress misuses and abuses the word.” There is also a facebook group devoted to deleting the word from the dictionary. But according to Google trends, its usage has not increased that much in the last 5 years. Personally, I have decided to replace it with “to put it bluntly”…
Nov 9, 2009
Nov 6, 2009
So what can the owner do? In this irish town, a guy had the brilliant idea to put an electric device: in front of his shop, people are warned with a sign like "electric current in operation, urinate at your own peril". Some people were so drunk that got their electric shock (ouch!). Maybe the device is the most brutal/efficient solution, but the city mayor is thinking about an alternative. One that I like is "name-and-shame": take pictures of public urinators and upload them on a website. These could be done by people, or by installing cameras outside places where people tend to urinate... a modern pillory.
Nov 5, 2009
Superfreakonomics is pure candy form A to Z. While Levitt's research was the core of the first book, this one is all about crazy stories and "freaky" papers by a bunch a economists. The chapter on global cooling is an ode to freaky scientists, and so is the last chapter on monkey economics. Books like this make life more interesting.
Primatologists have uncovered a mating market amonsgt monkeys where long-tail macaques trade "grooming" for sex. Male macaques groom the females in exchange for more frequent mating and increased loyalty. As the number of potential male companions rises and females become relatively scarce, the price for sex rises and the amount of time spent grooming the females increases, the so-called "biological market theory".
But sex isn't the only commodity that grooming is traded for, females macaques will groom new mothers for the chance to hold her offspring, and rare skills can improve a monkey's pattern of grooming. In South Africa, a low-ranking vervet monkey in the wild was trained to open a box of apples, this rare skill landed her a pattern of grooming similar to a dominant animal. And when the reseracher increased the competition by training another low-ranking money to perform the same skill, a duoploy emerged with an equal (but lower than in monopoly) distribution of grooms being received by the two.
Nov 4, 2009
Nov 2, 2009
Oct 29, 2009
Rio 2016 of course!
While the decision who gets to host the Olympics is dirty politics (I'm sorry Barack!), the supply of "fresh, cheap, quality" drugs can be attributed to the miracle of competition!
As the Economist article on Rio "The bottom line " says, there are three large competing drug fractions in Rio. Fierce competition among the gangs is bringing the prices (and I presume quantities) close to the perfect competition outcome.
Is this the way to go? It definitely is, if you believe that humans are truly rational and that drug addiction is in fact utility maximizing.
It might not be, if you think the drug addicts are not fully rational. Monopolistic drug dealer would increase prices and slash quantities sold, so decreasing the number of drug addicts (being drug addict is more expensive => the outside option gets more attractive). On the other hand it would create extra revenues for the drug cartel, these would likely be used in ways not consistent with the "best interest" of the majority society.
Anyway, if watching sporting events and doing crack is your thing, start shopping for a ticket!
Oct 28, 2009
|The Daily Show With Jon Stewart||Mon - Thurs 11p / 10c|
What about the book review PL?
Tim Harford explains how Chris Quanbeck, a Green Bay Packers fan, came up with the idea to auction off possession of the ball in the natural currency of the game: field position. The team willing to begin furthest from its scoring line would receive the privilege of possession. Yeon-Koo Che of Columbia University and Terrence Hendershott of Berkeley formalized the idea. As they explain with the figure below, the auction outcome should end up around the 18 yard line, where the chance of winning is counterbalanced by the risk of a dangerous fumble or interception.
But doesn’t adding luck, in the form of a (random?) coin toss, make the game even more exciting and “human”? I would think that, quite contrary, the auction would add another layer of strategic decisions based on game theory and psychology…in other words, what football fans, such as David Romer and Steve Levitt, really want.
As Quanbeck puts it, “Imagine the excitement of live bidding! Two head coaches meet face-to-face at center-field in a test of guts and strategy. The home crowd goes crazy as the bidding proceeds, imploring their coach to take the ball and drive to victory. However, the hometown coach must stay cool to ensure he doesn’t end up pinned against his own goal-line on fourth down. Either way, the coach has nobody to blame but himself. If you want the ball, take it. But be careful what you ask for”.
