SIMON HEDLIN

I have recently released a working paper that I have co-authored with Cass Sunstein, Robert Walmsley University Professor at Harvard University and c0-author of Nudge: Improving Decisions About Health, Wealth, and Happiness. The paper presents new data from an online experiment, which suggest that active choosing can be more effective at boosting participation than automatic enrollment because active choosing leads to stronger feelings of guilt. Here is the abstract:

Many officials have been considering whether it is possible or desirable to use choice architecture to increase use of environmentally friendly (“green”) products and activities. The right approach could produce significant environmental benefits, including large reductions in greenhouse gas emissions and better air quality. This Article presents new data from an online experiment (N=1,245) in which participants were asked questions about hypothetical green energy programs. The central finding is that active choosing had significantly larger effects than green energy defaults (automatic enrollment in green energy), apparently because of the interaction between people’s feelings of guilt and their feelings of reactance.

More specifically, we report four principal findings. First, forcing participants to make an active choice between a green energy provider and a standard energy provider led to higher enrollment in the green program than did either green energy defaults or standard energy defaults. Second, active choosing caused participants to feel more guilty about not enrolling in the green energy program than did either green energy defaults or standard energy defaults; the level of guilt was positively related to the probability of enrolling. Third, respondents were less likely to approve of the active choosing policy than of the green energy defaults and standard energy defaults. Fourth, respondents appeared to have inferred that green energy automatically would come at a higher cost and/or be of worse quality than less environmentally friendly energy.

These findings raise important questions both for future research and for policymaking. If they reflect real-world behavior, they suggest the potentially large effects of active choosing — perhaps larger, in some cases, than green energy defaults.

Download the paper here.

Simon Hedlin

This week, I am writing in The Economist about a phenomenon that should at least be of interest (if not of concern) to lawyers and law professors. A new paper finds that prosecutors tend to be influenced by firms’ corporate giving when they investigate businesses for corruption. An excerpt:

Do-gooding policies help firms when they get prosecuted

Jun 27th 2015 | From the print edition

“THERE is one and only one social responsibility of business,” wrote Milton Friedman, a Nobel prize-winning economist. “To use its resources and engage in activities designed to increase its profits.” Plenty of climate-change campaigners would argue with that (see article). But even if you accept Friedman’s premise and regard corporate social responsibility (CSR) policies as a waste of shareholders’ money, things may not be absolutely clear-cut. New research suggests that CSR may create monetary value for companies—at least when they are prosecuted for corruption.

The largest firms in America and Britain together spend more than $15 billion a year on CSR, according to an estimate last year by EPG, a consulting firm. This could add value to their businesses in three ways. First, consumers may take CSR spending as a “signal” that a company’s products are of high quality. Second, customers may be willing to buy a company’s products as an indirect way to donate to the good causes it helps. And third, through a more diffuse “halo effect”, whereby its good deeds earn it greater consideration from consumers and others.

Previous studies on CSR have had trouble disentangling these effects because consumers can be affected by all three. A recent paper by Harrison Hong of Princeton University and Inessa Liskovich of the University of Texas attempts to separate them by looking at bribery prosecutions under America’s Foreign Corrupt Practices Act (FCPA). The authors argue that since prosecutors do not consume a company’s products as part of their investigations, they could be influenced only by the halo effect.

The study found that, among prosecuted firms, those with the most comprehensive CSR programmes (as measured by MSCI ESG, a provider of corporate indices) tended to get more lenient penalties. Their analysis ruled out the possibility that it was firms’ political influence, rather than their CSR stance, that accounted for the leniency: companies that contributed more to political campaigns did not receive lower fines.

Read the full article here.

Simon Hedlin

In an interview with Nadiga Lundtan, a magazine for economics students at Lund University in Sweden, I discussed some of my current research projects as well as a few pieces of advice that I have for those who are considering studying abroad.

The article is available here (pages 15-17).

