Wednesday, December 28, 2011

Right diagnosis, wrong prescription

From Kompas today (28/12) we read that Minister of Agriculture, Suswono, has a solution to Indonesia's low competitiveness in agriculture products. Rightly, he points out that the reason for the low competitiveness is high transportation costs due to poor infrastructure. So, again rightly, the country needs to improve the road infrastructure.

But, now comes the tricky part, he also says that the government is preparing "cheap car for farmers" program. It will sell a 700 cc energy efficient car at the price of Rp 60 million per unit. He believes this will help reduce the costs faced by the farmers - and hence logistics costs will go down, then competitiveness will improve.

Good intention, however, usually comes with unintended consequences. Imagine you're an average farmer. What would you do with such car? I would use it for many activities outside farming. Or I will resell it with some extra margin. Or I will just rent it out in daily basis. So, rather than increasing the productivity of agriculture sector, the car might be good for other things, which leads to lower-than-expected impact on the competitiveness of ag products.

The news also reports that the government is ready for the first 1000 units. Presumably, there will be follow up batches. I wonder if the money can be of better use should it be directed towards improving the road condition, or building railway access to the bulky ag products rather than "cheap car program". We, by the way, experienced a program like this before. It was called "people's car". And it was a major failure.

Thursday, December 08, 2011

Pick from The NBER Digest -- December 2011


Judd B. Kessler and Alvin E. Roth

The "priority rule," which grants priority on organ waiting lists to those who have previously registered as organ donors, can significantly raise the number of potential donors.

In Organ Allocation Policy and the Decision to Donate (NBER Working Paper No. 17324), Judd Kessler and Alvin Roth find that an organ allocation policy known as the "priority rule," which grants priority on organ waiting lists to those who have previously registered as organ donors, can significantly raise the number of potential donors. Their results suggest that the priority rule, which is currently used in Singapore and which is being introduced in Israel, is a potentially powerful policy tool for encouraging donor registration.

The researchers devise an experimental game which captures some of the key features of the organ donation problem and collect data when students play this game. Each player begins the experiment with "kidneys" that may, with some probability, "fail" during the game. Players receive monetary compensation for each round of the game in which they remain alive. A player may "die" from "kidney failure" if he cannot obtain donated organs. He may also "die" during the game for other reasons - that creates a potential supply of donors whose "kidneys" may be assigned to still-living players who face organ failure. A player gives up some money if he registers to donate his "kidneys" in the event of death -- this captures what the authors view as the psychic cost of registering as an organ donor. A larger pool of potential donors conveys benefits for all players, because it raises the likelihood that if a player experiences "kidney failure" a replacement organ will be available.

The authors compare the effect of reducing this cost of donation, which in their game is a monetary cost, with the effect of adopting a priority rule. Both approaches increase the number of registered donors, but the "priority rule" performs at least as well as, and sometimes better than, an equivalent decrease in the cost of donation. The authors try introducing the priority rule after subjects have made donation decisions a number of times, as well as at the start of the game. In the latter case, the increased performance of the priority rule is even greater. With regard to actual policy design, Kessler and Roth point out that one advantage of the priority rule over strategies for compensating registered donors, and thereby reducing their costs of registering, is that the priority rule seems feasible and can be implemented without any additional costs to the system.

--Matt Nesvisky

Saturday, December 03, 2011

Mitigating the crisis?

Kompas today (3/12) reports that the government is preparing a mitigation scenario to anticipate the impact of the crisis of Eurozone on Indonesia. Good.

But some of the efforts listed in the newspaper might not be feasible. For example, budget absorption. The state budget aims a deficit of 2.1% this year. That translates into around IDR 150 trillion. The last updated data of government expenditure that I have shows by October the net spending totaled to positive IDR 4.8 trillion. Now we've entered December. I don't think the government can meet the deficit target - just like in the previous years.

Secondly, the news mentions about Chiang Mai Initiative Multilateralization. This is still a tall order. In the midst of the Lehman crisis, nobody could use it, due to small scale amount of fund and more importantly, the strict conditionality linked to IMF if you asked a bigger amount. Until CMIM is reformed further, it will not serve as a good shock cushion in the region. We still remember that Korea didn't get helped from Chiang Mai. They got it from US Fed.

Friday, December 02, 2011

Our product is expensive. We demand yours to be equally expensive

Minister of Trade Gita Wiryawan, as quoted by Kompas (2/12) said that foreign products should not enter directly into "the heart of Java", namely Jakarta. Because, here is his reason: our Pontianak mandarin orange has to take a rough and long way to Jakarta leading to its expensive price. So foreign goods should also experience the same difficulty. The policy to do that is to send foreign goods to a quarantine located far from Java.

