The economics of California power blackouts
Once again there is a risk of fire so they are turning off the power in many parts of dry and windy northern California, for 2.7 million people. From The New York Times:
“When you turn the lights out on 3 million people because you have to keep the power lines safe then there’s no reason you should be allowed to continue,” Mr. Court said.
Michael Lewis, PG&E’s senior vice president of electric operations, said the issue was safety.
“We would only take this decision for one reason — to help reduce catastrophic wildfire risk to our customers and communities,” Mr. Lewis said in a statement.
PG&E filed for bankruptcy in January after amassing tens of billions of dollars in liability related to two dozen wildfires in recent years. As speculation grew that its equipment might be the cause of the Kincade Fire, its stock price plummeted about 30 percent on Friday to $5.08, a small fraction of its 52-week high of $49.42.
I would think the market expectation is that if PG&E is allowed to continue, as is likely to be the case, that it slowly will claw its way back to profitability, given that this is a highly regulated sector with barriers to entry. So the company is afraid of losing its expected remaining profit from further liability, and thus it plays it safe with power, too safe because they don’t suffer so much from the power blackouts. Sadly, the retail customers do not have many other options.
One solution would be to remove the liability the company faces from the fires, or alternatively you could add a liability option of set of fines from power cuts (call them “breach of contract”). Both changes would introduce greater symmetry into the liability equation, but of course the former would eliminate the incentives for fire safety and fire reduction and the latter might bankrupt the company or create unenforceable or undefinable legal obligations. Still, it hardly seems the current arrangement can be first best.
How about raising rates? And then spending more on capital improvements? (do read the tweets behind that link):
And in those proceedings, there is an independent division of the CPUC (the ‘Office of Ratepayer Advocates’) that has typically argued against maintenance and safety expenditures, so that rates can be kept low
How about raising rates a lot? But maybe it is too late for that.
Another option, which I do not feel I have enough information to assess, is to have the state government buy out the power company. That is not usually a good idea but in this case there is at least a chance it could lead to superior incentives. The resulting company would then be geared toward pleasing voters, hardly an ideal arrangement but possibly better than the current incentives toward excess safety and massive power cuts with no real chance of consumer backlash. With government ownership, how would the state internalize the liability risk? How much would state borrowing rates rise?
Have you seen good proposals for improving the incentives in this rather disastrous matter?
A theory of narrow thinking
I develop an approach, which I term narrow thinking, to break the decision-maker’s ability to perfectly coordinate her multiple decisions. For a narrow thinker, different decisions are based on different, non-nested, information. The narrow thinker then makes each decision with an imperfect understanding of the others. Formally, it is as if the decision-maker is a collection of multiple selves playing an incomplete-information game. The friction effectively attenuates the degree of interaction across decisions and can translate into either over- or under-reaction depending on the environment. Narrow thinking leads to a violation of the fungibility principle and a smooth model of mental accounting. Narrow thinking also reconciles other seemingly disparate phenomena in a unified framework, such as excess smoothness to taste shocks, the small wage elasticity of daily labor supply, and the label effect. Finally, I study an endogenous narrow thinking problem: the decision maker chooses optimally what information each decision is based upon, subject to a cognitive constraint.
That is the abstract of a new paper from Chen Lian, who is on the job market this year from MIT. (That is not his job market paper but it does have a revise and resubmit from Review of Economic Studies.)
Assorted Saturday links
2. The success rate of protests is plummeting (NYT).
3. The Gilded Age?: “New paper forthcoming in Cliometrica with Peter Lindert. In the paper we show that between 1800-1914, inequality in cost of living fell offsetting sizable share of increase in nominal income inequality”.
4. How bad is it to be “scooped” in science? And how much do astronomers rely on lucky good weather?
5. Research in progress: “First, I document that opioid deaths and religiosity are strongly negatively correlated across counties. Then, I find that an 8% decrease in religious employment – equivalent to the decrease observed since the height of the Catholic sex abuse scandal – would increase opioid deaths by 4.8 per 100,000, approximately a third of the current opioid epidemic. The effects of religiosity are concentrated in areas with higher Catholic rates before the scandal. In contrast, I find no evidence that religiosity affects other drug deaths, suicides, or mortality due to alcoholic liver disease.”
Facts about YouTube
From a new and very important paper by Kevin Munger and Joseph Phillips from Penn State:
The most extreme branches of the AIN (the Alt-Right and Alt-Lite) have been in decline since mid-2017.
