Urban Elite Capture and US Growth

Hsieh and Moretti have a new working paper identifying how land market rigidities and NIMBYist rent seeking (in both housing and labor markets...) have retarded growth:

The increase in spatial wage dispersion is driven at least in part by cities like New York, San Francisco and San Jose, which experienced some of the strongest growth in labor productivity over the last five decades (Moretti (2012)). These cities also adopted land use restrictions that significantly constrained the amount of new housing that can be built. As described by Glaeser (2014), since the 1960s coastal U.S. cities have gone through a property rights revolution which has significantly reduced the elasticity of housing supply: “In the 1960s, developers found it easy to do business in much of the country. In the past 25 years, construction has come to face enormous challenges from any local opposition. In some areas it feels as if every neighbor has veto rights over every project.” 

Misallocation arises because the constraints on housing supply in the most productive US cities effectively limit the number of workers who have access to such high productivity. Instead of increasing local employment, productivity growth in housing-constrained cities primarily pushes up housing prices and nominal wages. The resulting misallocation of workers lowers aggregate output and welfare of workers in all US cities. 

... 

We use data from 220 metropolitan areas in the US from 1964 to 2009 to perform two calculations. First, we quantify the effect of spatial misallocation. We find that most of the increased spatial dispersion in the marginal product of labor is due to the growing spatial dispersion in housing prices. In turn, the growing spatial dispersion of housing prices is largely driven by strict zoning laws in cities such as New York and the San Francisco Bay Area with strong productivity growth. We find that the increased spatial misallocation of labor due to housing supply constraints in cities with high productivity growth rates lowered aggregate growth by almost 50% between 1964 and 2009.

One of my favorite ways of summarizing what it's like to live in the Bay is that LinkedIn says there are 127,000 open jobs and Zillow says there 11,000 open units.

The Lost Returns to Diversity Suppressed

How much have oppressive norms been hurting US growth?

In 1960, 94 percent of doctors and lawyers were white men. By 2010, the fraction was just 62 percent. Similar changes in other highly-skilled occupations have occurred throughout the U.S. economy during the last fifty years. Given that innate talent for these professions is unlikely to differ across groups, the occupational distribution in 1960 suggests that a substantial pool of innately talented black men, black women, and white women were not pursuing their comparative advantage. We examine the effect on aggregate productivity of the remarkable convergence in the occupational distribution between 1960 and 2010 through the prism of a Roy model. About one-quarter of growth in aggregate output per person over this period can be explained by the improved allocation of talent.

The paper is "The Allocation of Talent and U.S. Economic Growth" by Chang-Tai Hsieh and coauthors. 

"Four dozen papers on conflict and fragility in Africa in under 2,000 words"

David Evans' coverage of last month's Annual Bank Conference on Africa is a great overview of some fascinating recent applied research. Highlights:

Extreme rain and drought both boost livestock theft in Kenya: raids driven by resource scarcity but also by weather that makes it easy to carry out a raid (Ralston).

Drought leads to increased violence against women. When the shock affects income asymmetrically across partners, it is associated with violence for the first time in the marriage (Cools et al.). 

Axbard et al. use variation in international mineral prices and within-country time and geographic variation to show that when a mine opens in South Africa, crime doesn’t increase. But you may not want to be around when the mine closes. 

“Members of ethnic groups exposed to greater historical missionary activity [in 19th-century Nigeria] express significantly less trust today,” using Afrobarometer trust measures (Okoye).

Social welfare and robots

As long as we're on the joint topics of ways to end an abstract and social welfare:

"Policies that redistribute income across generations can ensure that a rise in robotic productivity benefits all generations."

The ungated NBER working paper is here. (h/t Tyler Cowen, who has some thoughts on the general issue)

Social welfare

Meanwhile, in excellent ways to end an abstract:

"[The policy] would also generate a significant welfare gain from the ex-ante standpoint of a newborn under the veil of ignorance."

The original paper is here. 

