Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

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Thursday, July 31, 2008

Happy Efficiency

Posted by Simon Halliday | Thursday, July 31, 2008 | Category: | 1 comments

I thought I's just recount two happy first world efficiency tales.

The first: my HP laptop had been playing up. I thought that the hard drive was wonky. At first I interacted with my guy in South Africa from whom I purchased it, thinking that I'd have weird issues with my international warranty from SA. He said I'd have to speak to an HP outlet or something. Then I spoke to the departmental computer guy who told me to phone to 'numero verde' on the HP website. Did that. They sent a courier to pick up my laptop. Told me it would be back with me in 5-7 working days. On the fifth day it was dispatched back from Poland. I got it back on the sixth day. Hard drive working. Problem was with my motherboard. I didn't have to pay a cent.

The second: I had to renew my British passport. Got the photographs, got people to sign papers and sent it off last week (Tuesday) to the British Embassy in Rome. I received my passport today - the seventh working days later! Fantastic.

So, thank you to the British Embassy and to the efficient HP people. I'm planning to send happy emails to them. First world joys. Hopefully I don't miss them too much when I return to SA. I will live in hope...


Posted by Simon Halliday | | Category: | 0 comments

John Hawks - Organizing the "Idea Marketplace"
Alan S. Blinder - Cash for Clunkers or Eco-Friendly Stimulus
Susan Neiman - Change Germans Can't Believe In
IMF - IMF Data Map (HT Economist's View)
ASLL - Markets vs. Capitalism
NYT - David Brooks - The Biggest Issue (includes James Heckman on whom I've blogged previously)
Chris Blattman - Cheap Advice, twice
Vox EU - WTO's Difficulties

The Fox Bust - Oh the woes of the Propaganda machine (HT: Mike)

And because I think it's cool, one of the biggest waves ever ridden (or at least having been recorded while being surfed).

Tuesday, July 29, 2008

Homo Economicus Evolves, or not

Posted by Simon Halliday | Tuesday, July 29, 2008 | Category: , | 0 comments Today I comment on the final piece (of the three part series) involving John List. This final piece, Levitt and List (2008) 'Homo Economicus Evolves', is basically a summing up of the research that Levitt and List did for their 2007 JEP piece (part 1 of the series), with some additional points and research emerging from List's JPE piece (part 2 of the series). I will simply comment on those additional pieces as the basic ideas have already been summarized in my two previous posts.

Recall that their main drive is to discuss the extent to which social preferences (altruism, reciprocity, inequity aversion) are actually drivers for human behaviour outside of the laboratory. The argument ranges from differences in social norms, self-selection into experiments vs. self-selection into markets to degree of scrutiny and so forth. They bring up two examples, one from card-trading enthusiasts, from List (2006) and another on farm-behaviour by Bandiera, Iwan Rasul and Barankay (2005). Looking at the card-trading example List found that there were differences in behaviour: individuals acted more prosocially in the lab than they did in the field - the caveat being that these individuals with whom they interact are people who they will probably not see again and that the others did not have a chance to get the card's quality graded. This is all well and good, but it does not rule out prosocial preferences in their entirety - they seem to have left out the idea of parochial altruism, the 'dark side' of altruism in which individuals are altruistic but only towards people they know rather than towards society in general. Social distance can decrease the likelihood for social preferences to be active - not necessarily a good thing for interactions in the market place.

From Bandiera et al. they argue:
[F]arm worker behavior is consistent with a model of social preferences when workers can be monitored. Yet, this disappears when workers cannot monitor each other, which rules out pure altruism as the underlying cause. Being monitored proves to be the critical factor. (910, my emphasis)
Ruling out pure altruism does not mean that you have ruled out the entire class of social preferences that could be present in such situations. Monitoring is particularly important for reciprocity, which is a social preference. Hence what they seem to be saying is that, in order for certain human-motivated social preferences to work we need to have certain institutions in place. Why do I say this? Strong reciprocity - a much documented social preference - requires monitoring in order to allow for punishment of defectors. If we cannot monitor one another, even if we would cooperate in the situation normally, undermines the architecture required for the maintenance of social preferences. Blanket non-monitoring doesn't tell us anything new. What should we do instead? Maybe have experiments where individuals have a 'chance' of being monitored, rather than simply making that probability zero, or look for other ways to replicate more everyday circumstances. What is relevant about this point is that the anonymity and lack of ability to monitor individuals in certain market interactions means that individuals will, in all likelihood, look for ways to cheat: think of financial markets, or Enron, or the recent credit crisis. Unmonitorability (if that's a word) and anonymity would have undermined whatever social preferences may have been present. What does matter, however, is the interpretation that social preferences and institutions go hand in hand. This point has been made regularly and is one to which I will return in later posts. Levitt and List go on to comment that economics is 'at a crossroads'. They argue that growing distant from generalizability is a bad thing, they don't want different models for different contexts but rather a 'unified theory'. They also argue for empirical relevance, by testing laboratory results against field experiments that could validate or undermine the laboratory results. These are two separate criticisms, the first based to some extent on Stigler (1965) when he argued that economic theories should be judged by three criteria: generality, congruence with reality, and tractability. This crossroads highlights the first two. The question remains whether it is at all feasible for economics to maintain generality while also maintaining congruence with reality. I don't believe this is the forum to enter that question quite yet, but suffice to say that where economics has attempted to have 'general theories' previously, it has fallen flat on its face when it came to congruence with reality.

O. Bandiera, R. Iwan Rasul, I. Barankay, Q. J. Econ. 120, 917 (2005).

J. A. List, J. Polit. Econ. 114, 1 (2006).

Levitt, S.D., List, J.A. (2008). ECONOMICS: Homo economicus Evolves. Science, 319(5865), 909-910. DOI: 10.1126/science.1153640
G. Stigler, Essays in the History of Economics (Univ. of Chicago Press, Chicago, 1965).

Sunday, July 27, 2008

The Interpretation of Giving

Posted by Simon Halliday | Sunday, July 27, 2008 | Category: , | 0 comments

Today's post is the second in the series of three on articles by John List, specifically List (2007) 'On The Interpretation of Giving in Dictator Games' from the Journal of Political Economy.

Results from the Dictator Game - a typical experiment used in behavioural economics - are thought to justify the existence of (pro)social preferences. John List's contribution in this paper is to propose (in line with Bardsley, 2005) that the dictator game should not only involve giving some amount to one's partner in the game, but also taking away. Why? Actions in the real world involve both positive and negative, or give-take interactions. Adding this variation to the game could give us greater insight into the existence (or lack thereof) of social preferences and the extent to which individuals act in the mode of homo economicus.

