Friday, October 27, 2006

Refereeing tips

If the first thought that come to mind was football, then this post will not be helpful. It provides advice to academic economists on how to write critiques of other economists' research.

From Tyler Cowen of Marginal Revolution:

Here are my tips:

1. Assume that no referee reports are truly anonymous. It is fine to be critical but always be polite.

2. Unless it is immediate junk, read the paper once and return to it a week later with deeper thoughts and a fresh mind.

3. Your report should not assume that the editor has a working knowledge of the paper in his mind.

4. Respond within a month. First it is considerate to the author. Second, the less "fresh" the task is, the more painful it will be.

5. A properly critical and useful "accept" report is harder to write. Don't look for excuses to quickly reject a potentially good paper.

6. The editor might have chosen you as referee for a reason. You need not go along with the editor's grand plan or desired outcome, but be aware it may exist.

7. Don't check the references to see if you are cited.

Here is a short article full of good advice. Here is the longer piece (which I have not read) on how to publish in top journals. Thanks to Elaine Hawley for the pointer.

Wednesday, October 25, 2006

Hiatus until January

Due to a major uptick in work and travel obligations, a singapore economist will be on hiatus, probably until January. Thanks for taking the time to visit.

Sunday, October 22, 2006

What not to do around a $139 million asset

From Slate:

Casino mogul Steve Wynn ripped a hole through his $139 million Picasso painting while gesticulating at a cocktail party, reports the New York Post. Nora Ephron gave her own first-person account of the damage: It was "a black hole the size of a silver dollar … with two three-inch long rips coming off it in either direction." Wynn had just agreed to sell the painting; now, the deal is off.

Thursday, October 19, 2006

Ranking MBA programmes

I recently posted on a study by the Economist that ranked NTU's MBA programme 77th best worldwide and NUS's MBA programme 99th best worldwide (4th and 11th best in Asia, respectively). In response, a reader commented: “Frankly speaking, to someone who's aiming for a top-10 MBA program in the US, who cares?”

Who cares indeed. A glib but nonetheless truthful response is that there must be some people who find the rankings informative/interesting/entertaining or why would the Economist spend the time and effort to produce the list in the first place? After all, people do apply to NUS and NTU and many don’t get accepted.

Nonetheless, I suspect that the commenter was trying to make the following point: only the “top-10” schools are worth attending in terms of financial rewards, making NUS and NTU irrelevant. Ok, that is a valid opinion and perhaps a predictable one for an ambitious MBA student. Still I wonder why the reader thinks that only the very "best" schools will provide the proper rewards. Is it true that lesser ranked schools don’t deliver a financial payoff? There is also a more fundamental question: what are the top-ten schools? There are several rankings that differ significantly because each is constructed with different criteria such as interviewing CEOs, deans, recruiters, business school graduates, and/or weighing admissions and placement data. So which rankings are the "right" ones?

Fortunately, I came across a paper that has already done the heavy lifting on this topic: The Best Business Schools: A Market-Base Approach by Joseph Tracy and Joel Waldfolgel, published in The Journal of Business in 1997.

From the article:
This article introduces a market-based methodology for evaluating the performance of MBA programs. We seek to distinguish the quality of a program from the quality of its students. We judge a program’s performance by its value added, measured by the graduates’ salaries, after accounting for student characteristics and job attributes.
The crux of their research is: which MBA programmes best increase your earning potential? This is a different question than the one implicitly or explicitly answered by other ranking methods: which programmes have the highest paid graduates? We all know that Harvard MBA graduates earn a lot of money. But is the Harvard MBA programme the primary reason? Or do people with high earning power choose to attend Harvard?

Article continued:

...we focus on the degree to which business programs are successful in producing high-salary jobs for their graduates. Given the competitive labor market for MBAs, salaries will reflect the willingness of employers to pay for the attributes embodied in a program's graduates. A program which attracts high-quality students may generate high salaries for its graduates without adding value to them.
Here is the bottom line. Using statistical techniques, they find programmes that are either "undervalued" or even unranked by the other ranking methods:
While four of our top five programs have been highly ranked elsewhere, 10 of our top 20 programs are unranked elsewhere. Like many other rankings, we place Stanford, Harvard, Chicago, Virginia, Pennsylvania, Northwestern, and Michigan in the top 10. In contrast to other rankings, we also place Oklahoma State, New Mexico, and Wake Forest in the top 10. By emphasizing program value added, our procedure identifies several programs that have been overlooked by other rankings because they do not recruit the very top students.
The authors use their procedure to rank 63 American MBA programmes.

