Top 10 Economics Papers of 2011

Here is one person's take on the best economics papers of 2011, you'll find a familiar name in the #2 spot...

The SPEA Research Paper Series

The series is now available online through SSRN. Here is the announcement, but I think they should have led with something about Lin Ostrom's papers being available through the series:

INDIANA UNIVERSITY-BLOOMINGTON: SCHOOL OF PUBLIC & ENVIRONMENTAL AFFAIRS RESEARCH PAPER SERIES
View Abstracts: http://www.ssrn.com/link/Indiana-U-Bloomington-Public-Enviro-PUB.html
Subscribe: http://hq.ssrn.com/jourInvite.cfm?link=Indiana-U-Bloomington-Public-Enviro-PUB

The Indiana University School of Public and Environmental Affairs (SPEA) is a world leader in public affairs and the environmental sciences and is the largest school of public affairs in the United States. In the most recent "Best Graduate Schools" rankings by U.S. News & World Report, SPEA ranked second and was the nation's highest-ranked graduate program in public affairs at a public institution. The School's curriculum and research are distinguished by a vigorous interdisciplinary approach to education and problem-solving. SPEA will celebrate its 40th anniversary in 2012. The SPEA working papers series eJournal contains works in progress from our faculty.

What I've Been Writing

As Walter Williams often remarks, “It's a poor dog that won't wag its own tail."

.tailwag

Title:
Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia (w/ L. H. White)

Abstract:
Economists commonly invoke sovereign powers to explain the acceptance of unbacked paper money at a positive value. The government accepts or compels taxes paid in the money (makes it publicly receivable) or compels creditors to accept it (grants and enforces legal tender status). Thus fiat money is thought to rely on enforcement of a literal fiat or decree. The case of Somalia defies this account: following the state’s collapse in 1991, unbacked paper Somali shillings continued to circulate at a positive value. We explain how historical acceptance, or “inertia,” can sustain the ongoing acceptance of unbacked money even in the absence of ongoing sovereign support. Although sovereign power might be necessary to launch a fiat standard, we conclude that it is not a necessary condition for its survival.

You can download the full version here. Also, my book review of Jimmy Stewart is Dead appears in the most recent issue of Economic Affairs.

./tailwag

The Fragility of Estimated Effects of Unilateral Divorce Laws on Divorce Rates

And here's another! I've seen four papers today, Valentine's Day, and two of them focus on divorce. Good times! Here's the abstract:

Following an influential article by Friedberg (1998), Wolfers (2006) explored the sensitivity of Friedberg’s results to allowing for dynamics in the response of divorce rates to the adoption of unilateral divorce laws. We in turn explore the sensitivity of Wolfers’s results to variations in estimation method and functional form, and we find that the results are extremely fragile. We conclude first that the impact of unilateral divorce laws remains unclear. Second, extending Wolfers’s methodological insight about sensitivity of differences-in-differences estimation to allowance for dynamic response, we suggest that identification in differences-in-differences research becomes weaker in the presence of dynamics, especially in the presence of unit-specific time trends.

No-Fault Divorce and Rent-Seeking

That's the title, and what better topic for Valentine's Day? Here it is, and the abstract is below:

Couples filing for divorce in Belgium have the option to either opt for a no-fault divorce trajectory or a consensual trajectory. We analyse the determinants of divorce trajectory choice and of the resulting post-divorce transfers. The no-fault trajectory is more likely, if spouses are more specialised in either domestic or labour market production. This is consistent with a theory of divorce as rent extraction. Child support payments depend neither on the divorce trajectory nor on alimony transfers or relative incomes, but are driven by the payer's wage and the child(ren)'s residence. Partner alimony transfers are higher for no-fault unilateral divorces with pronounced self sacrifice.

Interesting Line of the Day

From Squire (1988) in LSQ:

According to Bell and Price's (1975) study of members of the California Assembly, most legislators take two years to understand the legislative process.

Toilet Economics

Always an outlet for the interesting, the Economic Inquiry that landed in my mailbox today offers the following paper: Up or Down? A Male Economist's Manifesto on the Toilet Seat Etiquette. An ungated version is here. The abstract is as follows:

This paper develops an economic analysis of the toilet seat etiquette, that is, whether the toilet seat should be left up or down. I investigate whether there is any efficiency justification for the presumption that men should leave the toilet seat down after use. I find that the “down rule” is inefficient unless there is a large degree of asymmetry in the inconvenience costs of shifting the position of the toilet seat across genders. I show that the “selfish” or the “status quo” rule that leaves the toilet seat in the position used dominates the down rule in a wide range of parameter spaces including the case where the inconvenience costs are the same. The analysis can be applied to other shared facilities that can be customized to each user’s preference.