So, by Gita's logic, if our product is expensive, we should tell foreign products to be equally expensive. His solution is not to fix the root of the problem, i.e the poor infrastructure and logistics across regions in Indonesia, but rather to punish the more efficient albeit foreign products at the cost of domestic consumers' welfare.

Very bad, Minister.

Addendum: On the same newspaper, Chairman of Indonesia's Transportation Community Danang Parikesit offers a better solution: improve the transportation infrastructure. The Deputy Head of Indonesian Chamber of Commerce and Trade Natsir Mansyur shares this view, namely to improve on the logistics. Way to go, gentlemen.

Tuesday, November 29, 2011

Picks from The Latest NBER Research (2011-11-28)

The Euro and European Economic Conditions
by Martin S. Feldstein  -  #17617 (EFG IFM ME)


The creation of the euro should now be recognized as an experiment that has led to  the sovereign debt crisis in several countries, the fragile condition of major European banks, the high levels of unemployment, and the large trade deficits that now exist in most Eurozone countries.  Although the European Central Bank managed the euro in a way that achieved a low rate of inflation, other countries both in Europe and elsewhere have also had a decade of low inflation without incurring the costs of a monetary union.

The emergence of these problems just a dozen years after the start of the euro in 1999 was not an accident or the result of bureaucratic mismanagement but the inevitable consequence of imposing a single currency on a very heterogeneous group of countries, a heterogeneity that includes not only economic structures but also fiscal traditions and social attitudes.

This paper reviews (1) the reasons for these economic problems, (2) the political origins of the European Monetary Union, (3) the current attempts to solve the sovereign debt problem, (4) the long-term problem of inter-country differences of productivity growth and competitiveness, (5) the special problems of Greece and Italy, (6) and the pros and cons of a Greek departure from the Eurozone.


Diversity and Donations: The Effect of Religious and Ethnic Diversity on Charitable Giving
by James Andreoni, Abigail Payne, Justin D. Smith, David Karp  -  #17618 (PE)

We explore the effects of local ethnic and religious diversity on individual donations to private charities.  Using 10-year
neighborhood-level panels derived from personal tax records in Canada, we find that diversity has a detrimental effect on charitable donations.  A 10 percentage point increase in ethnic diversity reduces donations by 14%, and a 10 percentage point increase in religious diversity reduces donations by 10%.  The ethnic diversity effect is driven by a within-group disposition among non-minorities, and is most evident in high income, but low education areas.  The religious diversity effect is driven by a within-group disposition among Catholics, and is concentrated in high income and high education areas.  Despite these large effects on amount donated, we find no evidence that increasing diversity affects the fraction of households that donate.  Over the period studied, ethnic diversity rises by 6 percentage points and religious diversity rises by 4 percentage points; our results suggest that charities receive about 12% less in total donations.  As areas like North America continue to grow more diverse over time, our results imply that these demographic changes may have significant implications for the charitable sector.

Monday, November 14, 2011

Picks from The Latest NBER Research (2011-11-14)

Substitution and Stigma: Evidence on Religious Competition from the Catholic Sex-Abuse Scandal
by Daniel M. Hungerman  -


This paper considers substituting one charitable activity for another in the context of religious practice.  I examine the impact of the Catholic Church sex-abuse scandal on both Catholic and non-Catholic religiosity.  I find that the scandal led to a 2-million-member fall in the Catholic population that was compensated by an increase in non-Catholic participation and by an increase in non-affiliation. Back-of-the-envelope calculations suggest the scandal generated over 3 billion dollars in donations to non-Catholic faiths.  Those substituting out of Catholicism frequently chose highly dissimilar
alternatives; for example, Baptist churches gained significantly from the scandal while the Episcopal Church did not. These results challenge several theories of religious participation and suggest that regulatory policies or other shocks specific to one religious group could have important spillover effects on other religious groups.


Trade Prices and the Global Trade Collapse of 2008-2009
by Gita Gopinath, Oleg Itskhoki, Brent Neiman


We document the behavior of trade prices during the Great Trade Collapse of 2008-2009 using transaction-level data from the U.S. Bureau of Labor Statistics.  First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes.  Prices of non-differentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among non-durables, prices in both categories barely changed.  Third, despite this lack of movement in average price levels, the frequency and magnitude of price adjustments at the product level noticeably changed with the
onset of the crisis.


