Tyler Cowen's Blog, page 416

Guest Blogger: Ed Lopez

Ed Lopez, co-author with Wayne Leighton of Madmen, Intellectuals and Academic Scribblers and president of the Public Choice Society, will be guest blogging at Marginal Revolution this week. Madmen is about the process of political change, where we are, where we should go and how can we get there given the insights of public choice economics. If, to quote Jim Buchanan, public choice is “politics without romance,” then Madmen is about revolution without romance–how political change can occur in a democracy. One of my favorite stories in Madmen is about Coase’s idea to auction spectrum rights.

But to allow the market to determine even the question of assignment meant a significant change in the status quo. When he was called to testify before the agency shortly before his FCC paper was published [in 1959, AT], Coase’s reception was indicative of how political institutions—especially Congress but also the FCC—would view his idea for decades to come. Commissioner Philip Cross began with the question, “Is this all a big joke?”

A decade later one former FCC commissioner wrote:

The Commission has absolutely no intention of considering them now or in the foreseeable future. They are purely the mind-spinning of an academic bureaucrat.

Most interestingly, in 1969 the RAND Corporation commissioned Coase, along with William Meckling and Jora Minasian, to produce a report on “Problems of Radio Frequency Allocation.” The Coase/Meckling/Minasian report was written in 1969 but not released until 1995! The report had been deemed too politically sensitive to publish and had been suppressed.

Eventually, however, first academics then many politicians and then even the FCC became convinced that spectrum auctions were feasible and as it became clear that money was to made that they were also desirable. Even after the idea earned fairly widespread acceptance, however, it took many years to be implemented because the Congressional committees with oversight of the FCC and the industry did not want to give up power. The right to allocate spectrum gave the members of these committees power which they transformed into campaign contributions and political support.Spectrum auctions were not implemented until they were also crafted to give advantages to some groups that these committees wanted supported. The payoffs to the new technologies, however, were so large that even with transaction costs and rent seeking a bargain was possible, a truly Coasian bargain.

Snitching markets in everything

The prisoners in Atlanta’s hulking downtown jail had a problem. They wanted to snitch for federal agents, but they didn’t know anything worth telling.  Fellow prisoner Marcus Watkins, an armed robber, had the answer.

For a fee, Watkins and his associates on the outside sold them information about other criminals that they could turn around and offer up to federal agents in hopes of shaving years off their prison sentences.  They were paying for information, but what they were really trying to buy was freedom.  “I didn’t feel as though any laws were being broken,” Watkins wrote in a 2008 letter to prosecutors.  “I really thought I was helping out law enforcement.”

That pay-to-snitch enterprise — documented in thousands of pages of court records, interviews and a stack of Watkins’ own letters — remains almost entirely unknown outside Atlanta’s towering federal courthouse, where investigators are still trying to determine whether any criminal cases were compromised.  It offers a rare glimpse inside a vast and almost always secret part of the federal criminal justice system in which prosecutors routinely use the promise of reduced prison time to reward prisoners who help federal agents build cases against other criminals.

Snitching has become so commonplace that in the past five years at least 48,895 federal convicts — one of every eight — had their prison sentences reduced in exchange for helping government investigators, a USA TODAY examination of hundreds of thousands of court cases found.  The deals can chop a decade or more off of their sentences.

That is from USA Today, from this source.  Hat tip goes to @matt_levine.

Assorted links

1. These kitchen equipment guides always amaze me.

2. Why aren’t there more retractions in economics journals?

3. There is a new Claudio Borio paper.

4. From Hyderabad: he can’t decide if he loves the new fish-like structure or hates it.  That is from the excellent blog The View from Chennai.

5. Jodi Ettenberg photos and narrative from Vietnam.

The Hindu Nudge?

On the plane to Chennai, the stewardess said to the man next to me: “Sir, are you the one who ordered the non-vegetarian meal?”

Chennai bleg

Your recommendations are very much welcome, including of course food.  It will be Yana (some shopping) and I, no Alex.