Simon Hedlin

I have a longer piece in this week’s issue of The Economist about the importance of prenatal health. Over the past decade or so there has been a push for early childhood education based on the argument that we need to intervene earlier in children’s lives. This is a good idea, but we need to intervene even earlier, and make sure that we treat pregnant women better. This is an issue of both gender equality and children’s adult outcomes. An excerpt:

A child’s long-term well-being is more profoundly shaped by influences in pregnancy than used to be realised

Apr 4th 2015 | From the print edition

HALF a century ago doctors saw the fetus as a “perfect parasite”—absorbing what it needed but sealed off in the womb from any harm done to the mother. About half of American women smoked through pregnancy. When babies were born with the damage now described as fetal-alcohol syndrome, heredity was blamed.

Since then it has become a commonplace that healthy habits and good nutrition during pregnancy make it less likely that a baby will be born early, underweight or ill. Now a growing body of research is showing that problems caused by the prenatal environment may not be apparent at birth, but can resonate throughout life. Infections, hunger, stress and air pollution have been implicated in a host of long-term problems for those exposed to them in utero, including bad health, poor school results and lower earnings. Even relatively minor exposure can increase the odds of suffering from chronic disease or disability.

Long-term consequences, by definition, take time to become apparent. And pregnant women cannot be randomly assigned to suffer different types of adversity—which can, anyway, be correlated either with each other or with inherited traits. So some of the strongest evidence has come from comparing those in the womb during sudden calamities such as famines, natural disasters and environmental accidents with those born just before or after. This approach untangles the effects of environment from those of genes or upbringing. Comparisons between entire cohorts should mean that those who were affected are the same as those who were not in every respect except their environment. That permits researchers to draw inferences about the effects of harms inflicted in utero on individuals rather than groups.

The 1918 influenza pandemic affected a third of all American women of child-bearing age. Fifty years on, those who had been in the womb at the time had done worse in school and were earning less than those slightly older or younger. The men were 20% more likely to be disabled. Similarly, babies born to Dutch women who were pregnant during the 1944-45 “hunger winter”, when the Nazis blocked shipments of food to the occupied western provinces of the Netherlands, were more prone in adulthood to a host of health problems, including obesity, heart disease, diabetes, schizophrenia and depression. And Swedes born in the months after the 1986 Chernobyl nuclear accident, which sent radiation-bearing dust clouds across swathes of the country, were 40% more likely to fail in middle school than those born just before or after, even though they were exposed to radiation at doses now considered harmless, and their physical health did not seem to be affected.

Less extreme events can also have long-term effects. A study from Sweden found that the children of women who had lost a relative while pregnant grew up to be more likely to suffer attention deficit disorder, anxiety or depression. Another, of Bangladeshi and Pakistani families in England, found that children whose first trimester in the womb coincided with Ramadan, when observant Muslims fast from sunrise to sunset, lagged behind educationally when they were seven—even though only some pregnant Muslims observe the fast. The negative effect on school performance was of similar size to the positive one associated with America’s Head Start, an early-years education programme.

One explanation for such ill effects is that poor prenatal health retards the growth of the fetus or causes premature birth. Pregnant women who live in areas with badly polluted air are more likely to give birth early and their children are on average smaller. Underweight newborns are more prone to the same types of ills that are linked to fetal-origins effects.

Read the full article here.

Simon Hedlin

In the current issue of The Economist, I write about how so-called “moral licensing” can make pro-environmental interventions ineffective. An excerpt:

When people feel good about themselves, they do bad things

Feb 28th 2015 | From the print edition

“VIRTUE,” according to George Bernard Shaw, “is insufficient temptation.” But new research on the consumption patterns of the environmentally minded suggests that virtue and self-indulgence often go hand-in-hand.

A recent paper* by Uma Karmarkar of Harvard Business School and Bryan Bollinger of Duke Fuqua School of Business finds that shoppers who bring their own bags when they buy groceries like to reward themselves for it. For two years the authors tracked transactions at a supermarket in America. Perhaps unsurprisingly, shoppers who brought their own bags bought more green products than those who used the store’s bags. But the eco-shoppers were also more likely to buy sweets, ice cream and crisps.

