Month: May 2004

Death to the Hackers!

by  Fabio Rojas

Steven Landsburg has a clever column (click here) pointing out that the economic damage prevented by executing a murderer is less than damage caused by the author of a wildly successful computer virus. If we’re willing to fry Jack the Ripper, why not send Urkel to the chair?

Landsburg notes that governments provide goods markets won’t, such as crime prevention. The implication is that cost-benefit analysis would dictate that people would be more willing to pay for prevention of property crime rather than personal safety.

For me, Landsburg misses a simple point: human beings are probably hard wired to care about concentrated damages (like murder of a person) rather than diffuse damages (like screwing up everybody’s email for an hour). No cost-benefit analysis will likely persuade people to go against this intuition.

Jean-Jacques Rousseau’s public opinion theory

by  Fabio Rojas

It’s pretty well known that Rousseau thought that the public was always right. But while reading On the Social Contract translated by Donald A. Cress, I came upon this less frequently discussed quote:

“The former [‘will of all’] considers private interest and is merely the sum of private wills. But remove from these [private] wills the pluses and minuses that cancel each other out, and what remains as the sum of differences is the general will,” which Rousseau claims in the previous paragraph is “always right” and tends towards the “public utility.”

This is an interesting public opinion theory. It assumes that aggregate public opinion has two components – a selfish and biased component and a component that produces the “right” public policy. The difference between the optimal policy and the median voter’s policy is due not to ignorance or systemic error, but to selfish desires that undermine the provision of public goods. If readers know of a published formal model of this theory, or applications of this theory, feel free to email me.

The best anti-poverty program ever?

by  Tyler Cowen in

I’ll nominate the Earned Income Tax Credit as one of our government’s best policies:

…the EITC is an honest and legal federal anti-poverty program that paid out nearly $28 billion to more than 16 million claimants in 2002.

The EITC is not a safety net program. Its benefits are only available to persons who have worked and received earnings during a given tax year…Over the last 28 years, the EITC has grown to become the largest federal cash or near-cash assistance program directed at low-income families–with outlays far exceeding Temporary Assistance for Needy Families (TANF) and the food stamps program.

Here are some key advantages:

First, the EITC significantly increases the fiscal resources available to working poor families. The program rewards labor earnings with a 40 percent match up to the first $10,000 in earnings (see figure 2). In many cases, EITC benefits are enough to raise a family above the poverty level. Second, the EITC encourages people to choose work over welfare. The program has built-in work incentives, especially at the lowest income levels, which encourage families to attain self-sufficiency. Some studies have shown that the increased availability of the EITC and more generous benefits helped contribute to the decline in welfare recipients after passage of the 1996 welfare reform act (accounting for as much as 20–30 percent of the decline in caseloads).

Note also that EITC offsets the impact of Social Security taxes on low-income individuals; otherwise those individuals would face very high marginal tax rates. Furthermore I’m strongly of the mind that people are happier when they are working, even if their jobs aren’t always fun.

The program is not without its blemishes. These involve a thirty percent error rate (relatively high, compared to other welfare programs), and overpayments of at least $9 billion a year. That is why the IRS invests so much energy auditing people with low incomes.

Still, it is rare when our government gets something so right. So let’s offer our plaudits for the day, before returning to the more frequent instances of government failure. Here is a good article on EITC, which explains its numerous virtues.

Peanut butter

by  Alex Tabarrok in

I am finicky about peanut butter. I dislike all the national brands which I think are too overprocessed, sweet and buttery. The local organic isn’t nutty enough. I do like Arrowhead Mills Crunchy which works especially well in peanut butter cookies. I tell you this not to recommend Arrowhead Mills, your tastes may well be different from mine, but to illustrate what’s wrong with the idea that there are too many choices in the market.

We are all finicky in some dimensions but not in others. I don’t give a wit about what toothpaste I use but my wife swears by Burt’s Bees. I know the difference between Mozart and Bach but couldn’t tell von Karajan from Solti although I have no doubt that my co-blogger will have no-doubt which is the superior.

If there was “one toothpaste for all” the price would be lower and I would be better off. But one peanut butter for all would stick in my craw. I am willing to pay more for products I don’t care about to have options among products that I do care about. After all, in some sense it’s the products that I care most about that most define who I am.

Addendum: This note was sparked by Don Boudreaux’s observation over at Café Hayek that the average supermarket has 30,000 items. That’s right – which is why I shop at Wegman’s which must have at least 60,000 items!

Mall Science

by  Fabio Rojas

Paco Underhill has made a career of studying shopping malls. In two well known books (click here) , he lays out a wealth of findings on the world of the mall, and describes how retailers lose sales by ignoring how people actually use malls and shops. For example:

– people tend to buy stuff that’s placed away from the door, stuff near the door sells poorly
– people tend to walk through the mall with the shops on their right hand side, so place your products facing in that direction; displays facing the wrong direction rarely get people to buy stuff
– chairs in stores are great, because impatient family members who are seated will wait longer while you shop

Who would’ve thought that malls provide such nice examples of systematic biases in consumer behavior and the market inefficiencies they create?

Oh Oprah!

by  Alex Tabarrok in

Cover headline from “O, The Oprah Magazine” (June, 04):

The Wrinkle Report: Treatments that actually work (science finally does something good for women!)

What, anti-biotics weren’t enough? And what is Oprah saying about what women value? Reminds me of the Barbie that whined “Math is hard,” when you pulled the string out of her back.

I know, I know, Oprah is a saint but even saints ought to be questioned.