Models that support prosocial preferences often fall into three classes:

1) reciprocity models (Rabin, 1993)

2) inequity aversion (Fehr & Schmidt, 1999)

3) altruism and spite (Levine, 1998)

In most dictator game experiments it is customary for 60%+ of individuals to pass some positive amount of money to their partner. Mean transfers tend to be around 20% of the total. Social preferences are typically used to explain this.

List adds two different treatments to the original game, along with a third to test differences between perceptions of deservingess vs. windfall cash.

1) Give up to $5, but also able to take away up to $1.

2) Give and take up to $5.

3) Have the subjects do basic administrative work for 30 minutes and then play treatment 2.

The inclusion of any possibility to take money from the partner results in drastic changes: "many fewer agents are willing to give money when the action set includes taking" (484). Moreover, "by allowing choices that are not entirely selfish in the nonpositive doman, the social norms of the game change, providing the dictator with the "moral authority" to givenothing" (484). But, the dictator "now has many choices that signal she is not entirely selfish" (485). What is meant by this is that, although they might no longer give positive amounts, the outcome predicted by economics (taking the maximum amount) does not occur.

To report: adding the 'take $1' option shifts the median offer to $0 dollars, and a mean offer of $0.33. For the symmetrical (give-take up to $5) the median offer is -4.50 dollars (i.e. the median individual takes away $4.50 from their opponent), the mean is -$2.48. Hence, when one "makes the action set symmetric, nearly all giving vanishes" (487). But still, the 'most selfish' behaviour is avoided. 'Taking' is much lower with the 'earnings' treatment indicating a difference in beliefs about taking 'windfall' vs. 'earned' money. This indicates an underlying moral structure with respect to interpreting gains and losses (see Levitt and List, 2007).

Importanly, List argues that "the data suggest that current interpretations of dictator game data likely need revision. Rather than represeting social preferences as currently modeled in the oft-cited literature, the data are consistent with the power of changing the giver and recipient expectation" (490). This, furthermore, highlights the importance of generalizability, or the fact that it is very difficult to generalize laboratory results to the 'real world'. List argues that we should recognize the specific institutions structures in which the activities occur and how these gain salience in different situations. We must manipulate experiments to emphasise the different and contrasting contexts to which individuals adhere, or which frame individual action. Using such manipulations will, hopefully, give us greater insight into the generalizability of laboratory results.

My comments

Something I would like to know is whether adding the new actions would alter individual behaviour in the original game, i.e. play 10 rounds adjusted game, then play 10 rounds 'original' dictator game. Here we would be able to interpret whether it is a state-based difference, or whether it would bring about a shift in preferences (endogenous preference formation). If we see endogenous preference formation, then we could assume that individuals are learning about the game and their own responses to different actions as a consequence of playing different versions. This would be an intriguing possibility and would be an interesting path for future research. The reason I think this would be good is because you could get interesting within subject variation, whereas List only looks at between subject variation.

In addition, it would be fascinating to observe subject interactions (as Levitt and List, 2007 report) of the experimental subjects after the experiments, in a field experiment to test, again in order to detect the state-based or endogenous nature of the preferences. Ultimately, the pairing up of field and laboratory experiments is crucial in order for us to gain greater insight into the relevance of social preferences in human decision-making.


Bardsley, Nicholas. 2005. “Dictator Game Giving: Altruism or Artefact? A Note.” Paper presented at the Economic Science Association meeting, Montreal, June. Forthcoming, Experimental Econ.

Herrmann, B., Thoni, C., Gachter, S. (2008). Antisocial Punishment Across Societies. Science, 319(5868), 1362-1367. DOI: 10.1126/science.1153808

Fehr, Ernst, and Klaus M. Schmidt. (1999) “A Theory of Fairness, Competition, and Cooperation.” Q.J.E. 114 (August): 817–68.

Levine, David K. (1998) ‘‘Modeling Altruism and Spitefulness in Experiments.’’ Rev. Econ. Dynamics 1 (July): 593–622.

Levitt, S.D., List, J.A. (2007). What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?. Journal of Economic Perspectives, 21(2), 153-174. DOI: 10.1257/jep.21.2.153

List, J.A. (2007). On the Interpretation of Giving in Dictator Games. Journal of Political Economy, 115(3), 482-493. DOI: 10.1086/519249

Rabin, Matthew. 1993. “Incorporating Fairness into Game Theory and Economics.” A.E.R. 83 (December): 1281–1302.

Saturday, July 26, 2008


Posted by Simon Halliday | Saturday, July 26, 2008 | Category: , , , | 0 comments John List (on whose recent comment in Science I commented on here) wrote a brilliant piece for the Journal of Political Economy late last year, along with another article co-authored by Steve Levitt (of Freakonomics acclaim) and finally another (again co-authored with Levitt) in the Perspectives section of Science (Feb, 2008). I am going to do a sequence of reports on each of the articles, starting with the List & Levitt (2007) JEL piece, then on to List (2007) and ending with Levit and List (2008). I will assume that readers are aware of the differences between the dictator game, the ultimatum game, trust games and public goods games (PGGs).

Levitt and List (2007)
The basic message of the article is that we need to ensure that our interpretations of experimental results are nuanced and that we must not over-generalize, or in some cases under-generalize, our results. Specifically, we must not interpret incorrectly the results of experiments such as the ultimatum game, or the dictator game, as being truly reflective of 'social preferences' (for a definition of social preferences see my recent post on Bowles (2008)).

They provide us with 5 specific points to consider:
  1. the presence of moral and ethical considerations;
  2. the nature and extent of scrutiny of one’s actions by others;
  3. the context in which the decision is embedded;
  4. self-selection of the individuals making the decisions; and
  5. the stakes of the game
In order to do this, they present a utility function that is affected by factors other than those which normally appear as arguments in utility functions. I present it briefly as a point of reference.
U_i(a, v, n, s) = M_i(a, v, n, s) + W_i(a, v)
The utility that individual i achieves is relative to the moral value (M) that they experience, which is a function of the actions they take (a), the stakes involved (v), the social norms which are pertinent when they act (n) and the degree of scrutiny (s), their wealth (W) is affected only by the actions and the stakes. For situations without moral components, "the model reverts back to a standard wealth maximisation problem" (157). In general you could expect a trade-off between morality and wealth and that as the stakes (v) of the game rise, "wealth concerns will increase in importance relative to fairness concerns, although this need not always be the case" (157). To me this last caveat is incredibly important, it could be blind naiveté, but I think that certain people would not place a price on certain (generally extreme) actions, or at least they would rather not have to do so. I would say that, in general, their construction holds, but at extremes of 'moral action' it probably won't. They note though that as stakes go up, the salience of n increases, i.e. people can forgive someone for shoplifting, but aren't so happy to forgive the Enron chiefs.

