Measuring "Outputs" in Determining Funding for Universities

At many universities (inclugin the University of Calgary), funding is often decided basedo n inputs: how many grants individuals/institutions have received, how many students are attending, etc. While there are funding decisions based on outputs (number of publications by faculty, donations from alumni (considering graduates as an output form the unversity), funding decisions at the provincial and federal levels are often basedon what I would consider inputs. In the U.S., there are proposals to make funding for universities based on their main output good:

Lawmakers in Ohio appear likely to adopt a plan, introduced this year, that would base 100% of higher education spending on course and degree completion. Indiana is considering a similar but more modest proposal. And in Louisiana, the governor and Legislature have called for plans that tie 25% of higher education funding to student success.

The concept of rewarding institutions that meet certain goals has been around for about 30 years, but the newer proposals focus more on student outcomes and involve more money.

The renewed interest reflects a growing concern that the USA has fallen behind other countries in college completion rates at a time when higher education is more important than ever.

Other states have similar programs:

Strategies vary with state priorities, says Brenda Albright, an education consultant in Franklin, Tenn., who studies enrollment-based funding.

• Ohio and Indiana are targeting degrees in science, technology, engineering and math.

• Missouri's department of higher education has proposed a plan to finance schools based on how students in allied health and other fields fare on state licensing exams.

• Washington state's board of community and technical colleges plans to reward schools when students cross certain hurdles, such as completing 15 credits and passing math, along the way toward earning a credential.

Some early adopters, such as Florida, have seen results. From 1997 to 2007, Florida's community-college completion rates shot up 43% while enrollments rose 18%.

Such policies would imply that universities with low completion rates would experience funding cuts. This may be an appropriate way to help divert resources to better institutions. I am curious what this type of policy would imply for programs within an institution. I don't know what the results look like for other fields, but in economics, the American Economic Association has a study which looked at completion rates in economic graduate programs. As expected, lower ranked universities have lower completion rates in economic graduate programs. (These lower rates may be due to selection, competition for the higher tiered schools, or the smaller programs at some universities.)

As noted earlier, 27 percent of the 2002 entering class had completed work on their Ph.D. within five years of matriculation. Thirty-four percent of the original cohort had dropped out by their fifth anniversary, leaving 39 percent still toiling in the academic vineyard.3 Based on a sample of 1,154 economics Ph.D.s who graduated in 1996-97 and 2001-02 (two cohorts who all completed their degrees during the same years), Siegfried and Stock (1999, 2004) found that 41 percent of those who eventually earn a Ph.D. degree, do so by the end of five years. A similar completion distribution for our 2002 entering class sample, adjusted for likely attrition at our disproportionately higher tier sample programs, implies an eventual completion rate around 60 percent for all 2002 economics Ph.D. program entrants.

Completion falls monotonically as program rank declines, ranging from a five-year completion rate of 33 percent for the three Tier 1 programs in our sample, to only 17 percent of the entrants into programs ranked below 48th (Tier 5). Given their higher completion rates and because Tier 1 and Tier 2 programs appear to better avoid attrition among their students than programs in lower tiers (the Tier 1 and 2 two-year attrition rates average less than 18 percent of entrants, while those of lower tier programs are above 32 percent of entrants), we group Tier 1 and Tier 2 programs together when estimating completion. Because five year completion rates of students in Tier 3 and Tier 4 programs are similar, but those for Tier 5 programs are much lower, we group programs in Tiers 3 and 4 together, and use that large group as a benchmark.

Drinking Behavior and Fraternity Membership

There's an interesting new paper by Jeff DeSimone in Economic Inquiry. The abstract:

This paper estimates the impact of fraternity and sorority membership on a wide array of drinking outcomes among respondents to four Harvard College Alcohol Study surveys from 1993 to 2001. Identification is achieved by including proxies for specific types of unobserved heterogeneity expected to influence the relationship. These include high school and parental drinking behaviors to account for time-invariant omitted factors and assessed importance of drinking-related activities and reasons for drinking to control for changes in preferences since starting college. Because self-selection is quantitatively important, I further hold constant variables plausibly affected by fraternity membership, such as current alcohol use categorization, ranging from abstainer to heavy drinker, and time spent socializing. Even in the fully saturated model, fraternity membership significantly increases drinking intensity, frequency, and recency, as well as the prevalence of many deleterious drinking consequences that potentially carry negative externalities.

