On Trade and the Environment during Christmas

The Christmas dinner is a good occasion to be with your family, with an incentive represented by the nice choice of food and meals. Traditionally on the table, a lot of local food is served, which is particularly delicious (have you ever heard about mozzarella di "bufala"?), but I really missed a nice tarte with smoked salmon. Apparently, my mom forgot to buy it this time. Anyway, the point is not much about my frustration for not having smoked salmon during Christmas Dinner. What made me wonder was the argument offered by one friend of mine to whom I expressed my little complain after dinner, when we met for greetings. He said "anyway, it's better you did not have smoked salmon, cause it's bad for the environment". Since this sounded completely ridiculous to me, I tried to provide an explanation based on the concept of efficiency and the role played by the market.

I said, that, if I want to buy the product "smoked salmon" from country A is because I like "smoked salmon" and producers in country A know how to produce "smoked salmon" at a price I find acceptable, given my preferences. If there is a problem with CO2 emissions from trade, we should take corrective actions, but let the market rule. With the right instrument (a gas-tax), we can increase the transportation costs and thus the final selling price of "smoked salmon". The consumers will then face the choice whether it's still worth buying this good or not, while governments will have some revenues to redistribute for social purposes. Over time, producers in country A will become more fuel efficient, if my demand for "smoked salmon" is still relatively high. Total welfare will not be the same, but for sure higher than what it would be by forcing me not to eat smoked salmon anymore for "environmental reasons".

After this speech, unusually long for my standards, my friend glanced at me, still mumbling over his sentence. Then the conversation switched topic when we were served a nice espresso. This no-trade-is good-for-environment argument, although completely crazy, is very effective in people's mind. I was not sure I had convinced him and I really wanted to state my point more clearly. Before leaving the "cafè", my friend approached me and said: "I don't like smoked salmon but we can have some over new year's eve dinner if you like". Once in a while, it's apparently rewarding to be a stubborn economist!!

Macroeconomic policies matter...maybe!

"The income gap between Barbados and Jamaica is now almost five times larger than at the time of independence. Since their property rights and legal systems are virtually identical, recent theories of development cannot explain the divergence between Barbados and Jamaica. Differences in macroeconomic policy choices, not differences in institutions, account for the heterogeneous growth experiences of these two Caribbean nations."

This is new NBER research from Peter Blair Henry and Conrad Miller called "Institutions vs. Policies: A Tale of Two Islands"

Merry Christmas to all!

Diminishing marginal utility of travel

DANIEL HAMERMESH at freakonomics must have been reading rigotnomics working papers (this one) He just mentioned that his wife had a diminishing marginal utility of travel!  

Why are social housing projects always ugly?

I was wondering why were low cost housing always so ugly and depressing, when building something nice doesn't cost more...and I thought an explanation might be that building nice apartments would drive up their value as the rich and the capitalists would want them. So even with rent controls, this would create a black market for these apartments...by making them ugly, this doesn't happen...makes sense no?

On our policy impact and a movie

The World Intellectual Property Organisation's (WIPO, one of Geneva's huge international organisation) new director must have been reading rigotnomics...He just announced that there would not be any life time contracts at WIPO anymore, but 5 year contracts (maximum), renewables. This will give WIPO the opportunity to fire puppets and snakes. It also seems that when you put the right leaders in the right place, things start to be put in order. But it's way too early to say that...

In other news, Easterly's "White man's burden" will become a documentary (so is freakonomics)! According to IMDB, it will be shot in Madagascar! Here's Easterly's epiphany on Youtube.

(ht Trade diversion)

A competitive environment

"In A.D. 274, the Roman Emperor Aurelian inaugurated Dec. 25 as the pagan "Birth of the Unconquered Sun" celebration, at the calendar point when daylight began to lengthen. Supposedly, Christians then borrowed the date and devised Christmas to compete with paganism." Read more.

And here's more on Saturnalia, the pagan festival nowadays known as the Christmas holidays.

Comparing restaurants

Which restaurant do you think is better, the Chinese or the Japanese? By asking this question to a fellow student, I wasn’t interested in knowing whether she preferred Chinese or Japanese food, neither which restaurant she thought offered the most bang for your buck, but rather how each of these two restaurants fared among their respective “populations”. To put it more simply, I was interested in knowing which one was further above the average Geneva Chinese (or Japanese) restaurant, and of course, as put forward by another fellow student, controlling for prices.

The question I should have asked was which restaurant you think has the highest Z score, as remarked by a third fellow. Chinese and Japanese restaurants each have their own Normal distribution in one’s mind, as illustrated below. The average restaurant has a Z score of zero and, as it turns out, the Japanese in question has one around 0,8 while the Chinese one around 0,5. The Japanese is the preferred one, while they are both above average. Now it’s clear!

The Kings of Price Discrimination

Airlines are well known for making a living out of price discrimination. As the Ryanair boss put it once, there will always be some who want the whole service and pay for the business class. (Did Ryanair actually start to offer transatlantic flights now?)

Anyways, I received recently one of these email commercials from KLM letting me know that they have great offers from Germany to Mexico City. I receive these offers because 10 years ago (when still having my main residency in Germany) I thought that I will be flying a lot in the future. So I subscribed to their Miles and More program: I never made it to get even a single flight for free. Clearly, I blame this on the fact that I always got better tariffs with the cheap airlines.

Anyways, so I followed the link and indeed for roughly 500 Euros they would bring me in March to Mexico City so I can have some cold tequilas....Since, I always thought about going and visit a friend there, the commercial actually caught me. So, I got somewhat more serious about this and checked what a flight from Switzerland (same airline and distance, via Amsterdam) would cost. The answer was shocking: The identical flight cost me roughly the double 1500 SFR and both are the "best price offers"!

Now, I knew for a while that it nearly always pays to travel to Germany (by train or low cost carrier) and then fly form there to your vacation destination. But 500 Euros difference is enormous for potentially 2 hours difference in a anyways long traveling time of close to 20 hours (i.e. you could just take an Easy Jet plane to Amsterdam and fly directly from there spending some more time due to a worse connection).

I believe that the reason why it pays still to price discriminate so much is that people are too lazy and in particular the Germans are known by "Geiz ist geil" while the Swiss are rather known for quality and high standards potentially looking less towards the price. Or in plain economics: Compared to Germans, Swiss put on average a higher value on time.

