Tabarrok’s Offer
Pascal’s Wager came up at the great debate the other night and Bryan Caplan was kind enough to refer to my paper as the definitive refutation. Coincidentally, a reader in search of counsel on matters economic and theological writes to the Financial Times’s Dear Economist who replies by trying to take the vig out of my scam ministry!
The economist Alex Tabarrok points out that if there is even a tiny
chance that Pascal is right, a tiny chance of a tiny chance of a second
of infinite bliss is still infinitely valuable.Now, if you give
me all your money, I’ll intercede with God on your behalf and increase
your chance of going to heaven. Of course, there is only a tiny chance
that my intercession will help, but a tiny chance of infinite bliss is,
again, infinitely valuable.Please send your cheque via the FT, and quickly please – I’ve already given Professor Tabarrok all my cash.
Water of Life
While most countries are committed to increasing access
to safe water and thereby reducing child mortality, there is little consensus
on how to actually improve water services. One important proposal under discussion
is whether to privatize water provision. In the 1990s Argentina embarked
on one of the largest privatization campaigns in the world, including the privatization of local water
companies covering approximately 30 percent of the country’s municipalities.
Using the variation in ownership of water provision across time and space generated
by the privatization process, we find that child mortality fell 8 percent in
the areas that privatized their water services and that the effect was largest (26 percent) in the poorest areas. We check the robustness of these estimates using cause-specific mortality.
While privatization is associated with significant reductions in deaths from
infectious and parasitic diseases, it is uncorrelated with deaths from causes
unrelated to water conditions.
That is the abstract to a very important paper, Water for Life: The Impact of the Privatization of Water Services on Child Mortality, by Sebastian Galiani, Paul Gertler and Ernesto Schargrodsky in the February 2005 issue of the JPE. (free working paper version).
In theory, water services are not an easy thing to privatize well because of natural monopoly problems and because some of the benefits of clean water are externalities. In practice, however, governments in developing countries do such a poor job at providing water that there are large potential gains to privatization even given such problems.
See also Tyler’s post Will the Middle East run out of water? for more on where water privatization may have benefits.
The Treaty of Tripoli
In the late 1790s the US was having difficulty with Muslim pirates in the waters off Northern Africa. After some difficulty, a treaty was signed in 1796 with the Bey of Tripoli promising friendship, trade and an end to hostilities. The 11th article of the treaty provides a remarkable contrast between how these sorts of issues were handled by the founders and how they are handled today. It reads:
As the government of the United States of America is not in any sense
founded on the Christian Religion; as it has in itself no character of
enmity against the laws, religion or tranquility of Musselmen; and as
the said States never have entered into any war or act of hostility
against any Mehomitan nation, it is declared by the parties that no
pretext arising from religious opinions shall ever produce an
interruption of the harmony existing between the two countries.
The Treaty was read aloud in the Senate and approved unanimously. In his proclamation John Adams said, "I John Adams, President of the United States of America, having seen
and considered the said Treaty do, by and with the advice consent of
the Senate, accept, ratify, and confirm the same, and every clause and
article thereof." The treaty was published in a number of leading newspapers. It never aroused any opposition.
The Mansion Wars
John Tierney had an excellent column on "mansionization" in yesterday’s NYTimes (I am cited). Unfortunately, it’s behind the great wall (which I predict will be down within 6 months) but here are some key grafs:
In the town where I live, a once placid Washington suburb, the mayor has just sent out a letter asking the natives to stop throwing eggs at each other’s homes. Such is life on the front lines of the anti-mansionization war….
My first impulse was to side with the mansionizers [because]…of my knee jerk libertarian reaction to the moralizers…Who were they to control other people’s property?…But when I talked to housing experts, they pointed to another message from the market… A majority of new homes in rapidly growing urban areas are in communities governed by private homeowners assocations that impose much stricter rules than governments do.
Some people chafe at the restrictions [but] Amanda Agan and Alexander Tabarrok…found that a home in the Virginia suburbs of Washington that was part of a private community typically sold for 5 percent more than a similar home nearby not governed by a homeowners association…
[M]ost people apparently want aesthetics to be regulated – not by politicians at the city or county level, but by homeowners in the neighborhood. That’s why the developers of private communities write constitutions that give so much power to the homeowners associations…Those founding fathers learned by trial and error that empowering local busybodies is the best way to maximize home values and minimize strife.
