Social Econ Blog

Alberto Abadi and Sofia Dermisi add to the stack of evidence that suggests that people respond to incentives:

The attacks of September 11, 2001, and more recently the Madrid and London downtown train bombings, have raised concerns over both the safety of downtowns and the continuous efforts by terrorists to attack areas of such high density and significance. This article employs building-level data on vacancy rates to investigate the impact of an increased perception of terrorist risk after 9/11 on the office real estate market in downtown Chicago. Chicago provides the perfect laboratory to investigate the effects of an increase in the perceived level of terrorist risk in a major financial district. Unlike in New York, the 9/11 attacks did not restrict directly the available office space in downtown Chicago. Moreover, the 9/11 attacks induced a large increase in the perception of terrorist risk in the Chicago Central Business District, which includes the tallest building in the U.S. (the Sears Tower) and other landmark buildings which are potential targets of large-scale terrorist attacks. Our results show that, following the 9/11 attacks, vacancy rates experienced a much more pronounced increase in the three most distinctive Chicago landmark buildings (the Sears Tower, the Aon Center and the Hancock Center) and their vicinities than in other areas of the city of Chicago. Our results suggest that economic activity in Central Business Districts can be greatly affected by changes in the perceived level of terrorism.

This is not particularly good. Dense urban areas enhance productivity (at least historically). We want people in certain fields working in close proximity to each other.

I've never been all that into text messaging. Perhaps its because (until very recently) I didn't have a phone with a reasonable keypad; perhaps I am just not with it; or (more likely) I am just anti-social.

Regardless, Simeon Yates of Sheffield Hallam University has been studying how young people text each other with some interesting (although probably not surprising) findings:

Men’s text messages are short, saucy and sarcastic, while women’s are longer and more loving, according to new University research.

...

But in focus groups participants also admitted using text messaging to avoid difficult social situations, with some women confessing to being dumped by text message.

Men are more likely than women to talk on their mobiles when in a group – except if it’s a girlfriend or mum on the line.

‘A man is more likely to text than phone his partner when he’s out with friends or peers,’ said Yates.

‘It prevents him losing face by switching from ‘friend’ mode to ‘partner’ mode in front of his peers.’

Mark Thoma points to a couple of interesting articles on trust and fairness.

First, some neuroeconomists ran trust games while monitoring brain hormones:

... In neuroeconomics experiments that my lab has conducted, we have found that when a stranger places trust in another by making a considered monetary investment that can either be returned or stolen, our brains release an ancient mammalian hormone called oxytocin.

Oxytocin is what bonds mammals to their offspring, and in humans makes spouses care about and love each other. We have found that trust causes a spike in oxytocin and begets reciprocation - the sharing of money.

We are "wired" to cooperate, and we find it rewarding in the same way that our brains identify eating a good meal ... as rewarding. Oxytocin is active in evolutionarily old areas of our brain, outside of our conscious awareness. We simply have a sense that sharing with someone who has trusted us is the right thing to do.

We have also found that about two percent of undergraduates we studied are pure non-cooperators. When they have an opportunity to share money with a stranger who has trusted him or her, non-cooperators keep all the money rather than share the largess.

The technical term in my lab for these people is "bastards." Our evidence suggests that bastards' brains work differently. Their character traits are similar to those of sociopaths. They simply do not care about others the way most people do, and the dysfunctional processing of oxytocin in their brains appears to be one reason for this. Because bastards are out there, we still need government and personal enforcement of economic exchange.

Many believe that market exchange diminishes our humanity. Think of Charlie Chaplin's film "Modern Times," in which the little tramp is literally a cog in the capitalist machine. That view is wrong. On the contrary, working together, and trading with each other in markets, is morality in action.

Second, we learn that monkeys also get pissed when treated unfairly:

As there is no such thing as a free lunch, Sammy and Bias had to work for theirs. The two capuchin monkeys ... sat in side-by-side cages separated by a mesh barrier while just beyond the bars was a tray holding two cups of food. It was counterweighted so that both monkeys had to pull a bar to haul in lunch, moving the tray snugly against the cage in such a way that Sammy could reach one cup and Bias the other.

