Where are the People with the Data?

Eric Rasmusen, one of my colleagues here at IU, asks:

I have not seen op-eds saying that the real-world bill is better than no bill. Even Professor DeLong’s article doesn’t come out and say that. He and many other economists did sign a January 27, 2009 letter favoring the bill. Are there other writings in favor of the bill by research economists that I have missed?

The Microsoft Bridge

Here is a CNN piece on Microsoft receiving stimulus money to complete their campus-connecting bridge. In short, Microsoft planned to fund this bridge themselves but costs increased beyond their initial $25M level, and so the company applied for stimulus funds to cover the $11M shortfall. In all, Microsoft is contributing $17.5M to the $36M project, or just less than half.

First and foremost, the quote concerning foregone opportunities due to the spending is refreshingly spot-on.

But as is often the case with government spending, we're left choosing between worst and not as bad. Given that we've got this albatross of stimulus money, is it going to places where it will, in the long run, do the least harm? There are things to like about this project in light of others. As opposed to a bridge built to nowhere, Microsoft did value this bridge at a minimum of $17.5M, and put its money behind it in the first place-- rising costs tipped it beyond its value to the firm, however. Instead of funding projects in which we must blindly guess the value to society, is it that horrible by comparison to help finish this project? In the global sense, is it an efficient use of funds? No-- but again, we're not going to have efficient spending when it comes to public spending, so what we need to task is to find the least harmful outputs.

Of course, making a broad-based policy of requiring a private matching sum would end up in a lot of projects that simply aren't efficient. So this isn't good policy that could be instituted on a wide scale.

There's a lot of angles to take on this one.

Assorted links, March 30

TPS Middle East traveler Thomas Johnson sends along this beer map of America. Note the back-of-the-envelope calculations put West Virginia as the worst beer state. Maybe Yuengling deciding to sell beer here will help ease the pain.

And here is a ranking for the best places for business and careers. I'm going to aggregate these rankings here in the near future and make sense of it all...

Brilliance

From CNN:

President Obama announced Monday that struggling automotive giants General Motors and Chrysler will be given a "limited" period of time to "restructure in a way that would justify an investment of additional taxpayer dollars."

What a phenomenal idea! In fact, if GM and Chrysler restructure in a way that justifies additional investment, taxpayers will give them money directly instead of via government bureaucrats!

That's What She Said

Hat Tip to KPC, watch as Michael Scott engages in logrolling:

The Economist Says...These Two Statements are the Same

In canceling my subscription to Weight Watchers, the online form asked me to check the box that describes the reason. Notice that, in economics, these two statements mean the same thing:

Hayek Online

Via Peter Klein at Organizations and Markets, Hayek's excellent Individualism and Economic Order is now online (in addition to works by Menger and White).

Crowd Tournament Picks

Yahoo provides the data for the distribution of picks in each round of the NCAA Tourney. It also provides the crowd's bracket, based on the distribution of these picks. If the crowd was in the group I am playing in, it would be the clear leader.

Nevertheless, looking over it, I'm not sure this is the crowd's bracket. I think it would need to be worked out with Bayes Theorem to be reflective of the group's choice. It would be a fun project to go ahead and work this out, hopefully there are some takers.

How Studying in the Social Sciences Can Ruin Your Brain

I was at the public library the other day for a puppet show with the family. One of the Dads was clapping obnoxiously throughout the show. I then noticed his wife had only one arm. I began to wonder if he was not being obnoxious, but just overcompensating for the fact his wife could not clap at all. For a brief second I started to think about where I could get data.

Perhaps next Spring Break I should actually take some vacation time.

Interview with Pete Leeson

Name that process!

Justin's previous post about the Senate's investigation of the BCS touches on an issue that gets brought up here with increasing frequency-- that of Congress getting involved in a range of issues, which, in turn, crowds out their ability to influence the economy. And this is a good thing.

Well, I think we should name it.

So put properly: What would you name the situation of Congress focusing on trivial issues, thereby preventing them from harming the American economy?

I'm going to offer the Unintentionally Beneficial Congressional Sidestep, but I'm open to suggestions. Wordy, yes, but UBCS is quick to write. Maybe a better acronym could be had.

From the Department of Thank Goodness

Sarcasm Off: This is the most socially beneficial use of the Senate's time these days. From the AP:
Sarcasm On: Congratulations to the Senators for realizing the real anticompetitive problem with NCAA sports!

Hat Tip: Jason Oberle

Negative Externalities Example

For the classroom, a negative consumption externality:

Hat Tip: Kyle Conover

What Will It Take To Get You To Stop Trying?

I find this idea bizarre (Hat Tip: Jason Oberle):

WASHINGTON (Reuters) - With many U.S. newspapers struggling to survive, a Democratic senator on Tuesday introduced a bill to help them by allowing newspaper companies to restructure as nonprofits with a variety of tax breaks.

"This may not be the optimal choice for some major newspapers or corporate media chains but it should be an option for many newspapers that are struggling to stay afloat," said Senator Benjamin Cardin.

Exactly what was stopping them from being non-profit before? The internet has already provided a vast array of non-profit media outlets. I'm not sure what to make of this news.

Too Voter Visible to Fail

Dave Prychitko at TAE has a great post on the "Too Big To Fail Fallacy." Throughout it he points out the difficulty of line drawing of what constitutes "too big." The Madoff investors? Workers on Main Street? Do read the whole thing.

My thinking on the subject is that it is not a linear relationship, where small groups add up into big collectives, but a circular one. "We" want to protect the local Mom-n-Pop's because of how cute and localish they are, and thus "we" don't want to see them fail. They're just so tiny and cute, how can you just let them fail?

The further you move in either extreme of size, the more likely you are to have populist and elitist support for circumventing their evolution.

A Quick Rejoinder

Daniel Gross of Slate asks:

Man Up, Capitalists!
Why does the treasury secretary have to bribe investors to take risks?

A: Because the last government "bribe for risk" exchange left them bankrupt.

Kindling

TC points us to this story on gender differences in reading:

Men are also more likely to have shelves full of books that have never been opened.

Ah ha, so men use their book shelves for signaling purposes. My first thought then was that men would be slower to adopt the Kindle than women. My second thought was that men would be faster to adopt the Kindle than women because now they can carry their signal around with them.

Easterly tonight at WVU

William Easterly, author of The Elusive Quest for Growth and White Man's Burden, as well as a slew of academic articles, will be speaking tonight here at WVU. If you're in the area, I highly recommend attending, if for no other reason than the chance for a few choice off-handed Sachs comments. 7:30pm, Brooks Hall, Room 202.

As an aside, it turns out that Easterly was actually born in Morgantown.

