Month: July 2012

Barriers to entry cocoa bean counter edition

Becoming a cocoa beans grader is about four times harder than passing the New York State Bar exam, judging by a comparison of the two tests’ pass rates.

Candidates must correctly identify defects in beans such as mold, infestation from insects and cocoa that is “smoky or hammy”—a sign that the beans have been dried over a fire, not in the sun. Since beans easily absorb odors, the fire can give the beans a smoky flavor. In another section, they must identify the origin of various beans, most of which look identical to the layperson’s eye.

David Morales, one of the three men huddled over the beans in the ICE’s grading room, says he failed twice before he passed the exam two years ago. “I was studying for it, but not enough,” said the 37-year-old Bronx native, who noted the origin section tripped him up.

Is it a public sector monopoly, private sector monopoly, or some combination of both?  Or is it just really hard to do well, requiring individuals of truly specialized abilities and with a lot of value at stake?:

The problem is that there are only 24 certified graders for ICE and the exchange is concerned that retirement and old age will deprive it of a crucial cog in its commodity-trading machine.

In an effort to “keep the talent pure and fresh,” the exchange is offering its licensing exam in October for the first time in two years, said Valerie Colaizzo, managing director of commodities operations for the exchange.

The full article is here, hat tip goes to the excellent Daniel Lippman, note by the way that Daniel’s most recent piece is here.

How to improve firms’ treatment of workers

Say a firm screws over a worker on ten dimensions at once, subject to some constraint of the worker leaving.  With those ten depredations, the firm tries to extract from the worker as efficiently as possible, but again so the worker does not leave or leaves only with some lower probability.

Let’s then say the law alters one of those dimensions to favor the worker, for instance the firm cannot force the worker to consent to a body search.  The firm may then increase one of the other depredations. Perhaps not for individual workers on the spot (there is “depredation stickiness”), but over time firms will fill the niches of new depredations to the maximum degree possible.

The new depredations will be less efficient ways of extracting rents than the old, which may hurt the worker.  At the same time, the firm’s rate of return on enforcing depredations may decrease, which may help the worker.

The net effect is indeterminate.  Note also that the lower efficiency may in the longer run limit firm entry and production, which will hurt workers and consumers (and possibly shareholders).  Again, the net effect still is indeterminate but the more you think about this model the less you will see it as an effective way to help workers.  You might try “regulating all ten depredations” but for that to work you also must fix the wage, and so on.

Maybe some of the model variants here will help the workers, but come on, let’s be realistic.  Is it the case that the commentators have firm beliefs about these models for well-argued reasons?  I don’t think so.  It is more likely the case that there is a core belief something should be done, with not too much concern for the systemic effects nor with the “not totally sound but still better than what the critics are serving up literature on compensating differentials.”  I am worried by the common tendency to first cite a lack of perfect competition and then assume the proverbial pony.

Here is Henry Farrell’s response to Matt Yglesias.

Fortunately there is a rather smooth path forward.  Raise the utility of unemployment to workers.  This could be a guaranteed annual income, better unemployment insurance, more food stamps, whatever.  Call it the welfare state.  Improving the welfare state will improve worker bargaining across virtually all workplace dimensions and in the longer run limit the scope of all the employer depredations.

We’re back to the point that what helps is to give people cash, or something cash-like, including when it comes to the dimensions of workplace quality.  It is also a huge help to institute policies which will raise rather than lower worker productivity.

As I said before, the criticisms haven’t even yet dented the traditional economic point of view on this issue.  Those criticisms are operating within the current frontier of analysis, not on it much less beyond it.

Medicaid Wars, Episode IV

While the resistance of Republican governors has dominated the debate over the health-care law in the wake of last month’s Supreme Court decision to uphold it, a number of Democratic governors are also quietly voicing concerns about a key provision to expand coverage.

At least seven Democratic governors have been noncommittal about their willingness to go along with expanding their Medicaid programs, the chief means by which the law would extend coverage to millions of Americans with incomes below or near the poverty line.

