Category: Economics
How would an implosion of cable revenue affect the NBA?
That is the topic of my latest Bloomberg column, here is one bit:
The decline of TV revenue is not the same as a decline of interest in the sport. NBA basketball is alive and well; it’s just that more people are cutting the cord on cable. They still might follow the NBA through its website, or watch highlights on YouTube, or share gifs on Twitter.
That shift is likely to favor the stars and the most athletic players, because they are more likely to be featured in very short clips. As for the incentives, player salary will matter less, and the desire to become famous on the internet — and thus win lucrative endorsement contracts — will discourage team play. Expect more attempts to produce spectacular sequences, even if that doesn’t always translate into wins. “Boring” but fundamentally sound teams — which are better to watch for a 2.5 hour game — will be disfavored by this trend. Sorry, San Antonio!
Here is another:
Another possibility is that the NBA will consolidate with fantasy basketball and video gaming to augment their revenue. The NBA already has plans to introduce an e-sports product. More speculatively, if more states legalize sports gambling, the league could enter into a revenue-sharing agreement with casinos or bookmakers. Imagine redesigning the playoffs to maximize the number of decisive games and thus boost betting interest — that could mean more but shorter playoff series. At least the fantasy component of such a basketball conglomerate might redistribute some of the attention back to players who are not superstars. Gamblers also tend to be well-informed about the teams they bet on, so this direction could encourage a smarter NBA, better designed for the nerds and fanboys.
Do read the whole thing.
How much do people value health insurance?
There is a new and very good paper on that question by Amy Finkelstein, Nathaniel Hendren, and Mark Shepard (pdf). In reality, the price elasticity of demand for health insurance is quite high, at least among lower-income groups:
How much are low-income individuals willing to pay for health insurance, and what are the implications for insurance markets? Using administrative data from Massachusetts’ subsidized insurance exchange, we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults…For at least 70 percent of the low-income eligible population, we find that willingness to pay for insurance is far below the average cost curve – what it would cost insurers to provide coverage to all who would enroll if the premium were set equal to that WTP. Adverse selection exists, despite the presence of the coverage mandate, but is not the driving force behind low take up. We estimate that willingness to pay is only about one-third of own costs; thus even if insurers could offer actuarially fair, type-specific prices, at least 70 percent of the market would be uncovered.
That is from both the abstract and conclusion. I do understand the ideal of universal coverage, but note this:
For example, we estimate that subsidizing insurer prices by 90% would lead only about three-quarters of potential enrollees to buy insurance.
The somewhat depressing and underexplored implication is that the beneficiaries do not love Obamacare as much as some of you do. In fact you may remember a result from last year, from the research of Mark Pauly, indicating that “close to half” of households covered by the unsubsidized mandate, by the standards of their own preferences, would prefer not to purchase health insurance. And that was before some of the recent rounds of premium increases, and overall these new results seem to imply even lower demands for health insurance relative to cash.
Now, I think it is an open question how much “non-paternalism” is the correct moral stance here. Maybe we should force upon people more health insurance than they would purchase in an adverse selection-free market, because a) they are ill-informed, b) they have children, or c) ex post we still need to take care of them in some way, if indeed their gamble to not purchase insurance turns out badly.
Do, however, note the words of the authors: “We conclude that the size of uncompensated care for low-income populations provides a plausible explanation for their low WTP.” In other words, many of the poor do not value health insurance nearly as much as many planners feel they ought to, in large part because they are already getting some health care.
In any case, consider a political economy point if nothing else. If you institute a policy that forces on people more health insurance than they think they wish to buy, do not be shocked if a huckster comes along offering them a supposedly better deal, and gets away with it.
Along related lines, consider also this result:
From the perspective of social welfare, to justify connecting the 5% least dense areas of North Carolina would require each adopting household value high speed wired broadband access at more than $1519 per month.
For the pointers I thank Peter Metrinko and Kevin Lewis.
William Baumol has passed away
He was one of the greatest of living economists, with contributions in numerous areas, including productivity, economics of the arts, contestable markets, environmental economics, and entrepreneurship theory. Here are previous MR entries on Baumol and his ideas.
