Showing papers in "Journal of Economic Literature in 2020"

The Hungarian Reform Process: Visions, Hopes, and Reality

Abstract: This chapter addresses the general readership of this book, not only the specialist in comparative systems and socialist economies; therefore, it cannot avoid including information known to the experts. It focuses on phenomena that prevailed throughout the 1968–1985 period and characterize the present state of affairs, with only occasional backward glances. The Hungarian economy has undergone major systemic changes in the past thirty years. The impact of the reform is felt by every Hungarian citizen. The influence of the Hungarian experience, however, does not stop at the borders of this small Eastern European country. Reform is a notion used widely by many parties and political movements all over the world. The modernization of a highly bureaucratic regulation of the economy with the aid of computers is not “reform.”

Publishing and Promotion in Economics: The Tyranny of the Top Five

Abstract: This paper examines the relationship between placement of publications in top five (T5) journals and receipt of tenure in academic economics departments. Analyzing the job histories of tenure-track economists hired by the top 35 US economics departments, we find that T5 publications have a powerful influence on tenure decisions and rates of transition to tenure. A survey of the perceptions of young economists supports the formal statistical analysis. Pursuit of T5 publications has become the obsession of the next generation of economists. However, the T5 screen is far from reliable. A substantial share of influential publications appear in non-T5 outlets. Reliance on the T5 to screen talent incentivizes careerism over creativity.

Model Averaging and its Use in Economics

Abstract: The method of model averaging has become an important tool to deal with model uncertainty, for example in situations where a large amount of different theories exist, as are common in economics. Model averaging is a natural and formal response to model uncertainty in a Bayesian framework, and most of the paper deals with Bayesian model averaging. The important role of the prior assumptions in these Bayesian procedures is highlighted. In addition, frequentist model averaging methods are also discussed. Numerical methods to implement these methods are explained, and I point the reader to some freely available computational resources. The main focus is on uncertainty regarding the choice of covariates in normal linear regression models, but the paper also covers other, more challenging, settings, with particular emphasis on sampling models commonly used in economics. Applications of model averaging in economics are reviewed and discussed in a wide range of areas, among which growth economics, production modelling, finance and forecasting macroeconomic quantities.

What Remains of Cross-Country Convergence?

Abstract: We examine the record of cross-country growth over the past 50 years and ask if developing countries have made progress on closing income gap between their per capita incomes and those in the advanced economies. We conclude that, as a group, they have not and then survey the literature on absolute convergence with particular emphasis on that from the last decade or so. That literature supports our conclusion of a lack of progress in closing the income gap between countries. We close with a brief examination of the recent literature on cross-individual distribution of income which finds that, despite the lack of progress on cross-country convergence, global inequality has tended to fall since 2000.

Measuring Time Preferences

Abstract: National Institutes of Health (NIA R01AG021650 and P01AG005842) and the Pershing Square Fund for Research in the Foundations of Human Behavior.

Sins of Omission and the Practice of Economics

Abstract: This paper advances the proposition that economics, as a discipline, gives rewards that favor the "hard" and disfavor the "soft." Such bias leads economic research to ignore important topics and problems that are difficult to approach in a "hard" way—thereby resulting in "sins of omission." This paper argues for reexamination of current institutions for publication and promotion in economics—as it also argues for greatly increased tolerance in norms for publication and promotion as one way of alleviating narrow methodological biases.

Historical Legacies and African Development

Abstract: As Africa’s role on the global stage is rising, so does the need to understand the shadow of history on the continent’s economy and polity. We discuss recent works that shed light on Africa’s colonial and precolonial legacies. The emerging corpus is remarkably interdisciplinary. Archives, ethnographic materials, georeferenced censuses, surveys, and satellite imagery are some of the sources often combined to test influential conjectures put forward in African historiography. Exploiting within-country variation and employing credible, albeit mostly local, identification techniques, this recent literature has uncovered strong evidence of historical continuity as well as instances of rupture in the evolution of the African economy. The exposition proceeds in reverse chronological order. Starting from the colonial period, which has been linked to almost all of Africa’s postindependence maladies, we first review works that uncover the lasting legacies of colonial investments in infrastructure and human capital and quantify the role of various extractive institutions, such as indirect rule and oppression associated with concessionary agreements. Second, we discuss the long-lasting impact of the "Scramble for Africa," which led to ethnic partitioning and the creation of artificial modern states. Third, we cover studies on the multifaceted legacy of the slave trades. Fourth, we analyze the contemporary role of various precolonial, ethnic-specific, institutional and social traits, such as political centralization. We conclude by offering some thoughts on what we view as open questions.

