Tyler Cowen's Blog, page 196

Dept. of pure coincidence

The Census Bureau, the authoritative source of health insurance data for more than three decades, is changing its annual survey so thoroughly that it will be difficult to measure the effects of President Obama’s health care law in the next report, due this fall, census officials said.

The changes are intended to improve the accuracy of the survey, being conducted this month in interviews with tens of thousands of households around the country. But the new questions are so different that the findings will not be comparable, the officials said.

An internal Census Bureau document said that the new questionnaire included a “total revision to health insurance questions” and, in a test last year, produced lower estimates of the uninsured. Thus, officials said, it will be difficult to say how much of any change is attributable to the Affordable Care Act and how much to the use of a new survey instrument.

“We are expecting much lower numbers just because of the questions and how they are asked,” said Brett J. O’Hara, chief of the health statistics branch at the Census Bureau.

With the new questions, “it is likely that the Census Bureau will decide that there is a break in series for the health insurance estimates,” says another agency document describing the changes. This “break in trend” will complicate efforts to trace the impact of the Affordable Care Act, it said.

Obviously with a big new law you need new questions too, I suppose, plus the old questions ought not to hang around.  You can read more here.

As a side note, I have been reading far too many blog posts about “numbers enrolled” as a metric of success for Obamacare.  That has never been a good test of the serious criticisms (and defenses) of ACA.

I thank Megan and Garett for the pointers.

Addendum: You should read this update from Vox, though I am not satisfied with the Administration’s response.

What is the economic risk of Heartbleed?

From a report from today’s WaPo:

No examples have surfaced of anyone actually exploiting the vulnerability.

Of course that is no longer true, as The Royal Canadian Mounted Police are investigating the cases of 900 Canadian identity theft victims.  And there are likely undetected further cases.  Still, when I hear this crisis described as “On the scale of 1 to 10, this is an 11,” I conclude that economists think about risk differently than do most people, including tech consultants.  (To flip this coin on its other side, I am not especially reassured about the web sites judged as “safe” — should we now start trusting such judgments so strongly?)

What can the deadweight loss be of a previously unnoticed crisis?  And if that is an 11, what does a 12 look like?  How many Canadian victims would be needed to get us up to 13?

Does greater charitable effectiveness spur more donations?

Well, at which margin?  At current margins, not for all donors and it seems not for “warm glow” donors.  Here is a new paper by Dean Karlan and Daniel H. Wood.  Every sentence in the abstract is interesting:

We test how donors respond to new information about a charity’s effectiveness. Freedom from Hunger implemented a test of its direct marketing solicitations, varying letters by whether they include a discussion of their program’s impact as measured by scientific research. The base script, used for both treatment and control, included a standard qualitative story about an individual beneficiary. Adding scientific impact information has no effect on whether someone donates, or how much, in the full sample. However, we find that amongst recent prior donors (those we posit more likely to open the mail and thus notice the treatment), large prior donors increase the likelihood of giving in response to information on aid effectiveness, whereas small prior donors decrease their giving. We motivate the analysis and experiment with a theoretical model that highlights two predictions. First, larger gift amounts, holding education and income constant, is a proxy for altruism giving (as it is associated with giving more to fewer charities) versus warm glow giving (giving less to more charities). Second, those motivated by altruism will respond positively to appeals based on evidence, whereas those motivated by warm glow may respond negatively to appeals based on evidence as it turns off the emotional trigger for giving, or highlights uncertainty in aid effectiveness.

How is that for a chilling final sentence?: “…those motivated by altruism will respond positively to appeals based on evidence, whereas those motivated by warm glow may respond negatively to appeals based on evidence as it turns off the emotional trigger for giving, or highlights uncertainty in aid effectiveness.”

Coasean bird sanctuaries, with auctions too

The BirdReturns program, financed by the Nature Conservancy, then pays rice farmers in the birds’ flight path to keep their fields flooded with irrigation water from the Sacramento River as migrating flocks arrive. The prices are determined by reverse auction, in which farmers bid for leases and the lowest bidder wins.

Because the program pays for only several weeks of water instead of buying the habitat, the sums are modest; the conservancy does not disclose bids because that might affect future auctions, but it says the figures were both above and below the $45 per acre that the federal government pays for bird-friendly practices.

The project’s first season ended last month, as birds headed north from newly flooded fields. Researchers said all of the birds whose numbers they hoped to improve were seen on “pop up” wetlands — a temporary steppingstone for the birds’ journey north. This happened when the field would have ordinarily been drained, an indication that the approach was working. More analysis will be done this month. The fields will be flooded again in the fall for the birds’ return journey. Eventually, using this and other approaches, the conservationists at BirdReturns hope to increase the number of shorebirds that stop in the Central Valley to 400,000, from current levels of 170,000.

There is more here, not like what you see in those movies!

Robin Hanson on the real multiplier

Yes doing things now can have good side effects, but unless something changes in the side-effect processes, doing things later should have exactly the same sort of side effects. And because of positive interest rates, you can do more later, and thus induce more of those good side effects. (Also, almost everyone can trade time for money, and so convert money or time now into more money or time later.)