The Paradox of India’s Vacant Houses
Walking around Mumbai I see many vacant houses and apartments and the statistics verify what I see on the ground, an astounding 15% of Mumbai’s housing stock lies vacant. In Mumbai, the slums are full but thousands of homes lie vacant. The share of vacant housing in Mumbai is only slightly higher than the national average of 12% (In comparison, the United States has a vacant homeowner rate of less than 2%.) Sahil Gandhi and Meenaz Munshi, two of my colleagues at the IDFC Institute, examine the paradox of India’s vacant housing:
Urban India has a severe shortage of housing, yet Indian cities have many vacant houses. According to the census of India 2011, out of the 90 million residential census units, 11 million units are vacant; that is about 12% of the total urban housing stock consists of vacant houses.
Gandhi and Munshi focus on two issues. First, government built housing is shockingly underused. In one centrally sponsored housing project in Delhi, for example, the government built 27,344 units and 26,288 lie vacant! Government housing has often been built far from jobs and public transport and in some cases the houses have been of low quality and lacking basic infrastructure. As the government acknowledged:
“In spite of the continuous efforts by the government, slum dwellers are reluctant to move to the houses built by the government due to lack of proper infrastructure and means of livelihood,” the statement to Parliament said, explaining further that the new houses often lack electricity and water, cheaply available–often through illegal connections–in slums. The new houses are usually not close to workplaces, the ministry acknowledged.
People living in India’s urban slums have often preferred to stay living in the slums rather than move to government built housing–which is really saying something.
Government built housing, however, is only a small part of the housing stock. The bigger problem is that owners of private housing would prefer to see their housing capital lie vacant than to rent.
Renting out a property is a risky affair in India due to perceived (often, correctly) difficulties of evicting tenants, particularly under the onerous regulatory framework of the various rent control laws that are still applicable across states in India.
….These laws fix rent for properties at much below the prevailing market rates and make eviction of tenants difficult. As a result, they increase perception of risk and distort incentives for renting. To get around this, leave and licence agreements are being used as an alternate legal mechanism to rent properties. Despite this, the legacy of rent control and policy uncertainty creates reluctance to rent. To provide an example of policy uncertainty, in 1973 the Maharashtra government brought the then existing leave and licensees contracts under rent control (Gandhi et al 2014). Instances like this have had an adverse impact on the confidence of investors and landlords.
As I pointed out in A Twisted Tale of Rent Control in the Maximum City it can take courts decades to resolve legal disputes, especially those involving land and tenancy so this further disincentives rental housing.
As Gandhi and Munshi note, the problems in the housing market exacerbate probems in the labor market (just as in the United States):
Without a vibrant rental housing market labour markets cannot function efficiently (see Shah 2013). Bringing the private vacant housing stock into the rental market and understanding and resolving the reasons for vacancy in the government provided stock could significantly improve efficiency in utilising available stock of housing.
See Gandhi and Munshi’s blog post and a forthcoming IDFC report on housing for more details.
Reviving productivity
That is a new series on Bloomberg View, here are the beginnings of the symposium. Here is Clive Crook on productivity as a moral imperative. Here is Noah Smith on the easy ways to boost productivity. Here is my piece on the human constraints behind the productivity problem, here is one excerpt:
The logic of the usefulness of face-to-face contact also shapes the geographic distribution of economic activity…
Given all this, at least three answers to the productivity problem suggest themselves. First, we can make online communities more vivid. E-sports, a diverse set of online competitions, have hundreds of millions of viewers. Through the development of internet fandoms and communities, many people now find these activities more exciting to watch than the World Series. Even chess on the internet has proved popular, as commentary and chat rooms make it more exciting for the viewers. The community-building tactics used by e-sports could be applied elsewhere.
Second, we can make face-to-face communities more effective. I am struck by the occasional scorn shown to ex-President Barack Obama for his past as a community organizer. Yet building communities is a critical skill for boosting business productivity in a service economy.
Third, individuals should read and cultivate Stoic philosophy in themselves, whether explicitly or as they might pick up from a best-seller. More self-reliance and less dependence on social cues for doing the right thing will increase economic performance.
There are more installments coming in the series.
Is rising consumer confidence coming from the elderly and the less educated?