On giving a great applied talk

Jesse Shapiro* has some excellent slides on giving a good applied micro talk that are both specific enough to be of use for students prepping job market talks, as well as general enough to simply provide good fodder for thinking about how one presents one's work to any audience. I highly recommend them. (via Kyle Meng)

*: yet another Stuyvesant High School graduate.

Ecotourism and poverty

This is a hard problem to answer well, but its certainly an interesting question.

Quantifying causal mechanisms to determine how protected areas affect poverty through changes in ecosystem services and infrastructure
Paul J. Ferraroa and Merlin M. Hanauer

Abstract: To develop effective environmental policies, we must understand the mechanisms through which the policies affect social and envi- ronmental outcomes. Unfortunately, empirical evidence about these mechanisms is limited, and little guidance for quantifying them exists. We develop an approach to quantifying the mechanisms through which protected areas affect poverty. We focus on three mechanisms: changes in tourism and recreational services; changes in infrastructure in the form of road networks, health clinics, and schools; and changes in regulating and provisioning ecosystem services and foregone production activities that arise from land- use restrictions. The contributions of ecotourism and other ecosys- tem services to poverty alleviation in the context of a real environ- mental program have not yet been empirically estimated. Nearly two-thirds of the poverty reduction associated with the establish- ment of Costa Rican protected areas is causally attributable to opportunities afforded by tourism. Although protected areas reduced deforestation and increased regrowth, these land cover changes neither reduced nor exacerbated poverty, on average. Protected areas did not, on average, affect our measures of in- frastructure and thus did not contribute to poverty reduction through this mechanism. We attribute the remaining poverty reduction to unobserved dimensions of our mechanisms or to other mecha- nisms. Our study empirically estimates previously unidentified contributions of ecotourism and other ecosystem services to pov- erty alleviation in the context of a real environmental program. We demonstrate that, with existing data and appropriate empiri- cal methods, conservation scientists and policymakers can begin to elucidate the mechanisms through which ecosystem conservation programs affect human welfare.

Pricing the clathrate gun hypothesis

In this week's Nature:

We calculate that the costs of a melting Arctic will be huge, because the region is pivotal to the functioning of Earth systems such as oceans and the climate. The release of methane from thawing permafrost beneath the East Siberian Sea, off northern Russia, alone comes with an average global price tag of $60 trillion in the absence of mitigating action — a figure comparable to the size of the world economy in 2012 (about $70 trillion). The total cost of Arctic change will be much higher. Much of the cost will be borne by developing countries, which will face extreme weather, poorer health and lower agricultural production as Arctic warming affects climate. All nations will be affected, not just those in the far north, and all should be concerned about changes occurring in this region. More modelling is needed to understand which regions and parts of the world economy will be most vulnerable.

Wikipedia on the clathrate gun hypothesis here. For scale, Costanza et al. calculated the annual value of the world's ecosystem services in 1997 at $16-54 trillion, or $23-79 trillion in today's dollars.

Using Weather Data and Climate Model Output in Economic Analyses of Climate Change

After 5 (or 6?) rounds of revisions (a lesson to anyone thinking of writing an interdisciplinary review article...), this is finally published:

Using Weather Data and Climate Model Output in Economic Analyses of Climate ChangeReview of Environmental Economics and PolicyMaximilian Auffhammer, Solomon M. Hsiang, Wolfram Schlenker and Adam Sobel

We tried to write this as a practical and gentle introduction and how-to manual for econometricians and other applied social scientists. I hope it's helpful.

Some like it hot... but not too hot

This paper has been in the works for some time now. Its innovative and important, with very pretty graphs!