Finally, some advice to students on how to use their rankings to choose a programme (however, note that this study was conducted with data from the early 1990s):

It is important to recognize that the value-added estimates, and associated rankings, are based on the current allocation of students to programs. Thus, our rankings should be understood to reflect the value added currently conveyed to the students at each of the programs, not the value added that would unconditionally be transmitted to any students at these programs. For example, while our results indicate that Oklahoma State has higher value added than, say, Dartmouth, students at Oklahoma State have, on average, lower GMATs and less work experience. Our evidence does not indicate whether Dartmouth students would fare better at Oklahoma State. Because different programs attract students of systematically different quality, a potential student interested in choosing a program with the most value added should compare value across programs with students of roughly his or her quality.

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Wednesday, October 18, 2006

How to Write Well

Greg Mankiw's advice to economists on how to write for a general audience:

When I was CEA chair, I sent the following guidelines to my staff as they started drafting the Economic Report of the President. A friend recently emailed me a copy, and I thought I would share them with blog readers. They are good rules of thumb, especially for economists writing for a general audience.

ERP Writing Guidelines

  • Stay focused. Remember the take-away points you want the reader to remember. If some material is irrelevant to these points, it should probably be cut.
  • Keep sentences short. Short words are better than long words. Monosyllabic words are best.
  • The passive voice is avoided by good writers.
  • Positive statements are more persuasive than normative statements.
  • Use adverbs sparingly.
  • Avoid jargon. Any word you don’t read regularly in a newspaper is suspect.
  • Never make up your own acronyms.
  • Avoid unnecessary words. For instance, in most cases, change
    o “in order to” to “to”
    o “whether or not” to “whether”
    o “is equal to” to “equals”
  • Avoid “of course, “clearly,” and “obviously.” Clearly, if something is obvious, that fact will, of course, be obvious to the reader.
  • The word “very” is very often very unnecessary.
  • Keep your writing self-contained. Frequent references to other works, or to things that have come before or will come later, can be distracting.
  • Put details and digressions in footnotes. Then delete the footnotes.
  • To mere mortals, a graphic metaphor, a compelling anecdote, or a striking fact is worth a thousand articles in Econometrica.
  • Keep your writing personal. Remind readers how economics affects their lives.
  • Remember two basic rules of economic usage:
    o “Long run” (without a hyphen) is a noun. “Long-run” (with a hyphen) is an adjective. Same with “short(-)run.”
    o “Saving” (without a terminal s) is a flow. “Savings” (with a terminal s) is a stock.
  • Buy a copy of Strunk and White’s Elements of Style. Also, William Zinsser’s On Writing Well. Read them—again and again and again.
  • Keep it simple. Think of your reader as being your college roommate who majored in English literature. Assume he has never taken an economics course, or if he did, he used the wrong textbook.

Tuesday, October 17, 2006

Disappointing Results from Deregulation

From Economist's View:

Disappointing Results from Deregulation

The deregulation of electricity generation has been problematic:

Competitive Era Fails to Shrink Electric Bills
by David Cay Johnston, NY Times

A decade after competition was introduced in their industries, long-distance phone rates had fallen by half, air fares by more than a fourth and trucking rates by a fourth. But a decade after the federal government opened the business of generating electricity to competition, the market has produced no such decline. Instead, more rate increase requests are pending now than ever before...

Article continued:

The disappointing results stem in good part from the fact that a genuinely competitive market for electricity production has not developed. ... The Federal Energy Regulatory Commission and five other agencies, in the draft of the report to Congress, are unable to specify any overall savings. “It has been difficult,” the report states, “to determine whether retail prices” in the states that opened to competition “are higher or lower than they otherwise would have been” under the old system. ...

