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Archive for the ‘Social Science Research Network’ Category

Big Data and the Future for Privacy

October 29, 2014 Comments off

Big Data and the Future for Privacy
Source: Social Science Research Network

In our inevitable big data future, critics and skeptics argue that privacy will have no place. We disagree. When properly understood, privacy rules will be an essential and valuable part of our digital future, especially if we wish to retain the human values on which our political, social, and economic institutions have been built. In this paper, we make three simple points. First, we need to think differently about “privacy.” Privacy is not merely about keeping secrets, but about the rules we use to regulate information, which is and always has been in intermediate states between totally secret and known to all. Privacy rules are information rules, and in an information society, information rules are inevitable. Second, human values rather than privacy for privacy’s sake should animate our information rules. These must include protections for identity, equality, security, and trust. Third, we argue that privacy in our big data future can and must be secured in a variety of ways. Formal legal regulation will be necessary, but so too will “soft” regulation by entities like the Federal Trade Commission, and by the development of richer notions of big data ethics.

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Should We Build More Large Dams? The Actual Costs of Hydropower Megaproject Development

October 27, 2014 Comments off

Should We Build More Large Dams? The Actual Costs of Hydropower Megaproject Development
Source: Social Science Research Network

A brisk building boom of hydropower mega-dams is underway from China to Brazil. Whether benefits of new dams will outweigh costs remains unresolved despite contentious debates. We investigate this question with the “outside view” or “reference class forecasting” based on literature on decision-making under uncertainty in psychology. We find overwhelming evidence that budgets are systematically biased below actual costs of large hydropower dams — excluding inflation, substantial debt servicing, environmental, and social costs. Using the largest and most reliable reference data of its kind and multilevel statistical techniques applied to large dams for the first time, we were successful in fitting parsimonious models to predict cost and schedule overruns. The outside view suggests that in most countries large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return unless suitable risk management measures outlined in this paper can be affordably provided. Policymakers, particularly in developing countries, are advised to prefer agile energy alternatives that can be built over shorter time horizons to energy megaprojects.

The Trouble with Amicus Facts

October 26, 2014 Comments off

The Trouble with Amicus Facts
Source: Social Science Research Network

The number of amicus curiae briefs filed at the Supreme Court is at an all-time high. Most observers, and even some of the Justices, believe that the best of these briefs are filed to supplement the Court’s understanding of facts. Supreme Court decisions quite often turn on generalized facts about the way the world works (Do violent video games harm children? Is a partial birth abortion ever medically necessary?) and to answer these questions the Justices are hungry for more information than the parties and the record can provide. The consensus is that amicus briefs helpfully add factual expertise to the Court’s decision-making.

The goal of this article is to chip away at that conventional wisdom. The trouble with amicus facts, I argue, is that today anyone can claim to be a factual expert. With the Internet, factual information is easily found and cheaply manufactured. Moreover, the amicus curiae has evolved significantly from its origin as an impartial “friend of the court.” Facts submitted by amici are now funneled through the screen of advocacy. The result is that the Court is inundated with eleventh-hour, untested, advocacy-motivated claims of factual expertise. And the Justices are listening. This article looks at the instances in recent years when a Supreme Court Justice cites an amicus for a statement of fact. It describes the way the brief, rather than the underlying factual source, is cited as authority and the failure of the parties to act as an adequate check. I challenge this process as potentially infecting the Supreme Court’s decisions with unreliable evidence, and I make suggestions for ways to reform it. It is time to rethink the expertise-providing role of the Supreme Court amicus and to refashion this old tool for the new purpose to which it is currently being used.

Mortgage Rates, Household Balance Sheets, and the Real Economy

October 13, 2014 Comments off

Mortgage Rates, Household Balance Sheets, and the Real Economy
Source: Social Science Research Network

This paper investigates the impact of lower mortgage rates on household balance sheets and other economic outcomes during the housing crisis. We use proprietary loan-level panel data matched to consumer credit records using borrowers’ Social Security numbers, which allows for accurate measurement of the effects. Our main focus is on borrowers with agency loans, which constitute the vast majority of U.S. mortgage borrowers. Relying on variation in the timing of resets of adjustable rate mortgages, we find that a sizable decline in mortgage payments ($150 per month on average) induces a significant drop in mortgage defaults, an increase in new financing of durable consumption (auto purchases) of more than 10% in relative terms, and an overall improvement in household credit standing. New financing of durable consumption by borrowers with lower housing wealth responds more to mortgage payment reduction relative to wealthier households. Credit-constrained households initially use more than 70% of the extra liquidity generated by mortgage rate reductions to repay credit card debt— a deleveraging response that can significantly restrict the ability of monetary policy to stimulate these households’ consumption. These findings also qualitatively hold in a sample of less-prevalent borrowers with private non-agency loans. We then use regional variation in mortgage contract types to explore the impact of lower mortgage rates on broader economic outcomes. Regions more exposed to mortgage rate declines saw a relatively faster recovery in house prices, increased durable (auto) consumption, and increased employment growth, with responses concentrated in the non-tradable sector. Our findings have implications for the pass-through of monetary policy to the real economy through mortgage contracts and household balance sheets.

The Price of Silence: When No One Asks Questions During Conference Calls

October 6, 2014 Comments off

The Price of Silence: When No One Asks Questions During Conference Calls
Source: Social Science Research Network

We document economically significant indirect costs of providing conference calls — increase in information asymmetry and more negative immediate market reaction — when managers fail to elicit questions during the calls’ question-and-answer (Q&A) session. We establish this result by focusing on earnings calls where managers fetch either zero questions or “too few” questions when they open the floor for questions. We extend the literature on conference calls as an important corporate communication medium by examining hereto unexamined costs, and propose remedies for firms to avoid such indirect costs of corporate communication.

Hat tip: PW

Testing Rebalancing Strategies for Stock-Bond Portfolios Across Different Asset Allocations

October 1, 2014 Comments off

Testing Rebalancing Strategies for Stock-Bond Portfolios Across Different Asset Allocations
Source: Social Science Research Network

We compare the risk-adjusted performance of stock-bond portfolios between rebalancing and buy-and-hold across different asset allocations by reporting statistical significance levels. Our investigation is based on a 30-year dataset and in-corporates the financial markets of the United States, the United Kingdom, and Germany. To draw reasonable recommendations to investment management, we implement a history-based simulation approach which enables us to mimic realistic market conditions. If the portfolio weight of stocks exceeds 30%, our empirical results show that a frequent rebalancing significantly enhances risk-adjusted portfolio performance for all analyzed countries and all risk-adjusted performance measures.

See also: Rebalancing Risk

The Business of American Democracy: Citizens United, Independent Spending, and Elections

September 25, 2014 Comments off

The Business of American Democracy: Citizens United, Independent Spending, and Elections
Source: Social Science Research Network

In Citizens United v. FEC (2010), the U.S. Supreme Court ruled that restrictions on independent political expenditures by corporations and labor unions are unconstitutional. We analyze the effects of Citizens United on state election outcomes. We find that Citizens United is associated with an increase in Republican election probabilities in state House races of approximately four percentage points overall and ten or more percentage points in several states. We link these estimates to “on the ground” evidence of significant spending by corporations through channels enabled by Citizens United. We also explore the effects of Citizens United on reelection rates, candidate entry, and direct contributions. Implications for national elections and economic policy are discussed.

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