Climate Amenities, Climate Change, and American Quality of Life
David Albouy, Walter Graf, Ryan Kellogg, and Hendrik Wolff

The chemistry of the human body makes our health and comfort sensitive to climate.Every day, climate influences human activity, including diet, chores, recreation,and conversation. Geographically, climate impacts the desirability of differentlocations and the quality of life they offer; few seek to live in the freezing tundraor oppressively hot deserts. This paper estimates the dollar value American householdsplace on climate amenities, including sunshine, precipitation, humidity, and especiallytemperature. Valuing climate amenities not only helps us to understand how climateaffects welfare and where people live, but also helps to inform policy responses to climate changes. 

Using a quality of life measure that is carefully constructed from local wage andhousing price differentials, the authors find that Americans favor an average dailytemperature of 65 degrees, tend to dislike marginal increases in heat more thanmarginal increases in cold, and care less about marginal changes in outdoor temperatureonce the temperature is sufficiently uncomfortable that they are unlikely to gooutside. These preferences vary by location, reflecting people's preferences for warmer or colder climates. Changes in climate amenities under business-as-usual climate change predictions imply annual welfare losses of 1 to 3 percent of incomeby 2100, holding technology and preferences constant.

Some of my best friends are only-children

Little Emperors: Behavioral Impacts of China’s One-Child Policy
L. Cameron, N. Erkal, L. Gangadharan, X. Meng

We document that China’s One-Child Policy (OCP), one of the most radical approaches to limiting population growth, has produced significantly less trusting, less trustworthy, more risk-averse, less competitive, more pessimistic, and less conscientious individuals. Our data were collected from economics experiments conducted with 421 individuals born just before and just after the OCP’s introduction in 1979. Surveys to elicit personality traits were also used. We used the exogenous imposition of the OCP to identify the causal impact of being an only child, net of family background effects. The OCP thus has significant ramifications for Chinese society.

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Maybe my favorite aspect of the study is not the content but the design: analyzing cohort effects using [a battery of] lab experiments.

Building Back Worse

It's sometimes hypothesized that after a natural disaster, populations "Build Back Better," meaning that the reconstruction of damaged infrastructure leaves the population better off after the disaster than they were before it struck.  There is some economic logic to this hypothesis, since we know that populations don't always update expensive capital investments when they should.  If capital is outdated, then an exogenous shock that motivates the population to replace the old capital with new capital might end up increasing the economy's output in the long-run.  Many of us are familiar with the example of a cell phone that is old and frustrating, but we don't feel like its worth replacing until we drop it in the pool by mistake -- and then find that upgrading to the latest smartphone makes us much more productive.

Politicians in the US, it seems, are required to tell the local population that they will "build back better" after a disaster strikes.  After Hurricane Sandy, we heard a lot of leaders talking about how the tri-state area will be stronger and better than it ever was, probably in part because nobody wants to hear otherwise and in part because this kind of logic is important for obtaining reconstruction funding.  Healy and Malhotra have a nice article (here) demonstrating that obtaining this kind of funding for reconstruction is important for an incumbent's re-election (recall: Hurricane Sandy -> Federal relief funding -> NJ Governor Christie's endorsement -> Obama earns votes in reelection).  And just before the Superbowl, I saw this video about the Superdome's post-Katrina reconstruction, which is not shy about endorsing the BBB hypothesis.

Importantly, though, the BBB hypothesis still remains a hypothesis, and there is no robust empirical evidence that populations actually do build back better, in aggregate, after catastrophic events. To remind that we shouldn't take the anecdotes and political rhetoric above too seriously, Amir Jina points us to an interesting IRIN report that suggests populations affected by Typhoon Bopha are building back worse:

Were the cost estimates for Waxman-Markey overstated by 200-300%?

Jesse and I both come from the Sustainable Development PhD Program at Columbia, which has once again turned out a remarkable crop of job market candidates (see outcomes from 2012 and 2011). We both agreed that their job market papers were so innovative, diverse, rigorous and important that we wanted to feature them at FE.  Their results are striking and deserve dissemination (we would probably post them anyway even if the authors weren't on the market), but they also clearly illustrate what the what the Columbia program is all about. (Apply to it here, hire one of these candidates here.) This is the first post.

