sbehmer

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Issues with Using Willingness-to-Pay as a Primary Tool for Welfare Analysis

Thanks! Both the Atkinson article and the Sen interview are very interesting. I would like to see some actual data on the teaching of welfare economics/public economics. People seem to agree that it's declined, but I'm not sure I would agree that it has "disappeared" (anecdotally, I know many people who were exposed to models of optimal redistribution during undergrad. Some of these people were exposed through a required course, and others chose to take a public finance elective). My impression that welfare economics teaching is more common at European universities is also just based on anecdotal evidence. Some actual data would be helpful.

Issues with Using Willingness-to-Pay as a Primary Tool for Welfare Analysis

I agree that this is an important topic. Economic welfare analysis is a widely used method for cause prioritization, and a lot of it looks very different from the kind of cause prioritization work that 80k or Open Philanthropy would do. So it's useful to look into why that is.

That said, a lot of the economics literature goes beyond the simple "maximize surplus" approach that you highlight. The main subfield to look at is public economics (or a narrower subfield called public finance). That's where you find professors who understand welfare economics the most. Since at least the 1970s, mainstream public economists have studied optimal policy using social welfare functions which capture the idea of diminishing marginal utility from wealth (James Mirlees' Nobel prize-winning work on optimal redistribution is a good example. Atkinson and Stiglitz's textbook, first published in 1980, is a great resource for learning this kind of stuff. And here are a few examples of papers published in the last few years). Roughly, those papers adjust WTP by a factor to account for differing marginal utilities, as you suggest in your google doc.

Many economists who most directly influence public policy are public economics or public finance professors (as an example, all 5 professors from the University of Chicago who served on the Council of Economic Advisors in the past 12 years were from public economics), so narrow "maximize willingness to pay" thinking shouldn't be a problem for them.

However, many economists outside of public economics often do engage in the simple "maximize WTP" thinking that you're talking about. Unfortunately, more sophisticated welfare analysis often isn't a standard part of graduate school curricula (let alone undergrad courses), so a lot of economists don't know about it. These economists could be having negative impacts in a number of ways:

  1. They directly influence policy. The main channel for this, I would expect, is macroeconomics policy. It may also impact development policy, but from what I've heard development economists rarely do any sort of formal welfare analysis (they don't even consider consumer surplus), and instead just look at ad-hoc objectives like increasing health or output.
  2. They teach welfare analysis poorly to students. This leads to more economists who don't know any welfare analysis beyond willingness to pay.

I'm not sure how big this negative impact is, but if it turned out to be big, I think the solution would be on the education side. Basic concepts in welfare economics, including optimal redistribution, should be a part of standard graduate and undergraduate economics curricula. Interested students should be informed that if they want to learn more they should take a public finance elective. From what I hear, this is fairly common at European universities, but not at American ones.

Improving Institutional Decision-Making: a new working group

This seems like a very good initiative. It's great to see this cause area moving forward.

Now, like some of the other commenters, I'm having some trouble understanding what kind of work IIDM includes. I agree with the earlier comment which said that the framing of IIDM so far has emphasized improving decision-making a lot more than improving institutions. The original 80k article focused mainly on the possibility of correcting cognitive biases (the kind that people would learn about in cognitive science or psychology classes). There was no mention of the large body of academic work relating to institutional design (this would mainly be learned in political economy or political science courses). Until reading the comments on this post, I was under the impression that IIDM was focused only on "how do we improve decision-making within the current political system" rather than "how can we reform the political system to work better". So, for example, I thought that EA-funded organizations working on voting reform wouldn't fall under IIDM.

If you want IIDM to include institutional reform, then I think that should be made more clear. At least for me, one thing that would have helped is if a different name was used for the overall cause area (like improving institutions) and then within that cause area you have IIDM, which is focused only on improving decision-making within a given institutional structure.

However, I'm pretty unsure of how much overlap there is between these two cause areas, so I'm not sure that it's even worth having the institutional reform people in your working group. Does someone working on constitution design have much to contribute to a discussion on how to teach civil servants to better deal with uncertainty? At least in the academic world, these two fields are fairly separate (from what I can tell). Maybe it would better to have these mostly operate as two separate cause areas.

Long-Term Future Fund: Ask Us Anything!

What is the LTFF's position on whether we're currently at an extremely influential time for direct work? I saw that there was a recent grant on research into patient philanthropy, but most of the grants seem to be made from the perspective of someone who thinks that we are at "the hinge of history". Is that true?

Introducing LEEP: Lead Exposure Elimination Project

This looks great and thanks for posting! One question: how come those other organizations working in this space, who as you note have a track record of success in other countries, haven't expanded to countries like Malawi? In other words, why is lead exposure reduction in Malawi neglected by other actors?

Effective Altruism and Free Riding

Thanks, this is a very good comment. I mostly cited that article for the literature review, which includes a few papers that argue for a causal connection between learning economics and free-riding. However, I looked into it more today, and it seems like the entire body of work is inconclusive on this question. Here's a more recent literature review on that.

I'll edit that part of the post to be more accurate.

Common ground for longtermists

Thanks for the post. One question on the background: is there any data (from the EA survey or elsewhere) about the percentage of EAs who lean towards suffering-focused ethics?

John Halstead: Is impact investing impactful?

Thanks for the talk and the report. I think this it's a very interesting topic and an important one to work on, given how many socially-minded people seem to care about impact investing.

I have a few more questions in addition to the one about perfectly elastic demand curves:

1. You note that if public markets are efficient then it will take nearly the entire population of investors to divest for the divestment movement to impact stock prices. This seems to make sense: it only takes a small group of socially-neutral investors to drastically increase their investments in the bad company in response to divestment from others. However, if we consider a movement to increase investment in a socially-good company, it seems like this idea doesn't apply. Let's say that the good company makes up .001% of the total stock market. It seems like if .001% of investors are willing to accept lower returns for investing in that company, then they should be able fund the company all on their own. In equilibrium no socially-neutral investors will hold that company's stock, and the stock would yield lower returns than socially-neutral stocks. So perhaps movements which promote investment in good companies are more likely to succeed than divestment movements are.

2. From your research it looks like the current ESG ratings are very low-quality. Given how big of a market impact investing is, do you think that there would be value in trying to improve those ratings?

John Halstead: Is impact investing impactful?

Thanks for the reply.

You're right that the paper I posted doesn't present direct evidence. I just thought it was important that in their literature review they claim that prior studies show that demand curves are not perfectly elastic (at least in theory. They aren't citing empirical papers).

On the empirical side, I'm surprised to hear you say that there seems to be agreement that long-run demand curves are perfectly elastic. On page 18 of the founder's pledge report, you seem to say that there is expert disagreement on this, and you cite multiple recent studies on both sides of the issue. Has more evidence come out since the report was published?

John Halstead: Is impact investing impactful?

It seems like you are fairly confident from your research that impact investing will tend to have little impact in publicly traded markets. I briefly looked into the theoretical literature on this, and I'm not seeing why we should be so confident in that idea. For example, this paper from 2019 claims:

"In general, systematic screening of assets based on investors’ preferences leads to a return premium on the screened assets, in equilibrium, and such return differences cannot be arbitraged away by 'neutral' investors".

They then cite four theoretical papers in support of that claim (note: I haven't actually read through these papers. I just glanced at the introductions and the setups of their models. It could be that these are bad papers).

Were you aware of this literature when writing your report? Why should we be so confident in the arbitrage argument?

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