The question remains whether this is a cultural thing or (what my guess would be) a matter of who actually takes these flights, i.e. the share of business motivated travels to vacation travels are lower when traveling from Zürich or Geneva to Mexico City than from Stuttgart or Frankfurt to Mexico. Clearly a UN dummy might also do a good job ....

Diplomats...

Exotic license plates and income distribution

...50 diplomats collect wages equal to 3% of the country's GDP and 13% of total government expenditure...read it all!

Original content from the excellent No Original content blog!

The effect of hyperinflation on toilet overflows

Circular causality

It amazes me how much confusion there is in economics papers and presentations about the different types of endogeneity that exist and the biases they create. I blame this on bad econometrics classes that focus on technicalities rather than intuition.

I guess in most cross country studies the problem most of the time is one of omitted variable bias, or simultaneity, as country specific unmeasurable factors explain the relationship between your two variables of interest. For example, corruption and female penetration in government are corrlated even though none cause another. How should the bias be in this form of endogeneity? What bias?! We're talking about a causality that doesn't exist!

Now consider the reverse causality of self-enforcing mechanisms, such as between institutions and growth. Most economists talk about over-estimated coefficients in this case!? just becuz mechanisms are self-enforcing coefficients have an upward bias?!? Nope. Let's say institutions cause growth by a factor of 3 whereas growth causes institutions by a factor of 2. Rgeressing growth on institutions with OLS you estimate a factor of 2.5 (which is the correlation, not the causality)...this is a downward bias...

New perspectives on the gender gap in wages

The gender gap in wages is an intriguing question in social sciences: how is it possible that women, in spite of being relatively better at studying, and and more educated than men today, they are still earning less on average? 

One hypothesis is for the existence of different preferences, according to which women decide to stay away from higher rewarding jobs, sometimes because they prefere to take care of the family and children. Another hypothesis relates to the existence of a "glass-ceiling", which means women are excluded from top-level jobs because of gender discrimination. Some recent work by Daniele Paserman and Evren Örs et al. has investigated another hypothesis related to diverging performance under pressure. Women earn less because they are less effective than men at performing under stressful conditions. 

Two psychologists at the University of Exeter have identified though another potential channel which may lead to the persistence of a wage gap. Haslam and Ryan (2008) show in a series of experimental studies that women tend to be over-represented in managerial positions which are more likely to end up as a failure or be subject to criticism. Basically, even if women manage to break the "Glass-ceiling", they will end up facing a "Glass-Cliff". Why would it be that a woman is more likely to be chosen to lead a boat when it's clear that the boat is sinking, it still remains an open question I believe. It seems though that the potential relevance of this hypothesis for any context which involves discriminated groups is undoubted.

Another interesting study from Judge and Livingstone (2008) at the University of Florida analyzes the wage gap within gender along a different dimension: the gender role orientation. Their finding is, that "traditionalist" men (those who believe women should stay in the kitchen, to put it bluntly) earn 8.459 $ more than "egalitarian" men. The reason would be that "traditionalists" are rewarded for their preservation of the social structure, while egalitarian will be penalized. Among women, instead, there is no such significant wage gap along this dimension, but only a wage gap vs. men. 

  

Social Norms though are endogenous and change slowly through time, but policy action could be taken to foster such long term trends, hoping that sooner than later, the wage gap(s) will disappear and maybe revert (as I observe among some colleuages of mine here at the Institute...:-P) 

Comparing Italian propaganda with French grandeur

These days everybody in Italy is excited about the fast train connection between the two main cities, Rome and Milan. If you believe the Italian media, the "Frecciarossa" train on this route is a technological jewel without rivals. Needless to say, this is not true. It takes two minutes to check it: The journey between Rome and Milan takes 3 hours 30 minutes to cover 632 km, averaging a speed of 180.57 km/h (Sources: http://www.temporis.info/mobinaut_distanzeferroviarie.htm for distance and www.trenitalia.it for the timetable). Compare it with the journey between the two main French cities, Paris and Marseille. The journey from Paris to Marseille covers a distance of 783 km; it takes at most 3 hours 18 minutes (for an average speed of 237.27 km/h), and at least 3 hours 2 minutes (for an amazing average speed of 256.72 km/h (Sources: http://www.theirearth.com/index.php/news/tgv-paris-to-marseille-in-3-hours and www.sncf.fr). The Italian "high-speed" train is like my Toyota Yaris 1.3 compared to an AUDI 3.0 turbo.
Therefore, it should cost less, right? Of course not! I randomly selected a day in January, Thursday 14, for a comparison. A single trip between Milan and Rome would cost me no less than €54, with four available choices between 6:15 and 7:15am. Price per km: €0.085. A single trip between Paris and Marseille would cost me €45 on any of the 6 trains available in the morning and €34.90 for a train in the afternoon or in the evening. Price per km: €0.057 in the morning, €0.045 in the afternoon/evening. That is, half price with respect to the Italian train.
To sum up: The French high-speed train is faster, cheaper and much more frequent than the Italian one. Not to mention the fact that there is availability of high-speed trains between virtually any two French cities, while in Italy the connections between most cities are served by old, dirty, slow and overcrowded trains.

The roots of world inequality

Two Brown economists have just posted two Vox columns (here and here) about a five century migration matrix that reveals some stuff about the roots of world inequality. Namely, they find that 44% of the variance in 2000 per capita GDPs across countries is accounted for by the share of the population’s ancestors that lived in Europe in 1500. Their NBER working paper is here.

This goes well with Jared Diamond’s story, but not so well with the one of Acemoglu et. al., as in explaining cross country growth without the share of European population, settler mortality becomes correlated with the error term and cannot be used as an instrument for institutions. But this, of course, is assuming that institutions and people are two different things. Maybe this is not the case?

Why unilateral trade liberalization beats the WTO

“In trade policy debates, the issue of unilateralism versus reciprocity (where reciprocity of access is insisted on instead) is a long standing one. The theoretical arguments used by proponents of either policy stance are well known: Unilateralists rely upon the demonstration that in the absence of ‘‘distortions,’’ free trade is efficient, while a policy stance of reciprocity is theoretically supported by the presence of ‘‘terms-of-trade’’ and political economy motivations in the economy. “England’s famous unilateral repeal of its Corn laws saw free traders and reciprotarians actively pitted against each other [… and it only came] after decades of attempts to negotiate lower tariffs with its trading partners’ (Krishna and Mitra 2005).