Moving, the imperative of their research:
Results from... experiments [dictator game, ultimatum game, public goods games] have been used to argue that pro-social preferences are important in a wide range of real-world settings an inference based on the assumption that the experimental findings are equally descriptive of the world at large... Rather, we are interested in the extent to which the lab provides reasonable guidance as to the importance of such behavior in a wide range of naturally-occurring settings (158).
Let me summarize the main ideas:
Unparalleled Scrutiny: you are never watched as much in real life as you are in an laboratory experimental setting. People have acted differently in the lab than they have when being observed without knowing their actions are observed. The incidence of giving decreases when scrutiny levels increase.
Anonymity in lab and field: 2 types: anonymity between experimenter and subject and anonymity between subjects. Incidence of 'giving' behaviour in a dictator game decreases when anonymity between experimenter and subject is applied ("double blind" game). Also, as scrutiny levels increase giving increases. In PGGs, as anonymity increases (using randomized application of indeterminacy of contribution) contributions decreased, conversely, as anonymity decreased, contributions increased.
Context matters (and is not always under the control of the experimenter): Experimenter lacks complete control in the experiment, subtle manipulations affect individual behaviour (choice of words such as 'partner' or 'opponent' affect contributions, similarly 'punish' or 'assign points', similarly again for the name of the game 'wall street' vs. 'community'. Contributions and behaviour are also strongly culturally dependent (Henrich, et al 2005). [Personally, I think that we can add Herrmann, et al's 2008 piece I referred to here and here as an indicator of cultural salience in experimental interactions.]
Stakes: Giving behaviour is sensitive to dramatic increases in stakes ($10 to $100), but not to smaller increases in stakes($10 to $40). Responses are also sensitive to stakes increases $1 of $5 is rejected more regularly than $100 of $500. There is conflicting evidence on the 'breakdown of trust' for high vs. low levels of stakes.
Selection into the experiment: Lab experiments possibly the science of "punctual college sophomore volunteers", or individuals interested in the research, or individuals who are naturally more cooperative and/or seek approval. Contrasted with market experiments which may select people who place a relatively higher value on wealth than morality. They contrast results from Fehr and List (2004) where actions by CEOs are compared with those of students. The CEOs were more cooperative. But you still have the problem of 'volunteers' being more cooperative and self-selecting into experiments.
Artificial restrictions: One of the problems is that "Real-world contexts typically offer the option of both giving and receiving, which may help explain in part why, contrary to the lab environment, people rarely receive anonymous envelopes with cash inside." We must also compare the dimension of generosity and the cost of it. In terms of dimension individuals may contribute time and effort (rather than money) to some volunteer porgram. With respect to cost of generosity, some individuals may avoid acting generously entirely in order to avoid the costs thereof. The aspect of time is particularly important, we cannot directly infer from short period experimental interactions that people will act similarly in a long-run field experiment, or the real world. Immediate emotional response in experiments must also come under consideration, with immediate 'hot' responses being contrasted with longer term 'cold' responses.

Generalizability & Conclusions
Moving on, they consider the reliability of generalizing experimental results to the 'real world'.
As an example: "In financial markets, for instance, the stakes are large, actors are highly anonymous, and little concern seems to exist about future analysis of one’s behavior" (168). The representativeness of the situation and the sample are both incredibly important in attempting to generalize. In small communities there are close ties and a high degree of scrutiny - cooperation will be high. In other interactions, specifically repeated interactions, it is difficult to differentiate between strategic action and prosocial preferences.

They comment further, "Any empirical estimate requires an appropriate theory for proper inference—and this lesson holds whether the data are obtained in the lab, from coin collector shows, or from government surveys" (170). In addition, combining emprics and theory is a better way to go than simply propounding the evidence against homo economicus. Also, 'nesting' experiments can help to isolate the effects of specific outcomes. Lastly, using multiple supporting inputs for greater theor is important: briding the gap between randomized field experiments and controlled laboratory experiments is crucial.

My comments
What I want to know is, can we overcome the sampling problem of experiments? I would love to be able to convert lectures of economics suddenly into on the spot experiments in order to get a more representative sample, or to use participation in an experiment as, say, a prerequisite for 'class attendance', or something equivalent, in order to get larger and more representative samples. Moreover, I would prefer it if experiments were cross-departmental. Often experiments end up sampling students from one department (econ or psych) without getting students from the humanities or sciences. Thus, samples are, once more, problematic.

In terms of scrutiny, one of the examples that Levitt & List propose was of an experiment where eyes came up on the computer screen, which they said indicated scrutiny. I don't think we can legimitately claim this unless we see the actual graphic, because of another possible interpretation which is the 'humans respond sympathetically to seeing eyes' interpretation (and I can't for the life of me recall the references, but remember this from the MIT OCW psych lectures).

Once more, I think that the adoption of 'best practice' in experiments (similar to work by Duflo and Banerjee for Randomized Evaluation) is crucial. I know that attempts have been made in the past (Roth, Camerer and others) and experiments are, predominantly, standardized with similar methods in most of the Western world. However, problems arise when you aren't operating in a normal Western environment and you are, instead, trying to do experiments in the developing world where you can't use the generally accepted computer program, because you don't have computer access, and pen and paper are the normal mode. I'll leave it at that for the moment.


S. (2008). Policies Designed for Self-Interested Citizens May Undermine
"The Moral Sentiments": Evidence from Economic Experiments. Science, 320(5883), 1605-1609. DOI: 10.1126/science.1152110

Herrmann, B., Thoni, C., Gachter, S. (2008). Antisocial Punishment Across Societies. Science, 319(5868), 1362-1367. DOI: 10.1126/science.1153808Bowles, S. (2008). Policies Designed for Self-Interested Citizens May Undermine "The Moral Sentiments": Evidence from Economic Experiments. Science, 320(5883), 1605-1609. DOI: 10.1126/science.1152110Levitt, S.D., List, J.A. (2007). What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?. Journal of Economic Perspectives, 21(2), 153-174. DOI: 10.1257/jep.21.2.153

List, J.A. (2007). On the Interpretation of Giving in Dictator Games. Journal of Political Economy, 115(3), 482-493. DOI: 10.1086/519249

Levitt, S.D., List, J.A. (2008). ECONOMICS: Homo economicus Evolves. Science, 319(5865), 909-910. DOI: 10.1126/science.1153640


Posted by Simon Halliday | | Category: | 0 comments

Eurekalert - No Gender Differences in math performance (though they use averages, whereas others have argued that there should be no average difference, but the variation is lower for girls than for boys)
The Economist - Do Economists Need Brains? (Neuroeconomics)
Tim Harford (CC) - Does recognition actually work?
Esther Dulfo (CC) - What makes creative capitalism hard?
John Roemer (CC) - Tax the Rich
Raphael Auer (Vox EU) - How can we end poverty? The Determinants of Development
Hertz et al (Vox EU) - The Transmission of Educational Inequality Across Generations

Barack Obama - A World That Stands as One (transcript of his speech in Berlin, video embedded below)

Friday, July 25, 2008

Hamermesh on Colander's 'Redux'

Posted by Simon Halliday | Friday, July 25, 2008 | Category: , , , , | 1 comments

ResearchBlogging.orgDavid Colander has been a critic of economic education and the core of (Walrasian) economics for some time. In his (2005) article, 'The Making of an Economist: Redux' he looks at the state of economics education: the experiences and beliefs of graduate students and the thoughts of economics professors and professionals. The article has recently been expanded into a book, it is this book which is the subject of Daniel Hamermesh's review in the recent Journal of Economic Literature.