Good policy requires good cost-benefit analysis. But when we are developing innovative policies, like those used to curb greenhouse gas emissions, it's notoriously difficult to estimate both costs and benefits since no analogous policies have ever been implemented before.  The uncertainty associated with costs and benefits tends to make many forms of environmental policy difficult to implement in part because the imagined costs (when policy-makers are considering a policy) tend to exceed actual costs (what we observe after policies are actually implemented). Kyle Meng develops an innovative approach, linking Intrade predictions about the success of Waxman-Markey with stock-market returns and abrupt political events, to measure the cost of the bill to firms as predicted by the market. This is very different from standard technocratic approaches used by the government to assess the cost of future policies, which rely on parameterized models of technology and econometric models of behavior ("structural models").

By relying on the market, Meng infers what players in affected industries actually expect to happen in their own industry. The result is a bit surprising: Meng estimates that standard costs-estimates for WM (produced before it failed to pass) are 200-300% larger than what players in the industry actually expected it to cost them.  But this still didn't stop industry players from fighting the bill -- one of the ways that Meng validates his approach is to use lobby records to show that firms which expect to suffer more from the bill (as recovered using his approach) spend more money to fight it.

It's tough to tell whether Meng's approach or the structural models are more accurate predictors of firm-level costs since WM was never brought into law, so the outcomes will remain forever unobserved. But he does show that for several similar laws (eg. the Montreal Protocol), the structural predictions tended to overestimate the actual costs of implementation (which were observed after the law was implemented and outcomes observed) by roughly a factor of two. This doesn't prove that Meng's approach is more accurate, but it shows that his estimate for the bias of the structural approach (with regard to WM) is consistant with the historical biases of these models.

The paper:

The Cost of Potential Cap-and-Trade Policy: An Event Study using Prediction Markets and Lobbying Records
Kyle Meng

Abstract: Efforts to understand the cost of climate policy have been constrained by the limited number of policies available for evaluation. This paper develops an empirical method for forecasting the expected cost to firms of a proposed climate policy that was never realized. I combine prediction market prices, which reflect market beliefs over regulatory prospects, with stock returns in order to estimate the expected cost to firms of the Waxman-Markey cap-and-trade bill, had it been implemented. I find that Waxman-Markey would have reduced the market value of a listed firm by an average of 2.0%, resulting in a total cost of $165 billion for all listed firms. The strongest effects are found in sectors with greater carbon and energy intensity, import penetration, and exposure to U.S. product markets, and in sectors granted free allowances. Because the values of unlisted firms are not observed, I use firm-level lobbying expenditures within a partial identification framework to obtain bounds for the costs borne by unlisted firms. This procedure recovers a total cost to all firms between $110 and $260 billion. I conclude by comparing estimates from this method with Waxman-Markey forecasts by prevailing computable general equilibrium models of climate policy.

In figures...

Abrupt political events that affect the expected success of WM are quantified by looking at expectations in Intrade markets:

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When WM appears more likely, the stock prices of CO2 intensive firms falls on average:

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Firms that are more CO2 intensive are affected more strongly:

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Firms whose stock prices are more responsive to WM lobby harder against it:

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How these cost estimates compare with structural cost estimates, and similar statistics for historical regulations that actually passed into law.

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Take home summary: Cap and trade in the USA probably would have been cheaper to implement than we thought, according to the firms it was going to regulate. 

Endogenous Literacy and One Laptop Per Child

There's a famous paper in development economics by Ted Miguel and Michael Kremer called "The Illusion of Sustainability" (ungated copy here). In it, Miguel and Kremer look at an initially incredibly cost-effective intervention (deworming, original paper here) and examine whether the one-time intervention could be made "sustainable," i.e., whether the local community would continue to support the deworming program. They test three separate techniques that have been widely advocated as means of making interventions self-sustaining (cost recovery, health education, and a social psych "commitment" technique) and find that all fail. The paper is an excellent piece of evidence whenever someone brings up pie-in-the-sky "this will pay for itself in the long run and we won't need to pay operating costs!" -type arguments.