A criticism of unilateral liberalisation is that it ‘wastes’ the bargaining chip of access to the domestic market. “Some people would say [UTL is] akin to unilateral disarmament--that […] all of leverage to encourage others to liberalize” is lost (Ikenson 2006). But this logic should apply only to big countries. Developing countries would gain far more from unilateral trade liberalization than from multilateral trade liberalization negotiated over many years (Nogues 1990). Maybe small countries are resistant to proceed with UTL as they would lose the possible enhanced non-trade related cooperation that comes with the signing of an FTA.

In any case UTL makes sense since "although there are benefits from improved access to other countries' markets, countries benefit most from liberalizing their own markets” (IMF 2001). Import competition boosts productivity and living standards by shifting resources towards relatively more productive activities. This is the case for most developing countries as noted in the World Bank report (2005): UTL was “undertaken to increase the productivity of the domestic economy [as it] promotes global competitiveness by lowering costs of inputs, increasing competition from imports to drive productivity growth, and integrating the national economy into the global economy. Autonomous trade reform is, ironically, more important than ever in the presence of RTAs; low border barriers minimize the risks of trade and investment diversion.”

Finally, an argument comes from a blogger in the Philippines who claims that with UTL there would be no money lost to trade negotiations as multilateralism is slow and costly. “One wonders how much money have been paid by taxpayers from the countries concerned, first to pay for the salaries, travels, and perks of their country trade negotiators, including their pool of consultants and secretariat support, in all those years […] Trade negotiations are being done by thousands of country trade representatives and bureaucrats, along with WTO officials and staff” Oplas (2008)

References
Ikenson, Daniel (2006) “U.S. Trade Policy in the Wake of Doha: Why Unilateral Liberalization Makes Sense”, Presentation by Daniel Ikenson, Cato Institute, Washington, D.C. July 20, 2006

International Monetary Fund (2001), “Global Trade Liberalization and the Developing Countries,” November

Nogues, Julio (1990) The Choice Between Unilateral and Multilateral Trade Liberalization Strategy, The World Economy 13 (1)

Oplas (2008) “Unilateral Trade liberalization” on Government and Taxes blog

Pravin, Krishna, Devashish Mitra (2005) Reciprocated unilateralism in trade policy, Journal of International Economics

World Bank (2005) Global economic prospects 2005 : trade, regionalism and development

WTO (2007) The economics and political economy of International trade cooperation, WORLD TRADE REPORT 2007

Finally Democracy: for the good or the bad

Yesterday somewhere in the United Kingdom: more than 400 people get to vote for the first time. Unbelievable? Yes, but true. The Isle of Sark (probably the first territory ever to be invaded by a single person) a tiny channel island makes his first steps in democracy (where close to 10% of the population stood for vote). The experience was not too good at least for a sixth of the population who lost as a consequence of the outcome directly their job. How did this happen? To understand this one needs to know that the “Barclay brothers” happen to own the neighboring island, for which the Isle of Sark claims jurisdiction. The brothers drew up a list of “acceptable candidates”. When it became apparent that not sufficient approved candidates had been elected, the Barclays announced that they were shutting down their businesses on Sark — hotels, shops, estate agents, and building firms (See the BBC article). At the least, a bizarre interconnection of economics, politics and history.

The importance of history

This is the south’s 2008 presidential vote (in red and blue) overlaid by an 1860 map of cotton production (dots). From Strange Maps (via Chris Blattman, via Ugo Panizza)

And here's another one I liked from Strange Maps
"coke: this generic term for soft drinks predominates throughout the South, New Mexico, central Indiana and in a few other single counties in Nevada, Utah and Wyoming. ‘Coke’ obviously derives from Coca-Cola, the brand-name of the soft drink originally manufactured in Atlanta (which explains its use as a generic term for all soft drinks in the South).
pop: dominates the Northwest, Great Plains and Midwest. The world ‘pop’ was introduced by Robert Southey, the British Poet Laureate (1774-1843), to whom we also owe the word ‘autobiography’, among others. In 1812, he wrote: A new manufactory of a nectar, between soda-water and ginger-beer, and called pop, because ‘pop goes the cork’ when it is drawn. Even though it was introduced by a Poet Laureate, the term ‘pop’ is considered unsophisticated by some, because it is onomatopaeic.
soda: prevalent in the Northeast, greater Miami, the area in Missouri and Illinois surrounding St Louis and parts of northern California. ‘Soda’ derives from ‘soda-water’ (also called club soda, carbonated or sparkling water or seltzer). It’s produced by dissolving carbon dioxide gas in plain water, a procedure developed by Joseph Priestly in the latter half of the 18th century. The fizziness of soda-water caused the term ‘soda’ to be associated with later, similarly carbonated soft drinks.
Other, lesser-used terms include ‘dope’ in the Carolinas and ‘tonic’ in and around Boston, both fading in popularity. Other generic terms for soft drinks outside the US include ‘pop’ (Canada), ‘mineral’ (Ireland), ‘soft drink’ (New Zealand and Australia). The term ‘soft drink’, finally, arose to contrast said beverages with hard (i.e. alcoholic) drinks."

Reserve Accumulation Part I: The cautious ones seem to be proven right, but at what cost

Against the advice of many economists, emerging markets and developing countries increased reserves massively since the late 90s (See here for instance). While the increase in Latin American countries took predominantly place in the mid 90s, the rush in other nations followed the Asian crisis.

Few made the point that reserve levels do not seem to be excessive, when measured against the right numeraire (see Wyplozs’s article more than a year ago). Some commentators focused on the need to at least diversify reserves if it is already not acceptable to a country to decrease the amount. With the advent of the financial crisis the voices of those that claimed reserves to be excessive have not been heard anymore. Maybe this graph with the q-to-q growth rates of total reserves, explains the quietness:

One of the most prominent of those has other worries since last month. On the other end of the spectrum, others have already claimed that reserve levels have not been high enough Arvind Subramanian concludes in a recent VOX article that “Lesson number two [from the financial crisis] is that self-insurance helps and absolute self-insurance helps absolutely.“[1] Unlike, Summers who advised the Indian central bank not long ago to diversify its reserves and claimed its excess reserves, to amount to 15% of GDP in 2006, Subramanian now advises a level in the future of US 1 trillion! Which corresponds to 85% of the current GDP! Currently reserves stand at 21% of GDP roughly down by 18% (or 5 percentage points) compared to their peak a quarter ago. Hence, Subramanian advices a level roughly four times higher then current reserves while Summers was favorable to a level of a half of the current level.

