Big data’s effect on the credit-scoring industry
A lengthy 2016 article from the Yale Journal of Law and Technology delves into credit-scoring then suggests a new legislative framework.
Since 2008, lenders have only intensified their use of big-data profiling techniques. With increased use of smartphones, social media, and electronic means of payment, every consumer leaves behind a digital trail of data that companies—including lenders and credit scorers—are eagerly scooping up and analyzing as a means to better predict consumer behavior. The credit-scoring industry has experienced a recent explosion of start-ups that take an ‘all data is credit data’ approach that combines conventional credit information with thousands of data points mined from consumers’ offline and online activities. Many companies also use complex algorithms to detect patterns and signals within a vast sea of information about consumers’ daily lives. Forecasting credit risk on the basis of a consumer’s retail preferences is just the tip of the iceberg; many alternative credit-assessment tools now claim to analyze everything from consumer browsing habits and social media activities to geolocation data.
Tallying the gains of migration
We recently linked to a paper by LANT PRITCHETT that challenged development orthodoxy by pointing out that the income gains for the subjects of best practice direct development interventions are about 40 times smaller than those from allowing the same people to work in a rich country like the United States.
Link, again, to that paper.
That argument was built upon previous scholarship that attempted to put rigorous numbers to the obvious intuition that migration is beneficial for those drawn to wealthy countries by labor markets. From a 2016 paper by Pritchett and co-authors MICHAEL CLEMENS and CLAUDIO MONTENEGRO:
“We use migrant selection theory and evidence to place lower bounds on the ad valorem equivalent of labor mobility barriers to the United States, with unique nationally-representative microdata on both US immigrant workers and workers in their 42 home countries. The average price equivalent of migration barriers in this setting, for low-skill males, is greater than $13,700 per worker per year.”
Link to the paper.
- Pseudoerasmus comments: “The important point is that low human capital is not the greatest barrier to higher GDP in low income countries, assuming institutions are exogenous to human capital.” Link.
- A post covering an element of Pritchett’s 2006 book on global labor mobility: ghost and zombie economies. “Large and persistent declines in labor demand in a region, perhaps because of technical changes in agriculture or changes in resources, create two possibilities, which I call “ghosts” or “zombies.” If labor is geographically mobile and hence labor supply is elastic, then large declines in labor demand will lead to large outward migration–the process that created “ghost towns” in the United States. However, if labor demand falls in a region and labor is trapped in that region, by national boundaries for instance, the labor supply is inelastic and all the accommodation has to come out of falling wages. A region that cannot become a ghost (losing population) becomes a zombie economy–the economy might be dead, but people are forced to live there.” Link.
- Branko Milanovic has also published related research on the topic, including a 2015 paper in which he demonstrates that “more than one-half of variability in income of world population classified according to their household per capita in 1% income groups (by country) is accounted for” by country of residence and the income distribution within that country. Link.
THREE ON HOUSING
Land value; public housing; a proposed “grand bargain” for NYC
I. At the Manhattan Institute, ALEX ARMLOVICH proposes a value-capture scheme for NYC.
“Living in New York City offers many advantages, but affordable housing and high-quality subways and buses are not among them. The city’s strict zoning laws discourage the construction of new developments, keeping the supply of housing artificially low. Public transportation, often bad, is getting worse. This paper proposes a grand bargain that would make housing more plentiful near public transportation hubs—call them “transit growth zones” (TGZs)—and channel the fees and extra tax money from the new homes to the MTA, while still keeping about three-quarters of the city off limits to larger residential buildings.”
II. A useful addition to our look into land value taxes is this October report by ISSI ROMEM at Buildzoom.
“Where do people pay the largest premium for land? The following chart ranks the largest U.S. metro areas according to the ratio of home value to replacement cost, a rough gauge of the extent to which home values are driven by the value of land. When home values are much greater than replacement costs it means they derive mostly from land, but when they are similar to replacement costs, it means they derive more heavily from the value of improvements. Home values can also fall below the cost of replacement, i.e. the ratio can drop below one. This occurs when land is very cheap, homes are in a poor state of repair, or both (to see why, recall that home values are the sum of land and improvement values, and consider that improvement values are almost always below replacement costs, because homes are in less than mint condition).”
The highest home value to replacement cost ratio is in San Jose-Sunnyvale-Santa Clara. Link to the full report.