Oct 26, 2009
Mr. Volcker is literally and figuratively a "giant", because of his reputation built during his chairmanship of the Fed. The period in which he defeated the high inflation mounting in the US at the beginning of the 1980s is known as Volcker's disinflation. He now and then hired as an external advisor whenever important reforms are needed, and now he is the head the president’s Economic Recovery Advisory Board. While the Obama team is thinking at maintaining the current setup with heavier regulation (changing capital requirements, highlighting guidelines in payment structure for managers), Mr. Volcker is advocating a simpler system where "no bank would be too big too fail", because in his view: “no form of economic organization can fully contain bouts of destructive speculative euphoria”.
Oct 24, 2009
Workshops, conferences and projects aimed at “reducing vulnerabilities” or “reforming governance” are so much more palatable to the organization’s managers than digging up evidence of wrongdoing and pressuring governments to prosecute and recover funds. ....all our workshops and technical assistance may simply provide diversions that allow criminals to get away with their loot."
This is from this CGD post about this book.
Oct 23, 2009
"Prof. Anspach played his first game of Monopoly as a child in the mid-1930s in Czechoslovakia. In 1938, his family fled Europe to America on the cusp of the Holocaust. Years later, he earned a Ph.D. in economics from Berkeley. One day in the 1970s, he tried to explain oil cartels and the downside of monopolies to his 8-year-old son, William. The economist searched toy stores for a more philosophically pleasing alternative to Monopoly, but found nothing. He then set out to create a game that would be a sort of "Monopoly backwards," in which players compete to break up existing monopolies rather than create them. He called it "Anti-Monopoly.""
What's more, he even uncovered the drak secrets behind the Monopoly board game and fought to break thier monopoly! More in the WSJ.
Oct 22, 2009
Square A seems significantly darker, doesn't it? It turns out, both are the same color... I think the perceived color difference is even bigger in the second case: Compare the color of the little squares that are in the middle of sides of the cube. (I marked these squares with a little tick).
The one on the upper side is dark brown, the other one is orange! There seems to be no question about that. Again, both have the exact same dark brown color. Here are the relevant squares (everything around them was deleted).
The question is, can our brain be fooled so easily in different situations? For instance when one assesses probabilities and uncertainty. I think so (I would recommend the Kahneman, Tversky:Judgement Under Uncertainty: Heuristics and Biases).
The real question is whether the "enlighten" policy maker can do anything about it (maybe he suffers from the same bias-VS comment about casinos banning Martingale strategy players on prev. post) and whether he should do anything about it (maybe people are perfectly happy thinking that the little square is orange rather than brown)...
Oct 21, 2009
Oct 20, 2009
This made me wonder why the default plan was so expensive. They are thieves I concluded. Well, turns out I was maybe completely wrong. They could be brilliant choice architects, really.
As I read in the amazing book Nudge, by making the default option unattractive (super expensive), the government forces people to choose the more appropriate plans for themsleves. This stirs competition among plan offers and results in active choices, which, assuming choosers know a lot and policymakers are essentially guessing, is an optimal allocation.
Oct 19, 2009
Oct 18, 2009
I was taught a sure way to win money when playing roulette. You bet on color, if you lose you double your bet, if you lose again, you double your bet again. You keep on doubling bets until you win, wining back all your money plus profits equal to the original stake. You have a chance of winning in the first round close to 50%, and you are sure to recover your money later on. Sounds good, doesn’t it?
Even the gamblers admit there is a problem with it. You might not have enough money to keep on gambling.
They are partly right. In reality the strategy has a negative expected value, no matter how much money you have, you could be Rothschild, Rockefeller, Gates or owner of the entire Universe you are poised to lose money when playing the Martingale Strategy.
