Re: Levitt article
Here it is. Fabio, we expect better work from you next time! :-) Alex http://www.nytimes.com/2003/08/03/magazine/03LEVITT.html?pagewanted=printposition= -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Wage-Price Controls Under Nixon
Michael Kinsley has an interesting piece in Slate today. http://slate.msn.com/id/2084315/ It's about the Patriot Act and other so-called security measures and whether they infringe on our liberties. He concludes that so-far the infringement has not been so bad but there is potential danger in large part because Americans don't really love freedom. Indeed, when motivated with good stories they are willing to give freedom away quite easily (shades of Bryan's notion of rationality irrationality here). He then gives this stunning example: This does not mean there's nothing to worry about. Incipience is legitimately scary. To return to the original question, Americans are not so innately freedom-loving that we would never let it dribble away without noticing. I can prove this because it actually happened, within the adult lifetimes of anyone over about 50. On August 15, 1971, more or less out of the blue, President Nixon declared a freeze on wages and prices. Legislation authorizing this had passed Congress the year before, with little controversy. The freeze evolved into a system of formulas about who could get paid what, requirements about filing forms with the government and keeping records and posting notices, all enforced by a growing bureaucracy of wage and price cops. The controls lasted a couple of years at full strength and then faded away over the next couple. The notion that the government could tell everyone from General Motors to a baby-sitting teenager what they could chargeand did soseems shocking in retrospect, at least to me. There was no real national emergency. It was part of a cynical re-election strategy to gun the economy while holding inflation temporarily in check. But at the time, controls were not just accepted but popular. When they disappeared, even those (like me) who had opposed them found it strange and, at first, unnatural. You mean, anyone can just charge whatever they want? How does that work? The analogy isn't perfect. The right to set your own price isn't as profound as the right to express your own political opinion. But it is, if anything, even more a part of every citizen's daily life. And yet when they took it away, we freedom-loving Americans didn't even miss it. -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Wage-Price Controls Under Nixon
Well, the average American is not so pro-freedom as, say, Walter Williams, but considerably more so than the average Frenchman or German. Really? How do you measure this? The remarkable fact is that it is apparently perfectly legal for the government in the United States to control the price of just about everything - i.e. fascism - I mean this as literally and not in a loose derogatory sense - is constitutional in the U.S. This really illustrates that a) the constitution counts for pretty much nothing if the public wants something to happen and b) the public is not so freedom loving as to not want wage and price controls on everything. Hence Kinsley's conclusion that there is a danger of big losses in freedom should the public buy some story that reductions in freedom are necessary for security the way they apparently bought that government control of price and wages was necessary to control inflation. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Charity
The public good story is also inconsistent with public opinion polls which show that the public always think the foreign aid budget is too *large*. If the public good story were true people would be clamoring for collective action. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: charity and time preference
Sure, the flaw is that this argument would imply that you hold the money forever. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Charity
Eric has me as being nicer than I actually am. I would give up a leg to cure AIDS. For SARS I would take a kick in the leg. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Economics and Beauty
Regarding the economic return to beauty this newspaper cite suggests a link through health. http://news.bbc.co.uk/2/hi/health/2943464.stm ... Researchers in Spain have found that men who are regarded as attractive by women are also more fertile. Their sperm move faster and are generally healthier. The study is the latest to suggest that good looks can be a pointer to good health. In April, researchers in Australia found that men with chiselled jaws and classic masculine features are in better physical health than their less manly peers. These and similar findings have led scientists to conclude that women who seek attractive male partners are, in fact, searching for the healthiest men, most able to father and provide for their children Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: [Forum] Quoth who?
The idea, called regulatory capture is associated with George Stigler. Posner's paper Theories of Economic Regulation, Richard Posner, Bell Journal of Economics and management science, Vol. 5, No. 2, pp. 335-358, 1974. brought the idea ought very clearly as I recall but I am not aware of that quote in either. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Questions about the stagflation episode...
I think that today there is a unified macro (Bill recognized that saying there wasn't was going out on a limb). Macro is now in a period of normal science. The profession has decided that the corect way to do macro is using a stochastic dynamic general equilibrium model. Some people include sticky prices in such models and others do not but either approach is well within the mainstream. Also, almost all the profession will now also agree that sticky prices or not a large fraction of what we call business cycles are the natural responses of an economy to real shocks. Although stagflation opened the door to new ideas what has driven the process more than anything is the internal dynamic to make macro models more micro-based. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Advise to Journalists
I will be giving a 15-20 minute talk to a bunch of journalists and proto-journalists ( most of them are editors of student university newspapers) about what economics has to offer journalism. I am interested in the suggestions of list members as to what the most important lessons economics has to teach. I have a number of thoughts myself, of course, including comparative advantage (veneer of competition hides much cooperation) public choice (qui bono? look for the organized exploiting the unorganized) tradeoffs/all good are economic goods (e.g. safety) amazing economic/business stories that are not told (I have in mind here I Pencil/How Paris is Fed stories about the great complexities of modern markets that people take for granted. Other ideas? Thoughts? Specific examples? Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Employment Index Derivatives
It's a good idea. Not much exists yet but Robert Shiller has been actively promoting similar ideas for some time. A good introduction is his paper with co-authors in the volume I edited called Entrepreneurial Economics: Bright Ideas from the Dismal Science, see www.EntrepreneurialEconomics.org Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: [Fwd: a non-profit oddity]
This is a multi-part message in MIME format.
Re: Environmental and economic effects of Speed Limits
Charles Lave of UC Irvine has done a lot of work on the economics of speed limits - he had an AER paper a few years ago. I doubt that there is much of an environmental effect - the main environmental effect is due to congestion not speed limits. Alex Tabarrok
taxi transitional gains trap
Here is an interesting plan to get out of NYCs transitional gain trap regarding taxi medallions. Basically the author suggests buying out the current medallion holders and selling taxi-cab licenses on an open basis. I think his numbers don't add up but this might make an interesting microeconomics exercise for students perhpas in conjunction with Tullock's paper on the transitional gains trap. http://www.city-journal.org/html/12_2_how_to_fix.html Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: taxi transitional gains trap
Bryan Caplan wrote: If a majority of NYers seriously wanted free entry in cabs, wouldn't it happen regardless of the opinions of cab companies? Bryan is gently pointing out that my assumptions may be inconsistent with my earlier posts on democracy. Nevermind, I contain multitudes. It does seem, however, that this is a good case of concentrated benefits, diffuse costs. In addition, there are serious constitutional issues involved in opening the market to free-entry because this would probably constitute a taking. Thus the cab companies have the motive and means to prevent entry. Of course, there's no denying a majority if it really wants something - even the constitution can be overriden (does anyone remember that little thing about Congress having the power to declare war?) - but in this case the public doesn't care enough about the issue to overcome the cab companies at their most powerful but it might care enough to overcome the companies if their opposition was diminished by a buyout. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Textbook Econometrics
The best text is Jeffrey Wooldridge's Introductory Econometrics: A Modern Approach. Supplement with Peter Kennedy's A Guide to Econometrics (a must have.) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Republican Reversal -- from whence, belief?