Given my interests in the role of social identities in decision making, I wonder how much joining a fraternity changes one's identity (an identity with the potential behavioral prescription involving heavy (or heavier) drinking). I find it interesting that the results still hold given a full accounting of selection effects (i.e., potential drinkers may be more likely to join a frat). Is it that joining a frat changes fundamental behavior? Is it that a frat just provides more opportunities to drink?

Google's Chief Economist: Internet Searches as Auctions

Hal Varian is a name familiar to almost every graduate student in microeconomics. He is currently serving as the chief economist for Google. Wired's article discusses the concept of Google's AdWords as an acution:

In the midst of financial apocalypse, the gadflies and gurus of the global marketplace are gathered at the San Francisco Hilton for the annual meeting of the American Economics Association. The mood is similar to a seismologist convention in the wake of the Big One. Yet surprisingly, one of the most popular sessions has nothing to do with toxic assets, derivatives, or unemployment curves.

"I'm going to talk about online auctions," says Hal Varian, the session's first speaker. Varian is a lanky 62-year-old professor at UC Berkeley's Haas School of Business and School of Information, but these days he's best known as Google's chief economist. This morning's crowd hasn't come for predictions about the credit market; they want to hear about Google's secret sauce.

Varian is an expert on what may be the most successful business idea in history: AdWords, Google's unique method for selling online advertising. AdWords analyzes every Google search to determine which advertisers get each of up to 11 "sponsored links" on every results page. It's the world's biggest, fastest auction, a never-ending, automated, self-service version of Tokyo's boisterous Tsukiji fish market, and it takes place, Varian says, "every time you search." He never mentions how much revenue advertising brings in. But Google is a public company, so anyone can find the number: It was $21 billion last year.

His talk quickly becomes technical. There's the difference between the Generalized Second Price auction model and the Vickrey-Clark-Groves alternative. Game theory takes a turn; so does the Nash Equilibrium. Terms involving the c-word—as in clicks—get tossed around like beach balls at a summer rock festival. Clickthrough rate. Cost per click. Supply curve of clicks. The audience is enthralled.

During the question-and-answer period, a man wearing a camel-colored corduroy blazer raises his hand. "Let me understand this," he begins, half skeptical, half unsure. "You say that an auction happens every time a search takes place? That would mean millions of times a day!"

Varian smiles. "Millions," he says, "is actually quite an understatement."

Robert Engel on Volatility

Robert Engel has a new article in the Financial Times on volatility in financial markets. The crux is on what determines volatility and what we can expect in the current crisis:

Volatility is not yet back to normal primarily because macroeconomic uncertainty is not yet resolved. When the end of the recession becomes more predictable and the recovery is in sight without excessive inflation fears, then volatility should finally return to its normal level just below 20 per cent.

New Economics Blog

There is a new economics blog: Ecocomics, where the dismal science and comics collide. Great discussions of the equality/efficiency trade-offs inherent in many comic book story lines (something Vulcan's surely must consider) and the role of mutants in the economy (not biological or cultural ones; X-men kinda mutants). Worth reading.

This reminds me of a couple of other forays of economics into the realm of comic books. Many years ago, Shotaro Ishinomori wrote Japan Inc. as an introduction to Japanese economics and the role and effects of international trade. (I have this book in my office if anyone locally wants to borrow it. There is also a volume two, which I haven't read.) Grady Klein and Yoram Bauman have the forthcoming book The Cartoon Introduction to Economics. Finally, there is the recurrent theme in comics, old as comics themselves, on the benefits of competition (see below):

Alberta Oilsands on Democracy Now

Tom Goldtooth was on Democracy Now today discussing the Alberta oilsands and the new congressional climate change bill in the U.S.

Friday Beer Economics

Here's a link to the latest on beer prices in various Canadian cities. Alberta put a new series of taxes into effect in April. Now a 12 pack of Labatt Blue (not my favorite; in fact, its pretty foul) in Calgary costs 28% more than in Montreal.

Unconventional Monetary Policy

The Bank of Canada posted a speech by John Murray (deputy governor) on the need for unconventional monetary policy during the current economic crisis. Three instruments he highlights are the following:

1. Conditional statements about the future path of policy rates. The first mechanism is a conditional commitment regarding the future path of the policy interest rate. In normal times, this type of interest rate guidance is usually kept to a minimum or expressed in very general terms. In extraordinary times – such as we now face – it may be necessary to be more explicit and make a clear conditional commitment to keep the target overnight rate low for an extended period. Using this approach, central banks can influence interest rates well out the yield curve, because long-term rates are largely a reflection of expected future short rates. While it may not be possible to lower the overnight rate any further, expectations at longer maturities can still be shaped by conditionally committing to keep the overnight rate low.

