Month: August 2009

The evolution of sports rules

by  Tyler Cowen in

Gibbous, a loyal guy, asks:

The evolution of the rules of sports as a standards-setting process – – are the rules of basketball (or baseball, golf, football…) optimal in the same way that (arguably, at least) the QWERTY keyboard is?

I would put QWERTY aside, as that is a non-proprietary standard.  With a proprietary standard, I see a few reasons why the evolution of sports rules may be less than ideal. 

1. The rules may be geared toward the sale of merchandise, which implies an appeal to the young and to the least common denominator.  This is mostly an aesthetic objection, although you can tell a story about the purist being a neglected infra-marginal consumer.

2. The rules of the sport may be geared toward television advertising revenue, with the above argument repeated.

3. The league has market power and at some margin it will produce too few franchises; think of the league as selling franchise rights for money.  Some of this output restriction is quality control but some of it sheer monopolization.  (Allowing more franchises, at some margin, will loosen the meaning of the rules and conventions.  Imagine if way back when they had let NBA teams play the Harlem Globetrotters every now and then.  In what year would the fifth-best NBA team start beating them?)

4. If the league restricts the number of teams, other distortions will result, such as when the city of Memphis overbids for the right to have an NBA team.  Furthermore franchises will end up too far apart in geographic terms; bids are determined by producer surplus but societal welfare depends on consumer surplus too.

5. Sports leagues lead to less than optimal levels of player mobility; think monopsony power and the desire to redistribute rents to team owners.  Remember Curt Flood?

6. It is a good industrial organization question whether sports leagues will produce too many or too few games in a season, relative to a social optimum.  Figure it out!  I have an answer in mind but I'm not letting on about it.

China-Africa fact of the day

by  Tyler Cowen in

Based on official statistics, since 2003, the number of Africans in
Guangzhou has been growing at 30-40% annually. Based on a report in the
Guangzhou Daily, there might already be 100,000 in the community. They
come from Nigeria, Guinea, Cameroon, Liberia, and Mali. Amongst these,
Africa’s most populous country Nigeria claims first place.

They primarily live in village-districts in the city of Guangdong
(like Dongpu, Dengfeng Jie, Yongping Jie). They do their business in a
few large-scale China-Africa commerce malls.

Here is more information and I thank David Shor for the pointer.

An unwelcome thought

by  Tyler Cowen in

Are blogger attacks on the Republicans counterproductive at this point, at least from a "left" point of view?  Is not the relevant signal telling Obama he can safely move to the center without losing much support?  The blogger voices are in essence signaling that a broader public must stand behind these attacks, or that a broader public is being convinced by these attacks, and therefore that Obama need not fear defections and he can continue to ignore campaign promises.

An alternative scenario is that the attacks turn some of the still-undecideds against the Republicans and bring them into the Democratic camp.  Is that a relevant margin?

At this point, how many people say the following: "You know what honey, I was just reading those blogs this morning.  I used to like Sarah Palin but this time she has really gone over the edge.  I don't know about her any more.  Maybe we should think about voting Democratic."

How about: "Honey, they've called off the death panels.  We can support the mandates now."?

The funny thing is, a lot of people do think like that, I'm just not sure they are the ones reading blogs.

The general point is that if you are not a pivotal voter, announcing your true preferences and views does not necessarily help you get what you want.

Those who blog about primary challenges to Democrats from the left, or the need to deliver concrete results before the next election, may be serving up better rhetorical strategies.  But of course that is also less fun.

*Reflections on the Revolution in Europe*

by  Tyler Cowen in

I am surprised that Christopher Caldwell's Reflections on the Revolution in Europe: Immigration, Islam and the West has not sparked more blogospheric debate (with a few exceptions).  This is an intelligent, well-reasoned argument against allowing so many Muslims into Europe.  That said, while the author does ask how many traditional Italian restaurants would have to close without immigrant labor, he doesn't pursue this chain of reasoning very far.  What would happen to the Swiss tourist sector?  Nor will he admit that, financial crisis aside, Europe has never been richer, freer, and stronger.  Interestingly, he thinks that Latino immigration to the U.S. will go just fine, in part because Latinos are Christians.  I should add that Stockholm has many more immigrants than does Sicily and which is the place in greater future trouble?  It is interesting to see how many Somali (and other) immigrant women have adopted the gait and dress and demeanor of Swedish women. 

I did, however, in Palermo have an excellent Sri Lankan-Sicilian fusion meal, namely sardines in a spicy dosa.

The bottom line: I'd like to see a list of his short positions in asset markets.

What are health care co-ops?

by  Tyler Cowen in

Here is one quasi-answer:

But so far, cooperatives have been defined in the health-care debate
primarily in terms of what they are not: They would not be run by the
government.

That may make the cooperatives more politically palatable to
conservatives, as well as to some Democrats such as Conrad, who fear
that the public option may be a bridge too far. But it also presents
new challenges: Cooperatives would face potentially greater difficulty
getting off the ground and obtaining discounted rates from doctors and
hospitals, observers say.

Whether this would end up as a public plan under a different name, I cannot say and indeed it seems that maybe no one knows.  Ezra Klein tries to clear up some issues. 

I am in any case puzzled by the topic.  If, say, rescission is a major problem, why do not health insurance customers seek out health insurance mutuals or co-ops, both of which offer the possibility of greater consumer control and thus less opportunism from the supplier. 

