When should data that support a published study be made public? What if the study is not yet published but is merely presented to an audience of peers? Scienceblogs reports:
An Italian-led research group's closely held data have been outed by paparazzi physicists, who photographed conference slides and then used the data in their own publications.
The controversy over who gets credit is another concern but what if the data had been made public at the same time as the presentation? Then there would be no controversy over credit. However, for many reasons (personal or otherwise) researchers tend not to make their data public until publication of their study, if at all. This would be acceptable if and only if their research is presented only to their peers and does not become part of the public debate.
In many cases, especially in economics (unlike discussion on dark matter or matters of cosmology) this is hardly ever the case. When a study is trumpeted in the Wall Street Journal or the New York Times prior to publication and before data is made public then what is the status of the study? It is as if the study had already been published and had already passed peer review.
For instance, the New York Times gave some coverage to research by Kotchen and Grant on the lack of energy savings from adopting daylight savings time. Unfortunately, the data for replication is not available for download. Therefore, the conclusions from this study is unverifiable and yet it has already made it into the public domain.
Likewise, claims of success against malaria were made based on data that were not made public.
Mr. and Mrs. Gates are repeating numbers that have already been discredited. This story of irresponsible claims goes back to a big New York Times headline on February 1, 2008: “Nets and New Drug Make Inroads Against Malaria,” which quoted Dr. Arata Kochi, chief of malaria for the WHO, as reporting 50-60 percent reductions in deaths of children in Zambia, Ethiopia, and Rwanda, and so celebrated the victories of the anti-malaria campaign. Alas, Dr. Kochi had rushed to the press a dubious report. The report was never finalized by WHO, it promptly disappeared, and its specific claims were contradicted by WHO’s own September 2008 World Malaria Report, by which time Dr. Kochi was no longer WHO chief of malaria.
Thus, there is reason to make a case that data should be made public when the authors of the study feel that their research is ready to be presented to their peers (and not wait until publication) especially since it is likely that the press will report their "preliminary" findings.
Another source of controversy is the tariff-growth paradox whose authors have not made data available for download. There are reasons for this although technology is not one of them since the Internet has made downloads easy - moreover, if the authors can make their papers downloadable, why not their data?
Reasons for not making data downloadable are probably mundane:
1. Documentation - the data was possibly not well documented and only the authors can understand the structure as well as variable names. The amount of work to go back and document the data is just too overwhelming for the authors.
2. Personal - the authors have done the hard work gathering and entering the data and other authors who want to research the topic should do their own data entry and research. This reason may seem petty but it also serves as a check and verification of the original data. Unfortunately, this can be done even if the data has been made available.
David Albouy has contradicted the data on settler mortality in "The Colonial Origins of Comparative Development: An Empirical Investigation" by Acemoglu, Johnson, and Robinson. Even though Acemoglu et. al. have never made the data downloadable, they provided it to Albouy via personal communication. This did not prevent Albouy from contradicting the findings of Acemoglu et. al.
More insidious is the use of confidential data that cannot be made public. This kind of data has made it into policy circles on the effects of file sharing on music sales. The Chronicle of Higher Education has documented this debate between Stan Leibowitz who has tried to verify a Journal of Political Economy article by Oberholzer and Strumpf.
What is the use of publishing research that cannot be replicated? Hamermesh provides a good overview of the issues but the bottom line is that if a study cannot be replicated then it is worthless and if economics wants to stake its claim as a science then it should reject all articles that use confidential data.
Related to the use of confidential data but not quite as serious is the use of public but restricted data. These types of data are commonly found at NCES that are geo-coded. The restrictions are fairly onerous including the need for an application with a signed affidavit as well as being subjected to a bureaucrat's whim of auditing the user's data security arrangements. Other examples of restricted data are Medicare data, Census data without topcoding of income categories (i.e. March supplements) and Longitudinal Employer-Employee Data.
While privacy concerns are real there are a lot of data collected that can be adequately modified to protect privacy. If the Federal Reserve can make data on wealth publicly available then it is hard to believe that economists are unable to make their data sufficiently anonymous to eliminate disclosure risk.
