Month: October 2003

How Word of Mouth Works

Here is Virginia Postrel (NYT registration required), telling us that TV shows need dispersed word of mouth to succeed:

Another factor did, however, predict whether a show’s audience would build over time: dispersion, or “entropy.” This technical measure essentially picks up how widespread the discussion is. Are comments concentrated in a few specialized groups, or does the show interest people in many different groups? Word of mouth spreads more quickly when it begins in different places or among people with different interests.

“It’s not enough to say that we got 10 mentions for our product or 10 people are talking about my research,” Professor Godes says. “To understand the impact that word of mouth is going to have, you have to understand how different those 10 people are.”

To take an academic example, he says: “Ten people sitting at Harvard talking about my research all talk to each other. I’d rather have one person at Harvard, one person at M.I.T. and one person at U.C.L.A. talking about my research. That’s really how the word will spread.”

Here is an interview with the original authors of the research. Here is a link to the working paper. The authors should be pleased to know that their hypothesis is making its way around the blogosphere.

Do We Need Government Science Advisors?

Chris Mooney says yes. Here is his bottom line:

In 1995, a budget-cutting Republican Congress fired its science advisers for being too politicized and too slow. In an age of bioterror, climate change, and high-tech weaponry, we need them back.

I’d like to return to this topic in the future, and the general question of whether pure science deserves government subsidy, but here is the link while it is hot.

Russian bonds now investment grade

Baa3, that is. Here is the Financial Times story.

Russia’s debt to gdp ratio is 28 percent, Japan’s is 140 percent, but obviously Japan has more accumulated trust.

How much do these ratings make sense?

On May 31 the U.S. credit-rating agency Moody’s Investors Service lowered by two notches Japan’s credit rating on yen-denominated bonds issued by the government. Japan’s previous credit rating was Aa3, the fourth highest grade and already the lowest among developed nations. This was downgraded to A2, placing Japan below such nations as Chile and Botswana and on par with Israel, Poland, and the Republic of South Africa. As a reason for the downgrade, Moody’s stated, “There exists nothing within present financial policy that can put the brakes on the worsening debt situation.” The outlook for the credit rating is “stable,” so the series of downgrades appears to have ended for the time being. In addition, Japan’s government bonds issued overseas maintained their Aa1 rating with a “stable” outlook. Moody’s had announced in February that it was considering downgrading Japanese bonds and continued considering the matter based on the state of the Japanese economy and government finances.

Here is the link for the Japanese comparison. You might note that Botswana, although it received a higher rating than Japan, has Japan as its largest creditor.

Dollars for Donors

The shortage of human organs for transplant grows worse every year. Better immuno-suppressive drugs and surgical techniques have raised the demand at the same time that better emergency medicine, reduced crime and safer roads have reduced organ supply. As a result, the waiting list for organ transplants is now 82,000 and rising and more than 6000 people will die this year while waiting for a transplant.

The economics of the shortage are so obvious that one popular textbook, Pindyck and Rubinfeld’s Microeconomics, uses the organ shortage to explain the effect of price controls more generally!

Perhaps because the shortage is growing, opposition to financial compensation for cadaveric donation (compensation for live donors is a distinct issue) appears to be lessening. The AMA, the American Society of Transplant Surgeons and the United Network for Organ Sharing have agreed that tests of the idea would be desirable. (A group of clerics, doctors, economists (I am a member) and others has formed to lobby for the idea – see our letter to Congress.) Currently, even tests are illegal but Representative James Greenwood (R, Pa.) has introduced a bill (H.R. 2856) that would create an exception.

Aside from the obvious benefits of saving lives, financial compensation for organ donation would likely save money. Here is a back-of-the-envelope calculation. There are some 285,000 people on dialysis in the US. Transplants are cheaper than dialysis by something like $10-$25,000 per year. About a quarter of those on dialysis are on the waiting list but perhaps as many as half could benefit from a transplant (fewer people are put on the list because of the shortage.) Let’s take the lower numbers. Assume that a quarter of the patients on dialysis could benefit from a transplant and that cost savings are $10,000 a year for five years. Then ending the shortage would save 3.5 billion dollars. Note again that this is a lower estimate. How much would it cost to end the shortage? No one knows for certain but I think a $5000 gift to the estates of organ donors would increase supply enough to greatly alleviate the shortage – that would involve doubling the supply to 12,000 for a paltry cost of $60 million. If this is not enough – raise the gift – anyway you cut it, the savings from dialysis exceed the costs of compensating donors by a large margin.

We should in fact count the value of the lives saved. If we can save 6000 lives and value each life at 3 million dollars (a lower value than what the US government typically uses in its calculations) then that is a further gain of 18 billion dollars.

