SciBlogs

Peltzman at the Ring? Eric Crampton Aug 01

The International Boxing Association last year banned the use of headgear by amateur boxers starting on the first of June, 2013. I’d missed it then but caught it via @SirWB. Why’d they do it? Peltzman effects, or at least perhaps:

Amateur boxers are to be banned from wearing headgear in a bid to reduce the number of head injuries.

While the move sounds counterintuitive, the theory is that opponents don’t apply so much force if the head is unprotected.  

The new rules, from the International Boxing Association (AIBA), state that from June 1st, amateur, elite male boxers who compete internationally will be banned from wearing headgear, like their professional counterparts. Another reason for the move is that headgear can obscure peripheral vision, making it harder to see when a blow is being aimed at the side of the head. Indeed, research has shown that a lack of headgear actually reduces the risk of concussion.


While drivers take more risks around helmeted cyclists, drivers aren’t really trying to knock out cyclists. If you’re minimising expected harm to others subject to your own cost constraints, optimum abatement goes down with the other party’s mitigating efforts because expected harm drops.

But I can imagine scenarios where optimal punch force either increases or decreases in the presence of helmets. If you need to apply more force to get any effect in the presence of helmets, then optimal force would be lower without helmets if exerting force is costly in terms of exhaustion. But it’s also pretty plausible that it’s much harder to knock out a helmeted opponent than an unhelmeted one; if a connected hit at maximal force is sufficiently unlikely to knock out a helmeted opponent relative to an unhelmeted one, then there could be a substantive change to the returns to strenuous force. Whether optimal punch force goes up or down then isn’t obvious to me (though it likely would be to somebody who has boxed).

A Peltzman story on the defence side would require that helmeted boxers take less care to avoid hits to the padded areas than to the unpadded chin, and that cumulative hits to the padded parts cause longer-term damage. And, that isn’t inconsistent with some of the commentary from trainers at the time of the ban:

  • “I’m not for it at all. I like the protective gear. Without it, everyone’s going to have to be much more vigilant, that’s for sure.” — Dr. Sonny Arkangel, S.A. ringside physician
  • “It’s going to change the way we train kids now. There was a comfort zone with headgear. Without it, your defense is going to have to be better.” — Joe Rodriguez, local trainer

A year’s gone by, so that should be plenty of time for a diff-in-diff study: headgear continued to be worn for women, senior and youth divisions; it was only banned for elite males during advancing tournaments, according to the story above-linked. But whether any reduction in concussions were due to Peltzman effects or due to better defensive peripheral vision in the absence of helmets … I can’t see how that could be disentangled. Well, if they brought back blindfold boxing and and checked the magnitude of helmet effects there as compared to … no that wouldn’t work either as helmets could arguably also muffle sound.

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“Neo-liberals” and “progressives”: never the twain shall meet? Paul Walker Jul 31

I was asked to give evidence on behalf of the Fabian Society to the Beveridge Committee on Broadcasting, and although I refused on the grounds that I was not a Socialist (this was countered by saying that there was not a specifically Socialist point of view on broadcasting), I did in fact prepare the first memorandum considered by the Fabian Society Committee on broadcasting and which was the basis from which their discussions proceeded.

Ronald Coase 1961
There is an interesting new working paper out on Ronald Coase and the Fabian Society: Competitive discussion in liberal ideology by David M. Levy and Sandra J. Peart. Levy and Peart open the paper by saying:

Ronald Coase wrote the 1949 memo that guided the discussion of the Fabian Research Group on broadcasting. In the evidence presented to the Beveridge Committee on broadcasting, the Fabians endorsed his recommendations by and large. These two facts have previously escaped notice and, as a result, our understanding of post-war economic thought has been misinformed. The stereotype of post-war economic thought divides the profession into two groups, “neo-liberals” and “progressives”. In this stereotyping “neo-liberals” are said to advance a policy agenda in which markets, rather than governments, provide services; “Progressives”, by contrast, are said to favor a greater role for governments in the provision of services. In this admittedly broad characterization, there is little room for “neo-liberals” to collaborate with “progressives”.

Coase is said to typify the “neo-liberal”, while the Fabians do the same for “progressives.” As such, we would expect that they would have nothing in common in the dimension of policy recommendations. The evidence presented below, however, demonstrates that Coase and the Fabians proposed a third alternative, one that avoided the government-market dichotomy that has been so important in stereotyping post-war thought. Instead of proposing a market or a government solution, Coase and the Fabians recommended that broadcasting in Britain be fragmented to break up the BBC monopoly whose origins Coase had so carefully studied (Coase 1950). When the Beveridge Committee recommended a continuation of the monopoly, Coase was, not surprisingly, distressed. Moreover, he was not pleased with the minority report that recommended commercializing television because Coase thought that policy would be outside the British consensus.

