Teaching without textbooks

Classes have started, students have bought the assigned textbooks, and they have thoroughly complained about the cost of the textbooks. It is the same at the start of every term, yet publishers manage to exploit their market power without much of a challenge. Yet there are ways out.

I reported about one, POeT, which encourages comparison shopping by faculty while they select a textbook. There are cheaper, even open-access textbooks available. But there is even better: teaching without a textbook.

Why do we need a textbook? It is convenient for a teacher to have ones course structured by someone else, with ready-made teaching material like slides, exam questions and exercises. For students, it reassures them that they have a backup in case they did not understand what was going on in class.

It is, however, my experience that once there is a textbook, students start slacking off considerably: they do not pay attention in class, do not take notes or do not even show up in class, because "there is a textbook." One striking consequence is that the average student nowadays in incapable of taking notes beyond what is written on the board. Also, they are lost as soon as lectures deviate slightly from the textbook.

The logical consequence is to do away with the textbooks. While it may not be popular at first, it forces students to think and take notes while in class. One should keep in mind the original purpose of a textbook: support the teaching in class. Unfortunately, it has become the opposite: the teaching is supposed to follow a textbook. If this were the goal, one could in fact do away with the teaching, simply assign a textbook and then test people on it. Wait, this is already done with correspondence and online courses.

I put a lot of blame on the students, as they follow what they believe is the easier way by requesting a textbook for every class. But teachers are to blame as well. They often also take the easy way by choosing a textbook that is easy to teach from, but not necessarily easy to learn from. I have had colleagues select textbooks on the basis of the powerpoint slides alone...

Who becomes a suicide bomber?

Following the axions of rationality and self-interest, it is diffcult to fathom why someone would be driven to suicide bombing. This is especially difficult once you realize who suicide bombers are. According to Alan Krueger and Jitka Maleckova, who studied the Hezbollah movement, they are relatively rich and educated, thus not the ones with no future we often hear about in the crime literature. Claude Berrebi shows that this applies as well for Hamas. Still, Edward Sayre demonstrates that labor market conditions matter. Efraim Benmelech and Claude Berrebi also argue that bombers with higher human capital have a higher success rate and are thus assigned bigger targets.

But how could suicide bombing be rational? Jean-Paul Azam argues that a little inter-generational altruism is sufficient. Karen Pittel and Dirk Rübbleke claim that terrorists provide an impure public good: a public good with a private good component (say, fame). Bryan Caplan thinks that terrorists must be somewhat selfless and somewhat irrational, especially suicide bombers, but they are still surprisingly close to homo oeconomicus.

What does this mean in terms of combatting terrorism? Explaining terrorists that they are mistaken may not help much, as does improving local conditions. Taunting them less would be more successful, especially as the Sayre study above shows also that the timing of suicide bombing by Palestinians is closely tied to Israeli moves.

The Economics of toilet cleaning

This is the second installment in our continuing series on the Economics of toilets. After the issue of whether the seat should be left up, let us discuss toilet cleaning. We have all seen this: the toilets on your floor are a mess, the person in charge is gone for the day, and one cannot leave the restrooms in such a pitiful state because they are an embarassement. What is going to happen?

Marc Bilodeau and Al Slivinski have the response: the person who cares the most will end up cleaning, even if this is the department chairman. I concur, as I have seen this happen in two separate departments... Their argument is based on the all too familiar search for a volunteer for a job nobody wants to do: it is a war of attrition, were the one person who cares the most relative to the required effort finally gives in. Knowing this, this person volunteers right away. Interestingly, the authors show also that even if people care how well and by whom the job will be done, the outcome is not changed.

Such situations are not limited to toilet cleaning. In fact, department chairing itself is often a thankless job with a positive externality on everyone. When a new chairperson needs to be found, there is a war of attrition until a good soul volunteers, "because it is my turn" or "I owe it to the department." And if it turns out that the person who cares the most, taking into account how much effort it entails for this person, is the one that volunteers, we have another example of comparative advantage leading to an optimal outcome.

Economic Logic on IDEAS

It is possible on IDEAS to create reading lists. Economic Logic has now its own. It lists all papers discussed on this blog, along with alternative versions of them, in case readers cannot get access to a gated version. Also, the abstracts pages of the cited papers also have a link back to the reading list, thus allowing others to discover this blog.

Let's see whether this reading list will increase traffic here as much as Economic Logic's listing on Econ Academics did.

Women in politics

A politician is supposed to represent others, the electorate, and not act selfishly. We know everyone will act selfishly in one way or the other, we are not angels. But there may be some ways to choose politicians that are more selfless than others. One interesting category of politicians in this respect are women.

