Monday, April 30, 2007

Should the governor even ask?

So the Bay Area is in it up to their waists for the next few months-- a tanker truck tipped over early Sunday morning, caught on fire and melted the two overpasses under which it rested. Which would be bad enough on its own, without even considering that a) one of those overpasses takes people from the Bay Bridge to Oakland and b) the other one connects the area around Berkeley (and everything north of there) to Oakland. Good times for the East Bay! By some miracle of God, no one was killed.

The story of it is here; the wording of it has changed a bit, but any full AP version of it should have a paragraph referring to the fact that Gov. Schwarzenegger plans on declaring an emergency and asking for federal funds.

Now, if only someone had studied the determinants of who gets federal emergency money...

The short of it: If you matter in the presidental election-- i.e. you're a battleground state-- then you're a lot more likely to get a sympathetic nod from Uncle Sam.

So how does California fit in? Well, it wasn't a battleground state, and on top of that, they didn't vote for Bush.

Professor Sobel puts the odds at "slim" that they get some federal money for this one. I think that's a bit generous.

Friday, April 20, 2007

The Jock Exchange

A group called the A.S.A. Sports Exchange has an application with the U.S. Patent and Trademark Office to create a market that deals in professional athletes. Basically, athletes sell a portion of their future earnings for a current sum-- an IPO of sorts, transferring the risk of a burgeoning superstar to the market. Fascinating concept. A few comments:

- In the short term, there is going to be (and the articles mentions this briefly) an adverse selection problem with regards to which athletes choose to sell themselves to the public. Tiger Woods has no need to give up any portion of his future earnings for current wealth-- he's already comfortable. Greg Oden and Kevin Durant might be beyond this point as well, but there are upcoming athletes in which there is a lot of speculation about their long-term potential and would be willing to take a more risk-averse position. These are the athletes that will be the superstars that everyone wants to buy and sell in fifteen or twenty years, and they will be available on the market. Incorporating the market at any time will lead to a short-term selection issue-- but if the market can survive it for the first years and not fold, there's no reason to necessarily believe it would persist.

- Drafting is a huge question mark for teams-- which players are going to pan out and which will become busts? Consulting the market would be another piece (and a significant one) of information that sports franchises could utilize.

- Will the SEC handle this? The Patent Office already has their hands on this, so it's not likely it will be able to wrest itself free of Uncle Sam. Also-- wouldn't it be interesting if this market operated free of any sort of insider trading regulation? Even if only for comparison to traditional stock markets...

Tuesday, April 17, 2007

Double-peaked preferences

So, among other things, Arrow's Impossibility Theorem shows that if you've got individuals with double-peaked preferences, then a simple majority voting procedure will not yield consistent outcomes. While it's easy to construct someone with double-peaked preferences on a non-linear spectrum-- ranking favorite sports teams or colors, for example-- it's generally the case that double-peaked preferences don't exist in voting for candidates. It's vastly oversimplifying the voting process, but if you cared only about one dimension of politics-- say, political leaning-- then you probably won't prefer a radical republican and a radical democrat to someone in the middle. People could then argue that the assumption of double-peaked preferences is unrealistic, and hence, Arrow's situation doesn't describe the vast majority of real life. (Though assuming that all political decisions are made on a one-dimensional margin might be just as unrealistic.) Fair enough. It's not like there's a shortage of ways to cut down majority-rules voting systems.

What's interesting is that I've seem to run across a couple of situations recently where I (and a professor of mine) have, quite clearly, double-peaked preferences. Maybe I'm missing something. I also don't think that it matters that there's no voting involved in these scenarios-- the issue above was with the accuracy of double-peaked preferences in representing real life.

They're both similar-- one involving my car, the other involving a house that a professor of mine recently bought. My car's warranty expires next month, so I took it down for a routine checkup last week. With regards to the viability of what parts were under warranty, I either want them to be functioning very well or very poorly-- either way, I end up with a car running well (on its own or immediately fixed) at no additional cost to me. What I want least is my car to be running just well enough that they choose not to fix anything. So I want it in great shape or poor shape most, but least favorable to me is a moderately well running car. That's a double-peaked preference. (Principal/agent problems of the mechanic are tangential to my ultimate preference for the condition of my car.)

The same idea holds for the recently purchased house. New houses get checked out by an independent third party that determines if everything is in working order. If everything is fine, so be it-- if not, then the seller is responsible for the repairs. This creates the same incentives to the buyer of the house as to the driver of the car-- either you want the house in tip-top shape, or in poor condition such that it will get fixed by the seller. The worst-case scenario is a house that comes in just above the fix-it line. Again, we've got double-peaked preferences.

Maybe double-peaked preferences are a bit more common than I had previously thought.

Sunday, April 15, 2007

Global Warming Update

I believe we've posted here about global warming before, but a few things I'd like to pass along:

- I can try to be humorous about this subject, but nothing I write is going to be able to hold a candle to this. Here's the short of it: Global warming is the new terrorist.

- The Heartland Institute has been proactive on the topic in recent weeks; scroll down a little on the front page.

The Tennessee Center for Policy Research has been thrown into the global warming fray after they reported that Al Gore uses a good amount of electricity himself-- more than 20 times the national average, in fact. Evidently, Gore supporters weren't too pleased with press release. I guess they'd have to be-- admitting that it's alright someone (even Al Gore) to purchase however much electricity they want would undermine their position of believing they have the right to tell everyone else what and how much to consume. I've dined with TCPR's president, Drew Johnson, a couple of times and he's a great guy that does consistently great work. He even landed John Stossel!

Sunday, April 01, 2007

Supply Curves are Upward Sloping

ABC News has a fascinating story about the President of the American Society of Transplant Surgeons promoting the right to sell kidneys. He argues that it will be cost-effective and very manageable from a bureaucratic point of view.

Science Blog reports that the monetary cost of donating a kidney can be substantial as well. They discuss a doctor's literature survey on the cost of donating a kidney.

Some of the results are as follows:

1. One US study finds that the average cost to a donor is $837, with values as low as zero and as high as $28,900.

2. Time lost from work is substantial -- average loss of $3,386 in the United Kingdom and $682 in the Netherlands.

3. Physical Limitations led to 3% of donors in one study either losing or resigning their job.

A common fear about a market for organs is that, at a positive dollar price, the rich will live and the poor die. Regardless of the merits of this argument, one must recognize that price also plays a role in increasing the supply of a good. Incentives matter.