Wednesday, December 12, 2012



Happy Chanukah to all my favorite Jewish economic boys and girls!

Want to celebrate the holiday more. Here's my Miracle PPF if you need a little music Jodi Beggs from Economists Do it With Models sings a song I wrote for the season
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Monday, December 3, 2012

Signal in a bottle, Reviewing Job Applications

I'm on the hiring committee for an assistant professor position in the economics department at Towson. We have a couple hundred applications to review and I know that many applicants apply to over 100 jobs. So how can I tell as a reviewer who is really interested in the job and who is just sending their application in. I care, because as part of the committee we will decide on a couple dozen people to interview in San Diego.

Luckily economists have devised a clever solution to help make sure candidates who really want a job can indicate it. Each job candidate is allowed 2 schools to signal. All that happens is the hiring school receives an e-mail of all the candidates who used their signal at their school.  The idea is that you can show you really care about a couple of jobs, but if a school doesn't receive a signal it doesn't show you don't care because you only can send 2. More info here

When I applied for my job at Towson, I sent one of  my signals to Towson. I'm not sure if it made a difference in me getting an interview. I sent the signal because I really wanted to move to the DC area to be with my wife and the job seemed like a really good fit given my research and teaching interest. I wasn't sure if my application would stand out enough given my background. On the other hand I did not send a signal to a job at a well known small liberal arts school in the midwest, because I thought my record with 1 year teaching at Beloit (a similar school) and an undergrad at Grinnell would be enough to get me an interview. I was right I did get an interview and an on campus interview with the well known SLAC (although not a job offer). The SLAC department chair did notice they didn't receive a signal from me, although this was more pointed out by the Dean and the Chair had explained to the Dean that I probably believed I had already shown enough interest in teaching at SLAC given my experience and didn't need a signal. I think the chair was right (given I got the interview).

In the past based on talking to my colleagues  a signal will give your application a little more attention. I think it might also help if departments are worried that a candidate won't take a job, this could also help.

I think signaling is good particularly since there is a non-zero change that it helped me get a great job.
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Wednesday, November 28, 2012

Nudge vs a Shove: Let's hold off planning 401k's Execution

In response to a recent paper by Chetty et al. showing that lowering benefits to tax sheltered retirement account does not have much influence on retirement savings  Ray Fisman in Slate and other economists on twitter have asked if its time to end the 401k.

As Fisman states in his article "But getting rid of the tax shelters that burn a $100 billion hole in the government balance sheet might be one reform both sides can get behind"

I haven't read the Chetty paper fully, but I think a closer look might be necessary. What the paper does is estimate the influence of reducing, but not eliminating the subsidy for tax sheltered retirement accounts. The paper uses data from Denmark, which has similar tax laws but much better data availability.  The authors find that for each dollar the government increases taxes on retirement there is a less than 1 cent reduction in total savings. In other words raising taxes on retirement savings doesn't change savings much. Driving this result is the fact that 85% of savers do not respond to changes in tax laws by adjusting their savings. 

I was thinking about this in terms of the idea of a nudge vs a shove. If tax rates are adjusted just a little bit on savings, my guess is that most people wouldn't change their habits (consistent with the cited paper).  If the changes are drastic those 85% passive savers might start to make adjustments. Furthermore, if tax breaks are eliminated for retirement savings then lazy savers might not start saving in the first place. 

Many Americans use rules of thumbs to save 10-15% in their tax sheltered retirement accounts, if we eliminate the tax shelter totally the rule of thumb might change and you might see drastic changes.

The take away is behavioral economics is hard and a nudge of adjusting the benefit to retirement savings might produce a different result than a shove that eliminates the benefit totally.

That said I agree with Fisman and other economists that the tax break is mainly geared toward those with financial knowledge and/or wealth, so considering it might be worthwhile once we understand better the implications.  

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Monday, November 26, 2012

Farmer's Market Disequilibrium

At my local farmer's market my wife and I love to buy eggs. Alas our favorite eggs are often sold out by 915 for a market open from 9am-2pm and I have seen similar situations at other markets. So as an economist I wondered if the eggs always sold out why would the farmer not just raise her prices as economic theory predicts would happen with a shortage. I spoke with my favorite egg seller and she told me a great story of another farmer at a different market.

He always sold his eggs for $5 a dozen unless you had exact change in which case it was $4. That was how much he hated making changing.


My favorite egg seller said the she also hated making change, so maybe she could sell all of her eggs for $5.25 or $5.50 but that's a lot of change to deal with. She thought about selling half dozens for $3 each (or $6 a dozen), but the cost of a 6 egg carton is substantially more than a 12 egg carton.

She is also planning on increasing her supply, since she easily sells out. Usually econ 101 would teach us that the farmer would reduce supply at a lower price.

She does want to raise her prices and probably will soon, but she doesn't want to raise prices as she would feel bad for her customers (they don't teach you that in econ 101).

So if you see $6 eggs next week at the farmer's market you can blame me or the invisible hand.

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Wednesday, November 21, 2012

Why Economists Should Love 138 points from Jack Taylor

Last night Grinnell's Jack Taylor scored 138 points in a basketball game shattering an NCAA record for most points scored in a game (previously 113) [see article here]

As an economist and Grinnellian I feel it is my duty to point out why economists should love this performance

Top 5 reasons Economists Should Love Jack Taylor's 138 Points
1. Economists believe in specialization. Clearly Jack Taylor has a comparative advantage in shooting three and not in playing defense.
2. Grinnell isn't maximizing wins with their system, the maximize utility. From what I have heard Grinnell basketball players have a ton of fun, get to play a lot of minutes, and shoot lots of shots. Plus Lebron James wouldn't be asking about Grinnell today if Taylor doesn't go wild.
3. Economists love crazy strategies in games. The rules of basketball don't say you have to play defense, they don't say you can't launch a ton of threes. If Grinnell wins by shooting threes and not playing D sometimes that's an optimal strategy.
4. Economists have the Taylor rule, so in honor of Jack Taylor let's have the basketball Taylor Rule. If Jack Taylor has the ball he should shoot it, if he doesn't you should pass it to him. This reduces uncertainty of who will score.
5. Productivity is key. In this case I measure productivity in terms of points per game played. Making Jack Taylor the most productive NCAA basketball player.
 

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Thursday, November 8, 2012

My 101 textbook is no longer free

For my intro to economics class I have been using a textbook from Flat World Knowledge. One of the main reasons I chose the text is that an online copy of the text is available completely free to students and now that has changed. The company's model was to make money by selling paper copies or study guides to students. Today I received an e-mail from Flat World knowledge.

"Starting January 1, 2013, we will no longer be providing students with free access to our textbooks. Yes, the free Web format is going away, but our mission to provide high quality course materials at affordable prices remains as strong as ever."