Despite all the criticism to Lawrence Summers findings, one of his points remains strong and seems under weighted by Subramanian: the cost. A rough guesstimate of the cost of holding the reserve level is given by the difference between the interest on domestic investment and the return on the reserves times the level of reserves. Let the return on reserves be around 3 percent and the return on domestic investment be about 6%. The gap is most likely a lower bound rather than an upper bound. The yearly implied cost of holding reserves equivalent to 85% of GDP is roughly 2.5% of GDP! Is the insurance worth it to forgo 2.5% of growth each year? It seems outrageous given that we are generally happy to find policies which enhance growth by much less.

A structured way to think about reserve levels is based on some notion of insurance against an expected loss with a certain probability. But no optimizing agent (irrespective of the level risk aversion) would want to sacrifice so much money unless there is an extraordinary high chance of a loss in the subsequent period or the loss is expected to amount to a level well above what we have seen and will even see in this crisis.

So why such a high level? Three reasons remain: 1) Actual costs are much lower (i.e. 0.03 is just wrong and much closer to zero), 2) the authority wants to defend an exchange rate level or 3) the authority is just not minimizing in a rational manner at the margin.

Option 1) and 3), though possible, are rather awkward. Option 2) however remains pretty strong. But then again sticking to a certain level of the nominal exchange rate needs to deliver substantial gains in terms of higher GDP to justify so high levels of reserves. Gains that have not been found in empirics.

Some months ago it might have seemed that the bags are full and the central banks stand ready. Now we are asking are they full enough or the central banks / governments unwilling to make use of their hard currency? Are we going to have a new wave of countries that will move to more flexible exchange rate regimes since they are not anymore willing to pay the cost?

With the advent of the financial crisis the discussion around the level of reserves has started to vanish. But it is exactly now that we need to take a stance since after the last “global” crisis in form of the Asian crisis reserve accumulation expanded strongly. It is important to clarify whether it has been a sensitive policy to increase reserves or whether the costs do not satisfy the increased levels.

---

[1] Not surprisingly for Subramanian, lesson number one read, “that the greater the financial integration, the greater the susceptibility to financial crises, and the larger their final cost.”

IMF Data Mapper

The IMF has a new toy, a Data mapper. Great fun ahead! Here's a demonstration I captured with PowerScreenCapture.

The Lighter Side

Hey,

it's good to see that someone can see the lighter side of the financial crisis. The following joke is apparently doing the rounds of workers in the financial services industry in Sydney at the moment:

Question: What's the definition of optimism in the financial sector?
Answer: Ironing five shirts on a Sunday night

Cheers,
Cameron.

Canadian democracy

For those of you of think that Canada is an advanced and well functioning democracy, think again.

There's 4 parties forming the parliament. The Conservative party, governing with a minority, was about to be brought down by the 3 opposition parties agreeing on a governing coalition. Only one thing could stop this from happening: the governor general interrupting the parliamentary session until January. And she did it. While the parties constituting parliament represent the choice of the voters, she was appointed by Queen Elizabeth II!

I think Guns N Roses should have titled their new album Canadian democracy instead of Chinese democracy.

Turning dung into fertilizer

It didn't surprise me to see "Sex and the Ivy League" as a first result of my Google search on Graciela Chichilnisky, who gave today's political science seminar. After all, the seminar ended in a sexual joke that can't get out of my head, unfortunately. But I was naturally interested in reading more, finding out about her incredible life story narrated here, from her childhood in Buenos Aires to her lawsuits against Columbia for sexual discrimination, to put it simply (way to simply) and all her academic, business and politic achievements. Her essay is captivating, personal and emotional. Here's the message:

The first reflection is that for a woman to survive and to thrive she must learn to turn negative responses into positive resources. This is a perverse reversal to the Pavlovian response. I call this, for short, ‘turning dung into fertilizer.’

The world's first credit crunch happened in 88BC

and, once again, we find out that nothing is new under the sun. my question is: how many thousands of years will it take us before we make financial markets reliable? or are they inherently unstable? capital controls, anyone?

Merry Christmas from UBS

The Financial Crisis Down Under

Hey all

I was just reading the online edition of my local newspaper back home in 'The Land Down Under', and I came across this article about a perhaps little considered impact of the financial crisis.

Forget financial markets in a tailspin and home mortgage foreclosures, one of the big impacts of the financial crisis in my home city of Sydney is apparently on the sex industry. According to the article, 'Financial Crisis Forces More Women Into Sex Industry', declining incomes and tough economic conditions are forcing more women to working in legal and illegal brothels.

But an additional effect of the financial crisis is also that declining fortunes in the financial services industry are leading to declining incomes for the regulated sex industry in general, as businessmen tend to substitute cheaper (illegal) services for the midrange ones they usually purchase (and they are also tending more towards organising their rendezvous at zero cost via the internet).

It is interesting that this reveals that consumers regard the purchase of sexual services as a necessity, rather than a luxury, service. The stylised fact that businessmen substitute cheaper for more expensive sexual services during times of declining income, rather than go back to their wives, would also support the contention from this JPE paper by Edlund and Korn (2002) that prostitutes offer men a different 'good' (nonreproductive sex) to that offered by their wives (reproductive sex).

In any case, my two cents as far as the 'theory of prostitution' a la Edlund and Korn (2002) goes is that it's a load of rubbish - yet another stupid attempt to apply Beckeresque rational actor models to areas where Economics should really just stay away from (although for saying this I will probably be exiled from Rigot, stoned, and burnt at the stake for being a heretic......). So what if they got it published in JPE anyway??

And of course it's terrible that increasing numbers of Australian women are being forced to supplement their incomes by selling their bodies - apparently this phenomenon is especially prevalent amongst the Australian student population.........something to think about when we whinge about our measly scholarships and TA salaries, I guess.

Cheers,
Cam.

