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Does tenure reduce incentives for high quality research?

February 3, 2018


By Carl Christian Kontz (International Trade, Finance, and Development ’18)


Economics is a very diverse field of social science with sub disciplines ranging from cultural economics, climate change economics, or sports economics to more traditional fields like trade theory or finance. A fascinating sub discipline, however, is economics itself.

In the following, I will give a brief summary of an interesting article recently published in the Journal of Economic Perspectives. In this contribution the researchers employ econometrics methods and economic theory to examine their own ecosystem.

But why would economists be interested in conducting research about their own profession? Colander (1989, p.1) provides some insight:

“The economics profession is interesting to economists for a number of interrelated reasons:

(1) For prurient and professional interest: It is fun to know about oneself and one’s profession.

(2) As a case study: If economic theory is correct, it should apply to the economics profession. Since economists have firsthand knowledge of the economics profession and relatively easy access to data, it makes an excellent case study.

(3) Because one has an interest in the sociology of knowledge: Recent developments in methodology and philosophy of science have made a knowledge of the scientists an important aspect of a knowledge of science; they are the lens through which science is interpreted. Understanding the tendency of scientists to aim that lens in particular directions and to distort the reality they are studying is necessary if one is to interpret their analyses correctly.”

In the current issue of the Journal of Economic Perspectives (JEP, Vol. 32, No. 1 – Winter 2018), Brogaard and company published an interesting contribution on the impact of tenure on research productivity. The authors examine whether the granting of tenure leads faculty to change their research and publishing behavior by using a sample of all academics who pass through top 50 U.S. economics and finance departments from 1996 through 2014. By using the extreme tails of ex-post citations as a measure of risk-taking in research, they find that both output of research and quality of output peak at the point where tenure is granted and decline thereafter. However, the opposite patterns hold true for the weak end of the tails with rising numbers after tenure. Using a subsample of academics at top 10 U.S. departments, the authors are able to show similar outcomes.

To obtain their results, the authors hand-collect a sample of employment and publishing data of academics at top 50 economics and finance departments in the United States. The sample encompasses the years from 1996 through 2014 and contains a total of 2,763 names, of whom 2,092 are eventually tenured at some point prior to 2014. Brogaard et al. (2018) consider two variables in the years before and after being granted tenure: the total number of publications, which serves as a measure of output; and the number of “home run” publications, meaning highly influential writings, as a measure of quality. By matching these names to publications in the 51 leadings journals in finance and economics, the authors are able to obtain their measure of output. The measure of quality, “home runs”, is defined as publications among the 10 percent’s most cited of all papers published in a given year.

Their findings indicate that both variables peak at the time tenure is granted and decline thereafter. The average output of annual publications by just tenured academics in economics declines by approximately 30 percent over the two subsequent years and further falls by an additional 15 percent over the next eight years. The average number of “home run’s” also falls by 30 percent over the two years after being granted tenure. Moreover, in the subsequent eight years it drops by another 35 percent. Given these findings, the authors calculate that the likelihood of a given publication to receive “home run” status declines by approximately 25 percent during the ten years following tenure.

Given their results, the authors set out to test different explanations which could have effects on the quantity and quality of tenured academics. Among those are:

  • Age effects the ability to produce top-rate tenure
  • Rise in non-research related work which is associated with becoming tenured
  • Tenured academics might branch out into our (sub) disciplines
  • Truly novel research may need time to gain momentum
  • Some schools may have poor tenure contracting

However, the authors test for those and claim that none of the explanations above seem likely given the data.

Brogaard et al. (2018) suggest two explanations which fit their general results: On the one hand, the decline in publication rates is coherent with the idea that tenure is granted once an academic has proven her merit through publishing success. On the other, tenure might reduce risk-taking behavior which leads to lower quality output. Overall, their findings indicate that “tenure is not providing incentives to undertake research in the same quantity and quality that led up to the tenure decision.” (p. 181).