Coase’s willingness to allow public consensus to trump the theoretical rationale for market provision of broadcasting suggests a deep problem with the stereotype of post-war market liberalism. In both the memo for the Fabian Society and his book, Coase used a recently coined word—totalitarian—to describe the theoretical rationale for a broadcasting monopoly presented by the spokesperson of the BBC, Lord Reith. By the word “totalitarian” Coase meant something more general than the policies advocated by Hitler, Mussolini, or somewhat nearer at hand, Mosley, but rather the view that state policy can ignore the legitimate wishes of the citizens of the state. The idea that there are “democratic goals” that can be separated from “democratic means”—a view that Lord Reith articulated frequently as we document in note 8—is the heart of the danger which Coase always and everywhere opposed.

Interesting stuff. The idea that a socialist group like the Fabians were willing to go along with Coase on breaking up the BBC monopoly is not something we would expect to see given the standard division of post-war thought into two, non-intersecting, groups of socialists and (classical) liberals. Coase’s opposition to totalitarian thought is somewhat less surprising.

Levy and Peart continue,

The first two paragraphs of the Coase memo reproduced in the documents section below (p. 20) speak to the heart of the issue. What is needed, Coase urged, is sufficient public information to allow an informed discussion to take place. In Coase’s view public discussion had been stymied. Perhaps for strategic reasons, those in authority have not revealed the requisite information about possible alternative arrangements. The issue Coase stresses is not the efficient satisfaction of wants by market processes but public knowledge with which people can work out what institutions seem best to them. In his 1950 British Broadcasting, Coase closes the chapter “Public Discussion of the Monopoly” with the consequences of systematic suppression of information:
Though the programme policy of the Corporation gave the lower social classes what they ought to have, it gave the educated classes what they wanted; or, at any rate, more of what they wanted than they thought they would obtain with what was believed to be the only alternative—commercial broadcasting (1950, p. 177)

The paternalism of the BBC is obvious in that the “lower social classes” got what the BBC considered they should have, rather than what they actually wanted and the “educated classes” got an amount of what they wanted decided by the BBC.

The first two paragraphs of Coase’s memo referred to above read:

Memorandum by Mr. R. H. Coase

1. The task of the Beveridge Committee

What is wanted is an entirely new approach to the problems of broadcasting policy in Great Britain. The present attitude is one of uncritical acceptance of the existing organisation. This can largely be attributed to the way in which previous Committees worked. The Crawford Committee, which led to the establishment of the BBC, made (so far as I have been able to discover) no detailed examination of alternative schemes. And we know from Lord Elton that the Ullswater Committee (of which he was a member) came to their conclusions without questioning the basic assumptions on which the case for the existing organisation (and in particular the monopoly) rested.

The present Committee should take a different view of its responsibilities. Alternative arrangements should be examined. And most (if not all) of the evidence presented to the Committee should be published. The lack of information on what is possible has greatly handicapped public discussion. Publication of the evidence would permit an independent assessment of the conclusions reached by the Committee and would assist in the development of an informed public opinion on broadcasting policy.

Here we can see the typical Coaseian call for comparative institutional analysis. And a call to make sure that people have the information to basis such analysis on. We should always think about the role that alternative institutions play in ameliorating or exacerbating conflicts in a world of positive transaction costs – including broadcasting.

A tale of two "protections" Donal Curtin Jul 31

When I was looking at the Australian Productivity Commission’s reports as background for my previous post, I discovered that somewhere along the line the Aussie Productivity Commission had drawn the short straw, and had been made the regulatory authori…

Uber surge pricing: “Sugar coated poison”? William Taylor Jul 30

A quite sensationalist headline on stuff this morning… “Uber app ‘sugar-coated poison’ – cabbies“. The head of the Taxi Federation is telling us that Uber is evil. Now Uber is a big threat to the traditional taxi business model so take these comments with a grain of salt. Particularly the fact that: The app is […]

Infotainment Eric Crampton Jul 30

Documentaries. They make you feel like you’re learning something, unless you actually know something about what’s on the tele. In the latter case, they just make you mad.