However, the Alt-Right’s remaining audience is more engaged than any other audience, in terms of likes and comments per view on their videos.
The bulk of the growth in terms of both video production and viewership over the past two years has come from the entry of mainstream conservatives into the YouTube marketplace.
…despite considerable energy, Ribeiro et al. (2019) fail to demonstrate that the algorithm has a noteworthy effect on the audience for Alt-Right content. A random walk algorithm beginning at an Alt-Lite video and taking 5 steps randomly selecting one of the ten recommended videos will only be recommended a video from the Alt-Right approximately one out every 1,700 trips. For a random walker beginning at a “control” video from the mainstream media, the probability is so small that it is difficult to see on the graph, but it is certainly no more common than one out of every 10,000 trips.
That authors suggest (p.24) that if anything the data suggest deradicalization as a more plausible baseline hypothesis.
Of course this is not the final word, but in the meantime so much of what you are reading about YouTube would appear to be wrong or at least off-base.
Simple truths about power
These are all people who are connected to the power of government.
Either physically, i.e. economically, or emotionally—power. The dream of sharing power. The gender studies professor not only gets her money eventually from government, but she dreams of being part of a world-transforming enterprise.
Here, I agree with you. There is a dream that unites progressives and bureaucrats and wealthy technologists. And where does that dream come from?
It’s a dream peculiar to this class. Other classes have been united by different dreams.
Is it a substitute for religion?
Yes.
Is that its primary emotional charge?
Well, I don’t know about primary. Look, the primary element is, as we Christians were taught, pride. That is the sin of sins. There is nothing that moves human beings quite so much as the desire to be on top of other human beings.
That is from an interview with Angelo Codevilla.
Friday assorted links
1. The French may be moving back toward nuclear power.
2. “In fact, it is the least selective schools that are driving the national gender gap in bachelor’s degrees. For example, at for-profit colleges, most of which have very low admissions standards, 63 percent of students are female.” Link here.
3. “…students at Oxford University are to replace clapping at student union events with “silent jazz hands” amid fears that applause could trigger anxiety.” Link here.
4. David Brooks calls for 20-30 percent tipping (30 percent for smaller bills, say below $25, NYT).
5. Predict science to improve science, by Stefano DellaVigna, Devin Pope, and Eva Vivalt. And here is a beta version of the associated “predict social science” website.
Nathan Nunn’s recent talk on economic development
Here is one excerpt of many substantive points:
Numerous studies have formally tested for relationships between foreign aid and conflict,using a range of identification strategies to obtain credible causal estimates. Many studies find that foreign aid can increase conflict. Nunn and Qian (2014) find this to be the case for U.S. food aid. Their analysis uses an IV strategy where U.S. wheat production shocks, combined with a country’s tendency to receive wheat aid from the U.S. to obtain exogenous variation in U.S. food aid supply. Crost, Felter and Johnson (2014) use an RD strategy that exploits an eligibility cut-off for a World-Bank-funded development program in the Philippines to estimate the effects of the program on conflict. They find that eligibility to participate in the program is associated with more conflict, which appears to be due to an increase in insurgent attacks against government forces in an attempt to disrupt the program. Dube and Naidu (2015) estimate the effects of military aid in Colombia using a differences-in-differences identification strategy. They find that U.S. military aid leads to an increase in conflict and violence arising due to an increase in attacks by paramilitaries…
While there is evidence that foreign aid can increase conflict, it is not the case that it always leads to conflict. For example, Nunn and Qian (2014) show that among the countries in their sample without a recent history of past conflict, food aid does not increase conflict. In a follow-up study that studies a conditional cash transfer program also in the Philippines, Crost, Felter and Johnson(2016) find that this aid package actually decreased conflict. Trisko Darden (2020) finds that the effect of U.S. aid on state killings and repression of its citizens is weaker following the end of the Cold War.
Given the evidence that foreign aid can sometimes cause conflicts, but at other times have no effects or even reduce conflict, the natural next question is how we implement foreign aid projects in a manner that minimizes its harm, thus maximizing overall benefit.
That is from a recent and really quite excellent talk on development by Nathan Nunn. He also has an especially interesting discussion of the geographic centralization of RCTs in economics among numerous other points of note. Recommended.
Can you impose pecuniary externalities upon Korean squirrels?
Look out, squirrels of the world. It turns out acorns are good for humans, too.
