Honeybee Economics – Implications for Ecology Policy

What a brilliant paper by Vesa Kanniainen of University of Helsinki, Tuula Lehtonen  of Finnish Beekeepers’ Association and Ilkka Mellin  of Aalto University.

It tells you about so many things about economics using honeybees and their activity at the centre. It tells you about economic systems, leadership, externalities (positive ones), work ethics and what not:

For thousands of years, humans have known the value of honeybees in agriculture. Their pollination services are crucial for the mankind, the Global ecosystem and food production. The recently documented decline of the honeybee colonies in the world is alarming and may threaten the whole living nature. To develop a proper policy intervention, the economic analysis can be employed to develop Honeybee Economics. Such an endeavour reveals striking efficiencies of honeybee societies in terms of division of labor, the pleasure of work, career development, information sharing, and extreme altruism. A communist society, however, comes at a cost. Strict policing in management of the genetic interest conflicts is unavoidable in terms of workers’ dictatorship with a rather limited power allocated to the Monarch.

In our paper, the economy of honeybees is analyzed in terms of an implicit labor contract with a farmer. It is a two-output economy: the honeybees not only produce honey but are engaged in Pareto-efficient exchange with flowering plants including procurer and provision of pollination services. This benefits the whole nature. Markets for pollination services exist only in limited areas, for example in the Western United States. The missing market makes the pollination an externality. In their principal-agent relationship with the farmer, the working effort of honeybees appears a virtue in the spirit of the Calvinist Ethics. The industry is subject of substantial risks. The risk aversion creates a wedge between the expected market price and the production cost. The risks are reflected in volatility in the pollination services reducing the consumers’ welfare. Data on honey production, a complement to the pollution services, is used to examine the magnitude of risks and the potential cycles. Both the externality, the industry risks and the risk aversion speak for taxing consumers and subsidizing producers as the solution for the optimal tax problem.

Though the paper is on technical side. However, students could be given this paper in the class to work simultaneously on econ and math lessons. The paper moves interestingly from one aspect of honeybee econmics to other ….I would love to be part of such a class and sort some math..

 

Why reforms fail: Political-economy forces and agriculture in Africa

M. Ataman Aksoy of WBank has written this paper on the topic looking at reforms in Africa’s agricultural markets. He says the issue is not announcing reforms but sustaining them. What sustains reforms? Politics ofcourse.

He summarises the findings in voxeu:

Role of an Economist in Economic Development..(Student vs Saviour)

Peter Boettke and Christopher J. Coyne of GMU have this nice paper on the topic. It also has some advice for current and wannabe econ advisers for government on development issues.

They review the history of dev econ in brief and show why there is no holy grail for development. The factors for development have varied from  investment to innovation to human capital and now to instis. The authors show why all these ideas have failed broadly. I am skipping all this..

On instis, they say development eco does not include (read model) the role of informal, indigenous institutions. They point to the concept of metis:

Evaluation of teaching public policy programs in East Asia..

A nice paper by Xun Wu, Allen Yuhung Lai (both of Lee Kuan Yew School of Public Policy) and Do Lim Choi of Chungnam National University.

They evaluate public policy programs taught in East Asia. The demand for such programs has risen as countries have moved towards democracy and demand for better governance.

Case of vanished states and a Republic which lasted just one day!!

An interview which Acemoglu/Robinson duo would really like. It is by Norman Davies a British historian. His  latest book, Vanished Kingdoms, traces Europe’s extinct polities from the Visigoths to the Soviet Union. The interview is quite a read.

He says kingdoms come and go. It is not about success or failure really. Just ups and downs and (reemergence in some cases):

European Crisis: Whether economic knowledge helped?

A nice lecture by PIMCO’s Mohamed A. El-Erian at NBER-Sloan Conference on the European Crisis.

He looks at whether econ know-how helped understand policy issues in European crisis:

Economics – Pre-Crisis Consensus vs vs. Post-Crisis Confusion

This is the title of my new paper. Comments/Suggestions welcome..

Impact of crisis on marriage markets…

One central theme which has emerged recently is rising inequality across the world. The haves and getting richer and have-nots not as much. The result is rising inequality. This has been happening for a while but it took this  crisis to point to this disturbing trend. And of course the crisis has made things even worse with most people getting effected at middle and lower income quintiles.

Now to the title of the post. Michael Greenstone and Adam Looney of Brookings write this superb note on how the crisis has led to a further decline in marriage rates in US:

How to reform state of economics? Avoid Envying Physics…

Andrew Lo reflects on the state of economics and suggests what could be done to improve teaching in economics. He says the problem has been this economists fascination with Physics where things can be controlled in lab experiments and hence some superb research comes with accuracy etc.

Earlier economists were highly impressed with Physics and tried to model economics accordingly. Peter Boettke even said economics suffered big time because of Paul Samuelson:

Were more financially open countries impacted higher in the 2007 crisis?

Andrew Rose of UCB’s answer is no.

In this paper he looks at both multilateral and bilateral financial integration with US and sees no impact:

Are CBO’s forecasts good enough?

CBO’s (Congressional Budget Office) independent evaluation of US fiscal deficit/debt is much celebrated. However, the crucial thing is how good are its forecasts of the US debt?

This paper by St Louis Fed econs say the record is nothing great. The idea is not to malign CBO (far from it) but to review its forecasting record and if possible help it improve. Unfortunately, the paper says it is not sure how it can advise CBO to improve. What is worse (actually only for CBO, not for most forecasters) is that random walk forecasts work better than CBO forecasts . So no real point is burning all that electricity and computer power churning numbers…

Impact of US policies on US Treasury yield curve

Michael Bauer of FRBSF writes this nice short paper on the topic.

