Month: November 2007

Markets in Everything: Think Tanks

Why buy votes when you can buy the Bay Area Center for Voting Research?  The BACVR analyzes voting trends in California and nationwide; they are best known for their ranking of the most liberal and most conservative cities (pdf) in the nation.  The founders, however, want out and are selling all of BACVR’s intellectual assets, including the organization’s web site, past research, and well-known name on eBay.  The perfect Christmas gift for that political junkie on your list.

Of course some people believe that all think tanks are for sale.

Eight reasons to be optimistic about today’s economy

From Charles Calomiris, via Mark Thoma.  Here is my edited version of the list, without the (very good) explanations:

1. Housing prices may not be falling by as much as some economists say they are.
2. Although the inventory of homes for sale has risen, housing construction
activity has fallen substantially [which will support future prices].
3. The shock to the availability of credit has been concentrated primarily in
securitisations rather than in credit markets defined more broadly.
4. Aggregate financial market indicators improved substantially in September and
5. …nonfinancial firms are highly liquid and not overleveraged.
6. …households’ wealth is at an all-time high and continues to grow.
7. Of central importance is the healthy condition of banks.
8. Banks hold much more diversified portfolios today than they used to.

I find 3-8 more convincing than 1-2, noting of course that #7 is a relative judgment.  Here is a longer version of the Calomiris paper.

Should we let people sell votes?

Mankiw says no, Caplan says the real problem is voting itself.  Of course we let private shareholders sell their votes all the time, and uncontroversially, so the real issue is how politics is different. 

Say society has a 9999 people.  The marginal private value of a (political) vote is almost zero, except for its feel-good benefit (see also Gelman on altruistic motives to motivate voting).  Yet the total value of 5000 votes — a winning tally — is the size of the largest wealth transfer that the winner could impose on everyone else.  The result will mimic a model of self-interested voting but with only one self-interested voter — the owner of the purchased votes — having a say.  And that winner will be the conscience-less (non-liquidity-constrained) person who has the most to gain from buying up votes and getting things his way.

Of course Bryan, in other contexts, has shown that expressive voting is more likely than the self-interested voting model, at least under standard democracy.  I would rather have expressive voting than what is explained directly above, even though expressive voting is somewhat irrational. 

Maybe voters will end up with sudden attacks of conscientiousness and be unwilling to sell their votes; to that extent vote-selling won’t much matter and of course then it can’t bring gains either.

Now let’s go back to the corporate case.  When it comes to policy, shareholders might not agree on means but everyone favors the same end of profit maximization.  A winning coalition of shareholders can’t do much to extract rents from other shareholders, unless of course they are exploiting those other shareholders in their other roles as consumers or input suppliers.  But such effects are usually small (as opposed to the widespread possibilities for redistribution through politics) and thus vote selling works just fine for corporations.  There is no simple way that shareholder A can buy up the votes of shareholders B and C and then just screw them over.

Coda: There is a potential problem with vote-selling in corporations, again relating back to the difference between marginal and average value for a vote.  Shareholders might be afraid to sell to a takeover artist, instead wishing to hold on for the ride and reap gains from the change in corporate control.  But if no one sells the takeover cannot take place and no one reaps the gains.  In other words, there is too little vote selling; that’s Grossman and Hart, 1980.  Alex once wrote an excellent paper on this problem (but where is the link Alex?) and showed that the free-rider problem among shareholders can usually be solved by random Nash strategies; note that the final outcome will depend on whether there is a countable or uncountable infinity of shareholders; please don’t laugh!

The bottom line: There are good economic arguments for why we allow corporate vote-selling but not political vote-selling.

Western Union

Migration is so central to Western Union that forecasts of border
movements drive the company’s stock. Its researchers outpace the Census Bureau
in tracking migrant locations. Long synonymous with Morse code, the
company now advertises in Tagalog and Twi and runs promotions for
holidays as obscure as Phagwa and Fiji Day. Its executives hail
migrants as “heroes” and once tried to oust a congressman because of
his push for tougher immigration laws…

With five times as many locations worldwide as McDonald’s, Starbucks, Burger King and Wal-Mart
combined, Western Union is the lone behemoth among hundreds of money
transfer companies… Last year migrants from poor countries sent home $300 billion, nearly three times the world’s foreign aid budgets combined.

Here is the full story, which is consistently interesting throughout.

Thanks on Thanksgiving

Alex and I each have many things to be thankful for today.  When it comes to blogging, we are thankful that we have an audience of readers — namely you all — that earlier economists could only have dreamt of, in terms of quantity, quality, and global distribution.  We are also grateful for what is frequently the best comments section in the blogosphere.

Thank you all for reading and putting time into this venture; if I add you all up, you, collectively, put in much more time than we do!  It is an honor to write for you all.