My comment here is intended to be a fairly informal comment on the review, with additional references to my experiences as a current economics graduate student, though admittedly I am not being educated in the United States.

First, a summary of some of Colander's main points (from the paper, not the book - I could not access the book):
  • Microeconomics in the core course is viewed as a hazing ritual.
  • Consequently, there seems to be more self-selection into economics programs than previously (when Colander wrote his original book in 1987).
  • Colander believes there are fewer idiot savants than previously.
  • Macroeconomics is basically applied micro, and should be turned into an elective.
  • The movement away from arcane modeling is good.
  • The emphasis on empirical work is good, but there isn't yet sufficient practical work for grad students.
  • There should be more history of economic thought in economics programs - students don't read anything before their own grad course started (possibly a bit of hyperbole going on here).
  • The '3rd year black hole' problem - the kids don't know what to do. Should the teach? Should they find practical work? Should they be an RA? Can they write papers yet? How?
  • There isn't necessarily a correlation between core coursework success and success professionally.
  • Students are stressed and lots, to all (too much?) of their time is spent on economics.
  • How is the creativity of students being nurtured?
Hamermesh gives a couple of his own points on the above:
  • Yes, there is two sided selection as a consequence of micro hazing.
  • Yes, macro is basically applied micro, it should no longer be core.
  • No, there are not fewer idiot savants.
  • The movement from arcane modelling is ambiguous. Empirically it has occurred, but it seems as though arcane micro has been replaced with arcane identifying strategies in econometrics. Is this necessarily good?
  • Yes, economic history would be a sentimentally beautiful thing to have back, but do the students really need it? Does it help to get them to the research frontier? Probably not.
  • Yes, economics students are stressed, but why are we concerned about how much time students spend on economics, in order to be a good economist (rather than consultant or policy-maker), economics should always be your default: the holding pattern of your brain should be 'economics'. Economics graduate school is not about producing happiness, but producing education.
  • Creativity and motivation are the two strongest determinants of professional success.

They both bring up particularly relevant points. I know that the point form above is a somewhat egregious violation of what constitutes 'peer reviewing', so many apologies. My intention is to take the two articles and facilitate some form of discussion on the subject. Nevertheless, Hamermesh's review brings up relevant views. Firstly, Colander uses a substantial amount of self-referencing in the book (both to his 1987 book and to his own research on economics education). This is probably due to the idiosyncratic nature of the text and his intepretations of the interviews that he conducts. Secondly, he is not interpreting 'data', but several interviews taken from a sample of 231 students who answered questionnaires and supplied their email addresses. This is far from exhausitve. Though we may wish to criticise his method, it seems as though Colander's is the most comprehensive study that can be found looking at these issues in depth.

Having recently undergone the painful application of the first year of an economics PhD to my vulnerable mind, I can offer a couple of insights. My school is somewhat odd, as we have a seminar course in economic history during the final quarter of the year, but we nevertheless undertake the customary worship of Mascollel, Winston and Greene's Microeconomic Theory. The course was rigorous, though we occasionally delved into other more inscrutable aspects of the grounding of microeconomics because of an eccentric professor. I would have probably preferred a more 'reason-based' Chicago-style approach. Nevertheless, most of us came out the other side. Macroeconomics, on the other hand, though we had a fabulous teacher was, as Colander asserts and Hamermesh agrees, simply applied micro + dynamic programming/optimal control. I don't understand why it is a core course. Econometrics was part theory and part applied. I thoroughly enjoyed it.

However, this is where one criticism comes up for me, for both of the articles. When they discuss 'applied work', what they mean is taking a data set and working with it in order to write a paper. This does not, in any way, prepare you for doing field work or, say, experiments in the lab, both of which are common practice in economics. Luckily (or unluckily) for me, before I came to grad school (I am a 27 - relatively old, if been informed, for a grad school student) I worked for the South African Labour Development Research Unit on a project for government as an assistant manager of a survey. This involved jetting around South Africa, interacting with government officials, going to interview sites, tracking down random pieces of paper in dodgy old buildings, greeting people in languages I did not speak adequately well (rudimentary Xhosa does not equal Zulu) and all-round stuff that an economics PhD does not (as far as I have experienced) prepare you for. I flew by the seat of my pants: getting up at 4am to drive for hours in the mist of rural KwaZulu-Natal
to get to the next field site I had to check, or getting lost somewhere
in Mmabatho, or trying to ensure that the me and the fieldworkers were on the same page on what 'random' really means (no, it's not just going into the closest hut to see if someone's there). It's the learning that goes on in committees, dealing with bureacracy, running projects, working for volunteer programs and NGOs. It's the learning that almost de facto cannot occur in lectures facilitated by professors. Maybe I am being cynical here, but I would have appreciated it if this had been covered in Hamermesh's commentary, and Colander's original article. I don't know if the expectation is that fieldwork is simply something that peon's do for the professorial great men, but with examples like Chris Udry, Esther Duflo, Abhijit Banerjee, Ted Miguel, Michael Kremer, John List and all kinds of people at the top US schools, you can't help but think that this (field work) is something that does go on and that requires its own enculturation and education.

As a last point, I find that I learn substantial amounts through the time that I dedicate to blogging, reading blogs and ensuring that I keep (somewhat) up to date with peer-reviewed research. As a consequence my grades take a (bit of a) hit, I do not do as well as other students who spend more of their time studying course material (actually this is often correlated with my interest, some good & some bad marks occur). However, my opinion (concordant I hope with the 'living economics' Hamermesh comment) is that my knowledge is broader and my understanding greater as a consequence. Hopefully it pays off (John Hawks's methods willing).

