Annual Conference Report

The Society’s Annual Conference took place this year at the University of Warwick , 11th to 13th April. This report of the event is written by Mario Pisani, a former leader writer at the Financial Times and now an economic adviser at HM Treasury.

It was Alfred A Knopf, one of the 20th Century’s leading American publishers, who said that an economist is a man who states the obvious in terms of the incomprehensible.’ He is not alone in having a low opinion of our profession. As economists, we have all encountered educated non-economist colleagues who just don’t get it, however much one tries to simplify. But things are changing. Economists are increasingly being employed in government, think-tanks and industry. ‘Pop economics’ is all the rage. If Knopf were alive, I wouldn’t recommend that he comes to the Royal Economic Society annual conference. But for anyone else with a professional or academic interest in the subject, the event is clearly becoming one of the foremost gatherings of economists around. My opinion, as a practitioner, is that the RES conference provides a wonderful opportunity for understanding the incomprehensible, often in quite obvious terms.

First, a step back
I remember the first time I attended the RES conference. Back then the conference was being held, like this year, at the University of Warwick. In terms of logistics, there have been considerable improvements over the past four years. For a start, the university is now even more familiar with the business of hosting large conferences: the potentially tedious process of arrival, registration and finding accommodation was in fact quite swift. Besides one initial incident involving slightly unclear directions, most sessions were easy to find. In that respect, this year’s event benefited from having full use of a single building, which acted as the conference’s epicentre. The Ramphal Building, a spacious structure on the western side on the campus, held all the keynote lectures and many parallel sessions, as well as housing the press room and other conference facilities. Crucially, it provided a light and airy space in which all the coffee breaks and lunches took place. In what is, I believe, a break from recent practice, all lunches took the form of finger buffets, where sitting was a possibility rather than a requirement. It may seem like a rather prosaic feature to comment on, but there are great advantages to this new format: not only does it allow many more opportunities to talk to others, but it also avoids the long queues which result from serving hot food to hundreds of people at the same time. Finally, while Warwick’s location is little changed compared to four years ago, it is worth pointing out that it has the advantage of being only one hour away from London, where those of us who are not UK academics are much more likely to come from.

Time to move on to the content. At my first RES conference, I was only a fresh-faced post-graduate student, and it was easy to be terrified by the big names, the large datasets and the long equations. Worse, I was not presenting any research of my own. It was not easy. Meeting people between sessions eventually became a chore when the answer to the ubiquitous ‘so when are you presenting?’ was always ‘I am not’.

This experience, I feel, conveys the existentialist tension faced by those who organise the RES conference; or put differently: should the event be more than just a get-together for those presenting papers and those somehow involved in the running of the Society?

My short answer would be ‘yes’. A more insightful answer starts with the realisation that, obviously, this conference serves a number of purposes. First, the Society’s long history and wide membership make it an international emblem for the economics profession. As such, the annual conference serves as a place where the state of our professional body can be discussed. Second, the wide range of topics covered makes the conference a meeting place for economists researching within a particular field. Third, for the same reason, the event is also a way of staying well-sighted with developments outside one’s main field of interest.

Thinking about these three propositions, it soon becomes clear why these two groups, of academic presenters and society organisers, represent the majority of the conference attendance. But, ironically, it is these very reasons that make the RES conference an unmissable annual event for practitioners of economics. As such, I should have felt more relaxed, back at my first RES conference, about not being there to present my own research. This is because this event is, in short, akin to the relationship between producers and consumers: it is one where both sides can benefit from an exchange.

Let me be clear: plenty of non-academic economists already present their own high-quality research at the conference. They come from central banks, industry and government ministries around the world. But if the RES is serious about keeping its annual conference relevant in a world where economics is increasingly being used to solve real-life problems, further engagement with economists outside academia will be needed. The rewards for academics will come in the form of greater awareness of how their research links with policy and business needs. The rewards for the practitioner come from being exposed to new questions, new answers, new tricks and new people. As my own perspective is that of a non-academic economist, I will narrate the 2007 RES conference around these four parameters.

