Month: August 2008

What is worth its weight in gold?

Here is a list of stuff worth more than its weight in gold, expressed in terms of price per pound:

Platinum $20,679
Fifty Dollar Bills $22,680
Cocaine $22,680
Hundred Dollar Bills $45,359
Rhodium $77,292
Good-quality, one-carat diamonds $11.4 M
LSD $55 M
Antimatter $26 Quadrillion

Here is the link, with much more information.  Here is a short article on the market for rhodium.  Here is an earlier post on the economics of antimatter.  Thanks to Jen Smith for the pointer

Eating local

Will Wilkinson serves up his wisdom:

How far your food travels matters a lot less than what kind of food it is, or how it was produced. According to a recent study out of Carnegie Mellon University, the distance traveled by the average American’s dinner rose about 25 percent from 1997 to 2004, due to increasing global trade. But carbon emissions from food transport saw only a 5 percent bump, thanks to the efficiencies of vast cargo container ships.  [TC: do note that precedes the rapid run-up of oil prices.]

A tomato raised in a heated greenhouse next door can be more carbon-intensive than one shipped halfway across the globe. And cows spew a lot more greenhouse gas than hens, or kumquats, so eating just a bit less beef can do more carbon-wise than going completely local. It’s complicated.

Addressing the cool folks, Will adds:

Should we minimize our “music miles” and boycott bands on tour? Thankfully, our next-door neighbors have a band, Dead Larry. We don’t have to go anywhere to hear them.

Here is the full CMU study cited by Will on food miles.  In my view we do have duties to behave more responsibly at the dinner table but the simple admonition "eat less meat" will do.  Maybe you don’t like tofu but sardines are delicious, or use Goya small red beans with shredded Mexican cheese (even the Kraft package is decent) and ground chile on a corn tortilla.  Don’t forget the lime on top.

Lowering the drinking age

Here is another reader request:

There’s been recent talk about what would happen if the legal drinking age were lowered to 18. Would there be a net increase or decrease in risky binge drinking, accidents, etc?

New Zealand lowered its drinking age to 18 in 1999 and bad consequences followed, including a higher rate of drinking-related car crashes.  Illegality, even when it can be circumvented, really does raise the price of an activity in many instances. 

Nonetheless I still think that 20-year-olds — legal adults in just about every other way — have the right to drink alcohol.  Sometimes I call myself a "two-thirds utilitarian."  I am a pluralist who thinks that utility is often but not always the primary consideration behind policy choice.

There’s always another paternalist intervention to save children’s lives but no one is for all of them.  We could ban swimming pools and buckets for instance.  We could ban high school football.  We could raise the drinking age to 25.  How about a drinking age of 50?  How about a driving age of 21?

I see at least two major analytical questions.  First, how much normative force should "extra death" have in a policy argument?  Second, what is special about the number 18?  Consistent with the latter question, I think that 15-year-olds should be able to drink in a restaurant when clear parental permission is present.

The Case for Big Government

That’s the title of the forthcoming Jeff Madrick book.  "Don’t we already have big government?" was my first reaction.  This book is a good summary of one point of view, but if you’re already familiar with the basic arguments it won’t extend your understanding of the debates.  There’s not much on the public choice arguments (e.g., self-serving special interests and irrational and underinformed voters) against growing state power, only a general sense that we "should" do good things with government.  Nor is there much realization that Americans are skeptical about government, in large part, because of their daily experiences with it.  We’re also told that many of the proposed progressive measures will nearly pay for themselves.

Yana’s reaction was: "Why didn’t he publish it with a government press?"

Kay Bailey Hutchison on economics

Here are some of her votes.  Her ACU voting lifetime record is 91 percent.  She is strong on free trade and seems to be a relatively conservative and corporatist Republican on economic issues.  She’s way up in the betting markets for the Republican VP spot, about 30 percent last I looked.  Note that she is not pro-life according to conservatives.  She has been very pro-drilling and very active on energy issues.  Since picking Mitt Romney would violate all known economic models of rational choice, and picking a woman would pop the Democrats’ post-convention bounce, I suppose this is a rumor to be taken seriously.  Here is her Wikipedia page.

