Cigarette prices and subjective well-being

We’ve written a lot previously about cigarette taxes as a precommitment device that can increase welfare. However, while those models fit the stylised facts, it’s hard to know for sure if people are better off. For that you’d need to make a prediction about their increase in subjective wellbeing and test it. Now a couple of European researchers have done just that and the results are ‘mixed’. By which I mean that the evidence contradicts the theory!

They conclude:

…we find that smoking bans, on average, neither increase nor decrease people’s subjective well-being to a sizable and statistically significant degree. Higher cigarette prices are related to overall lower reported levels of satisfaction with life, ceteris paribus. The partial correlation is, however, measured with a large standard error. Still, the effect is economically meaningful (and corroborated by our differential analysis for people with different smoking propensities). For a fifty percent price increase, we estimate a reduction in average life satisfaction of 0.02 points (on a four point scale). This is about one tenth of the effect of being unemployed rather than employed or equivalent to the effect of a 2.4 percentage points higher rate of unemployment on the population at large. This finding does not lend support to the effectiveness of cigarette taxes as an internalization strategy. Higher cigarette prices at least have overall negative short-term effects.

Additionally, smoking bans turn out to be beneficial to smokers who would like to stop smoking (or not start again). For those smokers who are most likely to find themselves in a situation where they have recently tried to give up smoking but have relapsed, life satisfaction increases between 0.03 to 0.08 points with smoking bans (depending on the specification). This is evidence that supports the idea that smoking bans can serve as a self-control device. Interestingly, the same group of people does not benefit from higher cigarette prices. Rather to the contrary, these people seem to suffer to the same extend as other smokers do who have not recently tried to stop in response to higher prices. The negative effect of higher cigarette prices on smokers, particularly those who are likely to have self-control problems, runs counter to the prominent finding by Gruber and Mullainathan (2005) for the United States where positive effects of higher cigarette taxes on the well-being of smokers are identified.

Update: Eric comments.

No shirking from home, please!

Working from home massively increases productivity:

Over 10% of US employees now regularly work from home (WFH), but there is widespread skepticism over its impact and worries about “shirking from home”. We report the results of a WFH experiment at CTrip, a 16,000 employee NASDAQ-listed Chinese multinational. Call center employees who volunteered to WFH were randomly assigned to work from home or in the office for 9 months. Working from home led to a 13% performance increase, of which about 8.6% is from working more minutes per shift (fewer breaks and sick-days) and 4% from more calls per minute (attributed to a quieter working environment). Home workers also reported improved work satisfaction and their job attrition rate fell by 50%. After the experiment, the firm rolled the program out to all employees, letting them choose home or office working. Interestingly, only half of the treatment group decided to work at home, with the other half reallocating in favor of office working. After employees were allowed to choose where to work, the performance impact of WFH almost doubled, highlighting the benefits of choice when adopting modern management practices like home working.

Old boys’ networks in finance

There are plenty of interesting papers from the ASSA conference that we’ll be mentioning here. The first shows the importance of the old boys’ network for men in finance. Interestingly, women don’t seem to benefit from it and must instead demonstrate their competence in order to gain recognition.


Connection is associated with more accurate earnings forecasts for men, but not for women. Controlling for accuracy, connection is important in explaining men’s, but not women’s, probability of being voted by institutional investors as “star” analysts, an important measure of career success. For women, education achievements and accurate forecasts are important factors that determine voting outcomes. This asymmetry in the effect of connections between the two genders does not exist in an alternative, computerized process of evaluating analysts, and is most pronounced among young analysts. Our results suggest that men reap higher returns from connections than women, and that investors are more willing to rely on soft information such as connections to evaluate men than women.

Free driver externalities

Martin Weitzman has a new paper out that introduces the concept of a ‘free driver’ externality in the context of climate change responses:

Climate change is a global “free rider” problem because significant abatement of greenhouse gases is an expensive public good requiring international cooperation to apportion compliance among states. But it is also a global “free driver” problem because geoengineering the stratosphere with reflective particles to block incoming solar radiation is so cheap that it could essentially be undertaken unilaterally by one state perceiving itself to be in peril.

It’s a really interesting idea but can it really be described as an externality? The distinction is important because the way you frame the problem defines the solution.

He is saying that the actions of one state to combat global warming could affect other countries, imposing an externality upon them. The paper goes on to say that a governance mechanism to resolve conflicts is required and propose a particular solution. That’s all fine, but why does Weitzman refer to it as an externality? Read more

Performance evaluation of teachers

From the AER:

…observable teacher characteristics like graduate education and experience are not typically correlated with increased productivity [among teachers]. Many researchers and policymakers have suggested that, under these conditions, the only way to adjust the teacher distribution for the better is to gather information on individual productivity through evaluation and then dismiss low performers. This paper offers evidence that evaluation can shift the teacher effectiveness distribution through a different mechanism: by improving teacher skill, effort, or both in ways that persist long-run.

We find that teachers are more productive during the school year when they are being evaluated, but even more productive in the years after evaluation. A student taught by a teacher after that teacher has been through the Cincinnati evaluation will score about 10 percent of a standard deviation higher in math than a similar student taught by the same teacher before the teacher was evaluated.

our estimates indicate that postevaluation improvements in performance were largest for teachers whose performance was weakest prior to evaluation, suggesting that teacher evaluation may be an effective professional development tool.

Not a surprising result but it’s always nice to have the empirics to back up your assertions.

New Zealand’s middle class

Here I go, banging on about how the issue of “middle class squeeze” isn’t the same in NZ as it may well be in the US.

I’ve talked on this before of course, what can I say I’m a man of limited imagination 😉