In their conclusion the authors hasten to clarify that “[t]his paper should not be read as an indictment of the institution of tenure” (p. 192) as they only consider one aspect of tenure. Moreover, their work focusses on economics and finance only and cannot be generalized to other fields. However, they believe that their findings raise some practical questions for economic academia and it’s institutions (p.193):

“For economists, the findings suggest that they should be wary of allocating their research time in a way that seems likely to lead to low-impact papers, and instead consider if there is a way for them to continue their earlier research efforts—at least in terms of quality, if not necessarily in quantity. When making a tenure decision, departments of economics and their home institutions should be aware that the research productivity of the person receiving tenure is likely to decline, in both quantity and quality terms, over the following decade. Thus, institutions should consider whether there are methods to sustain (or at least not to impede) high-quality research efforts.”

The paper is available as a PDF using this link to the AEA website:

https://www.aeaweb.org/articles?id=10.1257/jep.32.1.179

 

Citations:

  1. Colander, David. 1989. “Research on the Economics Profession.” Journal of Economic Perspectives, 3(4): 137-148.
  2. Brogaard, Jonathan, Joseph Engelberg, and Edward Van Wesep. 2018. “Do Economists Swing for the Fences after Tenure?” Journal of Economic Perspectives, 32(1): 179-94.
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A master student’s experience delivering a TEDx talk on the value of European integration

January 28, 2018

A year ago, master’s student in the Barcelona GSE Finance Program, Patrick Altmeyer gave a talk at TEDx University of Edinburgh on how positive impact European integration has had and should continue to have on our lives contrary. It provides us with greater freedom to choose, learn, exchange ideas, experience, develop. Here he describes his experience as a TEDx speaker and expands on the subject of the talk based on his experience as a student in Barcelona:

“TEDx at the University of Edinburgh was a very challenging and rewarding experience. I loved the thrill of speaking in front of hundreds of people and would definitely enjoy doing something similar again. It also provided my fellow speakers and me with a unique platform to speak out and actually reach people. I was at the time and still am bothered by growing pessimism about the idea of European integration. With my speech I intended to remind people of what’s at stake if in face of undeniable difficulties we simply give up on Europe and return to nationalist agendas.

Experiencing at first hand the recent political developments here in Barcelona has been a true reality check for me. The call for secession is by its very nature anti-unionist. But somehow the many peaceful independence supporters I have seen in the streets – among them many of my Catalan friends – have nothing in common with what we would generally think of as nationalists. Their opponents love to portray the Catalan separatists as anti-European (and themselves as saviours of the union), but personally I don’t buy that. I have realised during my time here that a strive for regional identity can go hand in hand with an open mind for Europe. One of today’s biggest challenges for supporters of integration is therefore to promote a sense of European unity while at the same time recognising that we are a very diverse group of people.”

 

You can watch his TEDx talk from January 2017 here, as well as discover what triggered the idea for this TEDx talk here.

The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities (Unicredit & Universities Job Market Best Paper Award)

January 23, 2018

alumni

Editor’s note: In this post, Federica Daniele (Economics ’13 and PhD candidate at UPF-GPEFM) shares a summary of her paper, “The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities,” which has won the 2017 UniCredit & Universities Economics Job Market Best Paper Award. She also offers some advice to aspiring PhD students in the Barcelona GSE Master’s programs.


Paper summary

There is something alarming about the direction in which firm dynamics have been changing over the course of the last decades. Today it’s much rarer to encounter firms that undergo large up/downsizings than it used to be in the past: in other words, firms have become more tied to their rank in the firm size distribution. This has been of concern for many economists, who see this happening jointly with a slowdown in aggregate productivity growth and competitiveness. Being aware that the question on the drivers behind this trend and its consequences was still open to debate, coupled with an interest for entrepreneurship, is what pushed me to dive into this topic to better our understanding of the issue in my paper, “The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities.”