A non-causative, but suggestive correlation

In a cross-section of 40 countries in 1995, religion (measured as the percentage of people attending religious service at least once a week, from World Value Survey) is positively correlated with corruption (measured from the index developed by Transparency International). There seem to be three clusters of countries within the scatterplot reported below: countries with low levels of religiosity and low levels of corruption (e.g., New Zealand); countries with intermediate levels of religiosity and medium-to-high levels of corruption (e.g., Brazil); godless and corrupt countries (e.g., China). One should remark that all very religious countries are also very corrupt. However, high levels of corruption are associated both with low and high religiosity, indicating that the impact of religion on corruption is fragile. One may think that in some of the countries in the NE region of the graph attendance of religious services is low because it was/is actively discouraged by the government (e.g., China, Russia). The results are however not different when I use a definition of religiosity based on personal beliefs rather than active behavior. In any case, the link disappears after controlling for GDP per capita.
In conclusion, I fail to add a statistical significant impact on corruption to the list of bads brought by religion, but it is quite safe to claim that the level of religiosity in a country does not incoculate it against high levels of corruption. Italy being a point in case.

Rich Cut Back on Payments to Mistresses

"You know times are tough when the rich start cutting costs on their mistresses. According to a new survey by Prince & Assoc., more than 80% of multimillionaires who had extra-marital lovers planned to cut back on their gifts and allowances. Still, only 12% of the multimillionaire cheaters said they plan to give up on their lovers altogether for financial reasons." read all

ht: Mankiw

The importance of stupidity in research

A friend forwarded this along, so I figured I'd spread some motivation around.

The Fiscal Stimulus comes to Brussels

The European Union proposes a Euro200bn stimulus to revert the current trend toward recession in 2009. This amounts to 1.5 % of European GDP. How can countries cope with the fiscal stimulus and the European fiscal apparatus, namely the Stability & Growth Pact?

This morning France and Germany called for a relaxation of the 3% deficit ceiling. today Almunia said this will likely be the case: since its reform, the SGP is meant to allow flexibility; although, the commissioner specified that any exception needs to be temporary (the usual bureacratic caveat). Where do the countries stand?

Just a quick look at the numbers from OECD for 2008:

	Deficit
Austria	-0.67
Belgium	-0.30
Germany	-0.45
Spain	0.68
Finland	4.44
France	-3.04
United Kingdom	-3.75
Greece	-2.09
Italy	-2.50
Netherlands	1.14
Portugal	-2.24

Under the SGP definition, France and the UK are above the ceiling. The current forecasts don't point to negative numbers when talking about GDP growth for 2009, but if the recession is going to be as the average recession in EMU (a GDP slowdown by less than -1.00), then this will imply an average increase in the fiscal deficit by 0.80 in percent of GDP only due to the working of automatic stabilizers (calculations are not reported, but available upon request from the author). This means Portugal, Italy, France and Greece will likely find themselves above the ceiling next year without any government action. I wonder how flexible is going to be the Commission when it comes to the implementation of the "discretionary" intervention, especially toward the more highly indebted countries. Will they suggest to do something timely, targeted and temporary?Or something else?

Direct flight or cheaper options?

New Rigotnomics working paper:
If you had to travel from Geneva to Montreal, you could fly directly for 1100 CHF or fly from Paris on a cheaper charter flight (800 CHF). If flying from Paris, you have to get there either by train (TGV for example) or plane (easyjet for example). Option (2) involves money saving, risks (loss of luggage, missed connections) and various hidden costs (time loss, stress, hassle, forgone cappuccinos) that depend on the individual. Turns out the actual price difference is exactly the average estimation of how much one would be ready to save to go through Paris!

Struggling bartenders in France

This is one interesting passage I read on this article published last Saturday on the New York Times:

In 1960, France had 200,000 cafes, said Bernard Quartier, president of the National Federation of Cafes, Brasseries and Discotheques. Now it has fewer than 41,500, with an average of two closing every day.

The article goes on, listing diverse grievances from bartenders on what to blame for their current lack of profitability. Some blame it on the current financial crisis, some others blame it on Sarkozy's stricter regulation against smokers and drunk drivers. Some others blame it on the cultural change in modern generations. Listen to this bartender from Paris:

“The bar-cafes? They’re finished. Twenty years ago, people would go in the morning before work for a coffee and a cigarette. And now, it’s over. Young people don’t drink during the day, and when they drink, they drink to get wasted. Smoking is forbidden and they eat en route, with coffee in a paper cup. They smoke and drink at home.”

The policy question is: should Sarkozy bailout bartenders together with or instead of car manufacturers? I think the answer depends on whether you believe or not in drinking at bars as a promoter of social capital. Apparently the answer is yes.

BBC video on "addiction" to aid in Africa

The sad truth of economic incentives when the power of distributing scarce resources is given to the wrong people:
http://news.bbc.co.uk/1/hi/programmes/panorama/7742426.stm

What is Tim Geithner like?

As you've probably heard, Tim Geithner has been nominated to be the next Treasury Secretary. As he was my boss for several years and I had the opportunity to brief him on a couple of occasions, here are my five cents.
The first impression is that he is an extremely smart person, with a very strong ability to absorb information, process it and ask pointed question. He also has a strong drive to figure out aspects that he is not familiar with. During briefings, his questions were tough not in a "here is what you did wrong" way, but in a "help me think about this" way. He was always trying to figure out where the unseen problems were that he had not yet notice.
What is needed for the Treasury at this stage is someone who can handle a complex issue, interact with his counterparts abroad, be flexible with a changing environment, and - last but not least - do not let his dealin with Wall Street make him forget that he works for the taxpayer. Tim Geithner scores well on all counts. The only tricky aspect I see is who is going to replace him in NY.

A new FTA for Canada

"L'entente prévoit de retirer les tarifs douaniers imposés à 98 pour cent des exportations canadiennes en Colombie, y compris pour le blé, l'orge, les lentilles, les pois, le boeuf, les produits de papier ainsi que la machinerie et l'équipement." ... read all

Does it have anything to do with trade or simply two conservative presidents getting along well?

Betting 130,000,000,000 Euros on Keynes ......

..at least this seems to be the number which the European Union wants to invest in a large scale (cross border) government program hoping Keynes is right. The number corresponds to a contribution of 1% of GDP of each nation (Hence, Germany burdens ca. 25bn of the overall package). A great experiment to witness (not only for economists) and analyze in the future!

I am just happy I pay my taxes in Switzerland.