Aesthetic and other rights held by homeowner assocations and condominiums are a relatively new but rapidly growing type of property, the private but collective property right. Figuring out the best form for these rights will be an evolutionary process but one that is greatly aided by the fact that developers and homeowners have the same incentives – to make the home as valuable as possible.
Addendum: Art Woolf points me to the Rutland Herald which has Tierney’s column in full.
Torture, terrorism, and incentives
President Bush, Dick Cheney and others who support the use of torture by the United States and its agents usually rely on the ticking time bomb argument. Sometimes torture is necessary to prevent a greater evil. I accept this argument. If my kid were kidnapped and the suspect was refusing to talk, I’d want Vic Mackey to do the questioning.
But it does not follow from the "ticking time bomb" argument that torture should be legal. The problem with making torture legal is that the government will abuse its powers. I do not trust the government, any government, to use this power responsibly. Leviathan must be heavily restrained, especially when it comes to torture.
Here is where economics can make a contribution. By making torture illegal we are raising the price of torture but we are not raising the price to infinity. If the President or the head of the CIA thinks that torture is required to stop the ticking time bomb then they ought to approve it knowing full well that they face possible prosecution. Only if the price of torture is very high can we expect that it will be used only in the most absolutely urgent of circumstances.
The torture victim faces incredible pain and perhaps death at the hands of his torturer. If these costs are to be born by the victim then we had better make damn sure that the benefits are also high and the only way we can do that is to make the torturer also bear some of the costs. Torture must not be cheap.
Cosby was Correct
In Debunking Cosby on Blacks Washington Post columnist Michelle Singletary attacks Bill Cosby for his speech last year to the NAACP.
Poor blacks are bad parents because they waste what little money they have
buying high-priced, brand-name shoes, Cosby chided.
"All this child knows is gimme, gimme, gimme," Cosby said, according to
a transcript of the speech. "They are buying things for the kid. $500 sneakers.
For what?"
Cosby was lauded by white conservatives and some blacks for being brave
enough to speak out. But like the price of sneakers that Cosby got wrong, he was
incorrect about much of what he said.…the comedian was rattling off
nonsense much like his Fat Albert character Mushmouth.
I was curious so I went to Table 2100 of the Consumer Expenditure Survey and found the following for 2003:
Average income of whites and other races: $53,292.
Average income of blacks: $34,485.
The survey then lists expenditures on a wide variety of goods from eggs and fish to books and televisions; to do a proper comparison we would have to correct for income and other demographic variables but some figures just jump out at you, including this:
Expenditures on footwear by whites and other races: $274
Expenditures on footwear by blacks: $440.
Chalk one up for the good Dr. Cosby.
Bad Statistics Lead to False Hope
Newspapers around the world are all agog with the story of a British Man, 25, ‘cured of HIV’; that headline from the normally reserved BBC. Scot is first in world to beat HIV says, (can you guess?), the Glasgow Sunday Mail. The more cosmopolitan, but doubly wrong, Medical News Today says, Man is Cured of AIDS. Other newspapers are reporting that doctors are "stunned," "mystified" and wondering whether this man holds the key to curing AIDS.
The story is pathetically simple once one gets past the headlines. A man tested positive for HIV, he took a lot of vitamins and just over a year later tested negative (several times). Now what are you going to believe that he cured himself of HIV or that the first test was wrong? HIV tests have high accuracy but when millions of people take these tests it’s an easy bet that there will be significant numbers of false positives.
It is even possible that in low-risk populations there will be more incorrect diagnoses than correct ones! Doctors may be stunned but to a statistician results like this are banal. Unfortunately, in about a dozen articles that I took a look at, many doctors were quoted (sadly, even the skeptical doctors were skeptical for the wrong reasons – they think the guy must still have HIV!) but not a single statistician. For the correct statistics see here or my earlier post, Why Most Published Research Findings are False, which analyzes a different application of the same idea.