It appears that the texts will now costs $19.99. I really enjoyed telling my students the book was free. I thought the quality of the text approached but was not good as alternatives from other well known authors. Now given that students can purchase old paper version used copies of well known textbooks for less than $20 I don't feel the textbook saves any money.

I'm a little upset that I was not given more warning. Yes the announcement was delayed because of Sandy, but a 6 month warning would have been better. Its not quite too late for me to change textbooks for next semester, but I'm still not sure. I know if Flatworld charges $19.99 for online texts I would prefer to switch back to Mankiw's text or look at new textbooks.

That said I'm not upset at a company for raising prices, as an economist I believe any company in a competitive market should have the ability to set their prices. Lucky for my students the economics textbook market is very competitive and I can look elsewhere.

Finally, I would be very curious to see what behavioral economists would predict will happen. In development economics, research on bed nets showed people were 60% less likely to use bednets when the price dropped from free to $0.60 for what would cost $6 to purchase. In short charging people a little makes them buy a lot less. 

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Wednesday, October 31, 2012

Economics of Giving out Candy

As I go to the store to buy candy to hand out to children trick or treating this evening, I got to thinking what are the economic motivations for handing out candy and what factors influence the likelihood a house will give out candy?

Since I'm spending money on the candy, basic economic theory would suggest I get some utility (happiness) out of giving candy to children. My wife and I do enjoy seeing kids in their costumes. We also like to feel like we are part of the neighborhood. Of course we will take our own child to a few houses of friends and hope friends will come to our house.

With that in mind. A simple theory of what induces people to hand out candy. First, it is what some economists would call an institution or social norm (or we do it because everyone else is doing it). Just like we are expected to do many things even without an obvious benefit, because they are part of the culture. Social norms tend to be stronger in more integrated communities. So I would guess there is a correlation between how often neighbors socialize and if they hand out candy. Furthermore, I would guess that neighborhood with households of similar backgrounds in terms of culture, race, and income level would be more likely to hand out candy. Related there is a reciprocity aspect too, if you have kids who go trick or treating you probably feel worse if you don't hand out candy than someone who doesn't have kids.

What about income and trick or treat candy? My guess is that as incomes go up people generally are more likely to hand out candy. This may not be true on the highest end as high incomes may mean more isolated houses or people with higher opportunity costs. Neighborhood walk ability also has something to do with trick or treating.

So far I'm treating this as a supply side issue. Of course there are the trick or treaters who demand candy. One could also worry of the threat of egging if no candy is handed out (although that seems doubtful). Related when we lived in an apartment there was no demand for candy, so we were left with a large surplus (we quickly changed from suppliers to consumers of candy solving the issue).

Finally, looking back 4 years ago I made a Halloween post. Since then the trick (stock market down) and the treat ($2 gas) have reversed with the market and gas prices up substantially

Of course what Halloween post would be complete with a scary costume....






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Wednesday, September 26, 2012

Atoning For Blogging



When you read this post it will be Yom Kippur. On this day Jews ask for forgiveness for their sins. So I will ask you to forgive me for being flippant, writing things too fast, pretending to know more than I do, and if I spread misinformation.

To my fellow Jewish bloggers may you have an easy fast and may you be linked to by the book of life blog.

Wednesday, September 19, 2012

The Invisible Beard on Talk Like a Pirate Day

In honor of today's holiday I thought I would recognize one of my favorite economists who doesn't really get the recognition he deserves. Bart [pronounced BARRRT] "The Invisible Beard Smith" grew up on a MARRxist commune in the Caribbean. He soon rejected communist ideas and discovered a love of economics after finding a way to ARRRbitrage bottles of rum between his and the neighboring commune. He left the Caribbean to attend Beloit College in Wisconsin, which was a surprise to many given that it is landlocked and full of landlubbers. After founding the Beloit Students Against Scurvy organization he wrote his senior thesis on optimal currency unions in Latin America "ARRgentina, Brazil, and Chile and the pieces of eight currency union." After Beloit he was accepted to HARRvard's Ph.D program working under MARRtin Feldstein as an R!.A. at the NBERR! His work with Feldstein on social security reform proposed seniors take private accounts or walk the plank! His Job Market paper used "Autoregressive (AR!) estimations of shipping tonnage as a predictor of recession" made him a staRR on the market. His job market experience is quite the tale though. Smith visited both fresh and salt water institutions, his success led him to plunder all of the booty from one Big Ten institution, although he lost an eye after a duel with Tom SARRgent following his NYU seminar. Instead of accepting any offers he has for the last ten years commanded a vessel of economists sailing the seven seas and writing articles. He did return to Washington briefly to work with Glen HubbARRd on TARRP. He was the first economist to publish in all 5 AER journals, which they have titled in his honor an AERRRRR! He is currently a  co-editor of the Review of Economics and Statistics (R!-estat). Keep an eye out for him, I'm sure you'll see his work featured in MARRginal revolution or a write up by Megan McARRdle soon.

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Wednesday, September 12, 2012

How Academic Publishing is like a Football Drive

Touchdown! May be the most exciting words in football, but my favorite word to hear in economics is Accepted! On Sunday I got the e-mail with those words so my paper (co-authored with Towson colleague Tom Rhoads) Stadium Construction and Minor League Baseball Attendance is now forthcoming in Contemporary Economic Policy. The paper shows that building new stadiums for minor league baseball teams increases their attendance, but that increase likely does not create revenue increases sufficient to pay for new stadiums. This is consistent with a lot of the other literature on what is called the honeymoon effect that shows building new stadiums increases attendance for most major league sports.

So how is publishing like a football drive, well by being accepted you know we scored a touchdown. But not all touchdowns are equally exciting. A 95 yard pass with 5 broken tackles is more exciting then a punch into the end zone on 1st in goal. So I would compare the acceptance to scoring at 2nd and goal from the 8 yard line, there was still some doubt, but I was pretty hopeful we would score. Let's review the drive.

If you click on the paper you notice that the working paper version is from 2010. I know we presented the paper in July of 2010 at the Western Economics meetings and did most of the work in the spring of that year, so the paper took roughly 2.5-3 years from idea to acceptance, which isn't out of the norm for me or economics. Before Contemporary Economic Policy (CEP) we submit to two other journals, both of which rejected are paper, but gave some useful comments so I think the version CEP saw was much better than the 2010 paper. So in short we had two stalled drives.