For example, if you can earn 7% interest you can convert $1 now into $2 a decade from now. Yes, that $1 now might lend respectability now, induce others to copy your act soon, and induce learning by the charity and its observers. But that $2 in a decade should be able to induce twice as much of all those benefits, just delayed by a decade.

In math terms, good side effects are multipliers, which multiply the gains from your good act. But multipliers are just not good reasons to prefer $1 over $2, if both of them will get the same multiplier. If the multiplier is M, you’d just be preferring $1M to $2M.

…I think one should in general be rather suspicious of investing or donating to groups on the basis that they, or you, or now, is special. Better to just do what would be good even if you aren’t special. Because usually, you aren’t.

There is more here.

Assorted links

1. How the Japanese are reengineering (and improving) on American culture.

2. Viagra ice cream markets in everything.

3. Insights into Vox.com and how it views its competitors.  And here is Joshua Gans on Vox.

4. Philippe Legrain, European Spring, a useful and well-written popular look at the European economic mess, $2.99 on Kindle.

5. I call it the Thomas Piketty clothing line.  (The important point, however, is that Zara is much more important these days and that militates against Piketty.)  Here Diane Coyle reviews Piketty.

6. Chrystia Freeland dialogue with Larry Summers, starts at about 40:00.  It is the best Larry video I have viewed.  Here is a Sendhil Mullainathan talk on machine learning which I have not viewed.

7. Mohamed El-Arian is now writing for Bloomberg.

8. The new academic celebrity.

Customized restaurant markets in everything privacy is dead

A restaurant with three Michelin stars is now trying to up its customer service game by Googling its customers before they arrive. According to a report from Grub Street, an Eleven Madison Park maitre d’ performs Internet recon on every guest in the interest of customizing their experiences.

The maitre d’ in question, Justin Roller, says he tries to ascertain things like whether a couple is coming to the restaurant for an anniversary, and if so, which anniversary that is. If it’s a birthday, for instance, he wants to wish them “Happy Birthday” when they arrive. He’ll scan for photos of the guests in chef’s whites or posed with wine glasses, which suggest they might be chefs or sommeliers themselves.

It goes deeper: if a particular guest appears to hail from Montana, Roller will try to pair up the table with a server who is from Montana. “Same goes for guests who own jazz clubs, who can be paired with a sommelier that happens to be into jazz,” writes Grub Street.

Obviously, the restaurant is just trying to be better in tune with the people sitting around eating its food and drinking its wine. But it seems like a reasonable assumption to believe people posting their birthday dates online aren’t doing so in the hopes that someone they’ve never met before will know, as if by telepathy, to wish them the best on their special day.

There is a bit more here, and for the pointer I thank Donnie Hall.

I am now curious what they would do for me.  Any ideas?

Addendum: Here is what happens if you buy a scale on Amazon.

A rigidity-based theory of executive compensation

There is a new paper by Kelly Shue and Richard Townsend (pdf), it is quite intriguing though note it is preliminary work. I am not linking to it but the authors appear to have distributed the abstract on the internet:

We explore a rigidity-based explanation of the dramatic and off-trend growth in US executive compensation during the late 1990s and early 2000s. We show that executive option and stock grants are rigid in the number of shares granted. In addition, salary and bonus exhibit downward nominal rigidity. Rigidity implies that the value of executive pay will grow with firm equity returns, which averaged 30% annually during the Tech Boom. Rigidity also explains the increased dispersion in pay across firms, the difference in growth rates between the US and other countries, and the increased correlation between pay and firm-specific equity returns. Regulatory changes requiring the disclosure of the value of option grants help explain the moderation in executive pay in the late 2000s. Finally, we find suggestive evidence that number-rigidity in executive pay is generated by money illusion and reference-dependent motivation, the same behavioral biases that may underlie downward nominal wage rigidity among rank and file workers.

For the pointer I thank Robert J. Shiller.

The book culture that is Norway

So long as a new Norwegian book passes quality control, Arts Council Norway purchases 1,000 copies of it to distribute to libraries—or 1,550 copies if it’s a children’s book. (This comes on top of the libraries’ acquisition budgets.) The purchasing scheme, I was told, keeps alive many small publishers that could not otherwise exist. American independent presses would drool at the prospect. Another effect of the scheme is that it subsidizes writers as they build a career. They make royalties on those 1,000 copies—in fact, at a better royalty rate than the contractual standard. Books are also exempted from Norway’s value-added tax.

There is more here, partly on Knausgaard, here is more TNR on Knausgaard, via Scott Sumner.

I would note that, other than Knausgaard, the merits of recent Norwegian literature are…subject to debate.

The Greek debt profile and why they are still being lent money

From an excellent column by Wolfgang Münchau:

The reason Greece was able to attract so much interest in last week’s bond issue was a combination of the promise of a high yield and the maturity profile of existing Greek debt. Official loans – from eurozone member states and the International Monetary Fund – make up 80 per cent of the total debt. Greece will not start to repay this until 2023. In other words the country is solvent in the short run. But long-run solvency is far from certain.

The rest of the FT piece is here.  He suggests (without advocating it) that this could be the moment for Greece to default.