Free Trade Blurb

Having signed the free-trade petition currently circulating, I answered an email asking for a quotation. Here was what I provided:

Protectionism has been intellectually bankrupt for more than 230 years, so ignorance is no excuse. No public servant can honestly promote peace and prosperity without a policy of international free trade, and anyone who tries is guilty of self-interested populism.

Statistics I don't believe

From the Becker-Posner blog:

"The Harris study also estimated that over two percent of all persons marrying between April 2006 and March 2007 were introduced through eHarmony."

Addendum: Here is more information the study.

Assorted thoughts, March 23

- Which regulations are the most unenforced? I don't even know the metric by which to make this judgment, so feel free to use your own, but I'll offer up the following which I thought of during lunch while I sat near the entrance to Jimmy John's. I'm fairly certain that it is a regulation that doors must open outwards-- that is, if you're inside, the door must push towards the outside. I presume it's based in a fear of a crush of a crowd against an inward opening door during an emergency. I'm curious if this is state-level, but it's been in my mind (and for a while) that such a regulation exists. What other foolish laws are on the books and just flagrantly ignored? None of the "can't marry a chicken during the third week of lent on a full moon" types either...

- Freakonomics passes along this article from CHE concerning the essay writing business. There are some fascinating parts to it-- I didn't know there was such a foreign aspect to it. And if there's a language barrier to these papers, yet they get turned in anyway, what's that say about the state of students as a whole?

I don't have a large problem with this. In the gains-from-trade sense, it's welfare enhancing, of course, but is everyone's degree summarily worth less? If you subscribe to the skill accumulation theory of education, then you are (presumably) not learning the requisite skills, and you'll be punished accordingly in labor market in the long run. If you subscribe to the signaling theory of education, then what you do once you get into the school doesn't matter at all-- it's just the name on the degree. Perhaps earning a degree signals you can do the work-- in that sense, it would harm the signal and the rest of the college-degreed population. Personally, I think the largest cost imposed on me would be having to deal with this issue should it ever come up in one of my classes. I don't imagine schools would smile upon this activity, and I think that is the stance they should be taking.

The dissertation part is intriguing-- is there even a remote possibility of that working? I'm very suspect.

- I mentioned briefly last week that any system hyped on its ability to predict last year's tourney outcomes should be taken with a grain of salt, as things went a little too according-to-plan. Well, after the first weekend, we have the twelve top seeds (all #1, #2, and #3 seeds) still playing. Perhaps just picking the chalk is the way to go? But what fun is that? A big loss to the casual bettor, too.

Hotelling's Model...Morgantown Porn Shop Edition

One of the fun parts of teaching economics is having students try and explain reality using the tools of economics. While a grad student at WVU I would draw this basic map of downtown Morgantown, where CH is City Hall, MC is Municipal Court and police station, and FC is the Family Court:
Notice the three X's: they mark the location of three erotica outlets. High Street is where all the main downtown retailers locate, and it has the heaviest traffic flow of anywhere in town. Notice that the X's seem to be concentrated in the same area. The questions I would pose to my students then is:

Why do we observe this spatial concentration of erotica shops in Morgantown? Why is erotica most valuable at those locations? What role does the environment or neighbors play, if any?

My students and I over time hashed together the following list of potential answers to these questions:

1. Hotelling's model of spatial competition. Like the ice cream vendors on the beach or the shoe stores at the mall, the competitors wind up locating next to each other.
   
2. The stores want to be on High Street, but the business association doesn't allow them in, and so they end up as close as they can get to High Street.
3. The stores want to be close to High Street, but not on High Street because the stores balance wanting to be seen by their potential customers while their customers don't want to be seen going in/out of these stores.
4. Lawyers, judges, police, and city officials are large consumers of erotica, and the stores are locating close to their customers.
5. They want to locate close to the Family Court, as men exit the court in emotional ruin the erotica shops want to be there for them.
6. (As a counter to #5) The Family Court is actually locating close to the porn shops in a rare demonstration of responsiveness to consumer demand...women who catch their men at the erotica stores want to know where they can file for divorce.
7. Perhaps erotica stores are more likely to be robbed, so they locate as close as they can to the courts and police as a deterrent to thieves.

I think #1, #3, and #7 tell the story, but the list is a fun way to spend 15 minutes of class time while still learning some economics.

Schaeffer: On Subjective Cost

I want to elaborate on a point that seems to be implicit in Justin's post. As Justin put it "Costs are also subjective". In James Buchanan's "little book" Cost and Choice, he distinguishes between costs in a predictive theory of economics, and costs in a more general theory of choice.

In predictive theory, cost is the objectively identifiable measurement of the alternative product that might be produced by reallocating resources. Textbook treatment of cost curves. This market value is reflected in market prices for alternative resources. The movement from predictive theory to a more general theory of choice however, requires making the connection between the costs, who is incurring them, and when.

"The essential element in this concept is the direct relationship between cost and the act of choice, a relationship that does not exist in the neoclassical predictive theory. In the London-Austrian conception, by contrast, cost becomes the negative side of any decision, the obstacle that must be got over before one alternative is selected" (Buchanan, 1999 [1969] pg. 44).

The above quote is another way of discussing the opportunity costs idea that Justin raises. Cost in a theory of choice is felt in utility terms, while in predictive theory it is felt in "commodity terms" -- in other words in terms of other market goods. Expressing costs in forgone alternatives is not "a tautology, and therefore cannot imply anything" (as was suggested here). On the contrary, Buchanan lists 6 rather radical implications that follow from a theory of choice understanding of cost:

1. Most importantly, cost must be borne exclusively by the decision-maker; it is not possible for costs to be shifted to or imposed on others.
   
   
2. Cost is subjective; it exists in the mind of the decision-maker and nowhere else.
   
   
3. Cost is based on anticipations; it is necessarily a forward-looking or ex ante concept.
   
   
4. Cost can never be realized because of the fact of choice itself: that which is given up cannot be enjoyed.
   
   
5. Cost cannot be measured by someone other than the decision-maker because there is no way that subjective experience can be directly observed.
   
   
6. Finally, cost can be dated at the moment of decision or choice

These ideas of subjective costs grow from a rich tradition coming out of the marginalist revolution and include the ideas of Menger, Wicksteed, Hayek, Robbins, Mises etc. The distinction being drawn here between a predictive / "scientific" / measurable theory and a logical theory of human action is a methodological problem. Austrians get teased for always wanting to talk methodology (a claim that I think is exaggerated), but as Buchanan notes, "this confusion is the source of pervasive error in applied economics"(1999 [1969] pg. 37).

