Showing posts from November, 2013

Fixed Effects Infatuation

The fashionable thing to do in applied econometrics, going on 15 years or so, is to find a gigantic panel data set, come up with a cute question about whether some variable  x  causes another variable  y , and test this hypothesis by running a regression of  y  on  x  plus a huge number of fixed effects to control for "unobserved heterogeneity" or deal with "omitted variable bias."  I've done a fair amount of work like this myself. The standard model is: y_i,t = x_i,t + a_i + b_t + u_i,t where a_i are fixed effects that span the cross section, b_t are fixed effects that span the time series, and u_i,t is the model error, which we hope is not associated with the causal variable x_i,t, once a_i If you're really clever, you can find geographic or other kinds of groupings of individuals, like counties, and include group-by-year fixed effects: y_i,t = x_i,t + a_i + b_g,t + u_i,t The generalizable point of my  lengthy post  the other day on storage and

Can crop rotations cure dead zones?

It is now fairly well documented that much of the water quality problems leading to the infamous "dead zone" in the Gulf of Mexico (pictured above) come from fertilizer applications on corn. Fertilizer on corn is probably a big part of similar challenges in the Chesapeake Bay and Great Lakes. This is a tough problem.  The Pigouvian solution---taxing fertilizer runoff, or possibly just fertilizer ---would help.  But we can't forget that fertilizer is the main source of large crop productivity gains over the last 75 years, gains that have fed the world.  It's hard to see how even a large fertilizer tax would much reduce fertilizer applications on any given acre of corn. However, one way to boost crop yields and reduce fertilizer applications is to rotate crops. Corn-soybean rotations are most ubiquitous, as soybean fixes nitrogen in the soil which reduces need for applications on subsequent corn plantings.  Rotation also reduces pest problems.  The yield boost on

Weather, storage and an old climate impact debate

This somewhat technical post is a belated followup to a comment I wrote with Tony Fisher, Michael Hanemann and Wolfram Schlenker, which was finally published last year in the American Economic Review .  I probably should have done this a long time ago, but I needed to do a little programming.  And I've basically been slammed nonstop. First the back story:  The comment re-examines a paper by Deschanes and Greenstone (DG) that supposedly estimates a lower bound on the effects of climate change by relating county-level farm profits to weather.  They argue that year-to-year variation in weather is random---a fair proposition---and control for unobserved differences across counties using fixed effects .  This is all pretty standard technique. The overarching argument was that with climate change, farmers could adapt (adjust their farming practices) in ways they cannot with weather, so the climate effect on farm profits would be more favorable than their estimated weath