Psychologists call this sort of behaviour “moral licensing”: the tendency to indulge yourself for doing something virtuous. Although this example may seem harmless (except to the shoppers’ waistlines), the results can be perverse. A study from 2011 on water-conservation in Massachusetts shows how. In the experiment, some 150 apartments were divided into two groups. Half received water-saving tips and weekly estimates of their usage; the other half served as a control.

The households that were urged to use less water did so: their consumption fell by an average of 6% compared with the control group. The hitch was that their electricity consumption rose by 5.6%. The moral licensing was so strong, in other words, that it more or less outweighed the original act of virtue.

Read the full article here.

Simon Hedlin

In the latest issue of The Economist I am writing about the latest from the world of burgernomics. An excerpt:

Some currencies lose weight on a diet of QE and cheap oil; others bulk up

Jan 24th 2015 | From the print edition

TWO trends have dominated the world of burgernomics over the past six months: currency markets have bubbled like potatoes in a fryer as the oil price has fallen to finger-licking lows and central banks have cooked up new monetary stances. The currencies of commodity exporters have been burnt, while those of big importers have sizzled. Meanwhile, the end of quantitative easing in America has supersized the dollar, whereas the mere prospect of it in Europe has made a happy meal of the euro.

The Economist whipped up the Big Mac index in 1986 as a bun-loving way of explaining currencies’ relative values. It is based on the theory of purchasing-power parity, which posits that over the long run, currencies should adjust so that a basket of identical goods costs the same everywhere. We fill our basket with just one item: the Big Mac, which is made to the same recipe in almost all countries (India’s Maharaja Mac, a chicken sandwich, is an exception). Buying a Big Mac in Denmark, for example, costs $5.38 at market exchange rates compared with $4.79 in America, so our index suggests the Danish krone is 12% overvalued (see chart). No wonder Denmark’s central bank cut rates this week.

On average, Americans abroad get more burger for their buck than they did last summer. Relatively beefy growth in America has helped to fatten the greenback. Elsewhere, however, central bankers are still trying to add sauce to their economies, in part by encouraging their currencies to fall. In Japan, for instance, a belt-busting bond-buying scheme has caused the yen to waste away. The expectation that the European Central Bank would serve up a hearty dose of QE seems to have prompted Switzerland’s stomach-turning scrapping of the franc’s peg to the euro. Last week a Swiss Big Mac cost $6.38, but now it gobbles up $7.54.

Read the rest here.

Simon Hedlin

Every weekday, we publish an explainer on http://www.economist.com. And yesterday we released a ranking with the 10 most popular explainers of 2014. I was very happy to see that our readers, amid falling oil prices and Thomas Piketty’s blockbuster on inequality, also have shown a keen interest in gender equality. My explainer about the Swedish paid parental leave scheme (which I mentioned here) ended up on 8th place.

Simon Hedlin

This week, I have written my first lead note for The Economist, which concerns the rapid growth in international rankings. Turns out these rankings actually influence policy. An excerpt:

International comparisons are popular, influential—and sometimes flawed

Nov 8th 2014 | From the print edition

EDUCATION ministers across the globe quake in the run-up to the publication, every three years, of the OECD’s Programme for International Student Assessment (PISA), which rates 15-year-olds’ academic performance in dozens of countries. Those that do well can expect glory; the first PISA ranking, published in 2001, surprised the world by putting unshowy Finland near the top in every subject and made it a mandatory stop-off for any self-respecting education policymaker. Germany’s poor showing, by contrast, led to national hand-wringing, school reforms and the creation of a €4 billion ($5 billion) federal education support programme.

Similarly influential is the yearly Ease of Doing Business Index from the World Bank. Government presentations to investors will always show the highlights (provided, that is, there are numbers worth boasting about). The Trafficking in Persons (TIP) report compiled by America’s State Department each year ranks governments on their perceived willingness to combat trafficking. A bad showing blackens a country’s name and can mean losing aid and investment.

