Month: September 2008

Silly me

I’d like to repeat how surprised I am at the size of the gains from drilling, or at least what appears to be the best current estimate of such gains.  What happened is simple.  I read people writing "Price won’t go down much from drilling, therefore the gains are small," in various ways.  That is a non sequitur because there is producer surplus as well!  I committed a simple error.  Yet again.  And I committed this error because it fit in with my (nonetheless largely correct) preconception of politicians as bozos who will say anything for political gain or to sound good on TV.

Addendum: An Op-Ed on the topic.  And here’s a skeptical Andrew Sullivan reader.  Like me, it doesn’t seem he ever tried to look for a number.

Drill, drill, drill?: the economics of drilling

Matthew Kotchen and Nicholas Burger have done a real study of the economics of drilling in ANWR (ungated, published version here).  Ben Muse reports some of their results:

What are the benefits?  Kotchen and Burger estimated that the oil had a
value of $374 billion (writing in July 2007, they assumed a long-term
price of $53/barrel), but that it would cost $123 billion to extract
and market.  The net return of $254 billion is divided consists of
industry rents of $90 billion, Alaska tax revenues of $37 billion, and
Federal tax revenues of $124 billion.

Under the authors’ understanding of incidence, consumers wouldn’t benefit much at all because oil prices would not fall noticeably.  Still, drilling makes economic sense if the loss of environmental amenities is valued at less than $1,141 a person (per American, not per Alaskan) and that was with a price of oil roughly half of today’s price. 

At today’s price of oil, a rough estimate of the benefit — not counting environmental costs — is over $600 billion.  So the whole issue seems much more important than I had thought just one hour ago.  Some approximation of taxes and transfers and auctions are available, so these gains can be redistributed to some extent if you wish.

That’s a lot of wealth.

The economics of secession

The classic paper is Buchanan and Faith, AER 1987.  Here is a recent extension of this classic work, with a dash of economic determinism:

Secessionist movements present themselves to the global public as analogues of colonial liberation movements: long-established identities are denied rights of self-determination by quasi-imperial authorities. Self-determination is presented as the solution to the challenge of peaceful coexistence between distinct peoples. The global public not only accepts this message but reinforces it: both Hollywood and diasporas relay it back to populations in developing countries. In this paper, we will argue that the discourse of secessionist movements cannot be taken at face value. We will suggest that a more realistic characterization of secessionist movements is that their sense of political identity is typically a recent contrivance designed to support perceived economic advantage, if the secession is successful, and facilitated by popular ignorance.

There are, of course, plenty of successful secessions.  Slovakia has been successful nation because of a language and a desire to be free of Czech rule, backed by EU free trade, EU largesse and political precommitment.  Or secession can help you break free of an evil empire, such as when Georgia left the former Soviet Union.  The most likely American state to make a success out of secession is, I think, Texas (or offer up your pick in the comments).  A Texan nation is hardly a good idea, but at least the state is big, has a diversified economy, has an outlet to the water, has a history of independence, and has a border with another nation, namely Mexico. 

The least likely American state to make a success of secession is, I think…Alaska.  The state takes in lots of federal money, has only a small natural population base, and is not too far from Russia.  Here are some data on which states receive the most on net from the federal government.  According to these numbers, only the state of New Mexico benefits more in (proportional) fiscal terms.  The states which fare the worst from federal transfers are New Jersey, Connecticut, New Hampshire, Minnesota and Illinois.

On decay

Robert Gibbons wrote:

When I first read Coase’s (1984: 230) description of the collected works of the old-school institutionalists – as “a mass of descriptive material waiting for a theory, or a fire” – I thought it was (a) hysterically funny and (b) surely dead-on (even though I had not read this work). Sometime later, I encountered Krugman’s (1995: 27) assertion that “Like it or not, … the influence of ideas that have not been embalmed in models soon decays.” I think my reaction to Krugman was almost as enthusiastic as my reaction to Coase, although I hope the word “embalmed” gave me at least some pause.

Thanks to several MR readers for recommending this paper.  I would have written: "Like it or not, the influence of ideas soon decays."

What is the classic book of the 80s and 90s?

That’s Ryan Holiday’s query.  This is not about quality, this is about "representing a literary era" or perhaps just representing the era itself.  I’ll cite Bonfire of the Vanities and Fight Club as the obvious picks.  Loyal MR reader Jeff Ritze is thinking of Easton Ellis ("though not American Psycho").  How about you?  Dare I mention John Grisham’s The Firm as embodying the blockbuster trend of King, Steele, Clancy and others?  There’s always Harry Potter and graphic novels.

Does this count as an event study?

…investors are also unnerved by the aftermath of the five-day war in early August.

