The Christian Science Monitor on Sweden

The Christian Science Monitor has a long piece on Sweden (not mainly about economy, bur more cultural...) , citing me amogn many others
The welfare state needs to be lagom, says Dr. Bergh. Benefits can’t be so generous that they reduce work incentives, nor can taxes be so high that they frustrate the broad middle class.

The post-materialist economic freedom puzzle

In one of the papers that I am currently working on, I analyze market friendliness and market bashing. I just found out that it is related to what Pál Czeglédi (2023) call "The post-materialist economic freedom puzzle"
From the abstract:
Countries with a higher proportion of people with post-materialist values are freer economically than those with a lower proportion. The reasons why this is puzzling are that post-materialist values are not obviously more supportive to economic freedom than materialist ones, and that post-materialism correlates negatively with market friendliness in the West and positively outside it.

More soon!

Source:
Czeglédi, Pál. "The Post-Materialist Economic Freedom Puzzle." International Review of Economics, November 3, 2023. https://doi.org/10.1007/s12232-023-00436-5.

Higher marginal tax rate increases tax evasion (findings from Denmark)

This paper contains many reasonable findings:
Kleven, Henrik Jacobsen, Martin B. Knudsen, Claus Thustrup Kreiner, Søren Pedersen, och Emmanuel Saez. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark". Econometrica 79, nr 3 (2011): 651–92. Link

From the abstract (my emphasis)
using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.


Journal of Brief Ideas

My first contribution to the Journal of brief ideas was just published.

The idea: Does it take longer to choose among more alternatives?
From an optimization-view of human decision making it makes sense that choosing among more alternatives would take longer, simply because there are more alternatives to evaluate before deciding. If humans use simple rules of thumb or use satificing rather than maximizing strategies, it is far fram clear that choosing among more options will take longer.

To examine the question empirically, one could add a real life choice situation towards the end of a survey, for example by having the respondents choose among several options for e.g. charity donations. By randomizing the number of options displayed, data on time to choose among N alternatives for N ranging from 2 to around 25 (or even higher) can be easily collected.



10 classical papers in institutional economics

I am currently experimenting with generative AI in order to understand better how and when to use it. I have discovered that it works well for tasks such as "summarize explanations of the rise of right-wing populist parties" and "provide full references to ten classical papers in institutional economics".
The output after the latter instruction was the following list:

Coase, R. H. (1937). "The Nature of the Firm." Economica, Vol. 4, No. 16, pp. 386-405.

Granovetter, M. (1985). "Economic Action and Social Structure: The Problem of Embeddedness." American Journal of Sociology, Vol. 91, No. 3, pp. 481-510.

North, D. C. (1991). "Institutions and Economic Theory." The American Economist, Vol. 35, No. 2, pp. 3-6.

Williamson, O. E. (1985). "The Economic Institutions of Capitalism." Firms, Markets, and Hierarchies: The Transaction Cost Economics Reader, pp. 15-45.

Ostrom, E. (1990). "Rules, Games, and Common-Pool Resources." Annual Review of Political Science, Vol. 2, pp. 41-78.

Davis, L. E., & North, D. C. (1971). "Institutional Change and American Economic Growth." Cambridge University Press.

Coase, R. H. (1960). "The Problem of Social Cost." The Journal of Law and Economics, Vol. 3, pp. 1-44.

Barzel, Y. (1989). "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies." The Journal of Political Economy, Vol. 97, No. 5, pp. 1155-1189.

Olson, M. (1965). "The Logic of Collective Action: Public Goods and the Theory of Groups." Harvard University Press.

Stiglitz, J. E. (1988). "The Economic Role of the State." Oxford Review of Economic Policy, Vol. 4, No. 1, pp. 21-42.

Rational choice strikes back?

Behavioral Economists in Trouble

Dan Ariely and Francesca Gino (and most likely many others) are in trouble, the kind of trouble that involves data manipulation (by the looks of it) and paper retractions. Data Colada has all the details, but the story was also told by an Israeli investigative TV show, transcribed and translated here.

Episodes of Data Manipulation

From a standard rational choice perspective, episodes like these are only to be expected, given that:
  • Opportunities exist (e.g. adding or dropping observations in the raw data file from an anonymous websurvey or experimental platform)
  • The stakes (fame, fortune and/or positions at attractive universities) are high
  • The probability of getting caught is low (or has been, at least)
These facts add to an already significant pile of spectacular results in behavioral economics and social psychology that do not replicate. Sometimes the results were genuinely shaky (e.g. power posing), and sometimes the findings were simply made up, as in the case of Diederik Stapel (wikipedia, NY-Times). See further:

The Standard in Behavioral Economics and Social Psychology

The standard in behavioral economics and social psychology has long been that good papers are empirical articles that show that humans behave strangely and irrationally in ways that rational choice theory and neoclassical economics cannot account for. Mainstream economics' mathematical models were frequently criticized as having little to do with reality. The irony is that behavioral economists respond to incentives in a predictable rational manner – and some of their papers fail to describe the real world.

Perhaps we are witnessing the retaliation of neoclassical economics?


Update aug 17:

Gino is suing Data Colada. This is not the scientific exchange we wanted. Donate to their legal defense here.