A Tragedy of the Commons?
Economics provides another way of looking at the crisis. Currently we have organ socialism – anyone who needs an organ is allowed access to the organ pool regardless of whether or not they contributed to the upkeep. As with other resources owned in common we get over-exploitation and under-investment. Consider, instead a “no-give, no-take policy” – only those who have previously signed their organ donor cards are allowed access to the pool. Not only is this more moral than the current policy it creates an incentive to sign your organ donor card. Signing your card becomes the ticket to joining a club – the club of people who have agreed to share their organs should they no longer need them. Equivalently signing your organ donor card becomes analogous to buying insurance. I discuss the idea further in Entrepreneurial Economics.

An organ club has in fact been started – I am not just an adviser, I’m also a member! You can join too at

Canadian loopholes for file-sharing?

Is it legal to download music from Canada? Maybe. Read this update on the debate. The author, Jay Currie, also offers an excellent update on file-sharing and the RIAA suits, plus some analysis, consider this:

The record companies could use the P2P networks to publicize their clubs. They could flood Kazaa with current tunes, branded with their label, with a five to ten second promo at the beginning and end of the file. If you want to download Trick Daddy you can get a clean copy with the Trickster himself shilling for his record company’s club.

Adapting to the new digital, P2P reality may be painful. But in this case it is adapt or die. There will, no doubt, be deaths. I would not want to be in the retail record store business at the moment. But the creative destruction unleashed by new technology is already creating new alternatives for artists to reach their audiences.

As Terry O’Reilly pointed out in his 2002 article on P2P “Obscurity is a far greater threat to authors and creative artists than piracy.” And, as 32 time Grammy Award nominee John Snyder suggests in his Salon article, P2P file sharing represents the greatest marketing tool the music industry has ever come upon.

My take: I agree, but let’s get ready for a music industry with far lower marketing expenditures. This will not be pleasant or convenient in every way, as middlemen are not mere parasites, and property rights are not easily disposable. Our best hope is that Internet marketing can replace costly marketing campaigns, which will become increasingly unprofitable.

Addendum: Today’s Wall Street Journal, Money and Investing section, had some interesting figures on Apple’s iTunes service. You are charged 99 cents per song. It costs about 65 cents to license the song. Credit card fees are about 25 cents a transaction (which can include several songs), minus the two or three percent. Right now the service, extrapolated across a year, would bring in only $25 million in annual revenue. When the service is extended to Windows users, this could boost revenues to the store by as much as $600 million, profit by about a tenth as much.

Forbes poll on the best blogs

Here is the link for a Forbes article, listing well-known blogs in a number of areas, including food, medicine, politics, and media. The economics selection is very small but includes some of our favorites. It is, however, about time to allow for write-in voting, or at least list more voting options. Brad DeLong, probably the most widely read economics blog, isn’t listed at all, and that isn’t the only economics blog missing from the list….

Addendum: One knowledgeable correspondent told me that the economics blog selections were done in March, before MR was started I might add, and that some blogs were ruled out for being too political, not strictly economics.

Ghetto version of Monopoly causes outrage

That’s Monopoly the game, not the (related) economic concept.

Black leaders are outraged over a new board game called “Ghettopoly” that has “playas” acting like pimps and game cards reading, “You got yo whole neighborhood addicted to crack. Collect $50.”

The creator of Ghettopoly, David Chang, did not immediately answer e-mails or phone calls seeking comment about the game. On his Web site, Chang is unapologetic, and promises that more games — Hoodopoly, Hiphopopoly, Thugopoly and Redneckopoly — are coming soon.

[Note that I have added the link, it is not in the original article.]

I am surprised to hear it is being sold at Urban Outfitters, for the whole story click here. I give it the half-life of terrorism futures at the Pentagon. Here are some outraged people, scheming how to stop Chang.

Changes in Strange Beliefs

Here are some views that declined in popularity from 1925 to 1950. The first number is the percentage of people who believed the claim in 1925, the second number is the percentage from 1950:

1. Long, slender hands show an artistic nature: 42.0, 6.4

2. Adults can become feeble-minded from overstudy: 56.0, 10.9

3. You can closely judge a person’s IQ from his face: 50.0, 3.6

4. Women are by nature purer and better than men: 38.0, 1.8

5. The position of planets affects your character 15.0, 6.4

6. Expectant mothers can affect the character of unborn children by thought: 38.0, 2.7

From Robert Ehrlich’s Eight Preposterous Propositions: From the Genetics of Homosexuality to the Benefits of Global Warming. I’ll be blogging more about this interesting book soon.

