Archive for August, 2012

Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks

August 31, 2012

A nice paper which shows some contrarian experience. Japan actually tried to diffuse a natural monopoly but it only became bigger. This was in the case of fiber optics and the firm was NTT. It only became larger as other players quit the space:

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Perspectives on Risk and Governance: Indian and Global perspective

August 31, 2012

An amazing speech by RBI DG Anand Sinha. Pity it got lost in all the brouhaha over Gov Subbarao’s speech where he said pretty much similar things.

Sinha covers a lot of ground on how risk was mismanaged prior to the crisis and what is being done now (with some humor). He points to how India managed the risk profile of banks and alsdothe impact of new BIS proposals on Indian banking system.

It has a nice reference list as well..

How corruption hampers enforcement of environmental regulations: Case of South African fisheries

August 31, 2012

Aksel Sundström of Quality of Government Institute has this interesting paper on South African fisheries.

The study reflects on both common pool resources management (Ostrom) and Corruption:

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Dark Vision of the Future of Europe..

August 30, 2012

An inightful interview of Philosopher André Glucksmann (HT: thebrowser). So you have a nice philosophical and political perspective on the crisis

He says with nothing common in Europe, the future of this union is pretty dark. He also discusses how Franco-German relations have hardly ever been good and how Europe is a threat to itself…

Just a sample of the interview:

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Elinor Ostrom, you were right..

August 30, 2012

A superb post by  of WCI Blog. She points to this example of a turtle showing communities can manage common property resources..

It seems Lin Ostrom was right or rather turtley right as Woolley prefers to title the post….

 

India’s recent GDP Data Revisions — the woes of stats system continues

August 30, 2012

CSO recently revised the GDP data for 2008-09. Here is a small note on the same.

There are sharp changes in the quarterly GDP data in 2008-09 and 2009-10 (manly Q1, Q2 and Q4). However on an annual basis changes are marginal as higher growth in Q1 and Q2 is almost matched by lower growth in Q4. The revised nos are fairly large. So Q4 08-09 GDP is revised to 3.5% (lowest in the series) leading to Q4 09-10 GDP at 11.2% (highest in the series). Clearly policy prescriptions would have been different if this data was available..

Worse was there was no mention etc of this change on website/newswire etc. All new releases on GDP are usually released here but this information was instead placed here. And even on the webpage it was simply changed in the excel file (see 21 and 22) with an endnote on the file mentioning the change. The endnote was also added laters as the first set of excel file did not mention the change. So all over the place..

Manas Chakravarty nicely called it as quiet revision before the nos are announced on 31-Aug-12. Actually they could have made these changes on 31-Aug-12 itself. This would have informed the participants. Why do it just before a week?

The woes continue…

Curious contrast of public policies between Germany and the US

August 29, 2012

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Deriving India’s Potential Growth from Theory and Structure

August 29, 2012

Ashima Goyal and Sanchit Arora of IGIDR reflect on India’s potential growth.

The paper looks at potential growth via aggregate supply function. It says India’s aggregate supply curve is elastic but subject to upward shocks. If the shocks lead to inflation in the second round, it indicates that growth is above potential. Given this empirical relationship it tests potential growth in 2007-08 and 2010-11 periods when there was upward supply shock to inflation. In first phase it seems growth had hit above potential. This is not the case in 2010-11 phase. Further, they hint that policy rates were tightened more than needed:

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Is US Economic growth over? A discussion from innovations perspective

August 28, 2012

A fab paper by Robert Gordon of Northwestern Univ. I cannot locate a free version.

He looks at the US growth story from the innovation cycle angle. He points to three phases of innovations in US. Each of these phases led to growth in US economy. Some innovations had a much larger and longer impact than others.

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Economics in Denial…

August 28, 2012

A superb column by Howard Davies. He says Econs and policymakers are seeking help from other fields but not willing to reform things in their own area of economics. Another essay on state of economics..

He begins nicely quoting Trichet who sought help from other fields.

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Finance and the good society

August 27, 2012

nice interview of Robert Shiller. 

He says finance is not all that bad as it is eant out to be. Yes some people have denigrated its role but broadly finance is very useful. 

Romesh Vaitilingam: Welcome to Vox Talks, a series of audio interviews with leading economists from around the world. My name is Romesh Vaitilingam and today’s interview is with Professor Robert Shiller from Yale University. He and I met in the city of Bristol in the UK in May 2012, where we spoke about his book Finance and the Good Society. The basic theme of the book is the need to democratise finance by making the financial markets work better for everybody.

I began by asking Bob to explain exactly what he means by that.