Markets in everything

Or will there be?

Robert Burns’s poetry might have been dismissed as "sentimental
doggerel" by Jeremy Paxman but that hasn’t stopped diminutive I’m A
Celebrity contestant David Gest and pop legend Michael Jackson from
recording an album of the much-loved Scottish poet’s work. Gest’s
spokesman said the album is a modern musical take on some of Burns’
classic poems, and had been a long cherished project.

Here is the full story.  Here is the evolution of earnings on some of MJ’s other albums.  Here is a man who just died.

My IO reading list

Industrial Organization I, Tyler Cowen (x2312, 4910), [email protected]


Gordon, John Steele – An Empire of Wealth: An Epic History of American Economic Power

Lowenstein, Roger – When Genius Failed: The Rise and Fall of Long-Term Capital Management


There will be weekly quizzes, a midterm, and a final exam.


I. The Firm

Holmstrom, Bengt and Tirole, Jean.  “The Theory of the Firm,” in Handbook of Industrial Economics, vol.I.

Rotemberg, Julio. “A Theory of Inefficient Intrafirm Transactions.” American Economic Review (March 1991).

Holmstrom, Bengt and Roberts, John.  “The Boundaries of the Firm Revisisted.” Journal of Economic Perspectives 12, 4 (Fall 1998): 73-94.

Demsetz, Harold and Lehn, Kenneth.  “The Structure of Corporate Ownership: Causes and Consequences.”  Journal of Political Economy  93 (December 1985): 1155-1177.

Gibbons, Robert. “Incentives in Organizations.” Journal of Economic Perspectives (Fall 1998): 115-132.

Chapters from Discover Your Inner Economist, by Tyler Cowen.

Montgomery, Cynthia.  “Corporate Diversification,” Journal of Economic Perspectives (Summer 1994): 163-178.

Rasmusen, Eric.  “Mutual Banks and Stock Banks.”  Journal of Law and Economics 31 (1988): 395-422.

Hansemann, Henry.  “Ownership of the Firm,” Journal of Law, Economics and Organization (Fall 1988).

Hansemann, Henry.  “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.

Cowen, Tyler. “Response to David Friedman,” Economics and Philosophy, at

Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,”

Glenn Ellison, “Bounded rationality in Industrial Organization,”

II. Capital structure and control

Miller, Merton, and commentators.  “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.

Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.

Hart, Oliver.  “Financial Contracting.”  Journal of Economic Literature (December 2001): 1079-1100.

Easterbrook, Frank H. “Two Agency-Cost Explanations of Dividends.”  American Economic Review (September 1984).

Fudenberg, Drew and Tirole, Jean. “A Theory of Income and Dividend Smoothing.”  Journal of Political Economy (February 1995): 75-93.

Baker, Malcolm and Wurgler, Jeffrey. “A Catering Theory of Dividends,” Journal of Finance (2004), available at

Baker, Malcolm and Ruback, Richard. “Behavioral Corporate Finance: A Survey,” found at

MacKinlay, A.C. (1997), “Event Studies in Economics and Finance”, Journal of

Economic Literature 35(1), 13-39.

“Symposium on Takeovers,” edited by Hal Varian, Journal of Economic Perspectives (Winter 1988): 1-82.

Andrade, Gregor, et. al. “New Evidence and Perspective on Mergers.” Journal of Economic Perspectives (Spring 2001): 103-120.

Holmstrom, Bengt and Kaplan, Steven. “Corporate Governance and Merger Activity in the United States,” Journal of Economic Perspectives (Spring 2001): 121-149.

Gompers, Paul and Lerner, Josh.  “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.”  Quarterly Journal of Economics 104 (November 1989): 655-670.