Tom Grey wrote Further, I derive support for this from limited thought experiments: Society A: more Atheist, Society B: more Bible Believing. In which society do I expect more fraud? more cheating spouses promiscuity? more theft? more murder? Well, even without empirical support, I believe B will be better for me to live in, whether I, personally, am a weak Episcopalian/ agnostic/ atheist/ or devout believer. The data do not seem to support the hypothesis England and France, for example, are much less bible believing than the U.S. but overall have lower crime rates (and despite their reputation the French are apparently not especially promiscious). The U.S. South is much more bible believing than the North but crime rates are higher. Atheism increases with education and income (even more clearly bible beleving falls with education and income) but crime falls with education and income. The hypothesis is not well framed but if we were to say simply that societies with more bible believing should have lower crime rates etc. than that is even more decisively refuted because most of the world is not bible believing and the Asian societies, in particular, appear to have lower crime rates etc. It's tricky, but by some measures Confucian's, for example, can be considered atheists (Confucious was a person not a god) albeit not secular atheists. I have little doubt that you will find that Confucian's in the United States say have lower rates of crime etc. than bible believers. None of this controls for other factors, of course, so I do not claim causality and of course counter-examples can be found (no need to mention them) but the limited-evidence ought to be enough to cast doubt on the limited thought experiments. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Republican Reversal
Yes, I believe that the majority of the American public supports farm subsidies. The rational ignorance assumption fails to explain this - it's not like the information that governments spends billions on the farmers is hard to find. Some combination of Bryan's rational irrationality and just plain irrationality explains the results much better. Forty four percent of the American public thinks that God created human beings pretty much in their present form at one time within the last 10,000 years or so. (November 1997, Gallup Poll) so why should we be surprised that many Americans also support farm subsidies? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Republican Reversal
Actually, if you read closely, you will see that I implied that Americans who believe that God created human beings pretty much the way they are now about 10,000 years ago are *not* ignorant. The remarks were appropriate because they address the issue under discussion. As economists, we are often surprised that government policy differs so dramatically from what we think is efficient (and also equitable). Sometimes we like to think, as Fred put it, that the reason for this is that the public is ignorant and fooled by the government/special interests etc. We like to think that if only the public were informed they would denounce farm subsidies as many of us do. But why should we think this when information about, for example, the farm subsidy program is widely available? The evidence is even stronger in other fields that information per-se often does not change people's minds. The scientific consensus in favor of evolution is far stronger than the economic consensus against farm subsidies and the scientists have the advantage of support from the public school system and the media and yet, in America, they have not managed to convince a large segment of the population about the most important and fundamental fact of biology. If information doesn't change people's minds - what does? Or, at least, what causes people to have the beliefs that they have? This is where Bryan's important work comes in. Understanding these sorts of questions will give us a much better understanding of social change. Alex Gray, Lynn wrote: The implication that those who believe in the historical accuracy of the Bible are ignorant was inappropriate, Alex. Lynn -Original Message- From: Alex Tabarrok [mailto:[EMAIL PROTECTED]] Sent: Wednesday, July 17, 2002 11:30 AM To: [EMAIL PROTECTED] Subject: Re: Republican Reversal Yes, I believe that the majority of the American public supports farm subsidies. The rational ignorance assumption fails to explain this - it's not like the information that governments spends billions on the farmers is hard to find. Some combination of Bryan's rational irrationality and just plain irrationality explains the results much better. Forty four percent of the American public thinks that God created human beings pretty much in their present form at one time within the last 10,000 years or so. (November 1997, Gallup Poll) so why should we be surprised that many Americans also support farm subsidies? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED] -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Republican Reversal
Fred Foldvary wrote: ...if the typical American favors subsidies to sugar farmers and does not mind if the domestic price is over twice the world price, and does not care much if candy-making jobs are moving to Canada, why do sugar farmers contribute funds to candidates if the representatives would vote for the subsidy anyway? The public supports farm subsidies in general. The politicians and special interests joust over the details. This is a long way from saying that government policies can be explained by rational ignorance and/or rent seeking. I will certainly grant that these ideas explain some things such as details of the tax code but if you look at the budget the vast majority of it goes to programs that the public supports in large numbers. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Why are the simple folk so wrong WAS Republican Reversal
Yes, this is precisely my point. Alex Michael Etchison wrote: Alex Tabarrok: The evidence is even stronger in other fields that information per-se often does not change people's minds. . . . If information doesn't change people's minds - what does? You do notice, I trust, that just as there are those, including some who appear to be well-educated and otherwise civilized, but who doubt that Darwin had the whole story, there are those -- no doubt all uncouth shoeless gap-toothed mouthbreathers -- who do not think that the prevailing economic theories are information. Michael Michael E. Etchison Texas Wholesale Power Report MLE Consulting www.mleconsulting.com 1423 Jackson Road Kerrville, TX 78028 (830) 895-4005
Stiglitz v. Rogoff
Ken Rogoff has written a stinging and very funny rebuke of Joe Stiglitz and his new book. It's not the sort of thing you see very often. http://www.imf.org/external/np/vc/2002/070202.htm Brad DeLong's comments on the book are also devastating. http://www.j-bradford-delong.net/movable_type/archives/000322.html Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Firing Line
Italy's restrictions on firing employee's are so bad that a bank was prevented from firing a money launderer and it are so entrenched that recent attempts to reform the system have led to the assasination of the reformers. See Alan Krueger's piece http://www.nytimes.com/2002/06/27/business/27SCEN.html which I was alerted to by Kausfiles who has some other links, see entry for Friday July 5 here http://slate.msn.com/?id=2067592 Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Quantity/Bulk discounts
The industrial organization textbook by Carlton and Perloff is good on issues of price discrimination, quantity discounts etc. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Amusement Park Lines and Concert Tickets
Economist's have long puzzled over why tickets for almost sure to sell-out concerts aren't sold for more and similarly why amusement parks don't congestion price their attractions. Yet, at long last, concert promoters have started to do exactly this. Prime tickets for the recent Rolling Stone's concerts were sold for $500 and more, for example, (by the promoters not scalpers). Also this item http://slate.msn.com/?id=2067672 notes that amusement parks are now offering go to the front of the line tickets (complete with bodyguard to prevent other irate consumers from yelling at you or worse !). I suppose one could come up with explanations for why this used to be non-optimal but now is optimal (I await eagerly) but it seems to me that what these and other incidents teach (such as the auctioning of radio spectrum, for example) is that sometimes the best explanation for why something isn't done when economics suggests that it should be done is simply that people don't understand economics. Economists, in other words, have much to offer the world in new and better ideas. A certain amount of humility is certainly in order - so if something doesn't fit with economic theory we should look for explanations for why our theory could be wrong but we should also not denigrate our knowledge by assuming that what is, is optimal. (This theme is a prominent aspect of the book I edited, Entrepreneurial Economics: Bright Ideas from the Dismal science www.EntrepreneurialEconomics.org Of course you know that since I am sure you have all bought and read the book by now.) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: double vs. single entry
Double entry accounting makes it very difficult to hide losses and massively inflate your profits...wait, that can't be right, scratch that. I don't know. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Brouwer's Fixed Point Theorem - Puzzle
Here is a nice application/proof of Brouwer's Theorem in one dimension from Mark Rubinstein's page http://www.in-the-money.com/ which has some other nice material as well. -- One morning, exactly at sunrise, a Buddhist monk began to climb a tall mountain. The narrow path, no more than a foot or two wide, spiraled around the mountain to a glittering temple at the summit. The monk ascended the path at varying rates of speed, stopping many times along the way to rest and to eat the dried fruit he carried with him. He reached the temple shortly before sunset. After several days of fasting and meditation he began his journey back along the same path, starting at sunrise and again walking at variable speeds with many pauses along the way. His average speed descending was, of course, greater than his average climbing speed. Prove that there is a spot along the path that the monk will occupy on both trips at precisely the same time of day. -- One can prove this by showing that the puzzle satisfies the assumptions of Brouwer's Fixed Point Theorem but there is an intuitive and satisfying answer also. The answer can be found in Rubinstein's page but I'll also post it in a follow up-message - but no cheating! Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: fantastically entertaining paper
Robin probably regrets using the word cheap in regard to entry as this has clearly confused some people. As Robin later pointed out he meant cheap to mean the journal industry approximates the economic concept of free entry (more than many other industries we all think of as competitive). Now, I hope that none of us would say that the market for restaurants is not competitive because it costs about $250,000 to start a new restaurant and therefore entry is expensive. Yet some comments regarding entry into the journal market make exactly this mistake. By the way, the journal market has exploded in recent decades with many entrants. Thus, if one is going to complain about the output of the journal market one should look at the preferences of its customers. A parallel I have noted in other context is that sometimes people trained in the Buchanan style of constitutional economics think that all that is required to get better policy is that we change the rules of the game when in truth sometimes there is no choice but to change the preferences of the players. Thus when Pete says Change the nature of the way resarch is published and presented and the research game will change within the academy. Well of course! Who would deny that? :) But the nature of the way research is published and presented is a dependent not an independent variable! Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Not such a fantastically entertaining paper
In addition to Robin's comments I found the motivating factor of Frey's paper to be weak. I take it that his main complaint is that referee's force authors to prostitute themselves by making changes the authors think are wrong. I personally have never experienced this problem and I would be surprised if many people have, although I am willing to be enlightened. To be sure, I have had papers rejected for bad reasons and sometimes I have made changes to satisfy referees that I thought were not necessary but I have never been asked to change a conclusion or to write something I thought was false. In a few cases, referees have actually helped me to improve the paper! (Yes, this does sometimes happen!). Now perhaps Frey is saying that the problem is that authors must write their papers in a certain way even in order to have any hope of getting published. Now certainly this is true - the profession demands a particulary style of paper especially in the top journals. I happen to think that much of what the profession demands is unnecessary, boring, absurd, and counter-productive but what has this to do with the way journals are refereed? Almost nothing. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Not such a fantastically entertaining paper
I said I happen to think that much of what the profession demands is unnecessary, boring, absurd, and counter-productive but what has this to do with the way journals are refereed? Pete responded Well, that is the question isn't it? Yes, it is the question that Frey doesn't answer. Pete writes How about lack of accountability in double-blind systems? How about intellectual fadism within a profession? We have a problem of conspicous production in academics. But where is the argument that connects lack of accountability in double-blind systems to any of the substantive complaints we (or Frey) have about the industry? Do you really think that single or no-blind would lead to more relevant economics? If anything, double-blind does something to break the cartel although I don't think that it changes content much at all (i.e. it gives lesser-known people a better shot at the big journals but they still have to do the sort of work the profession likes). Furthering Robin's comments recall that economists do not have an unusual method of editing journals - practically all journals in all countries use a similar system so its hard to argue that the system is dominated. About the only profession that is different is law - would anyone care to make an argument that student edited journals are the way to go???! Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Consumer Reports on Deregulation
Bill notes that prior to deregulation In flight meals were more substantial and more frequent. Ticket lines were shorter for coach passengers. Major airline employees were more polite. There were lots of give always (decks of cards, airline pins, etc.) Flight attendants with time on their hands would strike up conversations with passengers. I don't know that anyone has tried to quantify this... I bet there is something in the literature but if not quantifying quality changes would be a nice project for a bright student. First place that I would look is passengers per airplane, i.e. seat room. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: 3 questions on Buridan's Ass
In the Austrian economics tradition the point of the argument has always been that indifference is impossible to observe in action. Choice always implies ranking - thus indifference curves are verbotten. See Bryan's SEJ article for a critique. Note that the Austrians, i.e. those who take this sort of position on indifference curves, have never been able to show that the indifference curve argument leads to false conclusions. See again Bryan's article and, should you be interested, my note on the preferred tax type in the Review of Austrian Economics (v.5, #2). The argument may be used differently in other traditions. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
real free market environmentalism
This came across my desk today, thought others might be interested. Alex FREE-MARKET ECONOMY ON CORAL REEFS Market forces appear to be at work on coral reefs, where fish that perform a cleaning service risk losing customers if they get sloppy. Scientists studying these fish conclude that healthy competition is sometimes important in ecology, helping to stabilize co-operation between species. Researchers have seen a free-market economy at work in the interactions between cleaner wrasse and their client fish on the reefs of Ras Muhammad, on the Red Sea coast of Egypt. The cleaners can cheat in this transaction, feeding on mucus or even the tissues of the client instead. o Client fish regularly visit cleaning stations where the wrasse nibble parasites from their bodies. o Fish were less likely to visit stations where they had previously been cheated or had to wait in a queue. o By exercising what amounts to consumer choice, the client fish promote healthy competition between all the cleaning stations, and this ensures good quality service. Although predatory client species can attack the cleaners if they feel cheated, non-predatory clients are powerless to threaten revenge. So their arrangement would seem doomed -- cheating should become widespread, so long as the cleaners remove just enough parasites to keep clients coming back for further sessions when they get desperate. But market forces keep the cleaning standards high. Source: Jon Copley, Coral Reefs Operate Free-Market Economy, New Scientist, April 28, 2002, and Animal Behavior (vol. 63, p 547). -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
misc
Hi Bryan, Thanks for your hospitality. I regret that we did not have the opportunity to speak more but time had to be allotted to the big wigs. Most important benefit of being at GMU I did not know before the trip? All economist DD game - excellent! Cheers Alex
Re: misc - ignore!
