Tyler Cowen's Blog, page 570
January 6, 2012
The market for coffins
"Poland is the European superpower of coffin production," says Zbigniew Lindner…
One way to claw out market share is to rely on girlie calendars of the type usually associated with car parts companies – deflating the solemnity normally associated with the trade. Another is to compete fiercely on price, particularly in the cost-conscious German market…
Now his sights are set on grabbing a larger share of the domestic market, where Polish coffin makers have until recently had a hard slog. One reason is that Poland used to have the highest death benefits in the EU – about €1,350 – which prompted people to plump for more luxurious and expensive Italian coffins. Indeed, the Italian reputation was so strong that the Polish government imported coffins from there to bury the victims of the 2010 airline disaster that killed the president and many other senior officials.
"Most Polish politicians don't realise what kinds of companies have arisen in Poland and how well they are doing," says Mr Lindner.
That could change following the government's decision last year to cut the subsidy by a third – a deficit-fighting idea that has made the bereaved more cost conscious about the price of coffins.
A look at the actuarial tables shows Mr Lindner that death rates will peak by 2040, with more than 1m Germans a year dying as baby boomers shuffle off this mortal coil.
"Somebody has to make those extra coffins and I want it to be us," he says. "I have plans to turn this into a really big company."
The article is here, and I thank Adam Sebba for the pointer.
What kinds of movie stars marry each other?
Marital sorting on education is an important but poorly understood source of inequality. This paper analyzes a group of men and women who do not meet their spouses in school, are not sorted by education in the workplace, and whose earnings are not correlated with their years of education. Nevertheless, movie actors marry spouses with an education similar to their own. These findings suggest that male and female preferences alone induce considerable sorting on education in marriage and that men and women have very strong preferences for nonfinancial partner traits correlated with years of education.
Hat tip goes to Steve Sailer. And here is another paper by Bruze:
US middle aged men and women are earning in the order of 30 percent of their return to schooling through improved marital outcomes.
Sentences to ponder
In about 7 days, BenchPrep can convert any textbook, say one on Calculus that sells for $50, into an interactive course it can sell for $100.
Here is more, and for the pointer I thank Michael Rosenwald.
Addendum: Here is an Annie Lowrey piece on the importance of teacher quality, the paper is here and the effects are long-term.
Rehypothecation: a simple guide
From Keith Fitz-Gerald, via The Browser, here is a useful introductory article to what is likely this year's coming hot topic. Excerpt:
Assets in brokerage accounts can be used and re-used in such a way the credit multiples far outweigh the actual assets in the accounts. In effect, rehypothecated assets become part of a daisy chain, for lack of a better term, wherein one company's liabilities become another's assets.
If there is a hiccup anywhere in the chain, the effect is one of instant collateral collapse as everybody in the chain is forced to buy back, or recall, their assets. The effect is not unlike a colossal global "short" on world markets.
Imagine what happens if something goes wrong and everybody wants their $10 back, but find that there is only $1 in actual cash.
I believe this is what Federal Reserve Chairman Ben Bernanke and his counterparts at the ECB are so concerned with and why they are obsessed with liquidity. Everybody knows that too much debt caused this mess, but what they don't realize is that it's the use of rehypothecated assets that make collateralizing it nearly impossible barring massive injections and printing.
I would define it as "an asset used as collateral more than once, at the same time." And there is this:
Take the United Kingdom, for example, where there is no limit on the amount of client assets that can be rehypothecated. There, brokers have reportedly and routinely rehypothecated 100% of the value of client accounts, not just those assets pledged as collateral.
What kind of day would Arnold Kling be wishing you at this point?
January 5, 2012
Computer chess breakthroughs and imitations
This new series of articles, by Dr. Søren Riis, here, and here, and here is of general interest and does not require chess knowledge. They are an excellent case study in innovation, IP, reverse engineering, incentives to copy, market leadership, and other currently important concepts. Excerpt:
This program was immediately thought to be a very close derivative of Rybka because its solving of test positions was extremely similar. But, beyond the objective measures of similarity testing, Strelka had to have been a reverse-engineered Rybka derivative because, at the time, a new program of such strength and manifest similarity in its playing style could hardly have come from anywhere else. Thus a very public precedent was established: someone had reverse-engineered a closed-source program with impunity.
Why are some programmers paid more than others?
The law of one price does not seem to hold, so Brandon Berg poses a question to me:
I'm curious about the reasons for the wide regional variation in wages for software engineers. Computer software would seem to be the ultimate tradeable good, as it can be sent instantly around the world at zero cost. I'm a computer programmer and have recently been looking into employment opportunities in East Asia, and was surprised to find that typical wages for programmers varied by as much as a factor of 5, with the US and Japan at the upper extreme and mainland China at the lower extreme. Wages in Singapore are less than half of US wages, despite a similar per-capita GDP. Wages in Shenzhen are less than half of what they are in Hong Kong, just an hour's train ride away.
What's going on here? Why do firms continue to hire overpriced American and Japanese software engineers when they can get them for half price in Hong Kong, even less in Singapore and Taiwan, and at a 75-80% discount in China? I've had some people tell me that American and Japanese programmers are just better, but I'm skeptical of this, especially considering the difficulty level of the interviews I had in Shenzhen and Hong Kong.
Assorted links
Which celebrity chef-branded restaurants are better than others?