Those six views are, of course, all preposterous. But if I had to defend one of these in a debate, I would opt for number three. Number six would come next, then number four. Number five is totally stupid, but in a way we have grown to expect. So number one seems the craziest to me.

How Easy is it to Evaluate a Lawyer?

Trying to learn whether a lawyer is a bad apple can be an exercise in futility. The ABA keeps a database of known ethics violators and makes the information available if you call 312-988-5321, but it relies on voluntary reports from state bar counsels. You could call the bar counsel in the appropriate state directly listed at but that can also be a dead end unless the attorney has been suspended or disbarred. Many states just say he’s “in good standing” even if he has had lots of complaints or worse.

So is it written on one of the leading medical blogs, he is trying to tell you that doctors are not the worst. Rangel offers this further link to make you more suspicious of lawyers.

Here is an interesting fact, though it is to me not so obviously nefarious as the author would make it out to be:

Some 68 percent of malpractice claims from 1996 through 1999 closed without the client receiving payment from the lawyer’s insurance company, and only 6.7 percent netted more than $50,000, according to a 2001 ABA survey. Why is it so hard? For one thing, only an estimated 30 to 50 percent of lawyers even carry insurance, so collecting is a long shot.

Here is his final parting blow, judge it as you wish, noting that a lawyer may know many other lawyers:

Unlike doctors, lawyers in most states are allowed to have sex with clients. And many do. Nearly 20 percent of attorneys surveyed nationwide by the University of Memphis in 1993 admitted they or a lawyer they knew had had an affair with a client.

New Nobel Prize

I hear it is Robert Engle and Clive Granger, not yet on the major news outlets, more to follow later today.

Addendum: Here is the press release from Stockholm. Here is a short article on cointegration, Granger’s most important contribution. Here is an introduction to ARCH models, a technique pioneered by Engle. Here is Engle’s home page, and Clive Granger’s home page.

My take: Very good picks, economists use their contributions all the time, note that their work is of less interest to the general public than is usually the case.

Hearing Mozart makes you feel rich

Therefore you spend more money in restaurants, for the full story click here. You spend less when you hear Britney Spears, although you still spend more than when you hear no music. And how about Led Zeppelin? Co-blogger Alex noted not long ago that German music makes shoppers buy German wines, and French music makes shoppers buy French wines.

Here is a link to the original research, also connecting you to a variety of other pieces on music and psychology. Music also makes you more willing to wait in line. And people like pop music more, the more attractive the singer.

Discounted economics books for sale

Laissez-Faire Books is offering special sales this month, they have by far the cheapest prices and a very good selection of libertarian and market-oriented books, including my own books, portrayed in the right column on this blog, co-blogger Alex’s books too.

Thanks to David Bernstein for the pointer, from Volokh Conspiracy.

Or maybe you want DVD and video products for economics? Also check out Films for the Humanities & Sciences, only some of them appear to be junk.

A New Proposal for Cleaner Air

Most auto emissions come from the dirtiest ten percent of the cars on the road. Why should we ignore this fact? Daniel Klein suggests using infra-red beams to measure the quality of auto exhaust from particular cars, as they drive by the sensors. Identify the minority of gross polluters by photographing their license plates, and then get them off the road, force them to fix their cars, or tax them. Note that your annual or bi-annual auto emissions test is easy to fake or prepare for. Under Klein’s scheme the government measures the quality of auto exhaust, and lets the car owner invest in a better result however he or she wishes to do. My main worry concerns privacy issues, but perhaps privacy is headed out the window in any case. To read about related essays on economic policy and technology, from the same book, see my previous post on electricity.

Digital TV in Berlin

Analog television is dead in Berlin. The German capital became the world’s first jurisdiction to go all-digital on the TV dial in August, when the last of its analog stations–along with viewers’ analog TV receivers–went dark. Contrary to the fears of regulators elsewhere, there have been no shrieks of outrage. The lessons for American policymakers: The paralysis that grips the digital TV transition in the United States can be overcome, and taking away analog TV is not political suicide.

Why is this a good thing?

Given a digital configuration, broadcasters could beam many times the number of analog stations currently on the dial.

And by taking a step beyond the “Berlin switch,” new wireless networks could be unleashed. The United States long ago set aside some 67 TV channels nationwide, but the great majority of them are unused. In fact, just seven TV stations broadcast in the average market. Going digital could open up this mother lode of leftover spectrum in the TV band to productive use.

Berlin just did the switch the drastic way, and families on welfare were given vouchers to purchase the new boxes. Regulators fear “stranding” 13 million TV sets in America, but a similar voucher plan would cost about $50 million in the United States, we are told.

For the full story, read Tom Hazlett on