Month: November 2007

The Shortage of Transplant Organs

The Wall Street Journal has a front-page article and a debate between Julio Elias and Alvin Roth on alleviating the shortage of transplant organs.  This interactive graphic was good at explaining the idea of kidney swaps.  Elias and Roth should have discussed no-give, no-take rules and Lifesharers

I will be speaking to Congressional and agency staff about the organ shortage this Thursday at noon (this event is not open to the public.)

Addendum: Transplant surgeon Arthur Matas, mentioned in the WSJ article, is no
libertarian but argues for live kidney sales in a new Cato Policy

Tyrone on American unhappiness

Tyrone wrote to me:

1. It is a mistake to focus on the survey evidence on happiness; maybe at first it shocks Americans that their country doesn’t come in a clear first, but America is bound to end up in the top tier and that will prove hard to counter.  The Easterlin paradox, which turns purely on the meaning of words over time, is also weaker than is commonly believed and of course Tyler and Will were going to be ready for that.

2. Start with the disproportionately large number of Americans in prison.  They are not happy.  Furthermore they don’t get to answer most questionnaires.

3. Then ask: given how rotten prison is, why did those Americans take the chances that might put them in prison?  How many people were just as unhappy, or nearly as unhappy, but didn’t chance a crime or end up in prison?  What does the distribution of the process have to look like, and what are the implied levels of unhappiness, to place so many people in prison?  The answer to those questions will be ugly.

4. Then move to race and cite those studies showing that many white people say they wouldn’t want to be black for a million dollars.  There are a few different ways to interpret those answers, but none of them are favorable for the pursuit of happiness in America.

5. Cite statistics on how many Americans are obese.  Some of this is genetic variation, but still the happiness-generating process has to be pretty badly skewed to generate so many pounds.  Ask Tyler whether he thinks that most truly obese women are happy.

6. Ask Will to provide a running stream of consciousness of what runs through his mind when he visits a K-Mart in rural West Virginia.

7. Paint a convincing portrait of Americans as the people most prone to self-deception, self-puffery, and the most likely to lie about their own levels of happiness.  Attack the reliability of happiness studies.

8. Present moderation as a prerequisite of happiness, and argue that America is anything but a land of moderation.

9. Cite the millions of Americans — now one out of every ten women — who take Prozac or other anti-depressants.  Yes, there is strong evidence that Prozac makes people happier.  But surely such people can be said to have "failed in their pursuit of happiness."  They didn’t start off wanting to be happy by taking a drug.

10. Don’t push income volatility or poverty too hard.  It will collapse into "things aren’t perfect" and allow the other side to focus on America’s very considerable economic achievements.  Nor put too much blame on America’s relatively weak welfare state.  That is a symptom of American social illness, not a cause, and more fundamental is that the poor themselves don’t care enough about their own fate (so why then would anyone else either?).

11. And why do European women seem so much more self-assured than do American women?

Yes, that is what Tyrone thinks.  Poor, poor Tyrone.  No wonder he is so unhappy.  He thinks he is surrounded by so many other unhappy people.  That makes him contrarian by nature.

Some people say that the debates between Tyler and Tyrone are the most interesting of all.  But I know better.  When such debates end, Tyler is always happy, and Tyrone always unhappy.  Doesn’t that alone show that Tyler usually has the better of it?

Unintended Consequences meet Tragedy of the Commons

A decade ago, the saiga antelope seemed so secure that conservationists
fighting to save the rhino from poaching suggested using saiga horn in
traditional Chinese medicines as a substitute for rhino horn.

Research commissioned by WWF at the Chinese University of Hong Kong in the
late 1980s found it to be as effective as rhino horn in fighting fevers, and in
1991 WWF began a campaign in Hong Kong to publicise it as an alternative. The
following year, the UN Environment Programme appointed WWF ecologist Esmond
Bradley Martin as its "special envoy" to persuade pharmacists across Asia to
adopt saiga horn (New Scientist print edition, 9 March 1991 and 3 October

And the result?

In 1993, over a million saiga antelopes roamed the steppes of Russia and
Kazakhstan. Today, fewer than 30,000 remain, most of them females. So many males
have been shot for their horns, which are exported to China to be used in
traditional fever cures, that the antelope may not be able to recover

The tragedy here is that diversion would have been a good idea had the WWF understood some economics – for diversion to work you must divert to a privately owned resource. 

Hat tip to MetaFilter.

