Category Archives: economics

Folks in your area distrusting? Blame the weather 1500 years ago

Flickr photo by wink

Ruben Durante (PhD candidate from Brown Univ. in political economy, May 2010) has an interesting job-market paper exploring the origins of social trust by examining variability in precipitation and temperature 1000-1500 years ago.

He posits that norms of trust developed as a result of collective action and mutual insurance triggered by farmers coping with dramatic climatic change.  While most of these areas have now become industrialized, these medieval norms lived on.

For a copy of his paper (c. Nov. 2009) see here.   He compares contemporary social trust (using European Social Survey data) with reconstructed paleoclimatic temperatures from 1500-1900.  (For the statistical junkies out there, one standard deviation in precipitation variability corresponds with a .17 standard deviation increase in social trust and this is robust to controlling for average temperature, terrain ruggedness, soil quality, standard deviation in soil quality, etc.).  The effect, while statistically significant, is not that large, but it is still amazing that weather 1000-1500 years ago convincingly predicts social trust today.

While Durante hasn’t run his data on Italy specifically, his results might help explain the puzzling finding of my colleague Robert Putnam who found that high-trust Italian regions in the north were also the same regions that were high trusting in 1500.  My hunch is that there is much greater temperature and precipitation in the high-trusting northern regions of Italy than in the southern regions of Italy so Durante’s results would likely hold up in Italy specifically.  Durante hasn’t run this same analysis within Italy, or worldwide for that matter.

I’m not sure that I see how his study explains another anomaly in social trust.  There is a remarkable similarity if you rank the average trust levels of third generation immigrants to the U.S. sorted by their grandparents’ home country with contemporary levels of social trust in those countries.  In other words, if one looks at third generation immigrants to America, you find, for example, that the third generation Swedes or Norweigians are at the top of the list in social trust and the third generation Brazilians, for example, are among the least trusting American third generation immigrants.  These rankings look remarkably like the rankings of those countries today by social trust.  In other words, for immigrants whose ancestors came over 70-100 years ago and who are doing little to affect social trust back in their origin countries, both their offsprings’ level of social trust and the level of trust of natives who remained in those origin countries 70-100 years later are remarkably similar.  That’s quite a mystery, and doesn’t seem explained by Durante’s paper on temperature and precipitation variability since the immigrants have moved to a new country whose social norms were presumably influenced (according to Durante) by what precipitation and temperature variability were in the “new country” (America), not their old country.

Anyway, food for thought…

Using local “currency” for liquidity and social capital

Douglas Rushkoff has an interesting post, indirectly on how local currency” can spur social capital:

“A great, tiny organic cafe in my town, Comfort, decided to expand to a second, larger location last year. The owner, John Halko, has been renovating the new space for a year, and – thanks to the credit crisis – has been unable to raise the cash required to finish and finally open. With currency unavailable from traditional, centralized money-lending banks, Halko has turned instead to his community – to us – for support. Granted, this is a small town. Pretty much everybody goes to Comfort – the only restaurant of its kind on the small strip – and we all have a stake in its success. Any extension of Comfort would bring more activity, vitality, and commerce to a tiny downtown (commercially devastated in the 1970s by the chain stores and strip malls of automobile-friendly Central Avenue). So Halko’s idea is to sell VIP cards. For every dollar a customer spends on a card, they receive the equivalent of $1.20 worth of credit at either restaurant. If I buy a thousand dollar card, I get twelve hundred dollars worth of food: a 20% rate of return on the investment of dollars. Halko gets the cash infusion he needs to build the new restaurant – and since he’s paying for it in 20% tab adjustments, it just comes out of profits. He gets the money a lot cheaper than if he were borrowing it from the bank, paying back in cash over time. Meanwhile, customers get more food for less money. But wait, there’s more: the entire scheme refocuses a community’s energy and cash on itself. Because our money goes further at our own restaurant than a restaurant somewhere else, we are biased towards eating locally. Since we have a stake in the success (and the non-failure) of the restaurant in whose food we have invested, we’ll also be more likely to promote it to our friends. And since we have already spent a big chunk of money on Comfort’s food, we’re more likely go get food there than dish out more cash for a meal somewhere else. When it gets really interesting is when other businesses begin to accept Comfort’s VIP card and dollars for their services as well. But even in its current, limited incarnation, it’s easy to see how the math of an extremely simple alternative currency works, why its existence gets cheaper money into the hands of people who need it, and how it circumvents centralized control over commerce.”

It’s an interesting story although presumably less doable in larger communities (cities) that have less of a stable clientele, where residents have greater choice of where to go for eats, and where social capital may well be lower.  But one can certainly see how the purchasing of these VIP Cards induces individuals to patronize that store more frequently which could help to build more social capital (by community residents feeling that they are in this together, and by fostering more stable social networks).

For more on local currencies read here and this description of some local currency efforts.

