Regulation and Contract Choice in the Distribution of Wine

That’s the title of a new working paper with one of my former students, Michelle (Mullins) Santiago. You can access the full paper here. The abstract follows:

The wine industry in the United States has grown tremendously over the past few decades, from fewer than 1,000 wineries in 1980 to upwards of 7,700 today. The growth has occurred over a period that has seen substantial changes in the structure of the wine industry, the modes of distribution available to wineries, and the regulations governing them, perhaps most notably the advent of direct-to-consumer shipping of wine across state boundaries. Most economic research, however, has focused on supply relations between wineries and wine grape growers rather than between wineries and their downstream markets. In this paper we examine wineries’ contracting behavior with downstream distributors and the effects of industry structure, winery organizational structure, and state laws regarding direct shipment and distribution franchise laws.

A Review of Occupational Licensing

This week the US Supreme Court is hearing arguments in the case of North Carolina Board of Dental Examiners v. Federal Trade Commission, addressing the questions of whether (or under what terms) state occupational licensing boards are immune from antitrust scrutiny. This is the case I referred to last week and linked to the preview of the arguments on SCOTUSblog.

Today I ran across a review of Morris Kleiner’s recent book, Stages of Occupational Regulation: Analysis of Case Studies, on Econ Journal Watch. Uwe Reinhardt (Princeton) provides a great overview of the general issue and Kleiner’s treatment of it. Below is the abstract of Reinhardt’s review:

The licensing of occupations—a very forceful intervention in markets—is pervasive and growing in modern economies. Yet the attention paid to it by economists and economics textbooks has been small. Highly welcome, therefore, has been the extensive and intensive work on this subject by Morris Kleiner. Kleiner’s latest book, titled Stages of Occupational Regulation: Analysis of Case Studies (2013), explores the progression of occupational regulation, from mere registration to certification to outright licensing—three distinct stages. Kleiner carefully selects for his analysis a series of occupations representing the stages of regulation, devoting a chapter to each occupation. He uses a variety of statistical approaches to tease out, from numerous databases, what the impact of mild to heavy regulation on labor markets appears to be.

Kleiner’s work leads him to call for a pervasive review of occupational regulation in the United States, with a view towards replacing occupational licensure, which introduces the most inefficiency and welfare loss, with mere certification of occupations. That recommendation gains plausibility in an age where cheap computation and data mining makes it possible to protect consumers from low-quality and possibly dangerous services by providing robust, user-friendly information on the quality of services delivered by competing occupations, such as doctors and nurse practitioners.

You can access the full article here. I may need to add Kleiner’s book to my list of fun-things-to-read-when-I-get-a-chance.

Free Trade and Democracy

Xuepeng Lui and Emanual Ornelas have a rather interesting paper in the current issue of American Economic Journal: Macroeconomics (Vol 6, No 2) examining the relation between participation in free trade agreements (FTAs) and the sustainability of democracy. Using hazard and duration models, and accounting for endogeneity of the dynamics, they find that participation in FTAs is positively related to democratic stability. The authors’ findings suggest the bi-lateral nature of FTAs, rather than just a unilateral free-trade regime, make credible the rent-dissipating effects of free trade and reduce incentives to subvert the democratic regime. The authors further show that the adoption of FTAs does not appear to be influenced by how democratic trading partners are, but FTAs do appear to be used as defensive measures by less stable democracies. It’s a thoughtfully done piece that illustrates the interactions of socio-political and economic institutions. The abstract follows:

We study the relationship between participation in free trade agreements (FTAs) and the sustainability of democracy. Our model shows that FTAs can critically reduce the incentive of authoritarian groups to seek power by destroying protectionist rents, thus making democracies last longer. This gives governments in unstable democracies an extra motive to form FTAs. Hence, greater democratic instability induces governments to boost their FTA commitments. In a dataset with 116 countries over 1960-2007, we find robust support for these predictions. They help to rationalize the rapid simultaneous growth of regionalism and of worldwide democratization since the late 1980s.

CAFE: Serving Up A Killing Of A Deal Since 1975

The July 2013 issue (hot off the ether-presses) of American Economic Journal: Applied Economics includes a study by Mark Jacobsen on the safety effects of corporate average fuel economy (CAFE) regulatory standards. (The paper was originally distributed as a National Bureau of Economic Research working paper in April 2012.)

