Asymmetric Information: Response

by on April 21, 2015 at 7:30 am in Economics | Permalink

At Cato Unbound Tyler and I respond to comments on our End of Asymmetric Information piece. Here is one bit:

It is important to remember that the opposite of asymmetric information is symmetric information, not perfect information. That is a simple distinction, yet it’s one that many commentators, such as David Auerbach writing at Slate, fail to recognize. Information will always be imperfect. Uncertainty and risk will never be banished. Uncertainty and risk, however, do not in general create market failure (indeed in the case of insurance and gambling, uncertainty and risk create markets).

We don’t even have perfect information about our own tastes. In this setting, when one of us orders a product that does not meet our expectations, what do we do? Most of the time, we return it. Rather than living in a world dominated by moral hazard, we live in a world dominated by firms so eager to sell quality products that they will often guarantee our satisfaction or take the product back for any reason with full refund (sometimes less postage).

….As Hayek emphasized, the market does not require perfect knowledge to function, rather it is the means by which imperfect knowledge is made to function in the social interest.

We discuss some more implications of the leveling of information such as why renting durables will become more common, and we explain why price discrimination is consistent with and in some cases implied by the reduction of asymmetric information. We also discuss what types of regulation we need more of and what types less, and how the level of asymmetric information is consistent with Hayek’s emphasis on markets and dispersed knowledge.

Public Choice Weekend!

by on April 21, 2015 at 7:05 am in Current Affairs, Economics | Permalink

Don’t forget the Public Choice Outreach Seminar is June 12-14. Applications are invited!

What is the Public Choice Outreach Conference?
The Public Choice Outreach Conference is a compact lecture series designed as a “crash course” in Public Choice for students planning careers in academia, journalism, law, or public policy. Graduate students and advanced undergraduates are eligible to apply. Many past participants of the Outreach seminar have gone on to notable careers in academia, law and business.

When and where is the Conference?
The 2015 Conference will be held at the Hyatt Arlington in Rosslyn, Virginia during June 12-14, 2015.​

What are the fees involved?
Outreach has no conference fee – it is free to attend. Room and meals are included for all participants. However, travel costs are the responsibility of the participants.

More information and application here:

This passage shook me up, bravo to the author:

…although nonviolence was crucial to the gains made by the freedom struggle of the 1950s and 1960s, those gains could not have been achieved without the complementary and still underappreciated practice of armed self-defense.  The claim that armed self-defense was a necessary aspect of the civil rights movement is still controversial.  However, wielding weapons, especially firearms, let both participants in nonviolent struggle and their sympathizers protect themselves and others under terrorist attack for their civil rights activities.  This willingness to use deadly force ensured the survival not only of countless brave men and women but also of the freedom struggle itself.

That is from the recent book This Nonviolent Stuff’ll Get You Killed: How Guns Made the Civil Rights Movement Possible, by Charles E. Cobb, Jr.  Also related is the 1962 book Negroes with Guns, by Robert F. Williams, Martin Luther King, Jr. and Truman Nelson, about the use of guns for protection against the Ku Klux Klan.  Martin Luther King of course did keep a gun in the house, and he relied on neighbors who, at times, protected his house by carrying guns.

Monday assorted links

by on April 20, 2015 at 1:31 pm in Uncategorized | Permalink

1. How much is a dinosaur worth?

2. Session-by-session videos from the Coase conference, including myself, Sam Peltzman, and Kenneth Arrow on the future of the economics profession.

3. Evidence for ZMP labor.

4. The creeping success of the ruble in eastern Ukraine.

5. Various negative claims about Cornel West.

6. Data is the new middle manager (WSJ).

7. How much should hospitals focus on patient happiness?

Here is a long and excellent post, whereby Robin outs himself as a strange kind of environmentalist.  Do need the whole thing, but here is one summary excerpt:

So, bottom line, the future great filter scenario that most concerns me is one where our solar-system-bound descendants have killed most of nature, can’t yet colonize other stars, are general predators and prey of each other, and have fallen into a short-term-predatory-focus equilibrium where predators can easily see and travel to most all prey. Yes there are about a hundred billion comets way out there circling the sun, but even that seems a small enough number for predators to careful map and track all of them.

“At first they came for the rabbits…and then they came for me.”  I find that intriguing, but I have a more marginalist approach, and perhaps one which encompasses Robin’s hypothesis as a special case.  The death of human (and other) civilizations may be a bit like the death of the human body through old age, namely a whole bunch of things go wrong at once.  If there were a single key problem, it would be easier to find a patch and prolong things for just a bit more.  But if we have reason to believe that, eventually, many things will go wrong at once…such a concatenation of problems is more likely to defeat us.  So my nomination for The Great Filter, in a nutshell, is “everything going wrong at once.”  The simplest underlying model here is that a) problems accumulate, b) resources can be directed to help solve problems, and c) sometimes problems accumulate more rapidly than they can be solved.

