Month: July 2004

Is New Zealand backsliding?

Re the railways, the government has actually bought up only the track, while new private sector owners now own and run the operating company. It is probably a little unfair to suggest that the purchase was the (direct) result of widespread voter dissatisfaction – Tranzrail, the previous private sector owner, had almost ended up in liquidation. Without that trigger, this government would have had no great appetite for getting back into ownership of railways. Also, there is at least a case that the lines should always have been separated from the operating business.

As for whether rail should exist in New Zealand, I think that is still an open question (although, like everyone, I was surprised at what the original bidders paid at privatisation in 1993). The issue is not about passenger services, except, maybe commuter lines in Wellington – the population is too sparse for economic inter-city services – but about a limited network for freight needs (mainly bulk dairy and forestry). The very sparseness of the population, and the rugged terrain, also makes good quality roads a challenge to justify/maintain.

As for Air New Zealand, perhaps one can say only two things for the defence. First, late 2001 was the worst time to be relying on new operators to provide longhaul airline services (recession and 9/11) and, sensibly or not, almost any government in the world would have done the same thing at that time. And second, at least so far it looks to have been a good deal financially – Air NZ was sold for more than the government bought it back in 2001, and its market value is now above the latter price. As for the Qantas deal, the curent NZ government has actually been quite supportive of it, but the transaction was blocked by competition authorities on both sides of the Tasman (concerned about extreme market dominance on NZ domestic routes and most (non-auckland) trans-tasman routes.

Idea futures inside the corporation

Read this week’s Time magazine:

Once confined to research universities, the idea of markets working within companies has started to seep out into some of the nation’s largest corporations. Companies from Microsoft to Eli Lilly and Hewlett-Packard are bringing the market inside, with workers trading futures contracts on such “commodities” as sales, product success and supplier behavior. The concept: a work force contains vast amounts of untapped, useful information that a market can unlock. “Markets are likely to revolutionize corporate forecasting and decision making,” says Robin Hanson, an economist at George Mason University, in Virginia, who has researched and developed markets. “Strategic decisions, such as mergers, product introductions, regional expansions and changing CEOs, could be effectively delegated to people far down the corporate hierarchy, people not selected by or even known to top management.”

Here is an example:

Eli Lilly, one of the largest pharmaceutical companies in the world, which routinely places multimillion-dollar bets on drug candidates that face overwhelming odds of failure, wanted to see if it could get a better idea of which compounds would succeed. So last year Lilly ran an experiment in which about 50 employees involved in drug development – chemists, biologists, project managers – traded six mock drug candidates through an internal market. “We wanted to look at the way scattered bits of information are processed in the course of drug development,” says Alpheus Bingham, vice president for Lilly Research Laboratories strategy. The market brought together all the information, from toxicology reports to clinical results, and correctly predicted the three most successful drugs.

What’s more, the market data revealed shades of opinion that never would have shown up if the traders were, say, responding to a poll. A willingness to pay $70 for a particular drug showed greater confidence than a bid at $60, a spread that wouldn’t show if you simply asked, Will this drug succeed? “When we start trading stock, and I try buying your stock cheaper and cheaper, it forces us to a way of agreeing that never really occurs in any other kind of conversation,” says Bingham. “That is the power of the market.”

My take: The idea has most promise when lack of information is the relevant corporate problem. Look for this to be used when corporations must make high upfront investments, as in the drug development or music industries. Other times companies know what must be done, but simply cannot muster the will to do it. Perhaps then idea futures are useful to make this fact “common knowledge.”

The bottom line? Getting kicked out of The Pentagon was the best thing to ever happen to this innovation.

Here is the full story, and kudos to my colleague Robin Hanson, who set the whole thing in motion.

Addendum: Here are additional sources on the initial controversies.

What are the most popular library books?

65 percent of Americans use the nation’s 16,000 libraries, and those libraries spend almost $2 billion on books each year, about a fifth of the total market.

So which library books are most popular? And does it mirror the bestseller lists?

Here is the list of the top fifteen, an Adobe reader is required. Number one is The South Beach Diet, followed by some of the usual political books and Eats, Shoots and Leaves. The first book I enjoyed comes at number six with Brian Greene’s The Fabric of the Cosmos, here is my earlier summary.

My question is whether people are more likely to buy books and never read them, or take books out of the library and then never read them. The naive economist might think that you get more phoney-baloney behavior when the books are free. I suspect the opposite is true. If the book costs nothing, bringing it home involves little signaling or self-signaling. It might impress your neighbor to see a weighty tome on your bookshelves, but only if you had to spend money. So the good news would be that those people actually wanted to read the Greene book.

Here is the full story.

Genghis Khan and price discrimination

In twenty-five years, the Mongol army subjugated more lands and people than the Romans had conquered in four hundred years. Genghis Khan, together with his sons and grandsons, conquered the most densely populated civilization of the thirteenth century…Genghis Khan conquered more than twice as much as any other man in history…At its zenith, the empire covered between 11 and 12 million contiguous square miles, an area about the size of the African continent and considerably larger than North America…The majority of people today live in countries conquered by the Mongols; on the modern map Genghis Khan’s conquests include thirty countries with well over 3 billion people.