The probability of winning in the first round is 18/37. The probability of losing your entire fortune is (19/37)^n where “n” is the number of the round in which you run out of money. The probability of winning your initial bet (recovering all money + initial bet) is (1-(19/37)^n-18/37). It turns out that the expected value of the bet is negative for n=1 (when you can cover only round 1) and is monotonically decreasing in “n” (the more rounds you can / are determined to cover the more negative the expected value of your bet gets)… So running out of cash when playing does not hamper your strategy, it saves your ass!
Obviously the expected utility theory can’t explain why anyone would want to play this strategy. You should be super afraid of big losses. This strategy tells you to take huge bets when things go sour. NO GOOD
Prospect theory can’t explain it either. You should be underweighting probabilities close to 50% and overweighting low-risk high loss events (that’s why you insure). You should never play this strategy. NO GOOD
Biases in the evaluation of disjunctive events (Put simply, breaking a chain of same events). But these should be underestimated! But the gambler apparently overestimates the probability that the chain will be broken and so he wins his money back. NO GOOD
The last line of defense is Regression to the Mean. People are stupid and think that the outcome of round X predicts the outcome in round (X+1). (Red in this round predicts black in the next). I actually think this is it…GOOD
The problem is that “Regression to the mean” is just not rich enough, it doesn’t feel right that people should so easily disregard the huge bets they are potentially taking. People probably think that all previous outcomes predict outcome in this round (the more reds have fallen previously the more confident you feel about black falling this round), on the other hand if many reds have fallen in the previous rounds maybe people will expect more reds to fall… I NEED A PSYCHOLOGIST TO EXPLAIN THIS!!!
If you think this is fascinating, you need to read Judgement Under Uncertainty:Heuristics and Biases, A.Tversky, D.Kahneman. It's one of the most fascinating econ papers ever! (Published in Science, authors are psychologists)
All the computations that show why Martingale Strategy Doesn't work are here. (p.s. It's 1 in the morning, I'll need to recheck the math tmw, but it should be OK).
Oct 17, 2009
I had the pleasure to share with him part of the Gambian Micrometrics Experience.
"The device is an emotion-sensing system designed to help investors keep a cool head when buying and selling [as] day-traders who exhibit more intense emotional reactions have significantly worse trading results."
The bracelet measures changes in the electrical resistance of the skin which can be caused by various stimuli, like anger or elation and transmits it to the “EmoBowl”, which alerts you to stop trading if you’re too hyped!
Maybe this was dreamed up by freshwater economists whose rational expectations models may now become relevant.
ht: The Economist
Oct 16, 2009
Indiana Jones has been spotted in the corridors of Rigot! After cracking the secret of the Holy Grail and the Crystal Scull, it seems that the famous archeology professor has changed his field of interest to CDOs, subprime mortgages and other mysterious objects of our time.
Oct 14, 2009
I think the WB should be downsized and divided into focused and autonomous units. And Bill Easterly or Simeon Djankov should be director. That Brazil and China should have more say in its governance goes without saying.
Oct 13, 2009
Oct 12, 2009
So who cheat more, consultants or academics?
half to Elinor Ostrom from Indiana University, "for her analysis of economic governance, especially the commons"
and half to Oliver E. Williamson from University of California Berkeley "for his analysis of economic governance, especially the boundaries of the firm".
check the Nobel website for more information. Congratulations to both!
Oct 11, 2009
Term : Nobel Prize - People care what kind of prize Obama won
Term : Nobel Prize money - They care even more how much money he actually won
Term : Obama charity - But what they care most for is what the hell is he gonna do with that money
For the last graph: I was looking at some random combinations of the term "Obama" + "word"(for example: Obama radio, Obama car, Obama underpants) and they've increased as well after the Nobel Peace Prize announcement, but by a magnitude less than "Obama Charity".