Rigotnomics daily visits

Schumpeter on how to write a PhD thesis

"In every scientific venture the thing that comes first is Vision. That is to say, before embarking upon analytic work of any kind we must first single out the set of phenomena we wish to investigate, and acquire 'intuitively' a preliminary notion of how they hang together or, in other words, of what appear from our standpoint to be their fundamental properties. This should be obvious. If it is not, this is only owing to the fact that in practice we mostly do not start from a vision of our own but from the work of our predecessors or from ideas that float in the public mind"

This is why you need to read newspapers and blogs and not academic journals when in need of ideas for research.

ht: Wyplosz' office door!

This extract is from Schumpeter's History of Economic Analysis (1954)

Another Distraction From My Memoire Preliminaire - Super ObamaWorld

Hey,

for all those video game fans out there who are looking for a distraction from work, check out this link to a cool game called 'Super Obamaworld'.

So basically the idea is in this Super Mario style game (for those who remember the Mario video game franchise from Nintendo) is that you control Barack Obama as you run around ridding the world of pigs with lipsitck and bringing 'Change We Can Believe In'.

Enjoy!!

Cheers,
Cam.

Facebook in Canada

I just saw in Foreign Policy that about a third of canadians were on facebook! This is the highest proportion in the world! Furthermore, if you count out all those above 50 (about 35% of population) and those below 10 (10% of pop), the proportion jumps to about 3 out of 5. If you meet a canadian who's between 10 and 50 years old, most chances are he is on facebook!

This may be good news as "net interaction stimulates and improves the brain" and also, employers might be able to select who they hire better as "they thrawl facebook for lues about character and behaviour of potential employees"!

But why are we number 1 for facebook? Maybe this is because we are less resistant to change than other cultures, but why were we so slow to adopt cell phones then? I guess technology adoption is based on specific demands or need for pr$oducts that are closely related to culture. In other words, I would think that canadians adopted facebook becuz they needed it and it fits with their culture, whereas cell phones do not!

Coup de gueule

"Barack Obama, committed to uniting America, could defuse the nation’s culture wars by purchasing an alternative homeland for those of his countrymen who want more use of the death penalty, less gun control and no gay marriage. A slice of Saudia Arabia’s empty quarter would do nicely: there’s plenty of space and the new occupants would have lots in common with the locals".

Sometimes, The Economist has these sarcastic and radical articles I would call "coup de gueule". They are the best. Read this one completely, it's a classic.

Surf Economics

Hey all,

just when I thought that there are areas of life that Economics can't be applied to, I stumbled upon this super cool blog.

Called 'Surf Economics', it is run by a guy by the name of Chad Nelsen, who is pursuing his doctorate in Surf Economics @ UCLA (how cool is that!!!!).

Apart from the obvious - that the fieldwork involved in this subdiscipline must be great fun - what is Surf Economics all about? Well, according to the blog and another article I found, the field is all about estimating the economic value that surfing areas bring to the local economy. Think for example of the economic benefit that is brought to a local community when it becomes widely known that there are some smokin' waves to be ridden nearby. Surfers come from far and wide, shops open to service their needs, and more money gets pumped into the local community.

Interestingly, the idea behind promoting awareness of the economic value of surf beaches serves in the end a conservation purpose. The economic value of a surf beach is a critical variable that should enter the policymakers decision function for making adjudications concerning coastal developments which have the potential to alter coastal environments and affect beach breaks (and hence affect the potential for a local community to benefit economically from their surf beach). For a small local community with few diversification options in terms of its tourism income, coastal developments which alter beaches and don't take account of their value can potentially be economically disastrous.

Another instance of economists helping local communities and making real life impacts........now back to deriving the FOCs of my Hamiltonian......................

Cheers,

Cameron

Nothing To Do With Economics (But Entertaining Anyway)

Hey,

this post has nothing to do with Economics, but I just wanted to share with you all some Australian Winter Olympics glory (from 2002):




Given that Australia doesn't really excel in winter sports, this guy became an absolute overnight celebrity........and he did it with minimal effort as well!! It is also very inspiring, as it shows that we should never give up in anything that we do, the big payoff might be just around the corner!!

Cheers,
Cameron.

Japanese apples

Tadashi was telling me about this fascinating fact: Japan has been criticized by the US government for protecting its apple market from US apples. This has been a 30-year-battle at the WTO. The Japanese apple market was self-supplied by Japanese apple growers. But, now Japan has become a net exporter of apples and is increasing its export dramatically to its neighbouring countries (what happened in 2002???). I have heard that Japanese apple grower associations are spending a decent amount of money in R&D for the last couple of decades to improve its quality (apparently, these apples are way better than their New Zealand or Chinese counterparts). Is this protectionism work?

"1st Rigotnomics Prize 2009"

The Editors of Rigotnomics are pleased to announce the launch of the first "Rigotnomics 2009 Prize" for the Best Master's Thesis written by students at the Graduate Institute of International and Development Studies, in Geneva. As a reward, the best mémoir will be published as a special edition Rigotnomics Working Paper and, thanks to the generosity of our sponsors, will comprise of a Rigotnomics Mug and a T-shirt.

The prize is open to theses written in all economics disciplines. A scientific committee appointed by the Editors, composed of four Phd students specialized in both Micro and Macro at the Institute will be in charge of the selection.

The Committee this year will be composed of the following members:

Pascal Towbin, Macro
Sebastian Weber, Macro
Kornel Mahlstein, Trade
Cosimo Beverelli, Trade

The Prize will be awarded during the usual beginning of the year Barbecue in Rigot, in September 2009 (right next to the graduation ceremony).

The Editors
(approved by the Editor in Chief)

Better than CNN graphs!

Professor of Physics Mark Newman from the University of Michigan, produced some interesting graphics of latest US elections. This is the arch-famous CNN type of map:



This is the map which shows the degree of preference by regions (red are still republicans, blue democrats, but the shades of purple give percentages in between):



We still believe Obama was a better candidate, but this is enough to say that the concurrent economic crisis and a better electoral campaign, were also influential in determining Obama's victory.

If you want more maps click here.

Obama's economic team

Who would you like to see in Obama's economic team? I would like to see Krugman. Don't think that's gonna happen but still. There are many jobs involved! So who would you like to see in what job and why? I think Roland Fryer would be good for social inequalities, but what about health care, the financial crisis, international trade??? What would be an economic dream team?

Here's Mankiw telling Obama what (not) to do. Don't know if he would work for a Democrat though!

And if you feel like shopping, go here.

