Results for “concentration” 203 found
My question for Dani Rodrik
Politics works better in some areas than others. Fairfax County has wonderful parks, libraries, and schools. French politics has brought about a good health care system. There are many other examples. The mechanisms are various and often involve accident. Sometimes governments luck into good institutional arrangements. Sometimes a far-sighted visionary is at work. Tiebout competition, or efficient Beckerian bargains across interest groups, may kick in. Sometimes the median voter rules, that median voter is a good judge of outcomes, and what is good for the median is good for the nation as a whole. Sometimes venal interest groups control politics, yet the desires of those groups happen to coincide with welfare maximization.
We can, in principle, rank policy areas along a spectrum. Assign a "10" to the most efficient policy-generating areas and assign a "0" to the least efficient. Don’t worry too much about what the scale means, this is Blog Land.
Where do you put trade restrictions along this scale?
I give them a 1.5, at best a 2. I think trade restrictions are hardly ever generated by processes which coincide with the general welfare. I view trade restrictions as almost always motivated by the classic, crude "diffusion of costs, concentration of benefits" logic.
If we redefine the problem more broadly, it could be said that trade policy as a whole gets an 8 or a 9. Most of the wealthier countries, agriculture aside, have fairly free trade, as they ought to. But what if we focus on evaluating only the quality of the trade restrictions? How good are the restrictions we get in tracking the ideal welfare-improving restrictions?
I say 1.6438. That is why I think Bhagwati is essentially correct to be fighting "the last war." What is your number?
Does eliminating disease spur economic growth?
A loyal MR reader asks:
…is the flow of research against malaria and other targeted diseases
good or bad (or mixed) for the recipients? I have been a believer that
eliminating diseases would have a big impact on economic growth, but
Foreign Affairs recently had an article attacking the concentration of
charity dollars in a few diseases as tending to distort funding
allocations away from the most important local needs.
The fight against disease, taken alone, won’t improve matters much. There are, let’s say, thirty different major problems in sub-Saharan Africa. Eliminating any one of these problems will hardly matter, even if there is no Malthusian trap. Economic growth is all about complementary factors, and more generally it is hard to produce outputs of real economic value.
I favor Michael Kremer’s plan to offer prizes for vaccines against diseases in poor countries. It doesn’t cost a fortune, and its successes are as likely to boost other forms of aid as take away from them. The lives are worth saving for their own sake, and perhaps it will herald a larger push out of misery. But, taken alone, such an initiative won’t much improve measured economic growth.
On the other side of the debate, this Jeff Sachs paper argues that disease kills the young, thereby requiring excessively large families as a form of insurance, and underinvestment in the human capital of each child. Limiting disease might reverse this negative dynamic, though I am less inclined to see any unique lever in this kind of vicious cycle.
#42 out of 50.
People who are weirder than I am
No, I am not referring to other bloggers, I mean Allen Shawn (son of William, by the way, former editor of The New Yorker, and brother of actor Wallace). He is deeply phobic, about many things, and his new Wish I Could Be There: Notes from a Phobic Life outlines the phenomenology of his fears. I learned:
1. The greatest thing he has to fear is fear itself.
2. The imprinting of painful memories, such as knowing to avoid a lit fire, can backfire and create persistent phobias. His phobias are remarkably specific.
3. There is a deep and poorly understood connection between phobias and the more general phenomenon of neurodiversity.
4. Self-awareness ain’t no guarantee of nuthin’.
5. He claims that people placed in concentration camps (Theresienstadt) became depressed, but that their phobias usually disappeared.
6. The author has a deep interest in atonal music, which supports my hypothesis that it is mostly the neurodiverse who enjoy this art form. Other people simply can’t hear the patterns, and furthermore the music gets on their nerves.
Half of the discussion is deadly dull, but it is still one of the more interesting books so far this year.
Can we just scale up Denmark?
