On-going research

I am making (slowly) progress on three fronts in my research:
-My paper with Daniel Montolio on regulatory federalsim in telecommunications has been accepted in Information Economics and Policy, subject to some minor final changes.
-I presented an interpretative survey on Behavioral Public Economics and Regulation in my Department last thursday. It's just a preliminary version, I have to work much more on it.
-On November 6th I will present at the University of Barcelona my paper with John J. García on takeovers in European energy.
What do these papers have in common (besides their slow production process)? Perhaps the consideration that the preferences of regulators are endogenous and context-dependent, in different ways, although when I started working on regulatory federalism and energy takeovers I didn't see it in this way. But I'm so slow that when I started I didn't know about behavioral economics. The first and the third paper can be downloaded in their current versions from my web page.

Research on policy makers' backgrounds

I have been collecting data on the backgrounds of members of regulatory agencies in Latin America and Spain, and reviewing some related literature. There is a paper on the professional and educational bakckrounds of central bankers, stating that insiders are more hawkish than outsiders, which is reiterated by research on dissenting votes in the Bank of England. There is also recent research by Paul Grout among others on the "experience effect" in the Competition Commission in the UK. They find that more experienced regulators in competition policy tend to be tougher on companies potentially abusing their monopolistic position. What to make of this empirical evidence? There are two potential intepretations: that many regulators do not easily apply efficient welfare enhancing decisions, but the most politically expedient ones, or that they have biases that come from different cultural views and not from different sources of information as experts, as argued by social pshychologist Slovic. Perhaps both interpretations can be reconciled by the fact that behavioral biases usually go into the direction of making policies closer to the more politically expedient (or populist) options, as argued by Kovacic and a co.auhtor in a recent paper in the Journal of Regulatory Economics.

The right does anything to avoid redistribution (including the manipulation of nationalism)

Great reminder by Paul Krugman about the essentials of the political economy of redistribution. This is essential reading for anyone who wants to understand inequality in democracies. In any society income distribution is skewed, which means that the median voter has preferences for redistribution. This is the essential part: "imagine yourself as a hired gun for the right tail of the income distribution. What would you do in an effort to stop the median voter from realizing that she would benefit from a more European-style system? Well, you’d do everything you can to exaggerate the disincentive effects of higher taxes, while trying to convince middle-income voters that the benefits of government programs go to other people. And at the same time, you’d do everything you can to disenfranchise lower-income citizens, so that the median voter has a higher income than the median citizen". In many countries, especially but not only in Europe, you would add that one of the things a desperate right wing guy would do is to manipulate the nationalistic feelings of the people, so that middle and even lower classes support right wing leaders who present themselves as more nationalist, just because this way elections are run on nationalist agendas, and not on redistributive issues. As John E. Roemer once said, that is one of the reasons why the poor do not expropriate the rich in democracies. Followers of current issues in Catalonia and Spain may obtain useful insights to understand recent developments.

Soccer and Public Economics

Tomorrow I start teaching the course (20 hours) on Public Economics at the UAB's Master in Economics and Business Administration. As last year, I will explain welfare economics, political economy, incentives in the public sector and behavioral economics. At the same time, I am teaching a course on the economics of soccer. Is there any relationship? I certainly have incentives to find any, because my cognitive abilities are limited. I guess they have in common that in both cases it is about finding both market failures and individual failures. It is also about externalities and how different institutions (leagues, governments) try to internalize them. Individual failures sometimes make government intervention more necessary, but in the case of soccer individual biases and anomalous behaviour just make the whole show more fun (think of those idiosincratic club officials, or those stupid sports journalists). And sometimes individual failure (inside government) make intervention or collective action more difficult. And then there is the whole issue of public investment in sports, for example building stadiums or organizing big sports events, clearly in general a case of governmental failure. Don't get me wrong, government failure does not mean that governments should not intervene in the economy, but that they should do better things (not spending lots of money in big sports events that in general have more costs than benefits).

INTELLECTUAL TOOLS FOR INDEPENDENCE AND SOVEREINGTY DEBATES

Today many thousands of people demonstrated in Barcelona in favour of the independence of Catalonia from Spain. I was not among them, because my current position (which I am open to discuss in a civilized debate) is against opening a process of secession. But I think that if so many people are in favour of independence, there should be a serious debate about it, even if the current wave is a result of economic collapse and political opportunism, or precisely because of it. Here are some sources that may be helpful. All these sources have in common that they have nothing to do with Catalonia, and therefore are far away from the emotions that plague this debate locally. Therefore, they may provide some objectivity:

-Samuel Bowles: in his book on “Microeconomics” and in some more recent contributions explains both how ethnic and national groups are part of the mechanisms of cooperation (sometimes against others) present in human life since early history, and how the nation-state developed as a complement to large scale capitalism.