I am a dunce and I have inadvertently given Bryan's secret away. I promise, however, not to reveal the names of the other participants (especially if they send me large wads of cash - you know who you are.) My apologies to all. Alex Alex Tabarrok wrote: Hi Bryan, Thanks for your hospitality. I regret that we did not have the opportunity to speak more but time had to be allotted to the big wigs. Most important benefit of being at GMU I did not know before the trip? All economist DD game - excellent! Cheers Alex
Unselfish Capitalism
This came across my desk - I thought others might be also interested. Alex UNSELFISH CAPITALISM Capitalism has been criticized for centuries for its single- minded pursuit of self-interest. It is often claimed that pastoral and agrarian societies foster social cooperation and sharing, while industrial societies promote materialism and greed. But scientists who actually tested these assertions found that people raised in market economies are more trusting and willing to share than those raised in most preindustrial cultures. Over two years, 11 anthropologists and an economist conducted experiments in diverse cultures, including three hunting-and- foraging societies, six slash-and-burn agricultural communities, four nomadic-herding groups and two farm villages. People from these groups played the same economic games that had been extensively tested on college students in developed countries. In an ultimatum game, a player divided a sum of money (or cigarettes or other valuable goods) between himself an anonymous partner, who could accept the division -- in which case both received that amount -- or reject it, in which case neither got anything. The results reveal concepts of fairness and the degree of trust. o Peruvian forest dwellers, for example, usually offered 15 percent to 25 percent of the pot -- and responders agreed to nearly all offers, even below 15 percent. o Hazda hunter-gatherers made similarly low offers, but responders usually rejected them. o In contrast, American undergraduates usually tender 30 percent to 40 percent of the total, and most responders reject anything below 20 percent. o And in another trust game, people in a rural Missouri town usually ended up with equal shares. Industrialized nations promote a stronger ethic of fairness than do many of the traditional societies, says anthropologist Joseph Henrich. And, suggests economist Colin Camerer, The opportunity to trade in economic markets may create social expectations about sharing and trust that exist over and above individual decisions and motivations Source: Bruce Bower, A Fair Share of the Pie, Science News, February 16, 2002. -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Grade Inflation
The real problem with grade inflation is not the reduction in information that might be used by employers. As with regular inflation, the real problem is that grade inflation is not uniform - some departments and some professors are more subject to inflation than others. In particular, grade inflation tends to be much worse the softer the science: grades are almost always significantly higher in art, cultural anthropology, and english than in math, physics and economics, for example. And within departments it is well known that some professors grade easier than others. The effect of this is to draw students away from math, science and economics and towards the softer social sciences. Similarly, within departments students are drawn away from harder graders and towards softer graders. Budgets go where students go! Thus grade inflation causes a *misallocation of resources* (measured in student time or in budgets.) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Grade Inflation
In response to Fabio's comments: If you just start by saying what's the optimal number of math or english PhDs then obviously you are going to get nowhere. A better procedure, however, is to say that the current situation is non-optimal if it is based upon arbitrary factors. In particular, the distribution of students and budgets can't be optimal if it is based on the fact that some professors and disciplines arbitrarily grade easier than other professors and disciplines. Thus, rather than say I think there should be more math and science degrees I say I think the choice of what degree to puruse should not be based on an arbitrary grade inflation factor. Alex P.S. I very much doubt that such a system is second-best optimal. Here is a test for all such arguments (in this and in other contexts). If all disciplines and professors graded on a common scale would anyone argue in *favor* of grade inflation in English? I seriously doubt it - thus such ex-post rationalizations should be given little weight (even - perhaps especially! - if they come from exceedingly clever people like Fabio). P.P.S. I was not reading the NYTimes this morning but I did find what Fabio was referring to, an article by Valen Johnson. Available here: http://www.nytimes.com/2002/04/14/edlife/14ED-VIEW.html Several years ago in Statistical Science, Johnson proposed a grading scheme that would overcome the grade inflation problem. You can find the paper on his home page, but to make a long story short the essential idea is to downweight an A from a professor/discipline that gives all As (and thus provides little discriminating information) and to upweigh an A from a professor/discipline where there are As and Cs. I was enthusiastic about Johnson's proposal when I brought it up on this list some time ago. There was some discussion then, I think Robin had some critiques - check the archives. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Grade Inflation
Jason wrote This could (and in my observation does) mean that non-academics jobs are looking for other characteristics that are hard to test for- good people skills and leadership ability. Yes, as I tell my children, Son, don't worry about those grades - even a C student can become President one day. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: economic history question
Most observers have always been very surprised that there never was a big demand for socialism in the United States - even at the height of the depression. The New Deal was very much driven by the Executive branch not by Congress - thus I think things could have been quite different had we not had FDR. Alex P.S. Note also that many of the programs of the New Deal had the effect of increasing and lengthening unemployment thus the safety net of unemployment insurance could be seen as more of a safety net for the New Deal than for capitalism. -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Securities analysis
There are actually two issues 1) Is the market efficient? and 2) Can someone, using public information, systematically earn higher returns than those on a suitably risk-adjusted market basket? These issues are related but they are not the same. If the market is efficient the answer to the second question is certainly no. If the market is inefficient, however, it does not follow that the answer (in practice) to the second question is yes. Some types of inefficiencies such as two different prices for the same good can and will be eliminated through profitable arbitrage but when arbitrage is not possible eliminating market inefficiencies is risky. Even if you knew that X was a bubble, for example, you can short the stock but you then run the risk of the bubble flying much higher before it bursts. Essentially, the failure of Long Term Capital Management was precisely this problem - right theory but they ran out of capital before they could profit from the elimination of the inefficiency. In addition, we must also face the fact that if the market is inefficient due to investor irrationality it is very likely that we (yes, you and I) and our agents are also irrational in some respects. Thus if we care about issue 2 then pointing to bubbles of the past or arguing that people are irrational or greedy etc. misses the point. The real test of issue 2 is, Do portfolio managers/stock picking newsletters or other active strategies outperform a passive index strategy? And the answer to this question is a resounding NO. Taken as a group and taking into account transaction costs the active strategies actually *underperform* the indexing strategy. I don't know anyone who disputes this finding - note that whether this is because the market is efficient or portfolio managers are just as irrational as everyone else is open to question but not relevant to question 2. At any given time, of course, some portfolio managers beat the market but, again as a group, no more than you would expect by chance. Of course there are a few outliers, Warren Buffet and Templeton, for example. It's quite reasonable to mark these down as a chance but my own view is that there are a few geniuses out there and that Buffet is to stock picking what Michael Jordan was to basketball. I no more think that I could duplicate what Buffet does than I could duplicate what Michael Jordan does even if Jordan wrote a book explaining how he plays the game. (Indeed, careful observers of Buffet find that how his investing decisions cannot be explained soley by reference to his rules of investing.) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Securities exchanges shutdowns
Robin Hanson wrote: Alex Tabarrok wrote: Yes, in 1968 the exchange closed on Wednesday's in order to deal with backlog. French and Roll (1986) find that variance of stock returns on days when the market is closed is much lower than on days when the market is open which suggests that trading itself, rather than say information transmission, generates variance. Couldn't we interpret this as trading *creating* information, which is then transmitted? What's the value of this created information? In other words, what sort of information could be created solely by trading that we would still want incorporated into market prices? i.e. does this trading information help the market to achieve efficiency? It's difficult to come up with a story where this is true. Markets are supposed to reveal information that is already out there. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Securities exchanges shutdowns
Yes, in 1968 the exchange closed on Wednesday's in order to deal with backlog. French and Roll (1986) find that variance of stock returns on days when the market is closed is much lower than on days when the market is open which suggests that trading itself, rather than say information transmission, generates variance. See French, Kenneth and Richard Roll. 1986. Stock Price Variances: The Arrival of Information and the Reaction of Traders, Journal of Financial Economics, 17, September, pp. 5-26. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: long-lasting cars
Gustavo wrote Let's assume for a minute that: (A1) It costs the manufacturer the same $8 000 to produce 1 long-lived car as it costs them to produce 1 short-lived car. (A2)...Since the manufacturers' profit per unit is more or less proportional to the cost of production (call this assumption A3), (P1) when production becomes very cheap, the manufacturers' profits can get smaller, even if the number of sales is increasedDoes this make sense? --- No, it doesn't. Consider first the easier case of competition. In a competitive situation, as the auto market surely is, an auto maker with access to such technology would certainly use it to get a jump on the competition and grab market share. The fact that the long run implications of this would be to reduce total auto maker revenues is irrelevant in a competitive situation (and a common occurence). Now consider the monopoly situation. At first this seems like a better candidate but it isn't for the reasons given by Landsburg in John Hull's post. Think about it this way. Suppose that all sales are up-front so you can either buy 1 long lived car today which will last 20 years or you can buy 2 short lived cars today each of which will last 10 years (the second car will be in storage for the first 10 years). Even assume that consumers are indifferent between these two purchases - say they are willing to pay $20,000 either way. It's still the case that profits are much higher selling the long lived car = 20,000-8,000=12,000 rather than the two short lived cars =20,000-16,000=4,000. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Airlines Again