The ever-inquisitive Matt Yglesias asks why the successful social welfare policies of smaller countries cannot be scaled up to a larger level. I don’t know of serious work on this question (there are papers on whether smallness is an advantage for economic growth, but that is not the same issue), so we should not jump to hasty conclusions. Nonetheless I can think of a few factors:
1. Perhaps homogeneity is the advantage, not smallness per se. So a Denmark of 150 million people might work quite well, if only there were 150 million Danes. There aren’t, and if we imagine the Danish population growing they might not stay so homogeneous in nature. Peer effects dissipate or perhaps turn negative at some scale.
2. Perhaps the ability to dispense with federalism helps government efficiency in small countries. I favor federalism for larger units, such as the United States, but I think of it as a necessary evil. Singapore and New Zealand don’t have much federalism, nor should they.
3. Concentration of power in a major city may account for some of the special properties of small countries. It is often striking how many of the small-country elites went to the same high school, and they can strike efficient political bargains relatively easily; postwar Austria has been cited as an example. Larger size makes these Coasian bargains impossible. Note that Stockholm, Copenhagen, Helsinki, and Oslo are all far more important than the second cities in those countries.
4. Feelings of social solidarity are limited across space and across numbers, and this simply won’t change.
5. Orderly countries aren’t very interested in larger political units. The Nordic countries have in the past existed in larger political confederations, but somebody always was persnickety enough to break away. Many of the Nordic countries, even today, are relatively skeptical about the EU.
Addendum: Comments on this post seem to be working now…
What has mattered to economics since 1970
We compile the list of articles published in major refereed economics
journals during the last 35 years that have received more than 500
citations. We document major shifts in the mode of contribution and in
the importance of different sub-fields: Theory loses out to empirical
work, and micro and macro give way to growth and development in the
1990s. While we do not witness any decline in the primacy of production
in the United States over the period, the concentration of institutions
within the U.S. hosting and training authors of the highly-cited
articles has declined substantially.
That is from Kim, Morse, and Zingales; here is the paper.
Med Mal Price Gouging?
I have an op-ed in today’s Wall Street Journal on medical malpractice insurance premiums. Here’s a sample:
On its face, price gouging is a peculiar explanation
for recent increases in insurance premiums. Is greed new to the world?
Were insurance companies followers of Mother Teresa just a few years
ago? If greed and gouging are the explanations for rising premiums, why
did the St. Paul group — one of the nation’s largest suppliers of
medical malpractice insurance — pull out of the market in 2001? Were
the profits from all that gouging just too much for St. Paul’s guilty
conscience? And consider that almost half of doctors are insured
through mutual, i.e., doctor-owned, insurance companies. Are the
doctors gouging themselves?The gouging explanation fails more than the credulity
test. Price gouging can work only if firms have monopoly power — so if
gouging is the explanation for higher premiums, we would expect to see
higher premiums in states with less competition. My student, Amanda
Agan, and I tested this hypothesis in a study released two days ago by
the Manhattan Institute. Contrary to the gouging hypothesis, we found
that a 10% increase in industry concentration reduces premiums
by $2,200. The result makes sense if we remember that, to increase
market share, firms don’t raise prices but rather lower them. Wal-Mart
has grown into the nation’s dominant retailer by lowering prices, not
raising them.
An epistolary romance
Dear Sir or Madam:
You may love to see me smile, but I, however, love to see me eat.
Please send me coupons for free McDonald’s product, so that I may
continue to eat (and smile).
Thank you well in advance,
Tom Locke, eating enthusiast
CVS got this:
Dear Sir or Madam:
I am a health and wellness addict. Please send me a random product
which you think I would enjoy. It doesn’t have to be something big,
just something nice! I like surprises.
Thank you in advance,
Tom Locke, health enthusiast
What would happen if you sent one hundred letters like that to the leading consumer product corporations in the United States? Read here. You also could call this post "How to spend $39," "How to measure industrial concentration," "How to find corporate addresses," "Experimental economics, for real," or (how many of you get this one?) "Hoping for a durable goods monopolist."