Markets in everything – Korean women edition

by  Tyler Cowen in

This time courtesy of the ever-insightful Randall Parker. Here is one juicy bit:

Chinese men may buy so many North Korean wives that North Korea will either become militarily aggressive or collapse from within. This is not implausible. Those 30 to 40 million single men in China in the year 2020 mean there wil be 3 to 4 times more single men in China than there are women in North Korea. The Chinese will be more affluent than the North Koreans unless radical changes happen to North Korea’s economy. North Korea is the place where Chinese men will have the best competitive advantage in angling for wives. The other East Asian countries are not nearly as poor as North Korea and North Korea shares a long 1,416 km land border with China.

China’s economy is growing rapidly. The buying power of Chinese men is rising. Even poor Chinese farmers can afford to buy North Korean women.

And what is Randall’s prediction?

Expect the hostility of North Korean men toward China to increase.

Good call, Randall!

Update on my whereabouts

by  Tyler Cowen in

Today Paris is lovely; I would sooner say I am enjoying the French than arguing with them. My airport terminal was intact, my jet lag minimal, and my goat cheese salad excellent. I continue to flirt with the idea that the French, of all Europeans, are most like the Americans. Both, for instance, have a missionary impulse toward other cultures. And both are obsessed with quality, albeit in differing directions. The saddest thing for me here is that in the 1970s, they replaced Les Halles, the old food market where much of French cuisine evolved, with a soulless shopping mall. I will never get over that loss. On the other hand, it is remarkable how many shops you can find that will sell you a bar of dark chocolate for $5 or more; I never feel I am overpaying.

Tailor made pharmaceuticals

by  Alex Tabarrok in

Better genetic information is beginning to reveal why some drugs work for some people but not for others. (Here’s a CBS Marketwatch story, requires free subscription). In addition to the heath benefits, there are some political-economic benefits to better understanding of how drugs interact with personal chemistry.

Drugs that benefit a minority of the population are sometimes not approved by the FDA because their side-effects for the majority are deemed to outweigh the expected benefits. But if we can identify more clearly who the drugs will benefit and who they will harm, more drugs will be deemed safe and will get through the FDA process. As a further result, the costs of drug development will be reduced.

Genetic information can also help to avoid the opposite error. It often happens that in a clinical trial a drug doesn’t look beneficial overall but does appear to work in some subpopulation (e.g. African-Americans with disease of type X that has progressed to stage y). The danger is that some results like this are bound to occur by chance alone and thus do not necessarily imply true efficacy. If we can show that the subpopulations do (or do not) have systematic genetic differences from the majority population, however, we can rule out (or rule in) chance as an explanation and better separate the wheat from the chaff.

Thanks to Jim Coomes (a long-time reader from Pattaya, Thailand!) for the link.

Girls’ names are more inventive

by  Tyler Cowen in

Her parents called her Apple Blythe Alison Martin, hardly a common moniker. The trend, however, is more general:

…the “mutation rate” in names is higher for girls than for boys. Parents, in other words, are more liable to be inventive when choosing a name for a baby girl. The researchers have found that for every 10,000 daughters born in America there is an average of 2.3 new names. For sons, the figure is 1.6.

Why might this be?

One possibility is that in a society where family names are inherited patrilineally, parents feel constrained by tradition when it comes to choosing first names for their sons. As a result, boys often end up with the names of their ancestors. But when those same parents come to choose names for their daughters, they feel less constrained and more able to choose based on style and beauty.

Here is the full story. Here is another summary, with a link to the original research. African-Americans appear to be much more creative in naming than others, see Alex’s discussion.

The bottom line:

Most new parents copy existing names when naming their babies, say Bentley and his colleague Matthew Hahn of Duke University in Durham, North Carolina. Nonetheless, the overall distribution looks like a product of random copying, they demonstrate. Bentley and Hahn modelled the allotment of baby names in the United States during the twentieth century. The names follow a pattern called a power law: most names are present at a very low frequency, while a small handful are very common.

That being said, it remains a mystery why parents take more chances with the names of their baby girls. But here is the best part of the article, a paean to the leadership abilities of my parents:

But that does not explain the rise of Tyler, which first appeared in the top 1,000 in the 1950s, and reached the top ten in 1992.

I can remember a time when the only other “Tyler” in my mental universe was Henry Kissinger’s dog.

Purchase Elephant

by  Alex Tabarrok

Here is the text of what may be the oddest spam that I have ever received.

Dear Sir

Let me introduce to you about myself and my Company. I am the Crops and Horticulture Manager in a Company dealing with dairy products having its own Dairy Farm situated in the Eastern Province of the Kingdom of Saudi Arabia.

We are interested in purchasing a pair of baby elephant to our Zoo inside the Farm for the purpose of exhibition for school children and visitors who visit the Farm. The elephant should be of quite and not wild type.

As you have wide knowledge in this field, we would like to get some vital information on the following subjects:

1. Is it advisable to buy a pair of elephant or a single?

2. How to train the elephant to be playful with people. Please note that we have requested a person from India for the training of elephants.

3. Full details of price including freight charges from your destination to Dammam Port in Saudi Arabia. The required document formalities in Saudi Arabia will be arranged by us.

We would like to hear from you soon, and hoping to have a good business relationship with you. Should you have any queries please don’t hesitate to contact us through E-mail.

Thanks and best regards

AMJAD MELHEM

Crops & Horticulture Manager
00966 – 55921141
00966 – 3 – 532 0000 (Ext. 304/295)