The conclusions are thus:
1. Data must be made downloadable as soon as its authors are willing to present their findings to their peers.
2. Restricted data must be made public - disclosure risk can be eliminated even with geo-coding. NCES type restrictions are too onerous.
3. Articles based on confidential data must be summarily rejected. These studies add nothing to the knowledge base.
Saturday, February 28, 2009
Wednesday, February 25, 2009
How did banks get so big?
In previous posts here and here it was proposed that banks not become too interconnected or too big lest they fail and bring down the entire system. Mark Thoma advocates a reprivatization where banks are not allowed to get too big. It may be time to contemplate on how we got to where we are.
Back in 1994, there were economists who considered the U.S. banking sector to be too inefficient. (See for instance, Wheelock and Wilson, 1994.) As a result of low efficiencies and low profits, banks began adopting newer technologies and by 2001 improvements in bank profits became clearer. (See for instance, Berger and Mester, 2002.) Moreover, the push toward profit maximization also began to drive mergers. Akhavein, Berger and Humphrey (1997) finds that mega-mergers increased bank profits.
The conclusion that can be drawn from these (albeit short survey of) findings is that technology progress and profit maximization have driven bank mergers. Mergers can be treated with antitrust regulation and it is here perhaps that there may have been too little regulation. However, the failure may not have been the lack of regulation per se but the lack of a criteria for evaluating bank mergers. Antitrust regulators are concerned with whether mergers would have adverse effects on the services for consumers not the possibility of systemic risk. While the Fed and Treasury may also be required to sign off on these mergers then it is they who should be responsible for enforcing some kind of too big to fail or too interconnected to fail policy.
What about the case of a bank adopting an expensive technology that can only be profitable with scale economies, i.e. where mergers are the only option of becoming more efficient? An example would be economies of scale from combining IT departments. Should such mergers be disallowed? What if a bank developed a new technology that allowed it to become more competitive and grow from within? Should its growth be curbed?
There have been precedents where large firms that have grown from some competitive advantage have subsequently been broken up, for instance, AT&T. However, AT&T was broken up for competitive reasons, i.e. market power over consumers. Some may argue that the reason for this break up was inconclusive and that regulators over reacted. The fact that AT&T has now grown large again through mergers is evidence that market forces provide a rationale for being large.
Unfortunately, economics has provided very little in terms of policy guidance. How big is too big? Should a bank with a competitive advantage be regulated more heavily because of its potential to become too big? These are only a few of the questions that economists need to address after breaking up all the big banks. What's to prevent some of these from becoming too big again?
If the lesson here is that financial institutions should not become too big then what is the lesson from the following paper Are Credit Unions Too Small? by Wheelock and Wilson (2008) that seems to call for deregulation of credit unions. Here is the abstract:
Since 1985, the share of U.S. depository institution assets held by credit unions has nearly doubled, and the average (inflation-adjusted) size of credit unions has increased over 600 percent. We use a non-parametric local-linear estimator to estimate a cost relationship for credit unions and derive estimates of ray-scale and expansion-path scale economies. We employ a dimension-reduction technique to reduce estimation error, and bootstrap methods for inference. We find substantial evidence of increasing returns to scale across the range of sizes observed among credit unions, suggesting that an easing of regulations on credit union membership or activities would lead to further increases in the size of credit unions.
Back in 1994, there were economists who considered the U.S. banking sector to be too inefficient. (See for instance, Wheelock and Wilson, 1994.) As a result of low efficiencies and low profits, banks began adopting newer technologies and by 2001 improvements in bank profits became clearer. (See for instance, Berger and Mester, 2002.) Moreover, the push toward profit maximization also began to drive mergers. Akhavein, Berger and Humphrey (1997) finds that mega-mergers increased bank profits.
