Tyler Cowen's Blog, page 210
March 19, 2014
How to improve referee performance
Via Michael Makowsky, there is a new and extremely useful paper by Chetty, Saez, and Sandor in “slides” form (pdf). Their conclusions include these:
1. Short deadlines for referees are extremely effective at increasing speed.
2. Cash incentives can generate significant improvements with salient reminders right before a deadline.
3. Even light social incentives, such as direct prods from an editor, can bring significant benefits.
More broadly, at least in this context cash incentives work, they do not displace social incentives, and attention really matters as do “nudges.”
Assorted links
1. Long explanation and explication of the work of Emmanuel Todd.
2. Is it time for floating cities?
3. Let’s deregulate recycling for second-hand medical implants from the bodies of dead people. (How’s that for a winning political agenda?)
4. The strongest chess tournament ever approaches its climactic showdown.
5. Austin Frakt has done a study of the job lock literature.
Sentences to ponder
Artists grew up in households w/typically higher incomes than doctors did…
There is more information here, along with a picture, and the original story here.
Addendum: Cowen and Tabarrok once wrote on this topic.
Modeling Vladimir Putin
Here are some options:
1. Putin is a crazy hothead who is not even procedurally rational. Merkel received that impression from one of her phone calls with him.
2. Putin is rational, in the Mises-Robbins sense of instrumental means-ends rationality, namely that he has some reason for what he does. He simply wills evil ends, namely the extension of Russian state power and his own power as well.
3. Putin is fully rational in the procedural sense, namely that he calculates very well and pursues his evil ends effectively. In #2 he is Austrian but in #3 he is neoclassical and Lucasian too. He knows the true structure of the underlying model of global geopolitics.
4. Putin lives in a world where power is so much the calculus — instrumentally, emotionally and otherwise — that traditional means-ends relationships are not easy to define. Power very often is the exercise of means for their own sake and means and ends thus meld and merge. Our rational choice constructs may mislead us and cause us to see pointless irrationality when in fact power is being consumed as both means and end. It is hard for we peons to grasp the emotional resonance that power has for Putin and for some of his Russian cronies. They grew up in the KGB, watched their world collapse, tyrannized to rise to top power, while we sit on pillows and watch ESPN.
Here is a former CIA chief arguing Putin has a zero-sum mentality, though I would not make that my primary framing. Here is Alexander J. Motyl considering whether Putin is rational (Foreign Affairs, possibly gated for you). Here is an interesting and useful discussion of differing White House views of Putin. This account of a several-hour dinner with Putin says he is prideful, resentful of domination, and hardly ever laughs. Here is Eric Posner on Putin’s legal astuteness.
My views are a mix of #2 and #4. He is rational, far from perfect in his decision-making, and has a calculus which we find hard to emotionally internalize. His resentments make him powerful, and give him precommitment technologies, but also blind him to the true Lucasian model of global geopolitics, which suggests among other things that a Eurasian empire for Russia is still a pathetic idea.
Putin is also paranoid, and rationally so. We have surrounded him with NATO. China gets stronger every year. Many other Russians seek to kill him, overthrow him, or put him in prison.
Assumptions about Putin’s rationality will shape prediction. Under #1 you should worry about major wars. With my mix of #2 and #4, I do not expect a massive conflagration, but neither do I think he will stop. I expect he keep the West distracted and seek to turn resource-rich neighbors into vassal states, for the purpose of constructing a power-intensive, emotionally resonant new Russian/Soviet empire, to counter the growing weight of China and to (partially) reverse the fall of the Soviet Union. Even if he does not grok the true model of the global world order, he does know that Europe is weak and the United States has few good cards it is willing to play.
Developing…
Addendum: Whatever your theory of Russians in general may be, watch this one-minute video of a Russian baby conducting and give it a rethink.
March 18, 2014
The economics of South Ossetia
They are not good, despite high expectations from some of the initial Russian sympathizers:
These days South Ossetia’s economy is entirely dependent on budgetary funds from Russia. Unemployment is high, and so are prices, since goods must now be shuttled in through the tunnel, long and thin like a drinking straw, that cuts through the Caucasus ridge from Russia.
Its political system is controlled by elites loyal to Moscow, suddenly wealthy enough to drive glossy black cars, though the roads are pitted or unpaved. Dozens of homes damaged in the 2008 war with Georgia have never been repaired. Dina Alborova, who heads a nonprofit organization in the South Ossetian capital, Tskhinvali, said her early hopes “all got corrected, step by step.”
The full story is here.
Crack cocaine estimate of the day
At present, no more than about 200 young people start using crack-cocaine each day. Ten years ago, the corresponding estimated daily rate was 1,000.
That is from this paper, via Kevin Lewis.
Tesla versus the Rent Seekers
The NYTimes has a very bad article on Tesla and auto dealer franchise laws. The worst bit is this mind blowing contradiction:
…most states have some limits on direct sales by auto manufacturers…These rules are generally meant to ensure competition, so that buyers can shop around for discounts from independent dealers, and to protect car dealers and franchises from being undercut by the automakers.
