Bjorn Harsman and John Quigley describe the success of Stockholm’s congestion pricing referendum in a recent paper. The adoption of congestion pricing there offers an interesting example of a meta-rule: a mechanism for innovation in the space of rules. To change traffic rules there, city officials employed a meta-rule based on the “try before you buy” strategy that firms use to enhance the credibility of their product claims. Instead of committing everyone to a big and permanent change, the officials let residents sample the new traffic rules for themselves during a finite trial period. By giving people a chance to try the new rules the officials won majority support for a previously unpopular idea.
Meta-Rules: The Success of Congestion Pricing in Stockholm
Housing in Hong Kong, Singapore, and Korea - Richard Green, USC
Paul Romer: The latest post in our E-seminar series of contributions from economists and other experts comes from Richard Green, Director and Chair of the Lusk Center for Real Estate at USC.
Hong Kong, Singapore and Korea experienced great economic success: all have per capita GDP that is at least seven times higher than in 1960 (see Penn World Table for more information). All three economies also came to be relatively well housed. While we cannot draw a uniform lesson from their experiences, it is worthwhile to examine each case for clues about successful housing development.
BBC World Service: Global Business
“There’s a little corner of economics where there still exists a sense of wonder about what is possible.” —Paul Romer (on BBC World Service’s Global Business)
Listen to the Global Business interview. Read program host Peter Day’s comment on the importance of ideas.
22 October 2009 | Brandon Fuller | Permalink |
Rules and Culture: Corruption in Hong Kong
According to Transparency International’s corruption index, corruption is “sticky.” Over time corrupt countries tend to remain corrupt, while clean countries remain clean. This makes it tempting to lean on cultural interpretations to explain the persistence or absence corruption.
Hong Kong provides a compelling counterexample, showing that a change in rules can defeat a culture of corruption. Though it once had high levels of corruption, comparable to those in mainland China in the 1970s, the British government was able to effectively banish corruption. In 1977, 38% of the population thought that corruption was widespread, by 1982 only 8% did.
Skyhooks versus Cranes: The Nobel Prize for Elinor Ostrom
Most economists think that they are building cranes that suspend important theoretical structures from a base that is firmly grounded in first principles. In fact, they almost always invoke a skyhook, some unexplained result without which the entire structure collapses. Elinor Ostrom won the Nobel Prize in Economics because she works from the ground up, building a crane that can support the full range of economic behavior.
When I started studying economics in graduate school, the standard operating procedure was to introduce both technology and rules as skyhooks. If we assumed a particular set of rules and technologies, as though they descended from the sky, then we economists could describe what people would do. Sometimes we compared different sets of rules that a “social planner” might impose but we never said anything about how actual rules were adopted. Crucially, we never even bothered to check that people would actually follow the rules we imposed.
Charter Cities and Human Capital in Poor Nations - Matt Kahn, UCLA
Paul Romer: One of the goals of this blog is to encourage the kind of exchange between economists and other experts that we expect from an academic seminar. Matt Kahn, from UCLA has offered this first outside contribution in the E-Seminar series.
Charter cities that don’t tax away as much of the income gains from higher skill may also offer higher real returns to skill compared to many a worker’s country of origin. The promise of better rules may also attract foreign direct investment to charter cities, generating economic opportunities for skilled workers from less-developed areas. A paper by Heckman and Scheinkman (1987) shows that equilibrium returns to skill can differ across sectors so higher returns in a modern sector based in the Charter City need not lead to correspondingly higher returns in traditional sectors that operate in surrounding countries. Could the differences in spatial returns to skill created by a charter city cause a Brain Drain from nearby poor countries that harms those left behind?
Aid Watch Q&A
“International action is not forthcoming on things like climate change and preventing genocide; do you think it would be difficult to get international agreement on Charter Cities?”
Paul Romer answers this question and others from William Easterly on the Aid Watch blog.
6 October 2009 | Brandon Fuller | Permalink |
Charter Cities on Future Tense
“One of the criticisms is that any developing nation establishing a charter city would risk draining the rest of the country of its existing talent and capital.” —Antony Funnell (host, Future Tense)
Read or listen to Paul Romer’s response (along with the rest of the interview) on the Future Tense website.
5 October 2009 | Brandon Fuller | Permalink |
New Systems versus Evolution
Rule sets can improve through what I will call an evolutionary dynamic based on small, incremental changes or through a new-system dynamic in which an entirely new rule set enters and competes with an existing one. …
Catch-up growth is based on copying existing ideas. Frontier growth involves the discovery and implementation of new ideas. …
In catch-up growth, the new-system dynamic can be used to copy existing rule sets. This allows faster growth without the additional risk that comes from using the new-system dynamic at the frontier.
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