A note on the econoblog market

Tyler and Alex want to “dominate the market in econ blogs.”

When an industrial organization economist reads such a statement–O.K., maybe not all industrial organization economists, but at least this one–he asks: “How do you define the market?” I first thought, “Economists who blog regularly about a wide range of topics from an economic perspective.” On second thought, that definition has problems. (Market definitions usually do.) Should econoblogs be restricted to just “economists”? What’s a “blog,” anyway? How often is “regularly”? Should the definition include blogs that specialize in just one area of economics, such as taxes, international economics, neuroeconomics, oligopolies? What about some of the fine public policy blogs?

On third thought, since the antitrust authorities aren’t suing Alex and Tyler yet–but Institutional Economics cracks, “It is just as well Marginal Revolution are only intellectual entrepreneurs. Commercial entrepreneurs would be setting themselves up for anti-trust action were they to put in writing their intention to dominate a market”–there’s no need to overthink this. At least not unless readers express interest, and offer to help, and someone provides major, major financial support. I’ll just note 20 other blogs–one is actually a list of links to blog posts, a list that changes weekly– that I think would probably belong in the market and that I think are worth a look.

The first four are already listed in Tyler and Alex’s links and are probably the dominant oligopolists in the market. I especially recommend EconLog, by Arnold Kling. It is consistently interesting, thoughtful, and free of cant.

EconLog
The Knowledge Problem
Dynamist Blog
Brad DeLong

Sixteen more:

A Random Walk
Agoraphilia
Asymmetrical Information
Atlantic Blog
Ben Muse
Carnival of the Capitalists
Cold Spring Shops
Deinonychus antirrhopus
EconoPundit
Jacqueline Mackie Paisley Passey
Law and Economics Blog
The Angry Economist
The Idea Shop
The Proximal Tubule
The Sports Economist
Truck and Barter

Future Imperfect

Economist David D. Friedman has posted a draft of his manuscript, Future Imperfect, and he welcomes your comments.

This book is about technological change, its consequences and how to deal with them.

. . .

Much of the book grew out of a seminar I teach at the law school of Santa Clara University. Each Thursday we discuss a technology that I am willing to argue, at least for a week, will revolutionize the world. On Sunday students email me legal issues that revolution will raise, to be put on the class web page for other students to read. Tuesday we discuss the issues and how to deal with them. Next Thursday a new technology and a new revolution. Nanotech has just turned the world into gray goo; it must be March.

Since the book was conceived in a law school, many of my examples deal with the problem of adapting legal institutions to new technology. But that is accident, not essence. The technologies that require changes in our legal rules will affect not only law but marriage, parenting, political institutions, businesses, life, death and much else.

People resond to incentives, parts 10371 and 10372

Price discrimination is profitable, so firms try to price discriminate. But consumers don’t like paying high prices, so they try to avoid price discrimination. An April 7 Wall Street Journal article (registration may be required) by Scott McCartney illustrates these propositions nicely.

A one-way ticket from Washington, D.C. to Louisiana (the article doesn’t state which city) costs $698. A round-trip ticket costs $218. Travelers who want to fly one way buy round trips and throw away away the return-trip tickets.

Flying round trip in the middle of the week is especially expensive. New York to Houston and back is $1972. But a round-trip ticket that includes a Saturday stay is much cheaper. One such ticket for New York and Houston is $232. So some travelers buy a round-trip ticket that includes Saturday from New York to Houston and a second round-trip ticket that includes Saturday from Houston to New York. Savings: $1508.

Flying into some hub airports is expensive. New York to Detroit is $559. But New York to Detroit to Akron is $221. Guess what some New York to Detroit travelers do? (If they don’t have baggage to check.)

Courtesy of Craig Depken, economist at U. Texas–Arlington, comes another example. The Texas Rangers are giving to some of their ticket holders scrip that is good for free food and beverages at their ballpark. The scrip seems to be easily counterfeited. Guess what will happen. Extra credit: how long before the Rangers declare the scrip invalid?