So the CEP drive. I believe we submitted to CEP about a year ago. I would start by saying CEP did a great job getting us back reviews and the process could have been quicker only if we did our revisions faster. We then waited a few months for reviews to be returned (this is standard) and CEP got us 3 sets of reviews, which is not atypical although the other journals we submitted to only gave us one reviewer's comments. We got a first down and continued the drive around midfield as the reviewers generally liked the paper, but had lots of suggestions on how to improve it. We spent some time rewriting the paper and doing additional analysis and sent the paper back a few months later. The reviewers noted we had made some progress but weren't quite ready for acceptance yet, putting us in the red zone. The last set of reviews suggested we were pretty close, but we had to close the deal. I spent a month or two on one final issue thinking about it carefully and I think I had a pretty good explanation and I made small changes to the paper but wrote up about 5 pages of why we think what we were doing was accurate based on consistency checks. After a month the reviewers and editor put up their hands and signaled accepted.

Normally I don't tweet or blog as soon as a paper is accepted. I was a big fan of Barry Sanders (a running back for the Lions) growing up and when he scored he would just handed the ball to referee and went back to the bench. I think a football coach once said "act like you have been in the end zone before" My Towson colleagues and I do enjoy celebratory lattes when one of us has an article accepted, but hopefully I'll find the end zone again soon (even if I'm no Barry Sander).

A post script that amused me. A few hours after accepting the paper the journal's editor sent me a request to become  a reviewer for a different paper. We later exchanged e-mails and he was right there was basically 100% chance I would say yes to reviewing (actually I always say yes to reviewing papers unless they are completely out of my expertise zone).

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Monday, September 10, 2012

The Opportunity Cost of 600 Posts

This will be my blog's 600th post! I started in back in 2006 at the time I was a visiting professor at Beloit College. Like a good economist the first thing that comes to mind is opportunity cost that is what did I give up by writing 600 posts. My guess is I spend about 15 minutes to a half hour on the average posts. So we are looking at maybe 200-300 hours worth of work spread over 6 years. In short about a weeks worth of work over each year. So what could I have done over that year. Perhaps I have could gotten more consulting gigs and earned thousands of dollars, but having tried to get consulting gigs from time to time that is harder than it sounds. I could have spent more time preparing my classes, but in some sense this blog does prepare me for class I look up lots of examples and think about ways to present info to non-economists (and sure enough all of my students are not PhD economists). I also could have written another paper or two, but one thing I like about being at a teaching focused school is that I don't have to get to the diminishing returns part of my research agenda, so my guess is the paper(s) would not have been my best. Of course there is always leisure too!

I think my enjoyment of the posts shows the benefits outweigh the costs.

Looking back here are some my favorite posts
$240 worth of pudding , Evaluating Bar Rescue, Hanukka PPF
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Wednesday, September 5, 2012

Kaushik Basu new World Bank Chief Economist

Kaushik Basu today was named the next Chief Economist at the World Bank. His work on child labor has been extremely influential to me and I thought I would take the opportunity to discuss it. I remember in undergrad debating with students who were part of an organization called students against sweat shops that banning sweat shops might not be the best idea and that the relationship between trade and child labor is extremely complex. Basu's models of child labor really cut through that complexity. His 1998 paper in the American Economic Review with Van presents a model that was understandable and extremely policy relevant to me as a first year grad student (although the math might not be approachable to the layman). It shows under what conditions a ban on child labor for exports can help or hurt the poorest in a developing county. As Basu's work shows in many cases the answer isn't clear. Related I like this work with Zarghamee from the Journal of Development Economics  that shows under what conditions boycott products that use child labor may hurt or help.

I also always think of Basu when waiting for people who arrive late to a meeting. Writing with Weibull this essay discussed the culture of lateness that seems to persist in many poor countries (summarized here in the New Yorker).  In short in a country where people are normally late it is best to be late yourself creating a culture of chronic lateness.

I look forward to seeing how Dr. Basu uses his position at the World Bank.
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Tuesday, August 28, 2012

Buckle up your children? Endogeneity and car seats

I was in an online discussion about car seats yesterday and recalled a paper by Freakeconomist, Steve Levitt, that for 2-6 year olds car seats are as effective at preventing deaths as seat belts.  As Levitt points out you can't just look at car seat use since people who tend to use them are wealthy and people who take less risks (likely to have better safety features on their car and get in fewer serious accidents).  In other words the choice to use a car seat is endogenous to other factors that also influence the likely hood of crash. A more recent follow up paper by Doyle and Levitt show with a different data set  a similar result in terms of serious injury 9no difference between safety seat and belt), but they also show car seats for 2-6 year olds reduce less serious injuries.

Classical economics suggests that you shouldn't tell people what to do, since you might not know their preferences. Assuming Levitt's results are correct what is the trade off between a reduction in less serious injury versus the expense and hassle of a car seat. Most economists would point out we all take risks, not driving is likely less risky than driving.

But the law and social norms say I should put my 2 year old daughter in a car seat, and I haven't really researched it so as a risk averse dad, I'm going to stick with the car seat.



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Monday, August 27, 2012

This Midnight Metro Ride Brought To You By....

The Washington Nationals fans do care if they ever get back home even if it means missing the last few innings. Last week a Nationals game against second place rival the Atlanta Braves started an hour late due to rain, then went extra innings. Unfortunately, the DC Metro [subway] which many fans including me use to get to the game closes at midnight on weeknights. So late in the game the Nationals announced leave now or find another way home, and many fans had to leave early and missed a thrilling finish.

The Nationals could have prevented this by paying $30,000 to the DC metro authority for each hour the metro ran late. The Nationals didn't think it was worth it after the last time they paid for a late metro and only a few hundred fans used the service.

But, what if the Nationals make the playoffs with games starting later and lasting longer due to TV and slower play the need for late night metro is even greater. If the Nats won't pay up, why not find a sponsor here are a few suggestions to pay who would get the free press.

1. Taco Bell -- Ride the metro to your forth meal
2. The State of Georgia Tourism Board --- Take the midnight train to Georgia
3. Obama Campaign --- Trains You Can Believe In
4. Romney Campaign ---- Believe in Metro
5. CSX -- Our trains can move a ton of Nats fan in a single hour
6. Ben's Chilli Bowl (note train is direct to U Street) -- From half street to half smoke

Happy to take more. Actually I think Taco Bell would be a good fit.


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Thursday, August 23, 2012

Don't read this post Comcast and missing markets waiting for the Cable Guy

Last week Justin Wolfers tweeted a complaint about Comcast giving him a 13 hour window to wait for someone to install his cable. Very few people want to wait all day for the Cable guy, and I'm sure Justin a man who wrote a check to hire movers for a friend who asked for helping moving (bravo!)  isn't one to want to wait around the house all day.

So my guess is that Justin could hire someone. Perhaps find a local responsible college student who for say $100 will wait for the Karl Hungus and let him fix the cable. My first thought is does the market provide a solution.

