Thursday, 26 February 2009

Recent reading on technology

Here is part of my research reading in the last week on technology spread. The papers are generally available through Google Scholar. I have added brief comments on the paper's relevance:

Doms and Lewis. Labor supply and personal computer adoption:
Empirically finds that in the United States, human capital is a significant determinant of personal computer adoption rates by companies. Instruments (from old college and immigration data) are used to increase the likelihood that the link is causal. It is not obvious from theory whether the inverse relationship is the major one, ie that companies adopt computers and then people learn skills to take advantage of them, because both directions are compatible with income maximisation and the question is on decision sequencing by profit maximising agents. The results are compatible with the theory that says that companies adopt technology specific to their human capital availability.

Eaton and Kortum. Technology, geography, and trade:
A static model of trade with a core of different technology endowments across countries and a small macroeconomic model built around them. What caught my attention was the empirical estimation of the trade equation 28 (with inputs from equation 29 on trade barriers). The estimates are made on OECD countries, predicting the trade shares that countries have with each other based on geography and technology. If we assume that other countries with similar wealth would also enter the equations with the same parameters, then we can calculate Africa's trade share if it was rich, and also calculate the material benefits to other countries of African development.

Holmes and Schmitz. Resistance to new technology and trade between areas:
An argument and model of how trade, by altering incentives to adoption and competition, reduces domestic parties' opposition to introduction of new technologies.

Motivations of Rwandan returnees

The UN's IRIN news agency has given recent reports on Rwandan refugees' decisions to return to their homeland, after more than a decade in DR Congo. Their motivations, according to statements taken from the military, NGOs, and individual returnees, are the current army operations in Congo, political leadership, and economic factors.

The reports are here and here.

Monday, 23 February 2009

Profit world compared to technology world

Most of the world economy is generated by companies operating to maximise their profits. How would its behaviour differ if the main economic agents were attempting to maximise their technological usage?

It might happen. Suppose global warming gets really bad or a serious pandemic without a known cure develops, and it becomes a social imperative to develop a response to which the economy is redirected. Or it might be that profits and technology become so identified in future that companies opt to follow technology maximisation as a simpler, albeit imperfect, criteria for maximising profit.

Profit maximising companies maximise a function like {Infinite stream of discounted future profits} subject to a budget constraint. Let us assume that profits are retained and equal a function A(t)*K(t)^a where A(t) is technology at time t, K(t) is capital at time t, and a is a constant. The budget constraint is A(t)+K(t)=A(t-1)*K(t-1)^a+A(t-1)+K(t-1). Then we can follow standard optimisation techniques in forming the Lagrangian and differentiating to get a solution a.A(t)=K(t).

A technology maximiser by contrast maximises a function like {Infinite stream of discounted future technology}. There is a question about what a sensible discount rate is in this equation. Technology at time t is A(t). The same budget equation is used. The solutions depend on the parameter values a and the discount rate.

It may be optimal to maximise the profit function as long as possible before changing all profits to technology if a is high and the discount rate is low. Equally it may be optimal to emphasise technology accumulation over profit accumulation if the discount rate is high.

The differential equations from the problem are not as neat as for profit maximisation, where an identical equation for A(t) and K(t) emerges independently of the number of discount periods. The solutions require the full set of equations for all time periods to be simultaneously specified, and unless there is a short cut (very possible) they have to be solved as a simultaneous system. I haven't done it yet.

Thursday, 19 February 2009

A little picture of the big picture on technology transfers

Technology transfers between countries occur in multiple stages. Theoretical and empirical works on the subject tend to focus on individual elements of the topic, and literature reviews on the topic tend to be large or have a limited perspective. There are a number of advantages in representing the mechanisms of technology transfer in a compact and flexible form. One is that newly discovered sub-mechanisms can be readily positioned in the overall operation. Another is that non-specialists in the field can observe the essentials of technology transfer in a moderate time.

The literature suggests links between transfers and trade, foreign direct investment, multinational companies, different forms of multinational entry, movement of workers, intellectual property rights, government policy, capital levels, and human capital levels. It has examined the transfer of individual and aggregate technologies, looking at direct measures and secondary measures such as GDP growth. It has looked at proper transfers and spillovers where the initial transfer generates new ideas.

