Monthly Archives: March 2018

Keynes College

Workshop on production function estimation

Drs Olena Nizalova and Ilhan Guner held a workshop for staff and research students on production function estimation techniques on 29 March 2018.

The workshop was delivered by Olena’s co-author, Dr Oleksandr Shepotylo (University of Bradford), who demonstrated different production function estimation techniques and talked about various issues relating to production function estimation such as measurement errors in inputs, revenue and quantity based production function, estimation of production function for multiproduct firms, measurement of markups and other important firm level statistics.

Keynes College

Swale Academies Trust visits School of Economics

On Friday 23 March, we welcomed a group of students from two schools within the Swale Academies Trust. At the start of the day, students from the North School, Ashford and the Community College Whitstable were joined by Dr Joe Watkins from the School of Mathematics, Statistics and Actuarial Science, who ran an entertaining session on the ‘Maths of Juggling’.

Afterwards, PhD students Guillermo, Kemi, Mumba and Yannis led fun and engaging sessions to give students a basic understanding of economic principles, game theory, and how their maths skills can be applied. They delivered two workshops focused on the Prisoner’s Dilemma and the Law of Diminishing Returns. After lunch, the students went on a short tour of the campus with Undergraduate Student Ambassadors.

The day finished with a prize presentation for the students who had accumulated the most points from the day’s activities, including a School of Economics hoodie and Easter eggs. The School would like to thank everyone who was involved, especially Guillermo, Kemi, Mumba and Yannis who put so much enthusiasm into the sessions that they delivered.

Labor Responses, Regulation and Business Churn in a Small Open Economy

by Marta Aloi, University of Nottingham, Huw Dixon, Cardiff University and Anthony Savagar, University of Kent. Discussion paper KDPE 1804, February 2018.

Non-technical summary:

A long-standing debate in macroeconomics is whether labor hours initially increase or decrease across the economy following a technology improvement. We develop a theory that reconciles both outcomes by observing that:

1. New firms enter the economy slowly after a technology improvement. That is, entry is not instantaneous as often assumed.

2. At the firm-level labor can be employed with increasing or decreasing returns in production. Therefore, the division of labor across units (firms) affects its efficiency, which is not the case with constant returns, as often assumed.

Given these observations, an improvement in technology has the following effect. Firms already in the economy benefit from the technology. Output per firm and profit per firm increase without the firms changing anything in their production process due to the direct effect of a better technology. Aggregate labor will also respond instantaneously.

We ask: is this initial aggregate labor response greater or less than the level labor will settle down to over time?

The initial profits that incumbent firms earn from the technology improvement encourages entry by new firms. This takes place slowly because there are dynamic costs associated with entering, which can create an incentive for potential entrants to delay entry until a cheaper time. Slow entry means that for a short-while incumbents can enjoy high profits, and expanded output. But over time, entry takes place and as each new firm enters it will steal business until profits are at a level that does not make entering worthwhile for new firms due to the entry cost. As firms enter labor per firm decreases. If labor at the firm-level has increasing returns, then each new firm decreases labor efficiency, reduces wages and reduces hours. Therefore after the initial labor response, subsequent entry decreases labor. Hence there is short-run overshooting. Vice-verse for decreasing returns. If labor has constant returns then entry decreasing labor per firm does not affect its efficiency, so the initial response of aggregate labor persists forever.

Finally we show that the speed which firms adjusts depends on regulation of the entry process. A deregulatory policy will hasten the speed of firm adjustment, which makes the initial response of labor less persistent.

You can download the complete paper here.

Dr Zaki Wahhaj

Will Urban Migrants Formally Insure their Rural Relatives? Family Networks and Rainfall Index Insurance in Burkina Faso

by Harounan Kazianga, Oklahoma State University and Zaki Wahhaj, University of Kent. Discussion paper KDPE 1803, March 2018.

Non-technical summary:

Large segments of the population in developing countries, especially in rural areas, have a high level of vulnerability to weather-related shocks, but have limited means to insure themselves against them. In recent years, microfinance institutions have experimented with insurance products, in particular rainfall index insurance, to address this need in different parts of the world. But the uptake of these products has generally been very low because of liquidity constraints and unfamiliarity with formal financial products.