Fabio mentioned the long string of unprofitable airlines in an earlier post. The Feb. 17, 2002 NYTimes Magazine had a good piece by Rich Lowenstein this. Among others, the following points caught my eye: One reason the major airlines find themselves in this predicament is that they use huge amounts of *fixed* capital - wide-body jets go for $100 million each and can't be readily liquidated. They also depend on a skilled labor force. The two problems can exacerbate each other. Since airlines cannot afford to let planes sit idle, they can ill suffer strikes. That makes their unions unusually powerful. ... [Comparison with other industries with high fixed costs like steel but replaceable workers or skilled works but little fixed capital as with Microsoft]...Airline pilots (and mechanics too) are not so replaceable. Stringent safety codes strengthen unions further by introducing stickiness into the rules that govern hiring and firing... An interested related point made later is that Pilots make good money but lack the free agency of other professionals. If a United pilot moves to Delta or American, he loses his seniority and most of his pay. This makes him utterly dependent on the union - and makes the union a potent force. Alex P.S. A recent piece in Wired (Mar 2002 issue) on the much lower costs of deregulated and de-unionized airlines in Europe is a good companion piece (not online yet but later this month will be available at http://www.wired.com/wired/archive/10.03/). Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Campaign finance changes
(In response to Gustavo) The real problem is not how to get money out of politics but how to get politics out of money. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Campaign finance changes
Campaign financing regulations inevitably protect incumbents - incumbents already have huge advantages so challengers need relatively more money to compete, thus campaign finance laws raise rival's costs. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Economics of rank vs. Economics of the most money
Concerning Robin's point about the details of the relative coonsumption models, Steven Landsburg made the same point in a review of one of Frank's books in The Independent Review http://www.independent.org/tii/content/pubs/review/TIR42Landsberg.html Here are a few excerpts But its hard to refute Franks story decisively, because his story keeps changing. First he says we want to consume more than our neighbors; then before long he says we want to earn more income than our neighbors. Those are different things, but Frank flits from one to the other as if they were the same. As for why we care about relative consumption (or relative income) in the first place, Frank is equally slippery. Are we psychologically hard-wired to care about relative position for its own sake? Or do we care about relative position because it helps us compete for goodssuch as matesthat are distributed outside the economic marketplace? Either hypothesis could be the germ of a respectable theory, and each of them probably contains an element of truth, but they are surely distinct hypotheses, with distinct implications; and its not always clear which one Frank has in mind. Frank is at his most incoherent when he asks the question of Why now?... (I actually think this is a little hard on Frank who is working on new territory. Perhaps a kinder response would be that models need to be carefuly distinguished and appropriately tested.) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Organ shortage - a tragedy of the commons
Two notes on organ donation the second more economic than the first. Organ donation is not prohibited by Hinduism. There are in fact a number of Hindu stories that lend support to organ donation. Economists typically see the organ donation issue as a problem of price controls (price fixed at zero creating a shortage) but this is not the only economic perspective. In a paper in my book Entrepreneurial Economics: Bright Ideas from the Dismal Science (www.EntrepreneurialEconomics.org) I suggest that the problem can also be seen as a tragedy of the commons. Today, by law, everyone has equal access to an organ should they need one - i.e. the supply of organs is treated as a commons and the commons is therefore ill-maintained and stocked. Now what is the solution to a commons problem? - privatize it. I suggest that the only people who should be entitled to an organ are those who sign their organ donor cards - the supply of organs thus becomes the property of the organ donor card signatories. Alternatively conceived, signing your organ donor card is the premium one pays for a policy that offers insurance in case one of your organs goes bad. Some advantages of this no give - no take rule is that most people think it is moral and fair - unlike the reaction of most people to buying and selling organs. In addition, the policy will increase the supply of organs because there is now an incentive to sign your organ donor card. Indeed the policy is essentially as efficient as pricing organs. Some quick responses to obvious objections - children wouldn't be restricted until they had a choice to sign their cards at say age 16. A 1 year moratorium would cover last minute signers. Medical criteria would continue to play a role and rather than literally forbidding non-signers to get an organ you could give points to those who had previously signed their organ donor cards that moved them up the list. Some other elements are covered in my paper. Entrepreneurial Economics also includes a paper by Barnett, Blair and Kaserman that is one of the best pieces on pricing organs. Alex Tabarrok -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Organ shortage - a tragedy of the commons
The organ shortage issue can be broken down and analyzed from a number of different perspectives. My view is that the key issue is *not* the supply of organs per-se but rather the *supply of people who sign their organ donor cards*. Take care of this and the other problems are of second-order. Most people express strong support for organ donation but nevertheless do not sign their organ donor cards. I believe that a small incentive at the organ donor signing stage could alleviate the organ-shortage problem. The no-give, no-take system provides such an incentive and at the same time changes how people think of the supply of organs. In the no-give no-take system those who sign their organ donor cards would belong to a special club the club of people that get special preference in receiving organs. Signing your organ donor card is the ticket into the club. Now if we think of the total value of organs to recipients and the total costs of signing the organ donor card the no-give, no-take rule is essentially efficient in maximizing net revenues. I qualify by saying essentially for the following reason. The plan is about increasing the incentive to sign the organ donor card and not about allocating organs. Thus, suppose a rich person is willing to pay someone higher up on the list to trade places with them or is willing to pay someone near death to get their organs. In a technical sense, allowing this would be an increase in efficiency that would be allowed for by a pure market in organs. Most people, however, find this distasteful and the arguments for efficiency as a normative guide are, in this context, quite weak. Thus, I am not that bothered by the failure of the no-give, no-take rule to be efficient in this context. The same thing goes for inducing people with especially good organs to sign - I think this is a second (or less) order problem. An analogy is to the tragedy of the commons. You can get efficient results by parceling out a commons in individually owned freehold plots but this is not necessary. Ostrom and others have shown that property held in-common areas can be well maintained if there are incentive/exclusion systems so that only people who do not abuse and/or contribute to the commons get access to the commons. Villages, for example, can maintain highly functioning commons without resort to individual ownership if incentive/exclusion systems exist. The point here is that even if you don't get 100% efficiency collective ownership with incentive/exclusion systems need not be a tragedy. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Organ donation
Every major religion supports organ donation. Alex
Restaurants Again
Several weeks ago Fabio pointed out a novel reason why restaurants might choose long lines intead of higher prices - the longer lines induce people in the restaurant to eat faster. This is an interesting suggestion but it misses quite a bit of the phenomena because it applies (presumably) only to physical, on-premises waiting. Many fine restaurants, however, have long waiting times to get a reservation. The French Laundry, for example, is perhaps the best restaurant in America and the wait to get in is 2 months or more! (2 months for a normal day - much longer if you want to book for Valentines or something like that.) This sort of waiting seems much more amenable to a Becker type explanation involving non-linearities and prestige factors. Alex Tabarrok
Re: Life Expectancy and Immigration
You can find lots of data on life-expectancy and health broken down by age, race, hispanic origin and much else at tbe National Center for Health Statistics http://www.cdc.gov/nchs/about.htm after a quick search, however, I couldn't find anything on country of birth, let alone age of immigration per se. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Spam: Legal, economic or technical problem?
There are some good potential economic mechanisms using micro-payments. If it costs even a nickel to send an email that would greatly reduce spam. Money is not even necessary - suppose that when an email was sent a response was sent back saying in order to accept this email you must factor this number and send me back the factors - if the factorization took even a few micro-seconds that would not be an issue for non-spammers but would shut spammers down. Alex Tabarrok
Re: Photographers
Sure, if you take your own pictures you get the negatives. But if you hire a profesional photographer for say a wedding or if you have a portrait done they are insistent on keeping the negatives. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Photographers
Tbe adverse selection story, really a price discrimination story, assumes monopoly power in the photography market. But there is free entry into photography and hundreds of photographers easily available in the phone book thus price should fall to MC which implies that photographers should be willing to give up the negatives for a penny. John-Charles's answer (keeping the negative is a form of quality control necessary for the photographer to keep and maintain a good reputation) is more promising. It could be the case that the cost of the potential loss in reputation to the photographer is worth more than the negatives to the buyer and thus no trade is made. The main question I would have is whether quality of print versus quality of photograph is that difficult to ascertain - but I'm willing to go with this for now. JC's answer, by the way, is consistent with price being at marginal cost. Thus an important test suggests itself - when the photographer has your negative is price above marginal cost for developing a print - i.e. is the price higher than if you had the negative and went elsewhere? I had always assumed that it was but JCs answer suggests I should investigate further. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Only Economists Tell the Truth?
