Category Archives: @MIIS

11/1/19: A Behavioral Experiment: Irish License Plates and Household Demand for Cars


While a relatively well known and understood fact in Ireland, this is an interesting snapshot of data for our students in Behavioral Finance and Economics course at MIIS.


In 2013, Ireland introduced a new set of car license plates that created a de facto natural experiment in behavioural economics. Prior to 2013, Irish license plates contained, as the first two digits, the year of car production (see lower two images). Since 2013, prompted by the ‘fear of the number ’13’’, the license plates contain three first digits designating the year and the half-year of the make.


Prior to 2013 change in licenses, Irish car buyers were heavily concentrated in the first two months of each year - a ‘vanity effect’ of license plates that provided additional utility to the earlier months’ car purchasers from having a vehicle with current year identifier for a longer period of time. Post-2013 changes, therefore can be expected to yield two effects:
1) The ‘vanity effect’ should be split between the first two months of 1H of the year, and the first two months of 2H of the year; and
2) Overall, ‘vanity effect’ across two segments of the year should be higher than the same for th period pre-2013 change.


As chart above illustrates, both of these factors are confirmed in the data. Irish buyers are now (post-2013) more concentrated in the January, February, July and August months than prior to 2013. In 2009-2012, average share of annual sales that fell onto these four months stood at 44.8 percent. This rose to 55.75 percent for the period starting in 2014. This difference is statistically significant at 5% percent level.

The share of annual sales that fell onto January-February remained statistically unchanged, nominally rising from 31.77 percent for 2009-2012 average to 32.56 percent since 2014. This difference is not statistically significant at even 10%. However, share of sales falling into July-August period rose from 13.04 percent in 2009-2012 to 23.19 percent since the start of 2014 This increase is statistically significantly greater than zero at 1 percent level.

Similar, qualitatively and statistically, results can be gained from looking at 2002-2008 average. Moving out to pre-2002 average, the only difference is that increases in concentration of sales in January-February period become statistically significant.

In simple terms, what is interesting about the Irish data is the fact that license plate format - in particular identification of year of the car make - strongly induces a ‘vanity effect’ in purchaser behaviour, and that this effect is sensitive to the granularity of the signal contained in the license plate format. What would be interesting at this point is to look at seasonal variation of pricing data, including that for used vehicles, controlling for hedonic characteristics of cars being sold and accounting for variable promotions and discounts applied by brokers.

11/1/19: A Behavioral Experiment: Irish License Plates and Household Demand for Cars


While a relatively well known and understood fact in Ireland, this is an interesting snapshot of data for our students in Behavioral Finance and Economics course at MIIS.


In 2013, Ireland introduced a new set of car license plates that created a de facto natural experiment in behavioural economics. Prior to 2013, Irish license plates contained, as the first two digits, the year of car production (see lower two images). Since 2013, prompted by the ‘fear of the number ’13’’, the license plates contain three first digits designating the year and the half-year of the make.


Prior to 2013 change in licenses, Irish car buyers were heavily concentrated in the first two months of each year - a ‘vanity effect’ of license plates that provided additional utility to the earlier months’ car purchasers from having a vehicle with current year identifier for a longer period of time. Post-2013 changes, therefore can be expected to yield two effects:
1) The ‘vanity effect’ should be split between the first two months of 1H of the year, and the first two months of 2H of the year; and
2) Overall, ‘vanity effect’ across two segments of the year should be higher than the same for th period pre-2013 change.


As chart above illustrates, both of these factors are confirmed in the data. Irish buyers are now (post-2013) more concentrated in the January, February, July and August months than prior to 2013. In 2009-2012, average share of annual sales that fell onto these four months stood at 44.8 percent. This rose to 55.75 percent for the period starting in 2014. This difference is statistically significant at 5% percent level.

The share of annual sales that fell onto January-February remained statistically unchanged, nominally rising from 31.77 percent for 2009-2012 average to 32.56 percent since 2014. This difference is not statistically significant at even 10%. However, share of sales falling into July-August period rose from 13.04 percent in 2009-2012 to 23.19 percent since the start of 2014 This increase is statistically significantly greater than zero at 1 percent level.

Similar, qualitatively and statistically, results can be gained from looking at 2002-2008 average. Moving out to pre-2002 average, the only difference is that increases in concentration of sales in January-February period become statistically significant.

In simple terms, what is interesting about the Irish data is the fact that license plate format - in particular identification of year of the car make - strongly induces a ‘vanity effect’ in purchaser behaviour, and that this effect is sensitive to the granularity of the signal contained in the license plate format. What would be interesting at this point is to look at seasonal variation of pricing data, including that for used vehicles, controlling for hedonic characteristics of cars being sold and accounting for variable promotions and discounts applied by brokers.

29/6/18: Multilateralism and the Impossible Policy Trilemmas


"Global governance requires rules, because flexibility and goodwill alone cannot tackle the hardest shared problems. With multilateralism under attack, the narrow path ahead is to determine, on a case-by-case basis, the minimum requirements of effective collective action, and to forge agreement on reforms that fulfill these conditions."