Which is why I was so surprised to come across this article over at MIT's technology review:

Given Tablets but No Teachers, Ethiopian Children Teach Themselves
With 100 million first-grade-aged children worldwide having no access to schooling, the One Laptop Per Child organization is trying something new in two remote Ethiopian villages—simply dropping off tablet computers with preloaded programs and seeing what happens. 

[...] 

The experiment is being done in two isolated rural villages with about 20 first-grade-aged children each, about 50 miles from Addis Ababa. One village is called Wonchi, on the rim of a volcanic crater at 11,000 feet; the other is called Wolonchete, in the Great Rift Valley. Children there had never previously seen printed materials, road signs, or even packaging that had words on them, Negroponte said.  

Earlier this year, OLPC workers dropped off closed boxes containing the tablets, taped shut, with no instruction. “I thought the kids would play with the boxes. Within four minutes, one kid not only opened the box, found the on-off switch … powered it up. Within five days, they were using 47 apps per child, per day. Within two weeks, they were singing ABC songs in the village, and within five months, they had hacked Android,” Negroponte said. “Some idiot in our organization or in the Media Lab had disabled the camera, and they figured out the camera, and had hacked Android.”  

Elaborating later on Negroponte’s hacking comment, Ed McNierney, OLPC’s chief technology officer, said that the kids had gotten around OLPC’s effort to freeze desktop settings. “The kids had completely customized the desktop—so every kids’ tablet looked different. We had installed software to prevent them from doing that,” McNierney said. “And the fact they worked around it was clearly the kind of creativity, the kind of inquiry, the kind of discovery that we think is essential to learning.”  

“If they can learn to read, then they can read to learn,” Negroponte said.

I'm not quite sure how settled I am in my thinking about this (first thought: IRB), but as an idea it's fascinating, and reminds me a bit about the old saw that "if marginal productivity is declining, returns to capital investments in developing countries should be stratospherically high." Perhaps that statement, which seems not to hold true for physical capital, is truer for human capital, and this may be the small investment that's needed. If your first thought is "that's not a small investment," may I direct your attention to the end of the article:

The idea of dropping off tablets outside of the context of schools is a new paradigm for OLPC. Through the late 2000s, the company was focused on delivering a custom miniaturized and ruggedized laptop, the XO, of which about 3 million have been distributed to kids in 40 countries. 

Giving computers directly to poor kids without any instruction is even more ambitious than OLPC’s earlier pushes.“What can we do for these 100 million kids around the world who don’t go to school?” McNierney said. “Can we give them tool to read and learn—without having to provide schools and teachers and textbooks and all that?”

Quality school systems are not cheap compared to tablet PCs.

Potential catastrophe and climate negotiations

This is an important and elegant paper out last week in PNAS.

Climate negotiations under scientific uncertainty
Scott Barrett and Astrid Dannenberg

Abstract: How does uncertainty about “dangerous” climate change affect the prospects for international cooperation? Climate negotiations usually are depicted as a prisoners’ dilemma game; collectively, countries are better off reducing their emissions, but self-interest impels them to keep on emitting. We provide experimental evidence, grounded in an analytical framework, showing that the fear of crossing a dangerous threshold can turn climate negotiations into a coordination game, making collective action to avoid a dangerous threshold virtually assured. These results are robust to uncertainty about the impact of crossing a threshold, but uncertainty about the location of the threshold turns the game back into a prisoners’ dilemma, causing cooperation to collapse. Our research explains the paradox of why countries would agree to a collective goal, aimed at reducing the risk of catastrophe, but act as if they were blind to this risk.