The conclusion that can be drawn from these (albeit short survey of) findings is that technology progress and profit maximization have driven bank mergers. Mergers can be treated with antitrust regulation and it is here perhaps that there may have been too little regulation. However, the failure may not have been the lack of regulation per se but the lack of a criteria for evaluating bank mergers. Antitrust regulators are concerned with whether mergers would have adverse effects on the services for consumers not the possibility of systemic risk. While the Fed and Treasury may also be required to sign off on these mergers then it is they who should be responsible for enforcing some kind of too big to fail or too interconnected to fail policy.
What about the case of a bank adopting an expensive technology that can only be profitable with scale economies, i.e. where mergers are the only option of becoming more efficient? An example would be economies of scale from combining IT departments. Should such mergers be disallowed? What if a bank developed a new technology that allowed it to become more competitive and grow from within? Should its growth be curbed?
There have been precedents where large firms that have grown from some competitive advantage have subsequently been broken up, for instance, AT&T. However, AT&T was broken up for competitive reasons, i.e. market power over consumers. Some may argue that the reason for this break up was inconclusive and that regulators over reacted. The fact that AT&T has now grown large again through mergers is evidence that market forces provide a rationale for being large.
Unfortunately, economics has provided very little in terms of policy guidance. How big is too big? Should a bank with a competitive advantage be regulated more heavily because of its potential to become too big? These are only a few of the questions that economists need to address after breaking up all the big banks. What's to prevent some of these from becoming too big again?
If the lesson here is that financial institutions should not become too big then what is the lesson from the following paper Are Credit Unions Too Small? by Wheelock and Wilson (2008) that seems to call for deregulation of credit unions. Here is the abstract:
Since 1985, the share of U.S. depository institution assets held by credit unions has nearly doubled, and the average (inflation-adjusted) size of credit unions has increased over 600 percent. We use a non-parametric local-linear estimator to estimate a cost relationship for credit unions and derive estimates of ray-scale and expansion-path scale economies. We employ a dimension-reduction technique to reduce estimation error, and bootstrap methods for inference. We find substantial evidence of increasing returns to scale across the range of sizes observed among credit unions, suggesting that an easing of regulations on credit union membership or activities would lead to further increases in the size of credit unions.
Monday, February 23, 2009
Some interesting modeling ideas
Via Mankiw, Jeff Sachs interesting statements really begs for a model:
President Barack Obama’s economic team is now calling for an unprecedented stimulus of large budget deficits and zero interest rates to counteract the recession. These policies may work in the short term but they threaten to produce still greater crises within a few years. Our recovery will be faster if short-term policies are put within a medium-term framework in which the budget credibly comes back to balance and interest rates come back to moderate sustainable levels....
1. Can delaying a recession result in a greater depression later on? What are the mechanics of this?
2. The corollary is the following: Can the policy of lower interest rates of the Greenspan era to avoid a recession result in an even greater depression?
3. Another corollary from low interst rates is Victor Zarnowit's notion that each boom results in over-investment and contains within it the seeds of the next recession.
Bob Shiller's idea that talking about a depression can lead to one is being discounted by Mark Thoma. Again, this begs for a model of feedback effects and the size of the feedback that is required to create a recession. An event triggers a crisis and then everyone becomes more risk averse or begins to prepare for the worst leading to a self-fulfilling prophecy. This sounds just as plausible as technological shocks.
President Barack Obama’s economic team is now calling for an unprecedented stimulus of large budget deficits and zero interest rates to counteract the recession. These policies may work in the short term but they threaten to produce still greater crises within a few years. Our recovery will be faster if short-term policies are put within a medium-term framework in which the budget credibly comes back to balance and interest rates come back to moderate sustainable levels....
1. Can delaying a recession result in a greater depression later on? What are the mechanics of this?
2. The corollary is the following: Can the policy of lower interest rates of the Greenspan era to avoid a recession result in an even greater depression?
3. Another corollary from low interst rates is Victor Zarnowit's notion that each boom results in over-investment and contains within it the seeds of the next recession.
Bob Shiller's idea that talking about a depression can lead to one is being discounted by Mark Thoma. Again, this begs for a model of feedback effects and the size of the feedback that is required to create a recession. An event triggers a crisis and then everyone becomes more risk averse or begins to prepare for the worst leading to a self-fulfilling prophecy. This sounds just as plausible as technological shocks.
