Bostonians:
The American Economic Association is holding its annual meeting in Boston, January 3-5, 2015. The event is very reasonably priced for non-members and is packed with interesting speakers. One of the good things about economics is that many papers are understandable by anyone with a good high school math background.
Saturday, January 3
Saturday at 0800 is going to be an exciting time. Gregory Mankiw, the Harvard professor who sometimes steps out into the popular realm (example New York Times article) leads “A Discussion of Thomas Piketty’s Capital in the 21st Century.” (Note that a 10:15 paper, by two Swedish economists looking at “socio-economic mobility across three generations in Sweden in the period 1813-2010” found that, for earnings, there was “no association at all between grandfathers and grandsons” (so Piketty is wrong about dynastic accumulation), but for social status/class there was a “clear association” (leading to genteel poor?).) Simultaneously in the Hynes Center, Room 201, Maya Rossin-Slater and Miriam Wust present “Parental Responses to Child Support Obligations: Causal Evidence from Administrative Data” (full text). This is important because child support systems are designed under the presumption that parents’ behavior won’t be affected by writing child support checks to the person who sued them and/or that paying $50,000 per year to a plaintiff will improve the quality of parenting delivered every other weekend (embedded in a larger system of custody and divorce law that assumes people won’t follow economic incentives that are held out). Here’s how we summarized the paper in our forthcoming book:
[the authors] found that what a mother might have gained financially from child support, the child lost in terms of reduced contact with and effort from the father: “mothers, who have substantial say in custody decisions [in Denmark], have the opposite incentive to refuse to share custody and instead receive the higher payment [for child support, compared to shared custody]. … fathers may treat financial transfers as substitutes for other forms of non-pecuniary investments and contact with children, which would also lead to a negative relationship between child support obligations and father-child co-residence.” The economists found that “an increase in the father’s obligation may lead to less attachment to his existing children and more time available to invest in new offspring.” (See the “Divorce Litigation” chapter for our interviewees’ perspective on how the main opposed interests in a divorce lawsuit are the plaintiff parent and the children, not the plaintiff and adult defendant.) The researchers also found that fathers who were ordered to pay more child support were more likely to have new children, thus diluting the time and energy available to prior children, and that fathers who were ordered to pay more child support reduced their working hours due to “market distortions generated by the ‘tax-like’ nature of child support mandates.” Mothers who received more child support cash for existing children were motivated to have additional children, either with or without a live-in partner: “mothers receiving higher child support payments for current children may expect higher transfers for future children if they separate again.” Note that this research was done with data from Denmark, where child support is tax-deductible and capped at $8,000 per year. The effects that they observed would presumably be larger in the U.S. where child support payments are not tax-deductible and can be $25-100,000 per year.
The authors also question an additional building-block assumption of the U.S. child support system. The government assumes that a typical woman who has custody of a child and cannot meet all of her own expenses from child support revenue will, rather than work, turn to the various taxpayer-funded welfare programs offered to women with children. Thus a dollar of child support extracted from a custody lawsuit loser is a tax dollar of welfare saved. Rossin-Slater and Wust say that it isn’t so simple: “Our results suggest that although child support mandates may shift some of the cost of single-mother household support from welfare programs to the non-custodial fathers, they also pass part of this cost on to other government programs such as disability insurance and early retirement.” (i.e., fathers in Denmark will retire or declare themselves disabled in order to cut their child support obligation from $8,000 per year back to the “basic/minimum” $2,000 per year)
If you’re a shareholder in a public company that underperforms the S&P 500 and want to know why most of what would have been your dividend money nonetheless goes to an apparently mediocre CEO, there is a “CEO Incentives and Compensation” session at 10:15 am.
Many sessions seem to be aimed at trying to understand the Collapse of 2008 and predict the next one. Also at 10:15 am on Saturday is a session looking into why the ratings agencies turned out to be worthless. “Did Government Regulations Lower Credit Rating Quality?” by Behr, Kisgen, and Taillard, concludes that “defaults and other negative credit events are more likely for firms given the same rating if the rating was assigned after the [1974] SEC action compared to before. … the market power derived from the SEC led to ratings inflation.” Did Jack Nicholson’s sponsorship of a child in About Schmidt (awesome movie, though very different from the novel; disclosure: my cousin Harry produced it) make a difference? At 10:15 session “Developing Hope: The Impact of International Child Sponsorship on Self-Esteem and Aspirations” says “yes” (on average). History buffs will skip all of these 10:15 sessions and head to the Boston Marriott Copley for a session on “The Economy of Ancient Israel.” The “dismal science” does not shy away from looking at war. At 10:15 session on “conflict and development” includes a paper by David Yanagizawa-Drott that villages that suffered the most violence in the Rwandan genocide had the highest living standards six years later: “These results are consistent with the Malthusian hypothesis that mass killings can raise living standards by reducing the population size and redistributing productive assets from the deceased to the remaining population.” At “Health Insurance Reform” session confirms the world’s most stuffed-with-cash health care system is not going to suffer any lean years due to government tweaks. A “Competitive Bidding in Medicare” paper concludes that there is little actual competition among America’s health insurers. A session on “The Minimum Wage, Family Income and Poverty” reveals that economists have no idea whether or not a higher minimum wage reduces poverty.