Such performance indices, which rank social issues or policy outcomes in different countries by combining related measures into a single score for each, are enjoying a boom. Their number has soared over the past two decades (see chart). For many issues, rival indices must now battle it out. “Numbers, rating and ranking catch people’s attention and make information easy to process,” says Judith Kelley of Duke University, who studies the impact of global indicators on policy. Rankings spread like wildfire on the web: some have been cited online more than a million times.

The best indices are meticulous (PISA, for instance, combines dozens of carefully standardised sub-measures and raises statistical caveats). But others are based on shaky figures that are calculated differently in different countries. And choosing what to include often means pinning down slippery concepts and making subjective judgments. An index of democracy, freedom or happiness means putting hard numbers to the fairness of elections, weighing civil liberties against economic rights, or deciding how much to rely on surveys.

Read the whole article here.

Simon Hedlin

The following is an excerpt from my first book review in The Economist:

Walter Mischel on the test that became his life’s work

Oct 11th 2014 | From the print edition

The Marshmallow Test: Mastering Self-Control. By Walter Mischel. Little, Brown & Company; 326 pages; $29. Bantam; £20 Buy from Amazon.com, Amazon.co.uk

IN THE 1960s Walter Mischel, then an up-and-coming researcher in psychology, devised a simple but ingenious experiment to study delayed gratification. It is now famously known as the marshmallow test. In a sparsely furnished room Mr Mischel presented a group of children aged four and five from Stanford University’s Bing Nursery School with a difficult challenge. They were left alone with a treat of their choosing, such as a marshmallow or a biscuit. They could help themselves at once, or receive a larger reward (two marshmallows or biscuits) if they managed to wait for up to 20 minutes.

Mr Mischel, now of Columbia University, reveals in his first non-academic book, “The Marshmallow Test”, that the purpose of the study was to look at the methods children use to delay gratification—not to measure how well they did it. He admits now that he did not expect that the time they managed to wait “would predict anything worth knowing about their later years”. But after his daughters, who had attended the Bing Nursery, told him years later about how their friends from pre-school were doing, Mr Mischel noticed that those who did well socially and academically tended to be those who had waited longest in the test.

He went on to survey many of the 550-or-so children who were tested between 1968 and 1974. To his surprise, the longer the five-year-olds had waited for their marshmallows, the higher they scored on standardised tests for college admissions a decade later. The patient children had a lower body-mass index when they grew up, greater psychological well-being, and were less likely to misuse drugs than those who had quickly gobbled up the treat.

Mr Mischel has published more than 200 academic papers, and at the age of 84 is still an active researcher. His book is best read as a memoir of gratification and as a tribute to the many researchers who have explored the field of delayed gratification that he once pioneered. His aim in his new book is to tell the reader about the latest “in the marshmallow work”.

Read the full review here.

Simon Hedlin

Here is my defense of Sweden’s school choice policy. An excerpt:

Education reform: A good choice?

Oct 6th 2014, 16:06 by S.H. | STOCKHOLM

SCHOOL vouchers are a divisive subject in America. Proponents claim that vouchers not only grant parents the opportunity to send their children to a private school, but also raise the quality of all education by creating more competition between schools. Critics complain that these subsidies divert necessary resources from public schools, and rarely cover the full cost of a private education. To settle this debate, many have looked to Sweden, where vouchers were introduced in 1992. The results there have been cited as both a case for and against vouchers. So, what has been the actual effect of this Swedish experiment?

Swedish students used to lead international rankings, but the country’s education standards have been declining for years. Indeed 15-year-olds in Sweden perform well below average in mathematics, reading and science when compared with students from other OECD countries, according to the most recent global ranking. Critics of vouchers blame school choice for these dismal results. Raymond Fisman of Columbia Business School recently called the Swedish voucher scheme a disastrous experiment and warned Americans not to go down the same path.

But there are good reasons to believe the problem is not school choice. This is because Sweden’s voucher scheme coincided with a host of other reforms, most significantly a change in the national curriculum in 1994, which emphasised individualised learning over teacher instruction. A comprehensive study (in Swedish) published in 2010 found that this was among the most plausible explanations for the drop in student performance. (Sweden duly changed its national curriculum again in 2011.) Norwegian schools implemented similar curriculum changes in the 1990s and saw similar unfortunate results, whereas Finland concentrated on teacher-led pedagogy and saw improvements in student performance.

