Quandary

HOW RESEARCH AFFECTS POLICY

Results from Brazil

How can evidence inform the decisions of policymakers? What value do policymakers ascribe to academic research? In January, we highlighted Yale’s Evidence in Practice project, which emphasizes the divergence between policymakers’ needs and researchers’ goals. Other work describes the complexity of getting evidence into policy. A new study by JONAS HJORT, DIANA MOREIRA, GAUTAM RAO, and JUAN FRANCISCO SANTINI surprises because of the simplicity of its results—policymakers in Brazilian cities and towns are willing to pay for evidence, and willing to implement (a low-cost, letter-mailing) evidence-based policy. The lack of uptake may stem more from a lack of information than a lack of interest: “Our findings make clear that it is not the case, for example, that counterfactual policies’ effectiveness is widely known ‘on the ground,’ nor that political leaders are uninterested in, unconvinced by, or unable to act on new research information.”

From the abstract:

“In one experiment, we find that mayors and other municipal officials are willing to pay to learn the results of impact evaluations, and update their beliefs when informed of the findings. They value larger-sample studies more, while not distinguishing on average between studies conducted in rich and poor countries. In a second experiment, we find that informing mayors about research on a simple and effective policy (reminder letters for taxpayers) increases the probability that their municipality implements the policy by 10 percentage points. In sum, we provide direct evidence that providing research information to political leaders can lead to policy change. Information frictions may thus help explain failures to adopt effective policies.”

Link to the paper.

• New work from Larry Orr et al addresses the question of how to take evidence from one place (or several places) and make it useful to another. “[We provide] the first empirical evidence of the ability to use multisite evaluations to predict impacts in individual localities—i.e., the ability of ‘evidence‐based policy’ to improve local policy.” Link.
• Cited within the Hjort et al paper is research from Eva Vivalt and Aidan Coville on how policymakers update their prior beliefs when presented with new evidence. “We find evidence of ‘variance neglect,’ a bias similar to extension neglect in which confidence intervals are ignored. We also find evidence of asymmetric updating on good news relative to one’s prior beliefs. Together, these results mean that policymakers might be biased towards those interventions with a greater dispersion of results.” Link.
• From David Evans at CGDev: “‘The fact that giving people information does not, by itself, change how they act is one of the most firmly established in social science.’ So stated a recent op-ed in the Washington Post. That’s not true. Here are ten examples where simply providing information changed behavior.” Link. ht The Weekly faiV.
• For another iteration of the question of translating evidence into policy, see our February letter on randomized controlled trials. Link.

New Researchers: AMPLIFICATION INCIDENCE

Marginal propensity to consume and the aggregate effects of recessions

In her job market paper, MIT economics PhD candidate CHRISTINA PATTERSON studies how “the differential exposure of workers to the effects of recessions contributes to the size of the recession.” Her empirical research documents that workers with higher marginal propensity to consume are more exposed to the effects of a recession, and that the “covariance between worker MPCs and the elasticity of their earnings to GDP is large enough to increase shock amplification by 40 percent over a benchmark in which all workers are equally exposed.” The paper explores policies that could stabilize these effects, including unemployment insurance for younger workers and monetary policy.

From the paper:

“The postwar U.S. economy is characterized by periodic large recessions. In the 11 recessions since 1945, gross domestic product fell by an average of 2 percent, and the unemployment rate spiked by an average of 2.3 percentage points. Most recently, in the Great Recession—the most severe downturn in the post-war period—GDP contracted by more than 4 percent, consumption fell by almost 3 percent, and the economy shed 8.6 million jobs. Recessions are also unequally distributed. In the labor market, the employment of small and young firms is particularly volatile, as are the earnings of both very low and very high earners. This project proposes a link between the heterogeneous impact of cyclical shocks and the size of recessions. I show that the unequal incidence of recessions increases the aggregate marginal propensity to consume and via this channel significantly amplifies recessions.”

Link to the paper, link to Patterson’s website.

Each week we highlight great work from a graduate student, postdoc, or early-career professor. Have you read any excellent research recently that you’d like to see shared here? Send it our way: editorial@jainfamilyinstitute.org.

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• New on our blog, the Phenomenal World: JFI Fellow and Harvard economics Professor Max Kasy puts down some thoughts about the politics of machine learning. (Part one of two.) Link. And sign up for our Phenomenal World newsletter to get new posts directly in your inbox.
• At 3P, Matt Bruenig argues that the Survey of Consumer Finances, a very widely used source for estimations of the distribution of debt, “systematically understates how much student debt is carried by low-income individuals… and probably dramatically so.” Link.
• Despite representing a huge improvement over the Official Poverty measure, the Supplemental Poverty Measure introduced by the Obama administration in 2011 fails to adequately consider the cost of healthcare. In a new paper, Sanders Korenman, Dahlia K. Remler, and Rosemary T. Hyson use the proposed Health Inclusive Poverty Measure to estimate the effect of Medicaid on child poverty. Link.
• Sanjukta Paul on the double standard of antitrust law. Link.
• Darrick Hamilton and Christopher Famighetti argue that homeownership rates for young people are lower than they’ve been in a century, and that reductions in the racial ownership gap made during the civil rights era “have now been lost.” Link.
• ITEP’s analysis of Rashida Tlaib’s phase-in-free EITC expansion proposal. Link. And link to ESP’s Natalie Foster writing in Newsweek on the policy. ht Lauren
• From a couple months ago: Gabriel Zucman, Emmanuel Saez, and Fernando Hoces de la Guardia develop a dynamic tool for analyzing Elizabeth Warren’s proposed wealth tax. Link.
• Climate change and the collapse of the world’s first empire, by Vasile Ersak. Link.
• “The neglect of radical uncertainty is a fundamental problem for modern economics.” John Kay on the legacy of economist G.L.S. Shackle. Link. For a deeper exploration of the origins and applications of this Keynesian concept, see James Crotty’s Keynes Against Capitalism. Link.
• Ray Fair looks at the history of US infrastructure since 1929: “No other country has a pattern similar to that of the United States, namely a roughly monotonic decline in the ratio of infrastructure to GDP beginning around 1970. The United States appears to be a special case in this regard. The overall results thus suggest that the United States became less future oriented, less concerned with future generations, beginning around 1970.” Link.
• From Developing Economics: “The Curious Case of M-Pesa’s Miraculous Poverty Reduction Powers.” Link. ht Sidhya
• A report on how Kerala’s government and population developed swift and effective mutual aid strategies to overcome environmental disaster in the 2018 floods. Link.
• “How did Europe escape the ‘Iron Law of Wages?’ Productivity growth can only explain a small fraction of the rise in output per capita. Population dynamics—changes of the birth and death schedules—were far more important determinants of steady states. We show how a major shock to population can trigger a transition to a new steady state with higher per-capita income. The Black Death was such a shock, raising wages substantially. Because of Engel’s Law, demand for urban products increased, and urban centers grew in size. European cities were unhealthy, and rising urbanization pushed up aggregate death rates. This effect was reinforced by diseases spread through war, financed by higher tax revenues. In addition, rising trade also spread diseases. In this way higher wages themselves reduced population pressure. We show in a calibration exercise that our model can account for the sustained rise in European urbanization as well as permanently higher per capita incomes in 1700, without technological change. Wars contributed importantly to the ’Rise of Europe,’ even if they had negative short-run effects. We thus trace Europe’s precocious rise to economic riches to interactions of the plague shock with the belligerent political environment and the nature of cities.” Voth and Voigtländer on “The Three Horsemen of Riches.” Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org