But Sammy was in such a hurry to chow down that after grabbing the apple in her cup, she let go of the tray before Bias could dig into her own. The tray snapped out of reach, causing Bias to scream bloody murder. After half a minute, Sammy understood. She reached out for the tray and helped Bias reel it in. Anyone who has been around toddlers will recognize Bias's reaction as a simian, "That's not fair!"

...

Capuchins ... know unfairness when they see it. They prefer grapes to cucumbers, and when a scientist gave a grape to one capuchin and a cucumber to another, the latter threw it onto the ground and stalked away rather than acquiesce to this injustice.

Now, the research is moving from observations to experiments, such as the pull-tray that triggered Bias's tantrum. To test how sensitive capuchins are to inequity, Prof. de Waal and colleagues counterweighted the tray so that it required only one monkey to reel it in. In this case, the monkey almost never shares its apple with the monkey who hasn't helped. No work, no pay is fair.

When pulling the tray requires two monkeys' efforts, but only one cup is filled, the lucky monkey often shares its spoils. "Winners were, in effect, compensating their partners for received assistance," Prof. de Waal writes. It was the fair thing to do.

A few days ago, the following email sent the Harvard campus into a tizzy:

This THURSDAY, NOVEMBER 9th is Harvard Campus Blue Day!

This is a promotion that I am running sponsored by JetBlue Airways. JetBlue wants everyone at Harvard to experience the friendly service they offer so they have decided to encourage everyone to GO BLUE! by giving away free flights from Boston (Logan) to New York (JFK) or Washington DC (Dulles) this thursday.

All you have to do on Thursday is WEAR A BLUE SHIRT.

If you are wearing a blue shirt you will have the chance of being stopped by a JetBlue Campus Representative and asked "Go What?". If you respond with "GO BLUE!" you will be handed a FREE FLIGHT VOUCHER ON THE SPOT!

So wear blue this Thursday and tell all your friends!

Remember: "Go What? GO BLUE!"

Now, this "promotion" appears to be a Yale prank. At first, I thought their prank was unsuccessful because motivated Harvard students called JetBlue and figured out what was going on. As such, their won't be too much blue in the Yard tomorrow -- probably there will be lots of crimson. On further thought, having received many, many emails from different students who contacted JetBlue, I am starting to think that it was still a pretty successful prank. Watching Harvard students fall all over themselves trying to figure out what's going on is probably pretty entertaining for the Yalies. Not as entertaining as watching Harvard students decked in blue walking around the yard saying "go blue," but entertaining nonetheless.

Of course, it doesn't approach the success of the 2004 prank which produced the following:

As the "Pineapple Express" brings warm 70 degree temperatures and flooding rains to the Pacific Northwest, I sit here comfortably listening to the rain pelt the windows, glad that Oregon allowed me to turn in my ballot last week rather than get soaked in the rain (even people who wait until today to drop off their ballots don't have to get wet because they can drop them off without getting out of their cars at drive-up drop-boxes).

Oregon Senator Ron Wyden is working to help out the rest of you poor people by getting the federal government to support the transition to vote-by-mail. Here is a press release he issued today:

As already reported voting difficulties continue to frustrate voters in another decisive election, U.S. Senator Ron Wyden renewed his proposal to simplify the way Americans vote. Wyden has introduced legislation to provide funds to help states adopt Vote by Mail election systems, such as Oregon's.

"The great Yogi Berra said it best: 'It's Déjà vu all over again.' Except instead of the boys of October, we're talking about the long lines and broken machines of November." Wyden said. "Allegations of election fraud and voter suppression were once rarities, today they're business as usual for the American voter. It's time to stop throwing taxpayer dollars at a broken system. Oregonians have a solution--Vote by Mail."

For more than a decade Oregonians have been successfully voting by mail. Up to three weeks before Election Day, ballots are sent to all registered voters, giving busy families time to research their votes and carefully mark their ballots, which are then either dropped in the mailbox or delivered to secure drop boxes at libraries, county offices and other convenient locations. Trained election officials then match the signature on each ballot against the signature on each voter's registration card, before processing the vote.

The transparency of Vote by Mail eliminates virtually all fraud, while addressing many traditional voting challenges:

Vote by Mail eliminates poll problems--there are no long lines, polls to open late or even confusion about where to vote.