Here is more.

I wonder if this is actually true

Researchers who have scanned books published over the past 50 years report an increasing use of words and phrases that reflect an ethos of self-absorption and self-satisfaction.

“Language in American books has become increasingly focused on the self and uniqueness in the decades since 1960,” a research team led by San Diego State University psychologist Jean Twenge writes in the online journal PLoS One. “We believe these data provide further evidence that American culture has become increasingly focused on individualistic concerns.”

Their results are consistent with those of a 2011 study which found that lyrics of best-selling pop songs have grown increasingly narcissistic since 1980. Twenge’s study encompasses a longer period of time—1960 through 2008—and a much larger set of data.

Here is more.

The words English has taken from India

Another author who has drawn inspiration from the dictionary is Tom Stoppard. In his play Indian Ink, two characters compete to use as many Hobson-Jobson words as possible:

  • Flora: “While having tiffin on the veranda of my bungalow I spilled kedgeree on my dungarees and had to go to the gymkhana in my pyjamas looking like a coolie.”
  • Nirad: “I was buying chutney in the bazaar when a thug who had escaped from the chokey ran amok and killed a box-wallah for his loot, creating a hullabaloo and landing himself in the mulligatawny.”

Here is more, hat tip goes to The Browser.  They also refer us to this long interview with philosopher Thomas Scanlon, and Ed Glaeser on what American can learn from Australia.

Assorted links

1. The increasing polarization of the eurozone electorate.

2. Will Amazon achieve one-day or same-day delivery?

3. Why does this kitchen sink cost more than many laptops?  That is a question from Amit C.  I say materials, combined with economies of scale on the laptop side.

4. Claims about China and financial repression (“this time it’s different”).

5. Starbucks in a funeral home, and Jeff Sachs is mostly right here.

Optimal policy toward prostitution

An email from Samuel Lee:

…we take the liberty of sending you a link to the working paper:

In the paper, we build on Edlund and Korn’s model of voluntary prostitution (JPE, 2002) to study the effect of prostitution laws. Our main results are as follows:

– Neither across-the-board legalization nor criminalization unambiguously reduces sex trafficking. The impact of either of these policies crucially depends on the incidence of voluntary prostitution, which in turn depends on other variables, such as the female-male income ratio.

– Even if across-the-board criminalization reduces sex trafficking, it comes at the expense of voluntary prostitutes, who prefer legalization. There is then an inherent conflict between safeguarding (the liberties of) voluntary prostitutes and preventing trafficking. (This conflict is borne out in recent public controversies about prostitution laws in Canada, France, and South Korea.)
– Between different types of criminalization, criminalizing johns is preferable to criminalizing prostitutes. The former is more effective in combating sex trafficking than the latter. The latter is furthermore unjust towards trafficked prostitutes, who’d then be doubly victimized.
Based on our analysis, we propose a different legal approach, which has so far not been tried by any country: criminalization of johns outside of a “safe harbor” for voluntary prostitution. To be more specific:
– Licensed brothels and prostitutes (i.e., regulated brothels) combined with — and this is crucial — criminal penalties for johns who purchase sex outside of these brothels. This (i) discriminates between the two “modes of production” of commercial sex, voluntary sex work and trafficking, and (ii) funnels all demand to the desirable “mode.” Trivial as the idea may sound, this policy has the potential to achieve both objectives, safeguard voluntary sex work and prevent trafficking, and hence to reconcile the two sides of the debate.
– There are implementation issues, but none that couldn’t be addressed. Point (i) requires effective background checks for the licensing procedures. It also requires monitoring of regulated brothels to ensure that only licensed prostitutes are employed there. Point (ii) requires undercover law enforcement (“fake illegal prostitutes”) to deter illegal purchases. And it requires severe penalties for illegal purchases — surveys suggest that the most effective one is public registries (shaming), which in this case is less of a moral statement about prostitution than about trafficking because buyers outside of the “safe harbor” would be aware that they very likely purchase sex from trafficking victims.
– There are clearly costs of licensing and enforcing the laws against illegal purchases. It seems to us, however, that these costs might be lower than for alternative, less effective approaches — which include the costs of enforcing across-the-board criminalization of prostitution and/or law enforcement activities targeted directly at traffickers, who are notoriously hard to catch or convict.

