Month: August 2004

Non Economic Damages

According to Tillinghast, twenty four cents of every dollar spent in the tort system covers a non-economic loss, such as pain and suffering. Non-economic damages have been a target for reformers for years but concern with capping them has always been that it’s easy to avoid the caps by reclassifying the non-economic damage portion of the award as compensatory. A recent report by RAND indicates that California’s $250,000 cap is effective at reducing awards. It finds that “Defendants’ liabilities were reduced by 30 percent.”

This does not, however, mean a 30% reduction in payouts to plaintiffs. Because of limitations on attorney fees, which result in a reduction of payments to plaintiff’s attorneys of 60 percent, plaintiff’s recoveries fell by only 15%.

My take: California has made a good start but did not go far enough. Since consumers ultimately pay for any damage payments in higher prices for goods and services, damages in the tort system’s coverage should mirror private insurance markets. Private insurance markets reveal the preferences of consumers for insurance and hence certain types of compensation. Consumers find it worthwhile to purchase insurance against economic loses. However, as Paul Rubin explains

No direct insurance policy covers this class of loss, but tort damages commonly do pay them. But the ability to receive payments for nonpecuniary losses is not a benefit to consumers; it is a cost. The reason insurance does not commonly cover them is that consumers are not willing to pay the cost of the coverage, even given the small loads commonly associated with direct insurance. (The theory of rational insurance can explain that reluctance.)

But if consumers are not willing to pay voluntarily for direct insurance against pain and suffering, why should they benefit if they are forced to buy the same insurance as part of their medical payments? The answer is that they would not benefit. By forcing payments for nonpecuniary losses on consumers as part of medical insurance, we would not be creating a net benefit for them.

For Rubin’s theory see John Calfee and Paul H. Rubin. “Some Implications of Damage Payments for Nonpecuniary Losses.” Journal of Legal Studies 21 (1992).

MR and the Google Wars!

Fabio Rojas, a frequent guest blogger for MR, writes me the following:

There is a young man in Northridge, California whose name is “Fabio Rojas.” He’s a computer programmer from the Dominican Republic. Since about 1996, his personal web page was the one to come up first in Yahoo, Altavista and Google when you entered the words “Fabio Rojas.”

As you can imagine, I was enraged. That’s when I began a silent war waged on the information superhighway. Despite my furor and razor sharp analytical mind, there was nothing I could do to fight his influence. I was losing the war to be the #1 Fabio Rojas on the internet.

Althought I set up my own web page and participated in numerous on line forums, year after year, “Northridge” Rojas’ web page would be the #1 Fabio Rojas web page in the world. I was stymied… as an experienced computer programmer, “Northridge” Rojas” knew how to jack up his google rating to an unsurmountable level. There were even times this past fall when my Indiana University professor profile would momentarily get #1 status, only to be knocked down by his poorly constructed and infrequently updated personal profile. He was obviously messin’ with me.

Today, I looked upon the battle field and found that the tides had turned in a most remarkable fashion. I am now the undisputed #1 Fabio Rojas on the internet. “Northridge” Rojas’ has been routed, and barely shows in the top 10 google hits.

And who can I thank for this reversal in fortune? That’s right, the guys at Marginal Revolution. My post on Football and economics seems to still get some hits, months after it was posted, which encourages people to read my profile and thus vanquish the pretender Rojas.

What can I say?

!Viva la Revolucion Marginalista!


Bryan Caplan, our colleague and recent guest blogger, has also been aided by MR in his own Google War. Bryan is the author of an extensive website, The Museum of Communism. It’s an excellent website that he continues to update. Assuming that I outlive him, Bryan has made me promise that in lieu of flowers I will take up a collection to preserve the site in perpetuity! (Logically, he should have asked Robin Hanson to do this but that’s another story).

For a long time Bryan was the number one Google hit on the word Communism but the Marxists later pulled ahead. Bryan’s recent stint as a guest blogger put him in the lead for a while but now I see he is once more number two. So click on the Google link, check out the Museum and do your part to help overthrow the Marxists!

Cutting the fat

Dieting is difficult because it’s so much easier to give in to temptation and consume what you should not. It’s a constant struggle to cut the fat. The same is true in business. Economists may write down a “cost curve” on the blackboard but these curves, which represent the minimum cost of producing a particular quantity, are not given to the firm they are products of the firm. It takes effort and attention and willpower to keep costs low. Letting costs go by raising salaries, increasing benefits and paying little attention to the bottom line is easy and, for a time, pleasant which is why firms need strong incentives, including the carrot of profit and the stick of loss, to get and stay trim.