- JW Mason responds: “I’m not convinced by the claim that zoning restrictions are the main reason for high housing costs, but the data in this post is still extremely interesting.” Noah Smith responds: “This is why we need a Land Value Tax (or more realistically, higher property tax with deductions for improvements).”
- Another noteworthy piece by the same author: a post on domestic migration, with data on movements to or away from metropolitan areas. “Positive income sorting and the role of migration in widening the educational gap between metros jointly amount to directly observing polarization–the process whereby America’s metropolitan areas grow increasingly dissimilar along socio-economic dimensions.” Link. ht Jack B
III. A new report from the People’s Policy Project recommends increasing the amount of municipal housing in the US, using Vienna, Finland, and Sweden as examples.
“If we are to take the housing crisis in the United States seriously, after reviewing international models, we see only one conclusion—local governments, supported by the federal government, must build a very large amount of affordable, mixed income, publicly-owned housing, initially by developing existing publicly-owned land.”
Full report by PETER GOWAN and RYAN COOPER, including an appendix on financing, here.
- Matt Bruenig summarizes the paper in the Guardian: “…Social housing ensures that the public owns the resulting land and housing assets rather than private investors or homeowners. This gives municipalities more flexibility in managing their city’s housing stock, ensures that profits (if charged) flow to the public instead of affluent people, and avoids creating even more people who have an interest in blocking further housing development.” Link.
- And Marshall Steinbaum responds: “[Bruenig’s] column… makes much more sense than either side in the perennial NIMBY vs. YIMBY debate. Shows the benefits of having new voices at the table unwedded to empirically vacant hereditary nostrums.” Link.
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- New research on the relationship between local news and national politics “suggest a substantial supply-side role in the trends toward nationalization and polarization of politics news, with negative implications for accountability of local elected officials and mass polarization.” Link. Another related paper analyzes “how competition in the market for news can have negative welfare consequences even in the absence of behavioral agents or partisan media, therefore offering a new, and to some extent more distressing, perspective on the problem.” Link. ht Michael
- Chris Blattman, whose work we’ve linked to a number of times, has posted syllabi and slides for his multi-part course on order and violence. Link.
- Charitable giving as taxpayer-subsidized PACs: “For philanthropic foundations associated with Fortune 500 and S&P500 corporations, we show that grants given to charitable organizations located in a congressional district increase when its representative obtains seats on committees that are of policy relevance to the firm associated with the foundation. This pattern parallels that of publicly disclosed Political Action Committee (PAC) spending.” Link. (And link to coverage in the Times.)
- On the fascinating social history of the Chinese typewriter. Link.
- Andrew Gelman with a two-parter on misleading research coverage and the incentives driving sloppy publishing practices: “A 3-day study is called ‘long term,’ and nobody even seems to notice the problem. Whassup with that??” Link to part one, link to part two.
- “We contrast heteromation, which creates technical systems that function through the actions of heterogeneous actors, with automation, a paradigm oriented to the actions of machines.” Link. ht Lauren
- “We suggest three main ways to make deployed DPbD [Data Protection by Design] more accountable and data subject–centric: building parallel systems to fulfill rights, including dealing with volunteered data; making inevitable trade-offs more explicit and transparent through Data Protection Impact Assessments; and through ex ante and ex post information rights… which we argue may require the provision of information concerning DPbD trade-offs.” Link.
- When sudden censorship increases access to information. Link.
- Noah Smith: “The standard framework that economists traditionally used to understand job markets is just supply and demand, the theory taught to every introductory econ student. But since the 1990s, a steady drumbeat of empirical results has led to questions about that simple model’s usefulness.” Link.
- Pavlina Tcherneva (whose worked we linked to in a spotlight on job guarantee papers three newsletters ago) of the Levy Institute has published a new paper on the Job Guarante, in which she outlines “core objectives and expected benefits of the program, and suggests an institutional structure, funding mechanism, and project design and administration.” Link.
- New IMF research links development gaps to cyclical shocks, showing that poorer countries suffer more frequent and more persistent recessions. Link.
- “This is, of course, the whole problem of scientific communication in a nutshell: Scientific results today are as often as not found with the help of computers. That’s because the ideas are complex, dynamic, hard to grab ahold of in your mind’s eye. And yet by far the most popular tool we have for communicating these results is the PDF—literally a simulation of a piece of paper. Maybe we can do better.” Link.
Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: firstname.lastname@example.org.