William Baude asks:
Is there any way to predict which celebrity-chef-branded restaurants will be better than others? Obviously one rarely expects such restaurants to be excellent, but there are times (airports, Las Vegas) when a celebrity-chef-branded restaurant may well be the best one around. Is the best chef likely to endorse the best restaurants? Or should one look for profligate branders like Wolfgang Puck and Emeril? Or something else?
When it is "branded" or when simply the genius chef owns and runs a few places (e.g., Thomas Keller) is a tricky distinction. That said, the Wolfgang Puck pizza outlet at O'Hare airport counts as branded, as do many of the fancy places in Las Vegas. Overall I find these restaurants to be a good bet, conditional on the fact that you are somewhere which encourages the proliferation of branded restaurants. I haven't eaten everywhere in O'Hare but odds are if you are by the Puck outlet you should stop and eat there, relative to what you are likely to find and have time for. The branded outlets in Las Vegas may not be the very best places but again they are fairly wise choices, knowing that just about everywhere is frequented by tourists. Joel Robuchon's restaurant in Las Vegas isn't exactly hated.
Branded restaurants tend to be poor choices when they are offered as a protection against an ethnic food subculture, which maybe is considered inferior by many subgroups but actually is superior. Yes, Jean-Georges does have a place in Shanghai and probably it is quite good. Yet you should be out in the street looking for noodles and dumplings, waving your arms in desperation if need be.
My next book — An Economist Gets Lunch: New Rules for Everyday Foodies — is out this coming April.
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*Rethinking the Good*, by Larry Temkin
The subtitle is Moral Ideals and the Nature of Practical Reasoning. Without hesitation I paid full price for this book, in this case $74 though since then the price is falling. While not an easy read, it is the most important work in choice theory and social choice in some time.
Why does the transitivity debate matter? If you believe in transitivity, you will see lots of piecemeal improvements as adding up to something desirable. If you do not believe in transitivity, useful normative inquiries have to be much more global. You will put less weight on the Pareto principle, and less weight on partial equilibrium cost-benefit analyses. You will focus on what constitutes a good society, and you will trust some very gross macro comparisons ("America is better than Albania") more than micro comparisons ("the best system of taxation is X").
If you are skeptical of transitivity as a postulate, you probably are less inclined to see individuals with intransitive preferences as irrational. This may affect your views on paternalism and time inconsistency.
Many economists of course view the rejection of transitivity as simply unthinkable. Perhaps without transitivity we cannot even speak of the notion of a coherent preference. Temkin is skeptical of transitivity. There are a few versions of anti-transitivity arguments:
1. A version of Arrow's theorem will apply to plausible versions of pluralistic moral reasoning, just as it applies to decathlon scoring. Temkin does not pursue this route, though he notes in the introduction it may be possible. It is the route I would have preferred, as it makes the investigation more economical.
2. The Sorites paradox, or how many stones make a pile. Temkin insists his argument does not boil down to the Sorites paradox, though one may add this to the pile of arguments against transitivity.
3. The "roughness" relation: maybe Mozart is roughly as good as Beethoven, but this need not be transitive. Possibly Haydn is roughly as good as Mozart, but it does not follow that Haydn is necessarily "roughly as good" as Beethoven. Often judgments about the good are rough by their nature.
4. Various pairwise comparisons lead the transitivity advocate to unacceptable conclusions. For instance you can start with the view that adding a pain to the world is a bad, and (with intermediate steps), end up having to believe that adding a very very slight pain for a trillion lives is worse than brutally torturing ten people. Or perhaps you are familiar with Derek Parfit's Mere Addition Principle. If you endorse some pairwise comparisons which increase both utility and equality, you can again be led to apparently unpalatable conclusions by some multi-stage comparisons (pdf, it would take a long time to explain here). Temkin stresses this kind of argument and works through the possible responses in great detail.
The main contribution of this book is to show you that the transitivity postulate is far less intuitively appealing than it seems at first. Twenty-two years ago I disagreed with Temkin but now I accept much of his critique. Here is one very good Temkin piece from JSTOR.
These days, I see the good is more holistic than additive-aggregative. This defuses Temkin's arguments, though at a high cost. (You will find Temkin's criticisms of holism and related ideas at around p.355, though I find them unusually lacking in force. One of his worries boils down to how a multiplicative view will handle negative numbers but I see the scale as sufficiently arbitrary that they need not pop up to begin with.) We can make some gross comparisons of better and worse at the macro level, with partial rankings at best, but for many individualized normative comparisons there simply isn't a right answer. I view "ranking" as a luxury, occasionally available, rather than an axiomatic postulate which can be used to generate normative comparisons, and thus normative paradoxes, at will. I see that response as different than allowing or embracing intransitivity across multiple alternatives and in that regard my final position differs from Temkin's. Furthermore, in a holistic approach, the "pure micro welfare numbers' used to generate the paradoxical comparisons aren't necessarily there in the first place but rather they have to be derived from our intuitions about the whole.
These thoughts provide one reason — though by no means the only reason — why I think so many policy comparisons are not very clear cut, not even in principle, not even if we had better empirics.
My main objection to this book is how it was written. It is too long and too branching, much like Parfit's recent volumes. Temkin notes that Shelley Kagan, a very smart guy, gave him 117 pages of single-spaced comments on a prior manuscript draft. Temkin took that as an invitation to lengthen the presentation rather than shorten it.
Addendum: If you are interested in these issues, you also should read Leo Katz's new and fascinating book, more applied than Temkin's, also rejecting transitivity as a universal principle of reasoning but focused on explaining the content of the law and its apparent paradoxes.
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