Robert Shiller: The Occupy Wall Street and Occupy London people say “We are the 99%”. There’s an increasing concern with unequal distribution of wealth, and finance is perceived as the villain in all of this. But I’m thinking it can’t be the villain; finance is a technology that can, if it’s properly applied, help reduce inequality if it’s applied to everyone. So I think that people who are in finance today have a moral obligation to help advance the trend toward democratisation of finance. That means using the principles to really help people.

RV: Could you explain a little bit more on what that means? In the book you use the phrase “finance is about human desires and human possibilities” which is a very powerful sense of being about our deepest wants and what we’re able to achieve. Could you explain how finance helps us to fulfil our desires?

RS: When you think of finance, you come to it thinking “Make money! Get rich!” You should instead think about financing activities, things that people do together that are important to them. Achieving goals that are shared by groups of people. Financing activities is what it’s all about. And the underlying problem is that just about anything that we think is important to do can’t be done by one person. You need groups of people and you need resources, various things that are produced in other countries that would be inputs to your activities. And the organisation generally has to last for years and years to achieve the goal, so it has to have some kind of continuity of support from people and resources. And that support is called financing, so that’s what it’s all about.

He cites some recent innovations in finance like benefit corporation, social impact bond:

RV: Can you give us some specific examples of great innovations, great advances in the technology of finance that have helped society to develop?

RS: There’s a lot of scepticism about financial innovation. Paul Volcker, the former Fed chair, said he couldn’t think of a financial innovation other than the Automatic Teller Machine that gives him cash. He said that about two years ago and it’s been quoted a million times. Even since he said it I can think of a number of innovations. One of them is the benefit corporation, which was created in the United States. The first one was about a year and a half ago.

The benefit corporation is a new kind of corporation that’s halfway between profit and non-profit. It fills a need. The benefit corporation makes profits and distributes them to shareholders just like a for-profit corporation. The only difference is, and this may seem like a small difference to some, the corporate charter specifies a purpose – a social, environmental or charitable purpose – in addition to the profit-making purpose. It doesn’t really clarify how the effort will be divided between the two. Some traditional economists who look at this would say, “This doesn’t make any sense! A company should make profits and be focused on that. If there’s any charity it’ll come after the company distributes the profit to shareholders, and they can do what they want with it, including charity.”

But the problem is, and this is what’s bothering people these days, a strictly for-profit corporation just seems selfish. And it is selfish, because focusing directly on profit is just not humane. I think everyone will feel better about these benefit corporations. They’re just starting up now, only in the US at this point but I think the idea will spread. So that’s one innovation.

The social impact bond, which started also in the last couple of years in the United Kingdom. It’s a bond issued by the government which pays out only if some social goal for the society is met. So, for example, the UK government issued a bond that will pay out in six years if the re-incarceration rate of prisoners released from Peterborough prison falls by 7.5%. A very well-defined goal. They release someone after his term is up and six months later he’s done it again, he’s right back in jail, and they just can’t figure out what to do about that problem. So the social impact bond opens it up to entrepreneurship. They’re finally saying, “We don’t know what to do about this problem. Can somebody out there figure it out?” And anybody who wants to can come in and invest in these bonds and the money goes to, say, working with prisoners, finding them jobs, that sort of thing. But these people know that they will get nothing unless they actually reduce the rate. The idea is that this incentivisation will bring in some diverse new ideas and enthusiasm to fix the problem.

Hmm..Not sure how benefit corporation is a innovation. It has been here for a while via other names like corporate social responsibility. Social impact bond looks interesting though..

Superb as always from Shiller..

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

August 27, 2012

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):

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Modelling risks to the financial system

August 24, 2012

Nice speech by Ms Agathe Côté, Deputy Governor of the Bank of Canada. 

She covers the recent issues with respect to modelling fin risks and what BoC is doing about it..

Modelling risks to the financial system

August 24, 2012

Nice speech by Ms Agathe Côté, Deputy Governor of the Bank of Canada. 

She covers the recent issues with respect to modelling fin risks and what BoC is doing about it..

Arguing democracy and politics in India: role of intellectuals..

August 24, 2012

A nice paper by Sunil Khilnani of Johns Hopkins University. He discusses how intellectuals and thoughts shaped Indian democracy etc, in initial years:

I’d like this evening to talk about India’s democracy; the most expansive and arguably most significant experiment with democracy since the late eighteenth century. Habitually noted as a success of some sort, the Indian experiment is just as often absolved from serious interrogation. Following the political congratulations, intellectual condescension all too often settles in, in large part because the Indian case seems too exotic to understandings based on the Western experience. Indeed the emergence of India’s democracy is a direct challenge to the axioms of classical theory—particularly those which stress social homogeneity and political unanimity.