Here in South Korea, the popularity of acorn noodles, jelly and powder has exploded in recent years, after researchers declared the nuts a healthy “superfood” that can help fight obesity and diabetes.
In the U.S., where some Native Americans once made acorns a staple of their diet, restaurants and health-conscious blogs are starting to explore recipes for acorn crackers, acorn bread and acorn coffee.
That is bad news for squirrels and other animals that rely on oak trees for sustenance. In South Korea, where human foraging has multiplied, there are now fewer acorns on the ground, and the squirrel population has dwindled.
Is this a reductio ad absurdum of the idea that pecuniary externalities are irrelevant? Ask your friendly neighborhood squirrel! If you can find him, that is. Then there is this:
Safeguarding acorns for squirrels is proving to be a tough nut to crack. That’s where the Acorn Rangers come in.
Formed at Seoul’s Yonsei University, the nascent Acorn Rangers group polices the bucolic campus, scaring off other humans from swiping squirrel food. Taking up the cause are students like Park Ji-eun, who skipped lunch on a recent day so a squirrel could eat this winter.
Strolling across campus, Ms. Park, a junior, sprung into action after spotting an acorn assailant: a woman in her early 60s, clutching a plastic bag stuffed with the tree nuts.
“The squirrels will starve!” barked Ms. Park, her voice booming so loudly that other acorn hunters—human ones—scurried away. The two argued for nearly an hour until Ms. Park emerged with the plastic bag in hand.
Here is the full WSJ story, by Dasl Yoon and Na-Young Kim, via the excellent Samir Varma.
Thursday assorted links
1. Photomicography competition.
2. Even in Atlas Shrugged, this would not be a believable scene.
3. “It took Tesla just 168 working days to go from permits to a finished [Shanghai] plant.” (Bloomberg)
4. “Pakistan has been acknowledged by the World Bank among the top 20 global reformers this year. Pakistan is expected to improve its [Doing Business] ranking by 25 places in the report to be launched on Oct 24…” Link here.
Middlemen, China story of the day
Five hitmen have been jailed for attempted murder, after each one avoided carrying out the contract themselves so they could make a profit.
Chinese businessman Tan Youhui was looking for a hitman to take out a competitor, Wei Mou, and was willing to pay 2 million yuan (£218,000) to get the job done.
The hitman that Mr Youhui hired, decided to offer the job to another hitman, for half the original price.
The second hitman then subcontracted to another hitman, who then subcontracted to a fourth, who gave the job to a fifth.
However, hitman number five was so incensed at how much the value of the contract had fallen, that he told the target to fake his own death, which eventually led to the police finding out about the plot, Beijing News reported.
Here is the full story, via Yana.
Rat transit markets in everything
Learning to drive small cars helps rats feel less stressed, scientists found.
Researchers at the University of Richmond in the US taught a group of 17 rats how to drive little plastic cars, in exchange for bits of cereal.
Study lead Dr Kelly Lambert said the rats felt more relaxed during the task, a finding that could help with the development of non-pharmaceutical treatments for mental illness.
Here is the story, via the excellent Fergus McCullough.
How has Paris changed
Following my OECD visit, I have been thinking about how Paris has changed in the almost thirty years I have been going there. I came up with the following mental list:
1. It is much less of a working class city in the center.
2. Many more immigrants, most of all outside the center. The center and the periphery are now more different than in times past.
3. People smoke much, much less.
4. The residents are less Marxist, but now more “woke.”
5. English is far more widely spoken, and good French is not so much expected in casual interactions.
6. The average quality of bread is declining.
7. Michelin restaurants, in relative terms, have grown much more expensive. I recall having a meal at the Hotel Bristol, maybe six years ago, for 150 euros. A similar meal now goes for 380 euros, more than I am willing to pay.
8. The city has been remarkably economically resilient, in part because of the longstanding emphasis on services.
9. The city now has a burgeoning start-up scene.
10. I believe central Paris is now much more different from the rest of France than it used to be.
What else?
Tuesday assorted links
1. Nick Whitaker of Brown interviews me. Rapid-fire, with transcript.
2. Waiting for the visitors to match the art works.
3. Machine learning Beatles lyrics I am not impressed and still I do not fear The Singularity.
4. John Cochrane on elasticities and cognitive dissonance.
My Conversation with Henry Farrell
An excellent episode, here is the audio and transcript. We ranged far and wide, starting with Huawei and weaponized interdependence, moving later to the Facebook supreme court, Karl Polanyi, Ireland, and Gene Wolfe and Philip K. Dick. Here is one excerpt:
COWEN: Arguably, dominant firms are easier to regulate. And since you seem to favor some kinds of additional regulation on the major tech companies, does this mean we’re too worried about monopoly, that we actually want to keep around a few dominant firms, and that if we split them up into many small parts, there would be more chaos or more fake news or more privacy violations?