This discussion of costs reflects one of several subtle but important theoretical distinctions that set Austrians apart from others. For instance, measurement is not calculation. Measurable data or information does not allow for what Mises terms calculation. For Mises, measurement implies a fixed unit of measurement (like an inch, a quart, degree or kilometer). Calculation requires market generated prices, which by nature change. I think one way to think about it is that measurement is used in solving 'technological' problems; one end with many different means. Calculation is used in solving 'economic' problems; many ends to be solved with many different means.

Taking on the task of addressing the poor understanding of Austrian ideas reflected in John Quiggin's "critiques", might however be too much for one blogger to take on (at least in this post).

Ross: Austrians are Right...Cost is Also Subjective

John Quiggin critiques Austrian economics here, and occasionally I think he slips in some cheap shots that invite the crazies, despite his claim to wish the opposite. While I have Austrian sympathies, I cannot claim to be an Austrian. I've picked up a lot from being around them, but I still have to use an online dictionary to find the meaning of the word "epistemology," nor have I read the original and subsequent editions every important historical book of economics. The only Hayek I have read is the 1945 AER piece, and I have never read anything by Mises. Those all seem to be prerequisites to being an Austrian.

As such, I will let Austrians defend their field on the rest of the points, but I want to take aim at Quiggin's critique to Boettke's 4th proposition of Austrian economics that "Utility and Costs are subjective," which he states flatly is "clearly wrong."

This seems to be the extent of Quiggin's criticism, that we can see a price tag and therefore objectively identify the producer's costs, and if it is then he has missed the subtlety of their argument. Their argument is that the supply curve is actually other demand curves, where we all agree utility derived demand is subjective.

For example, I type here on a laptop, whose price tag was once $800. I'm sure that there were objectively verifiable price tags on all the inputs of my laptop for the labor, land, and parts, but where did those prices come from? Those inputs were all certainly in demand elsewhere, so why the Compaq assembly line? You think about this, and ultimately it must be realized that Compaq isn't putting the laptop together because costs are $x, but because I'm in their online que ordering the laptop instead of somewhere else.

Addendum: Schaeffer expands on the Austrian perspective of subjective costs.

File This Under...Weird Incentives

The Western Economic Association is having its elections, and has a interesting incentive scheme to encourage voting among its members:

For every 100 votes cast, WEAI will donate a dairy goat through Heifer International, an organization that helps families around the world become self-reliant. The gift of a dairy goat can supply a family with several quarts of milk a day. All it will take from you is a few minutes of your time.

I wonder why they are so interested in getting out the vote, Condorcet jury theorem?

Bloggingheads on Ending Poverty

Peter Singer and Tyler Cowen discuss. My favorite part was aobut 22:50 to 25:30, watch it even if you watch no other part.



I like the initial part of this 2.5 minute segment because, in my mind, Singer seems to confuse intentions with outcomes in a very obvious way. He wants people to walk around asking "how can I help others" when, as Adam Smith pointed out, we often get the consequences that would follow from this question as a response precisely when people instead ask "how may I best help myself?" The inability to figure out how to answer the first question is a big part of the reason why the latter tends to be more functionally useful.

The second part illustrates the fun ways in which one can critique the utilitarian philosophy with hypothetical scenarios.

More State Business Rankings

Chief Executive magazine jumps into the ranking-the-states-by-business race. Their ranking is based on a survey of CEOs, so it's worth a gander. Here is the rundown, here are some stats for all of the states. Here's their explanation:

"Chief Executive's fifth annual survey asked 543 CEOs to evaluate their states on a broad range of issues, including proximity to resources, regulation, tax policies, education, quality of living and infrastructure. Providing additional insight to the evaluations, CEOs were also asked to grade each state based on the following criteria: 1) Taxation & Regulation, 2) Workforce Quality, and 3) Living Environment."

They've been doing this survey for five years now, and Texas has taken the top spot every year. I wonder if there's some sort of selection bias on surveying CEOs? Do they have a good grasp of all 50 states? Are they more likely to select the states that they do business in? Perhaps that's the point-- they're going to be doing business in the best states.

West Virginia comes in at #37.

More on Charity

If you found my earlier post on charity interesting, check out this paper by Scott Beaulier and Josh Hall. They put forward a classical liberal challenge against the view that the free market will under provide charitable giving. In a nutshell, the argument the push against is the idea that if you make a donation to reduce poverty, others can free ride and not donate themselves, thus everyone has an incentive to refrain from donating. Beaulier and Hall point out that:

1. This argument is in no way consistent with the evidence. The authors point out that charities actually behave as if there are positive network externalities, where the donations of one individual encourage donations from others. Indeed, it is often the case that you see programs where a third party has agreed to match every $1 of private donations with $x of their own. Why would such a strategy work if there is perfect crowding?
   
   
2. The donations of others reflect a change in the "price" of welfare programs, and as such they are pecuniary externalities, not technological externalities generating a market failure.

Enjoy the paper from your armchair.

Dealing with Anger

Classical liberals need all the suggestions possible these days.
Megan McArdle:

Life is rather too short to spend it getting angry at remote strangers.

Bryan Caplan:

To which I'd add: It's also too short to spend it getting angry at petty slights, not-so-remote strangers, friends, family...

You might say, "Unfortunately, it's impossible not to waste time getting angry." To which I respond: You may be unable to avoid being angry, but getting angry is much more under your control.

Alas, I find it considerably easier and quicker to accept anger and move on. Read it, hate it, and forget it.

Rule of Law in Indian Country

This article on the need for property rights and rule of law by Terry Anderson headlines at PERC:

Mr. Obama can also strengthen the rule of law in Indian country. Some reservations were placed under state jurisdiction in 1953: They have a stronger legal system than those with tribal jurisdiction, and they benefit economically. My own research, published in the Journal of Law and Economics, shows that for tribes with state jurisdiction, per capita income grew 20% faster between 1969 and 1999 than for their counterparts under tribal court jurisdiction. All Indians are less likely than whites to get home loans, but the likelihood of a loan rejection falls by 50% on reservations under state jurisdiction.

However, Jason Oberle of the American Indian Policy Blog generally disagrees with this implementation of property rights, he writes (in an e-mail exchange printed with his permission):

Mr. Anderson proposes that Tribes have their sovereignty sacrificed in order to gain economic development via the rule of law. Although, I agree with much of his discussion on the essential need of the "Rule of Law" I disagree with any notion of relegating or delegating or moving any authority from Tribes to place them in the hands of States. This will be counter productive for Tribes long-term. States have worked to slowly remove power from Tribes by slowly lobbying congress for additional legislation that allows them to regulate Tribal activities.