In combining these proposed links in a single model, all knowledge movement is attributed to the profit motive, as is standard in economics. Transfers may feasibly occur due to government activity or random drift, but these are not directly modelled. The model is specified in an explicit two-stage profit maximisation form:

For technology suppliers deciding on international transfers:
Maximise: Income from transfer minus cost from transfer

For technology receivers deciding what level of foreign technology to take:
Maximise: Income using the chosen technology, subject to a maximum of available technology from the previous optimisation minus cost of using the chosen technology, subject to the maximum

The specification allows the various links suggested in the literature to be included in the model in a natural way as either parameters or optimised quantities. I won’t go into more detail in this post. I hope to come back to the theme later.

Sunday, 15 February 2009

Do exiled children become tomorrow's invasion force?

Here is a sketch of a model describing the military inclinations of refugee children as they mature. It is relevant to Rwanda, which has been invaded once by a generation of adults who grew up in exile and is now possibly threatened by the same demographic, and Burundi whose conflict since the 1990s may have involved the grown-up children of former refugees. The idea was based on the social stratification results in the paper mentioned in the last post.

The model assumes that the refugee population size is stable and people replace themselves. That is, every woman has exactly two children by a single paired man. A proportion of the first generation is assumed to be willing to invade their homeland, with the rest of the first generation being unwilling.

We can model transmission of the attitude to children in various ways. If having either parent willing to invade means that the children are willing to invade, then being willing to invade is, in maths terms, an absorbing state. The number of people in the following generation willing to invade is no less than in the previous generation, and there is a positive probability that it will rise, so we expect invasion in the next generation to be more likely. Moreover, the probability is bounded below, so that over multiple generations, it becomes almost certain that everyone would want to invade. If having a non-invading parent means that the children would certainly not want to invade, we obtain the opposite results, where an expected decline in militarism would occur.

We can allow for other features to better reflect the observed situation:
- children averaging or randomly selecting their parents' attitudes,
- a drift to indifference where militarism falls over time,
- deskilling of children away from home (for example losing agricultural knowledge of their parents) leading to increased militarism,
- hostility from the country of refuge,
- incitement by leaders,
- UN intervention,
- a utility maximising procedure to microfound the decisions.

Judging from the social structuring results mentioned previously, it seems plausible that for different parameter values, we could see either complete militarisation, complete demilitarisation, or a combination of the two.

Cloning as an extreme of social structuring

I read a paper yesterday on "the economics of human cloning". The idea is that people can have themselves cloned, then gain part of the income from their clones' future earnings, for example by selling them information about their strengths in the workplace. Under the assumption of income maximisation, people with high earning potential can end up paying people with low earning potential to act as surrogate parents for their clones. People with medium earning potential can end up doing neither, but working in the economy as normal.

The situation it describes seems to be from science fiction and irrelevant for the real world, but its mechanisms and techniques are general, and most of its assumptions (with one notable exception relating to the infinite supply of genes) are just a little more extreme than those applicable to prevailing societies. So the social structuring observed in the model feels like a parody of the lack of social mobility in them.

I enjoyed the paper, though it is not widely cited (economists have other preoccupations than cloning). It is available here.

Questions about evolution and DNA

It is 200 years since Charles Darwin, the biologist and pioneer of evolutionary thought, was born. British television and radio have been running a series of programmes on him.

Evolution is such an obvious concept that it is difficult to imagine today how shocking it was to many of the experts of his day. Such are intellectual revolutions - shocking at the time, but often obvious and natural afterwards.

I recently read on Wikipedia about DNA. To a non-biologist like myself, the way its basic structure combines to form and control life is surprisingly easy to understand. The organisation of sub-molecules in the big DNA molecule makes them convenient to rearrange. Some rearrangements are novel, so you can get new species. Cancer can be caused by things getting in the way of the rearrangements, which is why some chemicals are carcinogens. And there are lots of other logical molecular events like that corresponding to medical events. I hope I haven't misrepresented DNA and biology. As mentioned, I am no biologist.

I do have a couple of questions. Perhaps readers know the answers.

The first is that it has been said that DNA is the basis of life (replication and development or some sensible arbitrary definition) throughout the universe. Are there no other molecules which serve the same function in natural occurrence? RNA seems to do something analogous, although admittedly for simpler organisms and with a very similar structure. And silicon based organisms are possible, no? Self-replicating computer programs would be life by some definitions. And other long-chain molecules could serve, either by manufacture or natural occurrence?