Brown Bag Lunch

Monday 10 Nov- 12h15 - R3

Vincenzo Cuciniello (EPFL)

Will present his paper

“International monetary policy cooperation revisited: conservatism and non-atomistic wage setting”

This paper presents a benchmark model of policy coordination in line with the New Open Economy Macroeconomics literature. I extend the analysis on non-cooperative toward cooperative solutions by incorporating non-atomistic wage setters and conservative central banks. It turns out that previous results on international monetary policy cooperation are modified such that cooperation is welfare improving. The finding in the model relies on unions' perceptions about affecting monetary policy. It is shown that under cooperation wage setters perceive a tighter monetary policy, thereby inducing stronger wage restraint.

The effect of the financial crisis on the popularity of Rigotnomics

Celtics vs Timberwolves

Some time ago, three superstars of the economics profession at the Minnesota FED, Chari, Christiano and Kehoe (CCK), claimed in a controversial paper that all the talk about the occurrence of a credit crunch in the US was misleading. With the help of available data, they "debunked" the following myths about the way the financial crisis is hitting the real economy:

1. Bank lending to nonfinancial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by nonfinancial corporations has declined sharply and rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers.

In a response paper, four Boston FED economists, Cohen-Cole, Duygan-Bump, Fillat, Montoriol-Garriga disprove CCK' s conclusions, claiming that one cannot assess those popular claims by simply looking at aggregate data. If one looks at the composition of financial aggregates one observes evidence of:

1. Decrease in "new lending": banks are in fact making heavy use of existing lines of credit, but are not renewing them at maturity or they are sometimes closing existing ones.
2. Interbank lending is indeed working unusually: large banks have in fact sharply increased their cash assets (cash hoarding) which entails high opportunity costs, indicating disfunctions;
3. Big, high quality (AA) non-financials corporations have not been hit by the crisis, but signs of strains are evident for lower quality non-financials corporations (A2/P2) who find it harder to obtain commercial paper funding (another piece of evidence of flight to quality).
4. Banks are still important: when problems arise in the commercial paper segment, banks have to fulfill credit expectations; furthermore, they are still important for ordinary consumers.
   

The question is then, will the banks be able and willing to provide these fundings? It seems like they are not..


Anyway, the conciliatory conclusions are for both papers that, indeed, we need more and better data to say anything meaningful...and the more general lesson for everybody is: don't draw too strong conclusions from aggregate data!

Democracy

-"What's more important for democracy, leadership or institutions?"
-"Leadership" I answer, without hesitation.
- "What's the name of the President of Switzerland?"
-You got me

Replace the word "democracy" with "growth" in the above for another contribution to economic theory.

What a gooood Morning!

This morning I woke up with this text: Obama :-) Finally some good news from the world!



Good luck Barack Obama!Let the change begin!

PS
Trivia-Barack Obama will be the first elected American President who has been endorsed by Rigotnomics...

What really caused the financial crisis

The answer in our new Rigotnomics working paper.

Get ready for the marathon..

Reminder: Indiana is the first toss-up state to close the polls. According to Real clear Politics so far Mccain is leading in this state, there should not be any surprise. Anyway, the first important indication may come from Virginia where polls close at 7pm (which approximately 1am in Europe). Ok also Florida is a toss up state that closes polls at 7pm, but I don't know how much of a surprise may come out of it, given last elections... AnywayPrepare your popcorn, coffee and stay tuned!

Adverse selection, twisted incentives and social inefficiency at the UN

In a new Rigotnomics Working paper, I compare the UN job market to the one for blood donations. Drawing parallels, I show how high salaries lead to an adverse selection of employees and to the destruction of good employees' true motives.

Will the global financial crisis hit ordinary Ugandans?

Dick explains why the answer is yes here.

It's "about" time

Does Mankiw really think poverty is caused by laziness?

How can some economists be so stubborn, not understanding the benefits of redistribution on society? And associating poverty to laziness!!? What the!!?!? Economists should all have been poor and unemployed before becoming economists, maybe then they would understand what they wanna talk about. Seriously.
This is my reaction to the comic Mankiw posted today. Happy halloween!

The benefits of a recession?

So our friends at Econbrowser show that their Recession Indicator index is at 46.1%. Bad news for the global economy. As economists fight over the forecasts, and try to predict how long and deep the recessions is going to be, all we, human beings do, is wait and see, trying to adjust our habits until the good days come back. Apparently there are not only bad things occurring in recessions. I am not talking about creative destruction and so on; I am talking about other positive side effects of recessions we should be aware of.

Christopher Ruhm , Professor at University of Carolina, has published extensively on the positive effects of the recession on our health. The economics is simple: recessions induce healthier lifestyle. Have you ever thought about quitting smoking? There you go: stop buying cigarettes now and you'll save a lot of a year. Anything we were not doing before bacause too busy, will now suddenly become possible. From a 2003 IZA working paper called "Healthy living in hard times" he says:

"Individuals might adopt healthier lifestyles when the economy weakens because increases in non-market time make it less costly to undertake health-producing activities such as exercise or the consumption of a healthy diet. Reductions in incomes and employment related stress could also decrease the frequency of 'self-medication' by smoking and drinking."

This makes sense, but of course, other factors come into play. How do you finance your health expenditure may still matter a lot. For example in this article, a study conducted in Denmark, it has been found that children born in a recession live on average 15 months less than chlidren born under better conditions. The reason is, as explained by Gerard Van Berg from the Free University of Amsterdam here, that under recession children lack access to good healthcare, or parents are stressed.

So all in all, things aren't good, but neither as bad as we think!

The Inefficiency of Markets in Times of Stress

More and more it starts to become common wisdom that it may be very wrong to rely on markets in times of trouble. A nice note on the point is made by Avinash Persaud.

A simple look at my favourite graph of today, makes this point as well (stock price of Volkswagen):



According to the market price Volkswagen a German carmaker (which essentially is owned by Porsche and the state of Niedersachsen which has a veto right) doubled its value today and became temporarily the world largest company......

...too bad I had no shares of the company to sell at 10am.
Soon we should know who was on the looser side in this gamble.

