Month: June 2005

Assurance contracts

Here is an excellent Wikipedia entry.  Here is my favorite part:

Dominant Assurance Contracts, created by Alex Tabarrok, involve an extra component – if a quorum is not formed, every contributor is not only released from the pledge, but is given a bonus. Tabarrok asserts that this creates a dominant strategy, which means that in a game-theory decision matrix, it is always the best move for someone considering whether to pledge or not, no matter what other players do.

Thanks to Travis Corcoran for the pointer.  Here is another Wikipedia entry, though it cries out for some additional work…

Markets in everything — elephants all the way down

Remember the guy who threatened to kill and eat the bunny rabbit, unless he was paid $50,000?  Was it real?  Here is the continuing saga, from a supposed friend:

Make a donation and help me expose Bion [the original perpetrator of the Toby scheme, supposedly]. Once I have received $5,000 in donations, I will publish Bion’s full contact information HERE.

Think about it: Bion’s contact info will be published to the net

  • Everyone will have the chance to openly ridicule Bion
  • We will make Bion rue the day he threatened to kill Toby
  • The internet community will get what it wants
  • The $5,000 will make me feel better about loosing [sic] a best friend

Here is my earlier post on Toby.  Do notice that the equilibrium price is falling.

My books

I’ve been tagged by both John Moser and Arnold Kling, here are my answers to the book questions:

1. How many books I own: I have a large pile of paperbacks to take on plane trips.  I own classics such as Leibniz and George Eliot.  Plus a small number of economics books — accidents rather than choices — for reference.  The major Haitian art catalogs.  Reference books on film and music.  Many cookbooks.  My own books. 

2, 3. Last books I bought and read: Just scroll down MR.

4. Five books that have influenced me most: Trapped: Michael Jackson and the Crossover Dream, by David Marsh.  Jean-Christophe, by Romaine Rolland.  The Crimson and the White, by Michael Faber.  The Once and Future King, by T.H. White.  Starmaker, by Olaf Stapledon.  The Buru Quartet, by Pramoedya Toer.  Selden Rodman, Popular Artists in Tune with Their World.

5. Favorite Michael Jackson songs: I Want You Back, Billie Jean, She’s Out of My Life, Girlfriend, Black or White, The Way You Make Me Feel.

Open Source Economics Models

Mark Thoma at Economist’s View is creating a repository for open source economics models.  The idea is to emulate open source software by releasing a beta model to the world and inviting others to improve it.   Mark has contributed a very nice paper on social insurance that could be expanded upon, Brad DeLong has contributed two beta models on finance topics, and I have contributed some very preliminary notes and a touch of Mathematica code on the implications of uncertainty about one’s own tastes for savings decisions and other behavior (an interesting idea but one I have not had the technical skills to exploit).  The models can be found in the right hand column of Economist’s View.

Private Prisons and Prison Growth

The fireworks were flying at the conference on prisons.  The audience, not to mention the opposing panel, were vehemently opposed to all prisons.  I’m in favor of ending the war on drugs and emptying the prisons of non-violent offenders but one speaker argued that 80 percent of the people in prison ought to be released – sure, if we bring back the penal colony.

Later I was chastised for referring to inmates – don’t you understand, I was told, they are people.

All very fine and well but I’d had enough when one speaker blamed the massive increase in prisons over the past twenty five years on private prisons.  This is a hard square to circle because private prisons today house less than 7 percent of the prison population.  Obviously, the increase in prisons has been almost entirely in the public sector and has been driven primarily not by nefarious profiteers or even by prison bureaucracies but by crime and the public’s demand for crime control.

A more sophisticated version of the argument can be found in the comments section of my last post.  It is true that a private prison could lobby for tougher sentences in order to boost demand for its product.  It’s hard to take this too seriously, however.  Do we think that contracting out garbage pickup is a bad idea because the garbage men will lobby for wasteful packaging?  Moreover, the problem becomes less serious the more private prison firms there are because with more companies each will gain less from lobbying for say tougher sentences in general

Finally, we have to compare with the current situation.  The prison guard unions typically have monopolies and do lobby for tougher sentences.  The California Correctional Peace Officers Association, for example, has spent millions shamelessly creating a front of victim’s rights groups who campaign against drug rehabilitation programs instead of jail, revising the three strikes law, and reducing sentences.   

Despite the fireworks, or maybe because I woke a few people up, I am invited back today to speak on three strikes.

Indoor air pollution

Perhaps the most pressing environmental problem in the world is indoor air pollution, which kills 2.8 million people each year, just behind HIV/AIDS.  The pollution is caused by poor people cooking and heating their homes with dung and cardboard.  The solution is not environmental (to certify dung) but rather economic, helping these people build enough wealth to afford kerosene.

That is by Bjorn Lomborg, in Foreign Policy, July/August issue. 

Two caveats.  First, the best figure I can find appears to be 1.6 million lives; here is a WHO statement on the phenomenon.  Second, the people die because the smoke renders them more susceptible to pneumonia and other respiratory diseases.  But their poverty makes them more susceptible for a number of reasons.  I doubt if the marginal product of the smoke can be isolated clearly; see this study.  Nonetheless this is a very very serious problem that does not receive much attention.

The greatest basketball team ever?

These Spurs are so quiet, but it should be asked whether they are the best NBA team to have walked on the planet Earth.  A few points:

1. Since 1997 they have a winning percentage of over .700, the best in any sport.  This includes two previous championship rings, but the current incarnation of the Spurs is believed to be the best.

