As the second in a series, here are summaries of five interesting journal articles I read in the last week. All of these ones are new, although that may not always be the case.
1. “Very Long-Run Discount Rates” by Stefano Giglio, Matteo Maggiori and Johannes Stroebel
Giglio et al. use the difference between the prices of leasehold and freehold properties in the UK and Singapore to compute long-run discount rates. They find that over 100 years, the discount rate is 2.6%—whereas properties with 700-year or longer leases trade at par with freeholds. They point out that this 2.6% discount rate may have implications for climate change policy; the famous and influential Stern Review recommended using a 0% discount rate, which may justify much more extensive anti-CO2 measures now. Some slides explaining their findings are available here.
2. “Is the stock market just a side show? Evidence from a structural reform” by Murillo Campello, Rafael P. Ribas, and Albert Wang
Campello et al. look at a 2005 reform that, in a staggered 16-month basis and after a trial, allowed $400bn worth of Chinese equity, previously untradable, to be bought and sold. Using “wrinkles” in the roll out that provide quasi-experimental tests, they find that firm profitability, productivity, investment and value all improved substantially. “Policies that ease restrictions on [capital] markets may have positive effects” runs the final line of their conclusion—quelle surprise!
3. “Social security programs and retirement around the world: Disability insurance programs and retirement” by Courtney Coile, Kevin S. Milligan and David A. Wise
These three authors add to the burgeoning literature proving that those on the edge of retirement respond to incentives just like anyone else. This shouldn’t really be a surprise, but the heavy flow of publications adding evidence in this direction suggests that maybe there was once a bizarre consensus in the other direction. Coile et al. show that delaying eligibility to pensions, increasing the stringency of disability insurance programs, and other welfare reforms for older people have “very large” effects on how much labour they decide to supply. Not exactly shocking, but certainly important in ageing societies.
4. “What Happens When Employers are Free to Discriminate? Evidence from the English Barclays Premier Fantasy Football League” by Alex Bryson and Arnaud Chevalier
In this nifty and quirky paper the authors try and isolate “taste-based” racial discrimination, by looking if fantasy football players pick footballers differently based on their race, controlling for “productivity” (i.e. their expected points tally). They find no evidence of taste-based discrimination here, suggesting that much of the apparent discrimination found in other studies (e.g. studies of fake CVs where different ethnicities see different acceptance rates even when they have similar qualifications and experience) could be statistical. That is, since employers cannot directly observe productivity (unlike in fantasy football), and since different ethnicities have different productivity distributions, certain ethnicities are on average less valuable to employers. Of course, it might be that people exercise taste-based discrimination as well when they have to interact regularly with the group/race/ethnicity in question—fantasy football is much more at arms length.
The most fun kind of research to read is one that confirms a niggling view you’ve had for a while, but one that nevertheless overturns a happy consensus. The Tennessee Valley Authority is a classic example of “enlightened” central planning, targeting a hard-up area with massive coordinated infrastructural investment and widely believed to have delivered substantial benefits. But if these dams and systems were really such good investments wouldn’t private companies have got around all the barriers to such an investment already? There are some cases where I suppose that sort of basic argument doesn’t hold, but it’s a pretty good first approach to any area, and it turns out the TVA is one of them. Kitchens newly-published paper finds “that the development of the TVA during its first 30 years did not cause manufacturing, retail sales per capita or electrification to grow any faster in areas receiving TVA electricity than in other areas in the Southeast.”