An excellent example of this is the Indian Gaming Regulatory Act, which requires Tribes to negotiate Gaming compacts with states. Primarily this is an economic issue, States wanted revenues from Tribes Casino operations, and collectively they lobbied Congress to make provisions for such revenue streams and it was placed into the Language of this Act. The act is available here if you are interested in reading the law.

Many of the leaders of Indian Country today are old enough to remember the end of the last attempt of the Federal Government to terminate the Indian people. This was a Federal policy which began in the 1940's and ended about 1962. It was 20 years of very bad times for Indians. During this period, the Federal Government discontinued most or all of its support for Indians, including legal, health and human services, and most importantly refused to honor its contractual obligations (Treaty Rights) with Tribes and Indians.

Considering the aforementioned issues, only briefly, it is difficult for many people full understand Indian people and Indian Country. I argue that it is essential to include Indian Country and Indian Country scholars in federal studies of Indian country because of these and similar cultural issues.

What I would propose as a solution to the "Rule of Law" issues is increased Tribal Sovereignty. Increased sovereignty provides with some critical opportunities to improve issues of "Rule of Law." For example, Midwest and Eastern Tribes which have increased Tribal Revenues by way of casino operations have actually increased their sovereignty on a practical level because many members of Congress, as well as many firms, do not attempt to circumvent or short circuit Tribal Sovereignty out of credible legal concerns.

Some tribes have also identified the rule of law issue and in some case negotiate contracts with a waiver of sovereign immunity and directly identify in the contract the legal jurisdiction which shall be used to settle legal or lawful disputes. Often in contracts I am aware of the state or federal courts are selected to handle these disputes.

In regards to Anderson's comments about "property rights" he indeed is correct about the 'tragedy of the commons' which occurs on some reservations. I have observed where some tribes have addressed this issue by long-term contracts with members. For example, as a member of the Sault Ste. Marie Tribe of Chippewa Indians, I have the ability to negotiate a long-term (99 year) contract with my tribe for the exlusive use of land held in trust by the US government. In many cases this opportunity has given the lease holder adequate incentive to protect the property value or likewise eliminate the risks associated with the 'tragedy of the commons.' Obviously, this is not perfect, but realistically there is not a real difference other than a simple fee land because it establishes ownership for a term which exceeds the households physical lifetime.

Curiously, I am wondering why Mr. Anderson would propose the limiting of sovereignty for Indian tribes and further suggest that simple fee land is the optimal outcome for Tribal lands. His same article points out the fact that Tribes have excelled at control of Tribal lands and exceed the useful production of the U.S. federal government i.e. Anderson's forestry example. It seems to me that this is an argument for less government interference with tribes. Allow tribes to manage Indian land, allow tribes to expand sovereignty, allow tribes to control mineral rights, and allow tribes to negotiate its own contracts with firms and individuals. Not simply to remove legal authority and pass it to the states.

Interesting thoughts from both Oberle and Anderson. It is clearly a complex issue, and it seems that development economists might have a lot to learn about the nature of property rights by studying Indian Country.

File this under...incentives matter, filling out your bracket

TPS Bracketmeister Rob Holub directs us to the following econometric workup of President Obama's bracket choices. Sure enough, Obama favored teams from swing states from the last election. I love the Stata screenshots as well.

I'm reminded of Russ Sobel's work on FEMA disbursements.

Turning Down Charities and Signaling

From the advise column at Slate:

How should I decline requests for charity without going straight to hell? I'm a good person, but sometimes I don't have it to spare. Sometimes I do have it to spare but don't want to spare it for that cause. Sometimes I just want a coffee or new shoes. What's the most respectful, yet firm, way to say no?

The authors respond by explaining how they can stay in the signaling game by using a "hug and release" approach. I love the framing of this question ("Sometimes I just want a coffee or new shoes."), because it fits my mental model of why people give charity, as opposed to a signaling model that I think is the more popular and accepted model among economists. If you are the easily offended type, you should probably stop reading now.

I think of giving to charity as just being another argument in the utility function. Mr. Max U's happiness depends on a consumption bundle and leisure. One of the goods in his consumption bundle is charitable giving. The maximization process suggests that you make recognizable trade-offs between things like coffee, shoes, and charity. Furthermore, I think the desire to give to charity is drawn from some evolutionary programming to help others, and the desire to appear charitable in the eyes of others tends to be a weaker effect. You see charities make statements like "you can feed and school a child here for $1/day" because demand for this good is downward sloping.

Now for the recipient side of the coin, and the area where I think many practicing objectivists get the logic wrong. (I say "practicing" objectivists because I'm not sure this view is even consistent with objectivist philosophy, but I'm not entirely sure one way or the other.) A common concern is that charity will induce dependence, or at the least encourage more resources to be devoted by the individual to the seeking of a transfer, rather than doing something "productive." If I am always going to hand out $20 in to the homeless outside SPEA on Fridays, then surely over time the number of homeless looking for me at that time and place will increase.

The problem with this view is that it is not objective. Look at another member of society who we generally consider productive, the jeweler. The jeweler is productive because they take this shiny rock out of the ground, polish it up, and sell it to consumers for an amount that covers their time and resources. They are productive because they satisfy a consumer demand, and as any economist will tell you, we do not pass judgment on consumer preferences. When you think of it this way, someone devoting resources to increase their appearance of desperation in order to be given a handout, is no less "productive" than the jeweler. They are simply trying to satisfy the consumer's demand to reduce neediness. You can think, if you must, of beggars as suppliers of satiable neediness, and charity-givers as consumers of satiating neediness. In which case, every dollar you choose to hand out is not wasteful or even unproductive outcome of some signaling game with unintended consequences, but another example of gains from trade that maximizes the well being of society.

Why Antitrust is Not Worthy of Trust

My brother-in-law (a Linux user) was telling me that he was actually impressed with Windows 7. Since I will be buying a new computer in the next year, I thought I would look up any information about a release date, when I came across this:

"Microsoft has learned that this oversight is not going away very quickly, and that they have to deal with it proactively," said Michael Gartenberg, an analyst at JupiterResearch. "Their challenge for Windows 7 will be how can they continue to add features that consumers will want that also don't run afoul of regulators?"

You'll notice throughout the article that it is Microsoft's competition that is doing the complaining. Antitrust law is supposed to protect the consumers. In practice it protects firms from direct competition. What sense does it make anymore in the computer industry? How could anyone conceivably argue that Microsoft is a monopoly, or that computer technology is not competitive? I can't help but wonder how much better Window's operating systems would be if it were not for these limitations.

"Is Microsoft at a disadvantage here? Absolutely," he said. "No one else has this degree of oversight. No one's telling Apple, for example, that it can't include iTunes with Mac OS X."