Gold Sterilization and the Recession of 1937-38
by Douglas A. Irwin


The Recession of 1937-38 is often cited as illustrating the dangers of withdrawing fiscal and monetary stimulus too early in a weak recovery.  Yet our understanding of this severe downturn is incomplete:  existing studies find that changes in fiscal policy were small in comparison to the magnitude of the downturn and that higher reserve requirements were not binding on banks.  This paper focuses on a neglected change in monetary policy, the sterilization of gold inflows during 1937, and finds that it exerted a powerful contractionary force during this period.  The transmission of this monetary shock to the real economy appears to have worked through lower asset (equity) prices and higher interest rates.

Monday, October 24, 2011

New comment note

Arianto A. Patunru, 2011. "Comments", a comment to Yung Chul Park and Chi-Young Son, "Renminbi Internalization: Prospect and Implications for Economic Integration in East Asia", Asian Economic Papers, 10(3): 73-4

Upcoming seminar

Paris conference this weekend here

Tuesday, August 30, 2011

Crossing or Turning Point?

Got an email, kind of blessing. Significant change in life path is coming.

Tuesday, August 02, 2011

Picked from The Latest NBER Research (2011-07-25)

1. Network Stability, Network Externalities and Technology Adoption
by Catherine Tucker  -  #17246 (PR)

This paper investigates how the destabilizing of a social network may increase the scope of network externalities, using data on sales of a video-calling system made to an investment bank's employees and subsequent usage by these customers.  The terrorist attacks of 2001 led potential customers in New York to start communicating with a new and less predictable set of people when their work teams were reorganized as a result of the physical displacement that resulted from the attacks.  This did not happen in other comparable cities. These destabilized communication patterns were associated with potential adopters in New York being more likely to take into account a wider spectrum of the user base when deciding whether to adopt relative to those in other cities.  Empirical analysis suggests that the aggregate effect of network externalities on adoption was doubled by this instability.

2. The Value of Honesty: Empirical Estimates from the Case of the Missing Children
by Sara LaLumia, James M. Sallee  -  #17247 (PE)

How much are people willing to forego to be honest, to follow the rules? When people do break the rules, what can standard data sources tell us about their behavior? Standard economic models of crime typically assume that individuals are indifferent to dishonesty, so that they will cheat or lie as long as the expected pecuniary benefits exceed the expected costs of being caught and punished.  We
investigate this presumption by studying the response to a change in tax reporting rules that made it much more difficult for taxpayers to evade taxes by inappropriately claiming additional dependents.  The policy reform induced a substantial reduction in the number of
dependents claimed, which indicates that many filers had been cheating before the reform.  Yet, the number of filers who availed themselves of this evasion opportunity is dwarfed by the number of filers who passed up substantial tax savings by not claiming extra
dependents.  By declining the opportunity to cheat, these taxpayers reveal information about their willingness to pay to be honest.  We
present a novel method for inferring the characteristics of taxpayers in the absence of audit data.  Our analysis suggests both that this willingness to pay to be honest is large on average and that it varies significantly across the population of taxpayers.

Influential papers

Just came across this ranking of top influential economic papers. In restrospect, I think I wasn't too far off the literature then, luckily. My senior undergraduate thesis ("skripsi") - hence long time ago -  built on the works of Lucas (number 1 on the list), MRW (#4), and Romer (#5, #6). But to my surprise, the key reference of all these works (and hence mine), i.e. Solow's neoclassical growth model is not on the list.

Friday, May 06, 2011

RIP: Jamie Mackie

One of the most enlightened Indonesianists, Jamie Mackie passed away on April 21st, 2011.

Today The Jakarta Post runs a nice obit written by Thee Kian Wie.

I'm grateful to have known Jamie. He once commented on my draft paper. A rarity, for it was like a master giving a tap on a rookie's shoulder.

Rest in peace, Pak Jamie.

Tuesday, April 26, 2011

A Pick from The Latest NBER Research (2011-04-25)

Exporting Christianity:  Governance and Doctrine in the Globalization of US Denominations
by Gordon H. Hanson, Chong Xiang  -  #16964 (ITI)


In this paper we build a model of market competition among religious denominations, using a framework that involves incomplete contracts and the production of club goods.  We treat denominations akin to multinational enterprises, which decide which countries to enter based on local market conditions and their own "productivity." The model yields predictions for how a denomination's religious doctrine and governance structure affect its ability to attract adherents.  We test these predictions using data on the foreign operations of US Protestant denominations in 2005 from the World Christian Database. Consistent with the model, we find that (1) denominations with stricter religious doctrine attract more adherents in countries in which the risk of natural disaster or disease outbreak is greater and
in which government provision of health services is weaker, and (2) denominations with a decentralized governance structure attract more adherents in countries in which the productivity of pastor effort is higher.  These findings shed light on factors determining the
composition of religion within countries, helping account for the rise of new Protestant denominations in recent decades.