Assorted links

1. Erik Voeten with some remarks toward a theory of treaties.

2. Milton Friedman on the popularity of the Fed.

3. What V.S. Naipaul thinks of Jane Austen.

4. New paper on Albert Hirschman and the World Bank, and Rajiv Sethi on Hirschman.

5. Further skepticism on productivity increases in U.S. manufacturing.

6. Raj Chetty video lectures on taxes and redistribution, not viewed but self-recommending.

The Korean practice of “booking”

Typically, around four or five men will sit down at a table and be served expensive whiskey and fruit.  They are assigned a waiter, who will go around the other tables to find a group of women, whom they bring over to the men’s table…The waiter does this in return for a tip.  The larger the tip, the prettier the women he will bring.

…Waiters maintain lists of attractive women’s phone numbers and will call them up and offer free, or very cheap, tables and drinks for them and their friends.  This is more than compensated for by the price men will pay.  Men will happily lay out 150,000 won (almost US$150) each in table fees and tips.  Despite the cost, some men go very often.  In fact, there is an expression, night-jukdoli, for a man addicted to booking and nightclubs.  The female equivalent is a night-juksooni.

That is from Daniel Tudor’s very good book, Korea: The Impossible Country.

Tyler and Alex in Delhi

Here is the information for our public talk in Delhi which is hosted by the Center for Civil Society and will be on Thursday December 20, 3-5 pm at the Heinz Auditorium, YMCA, New Delhi. Register here or email daphne@ccs.in, +91-9910667576 –this is a public talk open to everyone.

We are also pleased to be speaking later that evening to the fellows at the Young India Fellowship, an exciting and innovative program of liberal education that connects some of the best young minds in India with a star-studded faculty in India and abroad.

Why is there Corn in Your Coke?

A good one on the sugar quota.

Markets in everything, high-frequency trading opera edition

London, 7th December 2012, PRNewswire – Reality TV is an old concept which we’re all familiar with. However, Alexis Kirke, a leading composer at the Interdisciplinary Centre for Computer Music Research at Plymouth University , and Dr Greg B Davies, Head of Behavioural and Quantitative Finance at Barclays, have taken reality performances to another level by partnering with Barclays to produce a reality opera. The performance, which was held on the 15th November 2012 at Egyptian Hall, Mansion House, focused on the drama unfolding on an “open outcry” stock trading floor, the type of trading floor on which traditionally traders shout and use hand-signals.

To view the Multimedia News Release, please click:

http://www.multivu.com/mnr/58659-barclays-opera

Thanks to melodies carefully crafted with evolutionary computer algorithms, during the performance singers sang what they wanted, when they wanted, within certain rules, just like the freedom people have in reality TV programmes. However, like a traditional opera, music was used alongside singers to demonstrate the emotion of the story.

The concept was conceived by Alexis and the opera brought to life in collaboration with

Dr Greg B Davies, Head of Behavioural and Quantitative Finance at Barclays. Alexis created the music while Greg applied his behavioural finance expertise to create the market within which the singer-traders were responding, generating the ebb and flow of emotion and money on a trading floor. Furthermore, the performance was directed by Alessandro Talevi, former winner of the European Opera Directing Prize.

To enable the music to express the emotional activity on the trading floor, Kirke composed what he calls “trading phrases” such that when most singers were buying, the harmonies between them were pleasant, and when most are selling, the harmonies clashed. When two performers sang ‘buy’ and ‘sell’ melodies for the same asset, the two sounded in time and harmonious.

‘Open Outcry’ featured 12 singers and a cellist, Joseph Spooner. The audience sat at tables among the “traders” (in the trading pit), and the conductor rang a bell to signify the market opening. As the cellist played, large screens displayed stock information and the conductor guided some aspects of the permissible actions of the singers. The performers sang one musical phrase to buy each asset and another to sell. The prices were largely driven by random market movements generated by a computer model, though the conductor did have some power to influence stock prices, as did the effect of the “trading” between the singers themselves.

I believe that is the only press release I have ever covered on this blog.  In general you press release people, unless you have something as important as Markets in Everything High-Frequency Trading Opera Edition, I don’t give a damn about what you send me!  You all bore me!  Really.