Coase nonsense

Freakonomics has another post on the Coase theorem and its apparent failure to describe a real-world outcome. This time it's that liquor store right off the Strip in Vegas amongst the towering hotel-casinos. This isn't the first time they've gone down this path; there's a link in their post of more anti-Coase examples.

Can someone clarify for me why it is that an opportunity for increased profits due to a transfer of property rights is a failure of the Coase Theorem? Of the fundamental lessons from Micro principles is that value is subjective; it's easiest to describe examples of the Coase Theorem using simple dollar figures, but that's not the whole story. It can't be conceivable that the owner of the liquor company would value sticking it to the property owner over accepting a check from him? I don't get it.

The irony that the main economist on the site, Steve Levitt, is at the University of Chicago isn't lost on me either.

March Madness

It's March, and that means time to fill out the college basketball bracket! For some reason, this year there are a number of articles concerning the math of making predictions. Here's a computer model from a professor at Georgia Tech, and here's a rundown of efficiency measures in light of this year's bracket. Note that accuracy based on last year's tourney should be taken with a grain of salt-- models like these generally pick higher seeds over lower seeds (as they should), and last year was an aberration as all four top seeds advanced to the Final Four.

Feels like a Louisville year.

Where's Garfield?

Funny site where they remove Garfield from the stip, leaving John to look insane.

Hat Tip: Alex Ross

When you think about it, the author's productivity is based on destroying Jim Davis' production. Garfield's marginal product to the Davis strip was enormous, yet someone else removing him adds a little bit more value-added.

DARE to be REAL

Kipesquire warns of the impending Federalization of K-12 education:

Today Senator Frank R. Lautenberg (D-NJ) and Congresswoman Barbara Lee (D-CA) re-introduced the Responsible Education about Life (REAL) Act, legislation to authorize federal funding for comprehensive and medically accurate sex education.

I fully expect the proposed federal sex education programs to enjoy the same success as the DARE program.

(Additional DARE studies here, here and here. The google scholar search here.)

Will Inflation Mean Higher Tax Rates for All?

Obama has promised to not raise income tax rates on all but the richest of the population, for which he means those over $250,000.* Nevertheless, what if Allan Meltzer is right, and very high rates of inflation are just around the corner due to our rampant printing of money to fund these massive spending increases?

While wages adjust to inflation just as prices do, the tax brackets we face do not (see addenum below). If inflation increases our income at the same rate as prices, there would still be a fall in the standard of living as our average tax rates rise. They rise because more of our dollars will be taxed at the higher marginal rates, and for some of us it will mean being in a higher bracket all together. Really high rates of inflation might not be just "shoe leather taxes" but very real and very economically damaging taxes at a time that would be very counterproductive to a recovery.

Here is a link to IRS data on filers by bracket in 2006, and here are the bracket values in 2006. That seems to be the latest year available.

Addendum: Kipesquire points out that the IRS does index the brackets to some inflation adjustment factor (Thanks Kip!). I remain concerned because my understanding of Meltzer's point is that the inflation will be sudden and rapid once some aspect of the financial system is restored and that massive amount of money sitting in reserves starts to flow again. Given the time lag for data collection, I wonder if the brackets will adjust appropriately in a timely enough fashion.

* Economists are quick to point out, and correct in doing so, that the burden of these taxes will still fall partly on the lower income groups. For instance, various studies have shown the corporate income tax to be a regressive tax.

Can Someone PLEASE Explain Moral Hazard to These People?!?

This was on the CNN homepage:

The next bailout?

Ryan: On Realtor Compensation

(Justin started the discussion here.)

I’m struck by the following: “The house that best fits my preferences is also the one that I will pay the most to get.” Initially, I thought that this was slightly misspecified, but after thinking about it for a little bit I think it’s delightfully accurate and efficiently worded. It underscores a secondary advantage to the “percentage vs. fee” argument you bring up. Many times, when we think of the principal/agent issues created in the home buying process, we think of the deal closing finalities—everyone wants the deal done, both sides’ principals and agents, but you personally (or the home seller) bear the cost of blinking first in negotiations. But that’s placing the process beyond another problem—finding the best house amongst many that best fits your preferences, within reasonable structural constraints. It may seem a bit awkward to assume that someone would engage in a large scale financial transaction for something that would best fit your preferences, but there are a few of realities in the home buying process to realize:

1) We get good at figuring our preferences through repeat dealings. We have an ingrained sense of our preferences for food and clothes in light of their price not because we think about it any more than our preferences for a house, but because we get a large number of trial-and-error processes to fine-tune it. Houses, for most of us, don’t fit in here. And if you don’t believe that, consider your comfort level in finding an apartment that fits what you believe you want versus a house.

2) House-hunting is a time-intensive process; given this and the above point, it’s all the more important to incentivize the agent to find a house that matches well with the principal because it’s quite possible that the principal could end up purchasing a house that isn’t the best available. If it is a flat fee, like you mentioned, it doesn’t matter that the agent tries to find the best house, but one the agent will simply will engage in a transaction for, blind of the fact that a better match would yield the agent a larger sum under the percentage structure since the principal will pay more for a better match.

As an aside, time really plays a large role in buying a house—and in most of the instances, realtors can “out-wait” the principal, whether it’s moving to a new locale for employment reasons (clear time horizon) or the discovery of a better matching home in the same area (self-imposed time horizon, “we’ll-never-find-another-home-like-this”).

It’s an interesting principal/agent scenario to look at since P/A situations usually have conflicting objectives, but that’s not the case here. In the case of the shirking employee, the employee wants to less productive for the same wage. The employer wants the employee to be more productive. That’s a direct conflict. Here, it’s more a matter of degree. You want to buy a house. The realtor wants you to buy a house. You want as low a price as possible; with a flat fee, the realtor’s main goal is to close the deal. Not the same goal—that’s why we have a principal/agent problem in the first place—but not exactly conflicting, either.

Ross: On Realtor Compensation

This is the first entry in the "TPS Discussion" series.

Prompt:

If you are in the market for buying a house with the help of a realtor, one of the more peculiar aspects of this prospect is how the realtor representing the buyer is compensated. The buyer’s realtor, like the seller’s, is compensated by receiving a commission that is a percentage of the final sale price. This is peculiar because it would seem, at least at first blush, that the incentives of the agent are better-aligned with the opposing party during negotiations. What incentive does the realtor have to help the buyer negotiate a lower price? Why is this compensation scheme the dominant model of realty transactions?

Justin's Thoughts:

Let’s ask why this scheme has emerged as something demanded by the prospective buyers. Imagine we are in an environment where you have multiple real estate agents standing on the street and holding up a signs with different contract terms: some ask for a fixed fee; others ask for a % of the sale price. Why over time would the fixed fee realtors be selected against?