Inside Job or Deep Impact? Extramural Citations and the Influence of Economic Scholarship

Abstract: Does academic economic research produce material of general scientific value, or do academic economists write only for peers? Is economics scholarship uniquely insular? We address these questions by quantifying interactions between economics and other disciplines. Changes in the influence of economic scholarship are measured here by the frequency with which other disciplines cite papers in economics journals. We document a clear rise in the extramural influence of economic research, while also showing that economics is increasingly likely to reference other social sciences. A breakdown of extramural citations by economics fields shows broad field influence. Differentiating between theoretical and empirical papers classified using machine learning, we see that much of the rise in economics' extramural influence reflects growth in citations to empirical work. This growth parallels an increase in the share of empirical cites within economics. At the same time, some disciplines that primarily cite economic theory have also recently increased citations of economics scholarship.

Potential Outcome and Directed Acyclic Graph Approaches to Causality: Relevance for Empirical Practice in Economics

Abstract: In this essay I discuss potential outcome and graphical approaches to causality, and their relevance for empirical work in economics. I review some of the work on directed acyclic graphs, including the recent The Book of Why (Pearl and Mackenzie 2018). I also discuss the potential outcome framework developed by Rubin and coauthors (e.g., Rubin 2006), building on work by Neyman (1990 [1923]). I then discuss the relative merits of these approaches for empirical work in economics, focusing on the questions each framework answers well, and why much of the the work in economics is closer in spirit to the potential outcome perspective.

Upgrading Education with Technology: Insights from Experimental Research

Abstract: In recent years, there has been widespread interest around the potential for technology to transform learning. As investment in education technology continues to grow, students, parents, and teachers face a seemingly endless array of education technologies from which to choose—from digital personalized learning platforms to online courses to text message reminders to submit financial aid forms. Amid the excitement, it is important to step back and understand how technology can help—or in some cases hinder—learning. This review article synthesizes and discusses rigorous evidence on the effectiveness of technology-based approaches to education in developed countries and outlines areas for future inquiry. In particular, we examine randomized controlled trials and regression discontinuity studies across the following categories of education technology: (i) access to technology, (ii) computer-assisted learning, (iii) technology-enabled behavioral interventions in education, and (iv) online learning. We hope this synthesis will advance academic understanding of how technology can improve education, outline key areas for new experimental research, and help drive improvements to the policies, programs, and structures that contribute to successful teaching and learning.

The Coase Theorem at Sixty

Abstract: The Coase theorem is one of the most influential and controversial ideas to emerge from post-World War II economics. This article examines the theorem's origins, diffusion, and the wide variety of uses to which it has been put by economists and others over the sixty years since Coase published "The Problem of Social Cost." Along the way, we explore the ambiguity and controversy surrounding the theorem, develop a Coase theorem that is valid as a proposition in economic logic, and probe the implications of all of this for the use of the Coase theorem going forward.

What Students Learn in Economics 101: Time for a Change

Abstract: We make the case for a shift in what students learn in a first economics course, taking as our exemplar Paul Samuelson’s paradigm-setting 1948 text. In the shadow of the Great Depression, Samuelson made Keynesian economics an essential component of what every economics student should know. By contrast, leading textbooks today were first written in the glow of the Great Moderation and the tamed cyclical fluctuations in the two decades prior to 2007. Here, using topic modeling, we document Samuelson’s novelty and the evolution of the content of introductory texts since. And we advance three propositions. First, as was the case in the aftermath of the Great Depression, new problems now challenge the content of our introductory courses; these include mounting economic disparities, climate change, concerns about the future of work, and financial instability. Second, the tools required to address these problems, including strategic interaction, limited information, principal-agent models, new behavioral foundations, and dynamic processes including instability and path-dependence, are available (indeed widely taught in PhD programs). And third, as we will illustrate by reference to a new open access introductory text, a course using these tools can be accessible, engaging, coherent and, as a result, successfully taught to first year students. The ‘new economics’ deployed to address the new problems, following Samuelson’s example, provides the basis for integrating not only micro- and macroeconomics but also the analysis of both market failures and the limits of government interventions.