Can Multilateralism Adapt?, Jean Pisani-Ferry.

International Political Trilemma applies to both monetary and fiscal policy dimension by making it impossible for modern societies to combine:

  1. Monetary sovereignty in the form of free capital mobility, with international political stability and political autonomy of democratic systems. In simple terms, free capital mobility means that capital flows will reflect economic and demographic conditions prevailing in the specific society. If these conditions deteriorate, triggering capital outflows (perhaps due to monetary accommodation response to ageing population), the society can respond either through imposing capital controls (preserving its standing in international political institutions, and allowing its democratic institutions to remain robust) or it can pursue non0-democratic suppression of its own population (allowing capital to flow out of the economy and not imposing cost of resulting economic decline onto international partners). Alternatively, the country can continue allowing outflow of capital and retain democracy by blaming the external shocks and restricting its engagement with international political institutions.
  2. Fiscal sovereignty in the form of free capital mobility, international political stability and autonomous fiscal policy. In simple terms, the above monetary sovereignty simply transfers democratic autonomy failure to fiscal policy failure.

To my students at TCD and MIIS, these are familiar from the following summary charts:

For more academically inclined readers, here is my paper summarising these Trilemmas and putting them into the context of the euro area harmonisation: Gurdgiev, Constantin, Euro After the Crisis: Key Challenges and Resolution Options (May 30, 2016). Prepared for: GUE/NGL Group, European Parliament, October 2015: https://ssrn.com/abstract=2786660.

It is, generally, not hard to find examples of the two trilemmas presence in a range of historical shocks in the past. More recent examples, however, are harder to come by due to time lags required to see these trilemmas in action. Pisani-Ferry's quote above hints at such.

During the 1990s, "After an eight-decade-long hiatus, the global economy was being reunified. Economic openness was the order of the day. ...The message was clear: globalization was not just about liberalizing flows of goods, services and capital but about establishing the rules and institutions required to steer markets, foster cooperation, and deliver global public goods."

As Pisano-Ferry argues, today, "Despite a decade of talks, the global trade negotiations launched in 2001 have gotten nowhere. The Internet has become fragmented and could break up further. Financial regionalism is on the rise. The global effort to combat climate change rests on a collection of non-binding agreements, from which the United States has withdrawn...  The very principles of multilateralism, a key pillar of global governance, seem to have become a relic from a distant past."

"...let’s face it: today’s problems did not start with Trump." In fact, the problems started with the above trilemmas. Or put differently, the problems are not an outrun of bad policies or choices, but the natural result of the impossibility of combining the conflicting policies objectives and institutions. "There is no shortage of explanations. An important one is that many participants in the international system are having second thoughts about globalization. A widespread perception in advanced countries is that the rents from technological innovation are being eroded precipitously... A second explanation is that the US strategy toward Russia and China has failed... neither Russia nor China has converged politically... Third, the US is unsure that a rules-based system offers the best framework to manage its rivalry with China. [and]... Finally, global rules look increasingly outdated. Whereas some of their underlying principles – starting with the simple idea that issues are addressed multilaterally rather than bilaterally – are as strong as ever, others were conceived for a world that no longer exists. Established trade negotiation practices make little sense in a world of global value chains and sophisticated services. And categorizing countries by their development level is losing its usefulness, given that some of them combine first-class global companies and pockets of economic backwardness."

In simple terms, the world became more complex and more fragile because we tried to make it less complex and more centralized (hegemonic positioning of the U.S. in Bretton Woods setting), while making it also more multilateral (through financial, economic, trade and human capital integration).

Pisano-Ferry offers a 50,000 feet level view on the solution to the problems: "the solution is neither to cultivate the nostalgia of yesterday’s order nor to place hope in loose, ineffective forms of international cooperation. International collective action requires rules... The narrow path ahead is to determine, on a case-by-case basis, the minimum requirements of effective collective action, and to forge agreement on reforms that fulfill these conditions." In other words, one cannot tackle trijemmas directly (correct view), but one can defuse them by limiting each node of the desired policies. E.g. less democracy here - to offset pressure from demographic of ageing, less capital mobility there - to reduce the speed of capital flows across the borders and lower volatility of financialized investment, less fiscal sovereignty - to provide better buffers for shocks arising in financial and economic systems, and less international institutions - to allow for more flexible rebalancing of monetary, trade and fiscal policies.

The problem with this is it requires for the hegemony (the U.S.) to put a hard stop to imposing its preferred solutions onto the rest of the world and international institutions. Or, put differently, the hegemony must stop being a hegemony. Good luck squaring that with American vision of the world a-la Rome 4.0.

6/6/2018: Monopsony Power in US labour market


I have recently written about rising firm power in labour markets, driven by monopsonisation of the markets thanks to the continued development of the contingent workforce: http://trueeconomics.blogspot.com/2018/05/23518-contingent-workforce-online.html. In this, I reference a new paper "Concentration in US labour markets: Evidence from online vacancy data" by  Azar, J A, I Marinescu, M I Steinbaum and B Taska. The authors have just published a VOX blog post on their research, worth reading: https://voxeu.org/article/concentration-us-labour-markets.