Americans with degrees have been getting steadily less optimistic since mid-2015…
Americans without degrees are as optimistic now as they’ve ever been since the survey began nearly four decades ago. Only the peak of the tech bubble compares. By contrast, Americans with degrees are about as confident in the future as they were in September 2007, when the credit crisis had already begun…
Since the start of 2015, the outlook among the young has deteriorated sharply, albeit from a high base. Meanwhile, the expectations of Americans ages 55 and older have soared in the wake of the election to their highest level in more than fifteen years…
And this in sum:
The groups responsible for the aggregate change in sentiment are the least likely to experience big real wage increases and therefore the least likely to boost their spending. Moreover, they appear unwilling to translate their vague optimism about the future into specific expectations about behaviour.
So even if those expectations were reliable guides to the actual choices people make — something strongly debated among forecasters — there is little reason to believe the “Trump bump” in consumer sentiment is a harbinger for sharply rising real spending.
That is all from Matthew C. Klein. I would stress the broader point that in a polarized time such survey results may not be very reliable at all, and perhaps we should dismiss the pessimistic responses of the young as well.
What is the relevant uncertainty for climate change policy?
A number of people have climbed onto Twitter and outlined (correctly) how increased uncertainty about the impact of climate change increases the value of doing something about it. There is downside risk, and of course we wish to buy insurance against that in the form of a more active climate change policy. Still, that is not looking deeply enough. I see some of the relevant uncertainties as embodied in the following scenario, which is more about policy means than climate change science:
Following a Trump debacle, finally the Democrats win all branches of government and pass a climate change bill. There is a carbon tax, and further anti-coal measures, but it isn’t enough to shift energy regimes in a transformational sense (besides, truly transformational technologies require luck and “the right time” far more than price incentives). Instead the United States becomes more like Western Europe, with higher levels of conservation but no ground-breaking new energy source. Solar goes up by ten percentage points, and wind by two or three, given NIMBY opposition. Fracking becomes more efficient yet, which nudges fossil fuels back a bit onto center stage. Nuclear is closed down altogether, and hydroelectric also goes in reverse or stagnates. China is as China does, and they slowly move away from their installed coal base, in the meantime taking steps to control their particulate matter but not so much their carbon, copying America in this regard. India starts a shift from coal to natural gas but still has rising carbon emissions. Africa and Vietnam exceed growth expectations, with a lot of solar power to be sure, but not enough to counteract their growing industrialization. The carbon tax causes a mild recession in America, and environmentalism becomes less popular. The global boost in temperature continues, unchecked. The people who die each year from regular air pollution — six to seven million at last count — diminish in number with economic growth, but we react largely with indifference to that problem, because it doesn’t fit into domestic political struggles very neatly.
Now, to me something like that is the single most likely scenario, albeit with a lot of uncertainty. I am still happy to try remedial policy measures, and to try them now, if only out of non-complacency or perhaps just desperation. But come on, let’s be honest. If all you are doing is trying to combat uncertainty about the science, you are unwilling to look the actual problem square in the eye, just like the climate deniers, the very people you so much decry.
Why the gains from e-commerce are spreading across the country
Here is one reason:
We find that Amazon saves between $0.17 and $0.47 for every 100 mile reduction in the distance of shipping goods worth $30. In the context of its distribution network expansion, this estimate implies that Amazon has reduced its total shipping cost by over 50% and increased its profit margin by between 5 and 14% since 2006. Separately, we demonstrate that prices on Amazon have fallen by approximately 40% over the same period, suggesting that a significant share of the cost savings have been passed on to consumers.
That is from a new NBER working paper by Jean-François Houde, Peter Newberry, and Katja Seim.
*Dreaming the Beatles*
The author is Rob Sheffield and the subtitle is The Love Story of One Band and the Whole World. So far this year this is my favorite book, in part because it stretches genres in a creative way. In addition to being a study of fandom, celebrity, 1960s history, “how boys think about girls,” and of course the music itself, it is most of all a splendid take on small group cooperation, management, and the dynamic between John and Paul. I enjoyed every page of this book, and learned a great deal, despite having read many other books on the Beatles. Here is a typical passage”
The Beatles invented most of what rock stars do…They invented breaking up. They invented drugs. They invented long hair, going to India, having a guru, round glasses, solo careers, beards, press conferences, divisive girlfriends, writing your own songs, funny drummers. They invented the idea of assembling a global mass audience and then challenging, disappointing, confusing this audience. As far as the rest of the planet is concerned, they invented England.
A few of the more specific things I learned were:
1. For a while Stanley Kubrick was planning on making a movie version of Lord of the Rings with Paul as Frodo, Ringo as Sam, and John as Gollum. George was to be Gandalf.