The Pay-for-Performance NYC schools experiment: the Social Capital Story

Roland Fryer, the up-and-coming Harvard Economics Professor, who at age 30 is on leave as the Chief Equality Officer for the New York City Public Schools, talked yesterday at the Taubman Center on State and Local Government’s Annual Meeting. [Taubman director Ed Glaeser commented on the apparent tension between the words *Chief* and *Equality* in Roland’s title, to which Roland noted that he’s all in favor of equality as long as he can be the leader!]

Roland has been on a quest to marry economics and social science with how to make a difference in the lives of the very poor. Roland himself comes from a poor family growing up in the South (in Daytona Beach, FL), and to some extent wants to enable more poor kids to achieve what he has. [Fryer noted that his grandmother’s sister and her husband, with whom he spent a lot of time. ran a crack ring, and he happened to be at the dog track watching greyhounds when federal agents arrested the two of them. And 8 out of 10 of his closest friends growing up had either died or served time in prison. And he would have gone to jail as he was planning at age 15 to participate with friends in a burglary, but got cold feet and chickened out at the last minute and his friends were all arrested and went to jail.]

His NYC schools experiment aims to marry cutting edge social science (and randomized intervention) with making a difference in these kids’ lives.

The program has a handful of different dimensions including incentive pay for principals, offering cellphones to high school youth who are doing well economically (called *The Million*), paying 4th and 7th graders to take math and reading tests that they were already taking several times a year (with higher pay if they get more right answers on them).

There has always been the most controversy around the *pay for performance* part of the plan, with some principals saying kids should be studying for the love of learning or claiming that when the financial incentive is removed in the future, any patterns of success will disappear. Roland noted that the media (originally negative) has turned positive with support for the plan in the Washington Post, USA Today and a handful of other papers. Interestingly, while white parents on Upper East Side or in Staten Island complaining that the pay-for-performance didn’t respect African Americans and played into stereotypes, there has been no such complaints among African-American parents of students in the pay-for-performance experiment.

Part of the way through the first year, the plan appears to be working for 7th graders, but less so for 4th graders. Roland notes that it is possible that the tests (every 5 weeks) are too far away for the financial incentive to mean as much, or that 4th grade is too young a grade to incent learning, although Roland is likely to try some tweaks to the program in the second year. Moreover, Roland is going to expand the 7th grade program to 8th grade randomizing who continues in the program and who does not (so they can see how the performance of those who do not get the program in the second year compare with those who never got the treatment or those who got it for two years). Among the 7th graders, those who got offered the treatment (pay for performance) were already 1-2 months ahead of their comparable peers after only 1/3 of a year in the program, although gains were higher in math than in verbal skills.

Hearing Roland talk, it was clear (even though he didn’t directly discuss this), the importance of social networks, trust and social capital to his success. He noted for example, that although principals think that they are in charge of these underperforming schools, that it is really probably 20 students who are running the place and his effort aims to change the culture of schools and create a demand-side for learning that can be spread through social networks. It is no accident that as part of *The Million* (his effort to brand student achievement and success), that he gives students state of the art cellphones, since the cellphones promote social networks where Fryer can communicate with the students or send a video (since he has their phone numbers), where teachers can text students about upcoming tests, and where students can spread the excitement of achievement through this program. And he notes that the payment can serve as a valuable foil for legitimzing studying hard; he hears about students claiming that ‘they don’t care about studying, that they are just in it for the money.’ Roland doubts this is true, but it protects them against the charge that African-American kids are “acting white.”

Roland also notes that social networks will play a role in the anticipated higher take-up rate in second year of program. In first year, many students failed to participate. Growing up in a culture and environment where many people couldn’t be trusted, many students thought the program was a scam. But now that students have seen payments deposited in the bank accounts that were automatically set up for them, word-of-mouth is spreading the messages that the program is legitimate.

Roland told a funny story –he has the look of a nerdy African-American with wire rim glasses and a three-piece suit, with a build of someone who might have played football at an earlier age). Yesterday, a group of wide-eyed NYC students had earned a trip to Harvard because of their performance. He asked the group of 7th graders how many of them expected to be professional athletes and 70% of them raised their hands. He then asked them which of them was the best athlete. They pointed to a 6 foot high kid. Roland made the kid a bet; he’d challenge the kid to a 50 yard dash in Harvard Yard. If Roland won, the kids would abandon their goal of professional athletes and focus on making it in academics since they were never going to be professional athletes if the best of them could be beat by a Harvard economics professor. If Roland lost, he’d wear whatever clothes they wanted him to wear for a day (they had decided it would be a frilly pink dress). Luckily for Roland, he won, although he said it was not easy.

Note: all of funding paid for in first year by foundations, with commitment that if the program shows results, NYC will pick up the tab of continuing this going forward.

For a description of Roland see this account by Freakonomics author Steven Dubner in NYT; for some accounts of this program see this NYT article, or “Cellphones as Incentives,” and this entry on “The Million