It looks like task rabbit has people offering to wait for the cable guy. My guess is there is a limited market for this since there is imperfect information how does Justin who is new to town find someone responsible he would trust in his house.

More importantly, why is Comcast letting the person who waits get all the rents. If Justin is willing to pay someone $100 to wait all day, why wouldn't he pay $100 Comcast to get a guanteed appointment. Comcast  then would get all the benefit.

But please don't tell Comcast about my idea (unless of course they are willing to give me a 5% cut)....

Of course my guess is that Comcast has thought about this but rejected it for other reasons (they can't always do it or they worry about how it would look)
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Thursday, August 16, 2012

ER visits down in MA after Health Care Reform

John C. Goodman on Tuesday in a Wall Street Journal Op Ed models the potential problem of providing health insurance to people if the supply of doctors are constrained he figures that if more people have health insurance then more people will see the doctors causing longer wait times. This is particularly a problem in emergency situations as he writes

"When people cannot find a primary-care physician who will see them in a reasonable length of time, all too often they go to hospital emergency rooms. Yet a 2007 study of California in the Annals of Emergency Medicine showed that up to 20% of the patients who entered an emergency room left without ever seeing a doctor, because they got tired of waiting. Be prepared for that situation to get worse."

The question is did ER visits go up, and the answer from a recent paper by Sarah Miller forthcoming in the Journal of Public Economics (her paper can be found here) shows that actually the data indicate that the health care reform in Massachusetts decreased ER visits by 5-8% and particularly decreased non-emergency visits.

A little about the study from a quick read. One initial way to do such a study would be to compare ER visits in the years or months just before and after the reform. This would be a good first pass, but not convincing enough, because if we see that ER visits were higher in 2005 the year before the reform than say 2006 it might be from other causes than the reform (weather, the economy, the Red Sox's Bullpen?). So what Miller does is look at how rates of people in each county who were uninsured in 2005 influence influence ER visits in that year and future years. In 2005 before the reform the rate of people uninsured does not influence the rate of ER visits. After the reform the 2005 uninsured rate is negatively related to ER visits in years after the reform. This is good evidence since the reforms was likely to have a bigger influence in places with more uninsured people.  

I don't want you to reach the conclusion that health insurance reduces health care or doctor use, since other research on a program in Oregon suggests that people use more health care when they have insurance. I did want to point out though I learned all of this by following different economists on twitter.

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Wednesday, August 15, 2012

Female and Male Wage Gap and Endogeneity Problems

Some friend of mine requested I comment on an article about the pay gap between men and women written by Ramesh Ponnuru for Bloomberg

Ponnuru is an editor at the conservative/free market leaning magazine the National Review. I start with this because the free market model of wage discrimination goes something like this. If men and women are equally productive workers, but some firms choose to pay women less than men then women will go to firms that pay them equally (or those firms can pay women slightly less making the women friendlier firms more profitable and all the discriminating firms will go out of business). Of course this assumes that not all firms are discriminating and that those discriminated against have the ability to open up their own business. For example if we take advertising agencies like Sterling/Cooper/Draper/Price it is likely that both African Americans and Women were discriminated against in terms of pay and job prospects in 1960s New York and did not have the resources to open ad agencies thus their salaries and opportunities were held down.

One point that the article makes is that the often quoted statistic that women make three-fourths the average wage that men do, but when you compare women and men in the same profession or number of hours that the wages are much closer (looking around estimates range from 85-95 depending on the industry).  In other words Ponnuru believes that the gap is overstated because women choose jobs with lower salaries and fewer hours.  He believes other things still create a gap.

However, as one economist (Sarah Miller*) pointed out the choice of a job is endogenous to the wage. This is a very key term in economics and needs explaining. If we try to control for job choice when looking at the wage gap we might underestimate that gap if women avoid fields were they are underpaid relative to men or experience worse discrimination.

So what is an economist to do? Typically we look for things that would influence women's decisions that are not determined by wages one example  might be policy changes that are not determined by the wage. This article by Jane Waldfogel in the Journal of Economic Perspectives, while a bit old is very readable (like most articles in the journal). It suggests that countries with better maternity leave policies have lower wage gaps, but that could be endogenous in that perhaps those countries with low wage gaps would be more likely to produce these types of policies. However, Japan and the United States passed new legislation and by comparing women who had children before and after the new policy and their wage gap, the hypothesis that better maternity coverage lowers the gap is supported.

Granted I'm only citing one paper, but I get the sense from googling around that a pay gap still exists, in part that is due to job choice, but figuring out how much is very hard.

* I discovered Sarah Miller's research via twitter yesterday, very interesting stuff on ER use when health insurance is provided and Prosper loans, I look forward to reading it and writing about it.
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Tuesday, August 14, 2012

Measuring the Value of Olympics to Participant Countries


Bill Easterly makes a joke about trying to measure the impact of participating in the Olympics influence on winning medals. For countries who didn’t earn medals in London a study would show participating has no influence on medals earned. At the core of the joke is you should carefully choose what you are measuring. International aid programs might increase school enrollment or the number of businesses but it might not increase income or the number of PhD earned.

What is the goal of countries like Chile who didn’t win any medals at the Olympics? Was it a complete failure if a country goes home without any medals?  I don’t think the Jamaican bobsled team (made famous by the movie Cool Runnings) would consider their participation and last place finish in the 1988 Olympics a failure.  Even the bobsled team used that event to build toward eventually having a Jamaican win a bobsled medal at the 2006 Olympics. So perhaps participating with little chance of winning increases future chances of medals.

The next question is what is the value to a country of an Olympic medal? For a smaller country like say Costa Rica, there was a lot of national pride gained by Claudia Poll’s 1996 Gold medal and when I was there in 2000 the country was very excited to watch her swim again. I think an economic value could be put on this pride. Typically economists would use a method called Contingent Valuation where they survey people how much is a medal for your country worth to you or even ask people to donate or pay taxes to a national Olympic committee. This paper by Brad Humphreys and others suggests Canada's big investment in 2010 paid off 2-3 times the cost based on surveying people's value of Olympic medals. 

It is unclear how much a country like Chile or Costa Rica should invest in Olympians, but economic tools can help find the answer. My guess is that the answer is not zero, unless like the United States the market takes care of this investment through sponsorships. 