This is also why, in many cases, there is no simple “fact of the matter” answer as to why various mighty empires fell in the past.  Here is my earlier review of Apocalypto, a remarkable and still underrated movie.

From The Slovenia Times:

“Our exposure to Greece is 2.7% of GDP, which was in a year after we had a 8% fall in GDP and when we had to slash pay and economise in all areas.”

This is why Slovenia will insist on Greece continuing with the restructuring and continuing to meet its obligations to Slovenia as well as international institutions, [Slovenia’s Finance Minister Dušan] Mramor said.

That is cited in a good post by Sober Look.  Oh, by the way, pensions are still lower in Slovenia than in Greece.

Let’s say that you and a casual friend meet for lunch two or three times a year, but otherwise have little contact.  One day you would say to the friend “let’s become Batman and Robin and fight violent crime together in Gotham City, trusting our lives to each other along the way.  We’ve built up trust through these lunches, and besides if you say no I will yank the lunches away to your detriment.”

Hardly anyone would think that is a workable arrangement.  I would say there was not enough social capital built up in those lunches to make the larger cooperative venture sustainable.  Repeatedly citing the social benefits of a Batman-Robin alliance would miss the point of this critique.

I also read people arguing the global trade agreements should be used to enforce carbon emissions policy.  Similarly, I believe there is simply not enough political and social capital built into those trade agreements.  They are limited and rickety as it stands, and could not sustain the force of initiating what the Chinese would consider to be an act of economic warfare.

Now, let’s consider Greek default.  As Wolfgang Münchau suggests (and I think many agree), Greece should default to the IMF but stay inside the eurozone, or alternatively the IMF can just let Greece off the hook.  The economics of that argument make sense.  But does the IMF have enough embedded political capital to let Greece off the hook, when they deny credit to much poorer countries?  Does the IMF have enough capital and credibility to relieve Greece of that debt, and then return to its previous policies of simply not accepting any defaults?  What about the poorer countries in the eurozone — poorer than Greece — who do not receive comparable breaks?  How is this all supposed to work?  Or is it simply asking too much of the IMF?

We are about to learn how much embedded political capital is in the IMF.  I say 70-30 this cannot work, it is too late to suddenly turn the IMF into what it ought to be, one problem of many being that the United States simply has not cared enough.  Developing…and we’ll know more soon…

*To the Edge*

by on April 19, 2015 at 3:00 pm in Books, Economics, Law | Permalink

That is the new Philip A. Wallach book and the subtitle is Legality, Legitimacy, and the Responses to the 2008 Financial CrisisPhilip is one of the underrated up-and-coming young policy economists, and this book focuses on the financial crisis and the law.  It is original, a rare quality for books on the crisis at this point.  My own blurb says: “Why did America respond to its recent financial crisis the way it did? And why did the bailouts so quickly become unpopular, even as the economy was recovering?  How much did the law stop the government from doing more? Philip Wallach’s To the Edge is the very best book on all of these questions.”

Christopher DeMuth puts it well: “The financial crisis of 2008 was also a crisis of law and a crisis of government legitimacy,” and Wallach is now the go-to guy on that angle.

Sunday assorted links

by on April 19, 2015 at 12:28 pm in Uncategorized | Permalink

1. The smooshing model and randomizing the deck.

2. The esoteric Adam Smith (Dan Klein video).  And Tim Harford’s FT piece on what British economists recommend doing.

3. The highest-grossing restaurants in America, via the estimable Chug.

4. New kinds of butlers for billionaires.

5. Edward Tufte’s Grand Truths about human behavior.

6. Michael Reddell, New Zealand economist, is blogging.

7. Are Americans losing interest in redistribution?

I was asked this this question on Quora. Here’s my answer:

Writing an original dissertation.

Anyone who makes it into graduate school has had at least 16 years of learning and, as a result, most graduate students are good learners. A dissertation, however, requires the creation or discovery of new knowledge. On the day you finish your dissertation you have to know something that no one else in the world knows. That is a tall order.

After their course work ends, many students find themselves at a loss. They have done a lot of learning and not much creating or discovering–skills that not only are different than learning but that may even be at cross purposes. A learner has to trust that what he or she is being taught is true and valuable. A learner with too much skepticism won’t pass the final. But a dissertation writer without enough skepticism will never advance beyond previous knowledge and never discover that something previously learned was false.

It’s an odd necessity that the more you know the more skeptical you must become to know more. Not every student navigates this evolution in attitude.

FYI, Quora seems to be growing very rapidly. I first noticed this when my followers on Quora started growing faster than and soon exceeded my followers on Twitter, a fact I found surprising. According to Alexa, Quora has leaped in the popularity rankings 42 places in just the last 3 months. It will be interesting to see how they handle the growth especially keeping the quality of the questions high.