Happy Thanksgiving

Our corn did prove well, and God be praised, we had a good increase of Indian corn, and our barley indifferent good, but our peas not worth the gathering, for we feared they were too late sown.  They came up very well, and blossomed, but the sun parched them in the blossom.  Our harvest being gotten in, our governor sent four men on fowling, that so we might after a special manner rejoice together after we had gathered the fruit of our labors.  They four in one day killed as much fowl as, with a little help beside, served the company almost a week.  At which time, amongst other recreations, we exercised our arms, many of the Indians coming amongst us, and among the rest their greatest king Massasoit, with some ninety men, whom for three days we entertained and feasted, and they went out and killed five deer, which they brought to the plantation and bestowed on our governor, and upon the captain and others.  And although it be not always so plentiful as it was at this time with us, yet by the goodness of God, we are so far from want that we often wish you partakers of our plenty.

Edward Winslow, Plymouth in New England this 11th of December, 1621.

Choosing linguistic autarchy

An indigenous language in southern Mexico is in danger of disappearing because its last two speakers have stopped talking to one another.

The two elderly men in the village of Ayapan, Tabasco, have drifted apart, said Fernando Nava, head of the Mexican Institute for Indigenous Languages.

Are they really the last two speakers left?  The odd part of the story is this:

Dr Nava played down reports of an argument between the two Ayapan residents, both in their 70s.  "We know they are not to say enemies, but we know they are apart.  We know they are two people with little in common," he told the BBC News website.

They nonetheless have been nominated to play the role of linguistic saviors:

The indigenous languages institute is trying to encourage more local people to speak Ayapan Zoque, and hopes the two men will pass the language on to their families.

Do exchange rate overshooting models make sense?

Not so much.  Here is the overshooting model for those of you who don’t know it.

So what is the problem?  First, most observed exchange rate movements are unexpected ("news"), rather than forecast in earlier forward rates.  The overshooting model, at best, explains expected movements in exchange rates.

Second, the model relies on a Keynesian money demand function.  Specifically, inflation, operating through a portfolio effect, lowers nominal rates of interest in the initial stage of the mechanism.  Well, sometimes, but don’t count on it.  More generally, the currency vs. interest-bearing assets decision doesn’t have many implications for foreign exchange markets, if any.

Arnold Kling offers some further comments, including this bit:

But in the Dornbusch model, countries differ in terms of their
inflation rates. Inflation is described mathematically as a continuous
movement in prices ("Rudi Dornbusch is the master of the logarithmic
derivative," as Rogoff used to put it.) The swindle, which is present
in all modern macro, is to talk about sticky prices and
continuously-moving prices in the same breath.

Exchange rates are not well understood.  The current best theory is a mix of random walk (but in exchange rates or returns?), noise traders, and possibly some predictable, very long-run, PPP-reverting swings, enabled by the possibility that perhaps traders’ time horizons are too short to compress all of the expected future into the present.  But, unlike what the Dornbusch model predicts, these changes are not well-predicted by nominal interest rate differentials.

Here is a more favorable assessment of the model, from Ken Rogoff.

In case you hadn’t noticed

In its first Asian guide, announced on Monday, Michelin has awarded
more of its famed stars to Tokyo restaurants than any other city, with
a total of 191 stars compared with 64 for Paris and 42 in New York.

This is not seigniorage, we are told:

Anyone who complains about this has never travelled to Tokyo, because
if they do, they can see for themselves the fantastic quality of
restaurants here,” added Mr Naret.

Chinese movie piracy is overestimated

The three countries in which the [movie piracy] losses to U.S. studios were highest were not East Asian countries, and two of them were not developing countries: Mexico, the United Kingdom, and France accounted for over $1.2 billion in lost revenues, or 25% of the non-U.S. total – and slightly less than the U.S. total of $1.3 billion.

You will notice that China is not mentioned in that summary.  Go to p.13 of the paper: Russia has a per capita piracy rate lower than that of Germany and about equal to that of Japan.  And, out of the first eleven nations studied, China comes in sixth in absolute terms for movie piracy losses and eleventh in per capita terms.  In per capita terms, nation #10, Russia, has almost ten times the piracy losses as does China.  Per capita piracy losses are about twenty times higher in the United States than in China.  If eleven more nations are added to the rankings (see p.15), only two (Korea and India) have lower per capita piracy losses than China.  Overall that puts China at 20th out of 22 sampled countries when it comes to per capita piracy losses on movies. 

Hungary, however, is a major, major offender.  Chinese piracy is highly visible to those who visit major Chinese cities, because it takes the form of DVD sales in the streets.  But the real grabbers are countries where everyone has a VCR or DVD player, and where the domestic film industry is relatively weak.

These numbers may not be highly accurate, but they do put things in perspective.  Hat tip to China Law Blog.

Data revision of the day — good news this time

The United Nations’ top AIDS scientists plan to acknowledge this week that they have long
overestimated both the size and the course of the epidemic, which they
now believe has been slowing for nearly a decade, according to U.N.
documents prepared for the announcement…the latest estimates, due to be released publicly Tuesday, put the
number of annual new HIV infections at 2.5 million, a cut of more than
40 percent from last year’s estimate, documents show. The worldwide
total of people infected with HIV — estimated a year ago at nearly 40
million and rising — now will be reported as 33 million.

Here is the full story, which also explains the sampling errors behind the earlier estimates.