Sex on the Margin
Sexual preferences are primarily biological in origin. But sexual choice is about preferences and constraints. Raise the price of sex with women and more men will choose to have sex with other men – that’s what happens in prisons.
In a remarkable paper, Andrew Francis (a graduate student at the University of Chicago) examines how AIDS has changed sexual choice. With admirable precision, Francis lays out the price of sex:
…it is thousands of times more likely that a male would get HIV having sex with a man than having sex with a woman. In terms of AIDS-related mortality, the expected cost of having unprotected sex once with a man is almost $2000, while the expected cost of having unprotected sex once with a woman is less than a dollar.
Thus AIDS changes the price of sex, do we observe changes in choice? Francis wants to be careful about causality so he uses a clever instrumental variables approach. He reasons that knowledge of AIDS and thus responsiveness to price is correlated with knowing someone who has AIDS and that knowing someone who has AIDS is exogeneous to other factors influencing sexuality. Unfortunately, it appears that he only has information on whether a relative has AIDS and genetic factors mean exogeneity is unlikely to hold. In fact, we would probably expect that simply knowing someone with AIDS is positively correlated with being homosexual (especially in 1992 when the survey was taken).
Indeed, Francis finds, as expected, that women who have a relative with AIDS are more likely to be engage in homosexual acts and identify as being homosexual. But Francis finds that men who have a relative with AIDS are significantly less likely to:
…have had sex with a man during the last sexual event…have had a male sexual partner in the last year… say they are sexually attracted to men…rate having sex with someone of the same gender as appealing…[or] think of themselves as homosexual or bisexual.
The tendency to greater homosexuality among women and less among men is exactly what the economic theory predicts given how AIDS affects the price of sex. Genetic and social factors will have greater difficulty resolving this bifurcation so I think Francis has the upper-hand on the argument, although there may be counter-arguments based on the gay-uncle theory).
Importantly, note also that Francis finds that not only is sexual choice malleable, as the prison story I opened with suggests, but so are sexual desire and identity. At least on the margin! (A point that non-economists are likely to miss.)
Thanks to Emily Oster for the pointer.
Is Religion Rational?
Is Religion Rational? The Economics of Faith is the title of a debate to be held between my colleagues Larry Iannaconne and Bryan Caplan. The debate will be on Wed. Nov. 16, 6:30 pm in the front ballroom of Student Union Building II at George Mason University-Fairfax. The debate is free and open to the public. I think it is going to be a great debate (I will moderate). Among the sorts of things to be discussed are:
Is religion rational, irrational, or distinct from rationality? What does economics have to say about religion? Why is religion demanded and supplied? What effect does religion have on economic, social and political outcomes? How does an understanding of religion affect our understanding of economics and politics?
Markets in Everything
Organic cigarettes. Henry Sicignano, American Spirit’s vice president of marketing, explains his purpose succintly:
"Our company’s greatest challenge – also
our greatest opportunity – is to expose smokers to our chemical-free,
all-natural tobacco products…"
I also liked this classic bit of statistical illusion:
With a market share of less than 1 percent
of the total U.S. cigarette business, Santa Fe is undaunted by the
behemoths that are their competition. "Natural American Spirit
cigarettes are the fastest growing brand in the United States,"
Sicignano reports.
(Groups which are small are often the fastest growing, also the fastest declining.)
Abortion Access and Risky Sex
Jonathan Klick (a co-author of mine) and Thomas Stratmann (a colleague at GMU) have written an interesting paper on abortion and risky sex among teenagers. From their conclusion:
Incentives matter. They matter even in activities as primal as sex, and they matter even among teenagers, who are conventionally thought to be relatively myopic. If the expected costs of risky sex are raised, teens will substitute toward less risky activities such as protected sex or abstinence. In addition to modeling the decision making processes of teenagers, this insight is important in other contexts as well. Many public policies can be improved by recognizing the sensitivity of teenage sexual decisions to costs and benefits.
We study one set of policies in this paper. We show that increasing the cost of abortion for teens lowers the insurance value of abortion. This induces teenage girls to avoid risky sex, which will likely have the effect of lowering pregnancy rates, abortion rates, and birth rates among this group of individuals. While these positive effects alone might not justify parental involvement laws, they presumably should not be ignored in the debate. Behavior is not static, and claims based on the assumption of static behavior are flawed.