BBL and Rigotnomics Working papers

I am please to announce next week's BBL. Alexandra will present her Rigotnomics working paper "Market structure and the allocation of resource rents"on Monday Nov. 3 at 12:15 in R3. Coffee, cookies, juice and snacks will be provided by the department. Here is the abstract:

Efficient exploitation of an oil well is a complex process involving sophisticated technology and equipment. This is why the majority, if not all, of the oil-producing developing nations rely on foreign companies specialized in oil-field development. The present study examines the interaction between the resource-rich economy and a foreign firm that provides extraction services. I analyze the country's optimal investment, consumption, and extraction profiles, as well as the optimal price-setting behavior of the foreign firm and the resulting allocation of resource rents between the two parties. The emphasis is put on the role of access to international credit markets for the resource-rich economy. It is shown that if the country is a price-taker in the oil market, access to credit does not matter at all. By contrast, if the country is a monopolist in the oil market and can lend and borrow internationally, it finds itself in a stronger bargaining position vis-à-vis the foreign provider and can, therefore, appropriate a larger share of resource rents. The country's capital stock and technological efficiency of the local extraction industry are two other important ingredients that affect the distribution of resource rents.

The Rigotnomics working papers series is a new feature of Rigotnomics that aims to contribute to the intellectual emancipation of our readers and research affiliates. We aim to reflect a broad spectrum of perspectives in the current sphere of academic research and policy debate, and therefore contribute to the attainment of greater economic outcomes. Any student, professor or alumni is welcomed to submit his paper to the Editor and we will be pleased to promote it.

XIV. Spring Meeting of Young Economists 2009

Call for Papers for the XIV. Spring Meeting of Young Economists 2009 in Istanbul - Turkey.

The meeting will be convened from April 23 to 25, 2009, and will be hosted by Marmara University. Researches, young lecturers, PhD students, post doctoral students and assistant professors across all economic disciplines from all over the world are welcomed to participate in the conference.

http://www.smye2009.org

Hacking Democracy - Electoral Fraud In The USA

Hey,

with just over a week to go until the US presidential election, here is a great documentary about the prevalence of voter fraud in the USA and the problems with electronic voting machines.

No matter which of the candidates gets up next Tuesday, I think that we should all be a bit sceptical about the result and realise that the big winners will inevitably be the American law firms that specialise in election related litigation (which it seems is a guaranteed business in the US at least every 4 years.......)

Two nice articles concerning the same topic can be found here and here.

Cheers,

Cam.

RIGOTNOMICS WP SERIES

are the Rigotnomics Working Papers Series (RiWoPaSe) included in the IDEAS/REPEC ranking?

Credit ratings and geopolitics

so, i am bit confused here. S&P downgrades Russia's sovereign credit rating outlook to 'negative' today. because they committed some 15% of GDP to bailout the financial system and are heavily intervening in the forex market, which dwindled down the reserves by 15 bill just in a week. S&P is worried about the impact on the government balance sheets as confidence in the financial system and monetary regime declines.

so these are all big numbers, I agree. but at the same time, Russia's public external debt is a puny 2-3% of GDP, its forex reserves are 30% of GDP, oil funds another 14%, government budget and CA are all in surplus. so I am not reeeeally worried about its ability to pay back its debts. What is more, Russia is actually lending to other countries, like Iceland and Belarus.

I wouldn't care about S&P ratings, but the potential downgrade raises the costs of insuring the debt against default, with the debt now classified as distressed. Now, if you look at the US, with all its troubles and deficits, the credit ratings is an AAA (stable) against Russia's BBB+ (negative).

is it just me or there is something wrong with the picture?

Countercylclical job offers

Apparently, what we thought was actually losing power, is back in the game. From the IMF website:

The International Monetary Fund (IMF), which has announced its readiness to lend billions of dollars to support nations hit by fallout from the global financial turmoil, is holding talks with several countries about possible new lending programs.

"I have been on the phone with leaders in several capitals who have asked the Fund for assistance. We now have mission teams in some of these countries assessing their needs and, where asked to do, discussing programs that could be supported by an IMF loan," says IMF Managing Director Dominique Strauss-Kahn.

The IMF is currently discussing possible loan packages for Hungary, Iceland, Pakistan, and Ukraine. It is also in discussions with a number of other countries about possible financing needs, and is providing confidential policy advice to governments in emerging and developing economies on how to adapt to the current turmoil. It said on October 22 that it would also begin discussions with Belarus.

Now you know the reason why there are new job offers available, as you have read in Rigot lately, and you know whom to talk to ask for advice....

The decreasing returns to traveling

Jackie Lee is a traveler. While in Europe for his master’s degree, he flew to all easyjet destinations from Geneva. When in Bergen, enjoying the view of the amazing fjord and the UNESCO World Heritage city, he noted: “I don’t get impressed anymore by these things that are supposed to be gorgeous. I traveled too much”.

There are indeed decreasing returns to traveling, at least for some of us. Here's a way to grow old and keep on having fun traveling. It's all about technological progress in the pleasure production function as can be seen below.

Is there a conflict of interests?

Everybody knows by now, or at least should know, who Henry "Hank" Paulson is. He was the designated man in charge of rescuing the financial system from collapsing. One recurrent detail of his career in the news, is his former role of Chairman and CEO of Goldman Sachs. Being Goldman Sachs by far the most prestigious bank, some people are worried about how "independent" is Paulson's judgement from former colleagues' pressure. Paulson does not own any stake in Goldman, so he has no vested interested; but given the importance of the decisions he is taking, the idea that he may be subject to a conflict of interests is arising. This article explains pretty well what is the prevailing mood in the US about the problem. Since the meltdown has started, Paulson has turned to his firm to hire specialists who could help him solving the crisis. Some competitors, or witty commentators, have started to name this crew "Government Sachs".

Just for your information, this top-rated Bank has a long standing tradition of encouraging his alumni to work into the public sector. You are not a "Goldman Alumn Star" until you have made a breakthrough contribution it into the public sphere. For example, Mario Draghi, the current President of Bank of Italy, or Mark Carney, the current Governor of Bank of Canada, have bought worked for Goldman. I believe this is an impressing achievement and signals the capacity of the Bank to attract the most talented. The above mentioned people have an outstanding and impeccable reputation as the "best" suited for their respective job (at least Mario Draghi for what I know, but can any Canadian confirm please for Mr. Carney?). Furthermore, I think it's more a praise than a critique for the Bank to encourage his most talented employees to quit the company and make their way through the difficulties of a public sector job. What is special about the US? Maybe, it's just that time pressure forced Paulson to hire the people he knew better and trusted more.

But the fundamental point remain: should private sector people be encouraged to work in the public sector later in their career?Or does this fundamentally entail a natural emergence of a conflict of interests? The debate is open.