Month: August 2005 to sell its own literature

Digital copies, written exclusively for the website, are avavilable for 49 cents apiece.  These short pieces range from 2000 to 10,000 words.  About sixty authors have signed up, including Danielle Steel.  On Friday the bestselling title was Harry Dent’s "Bubble After Bubble in the Ongoing Bubble Boom: Oil Bursts, the Housing Bubble Fades and Now Stocks Emerge Into a Greater Bubble That Finally Ends in 2010."

Here is the story.  Will this practice render short story compilations, or perhaps magazines of fiction, obsolete?  As with iPod, won’t consumers prefer the unbundled units?  Or does fiction differ by giving the editors and compilers a greater role in producing excitement and cache? 

Addendum: Here is a good story on the marketing of ebooks, and one entrepreneurs who thinks the days of paper books are over.

Lee Kuan Yew is usually worth reading

He is not afraid to be blunt, and for a politician he is surprisingly analytical.  Here is the interview.  Here is Lee on Singapore and China:

Mr. Lee: …So it is a very
serious challenge for us to move aside and not collide with them [the Chinese]. We have
to move to areas where they cannot move.
SPIEGEL: Such as?

Mr. Lee: Such as where the rule of law, intellectual property and
security of production systems are required, because for them to establish that, it will
take 20 to 30 years. We are concentrating on bio medicine,
pharmaceuticals and all products requiring protection of intellectual
property rights. No pharmaceutical company is going to go have its
precious patents disclosed. So that is why they are here in Singapore and
not in China.

Undervalued economies — the wisdom of Alex

In January Alex wrote: "My own pick for undervalued nation was Germany…"

This week’s (August 20-26) cover in The Economist: Germany’s Surprising Economy 

Here is just one bit:

Thanks to the intense pressure that they have been under in the past few years,  Germany’s big companies have restructured and cut their bloated cost base. This process has for once been helped by the trade unions, which had been a stubborn obstacle to change. German workers have belatedly recognised that change has become essential, which is why they have been ready over the past year or so to accept such innovations as more decentralised pay bargaining, longer hours and even wage cuts. Thanks in part to this new flexibility, unit labour costs, a benchmark of competitiveness, have fallen sharply relative to other countries. In the past five years, Germany, long the most costly place in Europe in which to do business, has won a new competitive edge over France, Italy, the Netherlands and even Britain. That is a big reason why, last year, it regained its position as the world’s biggest exporter.

So what today looks like the most undervalued economy?  Can the lovely Croatia go so wrong?  Has everyone capitalized the commodities-driven recovery of Argentina?  Is it well understood how prepared Singapore is to complement the growth of China?  Aren’t Arab stock markets booming?  Comments are open…

Not putting their money where their mouths are

Inspired by Robin Hanson’s work on betting markets, James Annan, a climate scientist, has been trying to get skeptics of global warming to put up or shut up, mostly with no success on either front.  A number of prominent skeptics refused to bet (perhaps having learnt from Paul Ehrlich’s embarassment) or offered to bet only at very high odds in their favor (i.e. implicitly admitting that they thought the probability of global warming was high).  The failure to bet is telling and a nice reminder that even markets with no trades can tell you things of importance!

Finally, however, Annan has found some takers.  From Nature (subs. required):

James Annan, who is based at the Japan Agency for Marine-Earth Science and Technology in Yokohama, has agreed a US$10,000 bet with Galina Mashnich and Vladimir Bashkirtsev, two solar physicists who argue that global temperatures are driven by changes in the Sun’s activity and will fall over the next decade. The bet, which both sides say they are willing to formalize in a legal document, came after other climate sceptics refused to wager money… 

Both sides have agreed to compare the average global surface temperature between 1998 and 2003 with that between 2012 and 2017, as defined by the records of the US National Climatic Data Center. If the temperature drops, Annan will pay Mashnich and Bashkirtsev $10,000 in 2018, with the same sum going the other way if the temperature rises.

I hope that a TradeScience market like TradeSports can be established to make such bets more routine and even more informative.

Mirror, mirror on the wall…

I find it odd, too, that so many academics profess to be egalitarians, yet academia as a whole has produced one of the most radically inegalitarian societies to be seen since Louis XVI fled Versailles. Many academics of my acquaintance profess to be aghast at the "status seeking" in which their neighbours engage–and yet I have never met anyone as obsessed with collecting professional merit badges as an academic. Nor have I experienced any other organisational culture, even in hyper-competitive consulting or investment banking, in which professional success is so readily confused with personal worth.

Read more here.

Waste and the Value of Time

Concerning yesterday’s post, Beware Free Apples, a number of people wrote to me along the following lines, "some people have a low value of time, these people will be the ones who will be attracted to the giveaway so the time spent waiting in line is not as wasteful as you suggest."  Surprisingly, this plausible analysis is not correct or at least seriously incomplete.

To see why suppose that the giveaway were held in a poor country.  Would the waste be any less?  No.  Everyone in line would have a low value of time but for precisely this reason the waiting time would increase and the total waste would not change.

So long as there are more people with a low value of time than there are iBooks the waste will be complete.  What does make a difference is diversity.  If there are a few low value people and lots of high value people then the low value people can earn a rent.  A direct analogy is to gold mines.  If there are a lot of low cost gold mines then the price of gold is low and none earn a rent.  If there are just a few low cost gold mines and many high cost gold mines then the price of gold will be high; the marginal mine will just break even and the low cost mines will earn a rent.  To earn a rent there must be a scarcity – scarce land, scarce mines, or scarce low time-value people.