Here is part (but not all) of the upshot:
Wrigley’s (#6) basically told me to buy my own gum – as well as exactly where to buy it.
I guess they figured since they’re nice enough to keep making it, I should be nice enough to keep
buying it. And I probably will. It’s interesting to note that Wrigley’s letter starts out,
"Thank you for visiting Wrigley.com". I didn’t visit Wrigley.com. I visited the post office.Smuckers
(#40) basically just said no. Nothing fancy or elaborate. Just no. And
a cute little Smuckers logo on their letterhead to top it off. Well…
the joke’s on Smuckers. I plan to run that letter through my juicer
and make my own jellies and jams. Boom!
Thanks to Cynical-C blog for the pointer.
The resettlement economics of Houston
"As tragic as it is for New Orleans, it is a boon for Houston." True? Are "broken windows" good for Houston? I tally the following gains and losses:
Gains:
1. Sellers with price greater than marginal cost will receive more profits. Here is one story on the Houston business boom.
2. Some disaster relief money will flow to the city.
3. Business relocation will sustain the urban real estate market.
4. Some new talent will seek to agglomerate in Houston rather than New Orleans.
5. Short-term nominal demand in Houston will rise, although this could be either a benefit or cost.
Losses:
1. Local taxes will rise to pay for shelters and the like.
2. Hotels, sports stadiums, and other public facilities will experience crowding.
3. Refugee issues will move to center stage; this will command political attention and perhaps creative divisiveness, hindering potential improvements.
Two historical examples: The fall of the Berlin Wall brought a temporary boom to West Germany but overall has not proved an economic blessing for the West. The initial demand shock was positive, but the new assets and resources did not prove complementary to the old. Second, the Mariel Boatlift dumped many Cuban refugees into Florida but wages and employment did not suffer. That suggests that the Houston poor will not suffer much from new competition.
I usually see economies of agglomeration as outweighing costs of congestion; I am even a fan of 20 million-plus population mega-cities, such as Sao Paulo or Mexico City. But as the German example shows, complementarity is key. You gain by working or living next to other people, but the spatial concentration of talent and assets should be guided by market prices and the pieces must be fitted together gradually, with some trial and error reshuffling.
The bottom line? Both the costs and benefits of resettlement will be overstated by partisans. The Houston boom won’t last long, and the costs will net out to put the city in a roughly break-even position.
My bet on oil prices
John Tierney is looking to bet that oil prices will fall. He can find some willing opponents here, and they will offer him the best odds available. I’ve been urging Alex to short real estate investment trusts; if he has already done so I fear for his ruin. Brad DeLong discusses Google. Jane Galt warns against such bets, on the grounds that timing is everything and no one knows when the bubble will burst.
It remains an open question why markets don’t sell long-term bets for those people who have "price knowledge" but not "timing knowledge." The longest-term NYMEX crude oil futures sell for 84 months ahead; admittedly a forward contract can stretch longer. But why can’t you make a 30-year bet on organized markets? I see a few hypotheses:
1. There are few if any people who have real price knowledge but not timing knowledge.
2. The disagreement in the market is about timing, so shorter-term contracts attract the attention and volume. You might disagree about whether something will happen this month or next, but you can’t argue about whether it will happen ten or eleven years from now.
3. Long-term contracts make economic sense and someday we will have them. Right now we are out of equilibrium. We await tolerant regulators and heroic entrepreneurs.
4. You can replicate long-term contracts by trading short-term contracts in successive fashion. The informed traders have enough liquidity and borrowing power to make this work. (But hey, if that is so easy, why not have even fewer oil futures contracts?)
5. Liquidity is scarce, and involves significant economies of concentration. Intermediaries limit the number of contracts, just as we have limited trading locales and trading hours. (Admittedly many of these limits have, for better or worse, broken down.) Remember when the French used to trade stocks just a few times a day?