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Tuesday, August 7, 2012

Hagerstown Stadium Construction

Hagerstown Maryland has a population of 40,000 and a Single A baseball team called the Suns. You might remember the Suns as the place that Bryce Harper played last year. My co-author and Towson colleague Tom Rhoads told me about how Hagerstown is trying to build a new stadium to avoid the team from moving to Winchester Virginia. You can read our previous research on minor league baseball stadium construction here, but in short we find a new stadium adds about 400,000 fans to attendance over 10 years at the A level that the suns play at. Surprising to me is the cost of the stadium listed at 30 million dollars with 10 million coming from local governments. My previous look into construction cost shows that most single A stadiums cost about half that much.  A good example might be Lancaster Jethawks who saw a large uptick in attendance and then it fell over time.

Typically when these stadiums are being discussed the team and proponents of construction  write large studies claiming that the project will pay for itself and of course Hagerstown has done just that by hiring Ripken baseball. I have only skimmed the report but my quick thoughts. This is meant as a quick comparison and not a criticism of the Ripken study, I have not read it closely enough yet.

1. The report claims that Hagerstown will see large impact on income and jobs. Nearly every study economists have done looking for the impact on the local economy of a new stadium or a team has shown zero effect on income or employment. The reasoning is that although spending on baseball or other sports might go up with a  new team or stadium spending on other entertainment might go down as families choose baseball over movies or eating out. A recent study by Nola Agha shows for some levels of minor league baseball that local incomes increase with new teams or stadium, but not the level Hagerstown plays in.  Hagerstown proximity to Fredrick which also has a minor league team might mean families substitute going out in Hagerstown for going to Fredrick (just 1/2 hour away) to see baseball if the Hagerstown team moves, so for Hagerstown not having a team could have a bigger impact than a town where there is no close other team.

2. The estimated impacts on attendance seem a bit high in the report. The report does use stadiums built in downtowns, while our study uses stadiums built between 1992-2006 so things may have changed. We find that attendance increased roughly 50% for the first 3 or so years, while their low estimates are 60% increases. Additionally, the report suggests attendance stabilizes after the 4th year, while our research shows that roughly 4 years after a stadium is built attendance is 33% higher than before and 10 years later it only about 15% higher. So their estimates in terms of attendance don't seem unreasonable.

3. In a case study of Ceder Rapids an A team with similar attendance we estimate that the return on investment of ticket revenues is roughly 2% this doesn't include concessions. What is very interesting is that with state help the bond to borrow the money will be just above 3% so with parking and concessions it should have a positive return for the team, but look to point number 1 about if this makes sense for the city.

I'm still agnostic if Hagerstown should help fund a stadium, which is strange for an economist as usually one of the tenants of sports economics is that public subsidies are a bad idea. I would be hesitant to support it since the down side of these situations  (construction cost overruns, lower than project attendance) in my anecdotal view seem to happen more than the upsides. However, given the low cost of borrowing and the potential for baseball fans to drive to Fredrick, this just might make sense.



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Thursday, August 2, 2012

Sponges Worthy or IUD and Diff-in-Diff

On my subway ride today I read an article on technology used in Seinfield episodes that we no longer use (movie phone, answering machines) and of course contraceptive sponges are no longer the method of today. Which is too bad because Avinash Dixit has created a model which helps show who is sponge worthy.

A good article in Slate helps us see the latest in birth control, particularly related to teens. The article first talks about falling teen birth rates and concludes that abstinence only education vs receiving information on birth control is not likely the cause. The author uses a simple method economists often refer to as difference in difference (diff-in-diff or DID for short). Suppose we see that Maryland had a teen pregnancy rate of 8% in 2000 and after 10 years of a new sex ed program that started that year we seen the pregnancy rate is 5%. We don’t know if the program is the cause in the reduction of teen births perhaps other factors. What we can do is compare Maryland to a similar state to one with similar other trends that had abstinence only. If we see in the other state that the teen pregnancy rate also fell 3 percentage points it is more likely that other factors besides the type of sex ed are at play. The article argues that all states have seen similar declines in teen pregnancy regardless of education. So using diff-in-diff we see no impact of sex ed.


The real change seems to be the new IUDs, that prevent pregnancy better than the pill for the average teen (since only 1 in 4 teens remember to take the pill each day and 10% of teens on the pill became pregnant in one year according to one study).

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Tuesday, July 31, 2012

Piratz Bar Rescued?

Perhaps I should just write about Piratz or reality TV since my readership for an article on Piratz Tavern featured on bar rescue  got roughly 20 times more views than my normal posts.

To summarize Piratz is local tavern with a pirate theme. Piratz was not doing well so they were featured on the Spike TV show bar rescue. You can watch the episode here. 

In my previous post on Piratz which I wrote during the filming in February, I examined the impact of the show bar rescue on the bars it helps. What is incredible is the Piratz has by far more reviews on Yelp than any of the bars I looked up. Particularly in the last day or two as the show aired there are by my count 37 reviews of the place over the weekend. What is very interesting is that nearly all of them are 1 or 4 or 5 stars with few ratings in the middle. This does not appear to be just caused by the airing of the show as after the show filmed you see fewer by similar ratings of either 1 or 4 stars.

The owner says business is up (although that may be due to press from the show).
I guess I will have to do my research at the barrrr!!

 
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Wednesday, July 25, 2012

At the Margin Mortgage vs Retirement


First, I am not a financial planner (or panther) and I have no formal training in this so the below is for informational purposes only and does not constitute financial advice, seek a professional (preferably not someone named Ponzi or Madoff).

So my thinking through to pay above the minimum payments on my 30 year mortgage versus retirement savings. In short paying money to my mortgage provides roughly a 3% return (after accounting for the mortgage tax deduction).

These two articles provide the pros and the cons of making extra payments.

In short I agree if you have other debt at a higher interest rate, pay that before your mortgage. If you get a matching contribution from your employer for retirement savings then put more in retirement.

Assuming you have no other debts or matching to take advantage of it seems to me the question comes down to a bet on future returns in your retirement account.

If you are investing conservatively (like in say bonds and money market funds in your retirement) then it would seem paying off the mortgage makes sense.

Most people early in their mortgage instead invest in stocks. So in short putting more in retirement funds is a bet that stock market will beat 3% a year.   I could look up the average return to various funds but I’m not sure how informative past performance is.

One thought I have been having though if the stock market substantially outperforms 3% then putting money in your mortgage was the worse move. However, if the market substantially outperforms 3% adjusting for inflation than you will not have needed as much contribution in retirement. If on the other hand the market under performs than the mortgage contribution was a better deal.

What complicates this is if stock prices go up due to inflation say inflation for the years 2020-2030 was 8% and stock market returned 9% (or real inflation adjusted stock returns are 9 - 8 = 1% after inflation). The stock investment was better, but the real or post inflation return is really low so now under investment in retirement might sting more.

To me inflation seems as big a source of potential variation in this calculation then predicting returns. With treasury yields at 1.4% it seems that inflation expectations are really low.  I’m not worried about inflation now, but who knows in 10 or 20 years.