-John Roemer, in his paper on “Why the poor do not expropriate the rich in democracies?”, explains how minorities in the income scale may skillfully use other dimensions (such as religion or ethnicity) to obtain votes that they would not obtain if the cleavage were only income distribution.

-Ernest Gellner, in “Nations and Nationalism”, explains both how nationalism should never be underestimated and how national cultures in nation-states have provided the necessary glue in modern industrial societies to avoid entropy and facilitate exchange and mobility. Then if there are more nations than states, nations compete to become states.

-Claudio Magris in “Il Danubio” explains how multi-national and multi-cultural states are everywhere in Europe, and how the ethnic dream (or nightmare) of having uni-national states is futile, at least in most of Europe.

-Josep M. Colomer, in “Great Empires, Small Nations”, explains how more small nations have become states, or have achieved success in promoting their interests because larger "Empires" have been allocated the task of building global public goods.

Other interesting authors include Alesina and Spolaore, who have a paper where in a globalized world small nations face little costs of abandoning big states; Ginsburg, who discusses the economic and welfare aspects of linguistic policies; and Sen, who analyzes the implications of people having a variety of overlapping identities.

Any serious discussion of independence should attempt to answer both positive and normative questions. Among the positive questions: how have current frontiers been fixed? How many of them are the result of wars and violence, and how many of them the result of civilized settlements? How many of them have required international agreements or the collapse of a former empire or international bloc? Which would the distributive implications of independence be? Which social groups would benefit most? How would the transition process be? How would assets be split? How would the new social security system be?

Normative questions should include what is the relevant collectivity whose welfare should be considered? In the case of Catalonia, the project of its independence should consider only the citizens of Catalonia, those of Spain, or all the world (some externalities are conceivable: imitation effects, collective action deviated to nationalistic issues instead of global public goods)?

In the case of Europe, how would secession processes in Scotland, Catalonia and other nations interact with the political construction of Europe which is necessary to resolve the current economic and financial crisis? Can secession and a federal Europe be achieved at the same time starting from the current stus-quo? Would the new states be accepted in the European Union and the euro?

The necessary cost-benefit analysis should consider the huge role of uncertainty and the application of a discount factor. It seems plausible that the benefits could increase in the long run, especially for rich regions, but the costs would be concentrated in the short run and in transition. How should the future be valued compared to the present? If in the current legal framework there is no way to make democratic independence possible, should peaceful resistance of armed struggle be adopted? What would the costs of these be?

How should shared symbols and common history be accounted for? Some people in the potentially independent land may have family, linguistic, cultural, sport or heritage links with the bigger nation-state. 

What can we expect in terms of changes in terms of government and regulatory capture? What happens if mechanisms for tax harmonization are not strong enough and there is a race to the bottom in labour laws, corporation and other taxes, and other regulations? If social and identity issues are non-orthogonal dimensions, how are they related? What are the implications for social capital of the “us and them” rhetoric? Is it true that homogeneous societies facilitate cooperation and the implementation of a social democratic agenda?

It would be good to have a civilized debate and to have a mechanism to resolve this issue peacefully. And perhaps the sooner we do it, the better, so we can move on to more important issues (which will still be there regardless of the status of Catalonia in Spain, Europe or the world).

Bowles on Inequality and Redistribution

(From now on, all unsigned posts are by Francesc Trillas, Pedja dell'Arno has gone on a busy sabatical far away; going after other occasional writers is time consuming)

Samuel Bowles in The New Economics of Inequality and Redistribution (the preface can be read here) presents a summary of his research on this topic taking advantage of recent developments. The book is a message against egalitarian pessimists, those that in the recent decades have imposed the idea that deep egalitarian reforms are impossible or counterproductive. He accepts that some egalitarian actions from nation states are costly (especially from the demand side) but others are much more promising (especially from the supply side, such as asset redistribution or actions in public education). Redistributing wealth can be positive for productivity because less inputs will be devoted to protecting property rights and because more inputs will be able to participate in innovation and other productive activities. The book is the last one (and the first after the eruption of the 2008 financial crisis) of a series of contributions by Bowles and his co-authors or co-editors (which are listed in the book's list of references) to the topic of inequality and redistribution.