Tyler Cowen's Blog, page 509

Can Timeouts Change the Outcome of Basketball Games?

From Serguei Saavedra, Satyam Mukherjee, James P. Bagrow.  Here is the paper, here is the abstract:

In basketball, timeouts are believed to reverse the momentum of a game. However, here we show timeouts have no significant effect on the final outcomes of games. Moreover, we find that the timeout factor only appears to reinforce the game of dominant teams, meaning that only the most successful teams can find any positive benefit. We find no association with team payrolls, suggesting that richer teams are not particularly better at capitalizing on timeouts. Our findings support that strategic breaks have little impact on workplace performance and productivity.

For the pointer I thank Michelle Dawson.

Agricultural yields and the returns to schooling

Agricultural yields, which reflect real returns and are not contaminated by “signaling,” are another independent way to measure the returns from schooling.  Starting with Ted Schultz, this is a significant theme in development economics, and now from John Parman we have a new paper on schooling and agriculture in early 20th century America:

Formal schooling has a significant impact on modern agricultural productivity but there is little evidence quantifying the historical importance of schools in the early development of the American agricultural sector. I present new data from the Midwest at the start of the twentieth century showing that the emerging public schools were helping farmers successfully adapt to a variety of agricultural innovations. I use a unique dataset of farmers containing detailed geographical information to estimate both the private returns to schooling and human capital spillovers across neighboring farms. The results indicate that public schools contributed substantially to agricultural productivity at the turn of the century and that a large portion of this contribution came through human capital spillovers. These findings offer new insights into why the Midwest was a leader in the expansion of secondary education.

The paper is here, hat tip goes to the always excellent Kevin Lewis.  Excellent ungated slides you will find here.  One of the early slides indicates that in stable conditions “experience” outperforms education for generating agricultural productivity, but the value of education is high during times of dynamic change.

Solomon’s Knot and Gray Markets

Solomon’s Knot: How Law Can End the Poverty of Nations has received less attention than some of other recent big books on development but I found it to be rich in institutional detail, wisdom and practical advice. The authors, Robert

Cooter and Hans-Bernd Schafer, are law professors and as befits their expertise they spend less time on why institutions differ and more on the details of how institutions differ–there is more in Solomon’s Knot, for example, on issues like relational finance, venture capital, joint-stock companies, contract law and bankruptcy law than in other books with a similar theme.

Here is one idea that I had not previously considered, should judges enforce contracts in the gray market?

…businessmen and workers must violate many regulations in order to get things done, especially in poor countries. Thus a builder in Cairo violates building restrictions, a worker and employer in Brazil evade employment taxes, and a manufacturer in Russia runs a factory without a permit to do business.

Throughout the world, much of the economy operates in the “grey market”…a survey of 145 countries estimated that gray

markets activities produce between 30% and 40% of GNP (gross domestic

product). The gray market’s share of total employment is even higher than its

share of GNP.

Judges in many countries will not enforce contracts in the gray market considering them null and void due to the extra-legality. Even when the contracts might be enforced, participants fear that they will be otherwise punished if they make use of the legal system. Cooter and and Schafer argue, however, that such contracts should be enforced and a strict separation be kept between law and regulation. They point to Germany as an example:

…Unlike many developing countries, German legal doctrine and practice avoid this

result. German regulatory violations seldom void contracts, and German

prosecutors seldom act on regulatory violations revealed in a civil trial. Thus a

gardener in the German gray market who does not pay taxes can sue an

employer for unpaid wages without fear of triggering regulatory prosecution.

And a customer who buys a restaurant meal at an hour when law requires the

closing of restaurants still has to pay his credit card bill. The same applies for a

construction contract that violates zoning regulations, or a credit contract that

violates banking regulations. Although seldom discussed in constitutional law,

separating the civil courts from the regulators and police is an important part of

the separation of powers, especially in countries with a large gray market.

The case for separation is strongest for gray markets because the underlying acts are not per se illegal but could the argument be extended even to black markets? Jeff Miron and Miron and Zweibel (JSTOR) argue that one reason that drug prohibition increases violence is that when courts are unavailable, violence becomes the least costly method of dispute resolution. What Cooter and Schafer suggest, however, is that it is at least conceivable to have a situation where the act remains illegal but the actors can resolve disputes in court. Imagine, for example, a drug user taking a dealer to court for cutting the product or a prostitute suing a john for not paying.