It has been know for a long time that mothers and more generous to others than fathers. This is, for example, the reason why in many countries child benefits are paid to the mother. Also, women are more risk averse, as research reviewed by Catherine Eckel and Philip Grossman shows. Also, John Lott and Lawrence Kenny show that women's suffrage in the US has coincided with more liberal policies.

A particularly interesting experiment is the requirement in India that half (correction: one third) of village council seats be reserved for women (on top of slot for various castes), and half of council heads be women. Raghabendra Chattopadhyay and Esther Duflo document that while council members follow the interests on their own gender (and caste), those headed by women tend to favor infrastructure improvements.

Why would women want to provide more public goods? Uri Gneezy, Kenneth Leonard and John List compare matrilineal and patriarchal societies, where they conducted the classic experiment designed by James Andreoni: experiment participants decide how much money to distribute between a private and a collective fund. In patriarchal societies, women share more than men. In matrilineal societies, the reverse happens. It appears thus the dominated gender is more generous.

On the dispersion in price rigidities

With the availability of rich data sets, new research has tried to establish how rigid prices really are and thus whether monetary models with rigid prices make sense at all. Currently, the two most interesting exercices are Martin Eichenbaum, Nir Jaimovich and Sergio Rebelo and Mark Bils and Pete Klenow, the latter being previously discussed on this blog. What this research highlights is that while some prices are rigid, others are not, and there is considerable diversity. Theory, like Mikhail Golosov and Robert E. Lucas, Jr. we discussed before, cannot account for this diversity.

Hirokazu Ishise and Nao Sudo devise a theory that brings dispersion in rigidities. They show that differences in good characteristics, along the dimensions of durability, luxuriousness and proportion of cash payments yields such dispersion. This is a model of limited participation: agents cannot rebalance their portfolio in the face of monetary shocks until it is their turn. One may argue that this should be endogenous and thus it could wash away any remaining rigidity, but it is a start.

What is particularly interesting is that the model yields responses to monetary shocks by different good characteristics like in the data: more durable, more luxurious and less cash intensive goods respond more to monetary impulses.

How to make soccer more exciting

Now that football (soccer) leagues are back in play, let us consider the old question of how to get more goals scored. As the play has become more defense oriented, it is obvious that attack needs to be encouraged, thereby increasing the risk. Quite obviously, to reward risk taking, it must be that the expectation of a return from wining and losing must be higher than that of a draw. This can be achieved by awarding three points instead of two for a win, a practice that is now almost uniformly adopted, and Isabelle Brocas and Juan Carrillo confirm from a theoretical point of view that this is a good way to increase risk taking.

The latter paper also recommends to have a 20-minute golden goal extra time in case of a draw: the first to score wins. I am not quite sure I follow the intuition there. Knowing that there is this extra-time, it gives less incentives to play offensively during the regular time. This is at least my observation of NHL hockey games.

What else could encourage offensive play? One could go the American football way, which is to basically regulate when a team can only play offense. But soccer is too fluid for that. But ice hockey can be very exciting when teams are short-handed due to a timed penalty. Having fewer players, even temporarily, is a disadvantage that can lead to have more goals scored. But more importantly, the fear of time penalties would lead defenders to be less aggressive (face it, yellow cards are not much of a threat), thus opening the play to attackers.

That said, one can still discuss whether more goals are really needed. If a game can be decided by a single goal, and this goal could happen at any moment and not necessarily be scored by the dominating team, this can also make a game exciting.

How much did marketization of home production contribute to GDP?

GDP measures all activities taking place on the market place, and thus neglects and production in the home that never hits the market. With the increase of female labor participation, and consequently the increase of production of goods previously produced in the household, GDP growth exhibits so bias if it is supposed to measure total production in an economy: part of the growth stems from an accounting change. Affected are goods like meals, daycare, laundry services, cleaning services.

Christopher House, John Laitner and Dmitriy Stolyarov show that this bias is negligible and accounts only for a cumulated 2.5% of GDP, or 25% of women's measured earnings: 2.5% of today's GDP would have been produced at home fifty years ago.

There is no easy ways to figure these numbers out, as home production is not measured. The trick used here is to build a micro-founded model with home production, looks at the impact of changes in home production on other variables, measure the latter and reverse engineer the model to find what home production ought to be. There are clearly lots of margins for errors (model specification, calibration, measurement of observables), but the exercise is very carefully done and the results are strong.