I like that the authors investigate what is going on in the game, rather than simply showing that their theory predicts the overall outcome:

Communication is the essence of negotiation, and it is striking how the players used their proposals and pledges differently depending on threshold uncertainty. When the threshold was known, players communicated so as to coordinate to the thresh- old. When the threshold was unknown, communication was more strategic. Mean proposals for the Certainty and Impact Uncertainty treatments are very close to 150 (Table 1), with 83% of subjects in Certainty and 94% in Impact Uncertainty proposing precisely this amount. Mean proposals in Threshold Uncertainty and Impact- and-Threshold Uncertainty were significantly larger (Mann–Whit- ney–Wilcoxon test, n = 20, P < 0.05 each), with 29% of subjects in Threshold Uncertainty and 35% in Impact-and-Threshold Uncertainty proposing 200. Why did not more participants propose the collectively optimal 200? Answers to questions in our follow- up questionnaire provide a strong clue. Participants perceived their proposals as serving to motivate other students to contrib- ute; they thought that a proposal below 200 was more credible and so was more likely to stimulate contributions by others. 

Fig. 3 shows the relationship between pledges and actual contributions. In Certainty and Impact Uncertainty, almost all players (98% in both treatments) contributed at least as much as they pledged. Two of 200 contributed substantially less than they pledged, causing the two breakdowns in collective action in the Certainty treatment. By contrast, in the Threshold Uncertainty and Impact-and-Threshold Uncertainty treatments, most (82 and 75%, respectively) contributed less than they pledged, indicating that pledges, like proposals, were used strategically. 

Our follow-up questionnaire revealed that the reason for these differences had to do with the context in which decisions were made. Fairness and trust were more important considerations for the coordination games than for the prisoners’ dilemmas. Players were more trusting in the Certainty and Impact Uncertainty treatments because each recognized that the others had a strong incentive to be trustworthy in these situations. 

A final observation concerns attitudes toward risk, which can play a crucial role in the analysis of collective best outcomes (29). Our theory assumes that people are risk-neutral. Our questionnaire reveals that a majority of subjects are risk averse, but sta- tistical analysis shows that whether a person is risk averse has no discernable influence on behavior (SI Results). Once again, the context of these games seems to shape how people behave.

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The Nobels and Repugnance

It's marriage week on FE, which is apt given Monday's economics Nobel* announcements. Both Lloyd Shapley and Alvin Roth contributed to market design for markets lacking price signals, e.g. in kidney transplants, medical school matriculation, and marriage (see, for example, Shapley's 1962 paper College Admissions and the Stability of Marriage).

Something common to these markets is a tendency for humans to think of prices in these context to be particularly repugnant ideas. Most of us flinch at the idea that one should be able to buy and sell organs, for example, a stance with which I largely agree given that it seems very hard to design mechanisms that would prevent abusive extraction (e.g., person A needs money and thus pressures their spouse into donating a kidney and claiming it's voluntary). But Shapley and Roth were exactly the kind of economists who took thorny mechanism design as a challenge. Which brings us to my favorite paper that's emerged from this Nobel corpus so far:

Repugnance as a Constraint on Markets 

Alvin Roth 

Why can’t you eat horse or dog meat in a restaurant in California, a state with a population that hails from all over the world, including some places where such meals are appreciated? The answer is that many Californians not only don’t wish to eat horses or dogs themselves, but find it repugnant that anyone else should do so, and they enacted this repugnance into California law by referendum in 1998. Section 598 of the California Penal Code states in part: “[H]orsemeat may not be offered for sale for human consumption. No restaurant, cafe, or other public eating place may offer horsemeat for human consumption.” The measure passed by a margin of 60 to 40 percent with over 4.6 million people voting for it (see http://vote98.ss.ca.gov/Returns/prop/00.htm).  

Notice that this law does not seek to protect the safety of consumers by governing the slaughter, sale, preparation, and labeling of animals used for food. It is different from laws prohibiting the inhumane treatment of animals, like rules on how farm animals can be raised or slaughtered, or laws prohibiting cockfights, or the recently established (and still contested) ban on selling foie gras in Chicago restaurants (Ruethling, 2006). It is not illegal in California to kill horses; the California law only outlaws such killing “if that person knows or should have known that any part of that horse will be used for human consumption.” The prohibited use is “human  consumption,” so it apparently remains legal in California to buy and sell pet food that contains horse meat (although the use of horse meat in pet food has declined in the face of the demand in Europe for U.S. horse meat for human consumption). 