Russian shares have lost about a third of their value since hitting record highs in May. Russian and Western bank analysts polled by Reuters have cut forecasts for Russia’s gold and foreign exchange reserves.

As much as $25 billion in foreign capital may have left Russia since the Georgia conflict started, they said: while their growth forecasts were little changed at 7.5 percent, the crisis sharply cut the liquidity of the banking system.

Here is the article.  The pointer is from Matt Yglesias.

The economic consequences of unwed motherhood

This was published in the American Economic Review in 1994:

We estimate the long-run and life-cycle effects of unplanned children on unwed mothers by comparing unmarried women who first gave birth to twins and unmarried mothers who bore singletons.  We find large short-term effects of unplanned births on labor-force participation, poverty, and welfare recipiency among unwed mothers, but not among married mothers.  Although most of the adverse economic effects of unplanned motherhood dissipate over time for whites, there are larger and more persistent negative effects on black unwed mothers.

Notice that comparing one birth to two, rather than zero to one, tries to address the identification problem, namely that early pregnancy may be correlated with other unfavorable conditions.  For the curious, here are many related articles.  And here is a very useful literature review, which suggests inconclusive results.

Tips for panhandlers, from panhandlers

Currently, the direct, humorous approach is in vogue. That’s why in
many cities today you’ll hear some version of: "I won’t lie to you, I
need a drink." Panhandlers also report that asking for specific amounts
of money lends credibility to pitches. "I need 43 more cents to get a
cup of coffee," a panhandler will declare; some people will give
exactly that much, while others will simply hand over a buck.

Oddly, the tips are offered on-line:

If it seems unlikely that a homeless person would surf the Web for
advice on how to panhandle, that’s exactly the point: many aren’t
homeless and are lying about their circumstances.

And what’s the rate of return?:

Anecdotal surveys by journalists and police, and even testimony by
panhandlers themselves, suggest that begging can yield anywhere from
$20 to $100 a day–though police in Coos Bay, Oregon, found that local
panhandlers were taking in as much as $300 a day in a Wal-Mart parking
lot. “A panhandler could make thirty to forty thousand dollars a year,
tax-free money,” Baker says.

The Anglo Files

Upper-class pronunciations are all over the place.  The Cholmondeleys are pronounced the CHUM-leys.  The Earl of Harewood is the Earl of HAR-wood.  The Beaulieux are the BEW-leys.  In accordance with the convention that French words should be pronounced as far away from the actual French style as humanly possible, just to show those French people who’s boss, Beauchamp Place, a street in Knightsbridge, BEACH-um Place.  Jacques, in Shakespeare: JAKE-weeze.  Your valet is your VAL-let.  Madame Tussaud’s wax museum?  To some Brits it’s MA-dam TOO-sod’s).

That is from Sarah Lyall’s not fully analytical but often quite amusing The Anglo Files: A Field Guide to the British.

Here is a picture of Thomas Cholmondeley [CHUM-ley], and with this caption: "The trial has opened in Nairobi of an aristocrat
accused of murdering a black Kenyan man he suspected of poaching on his
family’s 100,000-acre estate."  The case, the second of its kind brought against Thomas, remains pending.  Here is more information.  Here is his girlfriend.

Nationalism

What do you get when you plot the genetic fingerprints of more than
1000 Europeans on a grid? An image that looks surprisingly like a map
of Europe. The findings reveal that our DNA contains a sort of global
positioning system, which researchers can use to pinpoint where in the
world both we and our relatives came from….

"I couldn’t believe the picture was so clear," says Carlos
Bustamante, senior author and statistical geneticist at Cornell
University. "I, for one, fell off my chair." Italy and Spain clearly
had their own cluster of genetically similar individuals, for example,
and there were even distinctions between French-, German-, and Italian-
speaking populations within Switzerland.

The results make sense,
says Bustamante. Because people in a region are more likely to marry
and mate with each other–a factor that may be largely due to shared
language–that gene pool will evolve as a separate cluster that
corresponds to a place on the globe, he explains. "You don’t randomly
mate within Europe. … If you live in Strait of Gibraltar, you’re more
likely to marry someone in Spain versus someone in Moscow."

That’s Science reporting on a new paper, Genes Mirror Geography with Europe, in Nature.

Markets in self-constraint, a continuing series

Peter Risager, a loyal MR reader, relays the following to me:

A Danish chain of gyms is now offering membership free of charge, with the only caveat that you have to show up, in order for the membership to be free. If you fail to show up once per week you will be billed the normal monthly membership fee for that month. This should solve the problem with incentives that gym-membership normally carries – there is suddenly a very large (membership is around 85$ per month) incentive to show up each week.

He offers also a link in Danish.