Suppose that we have a continuum of high to low-value types.  We can say immediately that "The total price for the marginal consumer will tend to rise so that it equals the marginal value of the good."  In other words, the marginal consumer will do only slightly better than if he were to buy the good at the market price (if he were to do much better then by continuity there is another consumer willing to outbid him by waiting in line a bit longer.)  Thus on the margin dissipation is complete.  What about the infra-marginal consumers?

The infra-marginal consumers will earn a rent but given some plausible assumptions about the distribution of types it’s surprising how little difference this makes to total dissipation.  I did some very basic calculations in Mathematica assuming that the value of time is Normally distributed with mean $15 and sd $4.  Under these assumptions the "first" person in line has a value of time of only $.84 per hour.  Nevertheless, the total rent dissipation is 80 percent of what it would be if everyone had a value of time of $11.63, the value of time of the marginal consumer.  Some brief experiments suggest that this sort of result if quite robust.  Specifics will depend on the exact distribution assumed.  Here is a pdf
and here is the Mathematica Notebook if anyone wants to generalize. 

Responses to higher gasoline prices

A site called, where volunteer spotters post the latest prices from gas stations around the country, has grown so fast that there are now 350,000 postings a week, triple the figure from a year ago. A similar site,, plans to launch a service this month that will allow users to tap into its database from the road with a mobile phone.

Credit-card companies also are rushing out new offers. Citibank is offering its cardholders in the New York City area and Miami double American Airlines frequent-flier miles for gas purchases until Oct. 31. Other cards, such as the Citi Dividend Platinum Select MasterCard and the Discover Platinum Gas Card let you earn a 5% rebate on gas purchases — Citi’s card gives 5% back at drugstores and grocery stores as well. (That has led many people to use it as part of a two-card strategy along with the plastic that earns the most travel rewards.)

Here is the link.  But this economist is puzzled.  Surely these are signs of a less competitive gas market — in the sense of moving away from uniform prices set at or near marginal cost — than they are signs of high gas prices per se.  Do higher and more volatile gas prices mean greater dispersion of prices (the first paragraph)?  Does this create greater scope for price discrimination (the second paragraph)?  Apparently so.

Addendum: Eric Johnson points my attention to pre-paid gas cards, which limit your exposure to price risk.

Is gossip functional?

Gossip not only helps clarify and enforce the rules that keep people working well together, studies suggest, but it circulates crucial information about the behavior of others that cannot be published in an office manual. As often as it sullies reputations, psychologists say, gossip offers a foothold for newcomers in a group and a safety net for group members who feel in danger of falling out.

Here is the story.  Gossip is also a means of signaling ability.  It is not easy to gossip well and gossip discreetly.  What better way of sorting people by their social and communicative abilities?  So when you gossip, you are the one being tested and evaluated.

Beware Free Apples

You can get rid of the market but you can never get rid of competition.  Goods not allocated by market prices have to be allocated somehow and so long as goods are scarce there will be competition to obtain them, if not by outbidding competing buyers with money then by outbidding them in time spent waiting in line, doing political favors or some other method.

What happened in Henrico county is the same type of thing that happens when there is a price control.  The diagram below explains.


At the controlled price the quantity demanded exceeds the quantity supplied so buyers compete to obtain the good by, for example, arriving early and standing in line (or stomping on their competitors!).  Waiting in line is costly so the total price rises above the money price by the time price.  The total price for the marginal consumer will tend to rise so that it equals the marginal value of the good – only when the total price is equal to the marginal value (at the controlled quantity) is there no excess demand. 

It’s very important to notice that that the shop owner gets your money but does not get your time.  Thus, money expenditures are a transfer but time expenditures are a waste.  Money expenditures = controlled price times*controlled quantity.  Time expenditures = time price*controlled quantity so the shaded area indicates the waste.

It’s also important to notice that the total price is higher than the market price!  A price control, therefore, doesn’t even necessarily reduce prices! 

Markets in self-constraint

The website, meanwhile, has had millions of visitors who can download free accountability software called X3. When installed on a computer, X3 sends an e-mail every 14 days to a chosen friend or friends with a list of the websites visited by that computer. The site also features testimonials from porn addicts, prayer and Bible study resources, and an open forum called "The Prayer Wall," with hundreds of thousands of posts from addicts, spouses of addicts, and more recently, porn stars themselves.

This article (courtesy of has many good bits:

Lately, has moved into helping those within the porn industry. The ministry has received letters from porn stars wanting to get out. One said she was trying to decide whether to e-mail them or Jerry Springer.

Evil Kelo

The Kelo v. New London eminent domain case started five years ago when New London condemned a number of buildings, including the lifelong home of one 87 year old resident.  The residents took the case to court and, of course, lost.  Now get this.  The city is claiming that since the original seizure was legal the residents have been living on city property for five years and thus owe back rent.

Namesake Susette Kelo, who owns a single-family house with her husband,
learned she would owe in the ballpark of 57 grand. "I’d leave here
broke," says Kelo. "I wouldn’t have a home or any money to get one. I
could probably get a large-size refrigerator box and live under the

Thanks to David Theroux for the pointer.