Month: March 2005

Why are all movies the same price?

Well, not the same price in all cases.  Before 6 p.m. is cheaper, there are numerous dollar theaters, and not all films allow for discount coupons.  Nonetheless a multiplex will charge the same ($9.50 in my case) for the number one movie and for a flop.  Nor is the price more expensive for Saturday night, or during the summer when demand is higher.  Can any economic model predict these results?  Here are a few observations:

1. Theater owners are trying to maximize profit across all screens.  Spillover demand, from people who can’t get in to see their first choice, is a significant source of revenue.  You don’t want markets to clear on a screen-by-screen basis.

2. Low prices encourage queuing, which attracts the young and hardy.  Those same customers are most likely to spread the virtues of movies by word of mouth.  A theater might rather have a young customer than an old customer.

3. Lines for a popular film are one way of generating valuable publicity.

4. A priori, I would have expected the number one movie to sell cheaper, not more expensive.  Moviemakers wish to generate snowball effects for potential hits.  (For purposes of comparison, it reflects commercial prestige to have your books sell for a low rather than high price.)  This also predicts movies will be cheaper in early stages of their run, which does not generally seem to be true.

5. Maybe the whole theatrical thing is a shadowplay for popcorn sales and advertising for a subsequent DVD release.  The theater owner, on his side, may not care so much about getting the profit-maximizing price right.  So he invests in consumer good will by offering a flat price across all films. 

6. The emergence of strict uniform pricing across movies appeared in the early 1970s; it is sometimes suggested that Paramount insisted upon such pricing (illegally) for the release of The Godfather.  (The 1948 Paramount decision limited the involvement of the distributor in pricing decisions, but there is pressure nonetheless.)

7. Variable pricing would divert movie demand to weekdays, which would make it harder for a film to be number one at the box office for its opening weekend.  And since a top  movie will sell out in any case, why bother lowering the price for Saturday night?

8. With differential prices you might buy a ticket for a cheaper movie and walk into the more expensive movie.

You could ask related questions about why restaurants do not tack on a surcharge for Saturday nights, although I find this practice is becoming more common.  As far as the movies go, I will put the most weight on #7.  And I have turned on the comments section…

Plagiarism in economics

…nearly 24% of responding [journal] editors encounter one case of plagiarism in a typical year. In addition, the survey reveals that less than 19% of responding journals have a formal policy regarding plagiarism. Moreover, there is a great deal of variance in what is considered plagiarism and what an appropriate response to plagiarism should be. A majority of editors believe that the economics profession would benefit from a professional code of ethics.

Here is the paper.  I believe I have been plagiarized twice during my career, each time by a well-known economist.  Not word-for-word copying, but rather using a borrowed idea –and the major idea of the paper — rather directly without attribution.  (In each case the instance was pointed out to me by somebody else as well, so I am inclined to dismiss the possibility of self-delusion on my part.  Plus in each case I know the plagiarizer had access to the paper.)  In each case the plagiarist took an unpublished paper and improved upon my original idea.  In neither case did the plagiarist gain anything concrete from the action, nor have I suffered any real net harm.  I am not convinced that the welfare consequences of economic plagiarism are very large, but arguably there is an ethical case for devoting more attention to the phenomenon.

The Big Bang

Compared to say quantum physics or relativity the big bang seems straightforward – there was a big bang, right?  In fact, the idea of an expanding universe is as strange and intuition-defying as any in physics.

The strangeness of the big bang model first become clear to me when I quizzed Robin Hanson along the following lines.  How can the universe be infinite (as some cosmologists think) when we know that the universe is some 14 billion years old and it is expanding?  Doesn’t this mean that it must be finite?

Robin, who continues to publish papers in quantum physics as well as economics, explained that the universe is infinite and was already infinitely large when the big bang began, it’s space that has expanded.  The big bang was not an expansion in space but an expansion of space.  (My interpretation – think of the infinite number of points between 0 and 1 being mapped to the infinite number of points between 1 and 10.) 

If that’s not clear, and I don’t suppose that it is, this month’s Scientific American has the best introduction to the big bang that I have ever read.  I’ve also found this FAQ useful (see especially the answer to my question here).

Awkward questions about natural resource prices

One of my great joys is going to lunch with Bryan Caplan and torturing him with my contrarian opinions.  I will even make up a temporary view toward this end.