The repugnance of eating horses is not limited to California. On September 72006, the U.S. House of Representatives passed by a vote of 351–40, and sent to the Senate, H.R. 503: “To . . . prohibit the shipping, transporting, moving, delivering, receiving, possessing, purchasing, selling, or donation of horses and other equines to be slaughtered for human consumption.” (That bill seems unlikely to pass into law, however.) Apparently, some kinds of transactions are repugnant in some times and places and not in others. This essay examines repugnance and its consequences for what transactions and markets we see. When my colleagues and I have helped design markets and allocation procedures, we have often found that distaste for certain kinds of transactions can be a real constraint on markets and how they are designed, every bit as real as the constraints imposed by technology or by the requirements of incentives and efficiency. In this essay, I’ll first consider a wide range of examples, including slavery and indentured servitude, lending money for interest, price-gouging after disasters, selling pollution permits and life insurance, and dwarf tossing.

Hat tip Andres Marroquin.

Update: the NY Times has a great Nobel winners' "reading list" here.

* what, did you want a disclaimer?

Sibling externalities in the marriage market

I have weddings on the brain since my lovely fiance and I are planning ours this year, so I thought it would be nice to do a "marriage series" of posts on FE. Here's the first installment.

Lately, I've been thinking about whether we can empirically measure the long-run effect (on HH capital) of spending lots of money on expensive weddings, reminding me of this recent paper on the potentially long-run effects of sibling competition in the marriage market.

Marriage Institutions and Sibling Competition: Evidence from South Asia
Tom Vogl

Using data from South Asia, this paper examines how arranged marriage cultivates rivalry among sisters. During marriage search, parents with multiple daughters reduce the reservation quality for an older daughter's groom, rushing her marriage to allow sufficient time to marry off her younger sisters. Relative to younger brothers, younger sisters increase a girl’s marriage risk; relative to younger singleton sisters, younger twin sisters have the same effect. These effects intensify in marriage markets with lower sex ratios or greater parental involvement in marriage arrangements. In contrast, older sisters delay a girl’s marriage. Because girls leave school when they marry and face limited earnings opportunities when they reach adulthood, the number of sisters has well-being consequences over the lifecycle. Younger sisters cause earlier school-leaving, lower literacy, a match to a husband with less education and a less-skilled occupation, and (marginally) lower adult economic status. Data from a broader set of countries indicate that these cross-sister pressures on marriage age are common throughout the developing world, although the schooling costs vary by setting.

Attention is a scarce resource

I think this is important in many contexts (not just farming). For example, to harp on some of our recent themes, I don't think that most people are aware of how much their productivity falls when their temperature rises or how much quicker they are to anger when their environment is uncomfortable. My guess is that most people know that these kinds of things are issues, in some sort of qualitative story-like sense, but that they don't have any idea about the quantitative size of the effect -- and they certainly don't optimize their lifestyle by taking these things into account.

In an example I was just mentioning to a colleague: I was recently trying to sell two air-conditioning units to students from my PhD program (most of whom know about my work on temperature and productivity). At $50 a unit, buying one of these as an investment would have paid for itself in productivity after one or two hot days.  But I couldn't sell the ACs until I dropped the price and just gave them away!  Despite knowing that it will dramatically improve their productivity, even students trained to think about these problems will make mistakes in the optimization of their lifestyle. (Although, it's also possible that in this case the students were colluding to get me to lower the price...) Enough editorializing, here's the paper:

LEARNING THROUGH NOTICING: THEORY AND EXPERIMENTAL EVIDENCE IN FARMING
Rema Hanna, Sendhil Mullainathan, Joshua Schwartzstein

