Month: September 2006

For-profit charities?

Google is walking down this path:

The ambitious founders of Google…have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming.  But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress.  It will also pay taxes.

One of its maiden projects reflects the philanthropy’s nontraditional approach.  According to people briefed on the program, the organization, called, plans to develop an ultra-fuel-efficient plug-in hybrid car engine that runs on ethanol, electricity and gasoline.

Here is the full story, and look for more of this model in the future.  As wealth grows, and many large benevolent ventures do not need to fundraise, their will opt for more flexible organizational forms.  Of course if these activities turn a profit, Google shareholders can take the profits home as dividends.  So some of these activities will be normal corporate investments, dressed up as "for-profit charity" for public relations purposes.  Here is Eric Posner on for-profit charities.

Is early admission a good idea?

Harvard just announced it would abolish early admission, and with Yana going away next year to college, this question has in any case been on my mind.

Marriage, of course, is run on an "early admissions" basis.  You ask one woman (man), get an answer, and you are then more or less bound to go through with it.

In my Mexican village, they run marriage more like we run college admissions.  Marriage-ready males propose to several women in one "season," and eligible women court more than one proposal.  At the magical moment, some of the prime candidates accept best offers and the rest of the market scrambles to clear.  But some men can, and do, propose "early admission" to their preferred females on an exclusive basis.

The musical chairs method makes sense if a) people definitely want to marry at a certain age, b) there is greater interchangeability of partners, and c) "being engaged" gives you an excuse to have sex with the person in the meantime or otherwise try them out.

Now let us say that one woman in the village is prettier than the others and also a harder worker.  She may wish to rule out "early admission" marriage proposals, out of fear she will have to turn down her second choice before having sounded out the interest level of her first choice.  (One question is whether a woman is a more populous community still might have enough market power to enforce such a policy with profit.)

Harvard says that early admission hurts diversity and the chances of minorities.  But, thinking about the marriage analogy, I wonder whether banning early admission a sign of Harvard’s growing desirability and market power…

Addendum: Greg Mankiw is happy about the change, Arnold Kling is not.  Here is another economic analysis, based on matching theory.

What is the consumer surplus from pets?

About 64.2 million American households keep pets, at a yearly cost of about $34.4 billion, according to the American Pet Products Manufacturers Association.  That amounts to about $500 per family per year, and that figure is not counting pet-themed greeting cards and other ancillary pet-related products.

I suspect that the demand curve for pets is, per family, not smooth.  That is, the last pet yielded immense consumer surplus, yet the family doesn’t want to buy another pet, or even rent a pet for a week each year.

The number of pets has been rising, so by how much are market prices underreflecting the implied corresponding rise in living standards?

If people are investing more and more in "identity goods," perhaps those goods don’t have smooth demand curves either.  Endowment effects are becoming stronger, not weaker.  The very poor, for instance, can’t afford such extreme attachments to assets they might need to sell, or in the case of pets, convert to food.

How strong must this effect — the rising relative importance of endowment effects — be to generate an extra 1% a year boost in living standards?

I very much enjoyed the new book Pets in America, by Katherine C. Grier.

Insurance markets in everything

CIA counterterrorism officers have signed up in growing numbers for a
government-reimbursed, private insurance plan that would pay their
civil judgments and legal expenses if they are sued or charged with
criminal wrongdoing, according to current and former intelligence
officials and others with knowledge of the program.

The new enrollments reflect heightened anxiety at the CIA that officers
may be vulnerable to accusations they were involved in abuse, torture,
human rights violations and other misconduct, including wrongdoing
related to the Sept. 11, 2001, attacks. They worry that they will not
have Justice Department representation in court or congressional
inquiries, the officials said.

Here is more.  Thanks to an anonymous reader for the pointer.

What would dollar depreciation bring?

From the National Bureau of Economic Research, here is the latest on the J-curve:

The pattern of international trade adjustment is affected by the
continuing international role of the dollar and related evidence on
exchange rate pass-through into prices.  This paper argues that a
depreciation of the dollar would have asymmetric effects on flows
between the United States and its trading partners.  With low exchange
rate pass-through to U.S. import prices and high exchange rate
pass-through to the local prices of countries consuming U.S. exports,
the effect of dollar depreciation on real trade flows is dominated by
an adjustment in U.S. export quantities, which increase as U.S. goods
become cheaper in the rest of the world.  Real U.S. imports are affected
less because U.S. prices are more insulated from exchange rate
movements – pass-through is low and dollar invoicing is high.  In
relation to prices, the effects on the U.S. terms of trade are limited:
U.S. exporters earn the same amount of dollars for each unit shipped
abroad, and U.S. consumers do not encounter more expensive imports.
Movements in dollar exchange rates also affect the international trade
transactions of countries invoicing some of their trade in dollars,
even when these countries are not transacting directly with the United

Here is the paper.  This asymmetry is no accident but rather stems, in large part, from the central role of the dollar as a reserve currency and a medium for invoice pricing.  When an Asian export is priced in terms of dollars in the first place, exchange rate movements lead to less pass-through.  In other words, to the extent we would see an improvement in our trade balance, from dollar depreciation, it would be vis-a-vis the countries with the highest propensity to consume more American exports.  It would not be with the countries whose exports we are most likely to consume.  This also means that we cannot in every way extrapolate European currency experience to the United States.

The Rich Sleep Efficiently

According to a recent paper in the American Journal of Epidemiology the rich are more efficient sleepers.  Not that they sleep fewer hours, in fact they sleep more than the poor, but their sleep latency, the time spent lying in bed trying to get to sleep is lower than for the poor.
The image
Graphic from University of Chicago Magazine.

Me?  I have money but I sleep like a pauper.

Hat tip to Robin Hanson.