So there you have it, limits on direct sales ensure competition and protect car dealers from being undercut by the automakers. Sorry, but you can’t have it both ways. Which view is correct? Let’s begin with some background (drawing on a great article by LaFontaine and Morton).
Franchising arose early on in the history of the auto industry because, as in other industries, franchising can take advantage of local knowledge and at the same time control agency costs. Franchising rules evolved in Coasean fashion so that manufacturers could not expropriate dealers and dealers could not expropriate manufacturers. To encourage dealers to invest in a knowledgeable sales and repair staff, for example, manufactures promised dealers exclusive franchise (i.e. they would not license a competitor next door). But with exclusive franchises dealers would have an incentive to take advantage of their monopoly power and increase profits by selling fewer units at higher profits. Selling fewer units, however, works to the detriment of the manufacturer and the public (ala the double marginalization problem (video)). Thus the manufactures required dealers buy and sell a minimum quantity of cars, so-called quantity forcing. Selling more units is exactly what we want a monopoly to do, so these restrictions benefited manufactures and consumers.
Politics, however, began to intrude into this Coasean world in the 1940s and 1950s. Auto sales accounts for some 20% of sales taxes and auto dealers employ a lot of people so when it came to a battle in the state legislatures the auto dealers trumped the manufacturers. The result was franchise laws that were increasingly biased towards dealers. In essence, exclusive franchises became locked into place, manufactures lost the right to add dealers even with population expansion, quantity forcing became illegal and dealer termination became all but impossible.
The result of dealer rent seeking has been higher auto prices for consumers, about 6% higher according to one (older) study by the FTC. Consumers have been stiffed in other ways as well. In some states, for example, manufacturers were required to reimburse dealers for a repair under warranty whatever amount the dealers would have charged consumers for the same repair not under warranty. As a result, dealers had an incentive to increase their price to consumers because that increased what they would be reimbursed for repairs under warranty. The franchise laws have also resulted in a highly inefficient distribution of dealers as populations have moved but dealers have been frozen into place. The inability to close, move or consolidate dealers has impacted the big-3 American firms especially because they have older networks. As a result, a typical GM dealer sells 377 cars a year while a typical Honda dealer sells 1,062 and a Toyota dealer 1,488.
Tesla wants to sell directly to the public but more generally what we need is to restore the Coasean balance, put dealers and manufacturers back on a equal footing and let the market decide the most efficient means of retailing and distributing automobiles.
Addendum: Dan Crane and Lynne Kiesling have further posts on this topic.
Assorted links
1. Russ Roberts interviews Jeffrey Sachs, the most contentious parts are toward the end.
2. U. Chicago is the most leveraged of the wealthy colleges. Dangerous or not?
3. Very good 538 piece on Venezuela and Bolivia. And a list of the economics questions they are being asked. And Megan on the new media start-ups: “The biggest constraint that any of these organizations will face in growing traffic and reputation is the finite time of the founders.”
4. Billsnooper.com.
5. David Wu, currently of Lehigh, will be the next Provost of George Mason University.
6. For those of you who wish to debate the origins of Bitcoin.
The Girl Next Door (are sex and studying substitutes?)
That is a new piece (pdf) by Andrew J. Hill, at the University of South Carolina. It seems your child should beware the girl next door:
Parents are concerned about the influence of friends during adolescence. Using the gender composition of schoolmates in an individual’s close neighborhood as an instrument for the gender composition of an individual’s self-reported friendship network, this paper �finds that the share of opposite gender friends has a sizable negative eff�ect on high school GPA. The eff�ect is found across all subjects for students over the age of sixteen, but is limited to mathematics and science for younger students. Self-reported di�fficulties getting along with the teacher and paying attention in class are important mechanisms through which the e�ffect operates.
For the pointer I thank the ever-excellent Kevin Lewis.
*Water 4.0*
That is the new book by David Sedlak and the subtitle is The Past, Present, and Future of the World’s Most Vital Resource. I found this consistently interesting, going well beyond the usual anecdotes one finds in the other general “history of water” books. Here is one bit about Japanese water relations being Coasean in earlier times:
In Japan, human wastes were separated prior to recycling. Fecal matter was the more valuable commodity, because solids were easier to transport. In the first stage of the recycling process, landlords sold the feces in their tenants’ cesspools to merchants who were members of a guild that had secured the right to collect the wastes from that part of the city. The wastes were so valuable that the rent of an apartment would increase if the number of people living in the house, and hence the amount of solid waste produced, decreased. When it came time to renegotiate the price for the wastes, the guilds sometimes fought with each other for the rights to buy the increasingly valuable fertilizer.
Urine — the less prized waste — was still a marketable commodity. Because of its lower value, tenants, who owned the rights to their urine, sold it to a group of merchants who were not part of the fecal waste guild.
That discussion, by the way, is drawing upon this S.B. Hanley piece.
Recommended.
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