Tuesday I told him that most commodity prices are, in real terms, higher than they were a decade ago.  Furthermore in many cases both the futures and the spot prices have been rising.

Many MR readers will know that Julian Simon won his famous bet with Paul Ehrlich.  Simon challenged Ehrlich to name five resources of his choice.  At the end of the time period, those resources had fallen in real price, so Simon won the bet.  But Ehrlich probably would have fared better had the bet expired today.

To be sure, most resources are still cheaper in real terms than in much earlier eras.  But has the time passed when real resources will get cheaper every period?  Is ever-increasing resource plenitude a thing of the past?  Market prices seem to indicate so.

Of course you might expect real price declines to resume for most resources.  You might cite a similar and premature commodity price scare from the early 1980s.  Or you might claim that the special circumstances of Chinese economic growth have led the demand for raw materials to rise faster than the supply, but only temporarily.  But would this be betting against market prices?  Could we still cite market prices as a sign of Simon’s triumph over Ehrlich?  And could we become rich by selling commodities short?

Isn’t it simpler to believe that market prices speak the truth and that the demand for raw materials will continue to outstrip the supply? 

Now I am trying to decide whether this was a "contrarian, made up for lunch with Bryan" opinion, or a real opinion…And here is my earlier post on resource prices…

Addendum: Alex points out that the commodity price spike is less than ten years old.  Four years would be a better estimate, but this does not change the logic of the argument.  If one cites market prices as "sufficient statistics" of resource value, why not apply this logic consistently when real prices rise?

What I’ve been reading

The Big Picture: The New Logic of Money and Power in Hollywood, by Edward Jay Epstein.  Why is opening weekend so important?  "The benefits of prolonging a film’s run in the theaters are now negated by the loss that would be sustained by delaying its video opening past the point at which it can benefit from the movie’s advertising campaign."  This is the best available work on the economics of cinema.  How many books cite both Arnold Schwarzneger and Mises’s discussion of non-pecuniary goods?

King Lear: This is about my fifth reading.  I had never fully realized that Lear had incestuous relationships with at least one of his daughters (for instance check out 1:2, 150-152, 1:4, 176-182, plus the entire Oedipus analogy).  Furthermore he was ready to sell out his country to the French.  Edmund, Goneril and Regan were not so bad after all.

Handbook of Economic Sociology, second edition, edited by Neil Smelser and Richard Swedberg.  Yelp if you wish, but I see sociology as the most underrated social science.  It is (some) sociologists who are the problem.  Most of the advances in economics over the last fifteen years have actually come in sociology done by economists.  Just look at Steve Levitt or behavioral economics.  Since economists have not discovered any new "core mechanisms" since herd behavior (circa 1989 or so), I expect quantitative sociology to whup our collective behinds over the next twenty years.  The only question is who will be doing it, us or them.

Art: A Field Guide, by Robert Cumming.  This has been my favorite bedtime reading book of the last twenty years.  The book gives two or three succinct paragraphs on why each of about 1500 famous artists is good, bad, or somewhere in between.  No cultural relativism here, and obviously the guy should start a blog.  Few good pictures are included, so you do need to know the works of the artists.

Pol Pot: Anatomy of a Nightmare, by Philip Short. One of the best studies of the anatomy of evil, the psychology of colonialism, and twentieth century Cambodian history.

What I wish I was reading: Going Sane, by Adam Phillips.  I read all his books the day they fall into my hands.  Phillips, a psychoanalyst for children, is the master of witty and paradoxical observations about human nature.  I am told that this new book offers a partial "recipe for contentment," but so far it is available only in the U.K. and perhaps Commonwealth countries.

Choice: The Best of Reason

I’ve been enjoying Choice: The Best of Reason.  Reason magazine’s byline has always been Free Minds and Free Markets but perhaps it ought to be Free Minds, Free Markets and Fun.  Here’s Drew Carey (from long before Janet Jackson’s wardrobe malfunction):

The government is really into ‘protecting people’.  The Federal Communications Commission (FCC) says you can’t broadcast certain words and certain pictures.  It says it’s protecting citizens.  But I’m sitting in my home with DirecTC and can watch whatever I want.  I can afford the best pornography – laser-disc porn!  The government’s not protecting me from anything.