I think the answer is that the fixed fee approach places too much emphasis to complete a transaction, and actually would align the buyer’s agent with the seller more than the percentage price approach. To get a sale, the fixed fee realtor simply needs to find a house that provides positive amounts of consumer surplus. This also gives the realtor an incentive to represent any house as a structure that will give me positive amounts of surplus.

However, such a serious investment of money and time means that I want to get the house that best fits my preferences. The house that best fits my preferences is also the one that I will pay the most to get. By paying the realtor the percentage of sale price, I am incentivizing him to both complete a deal and find the house that I will demand the most. The final bargaining stage, which is typically over a few thousand dollars, is simply too small of a perverse incentive to outweigh the positive incentives created in the search process.

Furthermore, on the supply side, real estate agents ultimately will have more success when they let the buyer make the decision. Advising and getting it wrong, or appearing to get it wrong, will wind up with the agent receiving the buyer’s blame much more than the cases where the agent gets the advice right. There is little upside to the agent in a system when they take more responsibility in the negotiating process, and a significant potential downside. Buyers might also choose against the infringement on their sovereignty.

Matt Replies

TPS Discussion

The TPS bloggers are going to try and introduce a new aspect to our blog that will go under the label "TPS Discussion."

Our intention is to have multiple bloggers post their thoughts on the same subject, or prompt, to stimulate some interesting discussion. Hopefully, the readers will enjoy it as much we will.

Cuban 7th Inning Stretch

Hat Tip to Jorge Costales at 2thinkgood:

Take me out of the ball game,
to roam freely, I’m not allowed.
Not to get peanuts or cracker jack,
fidel will be angry if I don’t go back.

Let me walk, walk, walk in the city,
if I defect it’s no shame.
For it’s one, two, three steps, I’m gone,
from the old ball game.

Late Night Thoughts on Macro

I have been following the DeLong v. Horowitz v. White debate over Hayek and Austrian Business Cycle Theory as a larger part of trying to understand the various business cycle theories in general. The more I try to understand Keynesians, like DeLong and Krugman, the less convinced I am of their position.

What is so special about how we define spending in GDP to the real economy? Consider the common Keynesian example of a project where unemployed people are paid to dig and then refill holes.

Suppose instead of spending on a dig and refill program, we pay them to open an envelope. Fairly simple program to administer, we'll just put a check inside the envelope, so they get the money when they do the work.

Nevertheless, I believe Keynesians would still call my envelope-opening program a "rebate" (especially if we mail the envelopes from the IRS) and their dig and refill program a "increase in spending." As such, my envelope program gets a low multiplier (.99 I think) and dig-n-fill program gets a larger multiplier (1.27 if I recall).

Yet the only real difference I can discern from these two programs is how we count these activities in GDP. In this respect, Keynesians to me are looking a lot like the executives of Enron, who relied on accounting tricks at the expense of real performance.

Beware the Ides of March...

...if you don't join me in wishing TPS blogger Claudia Williamson a Happy Birthday!

How Many States Mandate Insurance Companies Cover Acupuncture?

Eleven.

To see every health mandate for every state in 2008, as well as their cost, see here.

In the opening of the short report, the group channels Milton Friedman:

Mandating benefits is like saying to someone in the market for a new car, if you can’t afford a Cadillac loaded with options, you have to walk. Having that Cadillac would be nice, as would having a health insurance policy that covers everything one might want. But drivers with less money can find many other affordable car options; whereas when the price of health insurance soars, few other options exist.

Hat Tip to Suzie Witmer, for the pointer.

Free Market Ideas and Stossel's 20/20

How refreshing! Last night's 20/20 featured the voices of free market economists presenting sound economic arguments against the bailout. George Mason's own Peter Leeson was featured among the anti-pork package economists such as Walter Williams, Don Boudreaux, Mario Rizzo, Ben Powell, Brian Caplan, and Lydia Ortega -- all of whom challenged Obama's rhetoric of agreement among economists on the need for government intervention.

Now is the most important time to express dissent over the prevailing path of government intervention. Ideas matter. Politicians may simply be myopic slaves to the concentrated interests. In that view, their support of these billion dollar bailouts are understandable, if still inexcusable. But the Keynesian demand management ideas that many economists support (and those who fail to speak up are getting pegged to) are wrong, dangerous, and down right bad economics.

In light of this year's annual Public Choice Society Meetings, I find this a particularly important topic. The last plenary session of the conference was entitled "Financial Crisis Bailout: Stimulus or Porkulous?" From where I was sitting, I would suggest that the majority of attendees came down on the "Porkulous" side of the debate. Mike Munger eloquently outlined the foul effects that arise when government removes all risk from the market. He reminded the audience that a fall in real asset values does not equal "market failure". The market process requires failure.

But sadly, a reminder was necessary. And despite a relatively free market crowd, I was surprised to hear justifications of the congressional spending package as stimulus by way of a political Coase Theorm arguments. In other words, the spending package taxpayers will be paying for years to come may simply be 'just another cost of doing business'. These types of arguments suggest (IMHO) that a renewed intellectual investment in radical laissez-faire capitalist ideas is desperately warranted.

Stossel's show serves an important role illustrating for the public of the tyrannical power of a state. The case of Charles Lynch is a tragic case in point (which I hope to blog more about in future posts). Because I do think ideas matter, it excites me to see free market arguments get a slice of national coverage -- even if its only a few minutes among a relentless tide of poor economic logic and political polemics. Given the group chosen for 20/20, some of this renewed intellectual investment in the ideas of a free and prosperous society may be found at the upcoming Association for Private Enterprise Education conference.

Note to Conservatives

This shirt is just as creepy with Ronald Regan on it as the Obama shirt it parodies.

Subsidize Things You Want More Of

Like bad decisions, as Sowell points out:

We hear a lot of talk in some quarters about how any one of us could be in the same financial trouble that many homeowners are in if we lost our job or had some other misfortune. The pat phrase is that we are all just a few paydays away from being in the same predicament.

Another way of saying the same thing is that some people live high enough on the hog that any of the common misfortunes of life can ruin them.

He then answers just the right question(s):

What if the foreclosures are not stopped?

Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices-- prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for "affordable housing" for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of "affordable housing" is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit.

Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

Study after study, not only here but in other countries, show that the most affordable housing is where there has been the least government interference with the market-- contrary to rhetoric.

T-Shirt Suggestions

If you have been finding it too easy to get dates on Friday night, up the challenge by ordering t-shirts that I customized online:

Boudreaux Worthy Analogy?

A masterful finish to Professor Zingales argument against Keynesianism is perhaps Don Boudreaux good (that is extremely good):

Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.