Oct 10, 2009
The Taliban condemns Obama’s Nobel Peace Prize saying that "[Obama] reinforces the war in Afghanistan, sent more troops to Afghanistan and is considering sending yet more. He has shed Afghan blood and he continues to bleed Afghans and to boost the war here." This being rather an extreme position on the Norwegian Nobel Prize Committee’s decision from this Friday, it is indisputable that Barack Obama’s win has generated mixed reactions across the world. The committee said it honored the American president for his “extraordinary efforts to strengthen international diplomacy and cooperation between peoples.”
Obama is the fourth US President to win the Nobel Peace Prize, however, in contrast to Carter, Roosevelt or Wilson, he has been chosen not for past accomplishments, “but for “vision” and inspiring “hope” at the beginning of his presidency” (CNN). In my opinion such decision above all questions the legitimacy of the Nobel Prize itself. Giving out Nobels for the ability to “capture world’s attention” is bonkers (in a public statement the Committee as part of their explanation supporting their decision has also stated that the US President won because “Only very rarely has a person to the same extent as Obama captured the world's attention”)…
Undoubtedly, the Committee’s irrationality further builds up the anticipation with which many ( I assume) will be awaiting Monday’s Announcement of the 2009 Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel. It just might be so that this year, Thomson Reuter’s adumbrations, are completely off. Creditability may also be a problem with the InTrade and Ladbrokes’ predictions and probabilities (odds) for the 2009 Nobel prize in economics. For example here are Ladbrokes' probabilities:
Eugene Fama 2/1
Paul Romer 4/1
Ernst Fehr 6/1
Kenneth R. French 6/1
William Nordhaus 6/1
Robert Barro 7/1
Matthew J Rabin 8/1
Jean Tirole 9/1
The Inkling Market’s valuations can be just as cocky...
Thus I believe that with the cuckoo nature of the Nobel Prize Committee nowadays any of the following are just as good bets for Econ winners as the Fama, Romer or the others: Bottom line: Even though not as 'bronzato' there is hope for Silivio in the end (at least for the 2010 Nobel Peace Prize)…
p.s. Be sure to turn on your volume when you go to his support website!
Oct 6, 2009
"An emerging-market government can therefore promote this learning process by keeping its currency cheap... This is a tried-and-trusted growth strategy promoted in the past by economists such as Bela Balassa and lately championed by Dani Rodrik of Harvard, among others. In a recent paper Caroline Freund and Martha Denisse Pierola of the World Bank show that sustained export surges in the developing world are often associated with sharp currency depreciations, which encourage entry into new markets and products."
Oct 4, 2009
Oct 3, 2009
Oct 1, 2009
Sep 30, 2009
Edward Lazear and Sherwin Rosen, who did an in-depth analysis of tournament theory, show how small differences in abilities (or luck) can result in a large difference in players’ pay-check. “A salesman who can sell 10% more than his peers in a company is likely to get paid 10% more. On the other hand, a batsman with a 10% faster-than-average response to a ball traveling towards his throat at 100 miles per hour is likely to end up earning 100 times more than the average cricketer.” Complete article here.
A cricketer cannot make his mark at the highest level unless he is selected in the national team, unlike football where playing in the EPL or La Liga (or the LA Galaxy for some!) might be the ultimate goal of some, or a Canadian hockey player might as well get a chance to be drafted in the NHL if not Team Canada, or a Japanese batter in the MLB etc. There are a whole host of choices in these team sports (in terms of monetary gains), but not in cricket. Yes, we now have the Indian Premier League (IPL), but that is an event which is wrapped up within 6 weeks in a given year, and there are stark intra-team differences in the salaries paid to players within the IPL – as most of it goes to the players who have already been playing for their respective national sides for quite some while. Playing for English or an Australian country, might help a cricketer earn more than what he earns while playing for his national side, but the difference in remuneration isn’t much when compared to other team sports (and English counties have a cap on selection of overseas players). So in the cricketing labor market, there is only one buyer of your talent, and that is the National team selection committee – a situation we would like to call Monopsony. But this is what makes cricket interesting – you do everything for the love of the sport, even if that entails having a no-result after a five-day test match!