I think Robin exaggerates the extent to which social science would be easier if we could just ask people why they do things. To be sure, there is a tradition in economics that survey results about intentions and ideas (as opposed to age and income!) are not to be trusted. I agree this tradition is overdone and am happy to see work such as Bewley's on why firms hold wages fixed etc. Much of economics, however, concerns effects which are no part of anyone's intention - hence Adam Smith's metaphor of the *invisible* hand. For macro effects of micro behavior there is no point asking people what they intend. No firm intends to push price to marginal cost, no firm intends to use inputs in just such a way that social value of those resources in alternative uses is minimized, no investor intends to impart his knowledge into prices - but this is what happens. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Survivor - game theory
Anyone see survivor last night? When asked to pick a number between 1 and 1000 (presumably the closest number to the one in the questioner's head would win her vote) the first contestant chose 3 and the second chose 886! Incredibly poor strategy on both contestants part especially when a million dollars was at stake. (For students and others on the list wondering what the correct strategy is note that this game is the same as the median voter theorem or Hotelling's two firm location problem. If the first person chose 3 the second person should have chosen 4 thereby winning if the number was 4 or more. Thus, what should the first person have chosen?) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Only Economists Tell the Truth?
Here is another reason, that just occured to me, why survey questions may not help us as much as we would like even on those questions where they are relevant. In economics we are typically interested in what matters at the margin and this may be difficult to discover in a survey question. Take Robin's question about why people go to school. The answer could truthfully be because my friends are going/because my father said I should etc. while at the same time it could be also be true that an increase in the wage rate reduces the number of people going to school. It seems to me that this may be difficult to pick up in survey questions though I suppose we could ask questions like - What factors would raise the probability that you would attend/not attend school? - this sort of counter-factual, however, is a more difficult question to answer than the factual about why you did what you did but the answer to the latter question is an average while we are interested in the marginal. Alex P.S. Yes, economists are inconsistent. -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Austrians and markets
Hello? If the history of the twentieth century is not an undeniable argument against the hypothesis that the market for social science is not efficient then what is? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Austrians and markets
Sorry, double negatives confuse me. I mean of course that the history of the twentieth century (Marxist-Leinism, communism, fascism etc.) is an argument against the efficiency of the market in social science. alex Alex Tabarrok wrote: Hello? If the history of the twentieth century is not an undeniable argument against the hypothesis that the market for social science is not efficient then what is? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Taliban Tipping Game
Here is a chunk of William Saletan's analysis from Slate, It is very supportive of Fabio's tipping interpretation. http://slate.msn.com/?id=2058705 Alex In the north, the Taliban's enemies failed to advance. In the south, they failed to speak up. The American press suggested that the war had bogged down, that the United States had underestimated the Taliban, and that the U.S.-led coalition was falling apart. Complaints of futility and pointless bloodshed grew into an outcry to halt the bombing. Then, last Friday, Mazar-i-Sharif fell. The Taliban's aura was punctured. In accelerating succession, other cities fell. War can't move that fast. It takes days to move your own tanks and troops, much less to push back the enemy's. But even in Afghanistan, the information age has arrived. What traveled from city to city in minutes wasn't the armies of the Northern Alliance, but the news of the Taliban's defeat. Civilians and Taliban soldiers who had resented the regime lost their fear of it. Those who had supported the regime lost their confidence in it. Taliban armies didn't lose their cities in battle; they defected or fled. Each flight or defection, in turn, provoked others. Sell, sell, sell. Now the rout has turned south. Pashtun warlords who refused to stand up to the Taliban a week ago are rushing to claim pieces of its carcass. Some Taliban troops fleeing cities are being wiped out by U.S. bombers. Others are regrouping in the mountains, forgetting that they lack the supply lines and popular support to win the kind of guerrilla war they waged against the Soviets. The rest, according to today's New York Times and Washington Post, are fading away, disappearing, vanishing, dissipating, becoming phantoms, and returning to their home villages. Morale matters. The army that loses self-confidence and the confidence of its people loses the war. -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: subsidies for renewable energies and the environment
I've often made the point that the main benefit of subsidies for renewable energy sources is to increase price competition on OPEC thereby resulting in lower oil prices and greater oil consumption. I like the irony. More generally, the economics of subsidizing a substitute for a monopolized product that you want *less of* is an excellent topic for research. The model I had in mind above is one where OPEC limit prices at the profit point of its substitutes. There are other ways of modeling how OPEC behaves, however, and its not obvious that prices fall under all of these. Taking for granted the wisdom of trying to increase renewable energy sources (I'm skeptical), I suspect that for a variety of reasons taxing the monopolized product is a much superior strategy to subsidizing the substitute. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
FAQ: Where Should I Go to Graduate School?
The question, Where should I go to Graduate School? is a common one on the armchair list. In May of 2000, before the list was archived, there was an extensive discussion of this question under the subject heading Graduate Studies. There were some very thoughtful responses that deserve to be archived and remembered for use by others. I have collected in this email what I thought were the best responses. My own response was one of the earliest and begins next. Alex - The most important things to know about graduate school in economics are a) you are better off getting an undergraduate degree in math than in economics and b) holding all else equal, it is much easier getting a job coming out of a top-ten graduate program than it is coming out of a non top-ten program. Thus, if you want to go to graduate school take at a minimum the following courses: multivariate calculus, linear algebra, statistics, and if it is offered econometrics and math econ. Other courses to think about are real analysis and mathematical statistics. If you cannot get very high grades in these courses sit in on them and do all the homework. There are a few departments, such as George Mason, where I attended, where it is possible to get a degree without knowing as much math as at other schools. But this is not such a comfort when you realize that to participate in the economics conversation you must be able to at least *read* math intensive journal articles (if you are very smart you do not necessarily have to be able to write a lot of math but you must be able to read it.) Thus you still have to learn math if you go to Mason but there are fewer people there to teach it to you than elsewhere. (I got most of my math econ training by taking courses at the University of Virginia.) Mason is also becoming more math intensive than it has in the past (a good thing in my view.) Note that Mason once had an edge in public choice analysis but public choice has now become mainstream and there are other departments such as Harvard and Chicago where a lot of public choice type work is being done. It would not be unusual to do such work in any major econ department. If your math is pretty good and your grades are good enough to get into a top twenty five program then that is where you should go. Failing that Mason is a reasonable choice especially if you are interested in teaching economics at the undergraduate level, going into policy work, or working for government. Alex Tabarrok Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED] -- Listen to Alex, he speaks wisely. My own two cents: If you are able to go to either Mason or a Top-20 program, your choice depends critically on time preference. You will have more fun at Mason while in graduate school, but your life after graduate school will be harder, especially if you want an academic job. Life is a tradeoff, sad but true. On the other hand, if the unpleasantness of a Top-20 program means you would never finish anyway, coming to Mason is a free lunch of sorts. Better to finish at a place you like than be a career student at a place you hate. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] - I'm not an economist, but I've taken graduate courses in economics at Berkeley and Chicago and many of my personal friends are economists and graduate students in the field. Here is my advice: 1) If you want an academic career, the higher ranked the school the better. Unorthodox schools like GMU may have interesting curricula, but little social capital. Academic careers are very often prestige driven. Jobs at top schools are often acquired through social networks *in addition* to a publication record. 2) Higher ranked schools tend to be places with big research projects. It is easier to get skills while working in research groups. This leads to publications and the accumulation of skills - empirical analysis, writing for publication, etc. 3) If you want a career outside of academia, the school rank matters less. They won't care if you know what a fixed point theorem is. They will care that you have some basic skills which can be acquired at most places. 4) The more math you learn, the better you will feel. I'd recommend knowing some real analysis, linear algebra, multivariable calculus and if you school teaches it, some measure theory. In statistics, you should understand classical hypothesis testing, OLS and some of its variants. It might help to learn assorted applied math like linear programming or some basic differential equations. In short, at the top programs you should have the background of a strong math major at a solid undergraduate school. 5) Only go to a less prestigious
Re: Tax with positive growth effect
Holding spending constant, it is certainly true that some taxes are better for growth than other taxes. To summarize a large literature taxes on capital tend to be very bad for growth because of positive externalities associated with capital, taxes on income are better and something like a consumption tax is best for growth. One of the best paper written in recent years (IMHO) is on the subject of taxes and growth: Ohanian, Lee and Thomas Cooley. 1997. Postwar British Economic Growth and the Legacy of Keynes, Journal of Political Economy , vol. 3, (105), 1997, pp. 439 472. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Urban Planning
