Month: July 2007

How much better is local food for the environment?

Local food can consume more energy, especially when it is shipped — even short distances — by truck.  Here is from The Boston Globe:

…a gathering body of evidence suggests that local food can sometimes
consume more energy — and produce more greenhouse gases — than food
imported from great distances. Moving food by train or ship is quite
efficient, pound for pound, and transportation can often be a
relatively small part of the total energy "footprint" of food compared
with growing, packaging, or, for that matter, cooking it. A head of
lettuce grown in Vermont may have less of an energy impact than one
shipped up from Chile. But grow that Vermont lettuce late in the season
in a heated greenhouse and its energy impact leapfrogs the imported
option. So while local food may have its benefits, helping with climate
change is not always one of them.

And more:

Judged by unit of weight, ship and rail transport in particular are
highly energy efficient. Financial considerations force shippers to
pack as much as they can into their cargo containers, whether they’re
being carried by ship, rail, or truck, and to ensure that they rarely
make a return trip empty. And because of their size, container ships
and trains enjoy impressive economies of scale. The marginal extra
energy it takes to transport a single bunch of bananas packed in with
60,000 tons of other cargo on a container ship is more than an order of
magnitude less than that required to move them with a couple hundred
pounds of cargo in a car or small truck.

Yes even grapes from Chile end up on a truck but perhaps on a more efficient truck.  Why is there no talk of how they are transported from the Chilean vine to the Chilean port?  Here is a previous post on this topic.

How far behind is the U.S. in terms of broadband?

In response to Paul Krugman and others, FCC commissioners Robert McDowell writes:

The OECD says the U.S. has dropped from 12th in the world in broadband subscribers per 100 residents to 15th.  The OECD’s methodology is seriously flawed, however. According to an analysis by the Phoenix Center, if all OECD countries including the U.S. enjoyed 100% broadband penetration — with all homes and businesses being connected — our rank would fall to 20th. The U.S. would be deemed a relative failure because the OECD methodology measures broadband connections per capita, putting countries with larger household sizes at a statistical disadvantage.

Here are statistics on household size; I am suspicious that McDowell cites only a polar point (which in essence is ranking *only* household size, and not how much household size contributes to the current rank order) in support of his case.  Not every argument in his rebuttal succeeds.

More fruitfully, should we should compare Europe to the whole U.S. or to individual states?:

…if we compare many of our states individually with some countries that are allegedly beating us in the broadband race, we are actually winning. Forty-three American states have a higher household broadband adoption rate than all but five EU countries. Even large rural western states such as Montana, Wyoming, Colorado and both Dakotas exhibit much stronger household broadband adoption rates than France or Britain. Even if we use the OECD’s flawed methodology, New Jersey has a higher penetration rate than fourth-ranked Korea. Alaska is more broadband-saturated than France.

Maybe federal policy is not mainly at fault, though more contestability is still a good idea.  By the way, here are some alternative broadband rankings, the U.S. comes in twelfth.

The pointer is thanks to Ben Davis.

Addendum: Over at Mark Thoma’s, Peter Schaeffer has a good comment at July 23, 2007 at 11:05.

An experiment with personalized podcasts

Lately I’ve been intrigued with the idea of individualized uses of mass communication technologies.  Imagine if they made an episode of Seinfeld tailored for your personal consumption.

So I’d l like to try an experiment. I will make a podcast — a personalized podcast — just for you.

You can ask me anything you want, and I’ll try my best to answer the question.

I believe this will be fun for me.  But to give it a chance of being fun, I need a principle of rationing.

So if you want the podcast, pre-order my Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist.  The Amazon link is here, Barnes&Noble is here.

There are a few simple rules:

1. Write me at [email protected] that you have pre-ordered.  You must pre-order (and write me) before 8 p.m. (EST) on Thursday, July 26.

2. We again use the honor system.  Last time I was amazed how many people submitted proof of purchase voluntarily, without my even asking. 

3. When you write to me, include your question.  Only one question per purchase.

4. I’ll write you back with a link to the personalized podcast.  If I can’t answer or at least address your question (e.g., "Who is the mightiest tailor in the Ukraine, and why?"), I’ll let you know and you can try another question.

5. The offer of the secret blog has expired, you get only the podcast.

What if I’ve already pre-ordered?  Don’t worry. 

One option is to order another copy.  But I don’t wish to penalize lovers of secret blogs (I’m one myself).  A second and cheaper option is to review the book on either or Barnes&  If you have already pre-ordered and you write a review within three weeks of publication date (Aug.2, so that’s Aug.23), at the right time just send me a copy of the review along with your podcast question.  I’ll record these additional podcasts later in August.  That way you’ll have both a secret blog and a personalized podcast.

When will I get my podcast?  I have blocked off several days this week to do nothing but record your podcasts.  Call me crazy but I’m quite looking forward to it.  (Since I’ve blogged every day for four years, perhaps you’ll believe I am an outlier.)  We’ll see how long the process takes, but if you wish to be early in the queue, pre-order and write in now.  I’ll answer questions in the order I receive them.

How long will my podcast be?  That depends on your question.  But I envision my answers as roughly comparable to the answer I would give a good friend over dinner.

What can I do with my podcast?  You can link to it, send it to your friends, or disseminate it as you wish. 

I do want to receive your interesting questions and even your silly questions.  But impossible questions involving paradoxes of self-reference will be returned automatically.  And when it comes to the Newcomb problem, let me tell you right now, the cautious Tyler is taking only one box…

How long should the wait be to see a doctor?

Matt Yglesias notes that seeing a doctor in the U.S. involves waiting.  I’ve never had this experience (not going to the doctor is my trick) but I’ve heard the same from other people.  My question is a simple one: in market equilibrium, should we expect two- or three month-long waits to see a doctor?  Or is this somehow an artifact of government intervention?

I understand why I might have to wait to get an iPhone (though I didn’t) or Harry Potter (though Yana didn’t).  I understand why I can’t just call up El Bulli and get a reservation; they want the highest status people eating there, plus the air of exclusivity creates positive publicity for spin-off products.  But I wouldn’t expect those mechanisms to matter for medicine, at least not at the GP level ("he won’t transplant a heart for just anyone, he’s promoting his personal line of stents", etc.).

Why might one have to wait for a doctor?

1. There are big gains to sticking with your previous doctor, and demand is uncertain each period so the lines add up.  But I would expect the law of large numbers to kick in, plus sometimes the wait should be very short.

2. Waiting lists are a form of price discrimination.  Some patients "hoard time" (just as dept. chairs in a university "hoard space") by making lots of appointments, many of which are unnecessary ex post.  Indirectly they are charged for this privilege but they get immediacy when they need it.  Matt (maybe) didn’t need immediacy and wasn’t willing to pay for it.

3. The President is always the last person to enter the room and that policy maximizes the value of his time.  Maybe doctors have lots of "drop out" appointments (patients get better or perhaps they die), and so doctors maximize the value of their time by keeping a long queue.  But for this to maximize profits, must the queue be longer than a week or so?

4. Some constraint — legal or otherwise — prevents doctors from raising their prices.  (This hypothesis, by the way, suggests that American medical care is even more expensive than it looks.)

Readers, why is the wait often as long as it is?  I’m not interested in debating health care policy today, I’d just like an answer to this question.

Addendum: Jane Galt adds commentary and analysis.

On being lost

I am in Turkey this week.  (Where else can you go where the secularists are protesting in the streets!  Awesome.)  Aside from seeing things, I like to travel for the challenge.

Getting to that interesting restaurant reviewed in the New York Times you have to find the ferry station, purchase the right ticket, get off at the right stop, find the restaurant on the streets with no names (ah there’s the bull statue! must be somewhere to the east!) and overall get lost many times.  It’s a bit like running a marathon but the honeyed pumpkin at the finish line tastes sweeter for all the running.

I don’t like being lost, but I like having been lost.

Article about me

How else can one title such a post?  Here it is, from New York magazine.  Excerpt:

Among this new crowd of economists, Cowen, a 45-year-old professor at George Mason University just outside D.C., is a cult hero, insofar as he co-runs an influential blog called You don’t need to be an economist to enjoy it. There are only a handful of posts a day, but the range of ideas is awe-inspiring. Cowen weighs in on everything from “wage compression”–when bosses give raises at a rate below productivity gains–to household pets, arguing that “if you must support the life of either a cat or a dog, choose the undervalued cat.” (Dogs’ friendly disposition increases the odds of their being well-cared for by other people, while the natural diffidence of cats makes them more susceptible to neglect).

Here is their selection from the series "My Favorite Things"…

Fraudulent subprime mortgages

The market seems (more or less) competitive on the supply side.  So the greater the opportunity for fraud (by lenders), the more lenders will enter the market.  This will bid down prices (interest rates on loans).  The loan contract will move toward lower price, lower quality.  Of course prices are lower on average but for those who end up ripped off the real price, ex post, is much higher.

On average who loses from such a shift?  Well, to some extent there is a pooling of heterogeneous tastes into a single market segment.  The ones who don’t like the lower price, lower quality equilibrium will be the higher valuation buyers for the contract, that is the wealthier people in the relevant loan class, not the poorer people.  The poorer buyers in the market segment might well be better off.

This result does not require buyers to be wary about fraud.  It is even possible to get a superior outcome if buyers are totally unaware of prospects for fraud.  To the extent buyers are suspicious, they will invest resources in monitoring the behavior of suppliers.  Often such monitoring is simply keeping/capturing pecuniary externalities, and thus it is oversupplied relative to a first best.  If buyers are fully unaware there will be no socially wasteful monitoring and the lower prices still will arrive.

You might say "Ah, but we cannot dismiss pecuniary externalities when insurance markets are incomplete."  I might say "Ah, but aren’t buyers generally risk-loving in terms of prices"?

The bottom line is this: whenever you see fraud, apply tax incidence analysis to understand the final results.

What I’ve been reading

1. Douglas Wolk, Reading Comics: How Graphic Novels Work and What They Mean.  My consumer surplus from this book was huge.  The author calls it an "economic history" of the graphic novel; he hasn’t read Bob Fogel but it remains one of the best introductions to any topic.

2. Martin Krause, La Economia Explicada a Mis Hijos, and Por el ojo de una aguja.  Economics, explained through the medium of literature and fables, from an Argentinian classical liberal.

3. Jennifer Michael Hecht, The Happiness Myth: Why What We Think is Right is Wrong.  The claim is that happiness follows from self-knowledge, self-control, self-realization, and awareness of death.  There is little consideration of what is the proper margin for each.

4. Alfredo Jose Estrada, Havana: Autobiography of a City.  One of the best city biographies, almost as good as the books on Cairo.

5. Ruth Rendell, The Water’s Lovely.  I used to think she was past her peak, but the first third of this is superb and the rest stays pretty good.

Five Best

This is one of my favorite features of The Wall Street Journal.  Yesterday they asked Kanye West to name his five favorite restaurants.  Usually (and more usefully) some other celebrity is asked to name five favorite books, CDs, or movies.

Five is enough to frame the namer’s tastes.  And your chance of learning about a new peak experience is relatively high.  Even if you get no useful information, you’ve had a chance to judge a celebrity.

I believe this method of "criticism" will become increasingly popular.  The biggest potential downside is encouraging excess winner-take-all behavior on the part of producers.

Addendum: Here are favorites from HobNobBlog.

I’ve been waiting for a paper like this

Steve Kaplan and Joshua Rauh write:

We consider how much of the top end of the income distribution can be
attributed to four sectors — top executives of non-financial firms
(Main Street); financial service sector employees from investment
banks, hedge funds, private equity funds, and mutual funds (Wall
Street); corporate lawyers; and professional athletes and celebrities. 
Non-financial public company CEOs and top executives do not represent
more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%,
0.001%, and 0.0001%).  Individuals in the Wall Street category comprise
at least as high a percentage of the top AGI brackets as non-financial
executives of public companies.  While the representation of top
executives in the top AGI brackets has increased from 1994 to 2004, the
representation of Wall Street has likely increased even more.  While the
groups we study represent a substantial portion of the top income
groups, they miss a large number of high-earning individuals.  We
conclude by considering how our results inform different explanations
for the increased skewness at the top end of the distribution.  We argue
the evidence is most consistent with theories of superstars, skill
biased technological change, greater scale and their interaction.

Here is the link, here is the non-gated version.  How about this bit from the text?:

…the top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and estimated).

This is important too:

…we do not find that the top brackets are dominated by CEOs and top executives who arguably have the greatest influence over their own pay.  In fact, on an ex ante basis, we find that the representation of CEOs and top executives in the top brackets has remained constant since 1994.  Our evidence, therefore, suggests that poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution.  We also discuss the claim that CEOs and top executives are not paid for performance relative to other groups.  Contrary to this claim, we find that realized CEO pay is highly related to firm industry-adjusted stock performance.  Our evidence also is hard to reconcile with the arguments in Piketty and Saez (2006a) and Levy and Temin (2007) that the increase in pay at the top is driven by the recent removal of social norms regarding pay inequality.  Levy and Temin (2007) emphasize the importance of Federal government policies towards unions, income taxation and the minimum wage.  While top executive pay has increased, so has the pay of other groups, particularly Wall Street groups, who are and have been less subject to disclosure and social norms over a long period of time.  In addition, the compensation arrangements at hedge funds, VC funds, and PE funds have not changed much, if at all, in the last twenty-five or thirty years (see Sahlman (1990) and Metrick and Yasuda (2007)).  Furthermore, it is not clear how greater unionization would have suppressed the pay of those on Wall Street.  In other words, there is no evidence of a change in social norms on Wall Street.  What has changed is the amount of money managed and the concomitant amount of pay.

There is a great deal of analysis and information (though to me, not many surprises) in this important paper.  The authors also find no link between higher pay and the relation of a sector to international trade.

Will people on TV start making more sense?

Ezra Klein has a neat argument:

…the incentives are changing.  Assume that the incentive for going on television is to raise your profile (which is about 75 percent correct).  If I went on television five years ago, a large part of my incentive would be to make the host like me.  After all, these appearances pass in an instant, and most of you would never see the program.  So if I want to reach the maximum number of people with my arguments and do the most to increase my visibility, I want to keep coming back.

Now, however, with YouTube and GoogleVideo and online archiving, a single, contentious appearance can be seen on the internet a million times.  Everyone, after all, has seen Stewart berate Tucker Carlson on Crossfire, but very few of us had actually tuned in that day.  Similarly, my segment on the Kudlow show, replayed on the internet a few thousand times, did much more for my reputation among the audience relevant to my success than have my more friendly, but bland, appearances on other shows.

Making sense often requires you to be disruptive, and not long ago, being disruptive was probably a bad idea.  Now it’s a good one.  And since the channels are wising up and putting their videos online with advertising before them, they also want widespread online dissemination of appearances, and so their incentives are increasingly aligned with mine.  Does this mean more folks will be making sense?  Not necessarily.  But it means there might be more room for sense-making.

Or is Ezra just being deliberately disruptive to get links?  How will TV hosts respond to maintain equilibrium?  Invite fewer uncontrolled guests?  Invite fewer guests period?  Or will contestability force hosts to invite more disruptive guests?