We present findings from a pilot study exploring how existing ties between urban migrants and rural farmers can be used to provide the latter improved access to formal insurance. The study was motivated by well-established evidence regarding the use of rural-urban migration as a risk-coping and risk management strategy and that rural households in developing countries often rely upon assistance from close relatives among urban migrants to cope with adverse weather-related shocks. The advantage of marketing the product to urban migrants is that they are easier to access for the insurance provider, thus lowering transaction costs; they are likely to have more experience with formal financial products; and they are likely to be less financially constrained when required to pay for the policy. To test this hypothesis, we collected contact information on all individuals who had migrated to urban areas from a random sample of rural households from villages close to Ouagadougou, the capital city in Burkina Faso. The urban migrants were contacted and offered subscription to an insurance policy for agricultural plots farmed by their rural relatives. The exercise generated an uptake rate of 22% among the urban migrants, over the two-week period of the trial, comparable to uptake rates in rural areas where the product has been offered and marketed for a number of years.

The uptake rate was higher (by 17-22 percentage points) among urban migrants who were randomly offered an insurance policy in which payouts would be made directly to the rural farmer rather than the urban migrant. In the focus group discussions conducted prior to marketing, urban migrants explained that they preferred this option because of the possible temptation to use an insurance payout, intended for their rural relative, for some other purpose. We also find that the uptake was higher among urban migrants who reported at least one shock covered by the policy suffered by their rural relative in the preceding 5 years. However, the shock reports of the urban migrants and the rural relatives do not correspond and the uptake rates do not respond to shocks reported by the latter.

The pilot demonstrates that it is feasible to market rainfall index insurance via urban migrants. Additionally, the evidence suggests that rainfall index insurance can complement informal risk-sharing networks by improving information about adverse shocks within the network and mitigating self-control issues that may cause funds to be diverted to other uses.

You can download the complete paper here.

Food and consumers: Current issues and future directions

On Friday 6 April, Professor Iain Fraser (School of Economics), Professor Ben Lowe (Kent Business School) and Dr Diogo Souza-Monteiro (Natural and Environmental Sciences, Newcastle University) are hosting a one-day inter-disciplinary workshop on consumer choice and food. The workshop brings together an exciting group of researchers from a range of disciplinary areas (eg marketing, environmental economics, agribusiness, psychology, development and social policy) who will examine various aspects of consumer choice as it relates to food. Based on the presentations the forum will cover themes from Consumer Food Security and Nutrition, Economics and Food Choice and Framing of Information and Consumer Choice. The keynote address is to be given by Professor Klaus Grunert (Aarhus University).

The forum is free to attend but registration is required. To find out further details and register, please follow the link below:

https://www.kent.ac.uk/events/event/31193/food-and-consumers-current-issues-and-future-directions

Keynes College

The Use of Interactive Classroom Experiments in Teaching

There are a few spaces available for staff members on the Learning and Teaching Network session below:-

The Use of Interactive Classroom Experiments in Teaching
Monday 26 March 2018
13.15 – 14.30, UELT Seminar Room Canterbury
Presented by School of Economics – Sylvain Barde, Edward Cartwright, Anna Stepanova

Classroom experiments have become an increasingly common way of teaching economics and other social sciences in an engaging and fun way. But, implementing an experiment in the classroom involves significant costs and this understandably deters many lecturers from using them. In this session we will discuss our experience running classroom experiments over many years and also chart progress on a recent project to develop experiments using o-Tree. o-Tree is new open-source software that allows for interactive experiments that can be performed easily on smartphones and laptops etc. This has the potential to revolutionize how we run classroom experiments because it allows for easy to run, quick, large scale interactions. For instance, an asset market, social dilemma or voting mechanism could be run in a large lecture theatre with instantaneous feedback on the overhead to inform learning. This is a step beyond existing classroom response systems. Students can also be given unique identifiers to participate in a number of experiments over the course of a module or degree program. 

For further details, see https://www.kent.ac.uk/teaching/networks/ltn/index.html

Please email cpdbookings@kent.ac.uk to book a place.