For this mechanism to work, the conditional commitment must be credible, and inflation expectations must remain well anchored. Canada's positive experience over the past 18 years with an inflation targeting framework is especially helpful in this regard. Inflation targeting has reduced the risk of deflationary expectations, permitted aggressive policy action in response to the current crisis, and will no doubt make it easier to exit from any unconventional policies that are introduced.

2. Quantitative Easing. The second unconventional mechanism is quantitative easing. It is sometimes referred to pejoratively, and mistakenly, as "printing money." Quantitative easing occurs whenever a central bank purchases private or public sector securities by expanding its reserve base. These purchases directly affect the yields of the securities that are bought, putting downward pressure on their interest rates and upward pressure on their prices. They also inject additional central bank reserves into the financial system, which deposit-taking institutions can use to generate additional loans.

All quantitative easing is, by definition, "unsterilized." Although this is correctly viewed as unconventional, it closely resembles the way monetary policy is described in most undergraduate textbooks, and is broadly similar to how it was conducted in the heyday of monetarism.

3. Credit Easing. Credit easing is the third mechanism, and is a term reserved exclusively for central bank purchases of private sector assets in segments of the market where dislocations and credit constraints appear to be most severe. It is designed to ease credit conditions by stimulating more active trade in certain assets and through a process of portfolio substitution.

Sterilized purchases of private sector assets can be effected either by selling existing assets on the central bank's balance sheet – essentially swapping "good" assets for "bad" – or by creating additional central bank reserves and then sterilizing, or mopping up, the extra reserves by selling new government securities. Credit easing can also be combined with quantitative easing, in which case the purchase of private assets will remain unsterilized and the reserve base will expand.

I find the first one particularly interesting. It implies the Bank's commitments to future interest rates, thereby reducing much of the speculation we observe around, for example, U.S. Federal Reserve announcements.

The Economics of Star Trek

Here's the best post on the topic (in my opinion). It looks like Vulcans understand public goods from an early age.

Cellphones and Driving

Alberta is considering following several other provinces (NS, ON, QC) in banning the use of cellphones while driving. I personally think its a good idea, but my experience involves seeing several friends have accidents while on their phones.

I'm curious as to how such a change in legislation will affect accidents via changes in behavior. With respect to seat belts, some have argued that the reduction in risk presented by a seat belt is compensated for by increases in speed and other increases in risky driving behavior (something called risk compensation). I came up with a couple of (back of the envelope) competing hypotheses on the cellphone ban:

1. Banning cellphone use may result in people paying closer attention to their driving, thereby reducing accidents.
2. Banning cellphone may result in people increasing their speed, perhaps driving more recklessly in order to get home or to the office to make their calls.

Any other hypotheses are welcomed. Once I have enough hypotheses, I'll look into setting up a track and renting some go-karts.

The Twitter Market

I have a Twitter account, but still don't quite "get it."

I've been told by some friends (also academics) that they have found it a useful tool in communicating with their classes (e.g., homework reminders, corrections of typos on assignments, etc.). I'm going to give it a shot in the fall and will let people know how it worked. I'll be joining others at the university (like the University of Calgary library) in using Twitter as a way to pass along information.

I've also heard from some friends of mine involved in marketing and web design that its a useful tool in building web traffic to particular sites. The general statistic I've heard thrown around is that for any link you post on your Twitter update, 4-10% of your followers will visit that site. In this sense, more followers is a good thing.

So an entrepreneur seeing an opportunity has developed a new service: TweepMe will get your "thousands of followers" (4,000+) automatically for a fee of $12.95. (By the way, they currently are offering $2 off on their service.)

Pay Day Loans in Alberta

In the book Why the Poor Pay More, Gregory Squires discusses how predatory lending occurs via pawnshops and payday loans. Now, it looks like Alberta will begin putting controls on the fees and interest rates that payday lenders charge ("Alberta trgets payday lenders," Calgary Herald, May 18, 2009).

In some cases these lenders charge as much as 60% (once fees and interests are calculated and included into the short-term nature of the loan). While these services are of value to those who use them (many low income people can't access more familiar types of credit), the high rates of interest charged by these lenders impose significant costs on these individuals.

Michael Pollan on Democracy Now

Given my recent posts on the amount of time people spend eating and Ghent's "Meatless Thursdays," I thought it worthwhile to point out the Michael Pollan was on Democracy Now this morning. My Pollan is the author of, among other books, The Omnivore's Dilemma.

