Weekly Top 5 Papers – May 14, 2018

1. Buffett’s Alpha by Andrea Frazzini (AQR Capital Management, LLC) and David Kabiller (AQR Capital Management, LLC) and Lasse Heje Pedersen (AQR Capital Management, LLC)

2. China’s Social Credit System: An Evolving Practice of Control by Rogier Creemers (Leiden University – Van Vollenhoven Institute)

3. A Primer and Frequently Asked Questions for ‘Surprised by the Gamblers and Hot Hand Fallacies? A Truth in the Law of Small Numbers’ (Miller and Sanjurjo 2015) by Joshua B. Miller (University of Alicante – Department of Economics) and Adam Sanjurjo (Universidad de Alicante – Departamento de Fundamentos del Análisis Económico)

4. How Much Should We Trust the Dictator’s GDP Estimates? by Luis R. Martinez (University of Chicago – Irving B. Harris Graduate School of Public Policy Studies)

The key question that the paper tries to tackle is whether the checks and balances provided by democracy are able to constrain governments’ desire to manipulate information or, more specifically, the desire to exaggerate how well the economy is doing. I recently found a quote of George Orwell that summarizes the spirit of the project: “If liberty means anything at all it means the right to tell people what they do not want to hear.” This quote, which is inscribed below a recently-unveiled statue of Orwell in London, comes from the originally unpublished preface to Animal Farm, which the editor found to be too critical of Stalin and the USSR, at the time an ally of the UK in WW2. Stalin is, in fact, an important reference for what I am studying here, given the high prevalence of manipulation of information during the Stalinist regime: fabricated census data in 1937, political leaders being erased from pictures as they fell out of favor, etc. The idea of the paper is that in a well-functioning democracy it is much harder to get away with that type of thing.

The way I try to answer the question above is by comparing GDP (a self-reported indicator, prone to manipulation) and nighttime lights (recorded by satellites from outer space and much harder to manipulate) as measures of economic activity. The main analysis in the paper boils down to this: Is it the case that the same amount of growth in nighttime lights is associated with systematically larger amounts of GDP growth in more authoritarian regimes? The answer is yes. Underlying the exercise is the idea that in the absence of manipulation the relationship between nighttime lights and GDP should not vary across political regimes. This is, of course, a strong assumption and one can easily think of differences in various characteristics across regimes that can explain the results (e.g. government involvement in the economy, rates of urbanization, dependence on agriculture). I have done a large effort to examine the plausibility of such alternative explanations and I do not find support for them in the data. Besides examining what else can explain the results, I have also tried to provide more evidence in support of the manipulation hypothesis by looking at instances in which the incentive to exaggerate information is stronger. A good example of this are elections (There are plenty of relatively autocratic regimes that hold regular elections. Think Russia, Turkey, Venezuela). I find that the excess growth in GDP relative to that of nighttime lights that characterizes authoritarian regimes is even greater in the year before a national election. – Luis Martinez

5. What is Program Evaluation? A Beginners Guide (Presentation Slides) by Gene Shackman (The Global Social Change Research Project)

I am hoping this guide may be useful to anyone who wants to know about the very basic ideas and methods of evaluation. Evaluation can be useful, but only if people understand it. I am hoping this will help clients, potential clients, funders, stakeholders, and the public better understand evaluation and a little of how it works. That way, people can have a realistic idea of how it can be used, and how it cannot be used. – Gene Shackman

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