2. When the cops raided Keith Richards’s mansion in 1967 and found cocaine, they threw it away because they had never seen it before and didn’t know what it was.
3. When Paul McCartney played an acetate of “Tomorrow Never Knows” for Bob Dylan, Dylan’s response was “Oh, I get it. You don’t want to be cute anymore.”
4. The French title for “A Hard Day’s Night” was Quatre Garcons Dans Le Vent, which translates roughly as “Four Boys in the Wind.”
The book is funny too:
I always loved this sentence in Our Bodies, Ourselves, the Eighties edition I had in college: “The previous edition of Our Bodies, Ourselves included a brief section on astrological birth control, which just doesn’t work.” So much going on in that sentence, dispatched with no drama. Maybe a shade of irony, but no hand-wringing — just a change of mind announced as efficiently and discreetly and decisively as possible.
And:
Paul has a compulsive need to feed his enemies all the ammunition they could want. The software of “don’t take the bait” was never installed in his system. No celebrity has ever been easier to goad into gaffes. I love that.
And:
As Lennon snapped in 1980, after getting asked one too many times if they [he and Paul] still spoke, “He’s got 25 kids and about 20,000,000 records out. How can he spend time talking? He’s always working.”
On the revisionist upswing in this book are Rubber Soul, “I’m so Tired,” “It Won’t Be Long,” and John Lennon’s “God.” On the revisionist downswing is Let It Be and Paul McCartney’s “My Love.”
Not for the unconverted, but I’m glad to see people writing books with me as the intended audience. Here is a quite insightful review, in which Chris Taylor writes: “…it may be the first book to encompass the entire Beatlegeist. If aliens land tomorrow, and demand to know why we keep on pumping this particular brand of music into space, this is the first book you would hand them.”
Loving winning vs. hating losing
Loving winning and hating losing are two fairly distinct motivations. For instance, a fairly joyless person may nonetheless be motivated by the humiliation of a loss, or a non-envious, non-spiteful type could receive great pleasure from being number one, while not minding if someone later climbs higher yet.
If you both love winning and hate losing that is especially useful in one-on-one, zero-sum competitions, such as chess and tennis, and also in most team sports and perhaps securities trading as well. Such people are more motivated, and motivated from more sides of their being, and if one of the emotions flags a bit the other is there to step in and maintain the pace and focus.
In venture capital, I suspect that hatred of losing may be a disadvantage. No matter how successful you may be, most of your individual investments will lose money and hatred of losing may make you too risk-averse. It might be better to have the ability to simply forget your losses and put them behind you.
For academics, it is more important to love gains than to hate losses. Provided they don’t embarrass you, your forgotten articles just aren’t that big a deal and everybody has them, including Nobel Laureates. A single key piece can make your career, however.
Is hatred of loss also unnecessary for book authors and music stars? Ideally, you would think they should take lots of chances, but the exact tracking of sales makes them more risk-averse and thus boosts the relative status of the loss haters. If they release a clinker book or album, the intermediaries are less keen to promote them next time around. To the extent intermediaries become more important, that boosts the loss-hating performers, because intermediaries themselves are somewhat loss-hating.
What is the correct mix of gain-loving and loss-hating for a Navy Seal? For a journalist? A lawyer, programmer, or engineer?
In a job interview, what question should you ask to discern if someone is a gain lover or a loss hater or both? Or neither!
Advice vs. choice
I do not consider this to be a confirmed result, still the basic mechanism is of interest, especially to analyses of complacency:
Despite the near universality of the maxim that one should treat others as one ought to be treated, even well-intended advisers often advise others to act differently than they choose for themselves. We review several psychological factors that contribute to biased advice. Absent pecuniary motives to the contrary, advice tends to be paternalistically biased in favor of caution. Policies that would intuitively promote quality advice — such as making advisers accountable, taking advice from advisers who value the relationship, or having advisers disclose potential conflicts of interest — can perversely lower the quality of advice.
That is from a paper by Jason Dana and Daylian M. Cain, via Rolf Degen. Here is further commentary from Degen.
Will tech start-ups spread throughout America more generally?
That is the topic of my latest Bloomberg column, here is the concluding paragraph:
The general spread of expertise, high housing costs in the most successful cities, and perhaps even a degree of intellectual complacency in Silicon Valley all may, looking forward, favor some of America’s laggard regions. There is no single answer to regional economic development, but finally some factors seem to be pointing in the right direction.