That’s from Jack Weatherford’s overstated but fascinating Genghis Khan and the Making of the Modern World.

By the way, the entire Mongol tribe was no more than one million people, with perhaps one hundred thousand warriors.

Today a Mongolian restaurant in London is offering free DNA testing. If you are verifiably a descendant of Genghis [what are you being tested against?], they will feed you a meal for free. The analysis takes two months, but supposedly you have a good chance of winning:

It is estimated that 17 million people worldwide, including the British Royal Family, Iranian Royalty, and the family of Dracula, are direct descendents of Genghis Khan.

Addendum: Read more here on the nature of the test.

John Edwards it is

Here’s Alex’s old post on John Edward’s career as a trial attorney, read Alex here too. Here is Professor Bainbridge on Edwards on tort reform. Here is National Review discussing John Edwards on trade.

My take: None of these links warms my heart, but at this point we don’t have much real information. I suspect that Edwards, if President, would rather be perceived as successful than pursue a particular ideology. And he almost certainly is better on the issues than Gephardt.

Where are tax disincentives highest?

It is common wisdom that universalist welfare states have especially high work disincentives. But matters are not so simple:

Just as the high-budget countries often have lower marginal tax rates at the top of the income spectrum, so too they can have lower marginal tax rates at the bottom, with high marginal tax rates only across the broad middle range of incomes [see further below for an explanation]. If that is true, then the debate over work incentives needs to be redirected. The net effect on labor supply and GDP may depend on something never researched, namely whether work and productivity respond more sensitively to marginal tax rates in the middle range or at the ends. If the response is greater in the middle range, then the welfare state indeed reduces work and GDP. But if conservative fears are correct in emphasizing that the supply of effort is most fragile at the two ends of the income spectrum, then it is possible that the pattern of marginal tax rates in the high-budget welfare states discourages work less than the pattern prevailing in low-budget countries.

That’s from Peter Lindert’s excellent Growing Public: Social Spending and Economic Growth Since the Eighteenth Century, which integrates readable economic history with public policy implications.

Now why might this be true? Keep in mind that some of the very features of universalist welfare states lower some marginal tax rates. The more universalistic the welfare state, the less likely that benefits will be means-tested. And of course “means-tested benefits” is just another name for a high marginal tax rate at some level. If you lose your benefit as you earn more, that is one reason not to work more or harder.

Here is a previous MR post on Lindert’s work.

Neuroeconomics and the sexes

Neuroeconomists let people play economic “games” while hooked up to MRI scanners. Here is one recent result:

The cingulate cortex, which processes both emotions and abstract thinking, becomes especially active after one player betrays the other by cutting back on how much he shares–as if the brain, or at least this crucial part of it, is “hypertuned” to detect betrayal. Quartz has also seen intriguing differences between men and women in the scanner. Men’s brains tend to shut down after they’ve made their decision, awaiting a reply from the other subject. But women don’t relax so easily; they show continued activity in at least three areas–the ventral striatum (the brain’s center for anticipating rewards), the ventral medial prefrontal cortex (which is involved with planning and organizing) and the caudate nucleus (a checking and monitoring region, sometimes associated with obsessive-compulsive disorder). Women, says Quartz, seem to obsess more over whether they did the right thing–and how the other subject will react to them [emphasis added].

There’s one other intriguing discovery coming out of this work, which has even the scientists baffled: with approximately 85 percent accuracy, the subjects, separated by the distance from Los Angeles to Texas, can guess whether they’re playing against a man or a woman. They appear to be picking up on subtle clues in the interactions that the scientists themselves haven’t identified.

Here is a recent MR post on neuroeconomics, citing the same link of relevance. This page offers a good introduction to neuroeconomics, including home pages for the authors cited above. Here is a course reading list for a neuroeconomics class. Here is a long essay on neuroscience and economics.

A comment I would never make on MarginalRevolution

Read Matthew Yglesias on the Endangered Species Act:

Did the president really gut the Endangered Species Act yesterday while no one was paying attention? So I’ve heard, at any rate. If so, good riddance. You’ll all yell at me, I suppose, but really: Who cares? Species die, shit happens, get over it. Clean air, clean water, and lower carbon emissions I’ll get behind that stuff impacts, you know, people.

Here are my more moderate comments from some time ago.

I should link to Matt more often, we share a Best Buy, plus he doesn’t want to worry about Iranian nukes. But when it comes to Dick Gephardt, however…read this.

Independence Day

A sign on the highway on the road to Toronto speaks volumes.

Remember, driving is a privilege not a right.

Despite the fact that I am Canadian, everytime I see this sign my stomach churns with anger and I must suppress a desire to turn back to the U.S. The sign is a reprimand from the rulers to the ruled reminding them of their place. I want to tear it from the ground but my fellow Canadians think my reaction odd. More Americans, I think, would understand and that I suppose is why I call America home.