Note that in Brad DeLong's part, he acknowledges the numerous giants of the field (most of whom actually study business cycles) who disagree with Keynesian policies as effective stimulators of the economy, and he does so without calling them "ethics free republican hacks." Has he just now realized that, as Zingales points out "...it is hard to find academic papers supporting the idea of a fiscal stimulus." Or does he just think these specific people are not these three things?

Criminal Extortion

This is all the prompting I need to do a little self-promotion. At the PCS meetings, I presented my paper on Criminal Extortion where I attempt to explain how fewer than 300 members of the Mexican Mafia prison gang can systematically extort approximately 80,000 street gang members. Prison gangs extort “gang taxes” from criminals on the street because they can send a clear and credible signal of punishment: if a criminal refuses to pay gang taxes then the prison gang will assault or murder him when he goes to prison at some time in the future. Successful prison-based extortion depends on inmates’ ability to establish power in prison, the characteristics of the victim, and the nature of the illegal activity, if any, conducted by the extortion victim. The paper provides evidence by examining the gang's written constitution, law enforcement documents, and information provided by former gang members-turned informants.

Comrade Fidel's Blog

This post on the World Baseball Classic. How can you not read it?

Counter-Cyclical Assets: McDonalds

From Slate:

The company on Monday said same-store sales were up 5.4 percent worldwide in February, adjusted for the extra day in February last year. The gains were more pronounced in the United States than elsewhere—up 6.8 percent—and both McDonald's and the Journal chose to highlight the relative struggles, if you can call them struggles, the company is facing in foreign markets.

COBRA Changes For Stimulus?

Med Law Blog has the details, but TPS friend Jason Oberle nails down what amounts to a rewriting of expired contracts:

Consider firm A has 100 employees and between Sept. 1, 2008 and Jan. 1, 2009 50 employees have been let go. The average cost of 65% of the COBRA benefit being carried by the employer is $650. Now that employee must retro-actively notify and further support the 50 people at $650 on the corporate books until the next tax season before the federal government will reimburse through a tax-credit. Sounds like an additional cost of $32,500 per month on the struggling business.

Getting the Virtual Economy Off the Gold Standard

A friend sends me this, discussing the always interesting world of virtual economies:

Game designers face many challenges, and one of the largest of these is balance. Classes must be balanced in both PvP and PvE, races must be comparable with each other, trade skills, weapons, and armor all need some form of equity. Yet curiously, one facet that seems to garner a much smaller degree of balance is the economy. That isn't to say that it doesn't get a great deal of attention. Designers struggle to provide and sustain a manageable amount of profit and loss through all aspects of the gaming experience. It is a massive challenge because the economy is, by its very nature, pervasive. Yet the current solutions that game designers use to keep their economies in balance are peculiar and more reminiscent of a band-aid than any real resolution. It almost feels like they are saying, "The economy isn't exploding so don't tinker with it or it might spin out of control." Whatever the reason, the economic basis of the majority MMOs are built on very similar systems.

Hat Tip: Dave Esposito

Critiquing The Lorax

Ed Glaeser criticizes The Lorax, by Dr. Seuss over at the NYT. I've been meaning to discuss the Lorax, as I have discussed other Seuss and children's books. Glaeser's criticisms are a bit different from mine, as he makes the argument for urbanization:

But the unfortunate aspect of the story is that urbanization comes off terribly. The forests are good; the factories are bad. Not only does the story disparage the remarkable benefits that came from the mass production of clothing in 19th-century textile towns, it sends exactly the wrong message on the environment. Contrary to the story’s implied message, living in cities is green, while living surrounded by forests is brown.

What surprises me though, is that Glaeser does not have a problem with the book on the grounds that I usually criticize it:

Some of the lessons told by this story are correct. From a purely profit-maximizing point of view, the Once-ler is pretty inept, because he kills his golden goose. Any good management consultant would have told him to manage his growth more wisely. One aspect of the story’s environmentalist message, that bad things happen when we overfish a common pool, is also correct.

Not only is the Once-ler inept for not managing his growth responsibly, but at the end of the book he actually gives a child the last remaining Truffula Tree seed and tells him to repopulate the forest!

I realize Glaeser is mostly just trying to stick to an issue and the Lorax is a hoook, but my problem with the book is that it implies that the profit maximizing strategy leads to destruction of the resource, whereas the profit maximizing strategy is maintaining the resource through adequate assignment of property rights. The tragedy of the commons is not on display in the book, the Once-ler appears to be a monopolist with no concern that he will not be able to make legal claim on the property. So I don't cede that part of the story to the environmentalist message, nor do I believe they have special claim on understanding the tragedy of the commons.

This resource conservation aspect of profit maximization is a point I actually make to my v517 students when they study the case of Champion Timber. In the case study, it is revealed that Champion owns a 55 acre forest and only reaped 1-acre per year because the trees had a 55 year maturity cycle. Like the Once-ler, any company who could not figure this out would be eliminated from the market in very short order. Unlike the Once-ler, you do not see firms or farms acting in this manner.

Notes on the Public Choice Society Meetings

What I found most memorable about the PCS meetings:

• Nicolaus Tideman's suggestion that we switch from a fiat money system to a commodity system. Not just any commodity, and not gold, but brick. Brick would be the basis of the money supply. He quickly defused many of the knee jerk reactions that one would throw at this idea. It's real challenge will be winning over monetarists when the possibility of a negative shadow value during recessions exists. The other challenge would be convincing the public of what on the surface appears to be a horrendous idea, but may actually be brilliant. I really hope this idea gets more attention. Regardless of how the profession will judge it in the end, it will be interesting to watch.
  
  
• The return of the political business cycle model. I missed its return, and only learned about it when the paper that apparently brought it back won the annual award for best in the journal.
  
  
• Matt and I's lunchtime conversation in which we pondered whether Prius owners will push for a heavier gas tax to retroactively justify their purchase. On the subject of home ownership, we also chewed on ideas as to why the realtor representing buyers have their compensation determined as a percentage of the final sale price. Will surely be a future blog post.
  
  
• TPS bloggers once again didn't manage to get a team photo.
  
  
• David Skarbek's explanation of how imprisoned members of the Mexican Mafia are able to extract bribes from roughly 80,000 drug dealers free on the streets. David needs a post with the explanation, if for no other reason than self-promotion.
  

And on Vegas itself:

• When you think about it, casino's differentiate themselves in the competitive process by freely providing what is almost a pure public good. Fake volcanoes with very real fire, water shows, the Eiffel Tower, Michael Jackson impersonators, and pirate ships are for anyone to enjoy and yet it is hard to make the case that they are under provided, as a sterile Samuelsonian model would predict. It's hard to make an economic profit gambling as anyone can offer a higher payout rate. You have to get volume to ensure the house wins, and for that you need a draw.
  