Colander, D. (2005). The Making of an Economist Redux. Journal of Economic Perspectives, 19(1), 175-198. DOI: 10.1257/0895330053147976

Hamermesh, D.S. (2008). . Journal of Economic Literature, 46(2), 407-411. DOI: 10.1257/jel.46.2.407


Posted by Simon Halliday | | Category: | 0 comments

Thursday, July 24, 2008


Posted by Simon Halliday | Thursday, July 24, 2008 | Category: | 0 comments

Moral Sentiments and Mechanism Design

Posted by Simon Halliday | | Category: , , | 0 comments Adam Smith, in his Theory of Moral Sentiments, considered how an individual's moral sentiments affect their acts in the world in ways that are contrary to self-interest. Smith's first sentence sets up his thinking,
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
(Smith, 1790: I.I.1)
Let me be up front and acknowledge that I am only now reading The Theory of Moral Sentiments (I am currently a graduate student). Nevertheless, this first quote is intended to give a frame for the paper by Sam Bowles, who, in the title of his paper, 'Policies designed for Self-Interested Citizens may Undermine the "Moral Sentiments" makes an obvious allusion to this text. I cover Bowles's main theses and offer some additional points.

Sam Bowles's recent paper (gated) in Science focuses on exactly these "moral" imperatives in humans, the likes of which, he argues, have remained neglected in mainstream economics during the past half century. Bowles reviews economic experiments carried out all over the world, from Bogotà, Colombia to Zurich, Switzerland. His unifying theme is that individual "moral sentiments" matter and the self-interest of neoclassical economics is not as all-encompassing, or welfare promoting, as one might be led to believe. He argues instead for the acknowledgment of other-regarding preferences that operate in the economic realm and affect how individuals interact. At the core of his argument is the intuition that incentives that target individuals who are assumed to be solely self-interested will often fail because of this misunderstanding of human nature.

Bowles opens the paper with the example of the, now infamous, Haifa daycare centres in which the centres implemented a fine for late arrival of parents. Following this the incidence of lateness increased and did not return to the pre-fine levels after the fine policy was rescinded /Gneezy and Rustichini, 2000).

Bowles defines several ideas, using them as a basis to motivate a departure from self-interested behaviour. They are:
  1. Framing
  2. Endogenous preferences
  3. Self-determination
  4. Information conveyed by incentives
He argues that "incentives are part of a decision situation and may signal appropriate behaviour" (1606). In the Haifa daycare centre example, individuals did not engage in market interactions originally they would have experience 'shame' for arriving late. However, it became a market interaction in which 'lateness' was a consumer product that parents could pay for. Thus, the centres had 'framed' the policy such that it became a market interaction. Daniel Kahneman and Amos Tversky championed the understanding of framing, Kahneman was awarded the Nobel Memorial Prize in Economics for this and other work. Additionally, Bowles refers to work in Colombia by Juan-Camilo Cardenas which replicates a framing problem in public goods games. He contrasts 'communication' and 'government regulation' frames. It turned out that individuals, when 'regulated', were more likely to behave self-interestedly than in either the control or the 'communication' treatment. Cooperation broke down as a consequence. Hence, incentives, and the mechanisms that we use to implement them, need to be structured such that we are aware of the frames that they present, else behaviour could go in unpredictable directions.

Endogenous preferences are preferences that have been altered as a consequence of the experience of some state. The intuition here is that the experience of some specific incentive structure could permanently change the preferences of the individual. Public goods experiments revealed that individuals, who previously acted cooperatively in public goods games, begin to act self-interestedly after the application of a treatment and continue to behave self-interestedly after the treatment has ended. Hence, Bowles proposes that, "economies structures by differing incentives are likely to produce people with differing preferences" (1607).

Self-determination, or "control aversion", was one reason I found to be one of the most interesting reponses to incentive structures. In principal-agent experiments (similar to employer-employee relationships) individual agents selected a level of production that was non-zero even though their payoff was highest when they 'produced' nothing. The principal could choose to leave the agent free to choose an effort level, or impose a lower bound on effort. By standard economic theory the first treatment should produce zero production, the second treatment - production at the lower bound. Production was higher in the 'free' control experiment than it was in the 'bounded' treatment. It seems as though humans value autonomy highly and are willing to act against individuals who retract autonomy. Note however that it does not seem (by Bowles account) as though the experimenters attempted the counter-example, a situation when there would have been a fixed lower bound, which was then rescinded and allowed the principal to choose to impose a lower bound or not. The results of this could provide an interesting contrast to those above.

Lastly, in reference to information conveyed by incentives, Bowles describes a 'trust' investment game, in which pairs of individuals act as investors and trustees. The investors could choose to 1) 'trust' the individual for back payments, 2) propose a back payment level and choose to impose a fine if the back-transfers was below this level, or 3) propose a back payment level and drop the option to use the fine. The situation in which the fine was available, but dropped as an option by the principal resulted in the highest levels of back transfers, the straight fine treatment resulted in the lowest level of back transfers. Bowles segues into a brief discussion of social preferences, I couldn't find a definition in the paper, so I went to his textbook, Microeconomics, wherein he defines social preferences as follows, "in choosing to act, individuals commonly take account not only of the consequences of their actions for themselves but for others as well" (Bowles, 2006: 96).Typically social preferences include reciprocity motives and altruism. Hence, he establishes that, "Incentives imposed by peers who do not stand to benefit personally do not social preferences and are often synergistic with them" (1608). For this he brings support from experiments in public goods games in which punishment curtails self-interested behaviour and reinforces cooperation.

At this juncture I think it pertinent to introduce evidence from Herrmann et al's (2008) paper on antisocial punishment across societies. They introduce the 'dark side' of punishment, showing that individuals who contribute 'too much' are punished (hence the term 'antisocial punishment') in certain cultures (I blogged on this previously here). Bowles briefly refers to Herrman et al.'s paper, but I think that the social preferences involved here are definitely as exciting as those discussed by Bowles generally, and, in fact, provide further evidence for the dynamic nature of social norms. With the international evidence that they provide (experiments with fifteen societies across the globe) there are dramatically different norms when it comes to punishment. Spitefulness and angry retaliation are as much a part of the human emotional arsenal as the beneficial and prosocial preferences are. It is important therefore that these antisocial preferences are also taken into account when policymaking: when deciding on incentive structures.

Bowles summarizes a few points on problems of efficiency and self-interest. If a principal is able to introduce an incentive structure and increase their own payoffs, then they will do so, regardless of whether the entire surplus diminishes as a consequence. Contrary to commonly held views, individuals interacting together who are not self-interested can produce a higher total surplus (through, say cooperating in a public goods game). Thus, although agents respond particularly negatively to certain incentive structures, some self-interested profit-maximising principals will introduce these incentive structures to maximise their own payoffs, while the pie itself diminishes is size. This is not the kind of world many of us woud like to work in, most economists would promote the 'efficient solution'.