Stein, Jeremy C.  “Takeover Threats and Managerial Myopia.”  Journal of Political Economy (1988): 61-80.

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Hall, Brian and Murphy, Kevin J, “The Trouble with Stock Options,” Journal of Economic Perspectives, Summer 2003, also at

Murphy, Kevin J. and Zaboznik, Jan. “CEO Pay and Appointments,” American Economic Review, May 2004, also at

Jensen, Michael, Murphy, Kevin J., and Eric Wruck. “Remuneration: Where We’ve Been, How We Got to Here, What are the Problems, and How to Fix Them,” available at

Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,”

III. Vertical control, antitrust, and related issues.

Tirole, Jean. “Vertical Control.” In Theory of Industrial Organization, Chapter 4.

Klein, Benjamin and Leffler, Keith.  “The Role of Market Forces in Assuring Contractual Performance.”  Journal of Political Economy 89 (1981): 615-641.

Klein, Benjamin and Murphy, Kevin. “Vertical Restraints as Contract Enforcement Mechanisms,” Journal of Law and Economics (October 1988).

Breit, William. “Resale Price Maintenance: What do Economists Know and When Did they Know It?” Journal of Institutional and Theoretical Economics (1991).

Bernheim, R. Doug and Whinston, Michael.  “Exclusive Dealing.” Journal of Political Economy (February 1998): 64-103.

Rasmusen, Ramseyer and Wiley, 1991, “Naked Exclusion,” American Economic Review, 1137-45.      

Bittlingmayer, George.  “Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Case,” Journal of Law and Economics (October 1982).

Klein, Benjamin, and Kenney, Roy. “The Economics of Block Booking,” Journal of Law and Economics, (1983), 27, 3, 497-540.

Tirole, Jean.  “Information and Strategic Behavior: Reputation, Limit Pricing, and Predation.”  In Theory of Industrial Organization, Chapter 9.

Timothy Bresnahan, “Empirical Studies of Industries with Concentrated Power,” Handbook of Industrial Organization, vol.II.

Pakes, Ariel. “Theory and Empirical Work on Imperfectly Competitive Markets,” NBER Working Paper 14117, June 2008.

Sproul, Michael.  “Antitrust and Prices.”  Journal of Political Economy (August 1993): 741-754.

McCutcheon, Barbara.  “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?”  Journal of Political Economy (April 1997): 336-350.

Hazlett, Thomas W. “Is Antitrust Anticompetitive?” Harvard Journal of Law and Public Policy, (Spring 1986).

Crandall, Robert and Whinston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,”  Journal of Economic Perspectives (Fall 2003 ), 3-26, available at

IV. Theory and Regulation of Natural Monopolies

Sanford Berg and John Tschirhart, Natural Monopoly Regulation, Cambridge University Press.

pp. 21-275. 

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Williamson, Oliver.  “Franchise Bidding for Natural Monopolies – in General and with Respect to CATV.” Bell Journal of Economics (Spring 1976): 73-104.

Crandall, Robert W. “An End to Economic Regulation?” available at

Parente, Stephen L. and Prescott, Edward.  “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Shleifer, Andrei.  “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

Berg and Tschirhart, pp. 480-522.

Associated other topics in regulation, depending on your interests; reading suggestions will follow later in the semester.

Which body parts are sung about the most?

The eyes.  Other results vary across genre, for instance gospel and blues sing more about hands than eyes.  And get this:

As for the genre that talks about body parts the most, hip hop takes the honors with more references than any other genre. Meanwhile, gospel refers to the body the least. There are plenty of other data points to peruse. It’s nice to know that 23.64 percent of hip hop songs refer to the behind, while 11.83 percent of rock songs talk about eyes.

