Cato Article

I have a piece in the upcoming issue of The Cato Journal on "Occupational Licensing and Asymmetric Information: Post-Hurricane Evidence from Florida." Here's the abstract:

Licensing is typically justified on the grounds that market mechanisms will not mitigate the problems associated with asymmetric information. In the wake of Hurricanes Frances and Katrina, Florida reduced restrictions on construction contractors, yet in times of crises informational asymmetries are more likely to be problematic. I find that volume of construction work completed increased during this period, indicating that asymmetric information didn't stifle the market. Given the relative success of reducing restrictions and the government's explicit recognition of licensing's limiting effect on the availability of roofers, reform of licensing, at least to the extent done in crisis, should be adopted permanently.

Communism and Malthus

Courtesy of my brother, I thought this was an interesting piece of history. What's better-- Mao's offer, or Kissinger's response?

eBay's new fees

A couple of comments on eBay changing their fee structure and the ensuing user outrage:

- The network effects of the online buying and selling market are huge; if all firms offered the same fee structure, only one firm would survive. Once a site got a few more people, it would be more profitable to sell there since there would be more bidders, which would attract more sellers, which would attract more bidders, etc. That's why all of the fledgling auction sites from the late 90s went by the wayside-- it's not about offering a lower price, it's about attracting the most people...and only one place can attract the most. A move like this would have meant death in 1999, so I'd say eBay's decision reflects its knowledge and comfort with its place in the market.

- That being said, a large enough shock to the fee structure could make it impossible for someone to sell at a profit at eBay but for profit somewhere else. In order for that to happen, though, you're going to need a lot of buyers to jump ship along with the sellers; otherwise, they're going to lose even more money at the new place because even though the fees are lower, the final prices aren't as high. Traffic is the name of the game in auctioning-- the more, the better. I just don't see that happening-- that's a massive coordination problem. I know the talk of a one week strike is an attempt to move down that path, but it's not focused on the buyers, it's focused on the sellers. They could try to act as a group and all move, and let it be known to the buyers where they are headed...first mover problem, anyone? Collective action problem, anyone?

- I am surprised at the modest success of the fringe/specialty auction sites that I've been reading about in the eBay stories. Then again, I nor many others hadn't heard of them prior to the story...that might be a problem in the long run. Maybe they can operate on a smaller scale and serve a dedicated niche.

- Was I the only one that found the threat of not selling for a week mildly humorous? Let me get this straight-- you're not going to sell for a while, but you're not going to leave, and while you're not selling you're hoarding your goods to sell when you decide to jump back on? A commitment to sell goods on another site for a week would have been more effective, but the funny thing about profit motives...

- Based on that, why didn't an emerging site offer to list every good from an eBay seller for free during that week? It might not work out, but the traffic would go up, and if you could get enough buyers to head over there (and the sellers, I'm sure, would be very active in letting previous buyers know about this) you might get the ball rolling. Maybe someone has; I'm out of the loop on this.

My two cents on the Clemens ordeal

I'm a baseball fan, and like most fans, I'm frustrated with this Clemens nonsense not because he did or did not take performance enhancing drugs but because it takes the focus away from the art of the game. I could honestly care less if every player or no player takes steroids; if home runs are 800 feet and pitchers throw 150 mph, so be it-- just as long as they are playing the game.

Nonetheless, I get asked frequently about this Clemens ordeal. I really don't think anything has changed with today's proceedings. (Though McNamee did include the fact that he injected Clemens with Winstrol, an anabolic steroid, in today's proceedings. I hadn't heard anything other than HGH up until today, though I'm not following it exceedingly close.) If we look at the biases of each person's testimony, McNamee would be biased towards withholding the bad things he did-- if anything, he isn't telling us enough. It's the same for Clemens; he's biased towards witholding any bad things that could have happened. The reason we've got a problem is while Clemens is squarely where his bias would predict him to be, McNamee is entirely on the other side. I think that speaks more than any confirmation of who was at so-and-so's house for lunch or when certain conversations occurred, if at all.

Related to the issue at this juncture is also the simple fact that, if something bad happened, the marginal cost to admitting it is basically zero for McNamee (or possibly a net benefit if coming clean and leading to other users minimizes his legal penalty) and massive for Clemens.

It doesn't look good for Clemens at this point, nor has it since this began to blow up. Wolfers et al wrote a piece in the New York Times about the statistical analysis Clemens' team did and makes very good points; here (I think) is the most recent post at Freakonomics which links the first post which, in turn, links to the NYT article. I'm going to go ahead and say that you're generally not in a good position when Justin Wolfers is arguing against what you're saying.

Though I will say that one positive that could come from today is that it prevents the members of Congress from...oh, I don't know, printing out checks and sending them to people.

Can you spot the difference, NBA version

I got into a debate with a friend of mine this weekend about the Hall of Fame prospects of Dennis Rodman; I know a bit about the NBA, but he knows more. I've always felt that Rodman was a very underrated player and should definitely be in the Hall of Fame, and my buddy felt he was a borderline case, so we hit the online NBA encyclopedia.

Dennis Rodman's page is here.

As a comparable case, Ben Wallace's page is here.

And after having noticing the difference in those two pages, we spent the next fifteen minutes seeing exactly how different the pages can be. Poke around yourself-- I'll keep the secret, but offer Michael Jordan and Bryce Drew.

