Month: August 2010

The economics of cloning

Here is the abstract of a paper I have not yet read:

In this paper, we analyze the extent to which market forces create an incentive for cloning human beings. We show that a market for cloning arises if a large enough fraction of the clone’s income can be appropriated by its model. Only people with the highest ability are cloned, while people at the bottom of the distribution of income specialize in surrogacy. In the short run, cloning reduces inequality. In the long run, it creates a perfectly egalitarian society where all workers have a top ability if fertility is uncorrelated with ability and if the distribution of ability among sexually produced children is the same as among their parents. In such a society, cloning has disappeared….

That is by Gilles Saint-Paul (original paper here) and you will find it discussed here.

Further sentences to ponder, or my Arnold Kling imitation

I am aware that not everyone is happy with Rasmussen polls, still I think this result is striking, especially the difference in perspectives:

63% of the Political Class think the government has the consent of the governed, but only six percent (6%) of those with Mainstream views agree.

Seventy-one percent (71%) of all voters now view the federal government as a special interest group, and 70% believe that the government and big business typically work together in ways that hurt consumers and investors.

The link is here, with further information, and I thank Roger Congleton for the pointer.

Sentences to ponder

As Mallaby is at pains to point out on a regular basis, hedge funds in fact have less leverage – a lot less – than banks. Many have none at all; those who do lever up tend to do so only by a factor of two or three, compared to leverage ratios in the 30 to 40 range for many investment banks and even commercial banks, in Europe.

That is Felix Salmon and there is more here.

From the comments

From Ezra's comments, this is ctown_woody:

Ezra,
To what extent is the Fed worried about making a visible commitment and failing? If Tyler Cowen and others are right that this slump is the end of family-deficit spending, it is quite conceivable that the Fed will fail to deliver that which it promises to deliver. At that point, the institutional players in the Fed will have lost credibility, which would lead to a lose of independence from politics.
So, to what extent is the Fed acting like Peter LaFleur from Dodgeball, "If you never try anything, you'll never fail"?

Pecuniary externalities

Samson, a loyal MR reader, requests:

Tyler,
What do you think about pecuniary externalities? What would be a good definition of such externalities, if you find them to be plausible? Without the fiction of an infinite number of buyers and sellers, why isn't it the case that any transaction through the price system, through an impact on price, causes an externality, and might one call such an externality a pecuniary externality? I cannot find much on this subject.
Thanks!

Economists try to make a distinction between pecuniary externalities — changes in price which merely redistribute wealth — and non-pecuniary externalities, which involve a real good or service being provided or denied at the margin.  If the price of wheat rises, wheat consumers suffer a pecuniary externality.  If you dump garbage on my lawn, that's a non-pecuniary externality, although it may be accompanied by a pecuniary externality, namely a decline in the value of the house.  In the meantime, the lawn stinks.

The distinction is often a tricky one, especially in the absence of perfect markets.  A lot of the complaints about health care markets are actually complaints about pecuniary externalities, namely that some people get priced out of the market.  Alternatively, the risk of facing high prices for cancer treatment may make people nervous and insecure.  The notion of "risk" often bundles together pecuniary and non-pecuniary externalities in a not-too-easy-to-separate form.

Efficiency and distribution are not always possible to separate, no matter what the first and second welfare theorems seem to imply. 

What about people near subsistence?  Say you redistribute $500 from a poor Haitian to a somewhat less poor Mexican, and the Haitian dies and the Mexican buys a used motorbike.  Is that "just a transfer"?  Or is it "a real resource loss"?  I say it's the latter, but then virtually any redistribution will destroy some complementary value from the portfolio of the individual losing the money.  What is then left to count as a pure transfer?

There is also no such thing as a pure lump-sum transfer when population is endogenous, either through child-bearing decisions or through taking risks with one's life.

The distinction between pecuniary and non-pecuniary externalities is useful, and hard to do without, but its foundations are shaky.  In practical terms the weakness of the foundations matters most when we are doing health care economics or analyzing food subsidies (or comparable forms of aid) in poor countries.  The richer and healthier the people are, the more likely the distinction can be invoked without much trouble.

And Samson is correct to think that large numbers of transactions involve pecuniary externalities, at least whenever the particular actions of a buyer or seller influence market price.

Markets in everything

Awesomeness Reminders

With AwesomenessReminders, a real person will call you every day to tell you how much you rock. If you're not around, we will leave you a voicemail.

For the pointer I thank Paul Sas, who tells me they charge $10 a month.

Here is one of the owner's other sites, www.compassionpit.com: "Chat with an anonymous stranger who won't judge you."  To my mind, that claim lowers the credibility of the awesomeness reminders quite a bit.

The bad apples ruin the good

Horton's work raises many questions, not least because it contradicts other work suggesting that it is possible to improve poor workers' output by pairing them with good workers. By contrast, Horton found that "the bad apples ruined the good apples, and the good apples did nothing for the bad."

Here is much more of interest, on new developments in measuring worker productivity.  In my view this effect is a significant factor behind the stickiness of wages.  Negative signals often mean "get rid of the person" and not "renegotiate a lower wage."  I thank an MR reader for the pointer.

The culture that is Bryan Caplan

A new paper finds that your philosophic beliefs matter for your real world performance, or at least they predict it:

Do philosophic views affect job performance? The authors found that possessing a belief in free will predicted better career attitudes and actual job performance. The effect of free will beliefs on job performance indicators were over and above well-established predictors such as conscientiousness, locus of control, and Protestant work ethic.

The pointer comes from Vaughn Bell on Twitter.  One interpretation is that a "belief in free will" corresponds to private information about the likelihood of being successful, and wanting to take credit for that success.  A second interpretation is that the belief itself makes you more successful, by encouraging you to take responsibility for your choices.