Unfortunately as someone once said economists are bad at predictions particularly about the future. So I’m not sure on the optimal choice.

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Monday, July 23, 2012

Minimum Wage Protest in Silver Spring

The group this is our dc was protesting the minimum wage of $7.25 in downtown Silver Spring today. I wasn't sure who was organizing the protest and not sure who I could talk with to find more information about why in Silver Spring?

A really great summary of the economists point of view on minimum wage debate is summarized here. The minimum wage theory is simple, if it is accurate is another question. If wages have to artificially go up then there are fewer jobs, since companies want to hire fewer workers at any given wage. For example if the Majestic movie theater makes $7 an hour for one additional employees before wages then it hires the employee at $6 an hour, but not if the minimum wage is $7.25.

A ground breaking study by Card and Krueger showed that when New Jersey raised its minimum wage that employment did not fall compared to its neighbor Pennsylvania that didn't raise the wage. The paper has been criticized for how it collected its data and the debate in labor economics continues.

In theory I would think a wage subsidy (where the government basically pays part of the wage) would probably achieve the best results, but I'm still not sure.

It is also important to note that most minimum wage workers are young and many are teenagers. 

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Friday, July 20, 2012

Deworm the world #1 or overrated? We need more studies

Deworming children in developing countries has for a while been thought of as one of the best bang per buck interventions (link 1, link 2).  Recently a systematic review (basically someone looks for every article ever written about a subject in a systematic fashion) suggested the results of dewormings impacts might not have been as good as touted  in their conclusion the authors state

"Our interpretation of this data is that it is probably misleading to justify contemporary deworming programmes based on evidence of consistent benefit on nutrition, haemoglobin, school attendance or school performance as there is simply insufficient reliable information to know whether this is so."

Two groups IPA and J-PAL have issued a joint response saying the systematic review is misleading.

My take having done a systematic review (not of deworming, but instead of cash transfer impacts on nutrition) is that the authors likely found nearly all of the relevant evidence. IPA and J-PAL point to three papers not included. I'm familiar with the Kenyan papers and think highly of both of them. However, I believe the might not add as much as other potential studies as there was already evidence from Kenya that deworming works (see the famous Kremer and Miguel paper).

I think both sides should take this as a call to test the external validity of deworming, do you get equal bang for the buck in other deworming contexts. As this post suggests all worms might not have equal impacts and if different worms are in different places, we would expect different impacts.

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Thursday, July 19, 2012

The Economics of the Long Line for Popcorn

Local blogger Silver Spring Singular is frustrated by long lines for popcorn at the Majestic Movie theater in our fair city.

I thought if economists could explain why popcorn is damn expensive (the J. Political Economy paper Locay and Rodriguez suggests its because theaters have cheap ticket prices to get the cheapskates in the door and high popcorn prices for the spendthrifts)

So a quick conceptual model of long lines at the movie theater concession.

Problem: It takes up to 25 minutes to pay a lot for popcorn. Doesn't it seem like that hiring one or two extra people would increase sales sufficiently to pay for their wages (in short if you sell two extra popcorns you probably pay an hours wages.) and profit.

Explanations.

1. The Majestic doesn't have perfect information and is underestimating the loss of popcorn sales.

2. The Majestic couldn't increase profit by hiring more workers
2.A There might be fixed costs to hiring workers so the wage is higher than we think. You need to include training and hiring costs
2.B they may need to give workers a minimal number of hours so at the margin 5 hours might need an extra staff person might not be worth training. Also it could be seasonal since movie sales are higher in the summer and the holidays.

3. Maybe waiting in line gets you to purchase more things

4. My best guess. The Majestic is not profit maximizing. Probably the manager prefers having fewer employees that are easier to manage than do the extra work of hiring and supervising more employees


Conclusion: You should really only buy popcorn at the AFI as the popcorn there is superior.

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Wednesday, July 18, 2012

Avoiding Cellphone Taxes

Like anyone who reads their cellphone bill I have notice a number of taxes. As page 2 of this cellphone shopping guide demonstrates the average cell phone bill includes a Federal Service Charge (to provide phones in rural and low income users), a 911 tax, a regulatory charge (whatever that is) and that taxes can approach over 20% of the total bill, mine looks to be over 10% for my wife and me.

So I have been looking for a new phone. Not because like the kids these days I'm getting a second phone for when I hit the clubs (Huffington Post).


With a prepaid phone I can get around a lot of these taxes. At least for now as I found a couple of local areas in Oregon and South Carolina that are trying to add 911 taxes to prepaid phones 

So my prediction as people realize they can save money with prepaid cellphone they switch, until enough people switch that taxes are increased on prepaid users.  We see (saw?) the same thing in airline industry where airlines avoided taxes by moving charges to bag fees and seat upgrades that don't pay taxes.


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Tuesday, July 17, 2012

Returns to School Only Help if People Know About Them

JPAL has a nice write up a piece by Robert Jensen which looks at how perceived returns to education influence how much schooling a child receives. Jensen examines boys in the Dominican Republic and tests to see if providing accurate information on how much extra money a child will make by going to school influences the schooling decision.

The first question is how much extra does a child make by going to school. As Jensen notes there is no micro data on this available for the Dominican Republic so he does out and collects his own. He then finds the difference in wages between adults who attend secondary school and those that do not. Next he asks children about what they perceive to be the difference in wages between educated and non-educated workers. Their estimates are substantially lower than Jensen's estimates.

Here is the neat part he then created an experiment where half of the children are told the estimate returns and half receive no extra information. The idea is by telling children they will earn more if they go to school it will motivate them to attend more school. The experiment shows that children who receive the information go to about 1/5 to 1/3 of a year of school more over the next four years. Given how cheap the program is (just need to have seminars to tell kids about schooling) this is a good return.

Jensen does add some important caveats in his conclusion
"Of course, the desirability of such information-based programs will depend on the ability to provide accurate information on the returns to schooling, which may often be dif´Čücult. Further, even with accurate estimates, there may be reasons that the returns for the marginal child may not be as large as the currently measured average return"

The piece is published in the Quarterly Journal of Economics a top econ journal. It would be interesting to see this type of experiment replicated in other countries.


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Monday, July 16, 2012

Could China Catch up to the US

China's economy grew at only 7.6% last quarter (China Daily). A rule of thumb tells us that if this rate of growth continues the economy will double in size roughly every 10 years. At $8,400 per capita GDP China's out put per person is roughly 1/5 of the United States. Doubling every 10 years would put China at $16,800 GDP per capita in 2022 and 33,600 in 2032 and given current growth rates it would then pass the US sometime before I retire.