School of Economics holds fourth alumni networking session

The school ran its fourth annual alumni networking evening on Tuesday 6 March in the Sibson Café on campus, which overlooks the site of the new Economics building. The event was really well attended by current undergraduate and postgraduate Economics students who had a fantastic opportunity to meet some of our Kent Economics alumni to discuss their work and lives after University. Both alumni and students had a great time chatting and found it very useful for fostering new connections.

We would like to say a big thank you to the alumni for giving up their time to attend the event: Aniq Ahmed, Max Nqai from Deloitte, Nuno Nunes from HSBC, Pamela Macedo from Ruffer, Iria Camba from Cornerstone Research, Mesh Mukul from the Department of Work and Pensions and Will Hindley from Deloitte.

Students outside the Foreign & Commonwealth Office

Civil Service Insight Day at Whitehall

Six of our Economics students were lucky enough to have been selected to attend a fantastic insight day in Whitehall on Wednesday 7 March. The day was co-organised by the Civil Service and the School of Economics and was hosted by the Civil Service Finance Fast Stream.

It was a very interesting and useful day involving tours of the Foreign and Commonwealth Office, Ministry of Justice and the department for Business, Energy & Industrial Strategy. The students also had the opportunity to meet and chat with Civil Servants about their roles and see what it is like to work in there. The day ended with a trip to the House of Commons to listen to a debate.

Keynes College

Social diversity and bridging identity

by María D. C. García-Alonso and Zaki Wahhaj, University of Kent. Discussion paper KDPE 1802, February 2018.

Non-technical summary:

A shared social identity is potentially an important element in ensuring cooperation and the coordination of actions among individuals when formal institutions for achieving these ends are weak. But the construction of group identity also leads to the creation of in-groups and out-groups and thus, the possibility of conflict as people born and raised with diverse identities are compelled to interact due to resource competition, market forces, etc.

These contrasting ideas lead to the following question: Under what conditions do increased social diversity within a population – e.g. due to migration, market penetration – raise the potential for conflict as opposed to harmonious social diversity? If ‘group identity’ plays a key role in shaping conflict and cooperation, a related question that requires consideration is as follows: How does increased social diversity affect identity?

To shed light on these questions, we develop a model of cultural transmission with three key features:

(i) individuals carry multiple identities – an immutable ‘cultural identity’ and a ‘bridging identity’ that facilitates cooperation as opposed to conflict across different cultural identities;
(ii) identities are transmitted from parent to offspring and via social groups;
(iii) adults choose which social group to join; and this choice determines the individual’s access to club groups, individual experience of conflict, and identity of one’s offspring.

Our analysis points to three key results. First, increased cultural diversity within a population – e.g. due to immigration – can lead to more (culturally) mixed social groups or increased segregation (along cultural lines) depending on the pace of change. Second, our model predicts a version of the Immigrants’ Paradox – offsprings of immigrants being worse off than their parents – when immigrants with high levels of bridging identity join a population that is culturally segregated. Third, a temporary negative shock to bridging identity can trigger a dynamic process of segregation in the form of outmigration from culturally diverse social groups.

We argue that the theoretical results are consistent with empirical findings on recent episodes of migration and ‘identity shocks’ that have been shown to affect cross-cultural interactions within European countries.

You can download the complete paper here.

Dr Christian Siegel

Christian Siegel’s work featured in Pro-Market blog

Research by Dr Christian Siegel (with Zsófia Bárány) was featured on 1 March in Pro-Market, the blog of the Stigler Center at the University of Chicago Booth.

Excerpt: ‘Changes in technology clearly affect people in different sectors and occupations differently, but providing adequate policy support to workers trying to adjust to these changes requires a better understanding of the level at which productivity growth is happening in the economy. Here, the researchers find that, in the United States, the vast majority of that growth has happened at the occupational and sector-occupational level.’

The complete piece entitled ‘To Help Workers Adjust to Technological Change, First Pinpoint Where It Is Happening’ can be read here.

You can also download the working paper: ‘Biased Technological Change and Employment Reallocation’, Zsófia Bárány and Christian Siegel, Kent Discussion Paper 1801