CAFE standards were first introduced by the Energy Policy and Conservation Act of 1975 with the goal of reducing fuel (gasoline) consumption. The standards require auto manufacturers to meet certain fuel economy thresholds in each model year’s sales fleet, with different standards for cars and light-duty trucks and for “domestic” versus imported fleet vehicles. While innovations in engine technology and auto design contribute to fuel economy improvements, auto manufacturers have long achieved the biggest gains by producing smaller, lighter vehicles which are arguably less safe in the event of a collision. In fact, a 2002 National Academy of Sciences report concluded that downsizing related to fuel economy improvements between 1975 and 1993 resulted in roughly 2,000 additional fatalities in 1993, between 13,000 and 16,000 additional debilitating injuries, and between 97,000 and 195,000 total injuries.

Calculating the safety impact of CAFE is a little tricky because the composition of vehicles on the road plays a large role; a small car colliding with another small car has less risk of fatality than a small car colliding with a large car or truck. A significant contribution of Jacobsen’s analysis is that he takes into account both US fleet composition and unobserved driving behavior and vehicle selection (certain kinds of drivers choose certain kinds of vehicles for a reason, and different vehicles have different fatality effects). Continue reading “CAFE: Serving Up A Killing Of A Deal Since 1975”

Microfinance Not So Miraculous Afterall?

Microfinance (a.k.a., microcredit or microlending) has been highly touted among many development folks and people interested in helping to alleviate poverty in developing countries (and communities in the US). For instance, Opportunity International claims:

Microfinance is the provision of financial services such as loans, savings, insurance, and training to people living in poverty. It is one of the great success stories in the developing world in the last 30 years and is widely recognized as a just and sustainable solution in alleviating global poverty.

There’s just one problem. There is virtually no systematic empirical evidence to support that claim. Continue reading “Microfinance Not So Miraculous Afterall?”

Research Confirms: More Is Better

There’s a nice article in the WSJ Online today reporting on recent research by Betsey Stevenson and Justin Wolfers at the University of Michigan. Their article takes to the task a popular assertion that, above some level of income, more money doesn’t really lead to greater happiness. Of course, that would violate on the basic assumptions underlying this blog. They write:

The income–well-being link that one finds when examining only the poor, is similar to that found when examining only the rich. We show that this finding is robust across a variety of datasets, for various measures of subjective well-being, at various thresholds, and that it holds in roughly equal measure when making cross-national comparisons between rich and poor countries as when making comparisons between rich and poor people within a country.

Moreover, Stevenson and Wolfers also find that the third rule of the blog is also substantiated; namely, more more is less better. Or, to use their terms, “while each additional dollar of income yields a greater increment to measured happiness for the poor than for the rich, there is no satiation point.” That is, someone earning $10,000 may get more sense of happiness from an additional $1,000 than does someone earning $1,000,000, but both experience an increase in well-being in a consistently proportional way.

So who cares? Well, I do for one. Hey, if you’re going to build a blog on a pretty basic concept, it’s nice to have the research back it up (unlike, say, some Keynesian economists).

You should too. Some government policies seem to assume (conveniently so) that once a person has a certain amount of income (call them “rich”), they do not value additional money anymore. Therefore, you can take money away from them and give it to people who do value the additional money (call them “poor”) and make society better off by creating a greater sense of well-being. This utilitarian approach would seem to justify redistributive social policies. The only problem is, it isn’t accurate–or at least it isn’t as simple as that (as the research above shows). And that’s even before taking into account the costly nature (both direct and indirect) of the mechanisms for redistributing the wealth.

So there you have it. No matter how much you make, no matter what country you’re in, more is better than less.

New POLCON Data Set Released

Witold Henisz (Wharton) has just released the latest update to his POLCON (political constraint) index, which includes data up through 2012. The previous (2010) release included data only up through 2007. The POLCON data uses a spatial modeling technique to synthesize a number of variable characterizing the structures and ideological alignments of countries’ political system, including the number and types of veto points and the party control (and fractionalization) of different government bodies.

The data are made available for no fee except the promise of an appropriate citation. The 2013 release is available for download in both STAT and Microsoft Excel formats and a code book is provided.

This index is an excellent resource for scholars interested in cross-country comparisons that take into account political uncertainty, and Henisz has been doing the academic community a great public service in maintaining and updating this resources since its inception.