Take your pick or add to the list. Unless you opt heavily for #3, the market is saying that a general knowledge of price — without a knowledge of timing — simply isn’t worth that much.
My bet on oil prices will be restricted to buying another economy car, next time around. It is better to spend the money on books anyway, no?
Thanks to Tim Bartlett for the pointer.
Underrated economists, a continuing series
Adam Smith was not the only classical economist to understand economies of scale. Edward Gibbon Wakefield had a well-worked out theory of the benefits of geographic clustering, along with a recipe for reform: force people to cluster together.
South Australia was a theory before it became a place. The theory owed most to the choice of place to Captain Charles Sturt. The gestation of the settlement in the seven years before the first colonists landed involved a blend of idealism and philanthropy, commercial speculation, comprise and muddle. The initial impetus of ideas came from Wakefield, whose theory of ‘systematic colonisation’ offered a partial solution to the perplexing economic and social conditions of Britain at the time. Wakefield’s views were not new, but he expressed them persuasively and they were well propagated by Robert Gouger who visited Wakefield in London’s Newgate Gaol in 1829 and discussed his theory of colonisation. In essence, ‘systematic colonisation’ required that all land should be sold at or above a fixed price and the proceeds should be used to provide free passage for a carefully selected labour force consisting of the young adult poor. The pace of emigration should depend on the volume of land sales, and a large degree of self government should be granted to the colonists in matters of land sales, emigration and revenue. As no convicts were to be admitted, no garrison troops would be needed; above all, such a colony should ‘be respectable’ and self-supporting.
The notion of concentration of settlement was added to the stock of theoretical ideals by an eighty year old radical political philosopher, Jeremy Bentham. He argued that the settlement should be founded on an entirely new principle entitled the vicinity-maximising-or-dispersion-preventing principle.
Read more here, and yes I am in Melbourne now. To this day most Australians live on the southeast coast. Here is material on Wakefield and New Zealand. Bentham is also much underrated, but that is for another day…
The Right speaks sense on global warming
The scientific debate over global warming is not so much over whether anthropogenic emissions will affect the climate. Rather it is over the nature and magnitude of the likely effects. Even the most ardent global warming skeptics within the scientific community believe that the increased accumulation of greenhouse gases in the atmosphere will have some effect. The policy question, then, is what (if any) measures are justified to prevent or mitigate such effects.
Most on the "right" argue that the best response is to do little or nothing. Whlie some advocate various "no regrets" policies to improve the efficiency of energy markets (and perhaps pave the way for alternative fuels) — as I did here — few conservatives, libertarians, or other free-market advocates believe the most reliable climate forecasts justify drastic measures to suppress the use of carbon-based fuels. The costs of such measures, many argue, are likely to swamp the costs of climate change, and more direct measures to address global ills that could be exacerbated by climate change (disease, flooding, weather extremes, etc.) would be far more cost-effective than reducing greenhouse gas emissions.
As an analytical matter, these assessments are probably correct — it is hard to justify one Kyoto on ecoomic grounds, let alone the dozen or so that would be necessary to stabilize greenhouse gas concentrations in the atmosphere — but that does not mean the proper "free market" climate policy is to "do nothing."
If property rights lie at the heart of free market environmentalism, than FME advocates should think seriously about the normative implications of human-enhanced climate changes that could disproportionately harm those portions of the world that have (at least thus far) contributed least to the problem. Even if a modest warming were, on balance, beneficial, the impacts would not be uniform. It may well be, as some argue, that increases in crop productivity and reduced energy costs in temperate regions will be greater than the costs to tropical regions, but this does not address the property rights concern absent some system whereby industrialized nations would compensate or indemnify less-developed nations. No such system exists — nor is it likely that existing international institutions could implement such a system — but that does not mean it would not be the first-best approach to climate change from an FME perspective.