Should economists debate each other?
Via Mankiw, the following article: Dismal scientists: how the crash is reshaping economics got some attention in particular the following passage:
Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing Obama's stimulus plan. As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus -- thinking that would be a timely and lively session. But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that "all I know on this issue I got from Greg Mankiw's blog -- I really am not equipped to debate this with anyone."
Mankiw's response was:
My interpretation is more benign: The chairman of the department asks a professor to do something, the professor is busy and doesn't really want to do it, so he blows off the chairman with a tongue-in-cheek quip.
On a related note: I know a lot of academics who don't like debate formats. They find it too confrontational and incompatible with reasoned discussion. A prominent economics professor I know, who once faced off against Larry Summers in a debate, told me he would never put himself in that position again. But that decision has not stopped him from being a productive contributor to discussions of public policy.
I found Mankiw's response a little odd. In fact the economists that I have known at grad school are fierce debaters or at least confrontational. Some seminars were incredibly nerve wracking and at times I felt sorry for the presenter.
Moreover, this Bloomberg story on the Chicago school the legacy of Milton Friedman notes:
Friedman, who stood 5 feet 3 inches (160 centimeters), was a fierce debater, McCloskey recalls.
“He always asks, persistently, ‘How do you know?’” McCloskey, now 66, wrote in the Eastern Economic Review in 2003. “It’s a terrifying question, because most of the time we can’t say.”
Like Mankiw however, I do think the professor in question had no interest in debating because he probably preferred running regressions or building models. Alternatively, he had no interest in defending his position in a debate because he really did not believe in what he was saying. Both statements are not contradictory.
Note: The Greg Clark article in the Atlantic was not as interesting as the comments and the Bloomberg sotry was a nice retrospective on the ideas of the Chicago school and how the current crisis is overturning its principles and ideals.
Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing Obama's stimulus plan. As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus -- thinking that would be a timely and lively session. But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that "all I know on this issue I got from Greg Mankiw's blog -- I really am not equipped to debate this with anyone."
Mankiw's response was:
My interpretation is more benign: The chairman of the department asks a professor to do something, the professor is busy and doesn't really want to do it, so he blows off the chairman with a tongue-in-cheek quip.
On a related note: I know a lot of academics who don't like debate formats. They find it too confrontational and incompatible with reasoned discussion. A prominent economics professor I know, who once faced off against Larry Summers in a debate, told me he would never put himself in that position again. But that decision has not stopped him from being a productive contributor to discussions of public policy.
I found Mankiw's response a little odd. In fact the economists that I have known at grad school are fierce debaters or at least confrontational. Some seminars were incredibly nerve wracking and at times I felt sorry for the presenter.
Moreover, this Bloomberg story on the Chicago school the legacy of Milton Friedman notes:
Friedman, who stood 5 feet 3 inches (160 centimeters), was a fierce debater, McCloskey recalls.
“He always asks, persistently, ‘How do you know?’” McCloskey, now 66, wrote in the Eastern Economic Review in 2003. “It’s a terrifying question, because most of the time we can’t say.”
Like Mankiw however, I do think the professor in question had no interest in debating because he probably preferred running regressions or building models. Alternatively, he had no interest in defending his position in a debate because he really did not believe in what he was saying. Both statements are not contradictory.
Note: The Greg Clark article in the Atlantic was not as interesting as the comments and the Bloomberg sotry was a nice retrospective on the ideas of the Chicago school and how the current crisis is overturning its principles and ideals.
Do one thing do it well
I came across this via Happiness Project and it had been bothering me for a while. It's one thing to have a philosophy but can a Unix Philosophy apply to life? For one thing, what does it mean in the context of our life efforts?
1. Specialize in one and only one thing in life which is what we can do best.
2. If anything is worth doing, it's worth doing well.
If it's the latter which I suspect it is then what does "well" mean? Does it mean that we should do the best we can? And what does doing our best really mean? For instance, the author of the post is learning salsa dancing which I take to mean that she does not plan on becoming World Champion Salsa Dancer but I do take it to mean that she plans to do it seriously i.e. several practices during the week including perhaps entering a competition.