Nigel Latta’s going to be exploring the horrors of inequality later tonight on TV One. Here’s the TV One blurb:

Nigel Latta: The new haves and have nots‘I grew up believing that this was a country where everyone had a fair shot. I believed that if you got an education, and you worked hard, then you had just as much chance of getting ahead as anyone.After making this programme I’ve come to realise that I was wrong—the world I grew up in has gone, and it’s been replaced with a new set of rules.’

As we’ve noted here before, inequality in New Zealand has been flat for at least the last decade. There was a rise in the 80s, then a flattening. Here’s the Gini measure:

There are two other sources you should read: Treasury’s background note on increasing equity, and MSD’s report on household income inequality. The latter is the source of the picture above. If you read the full report, you’ll find rather a few measures of inequality. They all show a rise in the 80s followed by a flattening [Update: the P80/P20 ratio shows declining inequality in the 2005-2014 period, with a bit of volatility in the last couple years.].
Now keep that in mind when watching Latta’s show. Is is framing it as “Income inequality has risen substantially since the 1980s”, leading people to believe that there’s this long run worsening? Or is he framing it properly as a big hump in the late 80s through mid-90s, then flat thereafter?
The reason I’m posting this now, before his show, is that I had sent to me an interesting note. The note tells me that the Treasury Chief Executive was interviewed for the Latta documentary. The Treasury Chief Executive, according to the note, was very careful to point out that the “rise in inequality since the 80s” was concentrated at the start of the period, that much of it was due to changes in household and family structure, and that inequality has been flat for over a decade. Further, the note says that this part of the Treasury Chief Executive’s footage was edited out of the documentary.
So if Latta leaves you with the impression that we have some increasing trend in inequality, rather than a “flat for over a decade” trend, despite that he was very clearly told otherwise by the Treasury Chief Executive, or at least according to the Note In Which I Put Very Great Confidence, you can draw certain conclusions about whether you’re watching a documentary, or something else entirely.
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Complexity and the art of public policy Paul Walker Jul 29

Complexity science is changing the way we think about social systems and social theory. Unfortunately, economists’ policy models have not kept up and are stuck in either a market fundamentalist or government control narrative. In this audio from VoxEU.org Roland Kupers argues for a new, more flexible policy narrative, which envisions society as a complex evolving system that is uncontrollable but can be influenced.

A direct link to the audio is available here.

Urbanisation makes the world more unequal Paul Walker Jul 29

A recent article, by Kristian Behrens and Frédéric Robert-Nicoud, at VoxEU.org deals with the above issue and argues that large cities are more unequal than the nations that host them. The article contends that this is because large cities disproportionately reward talented superstars and disproportionately ‘fail’ the least talented. Cities should thus be the primary focus of policies to reduce inequality and its adverse consequences for society. Now the obvious question is Why should there be policies to reduce inequality? Are the authors attacking inequality when their real concern is with poverty?

The basic argument of the article is,

Large cities are more unequal than the nations that host them. For example, income inequality in the New York Metro Area (MSA) is considerably higher than the US average and similar to that of Rwanda or Costa Rica. Large cities are also more unequal than smaller towns. Figure 1 plots the relationship between population size and the Gini index of income inequality for a 2007 cross-section of US MSAs (solid line). The relationship is clearly positive. This holds true even when considering that large cities host more educated people on average (dashed line); income inequality cannot be entirely explained by higher educational attainment in large cities.

How can we then explain the size-inequality nexus? Researchers have proposed two main explanations so far, both of which have to do with city composition.

First, large cities may differ systematically in their industrial structure and the functions they perform. Large cities host, for example, more business services and the higher-order functions of finance and R&D, whereas small and medium-sized cities host larger shares of lower-order services and manufacturing. Consequently, larger cities are more skilled. However, industry composition explains only about one fifth of the observed skill variation across cities (Hendricks 2011). Furthermore, that variation cannot fully account for observed income inequality.

Second, large cities attract a disproportionate fraction of households at the bottom and at the top of the income distribution [ ... ]. Central cities of US MSAs attract, for example, poor households because they offer better access to public transportation [ ... ]. Large cities also attract rich households because they reward their skills more highly than smaller cities – a ‘superstar effect’ in ‘superstar cities’ [ ... ].

This is the second potential source to the positive relationship in Figure 1: returns to skill are increasing in city size [ ... ].

The argument for the second issue is that while larger cities increase the income of everyone, the top 5% benefit substantially more than the bottom quintile. The article continues,

In a recent study we propose a simple theory to explain why this happens [ ... ]. In our theory, large cities are places that disproportionately reward the most talented people (the ‘superstars’) and that disproportionately fail the least talented (‘selection’). In a nutshell, larger cities provide incentives for the most able to self-select into activities that offer high payoffs to the successful. However, the risk of failure associated with those activities also increases because workers in larger cities compete against more numerous and better rivals.