Superb account..

On a demographic consequence of the First World War

August 24, 2012

Super column by Guillaume Vandenbroucke. It is connected to the work on linking institutions with supply of labor by Elena Nikolova . In that work, Nikolova  showed inclusive instis are more likely to emerge when we have shortage of labour. One of the example was world wars where economies like US allowed voting for women to incentivise women as supply of men has decreased post World Wars.

This column by Vandenbroucke goes a step back and shows how labor force has declined post WWI. This was because of decline in fertility. The fertility in turn declines because of expectations over loss in income and productivity. He actually makes a model factoring these expectations and shows it resembles the actual trend fairly closely.

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Black Swans flocking everywhere

August 23, 2012

A terrific column by Jeff Frankel.

He says August is the time for extreme events which are also called as Black Swans (his blog post has more details):

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How arranged marriage systems cultivates rivalry among sisters…

August 23, 2012

An interesting paper by Tom Vogl on economics of family and sibling rivalry. This kind of research mixes Gary Becker and Al Roth works .

In this paper he looks at this arranged marriage system in South Asia and focuses on households where you have two sisters. In such a household  parents try and marry off their elder daughter quicker to maintain gap between older and younger sister. This helps find a groom for the younger daughter overtime. In the process, elder daughter is cut off early from school but younger gets more time and ends up ebing more qualified etc. The younger also get a groom who is better educated etc.

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History and Prospects of G-20..

August 22, 2012

A nice piece on G-20 group  by Homi Kharas and Domenico Lombardi of Brookings.

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Using water usage intensity as comparative advantage..

August 22, 2012

Looks like a super paper by Peter Debaere of University of Virginia. As the paper  is paid, thankfully the findings are explained in voxeu.

Water is deficient in some regions and surplus in others. Hence on a global net basis, there may not be a water crisis. However, in some deficient regions there may be a crisis. He suggests using market forces to rectify this mismatch:

 

The major concerns about water availability stem especially from the very uneven global distribution of water. While many countries clearly have more than enough water to satisfy their populations’ increasing needs, some countries do not. Because water scarcity is tied to particular regions, it is easy to understand why analyses of and policy solutions for water scarcity have traditionally had a local focus. Only recently have scientist realised that a global framework is needed (Hoekstra et al 2008 and Vörösmarty et al 2000).

Most of the things we produce require water, and often much more water than people are aware of. One single apple, for example, has a water footprint of 700 litres, and it takes 24,000 litres before you can buy one kilogram of chocolate in the store. My study (Debaere 2012) explicitly studies water as a source of comparative advantage and investigates whether countries use water efficiently on a global scale. In other words, I investigate whether countries with relatively scarce water resources shift their production and exports away from more water-intensive goods (i.e. goods whose production requires, compared to other factors, more water) to less water-intensive goods. In a world in which international trade is possible, those water-scarce countries can then buy water-intensive goods from countries that do not face any significant water resource constraints.

The initial findings show this comparative advantage business is already happening:

Figure 1 below shows that such an international specialisation of production and trade is, at least to some extent, taking place. It shows the share of world exports for the 65 most water-abundant countries of the world in ten groups of goods that are classified by increasing water intensity. As one can see, the export share of the water-abundant countries tends to increase with the water intensity of the export goods.

Econometric evidence confirms that water is a significant factor in determining the international pattern of exports, while controlling for other production factors such as capital, skilled labour and land. At the same time, my estimates indicate that the traditional production factors, i.e. capital and skilled labour, play a much more important role in determining the pattern of international trade (and production) than does water. From a global perspective and in light of the current debate about climate change, this evidence suggests that changes in the pattern of trade due to changing precipitation and water availability should be contained.

So, it seems some adjustments are already happening. There are some caveats where some countries which are heavy agri exporters can face disruptions due to water shortages…

Overall, open markets can help alleviate the water crisis:

Global economic analyses of water scarcity are few, in spite of the imminent water crises, the extensive international trade literature, and the wealth of data from water studies outside economics. While more research is needed, especially on the specific impact of trade policy on water use, my study suggests that open markets that make the international specialisation of production possible may offer a way to fight water scarcity.

I am not really convinced. The focus is on just one kind of usage of water – in goods. Water is used for many other basic livelihood purposes and the real challenge is there. Infact, people can figure out goods which use low water resources without even opting for international trade. The real challenge is to have enough water for basic living..


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