Friday, June 25, 2010

Weekend Links June 25th

1. Meet the psychic Octopus - He has gotten the three German world cup games right so far, two of which were obvious and also predicted 4 of the 6 games in a previous tournament. He is now famous, a cautionary tale again to those insisting on the rationality assumption.

2. Via Colm, the June 2010 edition of the Journal of Economic Literature focuses on regression discontinuity designs and treatment effects

3. Heckman and colleagues review what is known on the GED, a high-school diploma equivalent offered as a second chance to people who have dropped out of regular-track high-school

4. List and Rasul NBER paper on experiments in labour economics

5. Programme for the RAND 2010 Mini-Medical Summer School for Social Scientists

6. The Irish Government have launched the "National Solidarity Bond". The brochure is here. The behavioural aspects of this will be interesting to tease out. Without going into full details, the basic annual interest rate is 1 per cent, which is small. But a series of tax free bonuses accrue, with the main punchline being a state-guaranteed 50 per cent tax-free return after 10 years. Clearly, one of the ideas is to link savings to patriotism, which is something for which I do not know of much evidence. The marketing campaign has focused very much on creating a clear and simple image of getting a lump sum in ten years time to do something durable with. Let's talk more about this later.

7. Meier and Sprenger IZA paper on the stability of time preferences


Kevin Denny said...

6: I would have thought lack of domestic demand due to a combination of low incomes and high precautionary savings is a major problem so sucking more money into savings scheme is not terribly patriotic.
In any event, while I am not expert on this, my impression of such savings schemes is there a lot of displacement: people just shift their savings from one scheme to another to take advantage of the fiscal privilege with little effect on aggregate savings.

Keith said...

1% for every year you keep the bond, with 25% DIRT on this payment, and a 40% tax-free lump sum after 10 years. So, taking the tax into account, I get a yield of about 4.07% for this, and that's not great compared to the ten-year benchmark bond, but this is subject to income tax. At 20% income tax, I get a yield of 4.48%, and 3.4% at the higher rate (leaving out transaction costs, in the fine tradition of financial economics). For average Joe, it looks like a poor investment to me.

Liam Delaney said...

We are talking in the dark obviously Kevin without the data but my priors are different. I think these schemes do attract people who would not save through other mechanisms. I know a lot of people who never before and have never since saved other than the SSIA mechanism brought in by McCreevy. In this case, everything about the pitch seems more geared to unsophisticated investors than savvy diversified customers.

I share your concern though about the potential to reduce consumption at at time when there is such low aggregate demand.

Rob Gillanders said...

It might be a bit off topic but there probably is some research on patriotism and government bonds. The excellent film "Flags of our Fathers" shows how the US used the famous raising of the flag on Iwo Jima to sell war bonds. If the research doesn't exist it'd probably be easy enough to do using data on such events.

PS Watching the flick really makes this Johnny Cash classic all the more poignant.

Kevin Denny said...

Liam: Do you think the people who designed this are any less in the dark? I doubt it personally as the DoF does not have the expertise. The SSIA could have provided an opportunity to look at how such a scheme might work in an Irish context but I am not aware of any such study or even data that would allow one do such work.
I have certainly seen econometric work that suggested large deadweight losses for these schemes (though I can't identify the papers right now). I would put a greater weight on this than anecdotal evidence.
According to Besley & Meghir(1998) (p2) effects tend to be small and a lot of portfolio shifting is induced. Some light then!

Kevin Denny said...

See also
The Illusory Effects of Saving Incentives on Saving, Eric M. Engen, William G. Gale and John Karl Scholz
The Journal of Economic Perspectives 10(4) (Autumn, 1996), pp. 113-138

Liam Delaney said...

The war-bonds have been mentioned a few times. One of the ideas that emerged from the Farmleigh conference is the concept of a Diaspora Bond which will be sold to Irish descendents abroad. Most of us would have a sceptical view on these ideas as they simply represent borrowing and it is difficult to see a third generation paddy stumping up his hard-earned money at a lower interest rate to buy into an ideal like this.

Rob Gillanders said...

There are probably different responses to calls of patriotism in good times (war is going great, one last push and we're there) and bad (we have squandered our prosperity, please give us money or the country is doomed). Again, something one could probably get at with some fairly simple regressions.

Kevin Denny said...

I don't know if War Bonds have been studied, one for the Economic Historians. I guess one difference is that in war-time, certainly WWII, the public generally gets behind the government. But now there is some huge antipathy towards the government and suspicion of their motives and ability (rightly or wrongly) that there isn't that good-will to tap into. I wouldn't go knocking on doors trying to flog these bonds.
As for Diaspora bonds, while Americans are pretty sentimental about their origins & every second person I meet tells me they have Irish blood, they are not at all sentimental about money.