What I’ve Been Reading

1. Love, Life, Goethe: Lessons of the Imagination from the Great German Poet, by John Armstrong.  The author does not demonstrate overwhelming expertise but this is nonetheless not a bad place to start on the most neglected of all the great writers.

2. The Stillborn God: Religion, Politics, and the Modern West, by Mark Lilla.  Why Schleiermacher really matters, how Kant painted himself into a corner trying to solve the problems laid out by Rousseau, and why it all springs from Hobbes.  I found this well above average for its genre, though you must have a taste for Straussian-like books where big ideas clash at the macro level and there is little attempt at any kind of empirical resolution.

3. How Life Imitates Chess: Making the Right Moves, from the Board to the Boardroom, by Garry Kasparov.  This is a fun book, except that life mostly doesn’t imitate chess.  Chess is characteristic for its lack of self-deception; it is hard to avoid knowing where you stand in the hierarchy and excuses are few and far between.  That’s why most chess players are depressed.  Kasparov seems to save his self-deception for politics; let’s hope he is still alive a year from now.

4. Dark Sun: The Making of the Hydrogen Bomb, by Richard Rhodes.  This favorite book of Jason Kottke is first-rate non-fiction, it is also one of the best books on the Cold War.

5. The Feast of the Goat, by Mario Vargas Llosa.  One of the best studies of the psychology of political power and the connection between tyranny and the erotic.  A fun albeit sometimes harrowing read.  Another superb translation by Edith Grossman, might she be the best translator ever?

Prudie meets Trudie

In Discover Your Inner Economist the economist and blogger Tyler Cowen provides quirky and insightful advice for life based on his signature urbane style of economic reasoning.  On his blog,, Cowen offers economic advice in his periodic "Dear Trudie" posts.  Presumably Cowen offers good economics.  But dare one take an economist’s advice?  Emily Yoffe, author of Slate‘s popular "Dear Prudence" advice column, will advise.  Please join us for an advice-off, as Trudie meets Prudie to discuss the practical benefits of economic reasoning (or lack thereof) in everyday life.

That’s this Thursday, noon, at Cato, also webcast live at  To register, visit, e-mail [email protected].

Here are my previous Trudie posts.

Kiss me, I’m vaccinated

I just had my flu shot.  Please send your checks to my George Mason address.

People who have the flu spread the virus so getting a flu shot not only reduces the probability that I will get the flu it reduces the probability that you will get the flu.  In the language of economics the flu shot creates an external benefit, a benefit to other people not captured by the person who paid the costs of getting the shot.  The external benefits of a flu shot can be quite large.  Under some conditions each person who is vaccinated reduces the expected number of other people who get the flu by 1.5.

Since a large fraction of the benefits of the flu shot, perhaps even a majority of the benefits, go to other people and not to the person paying the costs, the number of people who get a flu shot in the United States is well below the efficient level.  I only got the shot because, as you well know, I’m altruistic.  I care about you.  But do send your checks, that will help.

In lieu of a check I’m thinking of having some buttons made up to encourage people to get their shot.  Here are some possible slogans:

  • Kiss me, I’m vaccinated.
  • Take one for the herd!
  • Get a flu shot.  The life you save may not be your own.

Madison Avenue here I come!

Of course, we know from the Coase Theorem that there is an alternative approach.  We could charge people who do not get their flu shots. (Thus, if you haven’t had a shot you must still must send me a check.)  Or to reduce transaction costs we could fine people who get the flu.  I kind of like that last one.  (But what to do about the 36,000 a year who die from the flu – charge their estates?)

What do you think?  Leave your suggestions/slogans for how to encourage getting a flu shot in the comments.

The roots of price stickiness, part II

Book rage, anyone? As the Canadian dollar hit the $1.10 mark earlier
this week, booksellers and publishers began to circulate stories of
customers going beyond simply venting their dismay at hapless clerks
and turning books into projectiles, sometimes to the point of drawing

If you live in Bangalore or Singapore, you may not know that the cover of a North American book typically has a price posted in U.S. dollars and a higher price posted in Canadian dollars.  The Canadian dollar used to be worth much less yet now it is worth more and so Canadian consumers feel ripped off.  Could we minimize this problem by also posting the price of the book in Switzerland or New Zealand, two countries with notoriously high book prices?  Or do Canadians care most about their price treatment relative to Americans, or simply their price treatment relative to the greatest comparative outrage elsewhere, rather than their relative treatment compared to the world as a whole?