Vote by Mail eliminates voter roll issues and the need for provisional ballots--ballots are mailed only to registered voters at their official address. Those who do not receive a ballot have ample time to resolve the issue with election officials.

Vote by Mail virtually eliminates voter fraud--no vote is processed or counted until a trained election official is satisfied that the signature on the ballot matches the signature on the voter's registration card.

Vote by Mail reduces the risk of voter intimidation--a 2003 study of Oregon voters showed that groups--like the elderly--who are most vulnerable to coercion prefer Vote by Mail.

Vote by Mail creates a paper trail.

Vote by Mail increases voter turnout--by eliminating the need to stand in line at the polling place, voting becomes convenient for hourly wage employees and other working families. Oregon's consistently ranks among the top five states in voter participation.

Vote by Mail encourages educated voters--receiving ballots weeks in advance, gives voters an opportunity to research issues and deliberate in a way that is not possible in a voting booth.

Vote by Mail saves taxpayer dollars--because there is no longer a need to transport equipment to polling stations and to hire and train poll workers, Oregon has reduced its election-related costs by 30 percent since implementing Vote by Mail.

In September of this year, building on the success of Vote by Mail in his own state, Wyden teamed up with Senators John Kerry and Barack Obama to sponsor legislation to help other states implement their own version of VBM. Wyden's bill creates a $110 million, three-year grant program to provide funds to states to help offset the cost of adopting VBM election systems. States have the option of adopting VBM statewide, within a group of selected counties (or municipalities in states where elections are overseen at this level), or even in a single county or municipality.

"Vote by Mail works. This legislation gives states funds they can use to make the transition away from traditional voting methods that have led to so many problems, so many concerns and so little confidence in the American election system.," Wyden said.

The details aren't exactly correct, but this SNL clip from shortly after the 2000 election predicts some of the disasters that have followed:

In light of my previous discussions of voting problems -- particularly with the voting slot machines, let me take this opportunity to plug Oregon's awesome (and sadly quasi-unique -- lots of other states have extensive absentee voting which essentially accomplishes the same things) vote by mail system. I have just returned from making the 2 minute walk from my office to the county elections office to drop off my ballot. A ballot that I filled out over three days as I found time to read about different ballot measures and discuss them with others. All told, I filled out 50 percent of my ballot while lying on my couch, 35 percent at my kitchen table, and the final 15 percent at my office (just a few minutes ago). I know of many other people who actually have ballot parties where 10-15 people come over and discuss issues while filling in their ballots (I really like this concept).

The beauty of this system is that I have 3 weeks or so to find the most convenient time(s) to fill in my ballot. No standing in lines in the rain. No waiting for malfunctioning machines to be fixed. No getting to the voting booth and forgetting how you wanted to vote for something (or having to figure it out in the first place). I get to vote at the lowest possible cost to me (almost).

Further should any robo-caller find me or someone come knocking on my door, I can politely tell them to save their energy because I already voted.

Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs

This paper argues that a large component of success in entrepreneurship and venture capital can be attributed to skill. We show that entrepreneurs with a track record of success are more likely to succeed than first time entrepreneurs and those who have previously failed. Funding by more experienced venture capital firms enhances the chance of success, but only for entrepreneurs without a successful track record. Similarly, more experienced venture capitalists are able to identify and invest in first time entrepreneurs who are more likely to become serial entrepreneurs. Investments by venture capitalists in successful serial entrepreneurs generate higher returns for their venture capital investors. This finding provides further support for the role of skill in both entrepreneurship and venture capital.

Here's a particularly interesting paragraph (I didn't know precisely how low the "success rate" of entrepreneurs is):

Our approach to identifying skill in entrepreneurship is to examine the performance of venture-capital backed serial entrepreneurs. We try to answer the following simple question: Are successful entrepreneurs more likely to succeed in their next ventures than first-time entrepreneurs and entrepreneurs who previously failed? Our answer is yes. Our empirical model indicates that entrepreneurs who succeeded in a prior venture (i.e., started a company that went public) have a 30% chance of succeeding in their next venture. By contrast, first-time entrepreneurs have only an 18% chance of succeeding and entrepreneurs who previously failed have a 20% chance of succeeding. This performance persistence suggests that a component of success in entrepreneurship is attributable to skill. While it may be better to be lucky than smart, the evidence presented here indicates that being smart has value too.