Of course this assumes China will keep growing at its current rate. The main model of economic growth theory (the Solow model) predicts that growth rates slow down  once an economy is larger. This happens because each additional machine we have adds less than the previous one (for example last week I had no computer due to this computer failing, going from zero to one computer increased my productivity a lot, giving me a second computer when i have another that works doesn't increase my productivity that much.) This is also called diminishing returns.


Thinking about this made me recall something I read on a prediction by Paul Samuelson in the book Why Nations Fail the well known economist and textbook author predicted in 1973 that the USSR would have a GDP per capita equal to the US by somewhere between 1990 and 2015.

Brad Delong has an older post on how using the standard Solow model even if we assume that communism under China or the USSR has lower productivity (that is the same number of machines per person produces less) that a communist country could catch up to the US by essentially forcing savings and in the model any savings is used to buy more machines thus increasing output.

So we should watch not only China's growth but also changes in consumption and savings.

Finally, it is my duty as an economist to say it isn't necessarily bad if China has a higher GDP per capita than the US.

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Tuesday, July 10, 2012

Maternal Literacy and Child Health

A new study released through UNICEF and other agencies examines the impact of the child support grant in South Africa. In short the program gives households below a certain income threshold a monthly cash payment around $30 a month.

One thing that caught my eye in the study is that the overall impact on children's height is not statistically different from zero. We care about how tall children are because several studies have shown in the long run children's height is strongly associated with future income also children who receive help or avoid shocks that stunt their growth tend to earn higher incomes when they grow up. This is consistent with a meta-analysis I did with co-authors that should be released shortly that cash transfers have small impacts on height for age.
The child support grant was found to improve height for age for children whose mother had at least 8 years of education, this is consistent with previous findings in Mexico (and I looked into this in a similar Nicaraguan program and found the same thing).

As the authors of the South African study suggest mothers may need to have schooling to fully implement the associated changes in behavior such as improved nutrition and hygiene that are needed to get the most out of the cash payments.

 h/t Roving Bandit 

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Monday, July 9, 2012

Family Planning in Malawi

The below video on Family Planning in Malawi put out by the UK Dept for International Development (DFID) * and tweeted today by USAID demonstrates the main issues surrounding fertility in low income countries like Malawi. Economists see access to family planning and contraceptives as a supply and demand issue. On the supply side the question is can women get access to contraceptives are there clinics available. On the demand side do they actually want them notice in the video the clinics also includes education programs for the women about the benefits. In the video one woman also talks about how she asked her husband about getting birth control and then wanted to make sure he wouldn't pressure her for more babies. Intrahousehold issues and women's bargaining power are also key.

Fertility in Malawi has fallen substantially since 1980 when it peaked at 7.5 kids per woman falling to 6 kids per woman today (Gapminder). Nearly in every country over the last 30 years fertility has fallen, some may be surprised that countries like Brazil and India only have 1.8 and 2.6 kids per woman, respectively.

The video also demonstrates another issue as families have fewer kids (quantity is reduced) they can invest more in each one so (quality) increases.  One thing I teach my students is that in poorer countries children are in a sense a form of an old age pension or social security (since they will take care of their parents when the parents get older). During the last 30 years child mortality in Malawi has fallen from roughly 1 in 4 kids not making it to age 5 in 1980 to 1 in 9 today. This may also be related to falling birth rates


* in the past my research has received funding from DFID

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Friday, July 6, 2012

Utility from Utilities: Principal Agent, Monopoly, and Pepco

Like many DC area customers of Pepco (our local power company) my house lost power last week* The Washington Post  in a recent story on Pepco claimed that the company under performs adjusting for the weather and tree cover that my area has. As someone who has lost power for multiple days at a time several times since moving into my house three years ago today I am sympathetic to this argument. So I put on my economist hard hat and got to thinking.

1. The Issue: a power company like Pepco is an agent that makes decisions about how much effort to put into making sure power is reliability provided. I am a principal who is effected by that decision. The Principal-Agent problem  can lead to many sub-optimal outcomes (no power is sub-optimal!), it also may lead to underinvestment if we can't observe Pepco's effort and random shocks occur. In my class a couple of weeks ago I showed my students a simple model where the probability of making a profit through farming was related to effort (which was costly). When someone worked on their own land they would worked twice as hard as if they worked on someone else who paid them only when a profit from a good harvest is realized. Furthermore, if the land owner paid the worker when a bad outcome occur it would only decrease effort.

2. Perhaps this suggests a solution. We should only pay Pepco when we have electricity (the good outcome)? Oh wait I guess we already do that. Perhaps Pepco's customers should be able to deduct from their bill a rate equal to the average power use from their house on the number of days they lost power (or perhaps some multiple of that the number). I would like to see an economic model of that

3. I don't know much about if Pepco is doing a good job. I also don't have the ability to choose another power company (unless I move). In this case Pepco has a monopoly. For some industries with high fixed costs a monopoly is natural (that's why we call it a natural monopoly), we wouldn't want 8 different companies stringer wires (well maybe we would want another at this point). When public utilities have a monopoly it seems logical to have outside experts evaluate if Pepco is doing a good job. I would like to read less about politicians saying people are fed up with power outages and more actual reports from impartial experts if Pepco is not properly behaving in terms of its natural monopoly.

update Arnold King at AEI has similar thoughts as a PEPCO customer h/t to Dan Rothschild

* I should add I was in San Francisco for all but 4 hours of the power outage, but my wife and daughter were there and they are part of my household utility function which includes utility from utilities.

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Thursday, July 5, 2012

Hilton Starbucks Thinks I Won't Walk 1 block for $1

I have shared most of my thoughts from the Western Economics meetings, but one final thought after I returned home. The Hilton at Union Square in San Francisco has a Starbucks that charges $2.85 for a cup of coffee the Starbucks just down the street charges $1.85 (or something there about), so the Hilton charges a $1 more.

Why might this be the case? First, hotel guests might not know there is a starbucks one block away (I discovered this only because the Hilton had no free wi-fi (see this old post) and a 15 minute line for coffee). Second hotel guests are often attending conferences and may be time constrained (which is why I did buy one cup of coffee for $2.85). Third, someone else might be paying for the coffee purchase (in my case that wasn't true since I'm not using Towson travel funds for coffee).



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Tuesday, July 3, 2012

Evidence Economists Influence the NBA but not Safeway

A recent paper by Price and Wolfers showed that in the NBA " that more personal fouls are awarded against players when they are officiated by an opposite-race officiating crew than when officiated by an own-race refereeing crew. " The paper got quite a bit of press and another paper showed you could make money betting on teams that had a higher percentage of players the same race as the referees. So did the paper have any effect on the NBA. First the NBA claimed their referees weren't bias and that they didn't do anything to address the issue since there wasn't an issue. Now a new paper presented at the Westerns Economics Association Meetings with Pope, Price and Wolfers shows that "that racial bias continued to exist in the NBA prior to the media coverage, but then completely  disappeared during the four years thereafter" So not proof that the NBA listened to Price and Wolfers, but it is consistent that they did.