Bowles maintains then that moral sentiments and material interests are 'nonseparable'. The problem being that behaviour is not only 'acquisitive', but 'constitutive'. He argues furthermore that these interests can act synergistically, especially in instances where there is substantive rule of law and other strong institutional frameworks. Individuals supposedly wish to be cooperative, but also want to ensure that they are not the only cooperator in a world of defectors. Their cooperation is conditional. Contingent on strong rule of law, individuals' social preferences are maintained and they uphold cooperative behaviour.

Bowles's 'take home message' is that policy makers need to take consideration of the experimental evidence that is presented to them. They should be aware of the prosocial behaviours that policies to promote self-interest might undermine, else the total social surplus might diminish: unintended consequences have been the undoing of many a well-intended policy. The good news though for market-minded individuals is that good institutions can act synergistically with social preferences to produce good consequences from the market. It seems as though individuals who "interact in market-oriented economies are more likely to be fair-minded" (1607). Capitalism has not lost the day, it simply needs to rethink some of its economic models for policy-making.

Smith, Adam. The Theory of Moral Sentiments. Library of Economics and Liberty. Retrieved July 12, 2008 from the World Wide Web:

Bowles, S. (2006), Microeconomics: Behavior, Institutions and Evolution, Russell Sage Foundation and Princeton University Press, New York, US.

Bowles, S. (2008). Policies Designed for Self-Interested Citizens May Undermine "The Moral Sentiments": Evidence from Economic Experiments. Science, 320(5883), 1605-1609. DOI: 10.1126/science.1152110

Gneezy, U., Rustichini, A. (2000). A Fine Is a Price. The Journal of Legal Studies, 29(1), 1.

Herrmann, B., Thoni, C., Gachter, S. (2008). Antisocial Punishment Across Societies. Science, 319(5868), 1362-1367. DOI: 10.1126/science.1153808

Aside: Two comments on Bowles' article are offered by Gavin Kennedy here and here. Another in reason magazine here.

Wednesday, July 23, 2008

Diversity and Cooperation

Posted by Simon Halliday | Wednesday, July 23, 2008 | Category: , , | 0 comments Diversity facilitates cooperation according to research published in the latest Nature. The paper fits well into the literature in evolutionary game theory on the prisoner's dilemma and public goods games. I'll give a very brief look at some of the points I found pertinent in the paper.

Santos, Santos and Pacheco's main assertion is that diversity promotes cooperation, specifically:
[C]ooperation is promoted by the diversity associated with the number and size of the public goods game in which each individual participates and with the individual contribution to each such game. (213)
Crucially for their results, they posit the following:
Whenever interactions are not repeated, and reward and punishment can be ruled out, several mechanisms were explored that promote cooperation. Individuals were either constrained to interact only with their neighbours on spatial lattices, or given the freedom to opt out of participating, leading to a coexistence of cooperators and defectors, even on spatial lattices.(213)
The non-repetition is important, especially in the light of recent research (as yet unpublished, still being written in fact) by Simon Gaechter using economic experiments to repeat public goods games for fifty rounds. Preliminary results from his research indicates that long-run repetition such as this results in almost complete cooperation. Summarizing therefore, (213) "Here we investigate what happens in the absence of reputation and punishment and when participation is compulsory."

Moving on from these concerns they get to grips with the models and their use of heterogeneous graphs to represent the social networks of individuals. They observe watershed levels for cooperation, (214) "In infinite, well-mixed populations, a sharp transition from defection to cooperation takes place." See Figure 2. For which we should understand the role of eta:

Eta is the renormalized enhancement factor, where r is the multiplication factor for the contribution and z is the average connectivity of the population graph. We see in the graphs that as eta decreases, the fraction of cooperators increases. Both of the graphs assume that z = 4, i.e. connectivity remains constant. Customarily, when the rewards to cooperation increase (which they do if the multiplication factor increases), then the likelihood of cooperation should increase. We have a replication of that result here: as r increases, so too does the incidence of cooperation. However, we see a difference in the scale free vs. the regular graphs. For fixed cost per game the tipping point towards cooperation is a similar level of eta. For fixed cost per individual (spread through their network of k+1 individuals) the tipping point for cooperation is much sooner in the scale free graph than in the normal graph. It is worth reiterating that 'real life' is traditionally held to be somewhere between scale free and regular.

Changing tack somewhat, consider the following statements:
"Depending on the problem at stake, any contribution may be necessary and even welcome, however small. Below we show that, whenever all contributions are interpreted as acts of cooperation, cooperation blooms." (214)
Also that (215), "In this study any contribution has been identified with cooperation."
And finally (215),
In communities under the influence of social norms, individual contributions will be easily classified as acts of cooperation (or not). In this context, our results suggest the possibility that successful communities are those in which the act of giving is more important than the amount given. This may be of particular relevance whenever the survival of the community is at stake, in which case any help is necessary. Most probably in such cases selection is strong, as is considered here.
The problem I have with the assumption 'all contributions indicate cooperation' is that, 'in real life', the social norm could tend to be a contribution to the good relative to the size of one's income. If a really poor person contributed relatively large amounts, whereas a rich person contributed relatively small amounts people could interpret this as defection by the rich person for not contributing their 'fair share'. What they assert could be perceived to be inconsistent with the research by Ernst Fehr and others on inequality aversion. Such a consideration is even more important when we take note of the statement that they make on the social nature of the decision-making process, as contributions and the prevalence of cooperation "depends on the social context of the individual" (214). Surely the social context includes social norms on what is a 'fair share', rather than simply 'contribution is cooperation'.

They replicate a customary result when increases in defector dominance results in lower fitness and even possible extinction of defectors (214): "Ds are victims of their own success—successful Ds breed Ds in their neighbourhood, inducing a negative feedback mechanism that reduces their fitness."

There are some final comments on egalitarian vs. power law distributions of wealth in all-cooperator worlds. This in and of itself requires further examination and I will try to comment on this later.
In a more economical perspective, our results also portray different evolutionary outcomes even in communities in which all individuals cooperate. Now we consider populations of 100% cooperators and look at their ‘wealth’ (fitness) distribution according to different underlying models. We consider homogeneous (regular) and heterogeneous (scale-free) graphs. In Fig. 4 we plot the fraction of the population that holds a given fraction of the total wealth. The differences are striking. On regular graphs an egalitarian wealth distribution is obtained, irrespective of the contribution model. On scale-free graphs wealth distributions follow a power law. However, for a fixed cost per individual, the population has significantly fewer poor and more rich. (215)
Some things that could have been incorporated or discussed: ideas of prosocial behaviour relating to behavioural rules, such as the use of learning rules that Rowthorn, et al (2007) (based on previous work by Henrich, Boyd and Bowles) consider and as proposed in an upcoming paper by Frederike Mengel (2008) in JEBO. [Noting which, I plan to review the Mengel piece at a later date, and will refer you back to this post when I do.] Mengel also has another unpublished paper with Constanza Fosco, 'Cooperation through Imitation and Exclusion in Networks', which looks at a similar topic - they too observe defection on the borders of the social network.