I love the second sentence.

Team success and jersey color

I'm going to make an effort in 2011 to talk more about papers. We'll see how long it lasts.

Nonetheless, here's a new paper concerning the color of sports team's jersey is a determinant of success-- the abstract:

Baron von Richthofen (the Red Baron) arguably the most famous fighter pilot of all time painted his plane the vividest of red hues, making it visible and identifiable at great distance, showing an aggressive pronouncement of dominance to other pilots. Can colour affect aggression and performance and if so is it observable within team sports? This study explores the effect of red on sporting performances within a team sports arena, through empirical analysis of match results from the Australian Rugby League spanning a period of 30 years. While the descriptive analysis reports a positive relationship, the multivariate analysis provides some mixed results once you control for team effects. Thus, more evidence at the team level is required to better understand whether teams in red do enjoy greater success controlling explicitly in a multivariate analysis for many factors that simultaneously affect performance.

One factor that needs to be considered (and is brought up): If I'm wearing red, presumably the impact is larger upon my opponents than it is on me (as they're viewing my uniform more than I am)-- so it's not an issue of red making me perform better, if the effect exists, but rather making my opponents perform more poorly. Now, granted, the effect may be diminished in team sports-- if my basketball team wears red and I'm on the court, I see five opponents wearing, say, blue, while I only see four teammates wearing red. Individual sports would be the place to find some better natural experiments-- particularly in the Olympics, and they cite a paper that does exactly that. (Which, by the way, has the fantastic policy suggestion in the abstract "that the colour of sportswear needs to be taken into account to ensure a level playing field in sport.") But, to me, it seems that with team sports the problem is just too muddled.

I was surprised that Tiger Woods was not mentioned once.

The Faculty Flutie Factor

As we're in the midst of college football season, I thought I'd send along this paper, The Faculty Flutie Factor: Does Football Performance Affect a University’s US News and World Report Peer Assessment Score? Here's the abstract:

Analyzing the peer assessment portion of the US News and World Report’s college rankings, we find that administrators and faculty rate more highly universities whose football team receives a greater number of votes in either the final Associated Press or Coaches Poll. Controlling for unobserved heterogeneity, our estimates suggest that a one standard deviation increase in the number of votes received in either the Associated Press or USA Today Coaches’ Football Poll is viewed as positively as a forty point increase in a school’s SAT score at the 75th percentile.

I think there are all sorts of educational side effects that can be teased out by a school's athletic performance-- data can generally be had by the boatload...definitely some low hanging fruit.

What I'm Writing

Roger Koppl and I are currently working on a book chapter titled "Animal Spirits and Cognition in Macroeconomics." I'll post the full draft shortly. Here's a snippet on rational expectations which (at least I hope) takes aim at the typical presentation of the assumption (you know: the Phillips curve assumes expectations are unchanged; then Friedman and Phelps said that was stupid; and Lucas, building on Muth, discovered rational expectations as the logical conclusion to the argument of Friedman and Phelps--as if no one had thought of it before):

It is historically inaccurate (and, to the extent one knows otherwise, intellectually dishonest) to claim the rational expectations assumption was discovered in the 1960s with Muth. The theoretical power behind the assumption of full and complete expectations had in fact been known for some time. Among others, Hicks (1936, p. 241) had expressed the basic idea in admitting it “unrealistic to assume that an important change in data—say the introduction or extension of a public works policy—will leave expectations unchanged, even immediately.” Rational expectations was not discovered, but rather rediscovered in the 1960s because earlier theorists had explicitly rejected the assumption. In the case of Hicks, it was assumed that “there is a psychological unknown, affecting the magnitude of the impact effect” and, as such, “[w]e must not expect the most elaborate economic analysis to enable us to see very far ahead” (p. 241). Earlier economists were aware of rational expectations and, as Meacci (2009, p. 1) describes, saw the assumption primarily as “a device […] to conceal the link between the disappointment of expectations and the theory of fluctuations.” It was not a lack of knowledge that had left the assumption largely unemployed, but the feeling that it was wholly inappropriate to use in addressing a topic so intimately linked to the process of time.