Under the old system, regulated utilities generated electricity and distributed it to customers. Under the new system, many regulated utilities only deliver power, which they buy from competing producers whose prices are not regulated. For example, Consolidated Edison, which serves the New York City area, once produced almost all the power it delivered; now it must buy virtually all its electricity from companies that bought its power plants and from other independent generators. The goal is for producers to compete to offer electricity at the lowest price, savings customers money.

Independent power producers, free-market economists and the Clinton Administration cheered in 1996 when the federal government allowed states to adopt the new system. ... But ... A truly competitive market has never developed, and, in most areas, the number of power producers is small. ...

[C]ritics say that, as in California five years ago in a scandal that enveloped Enron, the auction system can be manipulated to drive up prices, with the increases passed on to customers. What is more, companies that produce electricity can withhold it or limit production even when demand is at its highest, lifting prices. This happened in California, and the federal commission has found that it occurred in a few more instances since then. Critics say that more subtle techniques to reduce the supply of power are common ...

Richard Blumenthal, the Connecticut attorney general, said the supposedly competitive market has been “a complete failure and colossal waste of time and money.” He asked the federal commission to revoke competitive pricing in his state, but the commission dismissed the complaint last Wednesday, saying the state had not proved its case.

Advocates of moving to the new system say that, in time, the discipline of the competitive market will mean the best possible prices for customers. Alfred E. Kahn, the Cornell University economist who led the fight to deregulate airlines and who, as New York’s chief utility regulator in the 1970’s, nudged electric utilities toward the new system, said that he was not troubled by the uneven results so far.

“Change,” Professor Kahn said, “is always messy.” ...
Stubborn adherence to a policy that isn't working can be even messier. Free, unregulated markets are best when it results in an efficient outcome, but the necessary conditions for competition are not met in these markets and oversight is needed to prevent and penalize price manipulation.
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Saturday, October 14, 2006

Milton Friedman argues for drug legalization

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Friday, October 13, 2006

NTU's MBA programme ranked top 3 in Asia

NTU's MBA programme is ranked 77th worldwide, and NUS's MBA programme is ranked 99th worldwide.

NTU's MBA programme ranked top 3 in Asia
Channel NewsAsiaBy Asha Popatlal
12 October 2006

SINGAPORE: Nanyang Technological University's MBA programme has been ranked the top three among Asian universities and the best offered by a Singapore university.

The rankings come from the Economist Intelligence Unit's list of top business schools worldwide, which was just released.

Nanyang Business School made the overall list for the third year running; moving up in worldwide rankings from 83rd to 77th position.

The university says it finds it especially gratifying as significant weight is given to salaries earned by full-time MBA graduates, and European and American universities tend to do better in this respect, as Western economies have higher income levels.

Nanyang Business School also scored well when it came to student and faculty quality, student diversity and educational experience.

Thursday, October 12, 2006

More economic drivel from the news

If retail sales are up 8% since 2004 and the trend is expected to continue, what would you expect to happen to the cost of renting retail space? If you answered -- rents will increase -- then give yourself full marks. This journalist fails because judging from his article's title he seems surprised by such an outcome.

Retail and F&B sectors set for higher growth even as rental goes up
Owners of the retail space see how well the retailers are doing and that they want to rent more space. Then why is it surprising that the owners raise rents?

Retailers bagged good sales in the first half of this year and the trend is set to continue.

However, analysts say strong demand for prime retail space is likely to push rentals up by some five percent over the next 12 months.
The scarce resource in this case is the retail space, which is relatively fixed in the short run. There are plenty of merchants or prospective merchants though. As such, the land owners have the power to extract some of these new earnings by raising rents.

Retail and F&B sectors set for higher growth even as rental goes up
Channel NewsAsia
Wong Siew Ying
11 October 2006

SINGAPORE: Retailers bagged good sales in the first half of this year and the trend is set to continue.

However, analysts say strong demand for prime retail space is likely to push rentals up by some five percent over the next 12 months...

Retail sales was up by nearly 8 percent compared to 2004, while F&B spending rose by 2.8 percent...

This is largely due to tourism arrivals, healthy economic growth and high employment rate.

The retail sector is expected to do well again, with sales rising by 5.3 percent in the first half of this year...

Most shopping complexes are almost fully leased and analysts forecast an increase in rental due to the high demand...