  
• I can definitely see now that a airline could feasibly exist by offering free seats on a flying casino.
  
  
• I consider Fremont Street to be the highlight of the visit.
  

Health Insurance Before the Welfare State

The Independent Review has an interesting article on the various social institutions that existed into the 1920's, and how pervasive they were in America and Britain. They argue that these organizations were quickly wiped out of existence with the emergence of government conscription of their members into the welfare state. Here is the summary of the paper from their newsletter:

At their peak, fraternal organizations and
friendly societies provided health insurance for
millions of Americans and Britons, mostly lowermiddle-
class tradesmen and skilled artisans. By
1886, the Independent Order of Oddfellows and
the Ancient Order of Foresters each claimed more
than 600,000 members worldwide. In the 1920s,
roughly every third adult male in the United States
belonged to a fraternal organization.

These groups were characterized by independent
lodges, democratic governance, a ritual,
and mutual aid for members (and often their
families). Although camaraderie was a leading
incentive to join, disability insurance was also
an attractive benefit.

Despite their popularity, however, such groups
had all but vanished within two decades after being
pushed aside by the surge of the welfare state.
What accounts for their rise and fall?
The answer, according to Pavel Chalupníček
and Lukáš Dvořák (both from the University of
Economics in Prague), lies in the concept of social
capital, an individual’s ability to use his or her network
of friends and acquaintances for economic
gain. Social capital, they explain, enables many
people to function better in society, but its value
depreciates rapidly in the presence of certain
kinds of government activities.

Blame Barbie

Again, when lawmakers sweat the small stuff, it leaves their prying hands out of the economy. So when West Virginia debates the possibility of banning Barbie dolls, can I be terribly upset? Perhaps-- there's a number of structural changes that need to occur here in West Virginia before growth comes about. Then again, they're not making things worse...half-empty/half-full, I suppose.

BLS Perspectives on Paid-Leave Benefits

The Bureau of Labor Statistics has a new report carrying some interesting descriptive statistics on paid-leave benefits. A nugget:

Paid holidays were available to 77 percent of private-industry workers as of March 2008, and paid vacation leave was available to 78 percent of the workers. Sixty eight percent of State and local government workers received paid holidays, and 60 percent received paid vacation leave. Government workers’ access to paid holidays and vacation leave was lower than that of their private-sector counterparts, primarily because workers in education occupations typically work 9 or 10 months per year and many do not receive paid holidays.

I don't know what they mean here by education workers not receiving "paid holidays." My wife never worked during Christmas, Thanksgiving, election day, and a host of other holidays. I can assure you she was still getting paid.

Pub Corn

MLB's Buyer Beware Problem in the DR

This story from sports illustrated on the various ways in which MLB teams have tried to overcome fraud in their recruitment practices in the Dominican Republic is very interesting, and illustrates the various ways the private sector has solutions that evolve and emerge. Especially in a environment where the activity is approach to fraud is constantly evolving. Here's a teaser:

When signing a teenage prospect, scouts in the Dominican Republic have always worried about what they might get, but now they must worry about who they might get. Two weeks ago SI.com revealed that Washington Nationals prospect Esmailyn Gonzalez, who had been signed to a team-record $1.4 million bonus in 2006, was really Carlos Alvarez, and that he was four years older than he had been purported to be. In the wake of the scandal Nationals general manager Jim Bowden resigned and Bowden's special assistant, Jose Rijo, was fired.

"Obama's No Stranger to the Bong" Music Video

Via Reason TV. Notice Ron Burgandy's endorsement at the beginning. For your lunchtime enjoyment:

World's 50 Most Admired Firms by Location

Full list at CNN Money:


Knowledge spillovers, anyone?

TPS at PCS

If you are attending the Public Choice Meetings in Las Vegas this weekend, here is where you can find bloggers of The Perfect Substitute:

Ross will present "Assessor Incentives and Property Assessment" on Friday morning at 10:15 am.
Schaeffer will present "The Role of Private Bureaucracy in Natural Disaster Response and Relief" on Friday morning at 1:45 p.m.
Skarbek will present "Controlling Convicts: How and Why Incarcerated Prisoners Control Street Gangs" on Saturday at 3:45 p.m.

The Moral and Just Socialist Society

None of that voluntary market transaction evil greed in Venezuela. Troops ordered to turn on their own people? It's just the growing pains of a new order. CNN:

Venezuelan President Hugo Chavez has ordered troops to immediately take over rice-processing plants in his country, accusing some businesses of ignoring prices set by the government.

"What are some of the sectors of the agricultural industry doing? They buy rice from producers, and they don't want to produce regulated rice," Chavez said in a televised address Saturday.

"Well, I've ordered the intervention, starting right now, of all those sectors of the agricultural industry."

Recall that I have previously stated that I support Chavez in these interventions, while acknowledging that it may mean that I am evil.

With that in mind...keep it up Hugo!

Introduction to Spatial Econometrics

If you have any interest in using spatial econometrics, you must pick up a copy of the new text Introduction to Spatial Econometrics by James LeSage and R. Kelley Pace. It is extremely well written for an econometrics textbook, as it is very clear and very concise.

If you haven't tried to learn spatial econometrics on your own before, you probably can't appreciate how valuable and necessary this text is. The existing fieldwork was largely without a single reference, and as a result I was frequently frustrated by reading contradictory statements or other material I knew was not correct. Unfortunately, I suffered a rejection or two because I followed the missteps of others that were published (often in very good journals). More frustrating still was when a referee would reject a paper because they misunderstood spatial econometrics.

The last textbook on the subject was Anselin's 1988 text, which is a great work itself, but computing power has greatly changed the realm of possibility, and it didn't give a full treatment to interpreting the results (partly because it wasn't yet understood). Access to it is also very limited, as it is long out of print and fetches a high price on Amazon. The preface of the LeSage and Pace text tries to get this warning across:

Luc Anselin in his influential 1988 text on spatial econometrics provides a strong argument for use of models capable of addressing simultaneous spatial dependence that arises in spatial data samples. However, this concept has made the field somewhat mysterious, and we believe the alternative motivations provided here for use of spatial regression models involving spatial lags of the dependent variable will help demistify the concept.
Another goal of the text was to aid practitioners with interpretation of spatial regression models, especially those that include spatial lags of the dependent variable. The applied literature contains a number of studies that misinterpret regression results from these models. We provide new methods that produce useful summary measures of the direct and indirect or spatial spillover impacts that arise in these models in response to changes in the explanatory variables.

I give this textbook my highest recommendation