Read the full story here.

Simon Hedlin

Today I am writing an article for the quite newly-launched online edition of The Economist. An excerpt:

New technology has enabled start-ups to predict the behaviour of politicians and big businesses

Sep 3rd 2014 | Business and finance

AS THIS year’s congressional elections in America steadily draw closer, incumbents and hopefuls running for office are planning to spend billions of dollars on their campaigns. Much of this cash will be spent on paying savvy analysts to use big data to forecast how undecided voters will cast their ballots in November. But in this year’s campaign, the trend also seems to be going the other way. Rather than forecasting how ordinary voters behave, firms are now offering to make predictions, based on analysing big data, of how the various candidates would vote if elected to Congress or a state legislature.

These sorts of services are part of a wider movement to increase government transparency, by making it easier to access and analyse government statistics. For instance, OpenGov, a web-based tech firm, gives users access to vast amounts of state and local-government data. Yet even with the help of such services, the sheer volume of information on offer is ovewhelming to most individuals and companies. So a new breed of firm has come along to fill a gap in the market, by processing the data to predict the voting patterns of legislators.

One prominent example is FiscalNote Prophecy, a web-based service, sold on a monthly subscription basis by FiscalNote, a start-up founded last year. The company claims that its self-learning algorithm can—based on public data such as legislative votes, electoral statistics and campaign-finance figures—predict, with an accuracy of over 95%, the outcome of bills in Congress and state legislatures. Another is the Georgia Legislative Navigator, a website owned by the Cox Media Group, a publishing firm. It offers a similar, free service, albeit focused solely on legislative proposals in Georgia’s General Assembly.

Read the full story here.

Simon Hedlin

My first Free exchange column in The Economist is published in this week’s issue. An excerpt:

New research suggests that development aid does foster growth—but at what cost?

Aug 16th 2014 | From the print edition

FIFTY years ago the first United Nations Conference on Trade and Development launched a debate about how much money rich countries should give to poor ones to reduce poverty and bolster growth. In the end, the UN settled on a figure of 0.7% of national income—a target subsequently reaffirmed by endless international powwows. Although few countries have met it, aid spending in real terms has nonetheless increased steadily ever since, to $134.8 billion in 2013 (see left-hand chart). Yet economists are still arguing about how much the aid helps—if it helps at all.

Aid comes in many forms, from food and tents handed out to refugees to cash that plugs holes in poor countries’ budgets. Donors tend to stretch the definition, to make themselves look more generous. But the goal, in most cases, is to lift a poor country’s productive capacity through investment in things like roads, schools and maternal health.

What the UN sees as a potent weapon against poverty, others consider money down a rat hole. Critics reckon aid hurts its recipients by fostering dependency, propping up oppressive or incompetent regimes and pushing up the value of poor countries’ currencies, thereby undermining the competitiveness of their exports. If aid helped, they say, the poorest countries would have been getting steadily richer for decades, which they have not (see right-hand chart). Those who favour giving aid argue that it could indeed lift people out of poverty, but rich countries simply do not give enough. It is like sending fire engines to combat a wildfire: it only works if you send a lot of them.

Assessing the impact of aid on economic growth is complicated by the fact that the causality is not always clear. A positive relationship between the two could simply mean that rich countries reward poor ones for implementing policies that would have helped their economies whether or not they had brought in money. Conversely, a negative relationship may just mean that more aid flows to the countries with the most sluggish growth. In neither instance would aid actually be driving growth.

To get around this problem, economists have long hunted for a factor that affects the amount of aid disbursed but is not otherwise correlated with growth—an “instrumental variable”, in the jargon. Finding one is harder than it seems. Many proposed candidates—such as the size of a poor country’s population or even the colonial empire to which it used to belong—have been found by subsequent studies to have an independent connection to economic performance after all.

Read the rest of my article here.

