There are too many swimming and gymnastics medals

As the 2012 Summer Olympics draw to a close, people get all upset about how the medal count does not truly reflect which country is the best because some events are not true sports, some other is over-represented or absent, or judged events do not count and team events should count more. This is all bullshit. First, the International Olympic Committee does not even have an official medal count. Second, any such discussion makes no sense if one does not at least take into account the size of the country. Nations with hundreds of millions of citizens will obviously have a better shot at finding star athletes in many disciplines, let alone find several of them for a team event. To take an example, that the Bahamas can be a medal contender in track relays is in my mind a much more valuable outcome than the US winning a handful of track gold medals. If anything, countries should be ranked by how much better they contended compared to what one would have expected from their size and development. The larger the positive forecast error, the better.

So much for the first part of my rant. The second is that some events are crassly over-represented, and here I am pointing my finger at gymnastics and swimming. My criterion here is the ease with which a single athlete can amass a multitude of medals. I can understand that when there is an exceptional athlete, it is OK for her to accumulate many distinctions. But when this happens repeatedly for a sport, there is a problem. Looking at the list of multiple medal winners on Wikipedia, it is striking how frequently gymnastics and swimming appear. For athletes with ten or more medals, we have 13 in gymnastics, 9 in swimming, 3 in cross-country skiing, 2 in track and field, 2 in fencing, 1 in shooting, 1 in canoeing, and 1 in biathlon, for a total of 32. No matter what statistical model you use, it is impossible to argue that the concentration of athletic outliers can be that high in gymnastics and swimming.

My Annual Field Trip

Every year around this time, I take a trip to do an extensive study of economy of Nantucket.  As you might imagine, this activity requires large quantities of hard work and concentration sun screen.

One implication is that I won't be blogging much until classes start up in September.  And if you are a reporter trying to get a quote for a story, sorry, but you are out of luck.

Flexible-price inflation and monetary policy

Are prices flexible or not? There is no doubt that there is some rigidity. But does it actually matter? This debate in the macroeconomic literature has surprisingly side-stepped an important aspect of price rigidity: not all prices are equally rigid. While this has been empirically demonstrated many times, it never really made it into a model.

Stephen Millard and Tom O’Grady take a standard two-sector model and label one sector "sticky-price" and the other "flexible-price." They go through the usual motions of assessing their model and find that it can account for much of what is going on in the economy. But more interesting is their idea that there is a lot of useful information in looking at the inflation rates in the two sectors. Flexible prices react faster to current output gaps, while sticky ones should contain more information about expectations on future conditions, in particular inflation. And it should not be too hard to compute these statistics with current data collection. We already have several works that categorize goods by price stickiness.

Unions just cannot help it

The role of labor unions is to counteract the market power of oligopolistic employers. That is certainly beneficial, but by their very nature, unions have also a perverse effect. As they only represent their current members, they tend to keep employment lower than what would be optimal. Is this the only perverse effect?

Per Krusell and Leena Rudanko take a search and matching model and give unions their best shot: they also care about the unemployed and take into account the impact of their wage demands on job creation. If the union is able to commit on all future wages, we get the efficient outcome. However, if the union cannot commit, then unemployment will be higher than efficient. The reason is that the unions wants to extract rents from current matches. This optimal, time-inconsistent policy can have a substantial impact, three percentage points in unemployment (and GDP). Interestingly, the model also shows that real wage stickiness results form this lack of commitment, as well as excessive labor market volatility.

Legal prostitution and human trafficking

Human trafficking is a sad manifestation of inequality that has proven difficult to eradicate with bans and laws. Maybe market based approaches could have more success. As a significant part of human trafficking is linked to prostitution, intervention on the prostitution market seems like a natural opportunity. Specifically, if prostitution is made legal, and human trafficking is illegal, then illegally trafficked prostitutes should be pushed out of the market because legal prostitutes are generally preferred.

Seo-Young Cho, Axel Dreher and Eric Neumayer show that this logic does not hold, or is at least more than compensated by an effect going the other way: legalizing the prostitution market increases its size so much that the supply of legal prostitutes is not sufficient and illegally trafficked ones are needed. They come to this conclusion by using data from 150 countries, all except very-low-income ones that should not be recipients of human trafficking. This means the regressions should not suffer of selection bias like some previous studies. But I wonder whether the legalization of prostitution can be treated as exogenous in this context. Indeed, if some legislators were motivated by human trafficking to legalize prostitution, the estimated relationship could be biased.

Academic Comic of the Day

Click on graphic to enlarge.

Are religion and national identity substitutes?

"Religion is the opium of the people," as Karl Marx said. If religion becomes less important, does national sentiment take over? It was certainly the hope of communist regimes that allegiance to party and country would benefit from repressing religion.

Kenneth Harttgen and Matthias Opfingeruse the World Values Survey to construct an indicator of national identity based on questions about social and political participation and political interest, then applying principal component analysis and calling the resulting principal component "national identity." I have never been particularly fond of this technique, as the naming of the factors is very subjective. For example, in this case it could just as well be called "sense of civic duty," "social participation," or "confidence in politics," none of which necessarily tie in with national pride. In fact, I would say that in many cases where voter turnout is high or people sign petitions is where people are rather upset about where they live. Also, the few questions about country and nationality have a very low weight in the index (total of 18%).

Thus, I am not convinced this indicator measures national identity. But let us assume it does. Harttgen and Opfinger then try and see whether it can be explained by measures of ethnic and religious diversity or polarization. The only one that sticks is religious diversity. Does this mean that religiosity is then a substitute for national identity? The authors think so. It is useful to think here what this "religious diversity" variable measures: the probability that two randomly drawn people belong to the same religious group. I do not see how this would relate to religiosity, that is, the strength of one's attachment to religion. Therefore, one cannot conclude in any way from this study whether religion and national identity are substitutes.