And this:
Mandel also estimates that the e-commerce sector has added 270,000 jobs to the American economy since March 2014, across multiple regions, and, in spite of all the recent problems, retail employment remains above its 2007 peak. Some additional good news is that e-commerce distribution jobs tend to be better paying and less of a dead end than most retail jobs. The warehouse and storage sector is growing dramatically, and those jobs are typically far from the wealthiest parts of the country — they are boosting Kentucky, Ohio and Tennessee.
In the last two years, again according to Mandel, “the regions outside the top 35 metro areas accounted for almost half of net new establishments,” compared with less than one-fifth of net new businesses during the seven preceding years.
And the opening:
Sometimes significant news doesn’t make much of a splash, and that was the case for a major transaction last week. PetSmart Inc. announced the acquisition of Chewy.com LLC for $3.35 billion, the largest e-commerce deal ever. Also notable is that Chewy.com, which sells pet products online, is based near Fort Lauderdale, Florida, rather than San Francisco or Seattle or New York. Might we be at a point where startups and e-commerce drive economic growth and job creation in many regions of the country, not just a few of the more famous (and expensive) areas?
Do read the whole thing.
*Masters of Craft*
The author is Richard E. Ocejo, and the subtitle is Old Jobs in the New Urban Economy. Here is one summary bit:
The three transformations that frame the content of this book — the restructuring of elite taste around omnivorousness, the changing of traditional community institutions into destinations of the new cultural elite in retail, and the recoding of work in the new economy — combine to explain how these jobs and businesses have become upscale, cool, and desired.
The jobs are bartender, distiller, barber, and butcher.
…these new elite manual labor jobs give men — mainly those of a certain race and social class standing — the chance to use their bodies directly in their work, as men did in the industrial era but do so less often today, as well as their minds, which grants them greater status in these jobs than they would otherwise have. They are simultaneously respected knowledge workers and skilled manual laborers, and perform their work in public. Men are thus able to use these jobs to achieve a lost sense of middle-class, heterosexual masculinity in their work.
I definitely recommend this book to anyone interested in the evolution of labor markets, how America will respond to ongoing automation, the production of status, and the role of men in an increasingly feminized society. It is more of an “thick description, insights throughout” book than an “easy to sum up the bottom line” treatment. Here is the book’s home page. Here is a very positive FT review of the book.
Llama wedding markets in everything
Save the drama for a llama on your wedding day. No, really! For brides getting married in the Portland, Oregon, or Vancouver, Washington, area, your llama dreams can now be turned into reality. Mtn Peaks Therapy Llamas & Alpacas is offering an exclusive service to brides and grooms who want to make sure their wedding is the most talked about event of the year. Because we mean, what’s more memorable than some dressed up alpacas at your reception?
Here is the story, from a bridal magazine, good photos at the link, via Catherine Rampell and also Jodi Ettenberg. Meanwhile I found this of interest:
A poll from the National Association of Home Builders (NAHB) of young Americans ages 18-to-25 shows that almost no millennials want a career in construction — a high-paying industry. 64 percent of these millennials said they wouldn’t even consider working in construction if you paid them $100,000 or more.
74 percent of young adults know what career field they want to pursue, and of these millennials, just 3 percent want a career in construction trades. What’s more stunning is that of the 26 percent who don’t know what career they want, 63 percent of these undecided millennials said there was “no or little chance regardless of pay” that they would work in construction trades.
That article is via Douglas Wolf, see also Bob Samuelson on millennials.
A Clark Award for economic history
I refer you to the excellent post by A Fine Theorem on David Donaldson, here is one excerpt:
Donaldson’s CV is a testament to how difficult this style of work is. He spent eight years at LSE before getting his PhD, and published only one paper in a peer reviewed journal in the 13 years following the start of his graduate work. “Railroads of the Raj” has been forthcoming at the AER for literally half a decade, despite the fact that this work is the core of what got Donaldson a junior position at MIT and a tenured position at Stanford. Is it any wonder that so few young economists want to pursue a style of research that is so challenging and so difficult to publish? Let us hope that Donaldson’s award encourages more of us to fully exploit both the incredible data we all now have access to, but also the beautiful body of theory that induces deep insights from that data.
The post is superb, yet A Fine Theorem remains underrated.