But not everyone has the time to to put in such a high level of effort - does this mean then that we should not try something new? Again, I suspect not, and that to do something well is subjective and unquantifiable.
1. Specialize in one and only one thing in life which is what we can do best.
2. If anything is worth doing, it's worth doing well.
If it's the latter which I suspect it is then what does "well" mean? Does it mean that we should do the best we can? And what does doing our best really mean? For instance, the author of the post is learning salsa dancing which I take to mean that she does not plan on becoming World Champion Salsa Dancer but I do take it to mean that she plans to do it seriously i.e. several practices during the week including perhaps entering a competition.
But not everyone has the time to to put in such a high level of effort - does this mean then that we should not try something new? Again, I suspect not, and that to do something well is subjective and unquantifiable.
What happens after competition is over?
With regards to the demise of Linens and Things and Circuit City: What does this imply about competition in the realm of economics. In economic models, competition and free entry into a market is assumed to be good in the sense that it drives prices down to its marginal cost. There is a parallel in a duopoly market as well, but what happens in this case after the competitor has been killed off (even though exit was not precipitated by a price war) through perhaps better management?
Does this imply that the market can only sustain one large retailer? If so, should we expect to see a cycle where prices begin to rise at the surviving retailers to the point where there is entry deterrence? Even if the market is contestable, is rising retail prices a sign that the assumption that competition drives prices down to its long run equilibrium where entry equals exits invalid?
While these questions do not imply the demise of the assumption that competition is good for prices it also highlights the possible social cost of firm exits within the competitive model that is not accounted for: job losses, for instance. The theoretical argument is that these workers will be reallocated to another industry where they can be more productive - the evidence is scant that this happens. Research on job retraining programs for laid off and unemployed workers show that workers do not regain their full income. This research however may be biased toward older workers and may not be representative of the workforce in retailing.
The question however, remains: Are lower prices through competition always good in terms of social welfare? Do rising prices after a "cycle" of competition (or increased volatility of prices through exit and entry) invalidate the assumption that competition drives prices to a long run equilibrium? Think of the airline industry and its constant rise and fall for instance.
Does this imply that the market can only sustain one large retailer? If so, should we expect to see a cycle where prices begin to rise at the surviving retailers to the point where there is entry deterrence? Even if the market is contestable, is rising retail prices a sign that the assumption that competition drives prices down to its long run equilibrium where entry equals exits invalid?
While these questions do not imply the demise of the assumption that competition is good for prices it also highlights the possible social cost of firm exits within the competitive model that is not accounted for: job losses, for instance. The theoretical argument is that these workers will be reallocated to another industry where they can be more productive - the evidence is scant that this happens. Research on job retraining programs for laid off and unemployed workers show that workers do not regain their full income. This research however may be biased toward older workers and may not be representative of the workforce in retailing.
The question however, remains: Are lower prices through competition always good in terms of social welfare? Do rising prices after a "cycle" of competition (or increased volatility of prices through exit and entry) invalidate the assumption that competition drives prices to a long run equilibrium? Think of the airline industry and its constant rise and fall for instance.
Saturday, February 21, 2009
Why gains from trade need to be absolute
Economists have often noted that because the gains from trade are diffused but its losses focused, those against free trade are more likely to prevail in order to protect their potential losses. One notable problem with the arguments for free trade is that it does not bring down absolute prices but relative prices as explained by Dani Rodrik:
Daniel Drezner has some nice things to say about me and my blog, but then takes me to task for understating the gains from free trade in a recent entry. He writes:
In focusing strictly on the employment effects, however, Rodrik elides the biggest gain from trade -- lower prices.
Since Drezner’s point reflects a common misunderstanding about the effects of trade, it is worth some explication.
When a country opens up to trade (or liberalizes its trade), it is the relative price of imports that comes down; by necessity, the relative prices of its exports must go up! Consumers are better off to the extent that their consumption basket is weighted towards importables, but we cannot always rely on this to be the case.