Simon Hedlin

And here is my second article in the print edition this week. It presents some new evidence that shows that female politicians are just as competent as male politicians. One commonly proposed rationale behind women’s underrepresentation in politics is that they generally are less qualified than men. But as this research suggests, that is unlikely to be true:

Female ministers are fewer than their male colleagues, but equally effective

Aug 9th 2014 | From the print edition

The first of my two articles in this week’s print edition discusses the empirical evidence on whether Democratic presidents or Republican presidents are better at making the American economy grow:

Why the economy has grown faster under Democratic presidents

Aug 9th 2014 | From the print edition

“SINCE 1961…the Republicans have held the White House 28 years, the Democrats 24,” said Bill Clinton in 2012. “In those 52 years, our private economy has produced 66m private-sector jobs. So what’s the jobs score? Republicans 24m, Democrats 42[m].” In the two years since, Barack Obama has increased the Democrats’ lead by close to 5m.

Since the second world war the economy has done better under Democratic presidents, who have overseen more job creation and higher stockmarket returns than Republican leaders. During this time the economy has grown about 1.8 percentage points faster when a Democrat occupies the White House (see chart). Messrs Clinton and Obama credit their economic policies. But new research suggests it has more to do with luck.

Alan Blinder and Mark Watson, economists at Princeton University, studied the last 16 presidential terms—from Harry Truman’s second to Mr Obama’s first—to find out why the economy has grown faster under Democrats. They were quickly able to rule out some possible explanations, like a president’s age and experience, or which party controlled Congress. Though one might surmise that Democratic presidents inherited hardier economies than Republican ones, they actually tended to take over when times were more difficult.

Read the full article here.

Simon Hedlin

This week I am writing about the horrors that are female genital mutilation and child marriage. It seems clear to me that these practices largely still exist because of the commodification of women and lack of global female empowerment. An excerpt:

Too many girls’ lives are still being destroyed

Jul 26th 2014 | From the print edition

I have written a brief piece for The Economist that explains the Swedish parental leave system and how paternity leave helps to boost gender equality:

Why Swedish men take so much paternity leave

Jul 22nd 2014, 23:50 BY S.H.

ALONG with its Nordic neighbours, Sweden features near the top of most gender-equality rankings. The World Economic Forum rates it as having one of the narrowest gender gaps in the world. But Sweden is not only a good place to be a woman: it also appears to be an idyll for new dads. Close to 90% of Swedish fathers take paternity leave. Last year some 340,000 dads took a total of 12m days’ leave, equivalent to about seven weeks each. Women take even more leave days to spend time with their children, but the gap is shrinking. Why do Swedish dads take so much time off work to raise their children?

Forty years ago Sweden became the first country in the world to introduce a gender-neutral paid parental-leave allowance. This involves paying 90% of wages for 180 days per child, and parents were free to divvy up the days between them in whatever way they pleased. But the policy was hardly a hit with dads: in the scheme’s first year men took only 0.5% of all paid parental leave.

Today they take a quarter of it. One reason is that the scheme has become more generous, with the number of paid leave days for the first child being bumped up from 180 to 480. But it has also been tweaked to encourage a more equal sharing of the allowance. In 1995 the first so-called “daddy month” was introduced. Under this reform, families in which each parent took at least one month of leave received an additional month to add to their total allowance. The policy was expanded in 2002 so that if the mother and father each took at least two months’ leave, the family would get two extra months. Some politicians now want to go further, proposing that the current system of shared leave be turned into one of individual entitlements, under which mothers should be allowed to take only half of the family’s total allowance, with the rest reserved for fathers.

Policies similar to the Swedish “daddy months” have been introduced in other countries. Germany amended its parental-leave scheme in 2007 along Swedish lines, and within two years the share of fathers who took paid leave jumped from 3% to over 20%. One of the most powerful arguments in favour of splitting parental leave more equally is that it has positive ripple effects for women. Since Swedish men started to take more responsibility for child rearing, women have seen both their incomes and levels of self-reported happiness increase. Paying dads to change nappies and hang out at playgrounds, in other words, seems to benefit the whole family.

Simon Hedlin