Update


CALL FOR PAPERS “Urban rural differences in the Nordic welfare states”


Urban rural differences in the Nordic welfare states
An Arne Ryde Workshop at Elite Hotel Savoy in Malmö, Sweden, August 18-19
This workshop will bring together scholars that examine economic, political and cultural differences between urban and rural parts of the Nordic countries. A broad mix of paper submissions from a variety of disciplines (e.g. economics, economic history, political science, geography, sociology) is encouraged, including a multitude of methods and theoretical perspectives.
All papers related the broad topic of urban rural differences will be considered, but we particularly welcome paper contributions that

• use a longitudinal perspective and changes over time
• shed light on center-periphery tensions within municipalities
• study migration decisions
• examine urban/rural differences in culture, values and voting

The workshop takes place in Malmö at Elite Hotel Savoy close to the central station. For those who arrive on the 17th, there will be an informal gathering on the evening before the workshop. The program is scheduled to star at 10 am on the 18th, and is planned to end by lunch on the 19th. For presenters the Arne Ryde foundation covers food and hotel accommodation (one or two nights). Participants will make and pay their own travel arrangements.

Submit your proposal (full paper or abstracts are accepted) to
david.sandberg [at] nek.lu.se
and to
gissur.erlingsson [at] liu.se
no later than May 1st.

Everything but the result...

This is a HORRIBLE abstract: It has the motivation, the question, the method, the data - and a claim about the findings being important. But not even a sentence on what the findings are.

Studies that focus on individual-level determinants of support for right-wing populist candidates and parties find little evidence that trade-induced economic hardship is important. By contrast, research that analyzes aggregate data often comes to the opposite conclusion: regions that are highly exposed to trade are more supportive of populist parties and candidates than other regions. To address these contradictory findings, we argue that import shocks engender a broad-based response at the regional level, beyond those whose economic interests are immediately and directly affected, and that this reaction is mediated through xenophobic beliefs about immigrants. Using individual-level data from the eighth wave of the European Social Survey (2016), regional import shock data for nine European countries and causal mediation analysis, we explore how imports affect support for right-wing populists in Europe. Our findings have important implications for understanding the relationship between individual- and contextual-level factors and support for the far right

Source: Hays, J, J Lim, och JJ Spoon. "The path from trade to right-wing populism in Europe". ELECTORAL STUDIES 60 (augusti 2019). https://doi.org/10.1016/j.electstud.2019.04.002.


Do EU-grants cause or mitigate populism?

Here, in EER, is paper that is interesting in many ways. The authors:
Albanese, Giuseppe, Guglielmo Barone, och Guido de Blasio. "Populist Voting and Losers’ Discontent: Does Redistribution Matter?" European Economic Review 141 (01 januari 2022).
From the abstract:
We show that fiscal redistribution matters by comparing Italian municipalities equally hit by the economic shocks leading to populism but, at the same time, very differently exposed to the generosity of the EU structural funds, because of their locations on the two opposite sides of the geographical border that determines eligibility. Estimates resulting from a spatial regression discontinuity design show that in 2013 general election larger EU financing caused a drop in populism of about 9% of the mean of the dependent variable.
In many ways, the paper is a crystal clear paper with a credible identification strategy. Because transfers from EU structural funds are targeted to "Convergence Objective regions", there are strong discontinuities between municipalities:
and it seems that populist voting is more common in municipalities that do not recieve transfers:
[Parties coded as populist: Movimento Cinque Stelle (Five Stars Movement), Rivoluzione civile (Civil Revolution), Lega Nord (Northern League), Sinistra Ecologia Libert` a (Left Ecology Freedom), Fratelli d’Italia (Brothers of Italy), Partito Democratico (Democratic Party), Centro Democratico (Democratic Centre]

Using a regression discontinuity design, a clear result is identified:
As can be seen, average populist vote share falls from about 61 to 58 percent at the eligibility cutoff. Their conclusion:
We have shown that financial transfers injected by the EU regional policy toward Italian lagging areas have had the ability to reduce the anti-establishment component of populism.
That interpretation is indeed possible. But it seems to me that another interpretation is also possible:

Not receiving EU-grants when neighbouring municipalities (or when some parts of the country) receive grants causes resentment and fuels populism. If there were no structural funds granted to any municipality, how much populism would there be? We do not know.

Thus, despite being a crystal clear paper with a credible causal identification, we do not know if EU-grants cause or mitigate populism - because we do not know the counterfactual.


Graphic non-fiction book on markets and economic freedom

Good news: If things work out as expected, my graphic non-fiction book on markets and economic freedom, released in Swedish last year, will be published in English (with the Swedish publisher Idealistas) later this year.

The book is an illustrated book that explains the benefits of markets and economic freedom. It is based on research but it is non-technical and accessible. The book is similar to Bryan Caplan´s Open borders, but my book is much broader: It deals with the market economy in general, and discusses several misperceptions about the market economy.

The basic message of the book is that the market economy is a tool that helps people work together to achieve their goals. Here is a sample:

I am now raising money for the final stage of the production. Thanks to th Institute for Humane Studies and the Hayek fund, I have a very good translation to work with. The english version will be paperback, rather than hardcover (I actually thinks that woks better for a graphic non-fiction book). Hopefully, you will soon be able to order it on Amazon.