Here is a summary of the results:


Moral luck and Rawlsian biography

As Thomas Pogge has noted in his recent biography John Rawls: His Life and Theory of Justice,
Rawls was especially sensitive to issues of luck because of a sad
occurrence in his own life. Two of his brothers died in childhood
because they had contracted fatal illnesses from him. Pogge calls the
loss of the brothers the “most important events in Jack’s childhood.”
In 1928, the 7-year-old Rawls contracted diphtheria. His brother Bobby,
younger by 20 months, visited him in his room and was fatally infected.
The next winter, Rawls contracted pneumonia. Another younger brother,
Tommy, caught the illness from him and died.

That’s from libertarian David Gordon, whom I suspect has never infected anybody.  The hat tip goes to Will Wilkinson, who in his post describes himself as a "neo-sentimentalist."  I can just imagine Kerry (his girlfriend) saying to Will on their third date: "Oh, Will, you’re such a neo-sentimentalist!" 

The return of physiognomy

It has been found, for example, that women can predict a man’s
interest in infant children from his face. Trustworthiness also shows
up, as does social dominance. The latest example comes from a paper
just published in the Proceedings of the Royal Society by
Justin Carré and Cheryl McCormick, of Brock University in Ontario,

The thesis developed by Mr Carré and Dr McCormick is that
aggressiveness is predictable from the ratio between the width of a
person’s face and its height. Their reason for suspecting this is that
this ratio differs systematically between men and women (men have wider
faces) and that the difference arises during puberty, when sex hormones
are reshaping people’s bodies. The cause seems to be exposure to
testosterone, which is also known to make people aggressive. It seems
reasonable, therefore, to predict a correlation between aggression and
face shape.

The bottom line is that a wide face predicts male aggression.  The study is based on photos of hockey players and measures of their combativeness.  Here is the full story.  Here is an Oprah magazine article on how women can camouflage a wide face with the right haircut.

The best two paragraphs I read today

Ezra wins:

…the campaign against Obama has metastasized into a variant of class
warfare. It’s the resentment of the meritocracy. What the GOP realized
was that Obama did come across different than the average American, but
not so much because he was black as because he was effortless. The very
set of supercharged talents and qualities that allowed Obama to
levitate past the boundaries of race and class make him different than
those who haven’t rocketed upward on the strength of their intelligence
and charisma and charm. After all, if you’re a fumbling, struggling
individual out in suburban Ohio, how can you believe that this guy who
doesn’t look to have struggled a day in his life cares about your
pathetic problems? Obama, in other words, is elite. As in "A group or
class of persons enjoying superior intellectual, social, or economic
status." Obama isn’t an economic elite, but he is a social and
intellectual elite. And it’s that creeping sense that he’s different,
that he’s better and knows it, that McCain is trying to exploit.

The Obama campaign, similarly, has realized that McCain is an elite,
and that voters won’t believe that a guy who has so many houses that he
can’t keep track of them will care if they lose the small condo they
call home. This election, in other words, is becoming a contest to
decide which type of elite voters hate — or fear, or mistrust — more:
A social elite or an economic elite?

Here is the first Google Images entry for "mediocre."

Zero-price Markets in everything: “Fake following”

Jason Kottke reports:

This is a little bit genius. One of the new features of FriendFeed (a
Twitter-like thingie) is "fake following". That means you can friend
someone but you don’t see their updates. That way, it appears that
you’re paying attention to them when you’re really not. Just like
everyone does all the time in real life to maintain their sanity. Rex calls it
"most important feature in the history of social networks" and I’m
inclined to agree. It’s one of the few new social features I’ve seen
that makes being online buddies with someone manageable and doesn’t
just make being social a game or competition.

Very good sentences

The first lesson in economics is: things are often not what they seem.

That’s a sentence in the first edition of Samuelson’s Principles.  Justin Wolfers discusses the book here.  Part of chapter one is on-line here.  Use the search function.  Here (search for "communism") Samuelson says that economics cannot pass judgment on whether American society will go the "revolutionary" path (toward communism) or the "evolutionary" path, or whether Russia indicates the "folly" or the "wisdom" of communism.  Indeed things are not always what they seem.  You can have lots of fun with the search service.