Disproportionate rewards for the most skilled – and failure for the less skilled – then drives income inequality. Both channels are stronger in larger cities, thus establishing the positive link between city size and inequality, even when abstracting from differences in industry composition and educational attainment.

The theory also predicts that increasing globalisation among global cities will translate into larger urban income inequality. Just as large cities provide large local markets to reward skills, larger global markets serve the same function. One novel aspect of our analysis is to emphasise the existence of both a direct effect of increasing globalisation on inequality (the ‘superstar effect’) and an indirect effect that goes through increasing urbanisation and the growth of cities. Cities are more ‘valuable places’ in a globalised world, which may serve to explain increasing urbanisation. The latter is positively linked to inequality, an aspect that has not been much analysed until now.

But perhaps the most interesting bit of the article are the caveats they put at the end.

We conclude with two words of caution. First, nominal income inequality (which is measured) is not equivalent to real income inequality (which is not directly measurable). Insofar as large cities offer a wider range of cheaper goods and services than small cities do, and if this pattern is especially pronounced for the least well off, then actual real urban inequality may be less severe than nominal inequality [ ... ]. Actually, Harvard economist Edward Glaeser claims that the large poverty rates of central cities are a testimony of their success, not their failure: they attract poor households by catering better to their needs [ ... ].

Second, fighting (urban) inequality does not require aggressive local redistributive policies, for such policies attract the poor and repulse the rich, leading to the bankruptcy of local governments, such as the fiscal crisis that hit New York City in the 1970s.

If inequality really is the issue then you may ask, Inequality of what? Is nominal/real income inequality what we should be worried about or is consumption inequality the real issue?

Housing affordability Paul Walker Jul 28

Paul Cheshire – Professor Emeritus of Economic Geography at LSE, and twice visitor to the econ department at Canterbury – asks, What lies behind Britain’s crisis of housing affordability? His answer is that it is nothing to do with foreign speculators but decades of planning policies that constrain the supply of houses and land and turn them into something like gold or artworks. He also exposes myths about the social and environmental benefits of ‘greenbelts’.

Cheshire writes,

When things go wrong, it is always handy to blame foreigners and currently even the liberal press are blaming them for our crisis of housing affordability. The problem is not 50 luxury houses empty on London’s Bishops Avenue (as The Guardian reported in January) or foreign speculators buying luxury flats to keep empty in London. It is that we have not been building enough houses for more than 30 years – and those we have been building have too often been in the wrong place or of the wrong type to meet demand.

and

This is what explains the crisis of housing affordability: we have a longstanding and endemic crisis of housing supply – and it is caused primarily by policies that intentionally constrain the supply of housing land. It is not surprising to find that house prices increased by a factor of 3.36 from the start of 1998 to late 2013 in Britain as a whole and by a factor of 4.24 over the same period in London.

and he adds,

What also happens – and this is central to our ‘blame the foreigners and speculators’ scapegoating – is that houses are converted from places in which to live into the most important financial asset people have; and the little land you can build them on becomes not just an input into house construction but a financial asset in its own right.

In other words, what policy is doing is turning houses and housing land into something like gold or artworks – into an asset for which there is an underlying consumption demand but which is in more or less fixed supply. So the price increasingly reflects its expected value relative to other investment assets. In the world as it has been since the financial crash of 2007/08, with interest rates at historic lows and great uncertainty in global markets, artworks and British houses have been transformed into very attractive investment assets.

and

The more tightly we control the supply of land and houses, the more housing and housing land become like investment assets. In turn, the stronger the incentives for their owners to treat them as an option to hold in the expectation of future price rises.

So to blame speculators for housing shortages and rising prices is simply incorrect. It is our post-war public policy that has converted a good that is in principle in quite elastic supply into a scarce and appreciating asset.

And what of greenbelts?

Supporters of urban containment policies argue that Britain is a small island and we are in danger of ‘concreting it over’. But this is a myth: greenbelts in fact cover one and a half times as much land as all our towns and cities put together.

And

So the second myth about greenbelts is that they are ‘green’ or environmentally valuable. They are not because intensive farmland is not. Moreover, there is little or no public access to greenbelt land except where there are viable rights of way. Greenbelts are a handsome subsidy to ‘horseyculture’ and golf. Since our planning system prevents housing competing, land for golf courses stays very cheap. More of Surrey is now under golf courses – about 2.65% – than has houses on it.