New questions…
Outside academia, there is little merit in unconventional economics. Posing irrelevant questions has about the same mileage as pondering ones that cannot be answered: very little. Hence, as a body, we tend to concentrate on the issues we can analyse and apply the tools which have delivered results in the past. But how do we know where the limits are? The 2007 conference was a showcase for learning how economics can be used to answer questions which, previously, were thought intractable.

This year’s best example was the Hahn lecture, delivered by Alvin Roth of Harvard University. Under the title of ‘What have we learnt from market design?’, the first plenary session can only be described as a triumph — and the perfect start to the conference. Some of its success comes down to the excellent format chosen by Roth, combining a quick overview of the theory with plenty of his own first-hand experience. But what made this session so appealing was something else: the novelty of the problems being analysed. Of course, applied microeconomists, in government and elsewhere, often have to grapple with market failures or lack of competition. Roth’s examples, however, go one step further: situations where there is no market at all. In the course of a mere 90 minutes, Roth took us through his adventures designing marketplaces for kidney transplant exchanges in the US, systems for public school choices in American cities, and (very appropriately) a market for new academic economists.

To achieve efficient outcomes, Roth explained, markets have to be designed so that they are sufficiently thick, uncongested and incentive-compatible. Take the example of kidney transplants: in the US there are over 70,000 patients waiting for a kidney, and despite the fact that kidneys from live, rather than deceased, donors perform better post-operation, fewer transplants of this type take place. This is because, until recently, there was no system for re-matching a donor-patient pair which was willing to go ahead but incompatible with each other. In other words, the marketplace was not thick enough, so donors and patients all over the country could not meet to exchange kidneys. Solution? Assemble a database of incompatible patient-donor pairs, oblige local transplant centres to submit their pairs to the national/regional database, and make sure that the exchanges are incentive-compatible by performing all the operations at the same time. The result is more transplants and fewer deaths on waiting lists. The by-product is some amusing photographs of Roth wearing yellow scrubs in an operating theatre.

Of course, a three-way exchange (much more efficient) involves a greater number of transplant operations at the same time (more costly). Thus, congestion can arise as a barrier to efficient market design. Roth elucidated further by describing his work on the system of high school choices in New York City. Under the old decentralised system, students listed their choice of five schools, all of which then considered the applicant and made offers independently. This resulted in gaming by students, who had to think carefully about revealing their true first choice, and gaming by schools, which had an incentive to withhold capacity and allocate places outside the system. And this was clearly inefficient: under the old NYC system, one in three students did not get a place on any of its chosen schools, while many others received multiple offers. Step in Professor Roth and the wonders of the deferred acceptance algorithm: after only three years, less than 10 per cent of students miss out on all their school choices. Or in the language of market design, the matches are stable and encourage schools and students to reveal their true capacity and preferences, respectively.

Aware of the audience, Roth peppered his talk with references to similar policy debates in the UK. The only thing that might have dwarfed, in terms of impact, the policy relevance of Roth’s research was his exploration of the issue of repugnance. Roth told the story of Manuel Wackenheim, a man who is only 1.14 metres tall and makes his living from being thrown around in nightclubs by burly men, a practice common in the US and Australia. Stay with me on this one, because it’s brilliant. There are events, we learnt, called ‘dwarf-tossing competitions’. When France made ‘dwarf-tossing’ illegal, Wackenheim, unable to earn a living, took the matter to the UN Human Rights Committee. The body upheld the ban, in order to ‘...protect public order and considerations of human dignity’. Clearly, Roth’s intention was to make the audience realise that people’s view of repugnant activities is quite diverse. It also changes over time: take slavery, the use of human remains for study or exhibit, interest on loans, or reproductive services. Crucially, he concludes, repugnance can be the biggest barrier to designing efficient markets.