All the government’s doing is discriminating against poor people.  It thinks poor people are like cows, that poor people can’t think straight: If we let them hear dirty words or see dirty pictures, there’s going to be madness!  If you’re poor and all you can afford is a 12-inch black-and-white TV and can’t pay for cable – you’re so protected.  You’d probably be happier if you could see some pornography, a pair of titties, once in a while on free TV.  But a pair of titties on free TV?  The government figures if you saw that, you’d just explode!

Do gadgets make you happier?

I’m now at a point where if for some reason I can’t use my cell phone or iPod (because I forgot it somewhere, because it ran out of batteries) I miss it, even though before these gadgets existed, I managed to get along just fine without them. One might think, then, that there’s no point in ever acquiring such things. The happiness boost is merely temporary. But while that’s true of each individual gadget, the fact that new cool stuff is being invented and brought to market all the time is an ongoing process that creates many happiness-enhancing moments over the years. A growth-free society would be one in which people were basically deprived of such moments.

Matt Yglesias offers more.

China fact of the day: Striking for longer hours

Taiwanese factories in Dongguan [a city between Hong Kong and Guangzhou and a major centre of manufacturing] are facing a problem. According to a news report in the United Daily in Taiwan, over a thousand workers at a factory, which produces goods for big brand names such as Nike, demonstrated for two days and damaged equipment and factory cars. 500 armed police arrived and quashed the riot. Several leaders were arrested.

The main cause for the riot was the limitation [sic] on working hours at the factory. The shorter hours have been requested by US companies so as to avoid criticism from various groups on long working hours. However, the mainly migrant workforce want to work longer hours so they can earn more [emphasis added]. Consensus had been reached by the US companies, the Taiwanese-invested factory and local government that the maximum working hours per week should be set at 60 hours [which is still a breach of Chinese Labour Law, but less than other manufacturing plants]. However, this reduction in hours was unsatisfactory for the workers and the resulting riot was serious [emphasis added].

Here is the link, and thanks to Jeffrey Tucker at The Mises Blog for the pointer.  And here is my previous post on social unrest in China.

Dear Economist: Are Cities Environmentally Sound?

The Financial Times suddenly has seen fit to offer Tim Harford’s weekly economics column in the U.S. Saturday edition.  Here is last week’s sample:

Dear Economist: I am worried about the damage we wreak on our planet, and I want to do my bit to reduce my personal environmental impact.  I was thinking of moving to the country and living a more self-sufficient life.  But is there a better way?  Jocelyn Hathaway, London

Dear Jocelyn,

You should ask yourself, rather, if there is a worse way.  London may not appear to be the model of sustainble development, but it is an organic commune compared with what would happen if the other 7m inhabitants selfishly decided to move to the country.

Tightly packed, rich cities such as London are easily the most environmentally friendly way to enjoy modern life.  Wealthy people squeeze into cozy apartments…Denser cities mean more efficient transport.  Only 10 percent of commutes into central London take place in cars.

Manhattan, the densest and richest city of all, was recently described in The New Yorker magazine as "a utopian environmentalist community" and it is vastly more energy-efficient, per person, than any of the 50 American states.

My advice is to forget all this self-centred nonsense about moving to the country.  Instead, you should put double-glazing in your flat, travel to work by bike and relax in the smug knowledge that you are living in one of the greenest cities on the planet.

Of course a full assessment must also include the dependence of cities on the surrounding countryside, and vice versa.  Cities both spur and reflect economic growth, which puts pressure on aggregate resources.  Nonetheless this answer remains a useful corrective to urban whinging.  The real question is when the FT will put Harford’s column on-line to non-subscribers…

Mansfield on Economists

Here is Harvard’s Harvey Mansfield on economists (in relation to the Summers affair).

Summers is an economist, and there is almost no such thing as a suave
economist. The great Joseph Schumpeter, a Harvard economist of long ago, claimed
to be the world’s greatest lover as well as the world’s greatest economist (it
is said), but he was a singular marvel. The reason why economists are blunt is
that words of honey seem to them mere diversion from reason and self-interest,
which are the only sure guides in life.

Whither social security privatization?

Only one in three Americans approve of
President Bush’s handling of Social Security, his lowest rating on the
issue since he took office.  A USA TODAY/CNN/Gallup Poll conducted
Friday-Sunday found that 35% approved of Bush’s Social Security record,
56% disapproved and 9% had no opinion. That was down from three weeks
ago, when 43% approved. In March 2001, just after he took office, 49%
approved. (Related: Poll results)

Here is the story.  Yes poll results are tricky but this suggests we will not get a large reform plan.  I expect a face-saving measure with a tax increase on the FICA maximum, and a nominal nod to "private" accounts in the form of forced saving.  As they say, be careful what you wish for…

Are economists better at games?