Brian, The first idea that Since they won't be living in the places more than 5 or 10 years they don't care if the place is ugly to most people or shoddily constructed. This leaves the rest of the population with only ugly and shoddy houses to choose from when they eventually need to move. is complete and utter nonsense and, if an accurate representation of what your professor said, shamefuly ignorant. As has already been pointed out people certainly care about the resale value of their housing and that means they implicitly care about the value of their house even into the far future when they will not be living in it. This doesn't mean that no ugly or cheap (not shoddily) housing will be built. Sometimes it is better to build cheap and ugly than expensive and beautiful and the market will supply appropriately. The prisoner's dilemma idea regarding neighborhood improvement is a real, if not overwhelmingly important problem. The most difficult example is where improving the neighborhood requires a concerted effort - this is usually not in things like painting but in controlling crime, pushing drug dealers out of houses, taking control of the neighborhood etc. - lots of things could be said here about the slow extension of the boundaries of good neighborhoods (gentrification), privatizing streets (as in St. Louis), organizing neighborhood watches and crime patrols etc. There is no easy solution. Perhaps the best answer is not to get into this situation in the first place (on which see below). But it is certainly false to think that this is a situation in which government is obviously superior to voluntary processes. The fact that what kills a neighborhood is usually lack of crime control should indicate that clearly eneough. On building new developments to overcome these problems see the following recent article from The Economist. The Independent Institute and the University of Michigan Press will also have a book out on these sorts of issues, both historical and contemporary, in the new year callled The Voluntary City edited by myself, David Beito and Peter Gordon (who is at USC). Best Alex -- AMERICA'S NEW UTOPIAS Private housing associations increasingly lay down the laws that middle-class Americans live by. What are they doing to the country? HEAD north out of Phoenix, Arizona, up the I-17. Drive past the signs for Happy Valley Road, Carefree Highway and, less auspiciously, one advising you not to pick up hitchhikers because you are passing a federal prison. Eventually you come to one for Anthem by Del Webb. Anthem feels more like a luxury holiday resort than a town. It includes a water park, with Disneyesque water slides, a children's railway, hiking trails, tennis courts, a rock-climbing wall, two golf courses, several spotless parks, a supermarket mall, two churches, a school and, for those who want a little more security, the Anthem Country Club, a gated (and guarded) community. Anthem, which is planned to have 12,500 homes, opened in 1999. Its houses and roads look spotless. One reason for this is that everybody who buys a house in Anthem has to follow certain covenants, conditions and restrictions (CCGBPRs), governing everything from the colour of your house to whether you can put your car on blocks outside it (you can't). Everybody in Anthem, except the construction workers, seems to be white. Anthem sounds like an exclusive enclave for the rich. Far from it: homes start at a distinctly modest $155,000. Even the residents of the Anthem Country Club hardly seem posh. They tend to laugh at the rules, regarding them, like the long commute to Phoenix, as part of the price. Why did one young mother come here? Because it's safe, because there are activities, because it's, well, like us. Indeed, Anthem is not bucking a trend, but joining it. In many of the fastest-growing parts of America, development is being driven by master-planned communities of one sort or another. In big cities half the new home sales are in association-managed communities, according to the Community Associations Institute. Altogether, some 47m people--one in six Americans--live in 18m homes in 230,000 communities and pay around $35 billion in fees every year. Around 1.25m people serve on community-association boards. Nowadays, whoever you are, there is probably a community planned with you in mind. In Nevada, a 55-acre community called Front Sight, featuring streets with names like Second Amendment Drive and Sense of Duty Way, is being built for gun enthusiasts (people who buy an acre plot get lifetime use of the 22 planned ranges, an Uzi machinegun and a safari in Africa). In Baton Rouge, Louisiana, one gated community seems to have been taken over by black rap stars. In poor areas of Chicago, residents have set up gated communities to ward off crime. Though most of these places are in the west and the south, they crop up all over the country. Legally
Re: Signaling
*Warning* the following message contains shameless promotion. Milton Friedman, Armien Alchian and William Baumol recently blurbed a book that I edited that is forthcoming on Oxford University Press called Entrepreneurial Economics: Bright Ideas from the Dismal Science. I would like to say that Friedman, Alchian, and Baumol are my friends - I certainly like the idea that people might think they are my friends - but in point of fact none of them would recognize me on the street, they are just distinguished economists who know a good book when they read one (and who were kind enough to give me some of their time and reputation.) I agree 100% with Bryan by the way who writes The better your names, the the better you can expect the book to be.! :) Quite seriously, there is real information in blurbs especially when they come from people with good reputations. Don't worry I'll be sure to tell you more about my book when it appears sometime early next year. :) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: 2001 Economic Nobelists
Stiglitz would have liked to get the prize for the Modigliani-Miller theorem but that one was already taken. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Friedman Prize
Speaking of prizes, Cato has just announced a biennial Milton Friedman Prize for the Advancement of Liberty. The award will be a cash prize of $500,000 to one individual for significant achievement in the advancement of liberty. The first prize will be presented May 9, 2002. Any predictions/wishes/thoughts? Note by the way how far things have come since the early days of say Mont Pelerin when there were some 8 democracies left in the world, socialism was advancing everywhere, and people like Friedman and Hayek were universally thought of as cranks. Makes me optimistic. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Disaster Raises Happiness, Trust
Why not deny the empirical fact - given all we have for data is a second-hand report about a newspaper column! Indeed, the ease with which the clever people on this list are able to generate explanations that go either way seems to me to be a bad sign for evolutionary psychology. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Disaster Raises Happiness, Trust
Bryan Caplan wrote: A lot of Soviet citizens, similarly, (retrospectively) claimed they were happiest during World War II, when something like 1-out-of-8 perished! Selection bias! Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Airlines
The President has authorized some 15 billion dollars to bail out the airlines and now travel agents and a host of others are asking for help also. Question: Is there any economic defense for this sort of action? After all, if the demand for air travel has fallen then isn't the optimal response to reallocate resources from the airline and related travel industries into other industries? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Self-financing Terrorism?
The San Francisco Chronicle reports today that there was an unusually large number of puts placed on United and American airline stock in the day before the terrorist attacks. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/09/18/MN63703.DTL Apparently, strong-form efficient market theory sometimes holds. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Excessive drinking
When a good is made illegal consumers react by squeezing more consumption into a shorter period of time in order to minimize the chances of getting caught per unit of pleasure. Thus, it is a common observation that adults drink more often than teenagers but in less quantity (Thus, I have a glass of wine two to three times a week. Even binge teenager drinkers probably binge only once a week.) This idea is the consumer side equivalent to the observation that prohibition increases the incentives of seller's to push harder drugs (more dollar per oz thus reducing the chances of being caught). Alex Edward Lopez wrote: In a Forbes article last year, a professor of health at Indiana University notes that since the increase in the legal drinking age to 21 (1987), total amount of alcohol consumed dropped but the incidence of EXCESSIVE drinking increased among 18-20 year olds. 1. any takers on why? 2. is a forbidden fruit argument consistent with economic rationality? Ed. Edward J. López Assistant Professor Department of Economics University of North Texas P.O. Box 311457 Denton, TX 76203-1457 Tel: 940.369.7005 Fax: 940.565.4426 NEW EMAIL: [EMAIL PROTECTED] Web: www.econ.unt.edu/elopez
Re: help, please
Marc, Look at Kelvin Lancaster's old book Consumer demand; a new approach also do a search on econlit looking for product characteristics and demand, you should come up with quite a bit of recent material. I have also seen the Dixit-Stiglitz utility function adapted for this purpose, although it may be too restricitive for what you want. The literature on hedonic prices looks at how to estimate such demands empirically. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Argentian Monetary Economics
A recent article in the NYTimes raises some interesting issues in monetary economics. (Might be fun for class discussion.) The article has been emailed to this list under separate title. -- Provincial governments in Argentina are short of pesos so they are paying their workers in patacones which are bonds that pay-off in dollars in one year at a 7% interest rate. (It's somewhat unclear whether there is a general shortage of cash, because of the withdrawal of U.S. investment funds and sticky prices (?), or whether the issue is that due to a recession the local governments simply have less revenues than expenditures.) The governments tried to borrow in pesos internationally but failed. Presumably they can't borrow nationally either. Can the bond scheme possibly work in this situation? It seems highly unlikely because someone who accepts patacones is really lending the government money but we already noted that international and national financial markets are not willing to lend the government money. At best, it seems that the patacones are really a way of approaching a particular set of lenders, those who most need the government but who may not be liquid. That is, the workers who can't find other jobs may accept the new currency and the stores that rely on the worker's businesses may accept it because they too have few other choices in the short run. But if the financial markets are correct it seems that sooner or later the bonds will be repudiated (paid off at less than par). Thus the scheme is really a way of taxing those who have the fewest alternatives to government employment/expenditure. Comments? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: lobbying as a public goods problem
Wei wrote "Reading Jonathan Rauch's _Government's End: Why Washington Stopped Working_ (http://www.amazon.com/exec/obidos/ASIN/1891620495) made me wonder how special-interest lobbies solved the public goods problem." See Mancur Olson's The Logic of Collective Action and The Rise and Fall of Nations, both of which are about precisely this question and the implications of the answer. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Voluntary Pollution Control
Bryan, You don't need altruism to get a crowding-out effect if people are initially contributing towards the public good as part of a Nash equilibrium. In the Nash Equilibrium people contribute to the public good but less than the optimum amount (the case where people contribute nothing is the limit of this model as the number of people get large. As this may describe pollution, the NE model may not be relevant - but it is something to think about). Now imagine some people have a change in preferences that increases their demand for the public good - thus they contribute more (they pollute less). *What happens depends on the preferences of everyone else for the public good.* Since more of the public good is being provided everyone else has an effective increase in income. How is this income spent? If everyone else is satiated in the public good then there is one-to-one crowding out. If the public good is normal then some of the effective increase in income will not be converted into the private good and public good provision will increase but less than the increase contributed by those whose preferences changed. If the public good is superior then there can even be an increase in public good provision above that provided by those whose preferences changed. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: California Power Crisis/Mises Cycle