Now this morning I was out trying to buy ice, because my house hasn't had power since Friday (it's Tuesday). I go to 7-11, the gas station and Safeway and all are sold out of bags of ice. The worst was Safeway still had signs up advertising a sale on ice. Typically economists suggest when demand for a product rises due to outside forces (like say ones that knock out power for 1 million people) ice prices should go up. Some people call this gouging. In fact many did in Silver Spring. I say raise the price so people only buy the ice that is necessary. 


I also did ice arbitrage. I filled up large soda cups with ice that only cost 25 cents and brought them home instead of a bag of ice. Of course now I've got the Power (back)




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Sunday, July 1, 2012

European Sports and the LA California Angels of Anaheim

Still at the Western Economics meetings in San Francisco. First a restaurant thought there is a great breakfast place around the corner (Taylor Street Coffee), in fact it was so good I have eaten there two days in a row. As an economist I love that they are a little pushy at getting tables to turn over. they bring you your check with the food and take your plate as soon as you are done (or almost done). Diners and breakfast places run on thin margins and have peaks on weekend mornings so higher turnover is key. If that is what they need to do to serve such awesome food, I approve.

At the Westerns I have seen papers on cricket and Australian rules football. In terms of the cricket paper it turns out there is a new cricket league in India that plays cricket matches that last only a few hours as opposed to longer versions that last a full day or days. Interestingly the league has an auction model for players salaries for some players and a minimum salary for others. The authors test what impacts the salary including previous performance. Indians apparently really like watching Indian players, although performance has weaker effects. I should have mentioned this to the authors but it may indicate star players like David Beckham in soccer whose fame may exceed their past play. I also now have a much better understanding of how the game works. Interestingly in baseball the home team bats last while in Cricket they choose. I over heard another economist saying that baseball has one of the lowest home field advantages in terms of winning, this may be because some research has shown batting first may be optimal.

The Australian rules football paper looked at scheduling. In short the league has something like 16 teams but plays 28 games a year, so while all teams play once not all teams play twice. A lot of research has gone into the optimal scheduling of teams, you might want rivals to play each other more (Yankees/Red Sox) which does happen in American sports with divisions or leagues. I think the results of this paper and others show matching teams up by quality the previous year would increase attendance and so would replaying the previous year champions. I wonder why MLB doesn't have one series between the defending AL/NL champs.

Finally, another paper looks at why teams chose the region they are named after. Should it be the California Angels or LA Angels or Anaheim Angels. The paper looked at how the name correlated with funds received from the government they were named after. Surprisingly, the correlation was that teams got less money when they were named after the state. One audience member said the Minnesota Twins were the first team to be named after a state. One interesting extension might be look at why teams keep names for cities they aren't located in (New York Giants, Washington Redskins, and Dallas Cowboys)

Finally, sorry I don't have links to the papers.

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Saturday, June 30, 2012

Western Econ Meetings: Sports on Trial and Other Quick Thoughts

The first session I went to today at the Western Economics meetings was on Sports and Trials. A couple of legal experts and economists commented on doing expert witness work for sports trials. My favorite take away was from one panelist who says he tells his clients that "they pay him for his opinion, if they like it they can pay him more to testify" It did sound like having a consistent opinion and using the tools of economics was the key to being a good expert witness, and you could get in to trouble if you started to base your conclusions on the side you worked for. One panelist Dennis Coates talked about a lengthy post he had written about two of his colleagues working on either side of the case of the SuperSonics vs the city of Seattle, which is a good inside look.

In the afternoon I saw session with a paper on rival sports leagues. Using a theoretical model the authors attempted to explain why we have only one major baseball, football, hockey and basketball league in the US. I quite liked the paper and still wonder why players leagues as were proposed during the lockout of the NBA haven't caught on. I assume this would work better in basketball where there are more potential arenas and fewer players to organize.

Finally, I am most excited by one local economist's offer to take us out to a Pakistani restaurant with awesome food, but terrible decor and will make us smell like tandori. After reading Tyler Cowen's an economist gets lunch I know I'm in good hands!

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Friday, June 29, 2012

So that's why the ads are in Chinese

Quick update from the wireless on the airplane somewhere over the heartland. I was wondering why some of the ads on the sidelines were in Chinese at the Euro Soccer tournament. Of course this probably indicates that Chinese people are watching lots of soccer. It looks like one Chinese team in a move much like bringing David Beckam to the US has signed Ivory Coast and former English premier league star Didiear Drogba. who will be making several hundred thousand dollars a week to play in China.

Tangentially related This American Life had a good podcast on American living in China. One reporter talked about how to describe China as a place with record economic growth of roughly 10% a year for two decades or a country with still 150 million people living on less than $1 a day.  One thing I have been thinking about is I have heard little about inequality. China's is rising (although we aren't sure how fast because apparently the government won't release the data). Taking estimates from that article and this article with data form Ravallion and Chen two World Bank researchers, it looks like since I have been alive China has gone from one of the most equal countries in the world to approaching one of the most unequal.  Not that this is a bad thing since some people have to get rich for their to be inequality.


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Thursday, June 28, 2012

Penalty Kicks and Economics

My friend Scott who is a soccer fan and I watched the Spain v. Portugal semifinal of Euro 2012 yesterday afternoon. Of course whenever I watch a soccer game no goals are scores and after 120 minutes of play the game went to penalty kicks.

Penalty kicks can be modeled as a "simple" game theory scenario with goalie and shooter choosing strategies  left, middle and right. Both players basically make the decision at the same time. If the goalie chooses the same strategy as the shooter it is likely a blocked shot, if the kicker and goalie choose different strategies usually a goal is scored. Making things more complex some kickers are better and kicking in particular directions and some goalies are better and moving certain directions. More complex is a kicker will chose to shoot based on what he believes the goalie will do. His beliefs will be based on the goalie's beliefs about the kicker's beliefs. This starts to get real complex real quick.

Chiappori, Levitt, and Groseclose  looked at penalty kicks in the French and Italian soccer leagues. The best result is kicking it down the middle scores a goal 81% of the time compared to 76% for going left and 70% going right. So everyone now knows to kick it right down the middle, but now goalies know that so you still have to mix strategies.

The paper shows that a split second decision gets complicated pretty quick.

Tomorrow I leave for the Western Economics Associate meetings, where I'll attend lots of Sports Economics paper presentations. I'll blog about them when I get the chance.



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