Government agencies face few such incentives. As a result, fat is rampant. Case in point, California prison guards. To encourage fitness the California Department of Corrections created a fitness bonus some years ago. The bonus was quite substantial, $100 per month but to get it guards had to pass a fitness test involving sit-ups, running and jumping. Five years ago the state paid out about $5 million for the fitness incentive. But who wants to be the bad guy who denies a prison guard a bonus? No one – if they aren’t paying the bills.

As a result, the fitness test started to get easier as the bonus got larger. Last year, California shelled out $33.2 million for fitness bonuses and some 80 percent of prison employees, not just guards but wardens and mangers also, now get the fitness bonus. Of course, a test is no longer required – all the employee need do to get the bonus is visit a doctor once per year.

With the California budget crunch even the politically poweful prison guards are having to cut some fat but in the long run recognize the incentive structure and don’t expect government to go on a diet.

Can we judge thinkers by their followers?

Having written recently on what is valid in Karl Marx, I am reminded of an ongoing debate I have with my colleague Bryan Caplan. I like to tell Bryan, only half in jest, that thinkers are responsible for the quality of their followers. Surely if a thinker is bright and rich and multi-faceted, that thinker would attract followers of a similar quality. And a rotten thinker ought not to attract many students of a higher quality. This test is not failproof but it is one way of approaching the question of intellectual quality.

On the negative side, Marx attracted Lenin, Stalin, and Trotsky. I’ll go out on a limb and claim that Gramsci, Lukacs, Althusser, and Luxembourg are all vastly overrated, even by many non-Marxists. Who then would I cite as illustrating Marx’s positive intellectual heritage? Here are a few options:

1. Walter Benjamin. His work on mechanical reproduction and aura continues to shape debates over contemporary culture. Plus you can mine his notebooks for incisive nuggets of insight; some of them are no more than a sentence.

2. Michel Foucault. Yes the specialists have poked holes in the histories. And his mechanisms are often murky and insufficiently grounded in methodological individualism. Still his accounts of the dark side of the Enlightenment — as found in prisons and hospitals – remain justly influential. And The Order of Things is an interesting albeit flawed look at the comovement of ideas in many disciplines in early modern times. By the way, he developed a strong interest in Mises and Hayek in the latter years of his life.

3. Juergen Habermas. I find much of his work unreadable; he is the strongest argument extant for the use of mathematical economics (why doesn’t he write down a simple model?). Still the early work on the growth of the public sphere in the eighteenth century is impressive. As a work of intellectual history, it offers enviable clarity, range and depth.

4. Ferdinand Braudel. OK, he didn’t have to be a Marxist to write those wonderful books on the Mediterranean and the rise of modern Europe. Still, the emphases on material forces and the long sweep of history are derived unmistakeably from Marx’s writings.

The summary picture is exactly what you would expect. On the whole Marx had a seriously pernicious influence on both the humanities and social sciences. Still, he inspired some significant thinkers and generated important nuggets of insight.

OK, now here is a challenge for real men. Can you tell me, standing on one foot, what exactly is both important and valid in the writings of Martin Heidegger? I’ll assume I can use your name unless you tell me otherwise; a blogged answer is best of all.

What makes New York City so wonderful

So used to the one measure of status in Washington — political power — the Republicans may find New York to be a disconcerting place.

No New Yorker wins every contest. In fact, every New Yorker is going to see someone in the next 15 minutes who will bring them down a notch. This gaze economy has so many scales of value that no one gets to triumph. Indeed, the higher we score on one scale, the lower we score on another. Interestingly, there is no exit scenario. Unless we spend all our time at home and the club, we must expose ourselves to diminishment. Or to put this in the form of a trade off, we cannot present ourselves for approval, without exposing ourselves to the reminder that we are, in someone’s world, a dolt.

In other words, life in a (relative) meritocracy is tough. But it is also good for you in the longer run. That’s from a longer post by Grant McCracken, my favorite anthropologist-blogger. Read the whole discussion, and thanks to Virginia Postrel for the pointer. Also scroll down on his blog to read a series of posts on the “gaze economy.”

Jeffersonians vs Hamiltonians

Entering Monticello,Thomas Jefferson’s home, you are flanked by two busts, Jefferson on one side and Alexander Hamilton on the other. Since the two were political foes it’s a surprising choice. But the busts were placed there by Jefferson himself who said, “we were ever-opposed in life and now we shall be ever-opposed in death.” The Jefferson-Hamilton battle continues to this day (read the link for more and don’t miss the many interesting comments.)