"In poker, world champion of poker, Chris "Jesus" Ferguson, has his PhD in Computer Scientist from UCLA and his father teaches game theory there.  He and his father have co-authored an article on Borel and von Neumann’s models of poker, and from what I’ve been able to gather, Ferguson’s style of play draws heavily from game theory.  He and his father also show why the very best poker players in the world play a very aggressive game (actualy, Borel and Nash showed it, but Ferguson and his dad helped translate it for me) where optimal playing is actually to bluff *a lot* (more than you might think), even though every single book out there that teaches you how to play Texas Holdem recommends a conservative "tight aggressive" strategy.  Game theory suggests to raise (in limit poker) with your absolute dead worst hands a lot more than people usually feel comfortable doing – but this is exactly the behavior of the greatest, like Doyle Branson, Gus Hansen, and TJ Coultier.  So, I can buy that economics and game theory more generally should make one the better player.  But, it’s also interesting to note that the world’s best poker theorists (David Sklansky) is criticized for not being able to pull it off in real play.  It’s not enough to actually know the opimal move; it takes a certain level of openness to variance to be truly great at poker.  So I suspect it’s a mix of heart and head, and game theory can only take you to the water, but not help you drink."

Can we make objects invisible?

The idea of a cloak of invisibility
that hides objects from view has long been confined to the more
improbable reaches of science fiction. But electronic engineers have
now come up with a way to make one.

Andrea
Alù and Nader Engheta of the University of Pennsylvania in Philadelphia
say that a ‘plasmonic cover’ could render objects "nearly invisible to
an observer". Their idea remains just a proposal at this stage, but it
doesn’t obviously violate any laws of physics…

The key to the concept is to reduce
light scattering. We see objects because light bounces off them; if
this scattering of light could be prevented (and if the objects didn’t
absorb any light) they would become invisible. Alù and Engheta’s
plasmonic screen suppresses scattering by resonating in tune with the
illuminating light.

Read more here.

Aids, Condoms and Africa

Regarding my post, The African Cliff, a number of readers wrote to me about the Catholic Church’s anti-condom teachings (and apparently in some cases mis/disinformation campaigns).

I have three reasons for thinking that Catholic teaching on condoms, whatever you might think of the substantive issue, is not a major factor in the African Aids crisis.  First, Catholics in the US don’t seem to find it difficult to ignore the Church’s teachings when these are costly.  Second, many African countries with high Aids rates have few Catholics.  (Compare the countries in yesterday’s graph with this map of Catholic membership in Africa.)  Third, couples who do not use condoms but follow Catholic teaching in regards to monogamous marriage are unlikely to contribute much to the Aids problem.  It seems inconsistent, moreover, to assume that religion is strong enough to prevent men from using condoms but not strong enough to stop them from sleeping with multiple partners.  Does the man having sex with a prostitute feel less guilty because he isn’t wearing a condom?  (Admittedly, I don’t know enough about venial versus mortal sins to be sure about the latter.)

We hope that Marginal Revolution can be enjoyed by the whole family so I am somewhat reluctant to discuss a second hypothesis brought to my attention by Steve Sailor.  Nevertheless intellectual honesty compels me to mention dry sex.

Epidemiologists are also finding that multiple concurrent sex partners are an important transmission route.  Halperin and Epstein writing in the Lancet (subs. required) note:

Of increasing interest to epidemiologists is the observation that
in Africa men and women often have more than one–typically two or
perhaps three–concurrent partnerships that can overlap for months or
years.  This pattern differs from that of the serial monogamy more common in
the west, or the one-off casual and commercial sexual encounters that
occur everywhere.

Morris and Kretzschmar
used mathematical modeling to compare the spread of HIV in two
populations, one in which serial monogamy was the norm and one in which
long-term concurrency was common. Although the total number of sexual
relationships was similar in both populations, HIV transmission was
much more rapid with long-term concurrency–and the resulting epidemic
was ten times greater.

It is important to understand that multiple concurrent partners does not mean more partners in a lifetime.  What differs in parts of sub-Saharan Africa is the pattern and timing of sexual relations not the number of lifetime partners.  (See also Sailor for a tendentious but interesting take on the why the pattern might be different in parts of Africa.)