(Mrs. Newmark, who has no economics training but who’s been living with an economist for 26 years, suggests that maybe the Rangers expect counterfeiting and are using the free food as a way to sell more tickets. Alternatively, she hypothesizes that the ballpark food is poor enough, and travel and ticket costs high enough, that counterfeiting will impose small costs on the Rangers.)

Microsoft: damned if it does and damned if it doesn’t

Lynne Kiesling, Brad Delong, Steven Bainbridge, Arnold Kling, Alex, and others recently had an interesting discussion about Microsoft and bundling. (Lynne links to the main posts, but see also the comments and trackbacks.)

Here’s an amusing and possibly instructive footnote to that discussion. According to the Los Angeles Times, “. . . Microsoft is coming under fire for what it isn’t bundling.

As Windows users are being plagued by computer viruses, spam, buggy software and Web pop-up ads, some are questioning why the Redmond, Wash.-based software behemoth has failed to integrate security and repair features that would make computers less prone to problems.

. . .

But bundling security features directly into Windows isn’t so simple, Microsoft supporters say.

The company, after all, has been punished by regulators in the U.S. and Europe for leveraging Windows to take over lucrative new markets, including Web browsers and software for playing audio and video files. Presumably, a move to add security software would face the same kind of regulatory scrutiny.

Personally, I don’t think antitrust action is the primary reason why Windows lacks security features. I think the primary reason is that Microsoft was surprised by the extent of the problem, similar to how it was surprised in the mid 90s by how rapidly and deeply the Internet caught on.

But it sure would be hard to prove that.

More on graduate study in economics

Four months ago Tyler enthusiastically recommended EconPhd.net for students thinking about graduate work in economics. I second his recommendation and add some observations:

1. The site makes clear that getting accepted to the top tier economic graduate programs is difficult. Christian Roessler, who runs the site, discusses “PhD fields in order of difficulty of entry” and concludes that of 28 graduate fields, economics ranks fourth-toughest (below computer science, physics, and math). In strong support of this conclusion is some information about individual students accepted and rejected during 2002 and 2003 for 47 schools (Excel spreadsheet). These students were not randomly selected, so we must take care in generalizing, but if one examines the thumbnail sketches of the applicants who were rejected by Harvard, MIT, and Stanford, the conclusion seems inescapable.

2. If an applicant is undeterred by these odds, it’s clear that he or she should be well prepared in math. Susan Athey, Stanford professor, writes, “Real analysis is an especially important class because it tends to be demanding everywhere, and forces you to do logical and formal proofs. Get a good grade in this class.” Roessler writes, “If you really want to delight the adcoms (you do), take topology and functional analysis (real analysis II) too.” For more on the math used, Google “math camp” economists. The ambitious student can also look at what mathematics courses Professor Thomas Sargent suggests for economics Ph.D. students .

3. Fortunately, there are a lot of very fine economics programs below the ones in the top tier. Roessler has listed, for many schools, each school’s particularly strong fields (Excel spreadsheet).

4. It seems like a good idea for any student applying to graduate school in economics to apply to more than just a couple of schools. One aspiring economist, Chris Silvey, has posted his results:

Rejections: Duke, UCLA, Minnesota, Rochester, Wisconsin, U. of Washington, Berkeley.

Acceptances: UC San Diego, Ohio State, Maryland, Cornell, Texas A&M (all with money); UC Davis and Virginia (financial aid to be announced).

Wait-listed: U. of North Carolina, Chapel Hill.

5. It also seems like a good idea to read about the experiences of some current graduate students. Here are three who have many interesting things to say: Ngan Dinh (U. of Chicago) first year, second year; Santosh Anagol (Yale); and Rob McMillan (Stanford).

