Tyler Cowen's Blog, page 208
March 23, 2014
Uncertainty traps
Here is a new and interesting paper by Pablo Fajgelbaum, Edouard Schaal, Mathieu Taschereau-Dumouchel:
We develop a theory of endogenous uncertainty and business cycles in which short-lived shocks can generate long-lasting recessions. In the model, higher uncertainty about fundamentals discourages investment. Since agents learn from the actions of others, information flows slowly in times of low activity and uncertainty remains high, further discouraging investment. The unique equilibrium of this economy displays uncertainty traps: self-reinforcing episodes of high uncertainty and low activity. While the economy recovers quickly after small shocks, large temporary shocks may have nearly permanent effects on the level of activity. The economy is subject to an information externality but uncertainty traps remain even in the efficient allocation. We extend our framework to include additional features of standard business cycle models and show, in that context, that uncertainty traps can substantially worsen recessions and increase their duration, even under optimal policy interventions.
There is an ungated version here.
Should we still get rid of the U.S. corporate income tax?
I know this argument runs against the mood affiliation of our times, but the arguments for eliminating the corporate income tax still seem pretty good to me. Here is a recent paper by Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, and Laurence J. Kotlikoff. The abstract runs as follows:
We simulate corporate tax reform in a single good, five-region (U.S., Europe, Japan, China, India) model, featuring skilled and unskilled labor, detailed region-specific demographics and fiscal policies. Eliminating the model’s U.S. corporate income tax produces rapid and dramatic increases in the model’s level of U.S. investment, output, and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating tax loop-holes.
The NBER copy is here. An ungated copy you will find here (pdf).
March 22, 2014
How well do the Irish remember what price they paid for their homes?
It may be the single biggest purchase in their lives but most Irish homeowners have less than total recall when it comes to remembering just how much they paid for their homes, according to new research published by the Central Bank.
More than 60 per cent of those surveyed claimed to have paid substantially less for their homes than they actually did with most of those questioned getting the purchase price wrong by tens of thousands of euro.
More than 20 per cent of those polled underestimated the price they paid for their home by up to €30,000 while closer to 30 per cent were out by between €30,000 and €120,000.
Could the mechanism be regret minimization?:
“Perhaps people are trying to reassure themselves that their losses as a result of the property crash are not as great as they are,” Mr McQuinn told The Irish Times. “We can’t really say that with 100 per cent certainty but given the scale of the negative equity involved in many of the homes, it certainly looks that way.”
The article is here, the research paper is here (pdf) and for the pointer I thank Aidan Walsh.
Saturday assorted links
1. .
2. The slow death of the microwave (thank goodness).
3. What is wrong with the Met? Hint: it is about economics and incentives.
4. The immigration referendum will hurt Swiss research prowess.
5. John Cage meets Spotify. And chapter one of Cass Sunstein’s On Rumors.
*Nature’s Oracle*
The author is Ullica Segerstrale and the subtitle of this excellent and fascinating book is The Life and Work of W.D. Hamilton. Here is one bit:
She had decided to break up with him. The reason for this…was Bill’s strange idea of marriage. Bill had told her that they should have no more than two children, of which one child would be his and another her child with another man. His girlfriend thought about this and realized she could not agree. She also wondered what lay behind this suggestion. (She probably did not recognize Bill’s experimental scenario as coming straight out of some book like Out of the Night.)
This book has many excellent lines, including:
There is a famous New Zealand expression: “Anything can be fixed with a number 8 wire.”
And:
Who carries around cyanide?
Robert Trivers makes numerous cameos as well.
Male dance moves that catch a woman’s eye
The bottom line seems to be this:
By using cutting-edge motion-capture technology, we have been able to precisely break down and analyse specific motion patterns in male dancing that seem to influence women’s perceptions of dance quality. We find that the variability and amplitude of movements in the central body regions (head, neck and trunk) and speed of the right knee movements are especially important in signalling dance quality. A ‘good’ dancer thus displays larger and more variable movements in relation to bending and twisting movements of their head/neck and torso, and faster bending and twisting movements of their right knee. As 80 per cent of individuals are right-footed, greater movements of the right knee in comparison with the left are perhaps to be expected. In comparative research, there is extensive literature on the signalling capacities of movement…Researchers have suggested that females prefer vigorous and skilled males; such cues are derived from male motor performance that provides a signal of his physical condition.
The paper is here (pdf), via Samir Varma.
March 21, 2014
A bit more on Bitcoin-based innovation
Such “permissionless innovation”, in the jargon, should in time result in a cornucopia of applications. Bitcoin’s technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be “programmed” to come with conditions: for instance, it might be released only if a third person agrees.
Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such “smart property” would turn the blockchain into a global registry of ownership in physical assets.
All that may sound like science fiction, but a growing number of startups are working on bringing such applications to market. Coloured Coins and Mastercoin will soon release software that enables trade in other financial assets, including stocks and bonds. The most ambitious project is Ethereum: it will launch a new blockchain, similar but unrelated to Bitcoin, with a programming language to encode financial instruments and other contracts.
From The Economist there is more here.
Have a sofa in the kitchen
That is advice from Richard Branson:
10. Do what you love and have a sofa in the kitchenYou only live one life, so I would do the thing that you are going to enjoy. When life boils down, this might sound like a little much coming from me, I do have my own little island in the Caribbean, but when we are on that island, we tend to just live in the kitchen.
The rest of the advice, more pedestrian, is here, and the original pointer is from Tim Harford.
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