An explanation for the decline in business dynamism consistent with the data is that technological change has caused the degree of idiosyncratic uncertainty that firms routinely face about their chances to grow to go down. This implies that today most of the return from starting a firm is determined by its initial (in)success as opposed to luck in the development of the business over its life-cycle. Based on evidence drawn from data on the universe of German establishments, in the paper I argue that a reduction in firm-level uncertainty is consistent with lower incentives for potential entrepreneurs to start a new business. My paper offers a new insight into the literature on the role of uncertainty for economic activity: some degree of uncertainty is beneficial, because – by unlocking the opportunity for a given firm to grow large out of fortuitous events (such as a favourable demand turn) – it encourages entrepreneurship. In this sense, my paper provides a defence of the classical argument by Frank Knight according to which risk-taking is a characterising feature of entrepreneurship.

A deficit in the growth rate of the stock of establishments triggered by a decline in firm-level uncertainty is cause of concern for multiple reasons. In my paper, I investigate the importance of two dimensions: first of all, the fact that consumers get to consume a less wide variety of goods than otherwise; and secondly, the fact that, being the loss in entrepreneurship larger in big cities, fewer consumers find appealing to move to large cities than otherwise, thus diminishing the extent of positive spillovers due to higher urban density. Another outcome of interest would have been, for example, the process of innovation within an industry.

All in all, the contribution of this paper consists of assessing both empirically and theoretically novel long-run consequences on economic activity of declining firm-level uncertainty.

Advice for future PhD students

I think Barcelona GSE masters students who are considering going the PhD / academic career route should be strategic. There is no harm in taking one year to do some exploratory work, working as RA, for example, for some good professor, if that buys the time to figure out what kind of research best matches your interests, in which institution you would feel better fulfilled, or whether academia suits you at all.

In the end, if you choose to pursue the academic route, you will have most certainly achieved a better match with the institution/supervisor, and spared a lot of time later on during the course of the PhD, which you can instead dedicate to producing research of good quality.

But even if you decide that academia is not for you, the value of the investment will still be positive, as experimenting early during one’s working career is much less costly than doing it later.

The Web 2.0 in Nigeria: Evaluating the Impact of Increased Internet Access and Usage on Migration

January 18, 2018


By Roberta Sgariglia (International Trade, Finance, and Development ’18)


High speed internet and connectivity are among the main drivers of economic development in today’s information-intensive societies. Hence, in the context of the social sciences, increasing attention has been devoted to implications of technology adoption for traditional outcomes, such as migration, civic engagement and political participation, with particular emphasis on developing countries. As a matter of fact, numerous scholars argue that bridging the digital divide, hence fostering enhanced communication and ease of information access, has the potential to foster empowerment and beneficial innovation opportunities.

Therefore, this paper analyzes the impact of increased internet access on both internal and external migratory flows in Nigeria, where a national broadband expansion plan targeting existing infrastructure in urban areas was enacted in 2013. This effect is evaluated using two difference-in-difference estimations.

The first one assesses whether the policy was successful in enabling higher internet access rates. Convincing evidence was found to prove the effectiveness of the broadband expansion policy to date: in 2015, urban residents were approximately 7% more likely to have access to the internet on average, and these results are robust to different specifications.

The second estimation sets out to understand whether this effect triggered mobility and relocation. The analysis shows that there is a positive and significant effect in the order of 2%, robust to all specifications. However, the model’s explanatory power is low, as structural characteristics of the relevant sections of this dataset used pose significant limitations to the analyses and their potential for generalization. In any case, in the most basic form of the model, it appears that after the policy change urban residents were 1.5% more likely to move. This marginal impact becomes 1.9% once household fixed effects are accounted for. Finally, with respect to external migration probability, the overall significance of the model is not ascertained, so that even though increased internet access seems to have had a slightly negative effect on this outcome, we cannot safely conclude anything about this particular relationship.

As previously mentioned, results are hardly generalizable due to the structural limitations of the dataset, the lack of meaningful control variables and the mostly unexplored nature of migration dynamics in Nigeria.

Indeed, many of these setbacks arise from the relative scarcity or availability of surveys that include questions on information and communication technologies, particularly in developing countries. This in turn is due to the fact that data on mobile connectivity and other digital technology-related information is difficult to obtain, especially for rural communities. In this particular dataset the range of questions on the topic was very limited, which significantly narrowed the scope for the empirical analysis, and hampered the inclusion of meaningful control variables. Questions on mobility were also rather scarce, given that respondents were not directly asked about reasons for their decision: data on labor, education, health was collected in different sections and often could not be merged given that observations were not uniquely identified.