Fabio, The situation in CA is, as I understand it, as follows. Wholesale electricity was sort of deregulated (more on the sort of later) but price caps remain at the retail level. Currently, wholesale electricity prices have soared and the two largest utilities PGE and So.Cal Edison are within days of bankruptcy having lost billions of dollars in the past couple of months. Fearing that they won't get paid generators don't want to sell to the two utilities which of course excerbates the problem. Short term problem number one, therefore, is what to do about the bankrupt utilities. Now why have wholesale prices soared? A couple of reasons, CA has built no major new generating facilities in something like a decade but demand has increased dramatically becuase of immigration and computer technology (producer and consumer side). The regulations and NIMBY problems in CA are huge. It takes about a year to get a power plant up and running in TX and about four years and counting to get the same plant up and running in CA. Second, the neanderthal governor Gray Davis has talked about taking over the generators "statizing them?" and/or regulating them to death so now there is a huge regulatory risk and even fewer people are willing to build generators in CA. Electricity can be transported, of course, but the transmission lines are currently at capacity so that doesn't help. Add to this an increase in natural gas prices (which is used to generate electricity) and we have a crisis. (Note that some people say that the generators are gaming the system. I doubt that this is a serious aspect of the problem but even if it were it's more a consequence of the lack of generating capacity than a cause.) A couple of other things. Recall that retail prices are capped so we have the absurd situation of a shortage but little economizing at the consumer level! Also, and very importantly, the wholesale market "deregulation" came with a host of conditions. Most important of which seems to be that for "transparency" type reasons the regulators wanted to get all the buyers and sellers together in the "power exchange" which is a one-day-ahead spot market. The regulators, in other words, strongly discouraged long term contracts and they encouraged the utilities to divest themselves of generation capacity (the utilities went along with this willing, however, as I understand it and they still have considerable generation capacity left). The main discouragement was that utilities were allowed to buy futures but if the future price turned out to be higher than the spot price then the regulators could retroactively charge the utilities with being "imprudent" and fine them! With these incentives the utilities shied away from buying long, even though they could have bought 8 months ago at prices ten times lower than the marginal price today. The result has been that the average price of a kilowatt has risen to the marginal price, i.e. since most electricity is bought in the spot market and the spot market price has been pushed up due to the failure of supply to meet demand at the margin all units of electricity have been pushed up in price. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: California Power Crisis/Mises Cycle
Fabio, It's difficult to build a power plant in CA for the same that gas prices are higher here than anywhere else (special processing and additives are required in CA fuel) and you can't bring in a car from another state without it passing special CA tests, i.e. CA has long been hostile to power plants because of its strong environmental movement. The idea of forcing the private utilities into the day-ahead power exchange had something to do with "transparency." I think the idea was that if you let utilities and generators bargain themselves then they could cut deals which would rip the consumers off either purposively or because the regulators figured the utilities would make mistakes! In essence the idea of the PX was the combine a competitive exchange with central control and oversight of all transactions, the perfect Walrasian market. Don't forget also that the CA restructuring was a result of a complex political bargain between utilities, generators, environmentalists, consumer groups and others none of whom had creating a free market in energy as their goal. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
USPS hires FED EX
RE our discussion on the mails the post office has hired Fed Ex. http://www.washingtonpost.com/wp-dyn/articles/A43459-2001Jan10.html -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re:
What do you mean by "gauge for" international trade? (By the way, if you have read Krugman, Obstfeld, Appleyard etc. you are unlikely to get a better answer here but it will help if you make the question clearer.) Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Why not refinance when interest rates rise?
Robin, Note that you can't be better off "refinancing" since your payments continue to be $7000 a year - thus consumption never rises and your puzzle must involve an illusion! So where is it? Run your example in reverse. You borrow $70,000 at 10% paying $7000 per year forever. The interest rate then falls to 7%. You thus borrow $100,000 at 7% and, *following your logic*, you now take $70,000 of the new $100,000 and pay off your loan giving you a savings of $30,000. Great, but wrong! You owe the bank $7000 per year which at a 7% interest rate now has a NPV of $100,000 - you therefore must give the bank $100,000 not $70,000. No gain. The key is that the NPV of the $7000 per year is $100,000 at a 7% interest rate but only $70,000 at a 10% interest rate so *regardless* of whether you "refinance" or not the real value of your mortgage changes with the interest rate. Essentially, what refinancing does in your example is to reflect the real changes in nominal terms which otherwise would not occur. What you should do when the interest rate goes up is save more - that is the only source of gain. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Landsburg Column
Bill, As I read Landsburg the Klenow-Bils idea is that if at time 1 the rich own 100% more microwaves than the poor at a 25% higher price then at time 2 when the poor own 100% more microwaves than at time 1 the quality-adjusted price (unobserved) has fallen 25%. What they need to assume is that the quantity/quality price that poor and rich consumers face at time 1 continues to hold between time 1 and 2. My guess is that the assumption requires some sort of uniform technological improvement across the span of microwaves from low to high quality. (Probably also some homotheticity type assumptions about preferences). The examples you mention show that technological improvement is not uniform across quality types but does the tradeoff change so fast that the cross-sectional results are uniformative? Suppose, for example, that you reestimate the cross sectional quantity/quality price every five years - this is easy as there is plenty of data - then all you need is more or less uniform technological improvement over any five year span, which seems reasonable enough to me. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Software Patents
I do not want to get into a debate on the morality of patents - there is plenty of that in the Armchair archive. On the economics here are some notes and references written for another purpose which may be of interest. Patents can *reduce* investment in RD in *theory* as well as in practice. There are several ways in which this can occur. First, consider a single firm in an industry with many firms and suppose that the firms are competitive in the sense that patents compete with patents, i.e. the latest technology replaces the previous technology. Now consider a policy which makes patents harder to get. On the one hand this reduces the return to RD since fewer discoveries will be patentable but on the other any patented discover is likely to dominate the market for a longer period of time. That is, making a patent harder to get reduces the probability of getting a patent but it increases the economic life of the patent. Recall, the idea relies on a structure in which your patent competes with future patents. Thus, making patents more difficult to get reduces the probability that you will get a patent but also reduces the probability of competition from a competitor's future patent, conditional on you getting a patent. It can be shown that the second effect can dominate the first so that making patents more difficult to get actually increases RD. See Hunt, Robert. 1999. Patent Reform: A Mixed Blessing for the U.S. Economy? Federal Reserve Bank of Philadelphia, Business Review. Nov/Dec. and the same author's FRB of Phil. Working Paper. Both available on the net. For the first see the link below, for the second search under working papers at the FRB of Phil. site. http://www.phil.frb.org/files/br/brnd99rh.pdf Patents can also reduce innovation when one patent builds upon another. This is especially possible with business method patents. (Note the author refers to "Internet patents" while actually internet patents are merely the most obvious example of the larger class of "business method" patents.) Consider why ideas such as Newton's law of gravity are not patentable, one reason is that such ideas generate a host of other secondary implications, ideas and inventions which would certainly be reduced in number should the primary idea be patentable. Business method patents may be more like ideas than specific inventions. More could be said on this. See Bessen and Maskin "Sequential Innovation, Patents and Imitation" Working Paper available at http://www.researchoninnovation.org/patent.pdf and the short version at http://ksgwww.harvard.edu/iip/econ/bessen.html For evidence on the strategic use of patents, see the paper "The Patent Paradox Revised: Determinants of Patenting in the US Semiconductor industry," by Bronwyn Hall and Rosemarie Ziedonis available on Hall's web page at http://elsa.berkeley.edu/~bhhall/index.html More generally, it would be interesting to think of what sort of industries benefit from patents and what sort of industries are harmed and why? It's hard to see a large pharmaceutical industry existing without some patent protection. On the other hand there seems no reason why semi-conductors could not exist without patent protection as they did up until the mid 1980's (see the Hunt article). What accounts for these differences? Are there any principles involved which could help to improve the awarding of patents? Is it really a case of all or nothing? What improvements to the current system might the author recommend? One modest suggestion comes from Robert Merges see his paper "As Many as Six Impossible Patents before Breakfast" available at: http://www.law.berkeley.edu:80/institutes/bclt/pubs/merges/ In addition to public policy changes the author might want to think about market mechanisms. A few thoughts can be found in: "The Contractual Alternative to Patents" (with Roger E. Meiners), International Review of Law and Economics 1 (1981), pp. 227-231. On the issue of reform the author may also want to examine the excellent paper by Michael Kremer Kremer, Michael. 1998. Patent Buyouts. QJE. (Nov): 1137-1167. Another benefit of patents is the diffusion of information. Trade secrecy is an alternative to patents. Thus the gains from getting rid of patents may be less than believed if firms then invest more in keeping their ideas secret - thus, there will still be monopolies although not government granted monopolies. Second, it could even be the case that the public nature of the patent increases information diffusion enough to make patents superior to no-patents. Certainly, on the margin, this idea suggests that we should patent ideas which can be kept secret if not patented but not other processes, eg. we should not allow a patent on one-click buying since this idea could not be kept secret if there was no patent. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent
Re: More Election Statistics
Bill, I thought the recount that had been done so far was a machine recount in all of the counties - thus only yesterday was the last of the 67 counties reported. My understanding is that the hand recount in the four counties you mention has yet to be done and may not ever be done if Harris has her way. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
More Election Statistics
http://www.lasvegassun.com/sunbin/stories/archives/2000/nov/10/511018638.html -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Buchanan Palm Beach Statistics
Of the studies on the web page I noted this is by far the best and most comprehensive http://elections.fas.harvard.edu/ Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Buchanan Palm Beach Statistics
Bill, Regarding looking at the ballots, remember there are two issues of concern, the supposedly large number of Buchanan votes and the double-punched ballot - the latter has nothing to do with the former (i.e. the double-punched ballots are spoiled and do not contribute to Buchanan's total). My comments about the data not speaking was in reference to the actual Buchanan votes. Looking at those ballots might help if we could see what Senators and Reps these people voted for. Whether we should let an election be determined by an economist's evaluation of who a person really meant to vote for is another question. Alex.
