Violence and Economy Building

Vadim Volkov’s “Violent Entrepreneurs” has an interesting discussion of protection rackets in the Russian economy. An interesting point is that Russian business and oranized crime have become symbiotic. Once a gang provides “protection” to a business, the gang considers the business their “turf” and becomes dependent on the income from the business. Eventually, gangsters come to guarantee transactions of the businesses they protect, a sort of underwriter that facilitates business. Volkov points out that a later wave of ex-army “protectors” came to provide a more legitimate, institutionalized form of protection against these earlier gangsters, which in turn opens the door for the reclaiming of the Russian state’s monopoly over violence. Robert Cottrell has a nice discussion in his New York Review of Books essay.

House of Sand and Fog and Preferred Children

Economists like to say that behavior reveals preferences. I just finished watching House of Sand and Fog, which reveals a most discomforting preference, albeit in extreme form. Be warned: I’m going spoil the plot, so don’t read any further, unless you’ve seen the film or don’t care to.

The movie is about a woman (Jennifer Connelly) who loses her home as a result of tax delinquency. An Iranian immigrant (Ben Kingsley) buys the home at auction, hoping that the difference between the auction price and the market price will pay for his son’s college tuition. The woman and the Iranian immigrant get into a violent confrontation, resulting in the accidental shooting of the man’s teen age son. Here’s where revealed preference comes into play: When the Iranian man sees that his son has not survived being shot, he kills his wife and himself. The character does not believe life is worth living if his son is dead… however, his newly wed daughter is still alive!! Conclusion: The character believes life is only worth living for his son, not his daughter.

Just another case of twisted movie logic? Maybe not. I’d venture that this is an extreme case of favoring sons over daughters. Steven Landsburg discusses some strong evidence that this is the case, even in contemporary America – census data shows that couples with female children are 5% more likely to divorce. In Viet Nam, having a female child increases the chance of divorce by 25%!! A lot of people seem to believe daughters are not worth sticking around for, and Kingsley’s character takes this to an extreme.

Readers are invited to email me extreme or strange examples of films, or other popular culture, showing characters favoring sons over daughters.

Competition, Ignorance and Football

Michael Lewis’ “Moneyball” shows how Bill James revolutionized baseball by statistically analyzing players and teams. Josh Levin in slate.com asks why this hasn’t quite taken off in other sports like football. The key point is that it’s easy to isolate to isolate the relationship between certain behaviors in baseball and scoring points. In football, it’s a lot harder – people’s actions on the football field are all interrelated, making analysis difficult. Thus, a dependable statistical analysis of football has yet to emerge.

This might be an interesting curiosity about the difference between baseball and other sports, but I think there’s a broader point about competition and knowledge. The success of statistics in baseball created the opportunity for entreprenuerial behavior by some baseball managers. The introduction of statistics into baseball allowed a few team owners to impose high costs on those who refused to believe that statistics was valuable in sports. This was made possible by baseball’s rules – everything centers around a few events (at bats, outs, runs) and it’s easy to attribute individual performance to these events.

One might conjecture that some businesses are like baseball – inputs and outcomes are discrete and easy to measure. In those kinds of industries, the creation of knowledge is a low cost activity and those who have the knowledge can easily compete against others, forcing them to accept your analysis of the situation.

Other industries are like football – messy and hard to relate inputs to outpus. In this case, it would be hard to do what Billy Beane did in baseball. I’d guess that success in such industries is characterized by “judgment” – the intuitive understanding of how the industry works built from years of experience. If you don’t have that, then you’re probably relegated to following “gurus.” Seems like a nice explanation of management fads – organizing people is probably a messy business where everything is interconnected, and it’s hard to come up with easy to implement rules. Thus, a lot of management behavior revolves around business fads. Readers are encouraged to email me interesting examples of industries or economic activities that are very “baseball”-like or “football”-like.