Consequently, the analysis started here can be meaningfully expanded and improved. Interesting extensions would explore the relationship between intrastate migration, a phenomenon which has only recently received the attention it requires, and internet usage: controlling for educational, health-related and employment decisions more accurately, it would be possible to better isolate the effect of internet access on migratory flows. In particular, it would be insightful to verify whether a causal relationship exists, perhaps by identifying a meaningful instrumental variable for this purpose. This would also shed light on whether determinants of internal migrations are actually comparable to those of external flows, as the literature seems to suggest. More specifically, the latter dynamics are largely unexplored in the specific context of Nigeria, and meaningful contributions could attempt to shed light on country-specific drivers of these migratory flows.

Finally, an interesting area of research which is somehow connected to the scope of this paper analyses the impact of digital technology on mobilization, both violent and peaceful, with important implications for policy making. Indeed, internet increases information availability and enhances communication, solving the collective action problem in some instances, while leading to secret coordination with anti-democratic objectives in others. Understanding through which channels, if any, mobilization works analogously to mobility, as well as which factors determine outcomes favorable to democratization rather than not is an extremely relevant question to answer.

 

Source: GSMA Intelligence

Some thoughts by Prof. Hogarth on Prof. Thaler’s award of the Nobel Prize in economics

December 7, 2017

llustration: Niklas Elmehed. Copyright: Nobel Media AB 2017


By Orestis Vravosinos (Economics ’18)


Universitat Pompeu Fabra and BGSE Emeritus Research Professor Robin M. Hogarth shares some thoughts in the light of Prof. Thaler’s award of the Nobel Prize in economics.

 

  1. What would you deem to be the most significant contributions of Prof. Thaler?

Prof. Hogarth: “I’m very glad that Thaler got the Nobel Prize, because it’s a recognition that the field of behavioral economics has to be taken seriously. He has made the field more popular and two of his books are quite interesting. Even though from an academic point of view ‘Nudge’ may not be so strong, in both ‘Nudge’ and ‘Misbehaving’ Thaler has done a very good job in explaining things and making behavioral economics accessible to the wider public. ‘Nudge’ has spurred the creation of nudge initiatives in the UK and the US.”

Prof. Thaler has greatly contributed in popularizing behavioral economics and manifesting the insight it can offer in practice and policy, especially though the use of nudges bringing nudge theory to prominence. However, as is most times the case with influential research, Prof. Thaler’s work has also been a matter of controversy, as criticism of what is called ‘libertarian paternalism’ has developed. Concerns have been raised both in regards to freedom of choice (e.g. Mitchell, 2005; Veetil, 2011) and the efficiency or optimality of paternalistic policies (e.g. Rachlinski, 2003; Mitchell, 2005; Glaeser, 2006).

  1. How do you think concerns regarding the use of nudges can be alleviated? Do you think there needs to be any form of regulation on it?

Prof. Hogarth: “Thaler and his co-authors have supported nudge coining the term ‘libertarian paternalism’. Although I don’t think the term makes much sense, I don’t see what is wrong with governments saying that some things are better for people than others; advertisers do it all the time.

In some EU countries there is a total rejection of organ donation after death, while in others almost total acceptance and the reason is the difference in the default option on the driving license among countries. I don’t see why this is wrong; since a default has to be chosen, why not choose the one that is on average better for everybody? Provided that people can still go against the default, if they want to. Governments should be able to use as much social science knowledge as they want. As long as there is “good knowledge”, why should we ignore it? Whether it comes from sociology, psychology, anthropology, economics or whatever, we should use it, as long as it is good for the society.

I don’t think there is any need for regulation of nudge. One should not regulate how advertisers advertise the products, as long as they say the truth. Similarly, governments or agencies should be allowed to design choice; they just need to be honest and clear about it.”