In addition to discussing his book and industrial food production (i.e., industrial pork production and wine flu, pointing out that eating pork is not how the disease is transmitted), he also has some interesting views on the relationships between of free-trade, the environment, and the development of industrial agriculture.

Eating your vegetables and climte change

The Belgian city of Ghent has adopted a new policy it hopes will help with the health of its population and the problem of climate change: meatless Thursdays. The following explains:

Starting May 13, the Belgian city of Ghent, one of the 370 European climate cities, may very well become the first worldwide to officially promote a weekly meatless day.

According to FAO, livestock is responsible for eighteen percent of global greenhouse gas emissions. That’s why city officials, in cooperation with the vegetarian organisation EVA, are determined to go the extra mile in our common battle against climate change. Other Belgian cities have already shown interest to follow Ghent’s example.

The first Thursday Veggie Day will kick off on Wednesday May 13th with a festive ceremony for the public. Tom Balthazar, councilman for the city’s health and environmental committee, will officially proclaim Thursdays to be vegetarian days.

As an appetizer for the campaign, the city council already had the opportunity to enjoy a gourmet vegetarian lunch at the city hall last week. At the official inauguration everyone will be invited to take part in the Meatless Thursday campaign, and vegetarian goodiebags will be handed out to citizens participating in the campaign. As of September, city schools will serve vegetarian lunches by default on Thursdays. All 5.000 city personnel will receive a free veggie city street map and a free vegetarian cooking brochure for professionals will be sent to all 1.500 restaurants. There will be cooking classes for both professionals and individuals. City run restaurants for Ghent staff have extended their vegetarian menu.

Ghent’s motivation to introduce the ‘Meatless Thursday is twofold:

- Any reduction of meat production and consumption, which leads to greenhouse gas emissions and the degradation of soil, water and air, desertification and deforestation, will bring enormous benefits for the environment.

- Ghent also wants to be a healthy city. A well balanced vegetarian meal is not only sustainable but also healthy. Belgians, and Europeans in general, eat too much meat and not enough vegetables, which has serious consequences for their health. Too much meat heightens cholesterol levels as well as the risk of some cancers, diabetes and obesity.

Canadain Versus U.S. Banking Systems

Canadian banks have weathered the current economic crisis much better than their U.S. counterparts. Nick Rowe has suggests the following:

But it doesn’t seem to be as simple as “Canadian banks are more tightly-regulated”.

1. We never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada. (So it doesn’t matter if a local housing market goes bust).

2. We don’t have Glass-Steagal. The investment banks joined the retail banks some years ago.

3. We don’t have mortgage interest deductibility from taxes. So paying down your mortgage is a tax-free investment. So most people want to pay down their mortgages.

4. (Except in Alberta), mortgages are fully recourse. You can’t just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.

I wouldn’t describe those differences as “Canada is more regulated”.

But we do have higher capital requirements. And mortgages over 80% must be insured (mostly by the government-owned CMHC).

For more information, see the direct blog post here and the discussion here.

OECD Society at a Glance report : Canada

The new "Society at a Glance" from the OECD has been released for 2009. I thought it might be worth summarizing some of the findings from their key findings on Canada:

1. While Canada ranks 8th in terms of life satisfaction for OECD countries, it is one of only five countries that registered a decline between 2000 and 2006, along with Portugal, Hungary, the US and Japan.
2. Canada has more immigrants than the United States, with 20% of the population foreign-born. The ratio is similar in Luxembourg, Switzerland, Australia and New Zealand.
3. Nine out of ten Canadians feel that they enjoy good health, as do their neighbours in the US, and farther away, New Zealand, and they live a year longer than the OECD average.
4. While approximately 25% of 15 year-olds in Canada report having sex, about 80% of these individuals use condoms regularly.
5. Canada spends about 19% of net national income on public spending, less than the OECD average of 24% and slightly higher than the U.S. at 18%. At the same time, there appears to be an increase in poverty (generally speaking and among children) and income inequality in Canada. These increases are greater than the OECD average.
   

Time Spent Eating and Obesity

A new post by Catherine Rampell at the NYT's Economix blog identifies a relationship between obesity rates and the amount of time individuals spend eating. The amount of time spent eating may be a sign of the amount of "fast food" (which is typically high in fats) consumed. Interestingly, it may not be the smoking and the wine drinking that keeps the French so healthy; it may just be the time spent eating (as a signal of the types of food they eat). Before you start changing your lifestyle by taking longer to eat and enjoying a cigarrette, recall the caveats regarding correlation versus causation.