Not only was Roth’s subject interesting and the policy applicability evident, but his style was hugely infectious. We need more economists like him, with passion for the topic, clarity of exposition, and keen to share ideas (Roth stayed for the length of the conference). Related to this last point was, I am told, another recent organisational innovation. Two of the plenary lectures were followed by special (thematic) sessions in the same field, and in which the keynote speakers joined other economists by presenting a different paper. For example, in a special session covering experimental economics, Roth contributed his views on using experiments to educate policy-makers about market design. Once more, the originality of his examples, which focussed on the market for junior doctors in the US, was noteworthy.

... about European happiness and Colombian violence
The conference included many other questions slightly outside the mainstream. The debate about the measurement and determinants of happiness, brought to the fore most recently by Lord Layard’s book on the subject, was stretched to the international level. Aqib Aslam and Luisa Corrado, from the University of Cambridge, merged a couple of European datasets to look at the determinants of well-being at the regional level. Their multi-dimensional model takes into account different forms of interaction and social distance, and finds that one of the most important explanatory variables is trust in others and trust in government, rather than per capita income. Against conventional wisdom, it is those in the Scandinavian countries who are happiest. Sure, it is easy to be sceptical of happiness research. But, in time, this work could completely change the parameters of economic policy.

European angst pales into insignificance when compared to the worries of people in Colombia. Juan Vargas and colleague from Harvard investigated the relationship between violent conflict and the price of commodities in the South American country. He identifies the effect using exogenous variation in the world price of coffee and oil. Interestingly, he finds that the value-to-violence relationship varies: lower coffee prices resulted in greater violence, as farmers’ incomes fall, but higher oil prices meant more violent clashes with government forces.

New answers…
As a government economist, not all my time is spent researching or advising on economic matters. I am also a public official and a manager. And these tasks are not trivial: they take up a significant share of my time. This is why, given limited resources, gatherings such as the RES conference provide the perfect research short-cut. There was a total of 256 papers at the 2007 event, covering a wide array of topics. Whether you’re a banker, a forecaster, an adviser or a consultant, one is very likely to come across a number of sessions directly relevant to one’s work as a professional economist.

More than anything else, the conference provides answers. Sometimes, the question will be a familiar one and the techniques used will be well-known. But this does not mean that the answers are any less interesting. The Sargan lecture, brilliantly delivered by Martin Browning of the University of Oxford, was a clear example of interesting new answers to very old questions. Entitled Husbands and wives: who gets what and who does what?, this lecture combined something we can all relate to (namely being in a relationship and the never-ending apportioning of household chores) with issues of great policy pertinence (that is, the redefinition of family members’ roles in a full-employment society, in a manner that reduces negative externalities).

The format of Browning’s lecture is best described using his own aviation analogy. He started with a view from 30,000 feet above the ground, looking down onto the theoretical landscape that has developed over many years. For a long time, he said, the household has been treated as an unitary whole: transitive preferences generate household-level behaviour. One of the main conclusions from using this decision model is that households pool their income; in other words, it doesn’t matter who earns it. Because two decades’ worth of empirical literature reject the income pooling hypothesis, alternatives to the unitary model have emerged. These include various collective and non-cooperative models, all of which are good at explaining static decisions such as expenditure on non-durable goods, but not that useful for understanding dynamic household decisions like saving and investment.

After the bird’s eye view of the theory, as Browning put it, we landed and started to walk along the foothills and mounts of the empirical landscape. He presented a selection of descriptive statistics from a very detailed, and recent, time-use survey of Danish households. This allowed a proper investigation of the distribution of leisure and income among husbands and wives. The beauty of Browning’s findings lay in the fact that they were rather counter-intuitive (or at least they were for me). In particular, the vast majority of wives get a share of total household leisure (defined as total time minus market work, house work and sleep) of between 40 and 60 per cent, with the modal answer being 50 per cent. Even more surprising, his and her hours of leisure are positively correlated (so much for income effects). When it comes to expenditures, the survey includes data on ‘assignable’ categories, where it is clear who will benefit from the purchase, like in the case of clothing and recreation. Again, the wives’ share is about half of total spending, and their spending is positively correlated with their husbands’. To finish, Browning brings together the two findings. Under a unitary model with heterogeneous preferences between partners, the wives’ shares of income and leisure would be negatively correlated; by contrast, a positive correlation for the wives’ shares suggests a ‘power’ effect, where one partner gets more of everything. He finds mild evidence for the latter effect. So in Denmark, whatever your gender, it pays to wear the trousers (or put differently: if you want a bigger share of leisure and income, don’t marry someone more attractive than you).