Marriage Brokers

An article in the current issue of Legal Affairs focuses on professional match makers and the difficulties inherent in the business. It’s been estimated that there at least 6000 matches each year and the fee can be about $2000.

How good are the matches? According to the article, a preliminary study conducted by the Department of Justice suggests that mail order brides might suffer less abuse than other wives. However, match makers sometimes fail to inform prospective wives of a future husband’s history of abusive behavior, which has resulted in some cases of abuse and state regulation of the industry.

Of course, regulation of the industry seems plausible – mail order brides don’t have the social networks that enable home-grown brides to learn about their future partner, and they might be susceptible to abuse because they don’t know their new country as well. But there are other ways of dealing with this. Like job applicants, match makers could perform basic screening of candidates – a check of the person’s criminal record might be useful. Match makers who failed to do some basic screening could be held liable for some damages, a proposal to be debated by the legal bloggers. A match maker subject to these professional norms might find better matches than the old fashioned match makers.

Spam-onomics

The New York Times has an informative interview with a man who used to earn his living sending “bulk email.” There are a couple of take home points:

1. Spammers don’t make that much money because there is a lot of competition. The price for sending a million e-mails is about $900, and will drop soon. It’s only about $300 for 10,000 e-mails.

2. Spammers cater to other dodgy businesses. Not the kinds of people to be deterred by toothless legislation.

3. The author claims mass faxes were reduced because individuals were allowed to prosecute individual junk faxers for small amounts ($500). Enough to harass junk faxers, but not so large that the plaintiff would have to engage in a lengthy court battle. These smaller fines hurt because most spammers are small time operators with slim profit margins.

The most insightful observation is that legislators have considered both models of controlling spam – prosecute a few large operators for millions in fines, or let citizens go after the small fry in civil suits. The deck is stacked against the second solution – one FTC officer said but that there needs to be “a couple of good hangings.” Conclusion: we probably have the legal and economic tools to curtail unwanted mass emails, but the political process won’t let it happen.

More confusion at the Iowa Electronic Market?

Share prices this morning at the Iowa electronic market are confusing. The average price for “recall vote share yes” is $.475 and “recall vote share no” is $.490. Sounds simple enough – very close, but Davis survives the recall. But look: “Gray Davis in” is $.40 while “Gray Davis out” is $.632?? Very confident now that Davis will get the boot. Why the radical disconnect between the two markets? Once again, if you have insights, please feel free to mail them in.

Recall Scheduled for Oct. 7

The LA Times reports that the full 9th circuit court has ordered that the California recall occur as planned. In their decision, the court says that the potential damage to the plaintiffs does not outweigh the costs already invested in the election, which presumably might include thousands of votes already cast. The decision states that courts should only intervene in elections in exceptional circumstances and, while vote counting errors are a serious concern, the potential miscount is not so strong a possibility that the election will with certainty be damaged.

Race, Crime and Job Discrimination

Devah Pager’s article in the latest American Journal of Sociology demonstrates an important relationship between race, criminal record and employment. She sent out pairs of black and white young men to apply for entry level jobs, gave them similar records except that one was randomly selected to have a criminal background. She then analyzed who was called back for an interview and got some interesting results:

1. Unsurprisingly, for both blacks and whites, reporting a criminal record drastically reduced the chances of a call back.

2. Black men *without* the criminal history were less likely to be called back than white men *with* criminal records.

3. Having a criminal record is more damaging for black applicants than for white applicants.

This, I think, is a nice challenge to the whole statistical discrimination thesis, where employers use race as a proxy for other unmeasured variables. The Pager study shows that even when employers have full information on their applicants, they often prefer a white ex-convict than a similar black man without a criminal record.

Update: Dmitri Masterov writes to tell me about point #2 – Pager showed that the difference between the two groups was not statistically significant.

Presidential Voices and Electoral Victory

A nice article in the Sept. 2002 Social Psychology Quarterly documents an interesting fact: the presidential candidate who has the right tone of voice tends to win the election.