Soft budget constraints may be optimal

In many countries, local governments rely to some degree on the federal government to cover for deficits. This has been regarded as a poor policy, because it leads to severe moral hazard issues, the most serious example probably being Argentina. One such solution is that the central government impose a hard budget constraint (HBC) on local ones: no borrowing allowed. This is also the policy adopted by many US states.

HBC is not uniformly liked, though. As the US shows, recessions lead state governments under such a constraint to suddenly and severely curtail essential services, sometimes to even shut down completely. This obvious solution to accumulate a rainy day fund during good times never happens, mostly due to constant pressures to lower taxes.

It turns out there is another reason why HBC could be less than optimal. Martin Besfamille and Ben Lockwood show that HBC can lead to excessive effort to complete investment projects once started and avoid a bailout, and thus discourage starting projects in the first place. This does not happen with soft budget constraints, as local government are driven there to over-investment and lower effort. Between the two, HBC may lose in terms of efficiency.

Of course, there is also the question whether a government can truly commit to HBC. This article shows, however, that a full commitment to HBC may actually not be optimal.

Single mothers and Stackelberg games

Even when eligible, not everyone chooses to receive payments from welfare. This may be by ignorance or by choice. In the latter case, welfare payments may obliterate other incomes, or vice-versa. A particularly interesting problem is that of single mothers reporting (or not) paternity.

Indeed, reporting who the father of the child induces most of the time procedures by the state to obtain child support from the father. If the mother is a welfare recipient, most US states capture most of this child support. It becomes thus a strategic decision for the mother: report the father and see little in child support, or seek child support informally (and possibly not strain a relationship with the father).

Jennifer Roff shows that this can be formulated as a Stackelberg game where the mother is the leader. She shows in particular that the outcome of this game can have perverse consequences when states capture more of the child support payments: mothers report fewer fathers, and the total captured amounts are lower. Also, awarding high child support payments decreases expected payments as mothers expect fewer fathers to comply, mostly because because of low paternal incomes. In other words, it does not necessarily pay to play tough.

Save the savers

These are tough times, and in tough times, the government is here to help. This is why the finance industry is getting help, people late on their mortgages can seek assistance, the Big Three in Detroit are asking for 25-40 billion dollars, airlines are clamoring for supports. What about those that planned ahead?

You have heard this argument already a thousand times: why should those that were foreseeing troubled times bail out the irresponsible ones? It is clear that Schumpeterian creative destruction is beneficial here and that the role of the government is not to encourage moral hazard. What about the current monetary policy of low interest rates, though? Retirees and those who planned ahead saved and are getting very low returns now, in fact in most cases below inflation. The popular press claims low interest rates are good for the economy, but this is not the case for everyone.

Time to increase interest rates to fight inflation (remember the Taylor principle: for every increase in inflation of one point, increase interest rates by one and a half points) and put some money back in the pockets of those bailing the others out.

Are preferences stable?

Whenever we model economic behavior, we assume preferences are given and stable. If we observe from empirics that preferences change, we attribute this to changing circumstances: with a different choice set, people take different decisions. If the econometrician cannot observe this choice set, he then concludes that preferences change.

This conclusion is generally thought to be wrong, and it is concluded that something else must have changed. But what if preferences change indeed? This is the question that Anderson, Harrison, Lau ad Rutström have tried to answer by conducting a field experiment in Denmark. They performed a standard lab experiment to elicit risk aversion measures by offering several choices of lotteries to a diverse segment of the Danish population. Up to 17 month later, they revisited their subjects, again measuring their risk aversion and obtaining information about changing economic circumstances.

They obtain changes, nicely normally distributed around zero, from raw data, that is, not taking into account changes in circumstances. Doing the latter, they find that a more positive outlook on personal finances leads to lower risk aversion. But the changes in the coefficient of relative risk aversion are statistically significant but modest, in the order of 0.20. So we are still not too wrong to assume constant preferences.

Directed labor search and the cycle

There used to be a time where the discussion of unemployment over the business cycle was limited to disputes over the level of NAIRU and how monetary policy would influence it. How much progress we have made since. A first step has been the Mortensen-Pissarides matching function, which has considerably refocused the discussion on micro-foundations on unemployment with the use of explicit labor search models.

After Robert Shimer showed some serious doubts about some of the critical business cycle properties of the matching function models, considerable effort has been made to either salvage the matching function models by augmenting or modifying them in some ways, or to come up with more micro-founded ways to understand the matching process.

