Tuesday, December 18, 2012

Estimating Consumption Functions: The Case of Ohio State University Athletes

As an undergraduate at Hamilton and during my first two years of graduate school, I was quite interested in the "consumption function".  I dreamed of the permanent income hypothesis, the life cycle hypothesis and contrasted these models with the simple Keynesian marginal propensity to consume (which I would call the "Monkey Model" when I taught at Columbia) out of current income.   If you hand a Monkey a banana, the Monkey eats the banana so if we fit the consumption model   C =  a + b*Banana  + U for a large sample of Monkeys then a=0 and b=1 and we are done with consumption theory.

As I read the sports section of today's NY Times, this article about Ohio State University's athletes made me flashback to my roots from 25 years ago.   This OSU setting offers an opportunity to test various consumption theories.  If an OSU Econ Prof could access the data being collected at OSU, then this economist could write an AER quality paper.  Permit me to explain.

As I understand it, for every athlete at OSU,  the University can monitor inflows of cash into the checking account and outflows of checks for specific expenditures such as books, meals and tattoos.    When players receive an inflow of $, do they immediately spend it and do they spend it on luxury items?  The OSU prof can also study social networks, as one focal player (such as the captain of the football team) makes such a purchase do other players on the team follow him?   In consumption theory, the unit of analysis is usually a household but at a University the right "unit of analysis" should be the social network.  A OSU researcher who could access Facebook could see whether the player's network is tied to his friends or his team.  The influx of cash on a specific date could be used as an exogenous event and allow for tests of hyperbolic discounting.   For an example of such a study see Jesse Shapiro's 2005 paper.  Unlike Shapiro's data, this OSU data would allow the researcher to study durables demand and to document "flashy" bling durables (see the work of Charles, Hurst et. al. in the QJE).

How many bloggers give out free AER papers?  This blog has some value added?