The comments are open. I'd love to hear what you think.

Before there was Enron, there was Orange County

That's the title of this article in Public Budgeting & Finance (couldn't find an ungated copy), by David Matkin. I share it primarily because the title is so good:

Recent financial scandals in some of America's largest corporations have prompted popular speculation that a similar crisis may occur within the public sector and, therefore, that government and nonprofit organizations should be required to adopt financial oversight practices similar to those that are mandated of publicly-traded corporations in the Sarbanes-Oxley Act of 2002. One of those mandated practices—the use of financial-oversight committees—is already a common practice in public organizations, though little is known about its effectiveness. This study uses a national sample of local governments to examine whether financial-oversight committees improve financial control and strengthen stakeholder confidence in financial reporting. The findings provide preliminary support for the use of financial-oversight committees as an effective tool to improve financial accountability in local government.

Yardstick Competition in School District Income Tax Adoption

Joshua Hall and I now have a paper (ungated here) forthcoming in Public Finance Review, titled "Tiebout Competition, Yardstick Competition, and Tax Instrument Choice: Evidence from Ohio School Districts." Those interested in spatial econometric applications and interpretations in public finance settings might find this to be of particular interest. Here is the abstract:

Previous research has shown that Tiebout-style fiscal competition among local governments reduces the likelihood of adopting income taxes. This literature has not yet considered the impact of yardstick competition on tax instrument choice. This paper employs spatial econometrics to test for yardstick competition in the decision to adopt an income tax. The results, based on Ohio school district data, indicate that school districts are more likely to adopt an income tax if their neighbors have already done so. While a negative correlation of Tiebout competition on district income tax adoption persists, controlling for spatial dependence reduces the statistical significance of the effect.

Working Paper: BRACE for the New Interventionist Economics

Roger Koppl and I have a new working paper. Here's the abstract:

The Great Recession seems to be creating a New Interventionist Economics characterized by bubbles, radical uncertainty, animal spirits, complexity dynamics, and extra-market control. When placed in that order, these characteristic create the acronym BRACE. We review some evidence and literature pointing to BRACE economics and briefly suggest some avenues to challenge the new interventionists.

The full version is available via SSRN.

Central Bank Reform

I just got back from the annual Public Choice meeting (held in beautiful Monterey, CA). While there, I had the pleasure of discussing Sven-Olov Daunfeldt's paper on central bank reform. Here's the abstract:

This paper is a first empirical attempt to investigate why politicians around the world have chosen to give up power to independent central banks, thereby reducing their ability to fine-tune the economy. A new data-set covering 132 countries, of which 89 countries had implemented such reforms, was collected. Politicians in non-OECD countries were more likely to delegate power to independent central banks if their country has been characterized by a high variability in historical inflation and if they faced a high probability of being replaced. No such effects were found for OECD-countries.

You can find the full version here.

African Poverty

Still not the best place in the world, but things have been improving. Here's the abstract from a new paper by Sala-i-Martin and Pinkovskiy:

The conventional wisdom that Africa is not reducing poverty is wrong. Using the methodology of Pinkovskiy and Sala-i-Martin (2009), we estimate income distributions, poverty rates, and inequality and welfare indices for African countries for the period 1970-2006. We show that: (1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade.

Note #3 from the abstract-- a popular (ill-guided) concern over African growth is that income inequality will result, and that's bound to cause problems. The latter is debatable, but the former isn't the case.

Working Paper: Monetary Anarchy

Here's the abstract from my latest working paper:

Many economists, from Adam Smith to Nobel Laureate James M. Buchanan, have argued that free-markets only function correctly within an institutional framework that stipulates property rights, enforces contracts, and provides a medium of exchange. Furthermore, it is assumed that markets are incapable of generating this framework without the assistance of government. Specifically, Buchanan (2009) claims markets are incapable of producing a stable paper currency standard. If left to the market, Buchanan and others predict, the monetary regime will be highly inflationary. In contrast, I argue that monetary anarchy is a feasible alternative; decentralized agents acting in their own self-interest are capable of generating a stable paper currency standard. A counterfeit commodity standard—where any individual can print as many paper notes as desired without obligation to redeem these notes for some commodity—has all the self-adjusting properties of traditional commodity standards (e.g gold standard). Additionally, it has the potential to adjust more quickly to short-run fluctuations and use fewer resources than traditional commodity standards. Most importantly, the success of this standard relies only on underlying fundamentals and not the precommitments of men who might later renege. I detail the mechanics of a counterfeit commodity standard and illustrate feasibility by analyzing the quasi-counterfeit commodity standard implemented in Somalia.