ABSTRACT: Existing learning models attribute failures to learn to a lack of data. We model a different barrier. Given the large number of dimensions one could focus on when using a technology, people may fail to learn because they failed to notice important features of the data they possess. We conduct a field experiment with seaweed farmers to test a model of “learning through noticing”. We find evidence of a failure to notice: On some dimensions, farmers do not even know the value of their own input. Interestingly, trials show that these dimensions are the ones that farmers fail to optimize. Furthermore, consistent with the model, we find that simply having access to the experimental data does not induce learning. Instead, farmers change behavior only when presented with summaries that highlight the overlooked dimensions. We also draw out the implications of learning through noticing for technology adoption, agricultural extension, and the meaning of human capital.

Forensic economics

As I suspect is common in my cohort, I have a soft spot for "forensic economics," or economic research that documents illicit behavior. You can feel free to blame it on the popular success of Freakonomics, excess fascination with "clever" papers, peer effects of CSI, etc., but there's certainly something to be said for research which not only discovers something new but does so in spite of others' attempts to conceal it. Which is why I was particularly jazzed about this new paper in the Journal of Economic Literature (open access, btw):

Forensic Economics 

Eric Zitzewitz 

Abstract: A new meta-field of "forensic economics" has begun to emerge, uncovering evidence of hidden behavior in a variety of domains. Examples include teachers cheating on exams, road builders skimping on materials, violations of U.N. sanctions, unnecessary heart surgeries, and racial biases in employment decisions, traffic stops, auto retailing, and even sports judging. In each case, part of the contribution of economic analysis is in uncovering evidence of wrongdoing. Although research questions differ, forensic economic work shares commonalities in approaches and limitations. This article seeks to draw out the common threads, with the hope of stimulating further research across fields.

This is particularly nice since it stretches across fields. Some (quasi-arbitrarily) selected highlights:

• Edelman and Larkin - Demographics, Career Concerns or Social Comparison: Who Games SSRN Download Counts?
• Zitzewitz - Does Transparency Really Increase Corruption? Evidence from the 'Reform' of Figure Skating Judging
• Reuter - Does Advertising Bias Product Reviews? An Analysis of Wine Ratings
• Ondrich, Ross, and  Yinger - Now You See It, Now You Don't: Why Do Real Estate Agents Withhold Available Houses from Black Customers?

"Our results add to an emerging literature that documents very high rates of return to small capital investments in developing countries"

Mushfiq Mobarak presented at the Columbia Sustainable Development seminar on Monday, and while I couldn't be there the paper (pdf here) seemed worth passing on:

Seasonal Migration and Risk Aversion 

Gharad Bryan, Shyamal Chowdhury, A. Mushfiq Mobarak 

Abstract: Pre-harvest lean seasons are widespread in the agrarian areas of Asia and Sub-Saharan Africa.  Every year, these seasonal famines force millions of people to succumb to poverty and hunger.  We randomly assign an $8.50 incentive to households in Bangladesh to out-migrate during the lean season, and document a set of striking facts.  The incentive induces 22% of households to send a seasonal migrant, consumption at the origin increases by 30% (550-700 calories per person per day) for the family members of induced migrants, and follow-up data show that treated households continue to re-migrate at a higher rate after the incentive is removed.  The migration rate is 10 percentage points higher in treatment areas a year later, and three years later it is still 8 percentage points higher. These facts can be explained by a model with three key elements: (a) experimenting with the new activity is risky, given uncertain prospects at the destination, (b) overcoming the risk requires individual-specific learning (e.g. resolving the uncertainty about matching to an employer), and (c) some migrants are close to subsistence and the risk of failure is very costly. We test a model with these features by examining heterogeneity in take-up and re-migration, and by conducting a new experiment with a migration insurance treatment.  We document several pieces of evidence consistent with the model.   

Yes, that's $8.50 and 550-700 calories per person per day for family members.