6. The economics department at Davidson College has collected some useful information and links.

Explicit rules have costs

Relationships between people can be governed by explicit rules and also by informal understandings. Explicit rules often seem more efficient and more equitable, but they can have significant costs, too. A recent incident in the National Hockey League illustrates. Discussing Todd Bertuzzi’s blindside attack on Steve Moore, which resulted in Moore sustaining a concussion and three fractured vertabrae in his neck, Los Angeles Times reporters Helene Elliott and Elliott Teaford write (unfortunately, no longer free):

The incident ignited a firestorm of criticism of the NHL’s tolerance of fighting and rough play. But many players, observers and officials say Bertuzzi’s attack was an indirect consequence of the instigator rule, which was adopted in 1992 as part of the league’s effort to minimize the fighting that bloodied its image in the 1970s.

In its current form, the instigator rule mandates penalties and suspensions for players who start fights and accumulate instigator infractions over the course of a season. However, many say it has made players reluctant to retaliate against cheap shots for fear they’ll get an instigator penalty and put their teams at a disadvantage.

Miracles

Freeman Dyson introduces us to Littlewood’s Law of Miracles:

Littlewood was a famous mathematician who was teaching at Cambridge University when I was a student. Being a professional mathematician, he defined miracles precisely before stating his law about them. He defined a miracle as an event that has special significance when it occurs, but occurs with a probability of one in a million. This definition agrees with our common-sense understanding of the word “miracle.”

Littlewood’s Law of Miracles states that in the course of any normal person’s life, miracles happen at a rate of roughly one per month. The proof of the law is simple. During the time that we are awake and actively engaged in living our lives, roughly for eight hours each day, we see and hear things happening at a rate of about one per second. So the total number of events that happen to us is about thirty thousand per day, or about a million per month. With few exceptions, these events are not miracles because they are insignificant. The chance of a miracle is about one per million events. Therefore we should expect about one miracle to happen, on the average, every month. Broch [co-author of the book Dyson is reviewing] tells stories of some amazing coincidences that happened to him and his friends, all of them easily explained as consequences of Littlewood’s Law.

The law echoes a comment I’ve seen attributed to another mathematician, Persi Diaconis. Diaconis supposedly said that if you study a large enough population over a long enough time period, then “any damn thing can happen.”

A reason why more people should learn some economics

A Philadelphia Inquirer profile (free registration required, or see here) of economist Sophia Koropeckyj makes an important point:

Koropeckyj’s work stands for a psychologically reassuring idea in a world that seems all too chaotic. . . .

In other words, life is orderly and the future predictable as long as the proper patterns are discerned, then applied.

“Every facet of human life can be explained in economic terms,” Koropeckyj, 47, of Jenkintown, said.

The late Paul Heyne put it this way: “In a democratic society, ignorance of economics is fertile breeding ground for perverse government policies. Ignorance of economics also interferes with human flourishing, because it leaves people anxious and uncertain about powerful but mysterious relationships whose intimidating character could be dispelled through understanding of the kind that economic theory can provide.” The Economic Way of Thinking, Ninth Edition (Prentice Hall, 2000), p. ix.

(Andrew Chamberlain at The Idea Shop, one of Prof. Heyne’s students, wrote a fine tribute to him here.)

The Two Things

Glen Whitman, Cal State Northridge economist, presents an elegant idea: The Two Things.

A few years ago, I was chatting with a stranger in a bar. When I told him I was an economist, he said, “Ah. So . . . what are the Two Things about economics?”

“Huh?” I cleverly replied.

“You know, the Two Things. For every subject, there are really only two things you really need to know. Everything else is the application of those two things, or just not important.”

“Oh,” I said. “Okay, here are the Two Things about economics. One: Incentives matter. Two: There’s no such thing as a free lunch.”