2. They have absolutely crushed a variety of strong teams from the West, even when Tim Duncan had sore ankles.

3. Their best player, Tim Duncan, should at this point be MVP every year.

4. They are one of the best defensive teams, ever.  Bruce Bowen is a first-rate stopper.

5. They are one of the best-coached teams, ever.  They have an amazing variety of offensive plays and defensive set-ups.  They can play in many different styles, including run and gun fast break, when needed.  They are far more than the sum of their parts.

6. They do not appear to have problems with personalities or dissension.

7. They have a very strong bench.

8. You would rather have Manu Ginobili than Kobe Bryant.

9. In any sport where performance is measurable, quality rises over time.  Yes there is dilution but overall the best basketball teams are getting better.  And the use of foreign players — prominent on the Spurs — is overcoming the dilution problem rapidly.

Can you imagine Bruce Bowen holding MJ to thirty points and Duncan going around Bill Cartwright at will?  Could they keep the fast break of the Showtime Lakers in check, while exploiting the relatively weak defense of that team?  How would they match up against the 1989-1990 "Bad Boy" Pistons, or the Celtics with Bill Walton?

We should put the low TV ratings aside and start asking these questions.

Private Prisons and Government Contracting

Today, I will be debating the value of private prisons at the National Debate on Prisons and Punishment.  I intend to say the following:

1) Many studies (see also Changing the Guard) find that private prisons are cheaper than comparable public prisons.  Operating costs savings are a modest but not insubstantial, about 10-15 percent per year.

2) We should not be surprised that private prisons are
cheaper.  Mueller (2003), for example, looks at 71 studies
comparing public and private firms from Australian airlines, to German mail
delivery, to Indian manufacturers. In
only 5 of 71 studies were public firms found to be more efficient. In 56 studies private firms were
more efficient (the remaining studies found no difference).  Tellingly, the private firms were most efficient in the least regulated industries.

3)  Having said that, there are still potential problems with prison privatization and a puzzle that needs to be faced.  Prison privatization is really a misnomer.  What is really going on is contracting out and there at least two problems with contracting out.

a)  You get what you contract for. If the contract says cheaper prisons and nothing else – you will get cheaper prisons and nothing else. Contracts must cover quality as well as quantity.

Quality is not always easy to measure so contracting
out must be accompanied by investments in technology for contract monitoring
and output measuring. 

b)  In part as a reaction to the above problem there is the problem of governmentalization of the private sector.  Governmentalization occurs when the contract is written so that the private firm is restricted to duplicate the public firm, thus precluding innovation.  Some private prison contracts have gone so far as to detail the type of toilet paper to be used in the prison!

4) I think these problems can be addressed. For example, we should be contracting over outputs not inputs i.e. over the number of inmates who learn to read rather than the
provision of "reading programs."  (The British and Australians do this better than the U.S.)

Contracting out also requires an investment in technology for measuring outputs carefully. E.g.
recidivism rates.

With good contracting much more is possible from prison
privatization than lower costs including more innovation in prison management, better training
programs, reduced recidivism etc.

5)  But here is the puzzle.  If the reason for contracting out is that public prisons are run poorly, why should we expect government to do a better job at writing contracts?

I have some ideas on this but comments are open.

The end of upward mobility?

…two of the nation’s newspapers — The New York Times and The Wall Street Journal — are running extensive multipart series that paint a much darker picture.  The U.S., rather than being a land of opportunity, these stories argue, is increasingly a class-bound place of immobility and stratification, where it’s becoming ever harder for the people at the bottom to move up…

Rather than agonizing over relative comparisons, it may be better to concentrate on the simpler and intuitively satisfying concept of absolute "mobility," — whether you are doing better than your parents did, or whether the living standards of a whole group of people are rising over time.  From this perspective, there are signs that this past decade has had more upward mobility compared with the previous two decades…

There’s yet another big problem: we actually know very little about whether relative mobility increased or decreased during the New Economy decade because complete data don’t exist yet.  With a few exceptions, most studies stop with the mid- or late 1990s.

Here’s what we do know: Over the past decade, virtually every traditionally disadvantaged group made gains in absolute terms.  Take, for example, families headed by immigrants who entered the country in the 1980s.  The poverty rate for such families dropped sharply, from 26.6% in 1995 to 16.4% in 2003…Similarly, a combination of welfare reform and tight labor markets helped drive down the poverty rate for female-headed households with children from 46.1% in 1993 to 35.5% in 2003….it beats the total lack of progress in the previous decade.

That is from 20 June 2005, Business Week, by Michael Mandel.  Here is a new book on who gets ahead in low-wage labor markets.  Here is my previous post on Horatio Alger.  Here is my previous post on the family as a source of inequality.

Cereal Terrorism

The Wa Post has a good piece on how the administration’s terrorism statistics have been trumped up.  The article also sheds light on the workings of bureaucracy.  Here’s the most ridiculous example.

More than a year before the 9/11 attacks the FBI runs across some Arabs stealing Kellogg’s Cornflakes.  The FBI doesn’t give a damn about cornflakes so they let them go.  Sixteen months later come the attacks and now Arabs are hot property so the FBI rounds them up again, asks them a few questions about terrorism (making this a terrorism investigation), and charges them with conspiracy to possess stolen property.  No terrorism charges are ever filed but the three grocers remain on the federal list of successfully prosecuted terrorism cases.

For this we need the Patriot Act?

Rationality and war

"Until this message," Kissinger would write, "I had not taken Sadat seriously."  …Kissinger would come to understand that Sadat’s objective was to shock Israel into greater flexibility and restore Egypt’s self-respect so that he, Sadat, could be more flexible as well in order to achieve an agreement.  "Our definition of rationality did not take seriously the notion of starting an unwinnable war to restore self-respect," Kissinger would write.

That is from Abraham Rabinovich’s gripping The Yom Kippur War: The Epic Encounter that Transformed the Middle East