Here is the link and story.  Along related lines, I found Sarah Maxwell’s The Price is Wrong:  Understanding What Makes a Price Seem Fair and the True Cost of Unfair Pricing to be a stimulating collection of anecdotes on this issue.  Here is my previous post on the iPhone and price resentment.

Why are so many top terrorists engineers?

Diego Gambetta and Steffan Hertog report:

We find that graduates from subjects such as science,
engineering, and medicine are strongly overrepresented among Islamist
movements in the Muslim world, though not among the extremist Islamic
groups which have emerged in Western countries more recently.  We also
find that engineers alone are strongly over-represented among graduates
in violent groups in both realms.  This is all the more puzzling for
engineers are virtually absent from left-wing violent extremists and
only present rather than over-represented among right-wing extremists. 
We consider four hypotheses that could explain this pattern.  Is the
engineers’ prominence among violent Islamists an accident of history
amplified through network links, or do their technical skills make them
attractive recruits?  Do engineers have a ‘mindset’ that makes them a
particularly good match for Islamism, or is their vigorous
radicalization explained by the social conditions they endured in
Islamic countries?  We argue that the interaction between the last two
causes is the most plausible explanation of our findings…

Henry Farrell adds commentary.  I take the bottom line to be that engineers are systematizers by nature and in Islamic countries in particular they face difficult social  circumstances, relative to their human capital and ambition.  I suspect also that elites with a clear inherited path to the top do not become engineers.

I am less convinced by the parallels drawn with politically conservative engineers in the United States, but the piece offers (p.51) this fascinating bit:

…engineers turn out to be by far the most religious group of all academics – 66.5 per cent, followed again by 61.7 in economics [emphasis added by TC], 49.9 in sciences, 48.8 per cent of social scientists, 46.3 of doctors and 44.1 per cent of lawyers, the most sceptical of the lot.  Engineers and economists are also those who oppose religion least (3.7% and 3.0%), and, together with the humanities, those who more strongly embrace it…

Footnote 63 (p.58) is not satisfactory but nonetheless intriguing.  This is probably the best piece on terrorism I have read.

Last night’s debate on happiness

It was Jeffrey Sachs and Betsey Stevenson against myself and Will Wilkinson on the topic of whether America is failing in the pursuit of happiness.  The Economist magazine was the sponsor and it was held in Gotham Hall in New York, which yes could have been out of a Batman movie.

As I had expected, Will proved to be the world’s best debating partner, or at least in the top two (my previous debate partner was Randall Kroszner, for a year in high school).

The initial tally of sentiment was about 67-33 in favor of the Sachs-Stevenson position that America is indeed failing at the pursuit of happiness.  By the end of the debate there was a slight margin in favor of the Cowen-Wilkinson position.  The crowd turned, I believe, in part because Sachs pursued attacks on the current administration rather than focusing on the defined topic at hand.  He was rendered shrill by the unholy madness of something or other, as Brad DeLong would put it.  Will and I don’t like current policy either, but we looked happy.  We were happy.  We are happy.  We also had a long array of facts and citations from the happiness literature and some pointed rebuttals to the so-called Easterlin paradox.

Many loyal MR readers were there, so of course your impressions are invited, even if you don’t usually leave comments.  Who else is to tell this story if not you?  Expect to see reports on Will’s blog and by Felix Salmon as well.

Addendum: Here is Will, Tyrone may weigh in soon.

Why are Hollywood Unions Powerful?

Glen Whitman asks a good question, Why are unions so powerful in the entertainment industry when unions
are generally weak and in decline in most other sectors of the economy?  (Tyler asked the same question several years ago.)

I went to the family expert, my brother the movie producer and he had this to say:

…unlike in most other unionized industries, it’s the INDIVIDUAL members of the unions in the entertainment industry that the management / owners want to work with. For example, Tom Cruise is a member of SAG, (I use him as an obvious example, but every other known actor is as well) and if the studios and producers want to make a film with Mr Cruise, and we all do, we have to come to terms with SAG. Similarly, Steven Spielberg is a member of the DGA, same issue. Though writers are not household names, it’s the same issue, there are specific individuals who the studios want to be writing their TV shows and screenplays.  It  doesn’t matter if Joe or John or Mary is stacking the boxes, flipping the burgers or ringing the cash registers so management can easily hire a non-union member to do the same job, in the film business we need to work with specific individuals who happen to be union members. Thus the power of those (comparatively) few empowers them all.