Are those crazy Super Bowl ad rates justified? A paper in a 12:30 pm Digital Media Economics session concludes “yes” by looking at movie ticket sales (for movies advertised during the Super Bowl) in the cities in which Super Bowl teams are based and therefore in which more fans are watching. Why is the U.S. a more tolerant society today than it was in the 1970s? A paper by Berggren and Nilsson in the 12:30 “Economic Freedom and Minority Groups” session suggests that it might be due to the deregulation started by Gerald Ford and the tax rate reductions started by Ronald Reagan: “We suggest, as one explanation, that a greater scope for voluntary transactions and private usage of incomes and wealth creates more meetings that increase understanding for people different than oneself – or at least for the value of letting people different than oneself have their say.”
At 2:30 there is a session on “Explaining the Energy Paradox.” Why do Americans buy fuel-inefficient cars and houses? Why has no American residential developer carved out a niche in German-style double-wall houses that can be heated or cooled for almost nothing? Why did the Federal Weatherization Assistance Program not work? (“overly optimistic engineering estimates of returns to the energy efficiency investments,” say the economists; translation: Americans are stupid). “Investor Behavior,” at the same time, explores the 2012 8X increase in the value of shares of DI Corp. “because the company’s chairman and CEO is [South Korean rapper] PSY‘s father.” (translation: investors worldwide are stupid; related: MIT Gangnum Style) A 2:30 session on “Redistributive Taxation” includes “Income Inequality Influences Perceptions of Legitimate Income Differences” by Harvard’s Kris-Stella Trump. She finds that people think the system under which they live is a good one: “When income differences are (perceived to be) high, the public thinks of larger income inequality as legitimate.” She calls this “system justification motivation.” [We found this to be true when interviewing divorce litigators in different states. Generally a litigator in State X thought that State X’s system was fair and just and so did a litigator in State Y, despite the fact that State’s X and Y had completely different outcomes for the same fact patterns.] Larry Summers talks about “Secular Stagnation” in a 2:30 pm session as well. “Do Vehicle Crash Tests Save Lives? Impacts on Market Decisions and Accident Mortality” by Damien Sheehan-Connor of Wesleyan says that Americans bought safer cars in response to Insurance Institute for Highway Safety tests and manufacturers designed safer cars in response to the testing (translation: Americans are not stupid). Why do venture capital firms underperform the S&P 500? Three Harvard researchers in “The Cost of Friendship” ” find that venture capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments..” Why do hedge funds underperform the S&P 500? “Recovering Managerial Risk Taking from Daily Hedge Fund Returns: Incentives at Work?” by Kolokolova and Mattes finds that “During earlier months of a year, poorly performing funds reduce their risk. The risk reduction is stronger for funds with higher management fees, shorter notice period prior to redemption, and recently deteriorating performance, which is consistent with a managerial aversion to early fund liquidation and loss of future management fees. Towards the end of a year, poorly performing funds gamble for resurrections by increasing risk.” Why does money invested in private equity (even with geniuses such as Mitt Romney at the helm!) tend to underperform the S&P 500? Korteweg and Sorensen say that “Based on past performance alone, an investor needs to observe an excessive number of funds to identify the PE firms with top-quartile expected returns, implying low investable persistence.”
The 2:30 slot includes a “Puerto Rico and Cuba” session that would no doubt be enlivened by a panel discussion about the recent political changes. The papers already scheduled show that Puerto Rico’s government policies starting around 1940 have led to the county becoming impoverished from an income point of view: “After seven decades of government sponsored development efforts, a benign macro environment compared to the rest of Latin America, and massive transfers from the mainland, GNI per capita remains at Uruguayan or Argentinian levels.” On the other hand, presumably due to federal welfare programs, consumption per capita is quite high: “Puerto Rico has succeeded in ensuring a standard of living for its citizens largely divorced from the productivity of its workers.” For actual divorce issues, there is a 2:30 pm “Structural Models of Family Interactions” session that looks at “Welfare Effects of Divorce Legalization” in Chile and “Deadbeat Dads” (trying to answer the question of why women would get pregnant with low-wage fathers). “Unemployment Insurance and Disability Insurance in the Great Recession” calls into question the assumption that Americans go on SSDI when their unemployment insurance runs out: “Only 28% of SSDI awardees had any labor force attachment in the prior calendar year, and of those only 4% received UI income.”
Is it all about the Benjamins? A 2:30 session “Well-Being: Measurement and Policies” suggest that maybe we can move “Beyond GDP”. Weina Zhou’s study of Chinese youths “sent down” for hard manual labor actually ended up doing better as 40-55-year-old adults and “these findings are robust against a variety of family backgrounds.” (time to plant some daffodil bulbs!) A “Cycling to School” paper finds that giving girls bicycles was “much more cost effective at increasing girls’ secondary school enrollment [in India] than comparable conditional cash transfer
Full post, including comments 
that my friend Gary loves is the best option).