 

  1. Are there any other thoughts you would like to share in the light of this year’s awarding of the Nobel Prize in Economics?

Prof. Hogarth: “Another interesting aspect of Thaler’s work is that it has managed to make an impact without being heavily mathematical. The other point I would like to make is that Thaler owes a tremendous debt to Tversky and Kahneman. Prospect theory provided a framework for explaining things Thaler thought of.”

 

We kindly thank Prof. Hogarth for sharing these thoughts with us.

References

Glaeser, E. L. (2006). Paternalism and Psychology. The University of Chicago Law Review, 73(1):133-156

Mitchell, G. (2005). Libertarian Paternalism Is an Oxymoron. Northwestern University Law Review, 99(3):1245-1277.

Rachlinski, Jeffrey J. (2003). The Uncertain Psychological Case for Paternalism. Northwestern University Law Review, 93(3):1165-1225.

Veetil, V.P. (2011). Libertarian paternalism is an oxymoron: an essay in defence of liberty. European Journal of Law and Economics, 31: 321-334.

Financial Knowledge and Behavioral Economics as Means to a Wealthier Life

November 30, 2017

Photo credit: Nattanan Kanchanaprat


By Orestis Vravosinos (Economics ’18) – This article first appeared on the blog of Nudge Unit Greece.


In recent decades, financial literacy has been gaining more and more research interest with experts emphasizing that it can be conducive to more efficient financial decision-making. Given the tough economic situation in many countries around the world after the global financial crisis, the need for financial literacy has become even more imperative. Through financial literacy people can both achieve higher levels of wealth and better allocate it in order to make the most out of it or, as an economist would say, maximize their utility.

Before we start to examine the ways, in which financial literacy can inform our decisions, we first need to define financial literacy. An integrative definition stressing both financial knowledge and the ability to put it in practice has been proposed by Remund (2010, p. 284), who defines it as

a measure of the degree to which one understands key financial concepts and possesses the ability and confidence to manage personal finances through appropriate, short-term decision-making and sound, long-range financial planning, while mindful of life events and changing economic conditions.

Financial literacy and behavioral economics enhancing financial decision-making

Financial knowledge can enhance decision-making by raising awareness about some common behavioral errors people are susceptible to, when making financial decisions. Estelami (2009) argues that financial literacy programs could fight typical financial decision-making errors, such as hyperbolic discounting, short-term memory overload, anchoring effects, inaccurate risk perceptions and mental accounting. Similarly, Loerwald and Stemmann (2016) suggest that, when people become aware of some common human decision-making errors, they can better resist to making them, while the importance of financial education and financial literacy is also stressed by Altman (2012) and Shen (2014), who addresses overconfidenceanchoring and framing effects.

Another major mistake people do is that they often hold under-diversified portfolios. The importance of portfolio diversification in mitigating risk and achieving optimal return and risk combinations has long been acknowledged both in academia and by investment professionals. This crucial role of portfolio diversification has become even better acknowledged, since Harry Markowitz’s –recipient of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 1990– seminal paper Portfolio Selection(1952)*. However, studies have shown that many households and individual investors hold under-diversified portfolios.

Fortunately, based on empirical evidence it appears that individuals with higher financial knowledge possess better diversified portfolios (Goetzmann and Kumar, 2008; Calvet, Campbell and Sodini, 2007; Guiso and Jiappelli, 2009; Abreu and Mendes, 2010; Kimball and Shumway, 2010).

Struggling against bad financial decisions

Nevertheless, as Estelami (2009) underlines, knowledge of financial matters cannot guarantee success in our financial decisions, as behavioral errors and biases in these decisions are often found to affect even the most financially knowledgeable. The father of Modern Portfolio Theory, whom we met just above, Harry Markowitz, admitted that he had used the 1/N heuristics or naive diversification; that is, he simply assigned equal weights to all assets in his portfolio without for example looking at the correlations among the included assets. He attributed this decision to regret aversion“My intention was to minimize my future regret, so I split my retirement plan contributions 50/50 between bonds and equities.” (Mitra, 2003; Pompian, 2012).