The Economics of Language

Abstract: This paper brings together methodological, theoretical, and empirical analysis into the framework of linguistic diversity. It reflects both historical and contemporary research by economists and other social scientists on the impact of language on economic outcomes and public policies. We examine whether and how language influences human thinking (including emotions) and behavior, and analyze the effects of linguistic distances on trade, migrations, financial markets, language learning, and its returns. The quantitative foundations of linguistic diversity, which rely on group identification, linguistic distances as well as fractionalization, polarization, and disenfranchisement indices are discussed in terms of their empirical challenges and uses. We conclude with an analysis of linguistic policies and examine the trade-offs between the development of labor markets and the social costs that they generate in various countries.

Explaining the Decline in the U.S. Employment-to-Population Ratio: a Review of the Evidence

Abstract: This paper first documents trends in employment rates and then reviews what is known about the various factors that have been proposed to explain the decline in the overall employment-to-population ratio between 1999 and 2018. Population aging has had a large effect on the overall employment rate over this period, but within-age-group declines in employment among young- and prime-age adults also have played a central role. Among the factors with effects that we can quantify based on existing evidence, labor demand factors, in particular increased import competition from China and the penetration of robots into the labor market, are the most important drivers of observed within-group declines in employment. Labor supply factors, most notably increased participation in disability insurance programs, have played a less important but not inconsequential role. Increases in the real value of state minimum wages and in the share of individuals with prison records also have contributed modestly to the decline in the aggregate employment rate. In addition to the factors whose effects we roughly quantify, we identify a set of potentially important factors about which the evidence does not yet allow us to draw clear conclusions. These include the challenges associated with arranging child care, improvements in leisure technology, changing social norms, increased use of opioids, the growth in occupational licensing, and declining labor market fluidity. Our evidence-driven ranking of factors should be useful for guiding future discussions about the sources of decline in the aggregate employment-to-population ratio and consequently the likely efficacy of alternative policy approaches to increasing employment rates.

How Well Do Automated Linking Methods Perform? Lessons from U.S. Historical Data.

Abstract: This paper reviews the literature in historical record linkage in the U.S. and examines the performance of widely-used record linking algorithms and common variations in their assumptions. We use two high-quality, hand-linked datasets and one synthetic ground truth to examine the direct effects of linking algorithms on data quality. We find that (1) no algorithm (including hand-linking) consistently produces representative samples; (2) 15 to 37 percent of links chosen by widely-used algorithms are classified as errors by trained human reviewers; and (3) false links are systematically related to baseline sample characteristics, showing that some algorithms may induce systematic measurement error into analyses. A case study shows that the combined effects of (1)-(3) attenuate estimates of the intergenerational income elasticity by up to 20 percent, and common variations in algorithm assumptions result in greater attenuation. As current practice moves to automate linking and increase link rates, these results highlight the important potential consequences of linking errors on inferences with linked data. We conclude with constructive suggestions for reducing linking errors and directions for future research.

Reflections of a Textbook Author

Abstract: In this essay, I reflect on textbook writing after three decades of participating in the activity. I address the following questions: What perspective should textbooks take? What is the best approach to teaching microeconomics? What is the best approach to teaching macroeconomics? How does the content of the introductory course evolve? How much material should textbooks include? Are textbooks too expensive? How is digital technology changing the market for textbooks? Who should become a textbook author?