In his talk, Browning also offered some of his unapologetic wisdom regarding the way forward for research in this area. It is characterised by good questionnaire design, repeated surveys and applied microeconometrics, rather than ‘...finding a quasi-experiment to test things that you are not interested in.’ A valid point, but one that is easier to make by an established authority in the field, who can demand research money for these purposes. In my opinion, reduced-form evaluative methods such as differences-in-differences are the great levellers of the empirical economics world: they produce interesting results based on the author’s ingenuity rather than the ability to command hard cash. The prevalence of the method at this conference is proof of this.

…in microeconomics, macroeconomics and ‘freakonomics’
Richard Freeman, of Harvard, once remarked to me that ‘ micro, we have all the techniques and we can get the answers, but no-one cares about them; in macro, we can’t get any definite answers but everyone cares about them.’ At the RES conference, both types of research are provided, and often offering equally weighty results. A paper by Paul Gregg and colleagues at the Centre for Market and Public Organisation looked at a perennial British policy question: does selection at age 11 improve educational outcomes? On average, the minority of areas that operate selective systems do not achieve better results. But those who are selected into the (more academic) ‘grammar schools’ do substantially better, at the expense of those children who are not selected. The paper captured the media’s attention and the interest of many delegates (because of the high proportion of UK-based parents?). Generally, policy economists looking for research on labour market and education outcomes are well-served by the RES conference.

John Muellbauer and colleagues at Oxford tried to bring some closure to another debate, this one raging among macroeconomists at central banks, finance ministries and international institutions: the relationship between house prices and consumption. They do so by better controlling for the common drivers of both variables, which have in the past led to over-estimation of the wealth effect. Using data for the UK and South Africa, they find that accounting for the direct effect of credit liberalisation on consumption reduces the collateral effect normally associated with higher house prices.

Finally, one of the most popular economics “answers” of recent years got a British spin. David Paton of Nottingham University presented a repeat of the infamous Donohue and Levitt analysis, which later became the centre-piece of the bestselling book Freakonomics, to test whether legalising abortion led to lower crime rates in the UK. They do find the same negative association found in the US, but as he made clear during questions, the result is not robust enough to merit talk of a consistent relationship (especially across age groups). I would not want to speculate on the implications of these findings for policy…

New tricks
There is little doubt that the practice of economics requires a constantly-evolving methodological tool-kit. As politicians all over the world get more ambitious in their intent to improve different aspects of society, the analytical tricks applied by economists are becoming more numerous. Links with other disciplines abound: sociology, mathematics, psychology… Of course, the intellectual existence of academic economists provides many opportunities to learn these new tricks. But because practitioners are less frequently exposed to methodological innovations, the lag from paper to office can be enormous. As Keynes put it ‘...the biggest problem is not to let people accept new ideas, but to let them forget the old ones.’ The RES conference, in my mind, provides the perfect opportunity to learn new methods..