What’s the takeaway?

Financial literacy and knowledge of our psychological and cognitive biases and errors are key factors that can help us lead a wealthier life. However, the battle against bad financial decisions is not a piece of cake for any of us. The best we can do is to start this learning journey in financial literacy and behavioral economics -which hopefully you have already done by clicking on these eye-catching hyperlinks in the text. That way, the next time we are buying a new 20.000€ car and are presented with these gorgeous 2.000€ accessories to buy with (because “come on, it’s peanuts, I’m already spending 20.000€ on the car”), we will know that we may be falling for mental accounting and “bundling”. Therefore, we need to think twice if we value these accessories that much; maybe these 2.000€ spent on something else would finally prove to be much more useful and make us a lot happier!

 

Note: The idea for the last example comes from the lecture Mental Accounting and Expenditures of the free online course Behavioral Finance, which you may well want to enjoy by clicking here.

*The concept of diversification had been known for many years before, but Markowitz’s work provided a solid theoretical framework and helped lay the foundations of Modern Portfolio Theory. For an assessment of the early history of portfolio theory, see Markowitz (1999).

References

Altman, M. (2012). Implications of behavioural economics for financial literacy and public policy. The Journal of Socio-Economics, 41(5), pp.677-690.

Estelami, H. (2009). Cognitive drivers of suboptimal financial decisions: Implications for financial literacy campaigns. Journal of Financial Services Marketing, 13(4), pp.273-283.

Loerwald, D. and Stemmann, A. (2016). Behavioral Finance and Financial Literacy: Educational Implications of Biases in Financial Decision Making. In: C. Aprea, E. Wuttke, K. Breuer, N. Koh, P. Davies, B. Greimel-Fuhrmann and J. Lopus, ed., International Handbook of Financial Literacy, 1st ed. Springer Singapore, pp.25-38.

Markowitz, H. (1999). The Early History of Portfolio Theory: 1600-1960. Financial Analysts Journal, 55(4), 5-16.

Rasiel, E. & Forlines, J. (2016). Mental Accounting and Expenditures. Lecture, Behavioral Finance by Duke University on coursera.org.

Shen, N. (2014). Consumer rationality/irrationality and financial literacy in the credit card market: Implications from an integrative review. Journal of Financial Services Marketing, 19(1), pp.29-42.

And finally, the paper we all have been waiting for: “Death by Pokémon GO“.

November 22, 2017

Mara Faccio (Purdue University, NBER, ABFER, ECGI) and John J. McConnell (Purdue University) released a working paper this month which will definitely cause some stir with the general public. One thing is sure already: it made it onto our list of the most entertaining economics papers released this year. Titled “Death by Pokémon GO” it uses an event-study design to estimate the total incremental cost of playing Pokémon GO while driving in Tippecanoe County, Indiana.

Though the paper may seem funny at first, it does touch on some serious issues. It links the widespread use of smartphones and increases in app usage to increased car crashes and fatalities. The authors state that: “[…] [T]he possible connection between smartphone usage and vehicular crashes has been cited by the Insurance Information Institute as one explanation for the 16% increase in insurance premiums between 2011 and 2016.“ Faccio and McConnell also note that: “Attributing any increase in crashes and fatalities to smartphone usage and app availability is, of course, extraordinarily difficult given that many other factors also changed over the years in which both increased.”

Although not being the first to investigate the connection between the rise of the smartphones and vehicular crashes, Faccio and McConnell provide some novel insights by making use of an ingenious idea and providing robust results. By employing a difference-in-difference analysis that controls for a variety of confounding factors, Faccio and McConnell can show that crashes near PokéStops significantly increased from before to after July 6th, 2016 (when the game was released). The authors find that the costs associated with this increase in vehicular crashes range from $5.2 million to $25.5 million1 over the first 148 days following the release of the game. Extrapolation of these estimates to nation-wide levels yields a total cost ranging from $2.0 to $7.3 billion for the same period.

The paper is available from the SSRN website: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3073723


1. With the variability in the range being largely attributable to the sad loss of two lives.