The second is that dogs show much wider variation in shape than cats. Is their DNA much more flexible in its organisation, like having a building block which consists of three distinct detachable shapes rather than a block which consists of three shapes where two of them are identical?

Sunday, 8 February 2009

Applications for MA Economic and Governmental Reform at the University of Westminster

Here's another reminder about applying and getting funded for the MA Economic and Governmental Reform at the University of Westminster.

I teach economics on a Master's course at the University of Westminster in London. The course title is MA Economic and Governmental Reform, and runs from September to September. We are presently recruiting for next year's course.

The course requirements are listed on its website (linked here), although there is some flexibility. Unavoidable ones are:

1. Reasonable English (or things won't make sense)
2. A first degree with some relevance to the topic, or a degree and relevant work experience
3. A job, or potential job, in government (people from NGOs have historically also performed well)
4. Willingness to work hard (or things will not be enjoyable)

African applicants are most welcome and have good performance records. Information on the course and obtaining funding is on the website. The course, like most in the UK, is expensive (£10,000), so students usually have applied for scholarships first. Early application is recommended.

Social changes of technological capitalism

I have been wondering today about the social changes which would follow if economic growth became dependent on accumulation of technological knowledge. Many economists have provided evidence or theoretical models of a drift towards such technological capitalism, in one form or another.

It is probably fair to say that the societal changes changed by capitalism are less frequently studied in the major economic journals than the changes in capitalism caused by social structures, although the neglect is probably due as much to empirical limitations on testing the resulting hypotheses as anything else. Sociologists and left-leaning economists have long conjectured that capitalism leads to society forming into arrangements which support it and promote its further development.

The societal changes which could arise from technological capitalism are doubly conjectural, but could have features such as shifts to increased knowledge transfer, greater legal protection for technology, and so on. My considerations are hardly adequate, as you can see. Ho hum.

Video checking of referee decisions

Good day, sports fans. Great Lakes Economics brings you a different dish from our usual fare, consisting of a probabilistic analysis of the recent introduction of video and "third umpire" checking of the decisions of referees or umpires. It's sports news, analysed, and I conclude that under quite general conditions, weaker players and bowlers are disfavoured by the change. Innings lengths are increased.

Suppose that a referee decision has happened. Write E* to be the event that the referee judges that something occurred on the pitch such as a goal or wicket, and E to be the event that the something really did happen. Then by conditional probability,

P(E*) = P(E*¦E).P(E) + P(E*¦not E).P(not E)

where P(E*) denotes the probability of E*, P(E*¦E) and so on denotes the probability of E* given that E has occurred, and "not E" means E didn't happen. We assume that the referee makes an error with a probability q, that is, P(E*¦not E)=q and P(E*¦E)=1-q. We abbreviate P(E)=p, so P(not E)=1-p. The equation becomes

P(E*) = (1-q).p + q.(1-p) = p + q.(1-2p)

Under checking of referee or umpire decisions, we assume that the assessments are accurate, so that the probability of P(E*¦checked)=P(E). The difference P(E*¦unchecked)-P(E*¦checked) is equal to q.(1-2p) which is greater than zero if p is less than 0.5 (which it presumably is, since referees and umpires are often appealed to by players without their entreaties being heard). Moreover, p is smaller for weaker teams than stronger teams since they are less likely to convert marginal chances, so the difference for them will be larger and they have more of an advantage from referee errors. It might be why managers of weaker teams are less prominent than managers of leading teams in their criticisms of referees, at least in the UK. We may also view bowlers as having a lower p than batters in cricket as they often have near misses from LBW or loose edges, so they are likely to be disadvantaged relative to batters by the new rules. Innings lengths are likely to be increased, as innings are more skill based - batters do not have to be both skilful and lucky (at least in umpire rulings) to get big scores.

Wednesday, 4 February 2009

Sub-Saharan Africa's share of ODA, part 1

Here is a short research note in five parts looking at whether donors have been giving Sub-Saharan Africa a larger share of their development aid in the last decade. They have, particularly Japan and the US, though former colonial powers and Northern Europe remain the most committed. You can expand the images by clicking on them. I will put the full working paper online in a few days.

Sub-Saharan Africa's share of ODA, part 2

Sub-Saharan Africa's share of ODA, part 3

Sub-Saharan Africa's share of ODA, part 4

Sub-Saharan Africa's share of ODA, part 5