According to “communication accommodation theory,” low status people change their voices to accommodate high status people. The presidential candidate who more frequently changes the “F_0” range of his voice (which is a very low hum) during a debate signals that he is in the low-status position. The authors believe that voters respond strongly to this non-verbal, but strongly emotional, cue. The authors note that George W. Bush may have “won” the 2000 debate with Gore because he signaled his dominance in this fashion, although Gore was perceived by journalists to have won through superior rhetoric. The results of voice analysis correlate well with electoral outcomes and polls.

Sleep and Personality

Sleep research is great fun. Sleep is tied to so much in our lives, yet we know so little and there are always surprises. Consider the latest finding: the position you sleep in is highly correlated to your social personality. Being a log-sleeper (on the side, hugging the pillow) correlates with being outgoing and social, while fetal position sleepers are shy. Sleeping position is not the only correlate of personality. Your handwriting, your job satisfaction and a whole bunch of other things tend to be linked to personality.

Reagan Letters Published

Time magazine has an article on Ronald Reagan’s recently published letters, in which the former president expresses a taste for Ayn Rand. What is striking about the letters is their sheer volume (about 5,000) and directness. Avoiding convoluted phrasing, Reagan’s authorial persona is almost classical. Arguments and thoughts are presented in a plain language that puts the reader and the writer on an equal level, a powerful element of Reagan’s style of communication.

Panic at the Iowa Electronic Market?

The Iowa Electronic Market is an online securities exchange where traders buy and sell contracts whose monetary value depends on political events. Most contracts pay $1 if the event happens (Bush re-elected) or pay by vote share (e.g., “Vote share Bush 2000” would pay $.49).

Early this week, the contract “California recall cancelled” was selling for about $.05 – very confident the recall would go through. Then the panel of the 9th circuit postponed and the market jumped to about $1.10. Today, “recall cancelled” is trading at about $.03!! Could this be an example of a stampede at the Iowa Market? Is a single trader driving this market? If you are a trader, drop me an email and tell me your thoughts on what happened this week.

Executive Pay

The career of New York Stock Exchange Head Richard Grasso came to an end yesterday amid a furor related to his enormous compensation package (see here). Of course, the question is not how big his package was, but how much value did he add to the NYSE and was his fee competitive? Hard to say about the first since the NYSE is a non-profit corporation, but Grasso ($140M pay out) would be paid more than Jefferey Barbakow, who, according to Forbes’ magazine (click here, then click on “view list by rank”), was the highest paid executive of a publicly held firm in 2002 at $116M.

History of the California Recall

The history news network reports that recalls were successfully used by California progressives to oust Los Angeles city council members in the early 20th century. Recalls were also used against a few California state legislators and there were attempts to recall some judges. Although sponsored by progressives, opposition to recalls spanned the political spectrum, with the LA Times calling recalls the result of “freak legislation.” Despite the flurry of early recall activity, the practice waned until the mid-1990’s when a few state legislators faced recalls. The pattern of recall efforts probably suggests that recalls get off the ground when you have a small and angry but well organized interest group (progressives, recent California GOP). Seems like an application of Mancur Olson’s idea that small groups have disproportionate influence because they are easier to organize.

Textbook Wars

There is plausible evidence that textbooks have deteriorated over time. A casual comparison of 19th and 20th century middle school textbooks shows the simplification of reading, with modern books presenting simple, dull passages (see examples here). Diane Ravitch attributes poor and inaccurate textbook content to self-censorship on the part of publishers, who fear having their products dropped as a response to noisy interest groups. Risk-averse publishers and simplified texts might be symptoms of a larger trend in American education: the emergence of large school districts who set the textbook market. The number of textbook buyers (school districts) has dropped by 90% since the beginning of the 20th century and creates a situation where publishers create products that cater to a few large, politically sensitive school districts. Milton Friedman makes a similar point when he argues that fewer, larger school districts means centralized, expensive and low quality education.