There are more small specialty shops and street level shopping, and analysts say such retailing formats will encourage youngsters to set up their own business and give larger departmental stores something to think about...

Tuesday, October 10, 2006

Incentives matter: divorce in Japan

The divorce rate in Japan has increased steadily until 2003, when the rate began to dip:

The increase is credited to cultural changes that have made divorce a more acceptable option. The recent decrease seems to be economically motivated: women are putting off divorce to take advantage of a law passed in 2003 to take effect in 2007 that allows for a better divorce settlement. If this explanation is true, we should see a spike in the number of divorces in 2007.

From Japundit:

Japan is slated to revise its divorce law in April 2007, making women entitled to receive up to half of their spouse’s pension payments. Until now, a woman who divorced her husband could receive only a basic pension up to a maximum of 66,000 yen a month.
On the other hand, we may not see a spike in the divorce rate if husbands have responded to the law by treating their wives better. After all, this law creates financial incentives for them as well.

Monday, October 09, 2006

At least economists are honest about it

"Two main lessons derived from [my experience as an economist] are:

1. Economists do not know very much

2. Other people, including the politicians who make economic policy, know even less about economics than economists do."

--Herbert Stein, "Washington Bedtime Stories", p. xi

from Arnold Kling's 1997 article There is No Labor Shortage

Friday, October 06, 2006

More bad regulation

Are there any hoteliers out there who would like to explain how this regulation protects consumers?

Service apartment operators hope to offer shorter stays
They want Govt to remove seven-day rule to allow them to compete better
By Fiona Chan
Sep 29, 2006
The Straits Times

SINGAPORE'S service residence operators are banding together to ask the Government to allow them to rent out their apartments for stays as short as one night.

They want a rule imposing a minimum of seven nights to be ditched. It is a relic of British colonial days, they say.

The change would enable them to compete directly with hotels and keep their apartments more fully occupied…

Mr Tan [the president of Serviced Apartments Association of Singapore (SAA)] said the main reason the service apartment operators are seeking the change is not to compete directly with hoteliers, but to help meet national demand for accommodation and to fill their units on a more regular basis.

'With the impending shortage of hotel rooms, we can at least try to fill a gap and provide ample accommodation.'

An anticipated tourism boom over the next few years is sparking concern that hotel rooms will be in short supply before more hotels are built…

'We're not doing this because we want to take away business from hotels, but we do have gaps. We do have apartments that are available for a few days in between longer-term stays but we can't let them out,' Mr Tan added.

Thursday, October 05, 2006

Don't buy product warranties

From Marginal Revolution:

If the expected utility calculations don't convince you, maybe this will:
Neither Circuit City nor Best Buy discloses how much of its bottom line comes from extended warranty sales. But analysts have estimated that at least 50 percent and in some lean years 100 percent of profits at the electronics retailers come from extended warranty sales.
Here is the full story. The paper (but not on-line) edition notes that a desktop computer has a 37% chance of needing a repair in the first three years; if you are going to buy one warranty, maybe that should be it. But you are still best advised to buy insurance only when a) the potential loss is very large, or b) your wife insists.

Gabaix and Laibson have a very good paper on myopia, consumer ignorance, and shrouding.

Wednesday, October 04, 2006

Indonesia Spewing Externalities onto Singapore

Fires from Sumatra have created smoggy skies in Singapore. Farmers set the fires annually to clear brush from their land.

Tuesday, October 03, 2006

Lifts are a public good

Heng-Cheong Leong of SingaporeSurf takes issue with the Lift Upgrading Programme. Under the programme, residents of buildings with limited lift service vote whether to upgrade to lifts that stop at every floor. If 75% of residents vote for upgrading, construction moves forward, with a portion of the upgrading costs to be split among the residents. So far 1,032 blocks out of 1,063 that have been polled have voted to upgrade.

Lift Upgrading: Where We Steal Money From Everybody To Build Something I Like
by Heng-Cheong Leong

There is one aspect of the Lift Upgrading (and the estate upgrading) plan that really bothers me, and that is you don't need 100% agreement in order to go ahead with the upgrading plans.

And even though these upgrading are subsidized (with people's money, of couse), the upgrading is still not cheap.