Additional Refs:
Fosco, Costanza and Friederike Mengel, (2008), Cooperation through Imitation and Exclusion in Networks, unpublished, University of Alicante.
Mengel, Frederike, (2008-forthcoming), Matching structure and the cultural transmission of social norms, Journal of Economic Behaviour and Organisation.
Rodriguez-Sickert, Carlos, Robert Rowthorn and Ricardo Andres Guzman (2008), The Social Benefit of Slow Learner, unpublished, University of Cambridge.

Santos, F.C., Santos, M.D., Pacheco, J.M. (2008). Social diversity promotes the emergence of cooperation in public goods games. Nature, 454(7201), 213-216. DOI: 10.1038/nature06940

Tuesday, July 22, 2008

Esther on Food

Posted by Simon Halliday | Tuesday, July 22, 2008 | Category: | 0 comments this article by Esther Duflo at Vox EU - Food Prices: The Need for Insurance

It's a bit of an old article (in the blogging world) being from April (shock, horror). However, I wanted to refer to it because one thing I don't get is why she refers to it being paradoxical that it takes more grain to produce a calorie of meat than it does to produce the equivalent calorie with grain alone. To me it follows logically because our bodies (and the bodies of animals generally) aren't one-to-one calorie converters as far as I know, maybe I'm wrong here... That being said, the rest of the article is good.

Were I tempted to give up meat (previously, I dallied with vegetarianism for a while, and no-read-meat diet, and pescatarianism...) the 'grain required for meat' vs. 'grain required to feed the world' argument would probably be one of the strongest reasons. It's a bit hug-the-tree hippie-ish, but it makes sense to me and still makes me wonder whether I should give up meat entirely. It was biltong and steak that brought me back though. That and thinking about market forces and pricing. Hmm...


Posted by Simon Halliday | | Category: | 0 comments

Monday, July 21, 2008

People and Awards

Posted by Simon Halliday | Monday, July 21, 2008 | Category: | 0 comments

I wish to refer you to this post from Vox EU on a new paper from Bruno S. Frey and Susanne Neckermann. If Frey's name is familiar, it might be because of his recent book, part of the happiness economics frenzy, called Happiness: A Revolution in Economics. Anyway, I am not here to comment on that today. Instead I will comment on the article.

First, a pedantic note. The first couple of sentences:
If an alien were to look at the social life of people on earth, it
would be stunned by the enormous number of awards in the form of
orders, decorations, prizes, and titles. It would be hard pressed to
find any area of society in which awards are not used. Awards are
equally ubiquitous in monarchies as they are in staunch republics.
How do we have any idea what an alien would think? This is a normative question. If the alien came from a society in which everyone were provided with awards on a regular basis then our structures could seem to have barely any award systems, conversely it could be as Frey and Neckermann say: the alien might be from a society where our reward system seems to be award-obsessed. I think it was a poor way to start the article. Nevertheless, the central point stands: awards are (or seem to be) a ubiquitous human social phenomenon.

However, other than this triviality, I think that the article makes a particularly relevant point, though it misses one or two other points. Awards, or specifically the non-material benefits derived from them contradict the standard economic model. Why do individuals pay attention to awards that provide them no (immediate) material gain?
I think that the first response that an economist would come up with is that it improves an individuals reputation. Reputation is a central theme of game theory. If I have a substantial reputation then I can make moves in games that will alter how others move, what their payoffs are and so forth. Frey and Neckermann don't mention this, which is problematic. Reputation could also be linked to access to wider social networks, for increased income prospects. From an evolutionary perspective, awards are a signal that an individual is a worthwhile mate and should be used for reproduction (bit thin I admit).

Economists could also argue that, although an individual reward received may not receive immediate material benefits, the long-run effects of an award tend to improve one's life time income. Consider something like the Academy Awards. Individual actors who receive an academy award are more likely to be cast in later films. Hence the award results in indirect increases in (lifetime) income.
Questions arise though in why we give awards. Have they evolved as an efficient way to signal the qualities of an individual? The fact that the awards themselves are often of negligible cost (relative to paying someone a higher salary) then what is the process of giving rewards about?

I would warrant though that if you could have a regression that controlled for the two factors above (somehow, I don't know how you could feasibly do it), then I intuit that there would still be some left over explaining to do. I believe that this 'left over' stuff is to do with the human award phenomenon, the social and adulation aspect of awards.

Lastly, if you have individuals who already have a high reputation, have a large amount of wealth and don't require awards yet we still give them awards, what are we doing? What are we saying about ourselves by the giving? Can economics help us to understand these dynamics? I think that this warrants more research, not only the dynamics of current award-giving, but also the evolution of awards. Let's watch this space. Come on Frey and Neckermann, you might just be awarded for the research...

Sunday, July 20, 2008


Posted by Simon Halliday | Sunday, July 20, 2008 | Category: | 0 comments

Vox EU - Child Health ad Intergenerational Transmission of HC (particularly good)
Balloon Juice - Our Continuing Disgrace
Frank Rich - It's the Economic Stupidity, Stupid
Willem Buiter - There is never a right time to tackle moral hazard

Psychopharmaparenting - The Word - From the Colbert Report

Adam Smith's Metaphor turned Myth

Posted by Simon Halliday | | Category: , | 0 comments Smith did not intend the 'invisible hand' as the mythic mechanism that it is now thought to be. This is the main thesis of a recent conference paper for the History of Economic Thought 40th Conference provided by Professor Gavin Kennedy, titled 'Adam Smith and the Invisible Hand: from metaphor to myth'.

You can see Prof Kennedy referring to the paper here on his blog Adam Smith's Lost Legacy. Kennedy discusses the fact that Smith referred to the idea of the invisible hand only three times in his writing. Once in the History of Astronomy, and once each in The Wealth of Nations (WN) and The Theory of Moral Sentiments (TMS).

I learned several things reading the essay. First of all I did not know that Smith had written anything on astronomy, let alone a comprehensive history of Roman interpretations of astronomy. Moreover, it is in this text that he refers originally to the invisible hand (written before TMS and WN, but published posthumously), in reference to the 'invisible hand of Jupiter' (Jove). Kennedy argues that this was obviously not the interpretation that Smith intended in TMS, nor in WN, but he covers it for comprehensiveness.