Where Economics Went Wrong : A Review Essay

Abstract: In their recent book, Where Economics Went Wrong, David Colander and Craig Freedman (2019) argue that economics went wrong when it abandoned the Classical liberal firewall that demanded separation of scientific theory from the art of policy making. Colander has long advanced the idea that applied economics should be classified neither as positive nor as normative economics. Instead, it should be placed in a third category, "the art of economics"; art requires vision and acumen in addition to knowledge and technique, and is thus more akin to engineering than the natural sciences. The primary contribution of Where Economics Went Wrong is thus to advance Colander's general argument through the specific story of Chicago economics. This essay make two interconnected claims. First, while I agree with Colander and Freedman that applied economics would benefit from more art and less calculation, the Chicago school is not the best vehicle by which to tell a convincing story. Second, a thicker history of the Chicago school reminds us of the importance of institutions and rules, not only for understanding the economy but also for thinking about how economists have constructed our discipline and how internal institutions and incentives affect our behavioral choices.

Radical Markets by Eric Posner and E. Glen Weyl: A Review Essay

Abstract: At a time when standards of living have improved more than any time in history, this book makes a proposal for radical change. It is based—loosely—on market design principles. The plan for attacking overlapping ownership is reasonably well thought out. Most of the book, however, proposes to use mechanisms designed for a narrow purpose; to attack real or imagined problems that they are ill-suited to solve. I conclude that while market design has a lot to offer when properly applied, the proposals here are not sufficiently well thought out to constitute a serious plan of action.

Commanding Nature by Obeying Her: A Review Essay on Joel Mokyr’s A Culture of Growth

Abstract: Why is modern society capable of cumulative innovation? In A Culture of Growth: The Origins of the Modern Economy, Joel Mokyr persuasively argues that sustained technological progress stemmed from a change in cultural beliefs. The change occurred gradually during the seventeenth and eighteenth century and was fostered by an intellectual elite that formed a transnational community and adopted new attitudes toward the creation and diffusion of knowledge, setting the foundation for the ethos of modern science. The book is a significant contribution to the growing literature that links culture and economics. This review discusses Mokyr’s historical analysis in relation to the following questions: What is culture and how should we use it in economics? How can culture explain modern economic growth? Will the culture of growth that caused modern prosperity persist in the future?

The Parable of the Auctioneer: Complexity in Paul R. Milgrom's Discovering Prices

Abstract: Designing marketplaces in complex settings requires both novel economic theory and real-world engineering, often drawing upon ideas from fields such as computer science and operations research. In Discovering Prices: Auction Design in Markets with Complex Constraints, Milgrom (2017) explains the theory and design of the United States' "incentive auction" that reallocated wireless spectrum licenses from television broadcasters to telecoms. Milgrom's account teaches us how economic designers can grapple with complexity both in theory and in practice. Along the way, we come to understand several different types of complexity that can arise in marketplace design.

The Road to Serfdom after 75 Years

Abstract: This paper revisits Friedrich Hayek's book, The Road to Serfdom, on the seventy-fifth anniversary of its publication. Though the book is well-known, its arguments are often mischaracterized. The paper traces the origins of the book, noting the various people and arguments that Hayek was responding to, and places it in the context of its times. The structure of the book is explored and some common criticisms addressed. Finally, it is shown how, after its publication, the book took on a life of its own.

Epidemics, inequality and poverty in preindustrial and early industrial times

Abstract: *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* Recent research has explored the distributive consequences of major historical epidemics, and the current crisis triggered by Covid-19 prompts us to look at the past for insights about how pandemics can affect inequalities in income, wealth, and health. The fourteenth-century Black Death, which is usually believed to have led to a significant reduction in economic inequality, has attracted the greatest attention. However, the picture becomes much more complex if other epidemics are considered. This article covers the worst epidemics of preindustrial times, from Justinian’s Plague of 540-41 to the last great European plagues of the seventeenth century, as well as the cholera waves of the nineteenth. It shows how the distributive outcomes of lethal epidemics do not only depend upon mortality rates, but are mediated by a range of factors, chief among them the institutional framework in place at the onset of each crisis. It then explores how past epidemics affected poverty, arguing that highly lethal epidemics could reduce its prevalence through two deeply different mechanisms: redistribution towards the poor, or extermination of the poor. It concludes by recalling the historical connection between the progressive weakening and spacing in time of lethal epidemics and improvements in life expectancy, and by discussing how epidemics affected inequality in health and living standards.