I posed this issue to several of my FME colleagues. PERC Reports published the resulting dialogue here. I welcome additional comments below.
That is from Jonathan Adler, here is the link.
Which skills do computers reward?
Gligoric, on the basis of his own experience, considered the optimal age of a chess player to be 33-36. But today, with the appearance of powerful computers and the Internet, chess is rapidly growing younger. There has been a revolutionary change, not only in the process of preparation, but also in chess thinking itself: now there is little sense in relying, as before, on general evaluations of the type ‘unclear’ or ‘with compensation’ – you have to think very concretely. Instead of deep reflection and philosophising at the board, what has come to the forefront is the ability to calculate intensively and to maintain extreme concentration of thought throughout the game. Computer programs help young talents to quickly acquire the necessary knowledge, since a tenacious young memory can store a great amount of information, and deficiencies in positional understanding are compensated by precise calculation and the ability to maintain the tension of the struggle.
That is from Gary Kasparov, who really does know. It counters the usual belief that the rise of computers rewards broad human intuition, which the computer cannot so easily replicate. But Kasparov sees the question more clearly. It is not how humans and computers compete in chess, but rather how they can best cooperate.
Can it be true more generally that computers reward calculating ability more than general intuition? Perhaps the Internet gets the young up to speed on the facts in a given area and then they race ahead on their superior speed and analytical abilities. What can better teach these skills than a super-fast computer, noting that you can’t use the computer in all settings to replace the human.
I am reminded of my favorite dictum about academic co-authorship: the best co-authors are those with similar skills, not radically differing skills. Let’s not also forget that it is similar countries which trade the most with each other, not radically differing countries. So maybe the people who can best "trade" with computers are…er…people who are (relatively) like computers.
By the way, Kasparov just retired; he is 41 years old.
Why has classical music declined?
Why the world has gone off classical concerts is a conundrum in which
almost every reasonable assertion is disputable. Take the
attention-span thesis. Many in the concert world believe that its
decline stems from the public’s flickering tolerance for prolonged
concentration. If politicians speak in soundbites, how can we expect
voters to sit through a Bruckner symphony?It is a persuasive argument but one that I have come to find both
fatuous and patronising. Around me I see people of all ages who sit
gripped through four hours of King Lear, Lord of the Rings or a
grand-slam tennis final but who, ten minutes into a classical concert,
are squirming in their seats and wondering what crime they had
committed to be held captive, silent and legroom-restrained, in such
Guantanamo conditions…So what, precisely, scares them off? In a word, the atmosphere. The
symphony concert has stultified for half a century. It starts in
mid-evening and last two hours. The ritual cannot be altered without
inconveniencing the musicians and alarming the subscription audience;
so nothing changes.
My take: You can cite twenty factors, but my core hypothesis is simple. First, the stock of "non-classical" music is much better and much larger than it used to be. The competition gets tougher every year. Second, we are biologically programmed to respond to individual personalities in the arts, also known as celebrities. Classical music, as hard as it tries, cannot communicate such personalities with equal ease. The classics were not designed for electronic reproduction, most of the composers are long-dead, and the performers can innovate on the core material only so much.
How quickly will we adjust to global warming?
If the sea level rises considerably, the watery real estate of West Bengal will fall in value. Let’s say we knew that Calcutta would flood in fifty years’ time, how would the adjustment process work? Will people leave a dying city too rapidly or too slowly, as defined in economic terms?
Under one scenario, not everyone need leave the city. The city ought to shrink, but can survive at a less populated level. Furthermore then suppose that the stayers are better off, because they do not incur migration costs. Each person then will wish that others leave and he gets to stay. Migration will become a game of "chicken," and people will postpone leaving for as long as possible, hoping to be the lucky stayers. This is related to the reason why not all auto workers leave Detroit when the plant shuts down. They are hoping they will be rehired if/when a scaled plant reopens; everyone waits for the other guy to leave.