An updated draft will be posted soon.

Congrats to the Duquesne Econ Majors!

A hearty congratulations to the economics majors at Duquesne who recently finished up their senior theses. All of the topics were great, here's a slice of the ideas:

Forecasting's Final Destination: How Well Can Individuals Predict Their Own Death?

Fix or Float: Why Do Countries Choose Different Exchange Rate Regimes?

How Do Psychological Clues Alter Our Discount Functions?

Does State Monopoly Control on Alcohol Deter Alcohol-Related Traffic Fatalities?

The Impact of Legislative Term Limits on State Infrastructure Spending

Moral Hazard in Baseball: Does Relief Pitching Increase Hit Batsmen?

Great work! At some point in the (hopefully) near future these should be online for all to read.

The Effect of Newspaper Entry and Exit on Electoral Politics

That's the title of Jesse Shapiro and company's latest effort on media, available at NBER.

We use new data on entries and exits of US daily newspapers from 1869 to 2004 to estimate effects on political participation, party vote shares, and electoral competitiveness. Our identification strategy exploits the precise timing of these events and allows for the possibility of confounding trends. We find that newspapers have a robust positive effect on political participation, with one additional newspaper increasing both presidential and congressional turnout by approximately 0.3 percentage points. Newspaper competition is not a key driver of turnout: our effect is driven mainly by the first newspaper in a market, and the effect of a second or third paper is significantly smaller. The effect on presidential turnout diminishes after the introduction of radio and television, while the estimated effect on congressional turnout remains similar up to recent years. We find no evidence that partisan newspapers affect party vote shares, with confidence intervals that rule out even moderate-sized effects. We find no clear evidence that newspapers systematically help or hurt incumbents.

It seems that the existence of a news source is the primary factor; additional newspapers don't have a big impact, and the emergence of radio and television seem to mitigate the impact of newspapers on presidential races (though not Congressional races-- I wonder if there exists, or will exist, a good media substitute for local newspaper coverage). Perhaps most importantly, the partisanship of the newspapers don't have an end-of-the-day impact on the favored party's outcomes.

Interesting work from extremely capable folk.

Bias in College Basketball Referees

Here's a bit talking about a new paper talking about bias in college basketball referees. In particular:

- The probability of a foul being called on the visiting team was 7 percent higher than on the home team.

- When the home team is leading, the probability of the next foul being called on them was about 6.3 percentage points higher than when the home team was trailing. The professors also cited an earlier study that concluded there were more calls against teams ahead in games on national TV versus those ahead in locally televised games. Calling fouls against the leading team tends to keep games closer, the studies said.

- The bigger the difference in fouls between the two teams playing, the more likely it was that the next call would come against the team with fewer fouls. When the home team had five or more fouls than the visiting team, there was a 69 percent chance the visiting team would be whistled for the next foul.

I haven't seen a copy of the article itself, and while bottom two statements take some effort to be put forth accurately, the top one speaks plainly to an issue worth looking at. 365 games is admittedly small but it's a great start for a wide-scale investigation. I'd be curious to see at what point that home advantage dissipated-- smaller D-I basketball? D-II or D-III? High school? Middle school?

The Research Productivity of Robert Tollison

Forthcoming in Public Choice, and the authors are Nicole and Mark Crain. I admit that I think this is one of the strangest paper ideas I've ever seen, which of course predisposing me to liking it. Abstract:

Academic performance is typically measured as some combination of teaching, publishing, and professional service. This paper focuses on the publication aspect of academic output, estimating the determinants of publication productivity using data for Robert D. Tollison (RDT). Robert Tollison published 433 articles and books, and collaborated with 524 coauthors while at a dozen institutions over thirty-eight years. Our findings indicate that RDT’s output is significantly correlated with several factors, including co-authorship, the diversification of his research portfolio, business cycles, and academic pay. To a lesser extent, his production pattern is influenced by non-work interests and specific institutional affiliations.