Sep 29, 2009
Undoubtedly, some people will benefit from the change... history has seen many swindlers who made their fortunes on price rounding. For example, consider the famous example from Sweden. When pensions were readjusted to account for inflation, a post office accountant would round up all numbers after the second decimal place, and accumulate them on his private bank account. Moreover, the books didn't show anything, and there were no dissatisfied consumers, since the pensioners received precisely what they expected.
NBP states that last year it produced 172 million 2-grosz coins and 316 million 1-grosz coins, which translates into PLN 24,4 million taken out of the taxpayers' pockets. Not a small sum! However, for me even more puzzling is whether the substential demand for 1 and 2 grosz coins is in fact so largly due to marketing specialists. In March of last year, in an online forum I read about a group of amateur charlatans who wondered whether it pays to collect 1 and 2 grosz coins and sell them as scrap metal. Under the market prices, for 1 kilogram of 1-grosz coins (604 coins) they could earn PLN 4. Not too much, but maybe just enough to make a deal on the price difference...
Sep 27, 2009
Guess what, NBER published a paper "SEASON OF BIRTH AND LATER OUTCOMES: OLD QUESTIONS, NEW ANSWERS, 2008" that is supporting my theory. The sad thing is, that I am not the author of the paper, the cool thing is that they got it wrong (or so I believe)! They argue that less educated, poor man are more likely to be exposed to temperature extremes. Such exposure lowers their sperm count and they are less likely to conceive a child. Fine, but I think I have a more plausible explanation.
In my opinion the differences are caused by opportunity costs of making a baby. The less intelligent baby is likely to be conceived in december, january, february , and march. All of these are rather cold months.
In my opinion richer people have significantly wider choices of entertainment during the winter, but the gap narrows during the summer. In the summer you can hike, go to a park, sun bath, swim in the lake, jogg all of these without having to pay a single penny. What can you do for free in the winter? Virtually nothing! While the rich ones have wide range of possible pastimes in the winter (skiing, snowboarding, going to movies, going for a dinner and thousands more) and would have to give them in order to have a romantic evening, the poorer ones have way simpler choice: "Shall we watch TV or make love?". And this is what in my opinion drives the difference, opportunity costs of romantic evenings! On average smartest children are conceived in the months when the gap between opportunity costs of making a baby for a rich and poor are smallest. The least intelligent are conceived when the gap between the opportunity costs is the largest...
Sep 26, 2009
No, I’m not talking about the Geneva housing market, but am referring to one of the Op-Ed columns by Mr. Krugman on the American Health Care system in the NYT. This time though, it is ‘cheese’ and ‘health insurance’ we see in the same sentence. According to Krugman, there are three possible ways for an improvement in the US health system.
#1: The British way
#2 The Canadian way
#3 The Swiss way
Krugman says “.. the truth is that the plans on the table would, roughly speaking, turn America into Switzerland — which may be occupied by lederhosen-wearing holey-cheese eaters, but wasn’t a socialist hellhole the last time I looked.”
Two years ago, Michael O. Leavitt (US Health and Human Services Secretary) visited Switzerland and the Netherlands, since policymakers had been promoting a system with universal coverage but rely on the private sector. Ironically though, the Swiss health-care system is based on the “Managed care” which is a concept originating from the American health system. A Swiss system would further mean increased regulation to ensure universal coverage.
What if Obamacare is chosen by the US as the ‘right’ way to go, would it actually “Swissify America” as Krugman states? Would the American public be comfortable with the Swiss model, given that health costs in Switzerland have been rising more than 4%, and a country where insurance costs have been increasing at a higher rate than the general increase in price and GDP – yet health indicators far superior than the US!
The following graph shows the distribution in the cantons of the average monthly premiums for adults (older than 26 years) in CHF for 2005 - GE (Geneva) is right where it should be!