Addendum: Brad was perhaps fooled by the name of this blog but then there are two of us.

What rap stars crave

1. Looking at the Billboard Top 20 for rap music, 59 brands have been mentioned 645 times in songs so far this year.

2. Very high end and very low end brands are the most popular mentions.

3. The top brand so far this year in rap songs is Hennessey, a kind of cognac. Cadillac comes in second.

4. Mercedes, a previous favorite, now has fallen behind Cadillac, Rolls-Royce, and Jaguar.

5. Autos, fashion, and beverages provide the brands most likely to be mentioned in rap songs.

6. Cristal, an extremely expensive champaigne, may be losing appeal because it is now so closely identified with hip-hop.

7. Polariod, in contrast, has benefited greatly from rap music. The product has been hurt by digital photography, but Outkast sang “Shake it like a Polaroid picture” in its hit “Hey Ya.”

That is all from the Mexican edition of the Miami Herald, August 26, sorry no link available from here. Agenda Inc., a San Francisco marketing firm, compiled the data.

Satellite radio as universal jukebox

Catching Blondie’s reunion tour broadcast at 4 in the morning wasn’t an option for XM satellite radio subscriber and single father Scott MacLean.

“I was missing concerts that were being broadcasted when I was asleep or out,” he said.

So the 35-year-old computer programmer from Ottawa, Ontario, wrote a piece of software that let him record the show directly onto his PC hard drive while he snoozed.

The software, TimeTrax, also neatly arranged the individual songs from the concert, complete with artist name and song title information, into MP3 files.

Then MacLean started selling the software, putting him in the thick of a potential legal battle pitting technically savvy fans against a company protecting its alliance – and licensing agreements – with the music industry.

MacLean says he is simply seeking to make XM Radio – the largest U.S. satellite radio service with over 2.1 million members paying $10 a month for about 120 channels – a little more user-friendly.

And get this:

XM has said it plans to launch in October a new car and home radio receiver that lets users pause and rewind live broadcasts. XM also has a deal to stream its broadcasts over next-generation TiVo recorders.

The bottom line: Who needs illegal downloads? At some point radio and other media will become “thick” enough that you can just pluck the song you want. Probably this will prove well within the reach of the law. And once storage becomes essentially free (are we so far from this right now?), you will buy or download a program to record a (near) universal music library for yourself.

Here is the full story, which includes a link to the relevant software.

Politically incorrect paper of the month, v.3

Depending on your point of view you can draw one of two conclusions from this paper: A Comparison of the Cell Phone Driver and the Drunk Driver. Here is the abstract:

We used a high-fidelity driving simulator to compare the performance of cell-phone drivers with drivers who were legally intoxicated from ethanol. When drivers were conversing on either a hand-held or hands-free cell-phone, their braking reactions were delayed and they were involved in more traffic accidents than when they were not conversing on the cell phone. By contrast, when drivers were legally intoxicated they exhibited a more aggressive driving style, following closer to the vehicle immediately in front of them and applying more force while braking. When controlling for driving conditions and time on task, cell-phone drivers exhibited greater impairment than intoxicated drivers. The results have implications for legislation addressing driver distraction caused by cell phone conversations.

The abstract is truthful, but as you can see from this quote further on in the paper, the authors spun the lede in the more politically correct direction.

When drivers were conversing on a cell-phone, they were involved in more rear-end collisions, their initial reaction to vehicles braking in front of them was slowed by 8.8%, and the variability in following distance increased by 24.5%, relative to baseline. In addition, compared to baseline it took participants who were talking on the cell phone 14.8% longer to recover the speed that was lost during braking.

By contrast, when participants were legally intoxicated, neither accident rates, nor reaction time to vehicles braking in front of the particpant, nor recovery of lost speed following braking differed significantly from baseline.

Draw away. Here is #1 and #2 in this series.

Mexico’s lost century?

Mexico is slated to grow at somewhat over four percent this year (this popped up in the Mexican edition of the Miami Herald last week, no link handy). It has responded to the Chinese challenge by retooling its export base toward higher quality and quicker response times; the maquiladoras are once again growing. Higher oil prices do not hurt either. Of course four percent is a rate that most countries in the world would envy.

In the twentieth century Mexico grew at a rate above what the U.S. did (sorry, my exact figures are at home!). Mexican performance would be even better if we take out the disastrous 1980s. And in early colonial times, at least once Mexico recovered from various plagues, Mexico was arguably richer than the British colonies to the north. As late as 1820, Mexican GDP per-capita was in the same ballpark as that of the United States ($1287 U.S., $893 Canada, $760 Mexico, in 1990 dollars as estimated by Angus Maddison). So what went wrong?

