Month: June 2007

"How did your bake sale go?" I asked my 8-year old son. 
"Great."
"How much did you sell the chocolates for?"
"I’m not sure."
"You’re not sure?  Why not?"
"Well, I kept raising the price"
"Really?  How come?"
"Dad," he replied with exasperation, "supply and demand."

While he is willing to attribute some of the rising wage inequality of
the 1980s to trade with developing countries, the timing of the
increase in profits since 2000 does not seem to fit very neatly with
any globalization-related story.

That is from Dani Rodrik.  Mark Thoma offers related material.  Brad DeLong makes excellent points in one of his best posts.

His rentable herd of 270 Boer and Spanish goats has never been more in demand.

They are excellent at devouring unwanted foliage.  Thanks to Cris Sullivan for the pointer.

I am awaiting details but this proposal from John Edwards is not entirely crazy.

Mr. Edwards said he wanted to discourage pharmaceutical companies from
obtaining long-term patents on medicines for specific ailments like
Alzheimer’s and cancer. Instead, an upfront cash prize would be made
available to serve as an incentive for research on such drugs.

I worry, however, that the prizes will be far too small.  Since the social value of breakthrough medicines greatly exceeds the private profit, prizes of tens of billions of dollars would not be unreasonable.  In fact, optimal prizes must increase the profits of US drug companies.  Can a Democrat like Edwards sell that?  And who will decide how the prizes are handed out?  Can the US government award billions of dollars in prizes without significant rent seeking?

Partly for these reasons, I would much prefer a patent buyout as suggested by Michael Kremer (Kremer’s paper can also be found in Entrepreneurial Economics.)  Let’s at least have a few experiments to buyout say 5 years of the time remaining on some important patents.

Do keep in mind that the problem of expensive drugs is overblown – a typical new drug will go off patent in 12 years anyway.  The real issue is how best to increase the incentive to develop new and important pharmaceuticals.

This new NBER working paper has an abstract in which every sentence is interesting:

The extent of and changes in inter-generational mobility of wealth are central to understanding dynamics of wealth inequality but hard to measure.  Using estate tax returns data, we observe that the share of women among the very wealthy (top 0.01%) in the United States peaked in the late 1960s, reaching almost 50%.  Three decades on, women’s share had declined to one third, a return to pre-war levels.  We argue that this pattern mirrors the relative importance of inherited vs. self-made wealth in the economy and thus the gender-composition of the wealthiest may serve as a proxy for inter-generational wealth mobility.  This proxy for "dynastic wealth” suggests that wealth mobility in the past century decreased until the 1970s and rose thereafter, a pattern consistent with technological change driving long term trends in income inequality and mobility.  Greater wealth mobility in recent decades is also consistent with the simultaneous rise in top income shares and relatively stable wealth concentration.

Do note the wealth mobility discussed toward the end might be occurring only among the relatively rich, as described by Pareto’s "circulation of elites."  The pointer is from the "still excellent but why doesn’t he post more?" New Economist blog, which also references related work about the UK.

The researcher is Lena Edlund, here is her home page.  Here is her article "Hermaphroditism: What’s Not to Like?"  If you are in the popular press and are looking for a fascinating, undercovered economist to profile, try Lena Edlund.  Here is her paper on "Sex and the City."  Here is her paper on why "love marriage," as opposed to arranged marriage, is good for the economy.

Why do women’s clothes always button from the left, while men’s clothes always button from the right?

…This is an example in which history really seems to matter.  When buttons first appeared in the seventeenth century, they were seen only on garments of the wealthy.  At that time it was the custom for men to dress themselves and for women to be dressed by servants.  Having women’s shirts button from the left thus made things easier for the mostly right-handed servants who dressed them…

Might there be a continuing rational reason for this difference, namely that the women’s approach looks better (does it?) but is harder, thus scaring off the men?  This sounds like a question for Fashion-Incubator.

In any case that excerpt is from Robert Frank’s new The Economic Naturalist.  Here is Craig Newmark’s review of the book.  Here is Brad DeLong on the book.  Here is my previous post on the book.

Guest workers are also, paradoxically, less likely than illegal immigrants to become permanent residents.  The U.S. already has a number of smaller–and less well-designed–temporary-worker programs, and there’s no evidence that workers in those plans routinely overstay their visas.  Mexican workers, contrary to popular belief, do not, generally, intend to live their entire lives in the U.S.  Instead, as the sociologists Douglas Massey and Jorge Durand concluded after a comprehensive study of immigrant attitudes and behavior, most want to work “for short periods to generate an alternative source of household income . . . or to accumulate savings for a specific purpose,” like buying a house in Mexico.  This is harder to do as an illegal immigrant than as a guest worker, both because illegal workers are paid less and because when an illegal goes home he runs the risk of getting caught.  One remarkable study found that after border enforcement was stepped up in 1993 the chances of an illegal immigrant returning to Mexico to stay fell by a third.

Here is the full piece.  Please leave comments of high quality.  Let’s try two new norms for comments.  First, don’t say anything stronger against another commenter (or blogger) than "I don’t agree with you John."  Second, it is fine if you are commenting on a single thread more than once, but you should be adding new arguments and material, not just debating with another commenter.

Addendum: Megan Non-McArdle makes excellent points about civility.