Abhijit Banerjee’s Economic Journal lecture, ‘Theory and practice in anti-corruption policies’, was a good example of how to do things differently in an area where policy can have an enormous impact. There was a beautifully ironic coincidence on the morning of Banerjee’s lecture: the Financial Times had as its front page splash the story of Paul Wolfowitz’s alleged corrupt dealings within the World Bank. As we now know, this eventually brought down a man who had spent a considerable amount of his time as World Bank President zealously fighting corruption. As Banerjee explained, corruption can be a colossal barrier to development, citing examples such as the ‘corruption premium’ on rice prices in India. Theoretically, he continued, the Beckerian models of corruption are somewhat better at explaining corruption than widely thought. In similar style to the other two keynote speakers, Banerjee then used his extensive experience to give the audience a flavour of how innovative policies can ameliorate corruption. The most colourful stories involved methods for dealing with teacher and nurse absenteeism in India. Developing anti-corruption policy was not always that straightforward, he said, as many standard simplifying assumptions could not be made (nurses, for example, resented monitoring because they ‘...never actually expected to have to come to work’). The process often relied on a fair amount of trial and error. With this he illustrated a few key points: the importance of knowledge in monitoring schemes, how simple incentives do not always work, and the difficulty of dealing with elite capture and popular mobilisation. He finished by appealing for greater research into these aspects of corruption theory.

Elsewhere, among the many quasi-experimental set-ups using differences-in-differences, a rather inspired example was the use of the London terrorist attacks of July 2005 as an exogenous event to measure police effectiveness. Indeed, there were two papers on this, one from economists at the Home Office and one from academics at LSE, UCL and Surrey (and both with involvement from Stephen Machin). Encouragingly and as one would expect, they both find that more police reduced crime. But what policy-makers really care about, when resources are limited, is the size of the effect: in this case, the elasticity of crime to policing is about 0.3.

Another eye-catching paper, presented by Ganna Pogrebna of the University of Innsbruck, used data from the TV programme ‘Deal or No Deal’, in its British and Italian incarnations, to test the predictions of ten different decision theories (with the winners among them being regret aversion and the fanning-out hypothesis). Finally, I can’t fail to mention the (many) hands-on sessions run by Todd Kaplan of the University of Exeter and colleagues, which provided an easy introduction to using online materials for experimental economics in teaching, data generation and other uses. Many delegates enjoyed the sessions, which built on the experimental economics verve that followed Roth’s lecture and the related special session.

New people
The final reason why practitioners enjoy the RES conference is that it provides the opportunity to meet new people. As I described earlier, the new lunch/refreshment format helped with this. But it was at the dinner-table that the most interesting conversations happened (maybe something to do with the wine?). I heard amusing stories of the media completely misunderstanding economists’ research. Teaching economics at university level also provides plenty of colourful anecdotes: plagiarised dissertations, home-made technology to cheat in exams, and mistaken identity affairs. Interestingly, some academics seemed more convincing when spelling out their research in a five-minute chat than in the full 45-minute presentations. Presentations skills really is one area where academia can learn from the practitioners. Of course, conventions and expectations can differ, but there are certain techniques that we know all audiences prefer: audibility, structure and command of language among them. Sure, there are exceptions, such as the phenomenal Stephen Machin. When presenting his paper on pay and performance for British head-teachers, he focussed on the results, left loads of time for discussion and provided direct answers (such as ‘I could have done that, but it would have taken me a long time and not shown anything different.’) More generally, Machin seemed omnipresent at this year’s event, if not presenting or chairing, he was asking questions and chatting to delegates. Even better, some of his work at the conference was the result of working with economists in government, something which he does often. For all these reasons, British academia needs more people like him.

Another reason to mingle is to get tips on good papers coming up. With so much choice, it is easy to miss something crucial. For example, I was made aware of a paper on IMF and Paris Club debt relief by Eelke de Jong of Radboud University, which was very relevant to the work of HM Treasury. In fact, enjoyment of the RES conference does involve a small random element. The sessions vary considerably in quality and focus. It is worth investing a few minutes before each session examining the booklet of abstracts. Going by the titles one could end up trapped with the wrong topic (I am happy to report that this only happened to me once).

Altogether, the 2007 RES conference felt like a great success. Because it exposes practitioners to so many new techniques and results, the three days represent an invaluable investment for keeping our professional skills up to date. As a networking opportunity, the conference is useful and good fun. Rather than being incomprehensible and obvious, the conference seems like a step towards getting ourselves thought of as the humble, competent people that Keynes hoped.

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