The final myth about greenbelts is that they provide a social or amenity benefit. The reality is that a child in Haringey gets no welfare from the fact that five miles away in Barnet, there are 2,380 hectares of greenbelt land; or in Havering another 6,010 hectares.

What SERC research has shown is that the only value of greenbelts is for those who own houses within them. What greenbelts really seem to be is a very British form of discriminatory zoning, keeping the urban unwashed out of the Home Counties – and of course helping to turn houses into investment assets instead of places to live.

Solutions?

So the solution to our crisis of housing affordability is not to blame speculators or foreign buyers but to sort ourselves out. We need to allow more land to be released for development while protecting our environmentally and amenity-rich areas more rigorously than we do at present.

Building on greenbelt land would only have to be very modest to provide more than enough land for housing for generations to come: there is enough greenbelt land just within the confines of Greater London – 32,500 hectares – to build 1.6 million houses at average densities. Building there would also reduce pressure to build on playing fields and amenity-rich brownfield sites such as the Hoo Peninsula and improve the quality of housing.

Basic message: release more land for building houses. Now I wonder if any other country could learn from this idea.

Hmmmmmmmm

Two good economics books Donal Curtin Jul 27

Earlier this month, at the NZ Association of Economists conference, I got pointed towards two new books, Diane Coyle’s GDP: A brief but affectionate history, Paul Dalziel and Caroline Saunders’ Wellbeing Economics: Future directions for New Zealand,&nb…

Do patents stifle cumulative innovation? Paul Walker Jul 26

This important question is ask by Joshua Gans at the Digitopoly blog. The question is whatever other benefits and faults there might be with the patent system, a fault that really matters for the operation of the system and for growth prospects is how patents might stifle cumulative or follow-on innovation. Gans writes,

The standard, informal theory of harm here is that follow-on innovators, feeling that they can’t easily deal with the patent holder on the pioneer innovation, decide that the risks are too high to invest and so opt not to do so. To be sure, this ‘hold-up’ concern is not good for anyone, including possibly the patent rights holder who loses the opportunity to earn licensing fees from applications of their knowledge. Suffice it to say, this has been a big feature of the movement against the current strength and, indeed, existence of the patent system.

Now I’m not sure this really is a hold-up problem in the Goldberg sense, it looks more like a barrier (or a delay) to entry problem. Either way if innovation is affected then the cost could be high. A problem, however, with dealing with this issue was that the evidence on the impact of patents on cumulative innovation was weak. Gans continues,

At the NBER Summer Institute a new paper by Bhaven Sampat and Heidi Williams [...] actually found a way to examine the impact of patents on follow-on innovations themselves. Their setting was to look at precisely the area of the Myriad case. They utilised the human genome and the fact that genes that were sequenced could be patented. What’s great about this setting is that the gene itself has a unique identifier that the researchers can use to identify whether it is subject to a patent claim (and indeed a patent application that may be accepted or rejected by the USPTO) and then also identify whether that gene was the subject of publications and clinical trials. This is as good as it gets for the measurement of innovation.

But how do you find a way of comparing what happens if there is a patent on a gene sequence versus if there is no patent? After all, there may be no patent because no one things that gene is important which may also be the reason why there is no follow-on research. That means you have to find some relatively independent reason why a patent may exist or not. Sampat and Williams exploit imperfections at the USPTO that can be themselves identified to obtain that reason.

They use several methods that all give the same answer but let me explain the best one. Patents are examined by examiners that are essentially randomly assigned.

Examiners are also identified and thus it is possible to look at their history and work out if they are tough or lenient. Gans again,

The researchers worked out that this characterisation was unrelated to other things and so could use it to identify patents that might have otherwise been accepted but were given to a tough examiner and the reverse. That is not perfect but is a fairly convincing way to measure and incorporate randomness to assess causality.

Prior to this paper, had you asked the 200 economists in the room at the NBER what they thought the outcome would have been, it is fair to say, all of them (including myself) would have predicted that patents would have a negative impact of at least 10 percent. This probably included the authors. As it turned out, the paper showed that those magnitudes in reduction could be rejected statistically. But more to the point, the paper presents pretty convincing evidence that you cannot reject zero as the likely prediction. That is, the effect patents on follow-on research appears to be non-existent.

So the impact of patents on cumulative innovation may be zero. But is this surprising? If the patent holder and the follow-on innovators both gain from allowing innovation, a Coaseian bargain should be able to be agreed to which allows innovation and makes both parties better off.

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