School Quality and the Black-White Achievement Gap

Substantial uncertainty exists about the impact of school quality on the black-white achievement gap. Our results, based on both Texas Schools Project (TSP) administrative data and the Early Childhood Longitudinal Survey (ECLS), differ noticeably from other recent analyses of the black-white achievement gap by providing strong evidence that schools have a substantial effect on the differential. The majority of the expansion of the achievement gap with age occurs between rather than within schools, and specific school and peer factors exert a significant effect on the growth in the achievement gap. Unequal distributions of inexperienced teachers and of racial concentrations in schools can explain all of the increased achievement gap between grades 3 and 8. Moreover, non-random sample attrition for school changers and much higher rates of special education classification and grade retention for blacks appears to lead to a significant understatement of the increase in the achievement gap with age within the ECLS and other data sets.

Cramming: The Effects of School Accountability on College-Bound Students

This paper is the first to explore the effects of school accountability systems on high-achieving students' long-term performance. Using exceptional data from a large highly-selective state university, we relate school accountability pressure in high school to a student's university-level grades and study habits. We exploit a change in the state's accountability system in 1999 that led to some schools becoming newlythreatened by accountability pressure and others becoming newly-unthreatened to identify the effects of accountability pressure. We find that an accountability system based on a low-level test of basic skills apparently led to generally reduced performance by high-achieving students, while an accountability system based on a more challenging criterion-referenced exam apparently led to improved performance in college on mathematics and other technical subjects. Both types of systems are associated with increased "cramming" by students in college. The results indicate that the nature of an accountability system can influence its effectiveness.

Individual Teacher Incentives And Student Performance

This paper is the first to systematically document the relationship between individual teacher performance incentives and student achievement using United States data. We combine data from the National Education Longitudinal Survey on schools, students, and their families with our own survey conducted in 2000 regarding the use of teacher incentives. This survey on teacher incentives has unique data on frequency and magnitude of merit raises and bonuses, teacher evaluation, and teacher termination. We find that test scores are higher in schools that offer individual financial incentives for good performance. Moreover, the estimated relationship between the presence of merit pay in teacher compensation and student test scores is strongest in schools that may have the least parental oversight. The association between teacher incentives and student performance could be due to better schools adopting teacher incentives or to teacher incentives eliciting more effort from teachers; it is impossible to rule out the former explanation with our cross sectional data.

Professor Qualities and Student Achievement

This paper uses a new administrative dataset of students at a large university matched to courses and instructors to analyze the importance of teacher quality at the postsecondary level. Instructors are matched to both objective and subjective characteristics of teacher quality to estimate the impact of rank, salary, and perceived effectiveness on grade, dropout and subject interest outcomes. Student fixed effects, time of day and week controls, and the fact that first year students have little information about instructors when choosing courses helps minimize selection biases. We also estimate each instructor's value added and the variance of these effects to determine the extent to which any teacher difference matters to short-term academic outcomes. The findings suggest that subjective teacher evaluations perform well in reflecting an instructor's influence on students while objective characteristics such as rank and salary do not. Whether an instructor teaches full-time or part-time, does research, has tenure, or is highly paid has no influence on a college student's grade, likelihood of dropping a course or taking more subsequent courses in the same subject. However, replacing one instructor with another ranked one standard deviation higher in perceived effectiveness increases average grades by 0.5 percentage points, decreases the likelihood of dropping a class by 1.3 percentage points and increases in the number of same-subject courses taken in second and third year by about 4 percent. The overall importance of instructor differences at the university level is smaller than that implied in earlier research at the elementary and secondary school level, but important outliers exist.


The Causes and Consequences of Land Use Regulation: Evidence from Greater Boston (clearly the best of the bunch)

Over the past 30 years, eastern Massachusetts has seen a remarkable combination of rising home prices and declining supply of new homes. The reductions in new supply don't appear to reflect a real lack of land, but instead reflect a response to man-made restrictions on development. In this paper, we examine the land-use regulations in greater Boston. There has been a large increase in the number of new regulations, which differ widely over space. Few variables, other than historical density and abundant recreational water, reliably predict these regulations. High lot sizes and other regulations are associated with less construction. The regulations boost prices by decreasing density, but density levels seem far too low to maximize
total land value.