Policies impact yield curve but the impact varies across maturities. So some policies impact shorter end more than longer end.Some impact the mid tenors more. Bauer looks at the policies and their impact in recent times :

The forgotten book that helped shape the modern economy

A British names John Cary wrote a treatise called An Essay on the State of England in 1695.

He laid out a powerful case for how England, through muscular government intervention in economic affairs, could create national wealth based on manufacturing. This production would be fueled by an imperialistic British Empire, which through its expansion would provide the needed raw materials.

The book proved extremely persuasive at home and also abroad after being translated into French, Italian, and German. Government leaders and policymakers in each of these countries were influenced by the Essay’s key idea that government should be a dominant player in helping shape economic development.

Sophus Reinert of HBS historian brings this to limelight in a book called Translating Empire: Emulation and the Origins of Political Economy.

There is a nice interview in which he explains the book:

Political economy of Greece crisis and why India did not go the Greece way?

This is an amazing must read paper on the Greece crisis. On reading this you come to three points:

• How Greece became a member of EMU despite being such a crony capitalist country?
• Those who think after bailing out Greece things will be resolved, are just making a fool of themselves. This country needs a complete overhaul starting from government and will take a while for it to be a worthwhile economy.
• In many ways Greece is like many of those companies like Enron etc that has been fooling all the stakeholders for a long time. And then comes a time when game is over embarrassing one and all. Greece became a developed economy (god knows how) despite many defaults in the past. On joining the EMU, it discovered it could borrow at rates equal to Germany without doing anything and continued to splurge. And now the game is over embarrassing all – banks, memmber EMU countries etc.

A similar perspective was brought by Michael Lewis who showed corruption is rampant even in religious places like monasteries. There was one such monastery which led to this crisis as well

Another afterthought on reading this paper is – Much of Greece happenings are similar in India as well (will become clearer on reading the paper and the post). This brings me to two qs as well:

Argentina lessons for Greece/EMU and India??

CEPR economists have been going pretty aggressive to suggest Argentina is a good success story. They  suggest the growth reforms since 2001 crisis has lessons for EMU economies (and others).  They also predicted that incumbent President Cristina Fernandez de Kirchner likely to be reelected given the positive developments in economy.

In this paper, the authors point Argentina is a success story for follwing reasons:

From negatively sloping Philips curve to Backward Bending Philips Curve

RBI has been explaining this idea of backward bending Philips curve in may speeches and papers. The concept has helped RBI explain (atleast tried to) that there is a threshold level of inflation where the curve bends backwards. Hence, instead of inflation acting as a grease for growth it acts as a sand.

This paper from RBI econs Sitikantha Pattanaik and G V Nadhanael explains the whole shift in thinking from (-ly) sloping Philips curve to backward bending Philips curve.

Table 1 in the paper is titled – From NAIRU (-ly sloping) to MURI (Minimum Unemployment Rate of Inflation or backward sloping Philips curve). In the table you have the equation of Philips curve and how it has changed over the years. It is just amazingly explained.

Table-1: Growth-Inflation Tradeoff in Theory– from NAIRU to MURI

1.   w = f(u – u*)                                                                      Lipsey (1960)
2.   π = f(u – u*) + π^e                                        Friedman (1968) and Phelps (1968), Lucas (1972)
3.   π = f(u – u*) + λπ^e                                                             Tobin (1971)
4.   π = f(U – U*) + λ(U)π^e                                                        Palley (1994, 1997)
5.   π = f(U – U*) + π^e(π)                                                          Akerlof (2000)
6.   π = f(U – U*) + λ(π^e)π^e                                                      Palley (2003)

Source: Palley (2011, 2008)

Read the paper for details. It is a must going back to basics of Macro..

The paper towards the end looks at threshold level for India and comes at the same conclusions as this paper - around 6%.

I just have one problem with these India growth-inflation papers. Indian growth story is very recent and is not even a decade old. So say you study the threshold from 1970s or 1960s, most of the data you get is of low growth and low inflation phase. Compared to other developing econs, India’s record on inflation has been more sober. So, you get much lower threshold level for inflation.

Since 2006 we have started to face both high growth and high inflation. I believe calculations will change as we move on in this current India growth story phase.  I mean just like threshold inflation we have threshold growth as well where inflation starts to rise moment it crosses the threshold. This threshold is widely believed as 8-9% but is actually much lower. The potential may be much higher but for that you need adequate supply as well.

Nevertheless, nice paper explaining concepts neatly. If not every bit you get some flavor..

 

 

 

 

Economic adjustment in EMU.. lessons from Latvia?

Jurgen Stark in his last few days at ECB gives a food for thought speech on the topic.

First, when a mon union faces a shock what should it do? He says there are 3 ways to adjust (based on Robert Mundell):

Does improvement in Doing Business rankings lead to higher FDI?

One would think so. But  Dinuk Jayasuriya of WB says the relation is not as robust.

Using Industrial Organisation approach to understand financial firms and regulation

This is a terrific speech from Fed Governor Daniel K. Tarullo. He gives you a different perspective (not entirely new though) on thinking about financial firms and their regulation.

He says economists should use insights from Industrial Organisation Economics (IO) to help understand the developments in financial markets:

Any hope of recovery in advanced economies should perhaps end with this research paper..

I have not blogged about the papers presented at Jackson Hole Conference – 2011 which is bad.

This paper by Stephen Cecchetti, Madhusudan Mohanty and Fabrizio Zampolli is a must read. It looks at debt levels in all 3 sectors of economy – households, public and private- of various advanced economies. They also look at threshold levels of debt for each of these sectors to understand when high debt starts impacting growth.

Their findings: