Month: October 2007

Using Incentives to Solve the Israeli-Palestinian Conflict

The very interesting Bruce Bueno de Mesquita has a good analysis of the Israeli-Palestinian conflict and a clever suggestion for moving forward:

“In my view, it is a mistake to look for strategies that build
mutual trust because it ain’t going to happen. Neither side has any
reason to trust the other, for good reason,” he says. “Land for peace
is an inherently flawed concept because it has a fundamental commitment
problem. If I give you land on your promise of peace in the future,
after you have the land, as the Israelis well know, it is very costly
to take it back if you renege. You have an incentive to say, ‘You made
a good step, it’s a gesture in the right direction, but I thought you
were giving me more than this. I can’t give you peace just for this,
it’s not enough.’ Conversely, if we have peace for land–you disarm, put
down your weapons, and get rid of the threats to me and I will then
give you the land–the reverse is true: I have no commitment to follow
through. Once you’ve laid down your weapons, you have no threat.”

Bueno de Mesquita’s answer to this dilemma, which he discussed with
the former Israeli prime minister and recently elected Labor leader
Ehud Barak, is a formula that guarantees mutual incentives to
cooperate. “In a peaceful world, what do the Palestinians anticipate
will be their main source of economic viability? Tourism. This is what
their own documents say. And, of course, the Israelis make a lot of
money from tourism, and that revenue is very easy to track. As a
starting point requiring no trust, no mutual cooperation, I would
suggest that all tourist revenue be [divided by] a fixed formula based
on the current population of the region, which is roughly 40 percent
Palestinian, 60 percent Israeli. The money would go automatically to
each side. Now, when there is violence, tourists don’t come. So the
tourist revenue is automatically responsive to the level of violence on
either side for both sides. You have an accounting firm that both sides
agree to, you let the U.N. do it, whatever. It’s completely
self-enforcing, it requires no cooperation except the initial agreement
by the Israelis that they are going to turn this part of the revenue
over, on a fixed formula based on population, to some international
agency, and that’s that.”

The article cited has a lot more on Bueno de Mesquita and the remarkable series of accurate predictions that he has made using rational choice modeling.  See also this piece from Science News, The Mathematical Fortune Teller.

Should we use mercenaries at all?

Over at Mark Thoma’s, Bernard Yomtov asks a very good question:

Why should there be mercenaries at all, given the existence of a large
and well-trained Army? The mercenaries are former soldiers. Their
functions are military and could be carried out by regular soldiers.
The only reason I can see for using them is precisely to have people
doing military jobs who are outside the normal chain of command, and
not subject to normal laws, rules, and regulations governing the
conduct of soldiers. In other words, it is to have people who do not work for government in the way that they should.

Most private contractors today do not serve in the function of soldiers but rather they deliver, ensure, and guard supplies.  This should be evaluated on a case-by-case basis, but often the private sector does a better job and without major legal problems. 

Security guards, however, are often "mercenaries."  A general or top Iraqi official for instance might be guarded by Blackwater employees.  The critics have not shown that Blackwater employees misbehave at a higher rate than do U.S. soldiers, so the comparative case against Blackwater — as opposed to the more general case against the war — is mostly shrill rhetoric.  It is possible to pay Blackwater employees bonuses for good performance rather than just give medals, plus they are on a higher pay scale in the first place.  Nonetheless my judgment call is that issues of perception and accountability are important enough in contemporary Iraq that we should be using contractors less in these capacities (as the column indicated), but the temptation to use them is based on more than just sheer political abuse.

Contractors lower the cost of good operations, contractors lower the operational (but not social) cost of bad operations, contractors magnify the costs of mistaken Executive preferences, and contractors can raise new problems of monitoring.  If you don’t think the first item on this list is at work, there is good reason to cut back on contractors in Iraq.

But if you view the scope and use of contractors as a more general decision, rather than something which can be fine-tuned for each war, it is no longer such a simple choice.

Erwin Nyiregyhazi

In the 1920s he toured to rave reviews, though he recorded only a few piano rolls.  He played in a dramatic and virtually improvisatory nineteenth century style.  Yet he was shy, introverted, and "constitutionally precise."  Strikingly handsome, he lost his way with women, marrying eight times, frequently visiting prostitutes and also going with men.  "I’m addicted to Liszt, oral **x, and alcohol — not necessarily in that order," he remarked.  After the War he resurfaced in Los Angeles.  His debilitations prevented him from concertizing, so he sight-read orchestral scores for Hollywood directors, for pay, so they could judge potential soundtracks.  He allied himself with Bela Lugosi (a huge admirer) and, inspired by The Fountainhead, courted Ayn Rand.  He was rediscovered in the late 1970s: "never before had I heard a living pianist who played entirely with that 19th century sense of rhetoric which the old writers had described: the true "Romantic Style," wrote Gregor Benko (TC: a man who knows piano).  "Next to him, Horowitz sounds like he is playing a toy piano," explained another reviewer.

He toured Japan and a few recordings were made, though his technique was unreliable.  We are left with scraps, and there is nothing worthy on CD.  On LP his recording of Liszt’s "St. Francis Legend" remains a marvel.  The late Roy Childs — a Nyiregyhazi worshipper — used to play me N. on reel-to-reel, taped from private concerts.  His "Funerailles" was unforgettable.  Will these recordings ever be released?

We now have Kevin Bazzana’s Lost Genius: The Curious and Tragic Story of an Extraordinary Musical Prodigy; here is a not sufficiently positive NYT review

Here is a summary website for the man.  Here is a YouTube video, it is amazing for a few moments toward the end but mostly sloppy.  Here are two more YouTubes, the old clip has a young N. playing Liszt’s Liebestraum in the background, the other is another pianist playing one of N’s compositions.

The bottom line: Talent is not enough.

To Know Contractors, Know Government

What a splendid title they chose for my NYT column on the economics of Blackwater.  To start:

…whatever the possible sins of the Blackwater firm, the overall problem
is not private contracting in itself; contractors do not set the tone
but rather reflect the sins and virtues of their customers, namely
their sponsoring governments.

…War is, among other things, an economic undertaking, so the profit motive in military affairs isn’t always bad or ignoble.   

And then:

Today, America no longer has a draft, its military bureaucracy can be
inflexible and the public wishes to be insulated from the direct impact
of war. Contractors are a symptom of government weakness, but are not
the problem itself. The first Persian Gulf War, which enjoyed greater
international support, was not reliant on contractors to nearly the
same degree.

Contractors can offer many efficiencies, but:

When things are going well and the “good guys” are in control, the
flexibility and experience of military contractors can make things go
even better. But when the environment is hostile and events are
spiraling out of control, the incentives of private contractors may
lead to many mistakes.

Note that a serious issue for Blackwater –
the allegations about needless deaths of innocent civilians – has also
been an issue for United States government forces from the beginning of
the conflict.

Most of all, contractors are appealing when a
victory is possible in relatively quick order. The potential
accountability problems won’t linger for long; conversely, few
contractors will look good when a conflict runs on for years.

As they say, read the whole thing; I discuss Alex’s research as well. 

Does trade spread AIDS?

Emily Oster tackles this question:

I generate new data on HIV incidence and prevalence in Africa based on inference from mortality rates. I use these data to relate economic activity (specifically, exports) to new HIV infections in Africa and argue there is a significant and large positive relationship between the two: a doubling of exports leads to as much as a quadrupling in new HIV infections. This relationship is consistent with a model of the epidemic in which truckers and other migrants have higher rates of risky behavior, and their numbers increase in periods with greater exports. I present evidence suggesting that the relationship between exports and HIV is causal and works, at least in part, through increased transit. The result has important policy implications, suggesting (for example) that there is significant value in prevention focused on these transit-oriented groups. I apply this result to study the case of Uganda, and argue that a decline in exports in the early 1990s in that country appears to explain between 30% and 60% of the decline in HIV infections. This suggests that the success of the Ugandan education campaign against HIV…has been overstated.

Since I used to believe Samuel Brittan when he argued that trade spreads sex, this result accords with my intuitions.

I thank Scott for the pointer.  There should be an algorithm informing me every time there is a new Emily Oster paper.  If Scott is indeed such an algorithm, I am pleased.  And of course I am that algorithm for you.

What I’ve been reading

1. David Linden, The Accidental Mind: How Brain Evolution has Given Us Love, Memory, Dreams, and God.  My standards for popular science books have tightened in the last ten years but this still exceeds them.  A good rule of thumb is to read anything that comes from Belknap Press at Harvard, unless of course it is Michael Sandel’s question-begging critique of transhumanism and genetic engineering.

2. God and Gold: Britain, America, and the Making of the Modern World, by Walter Russell Mead.  Yes there is a uniquely Anglo-American way of looking at the world, here’s how it came about, and also why the rest of the world resents it.  And why Tony Blair fought the Iraq War.  Consistently interesting and readable, recommended.  In passing it is also one of the best books for understanding the rise of the West.

3. Can’t Buy Me Love: The Beatles, Britain, and America, by Jonathan Gould.  I loved this book, and yes I was already sick of books about the Beatles.  Not only is the musical analysis first-rate (it pinpoints what is wrong with the arrangement of "Got to Get You Into My Life"), but it is close to an economic history of the Beatles.  Of course they started Apple, their record label, to shift labor income into capital gains, yet they were not up to running a music company.  Who needs the Laffer Curve?  You can (in part) blame high marginal tax rates for the breakup of the Beatles.

4. Michael Dirda, Classics for Pleasure.  As with popular science books, I am long since jaded with the genre of "let’s read my short essays about the classics so you don’t have to go bother reading those long, nasty books yourself."  But this one delivers a true odyssey of discovery; I dog-eared a dozen or so pages to follow up on the recommendations.  Will tracking down John Aubrey’s Brief Lives pay off?  Who knows, but don’t we live on hope as it is?

Rich people fact of the day

Pew Research Center reports
that find "Democrats pulling even with Republicans among registered
voters with annual family incomes in excess of roughly $135,000 per

In case you were wondering.  Here is more.  In any case Americans don’t vote their economic self-interest nearly as much as you might think; Bryan Caplan’s book has the most recent debunking of this myth.

The weather wisdom of crowds?

Jason Kottke reports:

Ben Tesch is about to launch a collaborative weather site called
It’ll aggregate weather information and harness the wisdom of crowds to
see if they can make better weather predictions than the experts.

Will this all work? Who knows, but it only took me two months to make, and I wanted to find out.

Unlike so many other types of information, the web has had little
impact on how weather reporting is done (the Weather Channel stuff is
still rudimentary), so it’ll be interesting to see if this works.

I predict this will fail — how many government agencies already work at predicting the weather?, or in other words the crowd is already in place.  The alternative hypothesis is that weather forecasting awaits its Orley Ashenfelter, and that a mechanism like this will bring the best nerdy, quantitative "amateur" forecast into public prominence.

Can Buffalo ever come back?

Ed Glaeser says no and offers very many reasons why.  His conclusion:

The best scenario would be for Buffalo to become a much smaller but
more vibrant community–shrinking to greatness, in effect.  Far better
that outcome than wasting yet more effort and resources on the foolish
project of restoring the City of Light’s past glory.

Does studying economics make the people of Buffalo happier?

Does studying economics make you happier?

Nikos Sp, a loyal MR reader, asks:

…ignoring the effect of becoming an economist
on your material welfare, do you believe that the economist’s mindset
is conducive to a happy life – or does a knowledge of economics lead to
a life of misery?

Nikos already has an answer, and yes he defends economics:

Here’s why:

1. I cherish my consumer surplus. I value most of the stuff I buy way more
than what I have to pay for them; vanilla ice cream makes me happy
beyond belief, and the same is true for the music of Dream Theater and
the (soon to be purchased) Apple iphone. And what am I asked to pay for them? Peanuts.

2. I cherish my producer surplus. I am getting paid way, way more than the
salary that would make me indifferent between supplying labour and
staying at home.

3. I never have regrets: I did the best I could given the information available to me at the time.
Judging I could have done better using information I acquired at a later date makes as much sense as regretting the existence of gravity. On a related topic, I understand the irrelevance of sunk costs.

4. While I do care for my welfare in relative terms, my welfare in absolute terms looms large in my utility function – and, boy, look how its value has been growing.

5. The selfishness of my fellow human beings does not make me anxious or depressed. Adam Smith
(or was it Mandeville?) taught me that humans, selfish as they are, can make happy societies. And perhaps more to the point, they can make me happy.

Just think, consumer surplus from your consumer surplus.  Only the fixed point theorem prevents him from reaching pure bliss.  Most generally, (good) economics insulates people from expecting the impossible, and that does make for greater happiness and contentment.  Do you all agree?

Unintended Consequences, installment #638

"Security Crackdown Cuts Illegal Crossing But Aids Smugglers."  That’s the headline and the story concerns the border between Mexico and Texas.  How might this be true?  It is simple:

As tighter security makes crossing the border trickier and more hazardous, the traditional mom-and-pop operations in Mexico that used to ferry people across have been replaced by larger, more-professional criminal gangs, often with ties to the illegal drug trade.

Or think of it in terms of finance: "Authorities are beginning to see commingling of drugs and human loads and are frequently seizing migrants who apparently are paying for their trip by carrying drugs for traffickers."  This is also known as the Alchian and Allen theorem.

The information and quotation are from today’s WSJ, "Shift is Afoot on Mexican Border," p.A8.  Here is a previous installment in this series.

Helping the bottom billion

Kevin, a soon-to-be loyal MR reader, asks:

What single intervention would do the
most to improve the health of people living on less than $1 a

Experts answer here.  The first guy asked says give them cash.  One woman, whom I believe is a practitioner of living on a dollar a day, responds: "Improve the house, which is small and untidy." 

What I found noteworthy is how many plausible but quite distinct answers there were.  While I disagree with Jeff Sachs on many issues, I think he is right to stress just how many different problems have to be overcome for sustainable development to occur.

Your thoughts?