It would be hard to do better than that! And Glen has gathered an terrific group of Two Things statements from readers. A sample:

The Two Things about Marketing:
1. Find out who is buying your product.
2. Find more buyers like them.
-Racehorse

The Two Things about Software Engineering:
1. Pick two, and only two: stable, feature-complete, on-time.
2. One great coder is better than two good coders, except when not.
-Matt

The Two Things about Teaching History:
1. A good story is all they’ll remember, not the half hour of analysis on either side of it.
2. They think it’s about answers, but it’s really about questions.
-Jonathan Dresner

The Two Things about Art Criticism:
1. If it isn’t novel, critics aren’t interested.
2. If it is novel, no one else is interested.
-TheLetterM

The Two Things about Writing:
1. Include what’s necessary.
2. Leave everything else out.
-Nicholas Kronos

The Two Things about World Conquest:
1. Divide and Conquer.
2. Never invade Russia in the winter.
-Tim Lee

The Two Things about Star Trek:
1. Don’t beam down in a red shirt.
2. You can always talk evil computers into destroying themselves.
-Tim Lee

My modest attempt to match these is

The Two Things about Life:
1. Be brave, work hard, save: live for the long run.
2. In the long run, we’re all dead.

A possible cost of diversity?

Professor Joanna Shepherd (Clemson) presented “Racial Diversity, Residential Segregation, and Crime: An Industrial Organization Analysis of Racial Competition” at N. C. State. She finds that, other things equal, more racially diverse areas have more crime. From her conclusion:

My econometric analysis of counties from 1990-1999 and metropolitan areas in 1980,
1990, and 2000 finds that both diversity and segregation increase crime. Moreover, tests of the
combined effect of diversity and segregation reveal that segregation worsens diversity’s effect on
crime. My results are robust to many alternative specifications. Moreover, tests confirm that my
diversity measures are not proxying for racial groups that disproportionately commit crime. Nor
are the results caused by any potential endogeneity between crime and diversity. Finally, my
estimations are designed so that my racial diversity measure is not picking up other types of
diversity, such as income diversity or religious diversity, which could increase crime.

The results from my econometric analysis confirm the predictions of my industrial organization theory of racial competition. The theory suggests that diversity increases both inter and intra-racial crime as racial groups compete. Segregation sharpens the competition.

My results in no way establish that diversity is bad; diversity provides countless benefits such as awareness of other racial groups and an intermingling of cultures. However, this paper, for the first time, focuses on one of diversity’s costs: increased crime. To determine the optimal amount of diversity in a region, one must weigh diversity’s numerous benefits against the costs.

She hypothesizes that a primary means by which diversity affects crime is provision of local goods. Areas that are more diverse tend, other things equal, to provide less public goods.

Gmail?

Google will be launching a new no-charge (“free” as the rest of the world likes to call it) email service, Gmail, with one gigabyte of storage, 100 times the amount offered by rivals Yahoo and Hotmail. The catch? There will be small ads included. One gigabyte? Think of how many offers for mispelled intimate products or urgent assistance for foreign oil ministers that will hold. There is one other catch. The news was announced yesterday, March 31st with an April 1 date on the news release. Many are suggesting that it’s merely a hoax. At MarginalRevolution, we only report. You decide. Here’s the Google page announcing the beta version. Looks pretty convincing, but it would, wouldn’t it?

How Now, Dow

The Dow Jones Industrial average will be dropping AT&T, Kodak and International Paper. Welcome Pfizer, Verizon and AIG, an insurance group. Verizon was once part of AT&T which is something like Ken Griffey, Sr. being benched in favor of his son, Junior. Reuters reports that it has happened before:

Both Verizon and SBC Communications Inc., added in 1999, were among the seven companies carved out of AT&T in an antitrust ruling in 1984. Mr. Prestbo said this is the third instance in which descendants have taken the place of broken-apart parent companies to represent their respective industries in The Dow. ExxonMobil Corp. is a combination of two descendants of Standard Oil Co. (New Jersey), broken up in 1911. Boeing Co. and United Technologies Inc. trace their lineage to United Aircraft Corp., which was split in 1934.

The Dow Jones average started in 1896 with 12 stocks. Only General Electric is still around in its original name from those halcyon days, a tribute to GE (though it has dropped out and come back as this nice historical summary from the Motley Fool points out) and the dynamic nature of the American economy.