If some parts of what they do are bad, and you get more competition in the bad, don’t we just want to put in GDPR barriers to entry, not quite public utilities, but keep them big and fat and happy and somewhat not so dynamic, yes or no?
FARRELL: It depends on what you value.
COWEN: But what you value.
FARRELL: Yeah. Let me put the tradeoff to you this way. If you value security, if the highlight is on security, then the answer is, you probably want to keep big companies around because you’re going to want to impose broad standards. You’re going to want to create collective security goods, and the only actors that can really do that in a substantial way are big businesses of one sort or another.
If, alternatively, you value things like privacy and other kinds of rights, then you probably want to move towards an equilibrium in which there are far, far fewer big firms. So that’s where I see the fight being played out. I see the fight being played out between people who value security and people who value privacy. I think they point in somewhat different directions.
COWEN: And where are you on that spectrum?
FARRELL: Well, it depends on the time of the day, and I find myself —
COWEN: It is 2:22 p.m.
And:
FARRELL: Well, I guess the question for me is — and again, this is a wide open question because we simply don’t have enough good empirical research — but what is the relationship and the broader ecology between companies like 8chan and companies like Facebook? I suspect that companies like 8chan will be far, far less successful if there weren’t much bigger platforms like Facebook that they could effectively grow upon.
So here are the arguments, something as follows. If you think about 8chan, and if you think about 4chan before it, they were basically meme factories. They were basically these places where these bored individuals hung out. You also created these memes in a kind of process of frenzied Darwinian evolution, where you desperately want to make sure that whatever you had said was on the front page because otherwise it would disappear forever. So you’ve got this survival-of-the-fittest thing, where incredibly valuable or incredibly effective memes go out and begin to populate the entire space.
But you need two things for that to work. First of all, you need a process of generation, and secondly, you need some kind of process of dissemination. You need other platforms which have far greater reach, which can then allow for these memes to propagate through the atmosphere.
I suspect that if we were in a world in which everything was at the scale of 8chan, rather than having a mixture of companies at the scale of 8chan and companies at the scale of Facebook, that the likelihood of this stuff spreading and becoming epidemic across the entire community of internet users would be far, far less. Obviously, we would have other problems then. But I think that the problems that we would face would be a very, very different set of problems from the problems that we face in the current environment.
Finally:
FARRELL: Yes. [Gene] Wolfe misleads us systematically, and clearly Severian is not a reliable narrator, but then neither is Proust’s narrator either. I think that if you really want to understand where Wolfe comes from, it really is Proust. His writing style is Proustian. His concern with time, with how it is that time works, is quintessentially Proustian.
And you don’t look to Wolfe any more than you look to other science fiction for characterization. I don’t think that’s the particular strength. What you do look for is a kind of a sense of the world. And in Wolfe, in particular, he provides this real understanding of how it is that the workings of society, and interestingly, conservative understanding of the workings of society.
I think of him almost as being Proust in reverse. Proust is describing a world in which the modern world is overtaking aristocracy. And that clearly is one of the great problems of Proust, what is happening on the social level. You have all of these aristocratic understandings: the Merovingian, all of these histories, all of these castles, all of this wonderful art, and they are being replaced by the modern world with its telephones, with its electric lighting, and so on.
And how do you think about this? How would you try to preserve what was happening in the past? What Wolfe does, which I think is an extraordinarily interesting thing, which would be impossible for anybody who is not a science fiction writer, is to take that and to reverse this and to imagine a world in which modernity has disappeared.
Recommended!
Who tips on Uber?
Men tip 12 percent more if their driver is a woman, but that’s entirely because they give more money to the youngest female drivers. The premium men pay to women behind the wheel shrinks as the women get older. By the time the drivers are age 65, it has virtually vanished. Women also tip other women more, but they don’t significantly change their tips based on the driver’s age.
Tips are highest between 3 a.m. and 5 a.m., and not surprisingly:
Tips are highest in small cities and the middle of the country. Riders in California and the Northeast weren’t great tippers.
Here is much more from Andrew van Dam at The Washington Post.