One such avenue is the directed search model, where job seekers purposely decide to apply to certain positions on the basis of some signal (say, a posted wage). Guido Menzio and Shouyong Shi just wrote a paper that should be a trend setter for this class of models. The particular appeal here is that they are able to find a solution for a search model with aggregate fluctuation that is easy to compute, quite a feat for any model with heterogeneity across agents.

It is incredible how much such modeling has progressed in recent years. In this model, firms endogenously choose whether to open vacancies and how much to offer for each. Workers, unemployed or employed, decide where to apply and how much to ask. Each match has idiosyncratic productivity. In equilibrium, unemployed workers are less discriminating as to where they apply, as they want to make sure they are the only ones applying. Employment matches are also dissolved endogenously.

Aggregate fluctuations are triggered by the standard productivity shocks. For example, a positive shock lets firms open more vacancies with different terms, and workers look for better terms and better application success rates. In addition, fewer matches are dissolved. Once calibrated, the model can explain 40% of the fluctuations in the unemployment-employment transition and all of the reverse transition. In addition, 80& of changes in unemployment and 30% of those in vacancies can be accounted just by productivity shocks.

Firms and workers are ex-ante identical here. They are all in the same sector. Once even more complexity can be added to the model, it looks very promising what could be achieved in terms of understanding fluctuation of employment and, eventually, what policies could impact it.

Advice for first year graduate students

About now, most graduate Economics programs are starting. Time for me to give some advice on how to survive this first year.

The first year is going to be a grueling experience. Never before were you so challenged. You may have flown through your classes before, you may have been the first in class. Not anymore. Within a year, you are supposed to be literate in economic research, within a second year ready to contribute to the frontier of research. This is a very short time that will require substantial commitment. Be prepared to spend long hours studying. Do not fall behind. Work with fellow students, not against them. Look beyond the technical aspects of your classes and build up your economic intuition. Attend seminars. Seek contact with faculty beyond the classroom. Do not worry about thesis topics during the first year, but keep an eye open.

The most difficult time is probably going to be in December, where you will be doubting why you are getting into such a stressful adventure. Everyone goes through such a depression, and it is only those who manage to work past this episode who will be successful. So be aware that you will have doubts. Grow over them.

If you are married or in a relationship, it will suffer. Foreign partners get bored of neglect and should seek contact with other spouses in such a situation, or look into taking classes of their own. Still set aside some social time, even if it is just with fellow students. Graduate programs are very multicultural, it is great to learn about other cultures (and foods).

But not everything is stress, doom and gloom during the first year. You will learn exciting stuff, meet exciting people and build relationships that will last for a lifetime, both personal and professional. This is an exciting year where you are building the foundations for decades to come. Make the most of it!

The rise of Europe, the standstill of Asia

One of the big challenges of Economic history is to explain why, a thousand years ago, Asia, and in particular China, suddenly stagnated and why in the following centuries Europe started growing, leading eventually to the Industrial Revolution before any other continent. Of particular interest here is that even when you abstract from the leaders of the Industrial Revolution and look at, say, Bulgaria, Norway and Portugal, they have done much better than the rest of the world. Why?

Some of the standard answers have been that this is due to 1) cultural aspects, but within the time line we are talking about here, this is endogenous; 2) chance events (steam engine, proximity of coal), but European countries away from such events also grew faster than Asian ones; 3) resource grab from America, but would Asia really have benefited from such manna?

Cem Karayalçin argues that this divergence in growth is due to the political competition in Europe. States were fragmented and small, and people could escape there policies by migrating. This was impossible in Asia once the Ottoman, Chinese and Mughal empires were created. The latter essentially had monopoly power over fiscal matters, and thus could exploit their trapped population without further harm to the rulers. Contrast this with Europe, where sovereigns had to be careful not to tax too much, to provide services for the taxes and even had to dole out incentives to attract farmers.

A particularly important aspect of this competitive environment in Europe was that sovereigns were careful to give sufficient guarantees for ownership, that is, not expropriate at will. This made the accumulation of capital favorable. The same cannot be said for Asian empires, where for example the 122 top ranking nobles received 1/8 of the national product of India at the time of Akbar. Bequests were typically confiscated. In the Ottoman empire, wealthy traders would be stripped of their assets if not killed. It is difficult to muster any aggregate savings necessary for capital accumulation in such a hostile environment.

Karayalçin's paper has two parts: one theoretical that demonstrates his points, the other historical where he justifies the assumptions underlying his results, for example evidence on mobility in Europe since medieval times, the lack thereof in the Asian empires, and the differences in taxation burdens. This paper makes Economic history exciting.