*Those Who Write for Immortality*

by on April 19, 2015 at 3:03 am in Books, History, The Arts | Permalink

Joshua Rothman writes in The New Yorker about a new book by H.J. Jackson, on the romantic poets:

Truly long-term literary endurance depends, Jackson writes, on “regular reinterpretation,” and, for that to happen, your writing has to be rich and multi-dimensional. That doesn’t mean, though, that other factors can’t help it along. Thanks to Wordsworth’s liberal, politically active youth, biographers were able to keep discovering previously-unknown political episodes in his early life; that allowed them to keep publishing controversial biographies, which kept him in the public eye long after his death. That distinction between youth and age was also useful for professors: it allowed them to keep arguing over who was better, the “early” or “late” Wordsworth. Even without all these factors, Jackson concedes, Wordsworth’s poetry would still be read today, especially in universities—but academic study alone could never have given him the high cultural profile that he enjoys now. “To sum up,” she writes, Wordsworth’s fame “is due to a concatenation of circumstances, most of which Wordsworth himself could not have foreseen, most of which he would have objected to if he could have foreseen them, and most of which had little to do with the communication of eternal truths.”

You can order the book here, the subtitle is Romantic Reputations and the Dream of Lasting Fame.

“A good start…”

by on April 19, 2015 at 1:53 am in Education, Science | Permalink

Mike Irvine is set to make a splash in the dry world of academe. The University of Victoria student is getting ready to defend his masters thesis in education from below the surface of the Salish Sea off the coast of British Columbia.

And lest you think he’s not taking his thesis defense seriously, he’ll be wearing a pinstripe suit over his wet suit.

…Irvine’s thesis, “Underwater web cameras as a tool to engage students in the exploration and discovery of ocean literacy,” will be streamed live on YouTube as well.

His thesis defense will take about 15 minutes and, following his presentation, he’ll face two rounds of questions from his advisors. He expects to be underwater for about an hour.

The link is here, with illustrative videos, via Jodi Ettenberg.

The link is here, more or less unedited I am told.  Somewhere in there (Saturday, 11 a.m.) is a panel with myself, Kenneth Arrow, Sam Peltzman, Gary Libecap and others on how academia and publishing models are evolving.

There are very likely other good bits too, but I did not catch most of the conference.  A while ago I was told a disaggregated series of videos would be produced.  If those come my way I will let you all know.

That is the next (and for me final) NBER paper from the macro workshop, by Barnichon and Figura, the pdf is here.  Their main claim is quite startling, and very important if true.  Here is the abstract:

The US labor market has witnessed two apparently unrelated trends in the last 30 years:a decline in unemployment between the early 1980s and the early 2000s, and a decline in labor force participation since the early 2000s. We show that a substantial factor behind both trends is a decline in desire to work among individuals outside the labor force, with a particularly strong decline during the second half of the 90s. A decline in desire to work lowers both the unemployment rate and the participation rate, because a nonparticipant who wants to work has a high probability to join the unemployment pool in the future, while a nonparticipant who does not want to work has a low probability to ever enter the labor force. We use cross-sectional variation to estimate a model of nonparticipants’ propensity to want a job, and we find that changes in the provision of welfare and social insurance, possibly linked to the mid-90s welfare reforms, explain about 50 percent of the decline in desire to work.

Did you get that last bit?  Wild.  The Clinton-era welfare reforms lowered the incentive to work.  Another part of the paper explains the possible mechanisms in more detail:

We conjecture that two mechanisms could explain these results. First, the EITC expansion raised family income and reduced secondary earnersís (typically women) incentives to work. Second, the strong work requirements introduced by the AFDC/TANF reform would have, through a kind of “sink or swim” experience, left the “weaker” welfare recipients without welfare and pushed them away from the labor force and possibly into disability insurance.

The authors have strong reputations, but is it true?  Stay tuned, and look for my live-blogging in the comments section of this post…

No.  From Thomas J. Miles and Adam B. Cox in the JLE:

Prior research investigates whether immigrants commit more crimes than native-born people. Yet the central policy used to regulate immigration — detention and deportation — has received little empirical evaluation. This article studies a recent policy innovation called Secure Communities. This program permits the federal government to check the immigration status of every person arrested by local police and to take the arrestee into federal custody promptly for deportation proceedings. Since its launch, the program has led to a quarter of a million detentions. We utilize the staggered rollout of the program across the country to obtain differences-in-differences estimates of its impact on crime rates. We also use unique counts of the detainees from each county and month to estimate the elasticity of crime with respect to confined immigrants. The results show that the Secure Communities program has had no observable effect on the overall crime rate.

That is once again via the excellent Kevin Lewis.