The nineteenth century was an absolute, complete disaster for Mexico. By 1870, US per-capita had just about doubled but Mexican per-capita GDP had fallen to $710. Crime was rampant and the so-called infrastructure was a disaster. Many goods were carried on foot across rocky paths, not fit to be called roads. At the same time North Americans were building railroads, canals, and factories. Only late in the nineteenth century, under the regime of Portfirio Diaz, did Mexico start constructing a usable transportation network.

I can think of a few ways of interpreting these facts:

1. Mexico had one very unlucky century. In reality Mexico is better suited to grow than is the U.S.. Mexican government is low in quality, but in many ways it is very small. And perhaps you need big government more in some centuries than others.

2. The superior Mexican performance of the twentieth century represents “catching up,” sometimes called “growth convergence.” This sounds the most intuitive, although it implies that one bad century has kept Mexico captive in poverty for a long, long time. How long did it take Germany and Japan to recover from Allied bombing and losing the War? You can claim that these countries had superior institutions, but Mexican institutions have allowed for rapid growth for a long time. Note also that the evidence in general does not favor growth convergence, although you can come up with something if you leave Africa out of the growth equation.

3. Something about the Mexican economy is not robust to very bad times. Mexico has a higher variance economy than does the U.S., and the distribution of these growth rates is not normal. The Mexicans (implicitly) accept this high variance to enjoy a higher mean growth rate. But every now and then they pay a very steep price for this tradeoff.

4. We do not understand something fundamental about growth. We like to think of growth rates and income levels as conceptually separate to a greater degree than they are. The Solow model in particular shows us how to decompose changes into “once-and-for-all” and “growth-affecting” perturbations in growth. Perhaps this distinction can mislead us into looking for separate “causes of growth,” as distinct from our analyses of levels.

Am I allowed to vote for all four hypotheses? Even if they contradict each other to some extent?

How much will Slate sell for?

Online commentary journal Slate Magazine – which was put up for sale two weeks ago by Microsoft – could fetch $10 millon to $12 million, or twice its $6 million annual revenue, say analysts.

Whereas magazines generally sell for an amount equal to or just above their annual revenue, the “prestige value” of Slate will probably warrant a significantly higher price tag, said investment banker Jeff Dearth.

“It might go for much higher,” said Mr. Dearth, a Washington-based partner of DeSilva & Phillips, a New York investment-banking boutique specializing in publishing industry transactions. “There is an intangible ego value to owning Slate.There is a lot of cachet to owning a ‘thought leader’ publication in intellectual or political circles.”

The business model is based around ad revenue, given the high spending value of Slate’s readers:

Slate’s demographics, according to Neilsen/Netratings, include an audience that is overwhelmingly male – 63.4% to 36.6% – and older, with more than 38% of its audience between 35 and 49 and 44.6% over 45. The company said 29% of Slate’s audience reports earning more than $100,000 annually, with 45.3% reporting incomes between $50,000 and $100,000.

Here is the full story.

How to bet on physics experiments?

Betting on the greatest unsolved problems in the universe is no longer the preserve of academic superstars such as Stephen Hawking. From Thursday anyone will be able to place bets on whether the biggest physics experiments in the world will come good before 2010.

For two weeks, British-based bookmaker Ladbrokes is opening a book on five separate discoveries: life on Titan, gravitational waves, the Higgs boson, cosmic ray origins and nuclear fusion.

Here is the full story. The origin of cosmic rays is the big problem most likely to be solved soon, and bettors are more optimistic about nuclear fusion than are physicists.

Our colleague, Robin Hanson, has long argued that gambling could save science by encouraging scientists to more honestly reveal their true estimates of the likelihood of various theories. Here is some refreshing evidence that he may be right:

“I’d be tempted to take a bet on the Higgs [particle] at 6-1,” says Brian Foster who heads the particle physics group at the University of Oxford in the UK. “I’ve been quite instrumental in betting the taxpayers’ money on us finding it, so I’d better put my money where my mouth is.”

The Dead Zone

I’ve now entered the vacation part of my trip, which of course means that I am slightly bored. On the bright side, I’ve just discovered Stephen King’s Dark Tower series. I admire his ability to think in epic terms and grab the reader at the same time; I’ve long thought that his best material will still be read one hundred years from now. My previous favorites have been Stand and The Dead Zone, among others. And the food in Acapulco is of course amazing. I’m back at the beginning of the week to come, and my apologies for being slow in email responses.