Combine with a bit of Hollywood leftism and the fact that the big names don’t lose much from unions and you have a very powerful cartel.  About the only way to break the cartel would be to turn the big names into owners – this has been done a few times but the stars earn so much anyway that even then the incentives to deviate are small.  You Tube can give is a
parade of amateurs but as soon as the amateurs become stars this
model suggests that they will be co-opted into the union framework. 
Like my brother, I don’t see the power of Hollywood unions ending anytime soon. 

Arnold Kling on compensation

I have a very different approach to compensation. I think that the
key is to change compensation schemes frequently. The reason is that
any scheme can be gamed, and the longer you wait to change any given
scheme, the more effectively the participants will have gamed it. That
is one reason I think that "Pay for Performance," the newest miracle
cure for health care costs, will fail miserably. The doctors will be
able to run circles around the bureaucrats. In the U.K., they already
have–all of a sudden, 91 percent of doctors were receiving bonuses for
being above average.

I think that the more Washington tries to regulate CEO pay, the more
it will create a disconnect between pay and performance. Regulation
will inhibit companies from frequently changing their incentive
systems, and that will give CEO’s more time to game them.

Here is the full post, which also covers Tim Harford’s forthcoming The Logic of Life, which you’ll hear more about in due time (it carries a blurb and recommendation from yours truly).

The economic consequences of Mr. Bush?

Joseph Stiglitz writes:

You’ll still hear some — and, loudly, the president himself — argue that
the administration’s tax cuts were meant to stimulate the economy, but this was
never true. The bang for the buck — the amount of stimulus per dollar of
deficit — was astonishingly low. Therefore, the job of economic stimulation
fell to the Federal Reserve Board, which stepped on the accelerator in a
historically unprecedented way, driving interest rates down to 1 percent. In
real terms, taking inflation into account, interest rates actually dropped to
negative 2 percent. The predictable result was a consumer spending spree. Looked
at another way, Bush’s own fiscal irresponsibility fostered irresponsibility in
everyone else.

Stiglitz seems to claim that Bush will go down with a lower reputation, in economic terms, than Herbert Hoover.  I have not been a huge fan of Bush’s fiscal policy, but I can add: a) Bush is not to blame for loose Fed policy, b) it remains debatable among honest Democratic economists whether loose Fed policy was bad, c) U.S. consumption has been robust for a long time, and d) changes in real interest rates do not explain much of the variation in private consumption, and that’s even assuming you manipulate the ex ante vs. ex post distinction to suit your convenience.  The first two sentences of this paragraph are plausibly true but then the text deteriorates rapidly and is determined to blame as many things on Bush as possible.  The paragraph ends up attacking Bush for promoting a "consumer spending spree" when Stiglitz had started by arguing for traditional Keynesian fiscal stimulus, the purpose of which is to promote…a consumer spending spree.

Stiglitz also argues that Bush is in large part (he won’t say how large) to blame for high oil prices.  In his view the war in Iraq led to political instability and stifled investment in the region, I say that Saudi oil wells are running dry anyway and increased demand — most of all from China — is the fundamental issue.  Note also that for many plausible parameter values, political instability leads to more pumping today and thus lower prices; the counterweighing cycle of less exploration and exploitation can take a long time to kick in.

It’s also worth noting how much the arguments run counter to Stiglitz’s own (earlier) writings on macroeconomics.  He used to preach that a) banks are excessively reluctant to lend to risky borrowers (compare to his discussion of the subprime crisis), b) changes in real interest rates generally don’t matter much, c) adverse selection makes it hard to sell non-transparent assets for a reasonable price (compare to his discussion of securitization), and d) we cannot expect monetary policy to be especially effective but rather we must focus on the extent of credit rationing.  Stiglitz of course has the right to change his mind, but if the shift is so big surely this is news.

There are many good arguments against many of Bush’s economic policies, and many other arguments which are maybe wrong but at least plausible or possibly true.  But essays such as this are not promoting the public’s understanding of economics.

The pointer is from Mark Thoma

Why arranged marriage is costlier than you might think

…when parents are involved in mate choice,
sons are significantly less likely to marry college-educated women and women
engaged in the labor force, after controlling for individual and family
characteristics. I show that these effects are driven, at least in part, by
parental preferences and cannot entirely be attributed to correlation between
arranged marriages and unobserved characteristics. These results suggest that
lowering the incentive for parental control in mate choice may improve
investments in women’s human capital in India.

That’s from Divya Mathur; here is the paper, she is on the job market this year from Chicago.  I take the implicit model to be that parents want a wife who will obey her in-laws.  Sons want wives who will earn some money and be more interesting to talk to.  Put the son in charge and the supply of potential mates responds accordingly.