The Potential Gains from Tax Reform

Economist John Diamond offers some simulations from a computable general equilibrium model.

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The power of check-up reminders

I think dental checkups are the best deal in terms of dental health. They cost relatively little, allow to detect dental problems early and before they turn into root canal procedures, and the dental cleaning gives me the impression that I have new teeth. Yet, because they are rather infrequent (every six months), one tends to forget about them or postpone them. The, how effective are reminders?

Steffen Altmann and Christian Traxler did a little field experiment, sending to clients of a German dentist no reminder, a neutral reminder or a reminder with an explanation of the benefits of a dental checkup. It turns out the reminder is very effective, and a neutral one is just as good as a "promotional" one. Indeed, people know checkups are a good deal, at least people who respond to reminders. No particular difference is detected between those with and without dental insurance.Interestingly, the impact of the reminder is so strong that it is still significant 100 days after sending it: Sending one is enough, people must be keeping it next to the telephone.

David Brooks on the Joys of Middle Age

The most common question I have been asked lately is, "Why the hell did you agree to become department chairman?"  It is a bullet I have been dodging for some years, but I finally capitulated when the dean asked me this time. Why, at the age of 54, did I change my mind? David Brooks's wonderful column today offers as good an answer as any I have come up with.

Then in your 50s and 60s, you will become a sociologist, understanding that relationships are more powerful than individuals. The higher up a person gets, the more time that person devotes to scheduling and personnel. As a manager, you will find yourself in the coaching phase of life, enjoying the dreams of your underlings. Ambition, like promiscuity, is most pleasant when experienced vicariously.

You’ll find yourself thinking back to your own mentors, newly aware of how much they shaped your path. Even though the emotions of middle-aged people are kind of ridiculous, you’ll get sentimental about the relationships you benefited from and the ones you are building. Steve Jobs said his greatest accomplishment was building a company, not a product.

How do you want your pain?

Suppose you have some illness and can choose two treatments. With the first, pain gradually increases. With the second, pain is at its peak initially then decreases. Which one would you choose? If your are discounting future utility, I guess you would want to have pain later. But knowing that things will only get worse can be quite depressing. So it is not obvious what I would choose, and I think that choice would be difficult for many people.

Eike Kroll, Judith Trarbach and Bodo Vogt actually executed an experiment with such a choice, including real consequences. Specifically, people would have to put their hands in water bowls at successive temperatures of 12C, 8C, and 4C (or the reverse order) for one minute in each. Before that, they are asked to rate on a scale their preferences among sequences along with a willingness to pay to avoid the worse one. A clear majority of subjects chose the improving sequence, with a two-point spread for the median displeasure points, which is considered significant in behavioral research. As for the willingness to pay, the median is zero (and possible increments where tiny 20 cents). Thus: the displeasure point scale is rubbish, and people may consider more than discounting, but we do not really know.

AEA: more of the same

The new electoral ballot for the American Economics Association officers is out, and it is as usual from the old boys network:

For President-elect:
William D. Nordhaus, Yale, PhD MIT

For Vice-Presidents:
John M. Abowd, Cornell, PhD Chicago
Joseph G. Altonji, Yale, PhD Princeton
Raquel Fernandez, NYU, PhD Columbia
Paul R. Milgrom, Stanford, PhD Stanford

For Executive Committee:
Amy M. Finkelstein, MIT, PhD MIT
Jonathan D. Levin, Stanford, PhD MIT
Serena Ng, Columbia, PhD Princeton
Mark D. Watson, Princeton, PhD UCSD

Consider this: one has to point out that for once there is a candidate who got a PhD from a public university. As I mentioned before, I cannot see how these people can in any way or fashion represent the profession, as there is no one from a public university, no one from a liberal arts college, no one from government, no one from private industry, no one without tenure. One does not even have a choice for president! I have a lot of respect for William Nordhaus, but if there is no choice, this election is not about representation or democracy. It is also about credibility.

The ballot allows for write-ins, though. But without coordinated action, nothing can change here. One can attempt this, though. Hence, I suggest to write in for every position Gregory Burge, assistant professor at the University of Oklahoma and PhD from Florida State University. Make it known to the AEA that these shenanigans should stop.

Vote Gregory Burge and vote often!

On the difficulty of calculating the cost of living

Quality of life indexes are popular in the press. But they are not that easy to compute. While one can easily measure how much one has to work for, say, a loaf of bread, quality of life needs to consider a broader basket of goods. Now, you need to define that basket, which may be very different across locations (and across time if the horizon is long enough). It becomes even more difficult if some of the goods are location specific, such as housing.

John Winters points out that housing rents and house values are typically used for this kind of exercise. But house values can be very misleading, as most of the price of a house contains future services and their price, not current ones. Rents, in contrast, only contain the value of current services. An additional problem is that depending on the location the rental and sale markets may be very segregated and thick. Indeed, rentals are typically small and of lower quality. Winters compares rents and house values for US metropolitan areas and finds that they correlate well, but house values exhibit wide dispersion, making them indeed less reliable. He recommends using only rents, even if few rents are available and may not be necessarily representative of the housing stock and market.