Winner's Curse or Delaying Recalculation?

When I first, saw this article about the local highway construction, my first thought was "winner's curse":

The Indiana Department of Transportation has awarded Milestone Contractors -- whose bid was $3 million less than the second nearest bidder -- the contract for the 45/46 bypass expansion project in Bloomington. But some area contractors are wondering just how Milestone’s bid could be so low.

However, the article has several interviews that suggest that many contractors are intentionally going below cost in an effort to retain good employees until the recession passes:

“We surveyed our members in late December, early January and 10 percent of them told us that they were actually bidding projects below cost,” Turmail said. “In other words we call that buying work where they’re willing to take a loss on the work simply to keep their teams together and busy.”

[...]

“If you have good construction workers that you can rely on you absolutely want to do everything you can to keep them on staff because ultimately the success of the contractors is based on being able to get the job done right the first time.”

If you stick around to the end of the story, however, the winning company thinks that they believe the state engineer systematically overestimates the true cost of projects by 25-30 percent, so that they expect to turn a profit on their bid-price. A couple of remaining thoughts:

1. For students, when does it make sense to undertake a project despite an expected loss? i.e. What are the relevant costs to this decision?
2. I know there is a literature on the state revenue forecaster rationality/bias, but is there one on state engineer cost estimates? This would be a much more difficult question to address, but one that might make an interesting dissertation for some enterprising doctoral student with interests in public choice and industrial organization.

Juicing the Mitchell in Peru

Members of Congress in Peru dance to Thriller for Keiko Fujimori's birthday (links to spanish, but Google translates). The video is hilarious.



Imagine the time that went into that choreography. And, frankly, I cannot think of a better use of their time.

It's somewhat ironic that they mixed in a few lines from "Jailhouse Rock." Recall that Keiko's father, former President Alberto Fujimori, is currently incarcerated for corruption and human rights abuses.

[HT: Astrid]

NYT Editors Should Read Bob Higgs

As Art Carden points out, this NYT Editorial suggest "we have work to do."

It was government that rescued the economy from the Depression and promoted safety and equality in the workplace.

Perhaps the fine folks at the Independent Institute could send the editorial staff a copy of Higgs' Depression, War, and Cold War.

Theories of Jupiter Cloud Belt Disappearance

On Facebook, Matt blames Earth's global warming for the disappearance of the Jupiter Cloud Belt. The data, however, makes me skeptical:

"The SEB fades at irregular intervals, most recently in 1973-75, 1989-90, 1993, 2007, 2010," said John Rogers, director of the British Astronomical Association's Jupiter Section. "The 2007 fading was terminated rather early, but in the other years, the SEB was almost absent, as at present."

Contra Matt, I would point to the fact that three of the first four SEB fades occurred during the year of a NBER business cycle peak: 1973, 1990, and 2007. Whether the Jupiter cloud belt is a lagging or leading indicator, I cannot be sure. Regardless, I think the writing is on the wall (er, Jupiter atmosphere) that we are about to experience a double-dip recession.

Less-than-Blockquoting X

It's time for me to pull my best Will Luther and provide a quote for guessing!

Given the evolution of macroeconomics over the years-- and especially in light of Hayek's Nobel Prize speech-- I was pleased to read the following:

“Not everything that can be counted counts, and not everything that counts can be counted.”

Author below the fold.

+/-

Albert Einstein.

Economic freedom, culture, and growth

TPS Blogger Claudia Williamson with Rachel Mathers, at Public Choice:

How do economic freedom and culture impact economic growth? This paper argues that culture, as measured by the World Values Surveys, and economic institutions associated with economic freedom are both independently important for economic prosperity, but the strength of their impact can be better understood only when both are included in the growth regression. Our results indicate that economic freedom is more important than culture for growth outcomes, suggesting substitutability between the two. We posit that culture is important for growth when economic freedom is absent, diminishing in significance once economic freedom is established.

The War on Duh

In this article from the AP, former U.S. drug czar John Walters says of the War on Drugs:

Walters insists society would be far worse today if there had been no War on Drugs. Drug abuse peaked nationally in 1979 and, despite fluctuations, remains below those levels, he says.

It's true. If you look at the past 40 years of drug abuse data, identify the year in which the maximum observation occurs, it turns out every other year will be less than that. Well done, sir, well done.

Want to Trade Your Water? Here's How It's Done In California!

Just follow the water decision tree!!
Can be found as Figure 1 here. Click to enlarge.

The Private Provision of Public Goods: The Bones of Santa Claus

From Time:

In 1087, the Italian town of Bari hired men — some accounts call them pirates while others refer to them as "privileged mariners" — to steal St. Nicholas from Myra, a town in present-day Turkey. The theft of Santa's bones is still celebrated in Bari with an annual parade and fireworks.

According to this website, this project was launched as a joint venture organized by private merchants and a Bari church. It also says that the church double crossed the pirates and never paid them. They overcame the free-rider problem nonetheless.

Weather Forecasts

A colleague of mine, Antony Davies, sends along this information about Pittsburgh's upcoming weather:

Weatherbug says the prob of rain from 9:00 to midnight is 96%.
Weather.com says the prob of rain from 9:00 to midnight is 10%.