Note that mutual banks were quite common before the rise of deposit insurance and mutual life insurance companies played major roles in the history of the industry.  So mutual and co-op forms can arise when the market agency problem is severe.  Why don't health insurance mutuals or co-ops take over the sector today for that matter?  But hey, wait, Blue Cross and Blue Shield do in fact have long histories as co-ops.

So what went wrong?  If you read the Mark Pauly quotation on p.2 of the first link, it seemed that health care customers did not in fact end up controlling the co-op (or mutual).  The managers ran the show in their own interest.  Maybe so, but then will health insurance customers do so much better controlling or influencing a government-run plan?

There is thus an unusual implicit claim on the table.  It runs something like this: decisive customers, with exit rights, cannot control a health insurance co-op.  Those same individuals, in their roles as voters, being non-decisive, and with fewer exit rights, can control a government-run health insurance system, co-op or not.

I can think of some models in which that claim is true, but I would not want to go to the mat for them. 

Here is someone else asking why we don't buy health insurance from mutuals.  It's an underexplored question.

Addendum: Mark Thoma makes some excellent related points.

NPR Planet Money podcast on financial innovation and high-frequency trading

by  Tyler Cowen in

The participants were myself, Felix Salmon, and Mike Konczal (of the excellent Rortybomb) and the link is here.  I haven't heard the final editing but at the time I thought the questioners did a very good job.  They started off with the question of which financial innovations of the last twenty-five years — if any — have been of real value.

Inefficient Journal Submission Policies

by  Alex Tabarrok in

In their instructions to authors just about all of the economics journals require that papers be submitted with a certain format for the references, bibliography, figures and so forth.  Except no one I know actually does this until after a journal has accepted the paper; thus no wasted effort.

One day my wife, a microbiologist, was complaining about all the work that it took to reformat a paper for submission.  I told her that only newbies did this.  Shocked, she claimed that if she didn't reformat, the paper would instantly be rejected.  "Ridiculous!" I said, "No journal system could be that stupid."  Sigh.  Of course, my ever-wise wife was correct. In microbiology, you have to submit with the required format or run the risk of instant rejection.  Why is microbiology stuck in the inefficient equilibrium?

Perhaps an author who deviates signals incompetence and thus no one deviates.  But it's surprising that counter-signals aren't stronger.  Couldn't a Nobel prize winner say "enough with this nonsense" and submit without reformatting?  Wouldn't a journal that allowed a more lax initial submission receive more submissions?  Why is it in the interest of a journal to reject a good paper without review simply because the references were in an alternative format?

The official journal policies in economics point to an inefficient past so how did economics evolve to the efficient equilibrium?  Are other disciplines evolving in this manner or is economics unique in choosing the efficient journal policy?  (Readers may have information on this point.)

All else equal, I would expect initial submission standards regarding formatting and so forth to be weaker in the harder sciences.  After all, in science isn't it easier to demonstrate competence with the contents of the paper rather than with the formatting?  The evidence so far, however, does not support my hypothesis. 

Journal submission policy is a small, albeit annoying matter.  But the fact that the clearly inefficient equilibrium is common and apparently robust is humbling and frustrating even to those of us who advocate small steps toward a better world let alone to those of us who would remake the world along more efficient lines.

What if culture froze and had to be recycled?

by  Tyler Cowen in

Robert Wiblin, a loyal MR reader, asks:

Thought experiment for MR: what if the law said we couldn't make any new art (movies, novels, music etc). And perhaps said we ought to rerelease each year the art that first appeared 50 or 30 years ago. How would people's leisure activity and society's cultural evolution change?

I pose a similar question in my book Good and Plenty: The Creative Successes of American Arts Funding. After the adjustment process, I believe that matters would settle in an orderly fashion, although whether we pick the art from 30 or 50 years ago would make a big difference in terms of the required rejiggling of our aesthetic sensibilities.  We would pick out bestsellers from 30 or 50 years ago and some of them would be in demand, if only because people wish to share common cultural experiences.  Overall it is the more obscure books from that era that would likely rise to be the bestsellers today.

1979 is barely an aesthetic leap; could not The Clash be a hit today?  How about Madonna?  Is it so ridiculous to think that people still might go hear The Rolling Stones or Paul McCartney in concert?  How about buying a Stephen King book?  Here are the top songs from 1959 (yikes!), but recall that same year brought many excellent jazz albums.

The entire process would work better if the material from the past were temporarily unavailable prior to its rerelease.

It's an interesting idea to relive the release of the culture of the past but with today's sensibilities.  What we would like to think we would like is probably not what we would like at all.  And maybe some works we like only because they are in our past.

Finally, everyone is so ga-ga over arts subsidies, but it is remarkable how many models with microfoundations instead imply that we should tax the arts.

The view from your recession

by  Tyler Cowen in

Remember the durable goods monopolist?

While many of Southern California's luxury hotels are battling a severe
slump in business by offering extra services and more amenities, the Rancho Bernardo Inn is luring guests with the exact opposite — no frills and barely any basics.

Called the "Survivor Package," the hotel's deeply discounted promotion
lets patrons trim its standard $219-per-night rate on a sliding scale
of deprivation, lowering charges with each amenity stripped from the
room.

The most basic version: a room for $19 with no bed, toilet paper,
towels, air-conditioning or "honor bar," and only a single light bulb
in the bathroom for safety. The next level up adds in a bed — sans
sheets — for $39 a night. For a bed plus toiletries and toilet paper,
the rate is $59.

Here is more information and for the pointer I thank Deron Bauman.