In Rainbows

Amid quite a hubbub, Radiohead released their most recent album In Rainbows online about three months prior to it arriving in record stores. But there was a catch-- you could name the price you wanted to pay for it. (Here's a brief rundown; if you search the topic, there has been plenty written about it.) If you wanted to pay nothing, that was fine. If you wanted to pay 10 pounds, that was fine too-- both parties got the same disc. It turned into a great assignment for my Public Economics class last fall-- public goods, rational economic actors on all sides...plenty of angles to take.

As it turned out, the most you could pay for the album was 99.99 pounds. And in a recent interview, about halfway down, lead singer Thom Yorke revealed that 15 people ended up paying the full 99.99 pounds-- "...and I swear the band members are not among that 15." I have to admit, I thought it would be a bit higher, though if I remember correctly, it was not immediately clear when moving through the site that 99.99 pounds was the maximum. I believe it took some trial and error by the user to come to that amount (or hearing about that level online prior to downloading your copy).

The band is acting very protective of the specifics of how many were downloaded and at what prices...now that would be interesting data to look at.

Bluefields: Heaven on Earth?

TPS stalwart Thomas Johnson sent forward a fantastic piece about Bluefields, a coastal community in Nicaragua that benefits from bales of cocaine washing ashore due to Colombian smugglers dumping them when pursued by US Drug Enforcement officials. Even better: The Nicaraguan government considers the area an autonomous region, so they pretty much leave them be to fend for themselves. There are, quite honestly, a dissertation's worth of angles to take with this story if everything in the piece is accurate. This has to be the most interesting article I've read in a while. There's actually four pages to that article, so click ahead...it is well worth the read.

My favorite lines:

The police and Navy have few resources and less trust from the local public. Bluefields is effectively an anarchist nation - no Government, no organised institutions and the rules are made by community groups. Given the massive amount of cocaine in town, violence is surprisingly rare.

(Insert your "looking for $20 bills on the beach" joke here.)

Update: Minor league investing

It looks like we're going to have to wait a little longer to invest in our favorite minor league prospects. Though I get my $20 back, my retirement portfolio has been irreparably harmed-- if I can't diversify my risk into professional sports development, can I really sleep soundly at night?

Good point in the article: MLB's concerns with isolation from gambling. Not to imply the investing in prospects is akin to shady 1919 Black Sox-esque scandals, but given the steroid problems baseball is in the thralls of, the last thing they would want to encourage is that players are doing anything other than good ol' American try-your-best-and-win-because-you-love-playing-the-game-cleanly.

On the flip side, could investment contracts be designed to reverse the incentive to take performance enhancing drugs? I bet yes. Though to force every player to enter into such a deal isn't a good solution to the problem.

Bad point in the article: Assuming that players sell 5% for $50,000. There's no reason to believe both of these margins couldn't change; I'd be shocked if the market developed and it stayed at those levels sans regulation. More risk averse players could up the percentage. More talented or major-league-likely players could up the value, though given the reality of larger signing bonuses for those players there might be a natural ceiling that develops. Or perhaps the evolution of the player investment market will displace signing bonuses completely?

Edited: Here's the text of the email that Real Sports Investors sent out:

Dear Valued RSI Shareholders,

Since we launched our site in early December 2007, the response has been absolutely tremendous. Fans and Athletes alike love this concept and we cannot thank you enough for your support. Athletes are signing up with us because we can provide them with security in exchange for a piece of their potential. Fans like you have purchased shares for a number of different reasons and the excitement is tangible.

Thanks to your overwhelming response we know that our company’s mission and ideas have a place in the future of sports. With your help, we will be able to create the first market where future earnings of professional athletes can be traded.

In order to create a system that will allow players and fans the best experience possible we believe it is in everybody’s best interest to work with Major League Baseball. We have been in contact with them and in the coming months we will be working with Major League Baseball to make sure that RSI addresses all the needs of the larger baseball community especially fans and players.

We are committed to working quickly to achieve these goals, however we do not feel that it is fair to hold your money when we cannot set a definitive time table. In the next few days, we will be returning your money and you will no longer own any shares of Randy Newsom. We will be working with Pay Pal to remove ALL of the charges to your credit cards.

Our company has two goals. The first is to improve the lives of professional athletes. The second is to provide you with an enhanced spectating experience. We are confident that by working with Major League Baseball, we can come up with an optimal system that will achieve both of these goals and provide you exactly what you have told us that you want.

When we re-launch our website, and re-offer shares of Randy Newsom we will allow you to re-purchase your shares of Randy before anyone else. You will have priority and we thank you for your loyalty.

Please continue to check our website for updates in the coming months. In this transition you will notice significant changes. Our website will have much more functionality from message boards to shareholder certificates and we will be able to provide you with a greater selection of athletes from which to choose.

If you have any questions or comments, please direct them through the contact us page on our site, www.realsportsinvestments.com and we will be sure to answer them. We promise that we will contact you as soon as the next player’s shares become available.

We truly appreciate all the comments and support that we have received. Your enthusiasm has energized us even more to bring this market to fruition. I hope you are as excited about this as we are.

Sincerely,

Real Sports Investments, LLC