Unfortunately, the misunderstanding about lower prices reflects that perhaps not only the gains from trade diffused, but those who purportedly gain from trade (consumers) don't even recognize the gains from trade! Unless prices are lower in absolute terms, consumers will not be rejoicing, unlike Fey Accompli (Via MR) or Silly Little Country (original Fey Accompli post seems to be broken for now):
Folks, I can buy a pair of panties at Wal-Mart for 88 cents. Please stop and reflect on how much of a miracle that is. I stood there under all those fluorescent lights having an “I, Pencil” moment and I almost wept when i saw that. Not because I can’t afford $5 for panties, but because I could get everything I needed for a stranded night for about $20. A little more and I could get a fresh outfit for the next day.
Beyond my own personal gain, the miracle is that those pale green panties with a little lace trim started out as a twinkle in some Cambodian manufacturer’s eye, and dozens of people were involved in getting them from there to my possession, the last person being the checkout saleswoman at Wal-Mart.
All those people took part in making sure that what I needed was there right when I needed it and for an unbelievable price. And everyone’s lives are better because they get to be a part of that process. A more humane system could never be invented, let alone implemented, by one person, or a committee, and by god, not by a government.
Now, if gains from trade were celebrated like this there would not be any need for convincing. Unfortunately, there is very little celebration in the price of cables:
And I'm not talking Monster Cable fancy-pants stuff either. The cheapest generic 6-foot HDMI cables that I could in Best Buy and Target in-store inventory were going for $29.99--a 300 percent premium over the $9.95 I spent at Amazon.com (which wasn't even that great an online price, but the shipping was free).
This experience got me to playing economist. Why, in a free market, are cables so flipping expensive? After all, these same stores carry all manner of items that are priced very competitively relative to online.
Daniel Drezner has some nice things to say about me and my blog, but then takes me to task for understating the gains from free trade in a recent entry. He writes:
In focusing strictly on the employment effects, however, Rodrik elides the biggest gain from trade -- lower prices.
Since Drezner’s point reflects a common misunderstanding about the effects of trade, it is worth some explication.
When a country opens up to trade (or liberalizes its trade), it is the relative price of imports that comes down; by necessity, the relative prices of its exports must go up! Consumers are better off to the extent that their consumption basket is weighted towards importables, but we cannot always rely on this to be the case.
Unfortunately, the misunderstanding about lower prices reflects that perhaps not only the gains from trade diffused, but those who purportedly gain from trade (consumers) don't even recognize the gains from trade! Unless prices are lower in absolute terms, consumers will not be rejoicing, unlike Fey Accompli (Via MR) or Silly Little Country (original Fey Accompli post seems to be broken for now):
Folks, I can buy a pair of panties at Wal-Mart for 88 cents. Please stop and reflect on how much of a miracle that is. I stood there under all those fluorescent lights having an “I, Pencil” moment and I almost wept when i saw that. Not because I can’t afford $5 for panties, but because I could get everything I needed for a stranded night for about $20. A little more and I could get a fresh outfit for the next day.
Beyond my own personal gain, the miracle is that those pale green panties with a little lace trim started out as a twinkle in some Cambodian manufacturer’s eye, and dozens of people were involved in getting them from there to my possession, the last person being the checkout saleswoman at Wal-Mart.
All those people took part in making sure that what I needed was there right when I needed it and for an unbelievable price. And everyone’s lives are better because they get to be a part of that process. A more humane system could never be invented, let alone implemented, by one person, or a committee, and by god, not by a government.
Now, if gains from trade were celebrated like this there would not be any need for convincing. Unfortunately, there is very little celebration in the price of cables:
And I'm not talking Monster Cable fancy-pants stuff either. The cheapest generic 6-foot HDMI cables that I could in Best Buy and Target in-store inventory were going for $29.99--a 300 percent premium over the $9.95 I spent at Amazon.com (which wasn't even that great an online price, but the shipping was free).
This experience got me to playing economist. Why, in a free market, are cables so flipping expensive? After all, these same stores carry all manner of items that are priced very competitively relative to online.
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