Re: Buchanan Palm Beach Statistics
Alex, The real meaning of Arrow's theorem is that group choice is not *at all* like individual choice. You are correct that the theorem states that only a dictatorial choice function is consistent with Arrow's list of assumptions such as IIA. But the point is that when you abandon these assumptions groups can and will make choices that we would regard as irrational if they were the choices of individuals. The reason that dictatorship is the only choice function consistent with Arrow's other assumptions is that a dictator is an individual! On the point Dan made about there really only being two choices in this election. Well sort of, but if you place the election in the larger context of a two-stage process in which the parties choose candidates and then the voters vote - then Arrow's theorem applies full force. It's true that the voters aren't really thinking about aggregation issues but they do seem to have a sense that the "will of the voters" is out "there" if only we could count ballots correctly. While in actual fact any number of changes in the electoral system which would be equally democratic (eg. Borda, Approval Voting, Cumulative Voting, etc. etc.) could result in a *completely* different outcome. If voters understood this then I think they would be more open to the idea that what is important now is not that we count and double-count every last ballot again and again but rather that there be a quick end to the uncertainty. Here is a quote from some notes of mine on Arrow's theorem: "When an individual buys a quart of chocolate ice cream we have good reasons for thinking that he prefers chocolate to vanilla or strawberry ice cream. When a group of people buys a quart of chocolate ice cream we cannot make similar claims. Most of us know that groups don't have preferences and in this philosophical sense we know that it is illegitimate to say that the group prefers chocolate to strawberry ice cream. But the claim I am making is stronger. We might believe that groups don't have preferences in the strict philosophical sense yet also believe that group choice can be understood *as if* groups have rational (individual like) preferences. If the latter claim were true it would be a very useful fact to know. If we saw a group choosing apples rather than bananas and bananas rather than coconuts and if groups acted *as if* they had rational preferences we could predict that the group would choose apples rather than coconuts. Similarly, suppose we saw a group that has a choice of 33 flavors of ice cream choose chocolate ice cream. If groups acted as if they had rational preferences we could conclude that the group preferred chocolate to every other flavor of ice cream and we could *predict* that if offered a choice of say chocolate, vanilla, or stawberry the group would choose chocolate. Both of these claims are false under several common voting schemes. Arrow's Theorem shows that when choosing among three or more choices no voting system can eliminate these paradoxes." -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
women
In response to Ray, Non-working women are likely to have husbands who earn more than the husbands of working women (all else equal) - this says the probability of a woman working increases with a *decrease* in *husband* income. But the finding is that the probability of a woman working increases with an *increase* in the *sister's husband's* income. Two different results. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Assassination
In the presidential debates the other night, Harry Browne, the libertarian candidate (did you think I would waste my time watching Bush and Gore?), said that the way a free society would handle war is to offer a prize to the person or persons who assassinated the leader(s) of the opposing country. A prize (ala Longitude, see also Robin Hanson's work) of say 500 million should provide plenty of motivation to guards, wives, snipers etc. In this way, a much reduced defense force could be maintained and it would spare thousands upon thousands of innocent civilians who we today bomb and kill to try to weaken the leader's resolve. This principle seems entirely reasonable to me. Indeed, the only reason I can think of why we don't do this is that it would work so well that our own leaders would fear for their lives. But, as noted above, we slaughtered tens of thousands of Iraqi's in the Gulf War and continue to kill many innocent civilians through our embargo (also of course we subjected tens of thousands of US soldiers to possible death), millions died in WWII etc. - all this death just to protect a few leaders? That is surely monstrous - although it makes sense from the point of view of the leaders. Are there any good reasons for an anti-assassination policy? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Price discrimination
Amazon has backed down on its "price discrimination" scheme (and made thousands of dollars in refunds) discussed here earlier. Price discrimination in quotes because according to Amazon they were merely offering different prices on a random basis to figure out the profit maximizing point. This explanation actually makes more sense than the price discrimination scheme (different elasticities depending on what browser you use???). See http://www.salon.com/tech/wire/2000/09/28/amazon/index.html Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Deficit
Lawrence Summers and Brad De Long, among many others, are arguing that the productivity/investment/high-tech boom of the mid to late 1990's was caused by Clinton's reduction of the deficit. Summers and De Long basically argue that *all* of the deficit reduction went into investment. Neither gives any indication of Ricardian offsets and both are clear that what was good was *deficit* reduction (not spending reductions - of which there were none as far as I know). The Summers/De Long view is fast becoming the new CW, especially in the hi-tech business press. Yet, are the 1990s really a refutation of Ricardian thinking? It's well known that personal savings over this period have been falling, as Ricardian theory would predict. Comments from the armchair list? Anyone care to crunch the numbers? I'm not especially wedded to the Ricardian theory but I suspect nevertheless that DeLong and Summers are exagerating the evidence for the contra. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: reading recommendation
Let me second Bill's point. It's because decision heuristics are usually so useful that we can be lulled into following them when doing so is downright irrational! Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
AIDS/POLIO-Not Much Econ
List regulars may recall a side discussion that occurred some time ago on the possibility that polio vaccination loosed the AIDS epidemic on the world. As Robin pointed out the case is made in a big book by Edward Hooper. As I mentioned then, some samples of the oral polio vaccine from original batches in the late 1950's still existed. They have just recently been tested by three separate and independent laboratories and shown to be HIV free. Furthermore as Robin pointed out there was "a claimed strong correlation between where CHAT was given and the earliest HIV cases. But this correlation is only described via some maps. This cries out for a more formal statistical analysis..." According to the Economist (Sept. 16, 2000) a "closer analysis" (don't know if this is the same as Robin's formal analysis) suggests that the correlation is spurious. Thought you would want to know. Alex --- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: Harris
Bill, Putting aside interpretative issues, it seems that the model you ascribe to Harris is not very plausible as it implies a radical disconnect between child and parent culture. As I read you, you suggest child culture passes down from child generation to child generation and parents branch off into some other route never to be seen again. On the other hand, the model that Bryan and I see is that children are influenced by the surrounding culture which is mostly created by adults. Much more plausible, and consistent with contemporary views about the effect of advertising, television etc. on children. On a different note. I also do think that parents can have a significant effect on their children's choice of peers. Obviously, location is one big example. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Morality and Immigration
I am giving a talk today in which I point out that virtually every moral theory implies open borders are moral and immigration controls immoral. Here are the theories I deal with. 1) Natural Rights ala Nozick, Rand etc. 2) Utilitarianism 3) Contemporary redistribute the wealth liberalism (ala the John Kenneth Galbraith quote mentioned earlier). 4) Analytical liberalism (Rawlsian veil of ignorance arguments.) 5) Christianity (kindness to strangers) I think the arguments for open borders under each of these moral theories should be pretty clear for list readers but I will spell them out if anyone is interested. My point here is that this is all very surprising. After all, these moral theories disagree on just about any other issue! Each of these moral theories, however, has a univeralist claim. That is, it takes equality seriously in some sense and does not recognize the arbitrary and accidental place of birth to be determinative in any important way which is why it supports open borders. Yet, despite the fact that these are all big-time moral theories the implications are clearly not accepted by most people - or at least most people are willing to ignore the implications. What does this tell us. 1) Moral theory counts for nothing, 2) We are still tribalist but are working away from that, 3) We have the wrong moral theory. 4) ? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Electronic Journals
FYI, Two new journals will beginning publishing in the autumn, (cribbed from the August 5th Economist p.69). The will be published electronically and will offer 8 week turnaround times. Each journal will publish papers in four classes, gold, silver, bronze and standard. Gold is AER Equivalent, standard is SEJ equivalent. Based on referee reports editors determine which class your paper will be accepted in, they will also offer revise and resubmits to possibly move up a class. In other words, your paper is simultaneously reviewed in four classes so the time that is wasted when a paper is rejected at a top journal and then resubmitted at a lower journal is eliminated! If you submit a paper, you owe the journal a certain number of referee reports on future papers. You can, however, buy your way out of doing referee reports. They take your credit card number so they can enforce the agreement! Cool. For more see http://www.bepress.com/index.html Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Re: DNA and the Death Penalty
Pierre writes: "I am not sure I understand why, with DNA technology, it can be that Y'X." For essentially the reasons Chris notes. Take the simplest case. You think no innocents ever get on death row. DNA evidence shows that this view is false. You now know that some innocents get on death row. Furthermore, since DNA evidence cannot prove that every innocent actually is innocent, it follows that you must now believe some innocents do get on death row, Y'X. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