In order to counter pro-upgrading proposals like Fok Kah Hon writing in Straits Times, urging a change of policy by not counting votes by people who don't vote, I propose thus:

That the cost of upgrading, after deducing the subsidies, should be borne entirely by people who voted yes. Those who voted no should not need to pay, althought they will still be in terrible living quarters for quite a few months or even years.

We should not simply have the rich folks imposing additional burdens to the poorer folks, in the name of a better living environment. Just because one has some additional monies sitting around in the CPF accounts doing nothing shouldn't entitle anyone to force other people to pay money for "common good" that the poor can do without.

Sometimes, when you are poor, all these "essentials" are simply just luxuries.
I won’t address Heng-Cheong’s opinion that the rich folks are imposing costs onto the poor folks. Instead I will comment on what the outcome of the proposed scheme would be.

A lift is an example of what economists call a public good. A public good is a good that is nonrival and nonexclusive. Nonrival means that consumption by one person does not affect consumption by another. Nonexclusive means that the good is accessible to everyone. Textbook examples of public goods are television broadcasts and national defense.

The best way to finance a public good is for each person to contribute his or her personal valuation of the good. This scheme is difficult to implement because, by human nature, there is an incentive to lie and to shirk fiscal responsibility. Since a lift is nonrival and nonexclusive, everyone can enjoy the lift once it is upgraded, even those that don’t contribute to the cost of upgrading. Under Heng-Cheong's scheme, it will likely be the case that people who will benefit most from an upgrade, such as the elderly and families with children, will vote yes while those that will benefit least, such as young childless couples, will vote no. Those that vote no will hope to be free riders, benefiting from knowing that others with a greater need for an upgrade will vote yes.

Instead of spreading the cost of an upgrade among all residents as under the current scheme or alternatively onto the rich as desired, the cost would be borne only by those that need it the most even though all residents would be benefactors. It is also possible that under the proposed scheme no upgrade is undertaken even though residents are willing to pay for one.

Monday, October 02, 2006

Expectations and yields

The Straits Times reported an exuberant article on office rents. Interestingly, Ms. Tay of Colliers International seems oblivious to the fact that "capital values" incorporate expectations of cash-flows:

"Rents have been racing ahead of capital values, said Ms Tay. This has led to a rise in the net yields of strata office property, from 3.2 per cent in early 2004 to 5.1 per cent now."

The article is silent on what "net yields" mean, but it could refer to the typical real estate capitalization rate which is a ratio of an office building's net operating rent income to the purchase price (or capital value) of an office building. The correct purchase price to use is an equilibrium purchase price. At equilibrium, a purchase price will include expected rent movements and the associated risks involved with an office development. (Equilibrium) Capital values would therefore not be lagging rents as purported. My guess is that Ms. Tay is referring to yields derived from short-run rent increases, disregarding whether such an increase is sustainable throughout the useful life of an office building.

Office rent and occupancy rates surging ahead
They are returning at a vigorous pace to boom year levels of the mid-1990s

By Joyce Teo, Property Correspondent
Sep 19, 2006
The Straits Times

OFFICE space is the hottest ticket in town, with rent and occupancy rates rising so fast that a return to the levels of the booming mid-1990s is in sight...

The average monthly rents of prime space in Raffles Place have risen by a whopping 34 per cent from January to $6.92 per sq ft (psf) in this quarter, according to consultants Colliers International.

'If this blistering pace continues, average monthly gross rents of Grade A space in Raffles Place will surpass 2001's peak of $7.77 psf by the middle of next year,' said its director for research and consultancy, Ms Tay Huey Ying.

The Colliers report also said that the average rents in the best sites in Raffles Place could pass 1996's all-time high of $9.77 psf by 2009 or earlier...

Ms Tay said rents could still rise by a further 6 per cent to 8 per cent before the end of the year and 15 per cent to 18 per cent next year...

Occupancy rates are another sign of the market's health. Average rates across the country have risen by 6.5 per cent to about 88.6 per cent in this quarter, said Ms Tay...

Rents have been racing ahead of capital values, said Ms Tay. This has led to a rise in the net yields of strata office property, from 3.2 per cent in early 2004 to 5.1 per cent now.