I've always thought that weather forecasts were biased towards poorer weather-- if there's to be error, you'd rather it in that direction-- but that is a remarkable spread.

Does anyone know of any systematic studies on weather forecasts and bias?

Visa Concierge Service

Have you heard about this? This post by Sir John Hargrave is not only descriptive of the program, but also incredibly funny.

How many times have you been at a restaurant, arguing with your friends about which President was the fattest, or whether Kevin Bacon has ever done a nude scene? Now you don’t need to pull out your smartphone and Google it, you can just call Visa and have them look it up for you.

Having a Visa worker do your bidding: much classier than an iPhone.

Have any of you tried this service? I would love to hear more.

[HT: Astrid]

Very Good Sentences

From Megan McArdle, on the new Arizona Immigration Law:

I'd be a lot more sympathetic to this law, in fact, if it required the police to check the immigration status of every single person they pulled over, without any gauzy "reason to believe" fig leaf to cover up what's really going on.

Raise your hand if you think that law could have passed in Arizona.

My hand is down, by the way.

Blockquoting X

X = Lawrence H. White (@ 36:17).

So, one way to sum this up is to say that, in theory, there is no difference between monetary theory and practice. But in practice, there is. I guess that is true of most theories.

Funniest Thing I've Read All Day

From the comments section at Kids Prefer Cheese.

Has anyone EVER seen a cat skeleton in a tree?

The post is good too.

Blockquoting Who?

Following Will's game, guess who said this:

Every tax, however, is to the person who pays it a badge, not of slavery, but of liberty.

This one demonstrates the power of pulling quotes out of context. Answer in the comments.

The Bender Brewer Project

If you are looking to waste a little time, this website details how a Bender capable of brewing beer was built. A fun read, even if a waste of time.

Revenue Maximizing Parking Tickets

The economics of parking tickets have been on the mind recently as I received one a couple of weeks ago. Let's assume cities want to maximize the revenue gained from parking. This comes in two forms-- 1) metered/garage parking, where individuals pay up-front for the parking, and 2) issuing tickets for violations.

Of the garages that I've frequented, there's not too much of a story here. You either pay for a pass which allows you access or pay by the trip, which happens before or immediately after the parking is done. I don't see much non-compliance here-- it's not terribly difficult to enforce the arrangement. Revenue comes in from drivers, expenditures go out to workers, ticket machines, upkeep on the garage, etc. End of story.

Things get interesting with the meters, however. Revenue at the meters is a function of a number of things-- garage availability and price, price to park at the meter, price of the ticket for not paying the meter, and the probability of receiving a ticket for not paying the meter. In turn, the probability of receiving a ticket is a function of the number of people working to catch violators. Costs of such an arrangement are upkeep on meters, hiring people to collect the money, a court system to enforce the tickets and hear appeals, and, again, hiring individuals to enforce the arrangement and catch violators. The number of people hired to catch violators comes in on both revenue and costs-- this leads me to believe that there's an optimal number of people to hire.

Appeals are costly and are a function of the price of the ticket. I got uncountable $5 parking tickets in Morgantown; why appeal? If those were $5000 parking tickets, every single ticket would likely be appealed. Naturally, the city make more money by increasing ticket prices, but only to a point.

I'm curious about the optimal mix of parking meters and garages. It should also be noted that most (all?) private parking arrangements are done without meters; I think this is important to consider and makes me think that a best case scenario does not involve meters. Then again, cities don't have the full spectrum of options at their disposal-- they can't have unlimited garages due to space constraints, and along similar lines, there isn't infinite space for parking meters.

So the questions, then: What is the optimal ticket price? What is the optimal meter price? What is the optimal garage price? What is the optimal mix of garages and meters? What is the optimal number of people searching for meter violators? Is there an optimal number of appeals?

All are a function of local conditions and all matter in determining the others.

Blockquoting Who?

As suggested by co-blogger Matt, I offer a quote today as a challenge. Guess who said this:

It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustments that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even whole-heartedly seek, that ideal.

The answer is below the fold.+/-

Pigou, A.C. 1912. Wealth and Welfare. London: Macmillan, p. 248.

If this surprises you, check out Roger Backhouse and Steven Medema's working paper on Cambridge antecedents to Virginia and Chicago Political Economy. The authors provide a slew of quotes from Sidgwick, Marshall, and Pigou.

Juicing the Mitchell: Facebook Regulation

Sure are a lot of these lately. From Yahoo News:

Four U.S. senators want Facebook to make it easier for its more than 400 million users to protect their privacy as the website develops new outlets to share personal information.

[...]

Schumer sent a letter Sunday to the Federal Trade Commission calling for regulators to draw up clearer privacy guidelines for Facebook and other Internet social networks to follow.

Hat Tip: Todd Nesbit

Do As I Say, Not as I Text

Source:

Fiddling with your iPhone behind the wheel can get you fined across much of the nation. But many states are more than happy to tweet you with up-to-the-minute directions on how to steer clear of a traffic jam.

[...]

At least 22 states that ban texting while driving offer some type of service that allows motorists to get information about traffic tie-ups, road conditions or emergencies via Twitter.