Kennedy goes on to discuss the role of the metaphor in TMS and in WN. He quotes the original text, where, once more, I learned something new. Firstly, whenever I have been taught Smith, I had always been given the invisible hand quote as follows, "led as if by an invisible hand" when the original quote is:
By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases,led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

The 'as if', had always made the metaphor clear to me, it was an idea of how individuals act 'as if' influenced, or pushed by some invisible hand to do the 'will of the market'. This is wrong. There was no 'as if'. This is often added by economists as a 'softener of the stronger imperative' as Kennedy puts it.

Secondly, Kennedy argues that the metaphor was put in place to make it vivid to those people who were not economically minded, who believed the mercantilist ideals that were extant at the time. It was never Smith's intention to turn it into a myth, or for it to become the explicative mechanism adopted by Hayek,and later the neoclassical general equilibrium theorists to motivate their general equilibrium theory.

As Kennedy (2008: 30) comments,
Understanding the processes behind these cases is more important than the metaphor. The invisible hand metaphor added nothing to what Smith, the analyst, and his attentive readers, knew. It was a ‘device’ to keep the attention of his other readers.
And again, (ibid. 31)
Legislators and those who influence them – his target audience – may not be given to accepting his arguments from their prejudices, from receiving the persuasion of ‘gold’ and social preferment, and from the complexities of competing views on political economy.
Adam Smith's ideas of individual risk-aversion, of self-interest would lead the free market to better outcomes for society and for individual
consumers. The problem though was that these same merchants who would be 'led by an invisible hand' to do the best for such consumers would also be led by their self-interest to try to procure protection,
subsidies, government support and so forth (on this, see Kennedy's
post: Adam Smith not a Laissez-Faire ideologue). Thus it was in the interest of the people, Smith argued, that government and legislators should not give in to these individuals, should retain the freedom of the market for the benefit of the citizens.

Kennedy quotes from WN:
The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the publick. To widen the market and to narrow the competition, is always the interest of the dealers.
Kennedy's initial discussion commenced with references to the reverence that modern day economists have for the invisible hand metaphor. They, Kennedy quotes Arrow, Hahn & Tobin, have given it mythic proportions that were entirely unintended by its author, and quite possibly would have been ridiculed by Smith for such reverence.

Anyway,that is enough for now. I'd like to leave this post with the image of Smith chuckling at general equilibrium theorists, my respect for Arrow aside. I did not cover the interpretation of the invisible hand in TMS. Have a read of the essay and Kennedy's blog if you are interested.
[Post script: I think that Hayek has the idea of the 'invisible hand' better (than the GE theorists) in respect of his ideas on how the market acts as a communication device for prices and translates information to and from individuals: the 'emergent property' and the 'spontaneous organisation' for which he is much acclaimed. Kennedy comments (ibid. 24) on this arguing
coherently that the label 'spontaneous' is a bit of a misnomer, it
should rather be called something like 'slowly cohering organisation'
or 'organisation adjusting as people realise their errors'.]

Research note: the resources I linked to for the Moral Sentiments and Wealth of Nations are particularly useful because you can use a search engine to search for items in the text. Thus, if you're at all sceptical (which you need not be) you can check the number of appearances of 'invisible hand' and confirm the fact that Kennedy is correct on its appearances
in TMS and WN.

Friday, July 18, 2008

Poor Performance Rewarded

Posted by Simon Halliday | Friday, July 18, 2008 | Category: | 0 comments

Poor research performance is being rewarded, argue researchers at South Africa's top universities according to a recent M&G article. The image “” cannot be displayed, because it contains errors.

The problem with this article is that the journalist, Primashni Gower, does not pick up on the nuances of the situation at all. Yes, research grants do drive individual university research. Yes, it is in the interests of each individual researcher to gain access to as much research money as possible in order to do decent research. However, if the government, is trying to empower previously black universities and former technikons then it will have to redistribute resources away from the universities with the top professors and researchers (which are generally previously white universities) and channel these resources to the disadvantaged universities. might this make sense? First of all, one of the proposals that I would make were I defending this is that the top research universities have much higher capabilities to get funding from elsewhere. If we were to evaluate this properly we would look not only at the research funding provided by government, but the funding provided by private institutions and the money raised by individuals within the universities in order to be able to compare actual levels of funding across universities. We don't see any evidence of this in the article, or even a proposition of such a basis for comparison. Granted, for researchers who are highly qualified spending more time chasing money from other sources is a waste (assuming, for example, that researchers at the 'top' universities have a higher marginal research product than those at the lower ranked universities which I would assume they do by the results). Why is this the case? If I have a higher research output than others, even if I am more efficient than others at recruiting money to my cause, comparative advantage should lead me to spend more time researching (other things equal). But, I need money and I can't just deputize money-making, or at least the university system doesn't allow me to.
The image “” cannot be displayed, because it contains errors.

Which leads me to another point. I don't understand why there isn't more marketing for research. Why there aren't more university departments that have non-professors engaged full time in recruiting funding for the professors of their universities. These individuals would be knowledgeable about the portfolios of research of the professors in the department and would spend their time collaborating with the professors in order to obtain more independent funding, passing the info and the propositions on to the professors when the time was right. A professor-private sector liaison for a department if you will. I could definitely see this working in economics and most definitely in the sciences. Introduce more market forces...

Maybe I'm crazy and I have weird ideas about how to change the system. What this would encourage is even more competition between the universities at the top and hopefully make them more and more independent of government funding. At which point they would cease to care about the research grants (actually no, that would never happen, free money from government would never be refused). The crucial factor though is to introduce competition for private money, to make academic departments more efficient and to make finance departments of the various faculties more efficient and effective. Do that and you will hopefully overcome the 'penalty' of not getting rewarded for being a top university in terms of research.

I realise that I haven't engaged fully with this debate in terms of the justifications for the redistribution in the first place, or even discussing why government doesn't channel more funds to universities in order to improve recruiting to science degrees in particular. Surely there are solutions other than complaining about a government that is trying to pull up the previously disadvantaged universities? I know that it sucks for the top universities and that they feel hard done by and that they will argue that there may be efficiency losses in the short (and possibly long) run. There are all kinds of factors involved here and not all of them to do with efficiency, that's the problem with promoting equality, you can never get rid of the equality-efficiency trade-off.

[Aside: I am also quite charmed by ideas proposed in the US (see Paul Romer and Marginal Revolution on this) to channel money to graduate students independent of the universities in order to allow them greater freedom to do novel research rather than be a research peon for a professor. See this site for private sector-individual pairings. ]