Alternatively, perhaps the flooding will be severe and everyone must leave Calcutta. Ideally the residents should coordinate on some new locale with urban increasing returns. Do you prefer to be the first one to leave or the last?
If the new locale is known, land rents might be bid up rapidly in anticipation of the forthcoming change. If you arrive first, you pay the higher rent without yet reaping the benefits from the new, still-forming city. You might rather wait for the others to come first. Markets will know this, and perhaps land prices won’t be bid up so much at first. The equilibrium likely involves mixed strategies and a partially successful solution. Of course many residents here in Calcutta don’t pay rent but rather sleep on the streets. They may be the ones who drive a satisfactory solution, since they can reap unpriced benefits from moving. Expect them to walk of course.
If the new urban locale is not known, it is hard for Calcutta residents to know where to go.
Note that if increasing returns are truly strong, having a long time to adjust may not help much. Once some of the city starts moving, the rest must follow. The period for adjustment becomes compressed, whether this happens right away or as the likelihood of flooding arrives.
I predict most residents will not form a new city to mimic the increasing returns of the old. Most likely, they will migrate to other very large Indian cites; when large numbers had to leave Pakistan during Partition, many of them settled in Delhi.
How costly will this additional concentration of population be? To Western observers, Indian cities appear impossibly overcrowded. But in income-adjusted terms, are Indian cities overcrowded at all? Might they be undercrowded and still capable of reaping additional economies of scale? In this case the real problem is that too many Indians keep a sentimental attachment to their rural areas, to the detriment of their potential urban neighbors. Migration out of Calcutta would again be too slow, relative to an optimum, but in absolute terms things would work out OK.
Adjusting for income, are American cities and suburbs more or less likely to be overcrowded than Indian cities?
Erratically Changing Labor Market Expectations
In From the Valley to the Summit: The Quiet Revolution That Transformed Women’s Work, Claudia Goldin informs that
…in the early to mid-1960s the labor force plans of young women, 14 to 21 years old, reflected the current labor market work of their mothers, their aunts, and possibly their older sisters. The expectations of young women regarding what they planned to do when they were 35 years-old were more in line with what older women were currently doing than with what the younger women would actually be doing in 15 to 20 years. Their expectations about their future employment were inconsistent with what they eventually did. But in the late 1960s and the early 1970s something began to change. Young women (14 to 21 years old) when asked by the NLS Young Women (1968) what they would be doing at age 35 began to offer answers that were more consistent with their actual futures. In 1968, independent of their age at the time, about 30 percent said they would be in the labor force at age 35. But in 1975 about 65 percent said they would be [see figure].
This change in labor market expectations was accompanied by an increase in educational investment and radical changes in educational concentrations as women shifted from majors that were job- or consumption-oriented to those that rewarded long-term investment in a career.
So what was the main driver behind those changes? According to Goldin, it was the birth control pill:
…the Pill lowered the costs to young, unmarried women of pursuing careers, particularly those involving substantial, upfront investments of time. The Pill fostered women’s careers in two ways. A young college woman in the mid-1960s who was considering whether or not to enter a program involving a considerable investment in her time had to factor into this decision its impact on her personal life (e.g., social life, marriage chances after the career investment period). Sex was highly risky in a world without a highly effective, female-controlled, and easy to use contraceptive such as the Pill. A pregnancy could derail a career. The Pill had a direct effect by reducing the risk, and thus the cost, of having sex. The Pill also had an indirect effect because it led to an increase in the age at first marriage and thereby produced a “social multiplier” effect. The Pill virtually eliminated one potent reason for early marriage and for many of the social trappings (e.g., going steady, engagements) that led to early marriage. With more men and women delaying marriage for many years after college graduation, the decision of any one woman to delay marriage to pursue a career meant that she would reenter a marriage market that would not be as depleted.
via The NBER Digest