It seems naive to expect that we would enforce a rule not to use information from civil court to prosecute illegal behavior. Yet there is a precedent; if a police officer obtains evidence illegally, even without intent, then we throw such evidence out of court. A very strange incentive system. Nevertheless, if we can let murderers go free because the evidence against them was obtained illegally then perhaps we could also let drug dealers bring their contract disputes to court without on that basis prosecuting them for drug dealing.

Scaling the Great Wall

Here is my essay from Washingtonian magazine, adapted from An Economist Gets Lunch, about what it is like to shop at a Chinese supermarket for a month.  Here is one bit about search theory:

Then there’s getting your cart down the aisle. The main aisles fit two carts side by side, barely. It’s hard to get down the aisles, and that discourages browsing. My initial tendency was to search the empty aisles, if only because I knew I could get down them without much delay. This obviously isn’t the best strategy, and it led me to spend too much time looking at the highly durable items, which are purchased less frequently by other customers. Overall, I felt far less mobile than in an American supermarket. I started going later at night and avoiding the weekends to circumvent these problems.

It’s common to see a Great Wall customer spending a solid minute or two inspecting the quality of a pineapple, thereby blocking that portion of the aisle. The customers who seek green peas go through the bin pea by pea. One woman became entranced picking out the best garlic chives, and a man asked for sales help in selecting the best clams–by what standard he judged them I’m not sure. No one was much enamored of the scooping technique for filling a plastic bag.

The Rotten Kid theorem?

According to Adecco, nearly a third of parents are helping their kids find work, and nearly one in ten are taking them to job interviews.

…Three percent of recent college grads say their parents have actually sat in with them during interviews, and one percent claim Mom or Dad wrote their thank you notes afterwards.

Nearly one in four say they would not take a job they were otherwise interested in if they could not make or receive personal phone calls at work. Twelve percent say they wouldn’t work at a place that wouldn’t let them check in on Twitter or Facebook. Finally, my favorite, five percent — one in 20 recent grads — say they wouldn’t take a job where they couldn’t shop online, and the same amount would say no to employment where they couldn’t check sports scores.

The story is here, and for the pointer I thank John Chilton.

Four underrated European masterworks

1. The Ravenna mosaics, most of all at St. Vitale.

2. Monreale, the Norman church outside of Palermo, Sicily.

3. Matthias Grünewald’s Isenheim altar, in Colmar, France.

4. Tiepolo’s paintings in the Residenz, in Wurzburg.

I much prefer any of those to the Mona Lisa, and to my prejudiced taste they are all among the very greatest of artistic masterpieces.  They are all worthy of pilgrimages.

Assorted links

1. Romanian uh-oh.

2. The beloved FT Alphaville launches a Tumblr.

3. The new Brian Doherty book on Ron Paul.

4. James Crabtree worries about India and India facing stagflation.  This whole matter is already looking worse.

5. The bank jog, a deadly picture.

6. How much will global aging slow economic growth?

Words of wisdom, from men of wisdom

From Arnold Kling:

Mauldin’s claim is that we are in what he calls the “endgame,” meaning that the Keynesian option of increasing government borrowing is no longer available to European countries. The only willing lenders are banks, which in turn need to be propped up, and ultimately they can only be propped up by printing money.

My take-away from Mauldin is that, contra the mainstream media narrative, the real dilemma in Europe is not fiscal–deciding whether to maintain government spending or not. The real dilemma is financial–whether to recognize losses and absorb defaults (by both governments and banks) or turn loose the monetary printing presses.

Creo que si.  It is increasingly clear that Spain’s recent “austerity” has been forced, rather than a voluntarist mistake.  Here is yet more wisdom from Scott Sumner:

… if I thought higher demand was needed, I’d recommend that the fiscal authorities raise their inflation target from 2% to 4%.  Oddly, I’ve never seen a fiscal proponent make that recommendation.  Why not?  My hunch is that deep down they know that fiscal authorities can’t really control inflation.  But in that case, how can they control aggregate demand?

Dollars, dollars, everywhere, and not a dollar to drink?

Is the shortage [sic] of dollars in China the real global financial ticking time bomb?  This post, from Isabella at FT Alphaville, is essential reading.  The world will not be safe again until FT Alphaville is neutered into irrelevance, unfortunately that won’t be anytime soon.

As I have been saying

“The euro will leave Greece before Greece leaves the euro.”

On Monday, bank deposit withdrawals from Greece were about 700 million euros.