Sponsor an African Business
Charitable organizations have long made it possible to sponsor a child in a poor country. Kiva lets you sponsor a business in a poor country.
By choosing a business on our website and then lending money online to
that enterprise, you can "sponsor a business" and help the world’s
working poor make great strides towards economic independence.
Throughout the course of the loan (usually 6-12 months), you can
receive monthly email updates that let you know about the progress
being made by the small business you’ve sponsored. These updates
include reports on loan repayment progress, photos of new capital
equipment, narratives on business growth and standard of living
improvements, and more. As loans are repaid, you will get your original
loan money back.
Kiva has recently been discovered by the web and so they are currently out-of-businesses to sponsor (which is a good sign), but it’s a great idea and I intend to sponsor a business as soon as one becomes available.
Thanks to Pablo Halkyard for the pointer.
Causal Inference for Kids
Gary King teaches the importance of a good control group to kindergarteners and to Harvard students using the same lesson. I have to try this with my kids!
Adverse Selection at Wal-Mart
Wages for low-wage workers have been flat in recent years but health care costs have been increasing. For a company like Wal-Mart, which pays many of its workers modest wages but does offer a reasonable health insurance plan, this is an invitation to adverse selection. As the value of the wage component of the Wal-Mart benefit package has declined relative to the value of the health insurance component Wal-Mart has attracted more workers who want the job for the health benefits, i.e. sicker workers. Reed Abelson writing in the NYTimes notes:
The Wal-Mart work force reflects a growing fear of many employers that the
people who work for them are increasingly at risk for health problems. Many of
Wal-Mart’s employees are obese, the company says, and a result is rapidly rising
numbers of cases of diabetes
or heart
disease. The prevalence of these diseases among Wal-Mart employees is
increasing much faster than the national average, it says."The low-income population generally is not as healthy and does not engage as
much in preventive care," said Diane Rowland, executive director of the Kaiser
Commission on Medicaid and the Uninsured. A risk that a company like Wal-Mart
faces, especially when it competes with smaller retailers that offer no
insurance at all, Ms. Rowland said, is attracting too many workers who want the
job primarily for the health coverage.
Wal-Mart’s health care costs are rising faster than their revenues. Other companies are trying to shift some of the cost of health care onto their workers but Wal-Mart’s workers are already paying more than the national average so Wal-Mart may try to reverse adverse selection by adjusting their work and benefit package. An internal memo suggests that:
…the company could require all jobs to include some
component of physical activity, like making cashiers gather shopping carts. It
also recommends redesigning and expanding benefits to appeal to a different type
of worker, someone more interested in buying a home, say, than in getting health
insurance.
Wal-Mart will probably be pilloried for this sort of thinking but you can hardly blame them when the workers are engaging in almost the identical actions in reverse. The more fundamental problem is the tying of insurance to work, a problem for which I am afraid there no win-win solution.
Comments are open.
Addendum: Rey Lehmann offers excellent commentary.
Strange Tabarrok Trivia
My brother, Nicholas Tabarrok, is the producer of the apocalyptic, biblically inspired, Left Behind movies. Left Behind – The World at War just opened in 3,200 screens across America. Haven’t seen it at your local multiplex? That’s because the executive producers opened the movie in churches, harking back to a model of movie distribution that used to be common in the 1950s. The movie has also been released near-simultaneously on DVD. Here’s a review of the DVD.
Left Behind — The World at War (Sony, $25): The third installment in the popular Christian-themed apocalyptic dramas based on the Left Behind
series of novels by Tim LaHaye and Jerry Jenkins. Forgoing a theatrical
release, this latest edition was screened over the weekend at about
3,200 churches around the country.This time, the Antichrist
(Gordon Currie), now the head of the world government, taints freshly
published Bibles with biological weapons. Lou Gossett Jr. plays the
U.S. president. Extra features include a "making of" documentary, a
surprisingly funny gag reel and enjoyable commentary with Currie and
producers Nicholas Tabarrok and Andrew van Heerden (who also co-wrote
the film).