Wednesday, August 30, 2006

The thicker the waistband...

Yes, West Virginia is near the top of the obesity list, too.

Though the more interesting comparison comes when income is thrown into the mix. The five most obese states-- Mississippi, West Virginia, Alabama, Louisiana, and Kentucky-- all have higher poverty rates than the norm. The five least obese states-- Colorado, Hawaii, Massachusetts, Rhode Island and Vermont-- exhibit just the opposite.

It seems to imply that exercise-- if that plays a distinct role in obesity-- is a luxury good. What's more interesting is that as incomes rise, the cost of exercise becomes higher as well (in the sense that the opportunity cost of an hour of exercise is an hour away from working at your higher wage). Does this make exercise an uber-luxury good? My first inclination was that you could describe leisure in the same light, but leisure doesn't necessarily increase as we move up the income scale-- not until we get pretty far up the ladder, anyway. I'm trying to think of another good that would cost more for higher income individuals, yet would show an increase in consumption as well.

Business lunches? But couldn't those be construed to help business and increase income?

Monday, August 28, 2006

Gladwell on collectivized pensions

There is a great piece by Malcolm Gladwell on the history of collectivized pension funds in today's paper version of The New Yorker. Interestingly, the word "diversification" does not appear once in the entire piece.

There are a couple of problems with company-operated pension funds:

- The more successful your company is over long-term, the more of a burden you are saddled with as employees get older and retire.

- The incentive to innovate (in terms of labor-reducing technology) is depressed, due to the need of having a large workforce to keep the pension fund afloat.

- Employees of a company-run pension fund face an obvious diversification issue, especially if said pension is the sole source of retirement income.

- Collectivizing pension funds would reduce the risks that employees see, but like the existence of the government's Pension Benefit Guaranty Corporation, it provides a lower incentive for companies to be responsible for their own funds if someone else is there to bail them out if they get into trouble. On the plus side (for the employees), it would take a whole collectivized group to fail instead of just one firm (which would then default to the PBGC). On the downside (for the company), any one employer could be in the situation of carrying more than its own weight in the group. I think that this is the exact fear any one company would have in joining a collectivized pension fund. And with the existence of the PBGC, the benefits seem almost nil.

Though only tangentially related to pension funds, Gladwell also gets into dependency ratios and their role in economic development. Saying that dependency ratios have an impact on economic growth implicitly assumes a welfare state in any country...which, sadly, probably isn't too far from the truth (if not spot on).

Wednesday, August 23, 2006

Do you have a beef with accents?

This blog hasn't devoted enough time to writing about cows.

I'm not sure I can believe that cows are emulating the accents of their owners; that would mean that cows are trying to communicate in a human manner, and I just don't think there's any way to confirm that intention. What I do think it happening is a simple picture of path dependency in nature-- presumably, calves learn vocal habits from the elder cows in the pasture, and as they age, they pass along the same "speech" pattern. Without mixing cow groups, any alteration in speech, genetic or otherwise, can lead to two different groups of cows talking in two different manners over time. (Are there any...zoologists that can comment?)

Could the same thing be said for people raised in socialist regimes as opposed to capitalist regimes? Could the incentive to make yourself better off be weaned out of a human after the passing of a few generations? And if that's the case, how much effort would be needed to re-incorporate a capitalist mentality in, say, any of the former Soviet republics?

Monday, August 21, 2006

File this under: West Virginia is #50 in...

To break the record of "Most e-mails I've received pointing to something in the news about West Virginia," this article was brought to my attention. It turns out West Virginia has an immigration problem to go along with its economic, mining, government and dental problems. Of the fifty states, only West Virginia and Hawaii saw their percentage of whites rise over the last five years-- and Hawaii's white population is still an overall minority. The argument could then be made that West Virginia is the only state becoming less diverse.

Diversity for diversity's sake is fruitless, but as the article alludes to, increased immigration leads to increased economic prosperity. Immigrant labor is typically cheaper and leads to a lower cost of production.

Paper idea? Immigrant streams and economic freedom? Spatial model?

Wednesday, August 16, 2006

The Cost of Comprehensive Exams

Studying for comprehensive exams is something just about every aspiring Ph.D. student in economics has to deal with. The more time I devote to learning the theoretical ins and outs of my profession, the more I realize that this whole comprehensive exam process is a big, real-life cost minimization problem. (Quick, write up the Lagrangian for it.)

In a sense, studying for exams is a tax. You are required to devote your resource (time) into studying (as opposed to a "productive" activity, such as researching). An argument could be made that the process of studying for the exams is something that will yield productivity benefits in the future, but that effect is likely minimal, especially considering the sheer amount of hours you put into it. Naturally, you aren't allowed to continue if you can't (eventually) pass these exams, but that is a self-imposed restriction-- that's like saying a company's efforts towards preparing tax returns is worthwhile, because if they didn't, the IRS would come and get them.

As with any tax, there is some deadweight loss. The way I see it, there are two types of deadweight loss associated with studying for comprehensive exams. There exists an amount of time that each person must study in order to pass the exam, unobservable to the person themself. This is the imposed fixed cost of having to study for a comprehensive exam. Since this amount of time is unobservable, however, students are forced to estimate how much time they think they will need to study to receive a passing mark. The descrepancy between the actual time put in and the unobserved required time is the variable cost. Risk aversion will certainly play a role in the decision of how much actual time to spend. The more risk averse the student, the more time they will spend studying in order to secure a more probable positive outcome. If the goal is simply to pass the exam, the problem becomes one of cost minimization-- reducing the amount of time spent studying on the exam per your risk preferences. Errors will always tend towards the higher cost side of the fixed cost since the threat of failing the exam and re-incurring the fixed cost the next time around is very real. After all, incurring an additional 4 hours now and increasing your chances of passing could be rational given your risk preferences when compared to potentially having to incur another 50 hour fixed cost of taking the exam again.

My sage officemate offers the following: "I've found economics at the graduate level to be very inefficient."

Here's to passing by a hair!

Tuesday, August 08, 2006

Choice in Marriage

Colin P.A. Jones wrote a terrific piece on the privatization of marriage for the San Francisco Chronicle earlier this year; it is linked here through The Independent Institute. If you like what you read, the extended version is here, linked from The Independent Review.

In short, government has forced marriage into a one-size-fits-all agreement, over which it has monopoly control. Why not privatize it and let people choose a marriage agreement that fits them best?

I'm not sure that the divorce rate would change a whole lot-- marriage corporations could emerge that exhibit relatively low-cost dissolution services as compared to the current situation, which could cause more divorces as well as cause more people to get married that wouldn't have gotten married in the first place. There would be, however, a host of public choice issues with regards to which marriage corporations got which federal benefits.

Thursday, August 03, 2006

When information is scarce...

...let markets get the job done. There's nothing like a little profit motive to get information to the surface.

(Dave, that picture is just for you.)

There was quite a hubbub a while back on betting markets for terrorism. has a moneyline set up for the month in which Fidel Castro will pass. As of 9:30AM on Thursday morning, the board shows the following:

August 2006................+350
September 2006.........+400
October 2006..............+500
November 2006..........+600
December 2006...........+600

(Moneyline bets yield the positive amount for each $100 increment bet. Thus, a $100 bet on October would win $500. M0neylines can also bet negative; if September were to read -180, then it would take a $180 bet to win $100. Bets don't need to be in $100 amounts; the ratios hold to all levels.)

I would have guessed that Castro would have been in a lot worse shape than the figures seem to indicate. Then again, betting markets are about flushing out and profiting off of new information-- are those with better information (read: Cubans) in a position to be able to profit from that advanced knowledge?