There are other questions regarding prostitution laws that we discuss in the paper, some of them call into question simple interpretations that are often made about empirical associations between domestic prostitution laws and the domestic incidence of trafficked prostitution. We hope that you find the paper interesting.

I didn’t mean to leave anybody out

From my entering class at Harvard, that is.  A few emails prompt me to produce a longer list:

Douglas Elmendorf, now head of the CBO in addition to his previous illustrious career in research and policy.

Rob Stavins, teaches at the Kennedy School and is one of the leading researchers in environmental economics including climate change.

Perry Mehrling, we’ve covered him a lot on MR, most of all I love his book on Fischer Black.

Asher Blass, living in Israel, working as a partner in a consulting firm, for a while he was chief economist at Bank of Israel.  I recall Asher once telling me that an individual can have a larger impact in a country with a small population.

Kenneth Kuttner, he has spent time at the San Francisco Fed and co-authored several important papers on money and credit.  Now at Williams College.

John Nachbar, a noted theorist at Washington University and for a while he was department chair.

David Corbett, he now works as a lawyer.

Allen Sanguines, he was brilliant in theory, he is now the President of Rasaland, a development fund in Mexico.

Mark Sundberg, a while ago he was at the World Bank.

Mary Hirschfeld, former Jeopardy champion, went on to get a Ph.D in theology at Notre Dame, now teaching humanities at Villanova.

Greg Duffie, macro and money, professor at Johns Hopkins.

Richard Grossman, at Wesleyan, he is well known in financial history.

Hamish Stewart, has done well recognized work in economics and philosophy.

Deborah Weiss, for a while she was my colleague at GMU Law, now she is living in Texas and raising a family.

My earlier coverage of the class was here.  Our TAs included Michael Mandel and Nobu Kiyotaki.  There are more, perhaps Miles can help me out in the comments.

The De Benoist conservative (?) critique of Hayek

Here is the concluding bit:

Hayek’s efforts differ from classical liberalism because of his attempt to re-ground the doctrine at the highest possible level without recourse to the fiction of the social contract and by attempting to avoid the critiques usually made of rationalism, utilitarianism, the postulate of a general equilibrium or of pure and perfect competition founded on the transparency of information. In order to do this, Hayek is forced to raise the stakes and to turn the market into a global concept necessary because of its totalizing character. The result is a new utopia, predicated on as many paralogisms and contradictions. Actually, as Caille put it, were it not for “the welfare state’s failure to achieve social peace, the market order would have been swept away a long time ago.” A society based on Hayek’s principles would explode in a short time. Furthermore, its institution can only be the product of a pure “constructivism” and would undoubtedly require a dictatorial state. As Albert O. Hirschman writes, “this allegedly idyllic privatized citizenship, which only pays attention to its economic interests and indirectly serves the public interest without ever playing a direct role — all of this can only be achieved within nightmarish political conditions.”[56] That today “national thought” is being reinvigorated by this type of theory says a lot about the collapse of this thought.

The full essay is here, and for the pointer I thank Bill.

Just yesterday on my doorstep I received the book The Great Persuasion: Reinventing Free Markets since the Depression, by Angus Burgin, which offers a lengthy contrast between Hayek and Friedman, among other matters.  It looks interesting: “Postwar conservative thought was more dynamic and cosmopolitan than has previously been understood.”

What is the ideal “development economics” Twitter feed?

I have some suggestions:!/GdnDevelopment










Some of them are shirkers, I know.  Whom else do you recommend?