Wednesday, 25 March 2015

Behavioural economics
Asymmetric bayesiansim or why people are so tribal. 

Sunday, 22 March 2015

Rationality in Economics

At an Economics conference last week, Alan Kirman made the point that when economists say "rational", they don't mean rational as most people think i.e. fully optimising, relentlessly all-knowing calculating.  They mean "consistent".

Lots of psychology looks at individual motivations, what should economics do with all these studies?  Here is Peter Abel in a paper I have not seen before.

Psychologists and, indeed, many sociologists often allege that economists adopt
an over-simple model of the individual (i.e. usually rational, calculating and self-
interested). Maybe they do, but the important point is, nevertheless, that the social
sciences should only adopt the simplest model of the individual consistent with
validated psychology theory, which can in turn contribute to an account of the sys-
tem state. This being the case, the social sciences will not always, or even usually,
shift with changing fashions in our understanding of individual psychology. Unfor-
tunately many sociologists have not taken this lesson to heart, with the result that
a type of literature has evolved which tries to locate ever more refined ways of
understanding individuals and their interactions. Social scientists have very little to
learn from this literature.

Sunday, 15 March 2015

Monday, 9 March 2015

How many firms are innovating without doing R&D?

Innovation findings from the 2013 Survey.
a. From table 1 we find that in 2013, 45% of firms are innovation active, that is, they product or process innovate, or introduce new processes etc. 
b. From figure 1, we find that 15% of firms are doing R&D.
c. That means, that assuming those 15% of firms report they are innovation active, 66% or 2/3rds of firms are innovating without any R&D. 

The Rate of Return to R&D: teaching notes

Frontier Economics have a nice report on this. Figure 4 in particular is a nice summary of the range of findings on rates of return, see below, and Appendix, P.149 is a good summary of the methodologies to estimate a rate of return.

Saturday, 14 February 2015

Why everyone should know how to conduct statistical analysis

Among all the heart-searching on what to teach in economics here's why we should keep teaching proper statistical analysis.

Friday, 5 December 2014


Am attending a session at on Catapults.  I have learned a bit on what they do.

  1. They are prevented by state aid rules from offering aid to firms.  
  2. So, they identify areas that the UK might be good at and where markets will be substantial.  They then set up a network in that area and invite companies etc. to come and participate in that network.  So for example, a small firm who would want to get finance from a Euro research grant would join that network and make an application through the network.  Or, there might be money from InnovateUK, the past TSB, that could be applied for.
Some thoughts.
  1. To get this working they have to identify some technologies to get into and some to not.  That very hazardous.  So they try to keep things general e.g. setting up a platform in exchanging information.  Nonetheless, it does mean they have to guess what technologies will be big and we will be good at.   In 1967  Sir Donald Gibson, Director of R&D at the Ministry of Public Building and Works, suggested a new airport made of expanded polystyrene floating on the mud flats of the Thames.  Passengers would travel to this remarkable construction by hovercraft.  I see there is not catapult centre on floating polystyrene airports. How do we know that is not going to be winning technology?
  2. The constraint they cannot offer aid is important. in answer to the question, what can you do for a small firm they cannot do themselves, it is not that they can get money. It is that they can help the small firm join the network and then stand a chance of getting money which would otherwise be too complicated to get hold of.  In that case, it would be better to simplify the process.  

Friday, 28 November 2014


A great vist to Gatwick yesterday to see the senior management team.  Some idle thoughts.

1. here's what we said on the CC when we broke up BAA (from the provisional findings), para 6.21

6.21 It is not possible to predict fully what additional outcomes might flow from the unleashing of a dynamic process of competition between independent airports in the South-East (with some competition at the margin from airports in other regions). However, we would expect the increased rivalry that separate ownership will bring to result in a constant pressure on airports for innovations in the way in which infrastructure is developed to meet the particular needs of their customers. This will reveal opportunities to win business through superior design, lower costs, higher quality, greater flexibility or better delivery of capacity and may uncover ways of reducing the lumpiness of capacity expansions.

2. The new runway.  The problem with the new runway is that two things are needed. First, a new runway.  Second, knowledge now of the right place that runway should be.  Now, we don't have that knowldge since the world is so uncertain, we cannot predict future traffic, businesss structures.  So what do we do?  Really, we want then to invest in both a new runway but also a mechanism for discovering that knowldege. That mechanism is competition.  So where should we invest?  Where competition will be encouraged which is LGW.  

This is analyticaly similar to a policy of buying insurance against uncertaintly by not having all your eggs in one basket.  Now, that policy goes wrong if eggs like being in one basket, i.e. network effects.  These would have to be very very strong, and exist across airline allicances, to go for Heathrow.

Tuesday, 25 November 2014

Thinking about big numbers. Housing benefit

A recent question in the Lords asked this: 

My Lords, if business improved productivity by just 1% and divided that between employer and employee, how many millions would be saved on housing benefit, much of which goes to landlords?

The Guardian has a useful visualiser on welfare spending, which shows spending of 15bn on housing benefit, but that is out of date.

More up to daate is the Housing Benefit bill for England: £21.2 billion.

Now, UK GDP is 1.6trillion.1% of 1.6tr is 16bn.Wages are 66% of GDP =  10bn. 

Around 1m people in work claim housing benefit and there are 30m people in work.

If the rise in wages is evenly distributed ( a big if) then 1/30th 10bn is 0.3bn.  

If a rise in wages of £1 saves 70p of housing benefit, then a rise of .3bn saves .3bn*0.7= 210m  which is 0.1% of the housing benefit bill. 
 So a saving of millions is only a tiny fraction of benefit spending.  

Tuesday, 11 November 2014

Various teaching links: opportunity costs

Here's a new report, November 6, 2014 The Economic Cost of the European Union's Cookie Notification Policy. It says"EU's HTTP Cookie Notification Policy is costing Europe $2.3 billion a year and needs to go".
How do they get that figure? Part of the costs are  costs of monitoring and software changes.  But part are the time it takes to read the notification and delete it (2 seconds per user) times their wage per hour.  This gives an EU figure of $917bn Euros per year for all the EU users (its a short time, but there are many users).

Based on this data, the projected
cost of the EU cookie policy for
each year is just over €
million or $