Happy Independence Day.

Earthquake in Germany?

This week the German government is expected to pass a landmark immigration reform. The measure would allow migrants to work in Germany if they have skills if specified fields, such as engineering, information technology, or the sciences.

To be sure, the qualifications are many. It must be shown that no German can do the job. National security factors can be invoked to limit and restrict migrants. An earlier version of the bill would have let in lower and medium-skill migrants. Still, this is a long way from Helmut Kohl’s famous remark: “Germany is not a country of immigration.” Furthermore there would be no quotas under the proposed legislation.

For one summary of what is afoot, see the WSJ, 2 July, p.A9. Here is another summary of the proposed reforms. Here is some background context on the policy change. Note that the reforms attempt to manage immigration before EU constraints take over; in this regard also they fall short of a true liberalization.

So will this prove an earthquake in German politics? It depends how rigidly the entry standards are enforced. In any case the West European countries are badly in need of a basic model for greater immigration. Germany currently has many migrants but most are ethnic Germans and their flow has dried up. After all, there are only so many Volga Germans. This reform, however imperfect, should prove at least one step in the right direction.

Markets in everything, once again

Try the latest, simulated dating. They set you up for a “date,” but in reality you meet with a dating coach. You pretend to be interested, then you are given tips for how to do it right in the real world. That will be $275 please, in case you are too chicken to ask your friends for help. Plus you pick up the tab.

Here is a related book about how to judge the first impressions you make on other people. And “Football Hunk” offers ten tips for guys.

Here’s another quirky match-making service:

In New York, there’s Dinner in the Dark, which arranges meals in a pitch-black bar and restaurant. Waiters equipped with night goggles are the only ones who can see – leaving clients to fumble with their utensil-free dinner while getting to know their prospective matches, from the inside out. Candles are lit during dessert, when clients see who is sitting next to them.

Adverse selection anyone?

Nigerian politics is not efficient

An outbreak of polio has hit children in the Nigerian state of Kano. Kano is one of the muslim states that had boycotted the use of the polio vaccine. Many muslim states in Nigeria banned the polio vaccine because those in charge said the Americans were using the vaccines to make their population infertile. Many of them said the vaccine would also be used to spread AIDS in the region. Despite appeals from neighbouring countries to vaccinate its population, the conspiracy theorists in Nigeria got their way.

Now, as expected, polio is beginning to spread among children in the region. Now the local authorities are appealing for urgent assistance.

The World Health Organisation has sent a team to the area. The team has confirmed that the outbreak is polio.

It turns out that the Nigerians are willing to accept vaccines from Indonesia, a Muslim country. But this has led to lengthy delays and shortages.

Here is the full and sad story.

Haitian fact of the day

In the early nineteenth century Polish soldiers went to Haiti to fight for Haitian independence against the French. Many of these soldiers stayed in the country, settling in the town of Cazale. The town has since become known for its “banana arts,” based around carving the fruit into paper-like forms.

A small Smithsonian exhibit on this history has recently been sponsored by The Republic of Taiwan

Market in Everything

I think most of these are “art” but this market in everything makes for entertaining reading. Here are some of my favorites. For legal reasons, if you want the product, you will have to go to the website for the seller’s email.

Guilty? Innocent? It’s all the same to me. For a fee of 500 pounds a time I will lie to the police about your whereabouts, and for 2000, I will perjure myself in court, and swear a testimony to a fictitious scenario of your choice. Easiest to contact me in advance of crime, and establish the deal. Emergency alibis also available.

For a price, I will think of you and only you every time I commit acts of self-love during a time period. I will picture you in my mind, and pretend that all pleasurable touches come from your hands…I will breathe your name heavily. I will lust after you. I will dream of you. I will long for you. …During each time period, I vow to commit acts of self-love to orgasm, at the very least, once per day, no matter what.

Worried that the day to mark your passing is going to be an Eleanor Rigby type affair? Fear not, for 20% of your estate (or £1000, whichever the greater) plus travel and overnight accomodation expenses, I will pretend to have known you, deliver a stirring eulogy, and then get drunk at your wake.

I will sell you immortality for only £12 plus £2 booking fee. There is a full refund for dissatisfied customers.

Thanks the MetaFilter for the link.

Taxes for everything?

The cost of a nose job could soon be nothing to sneeze at in New Jersey.

People who have unnecessary cosmetic surgery in the state will soon have to start paying a 6 percent tax for their procedure if Gov. James McGreevey signs a budget that was passed last week by the state Legislature.

It will be the first time a tax has ever been placed on a surgical procedure in America.

Here is the full story. CAT scans and MRI procedures will be taxed as well.

If you think that “beauty competition” is a zero or negative sum game, such taxation might seem like a good idea. More likely, absolute increases in beauty make everyone better off. To paraphrase my friend Bryan Caplan, would it simply be a “wash” if every woman in the world suddenly looked thirty years older?

I am also disturbed by the privacy aspect of this legislation. Imagine the government looking through your medical records to see if your surgical procedures were for medical or aesthetic reasons.