*The Economics of Enough: How to Run the Economy as if the Future Matters*
Assorted links
Win Steven Landsburg’s Money. Not!
Last week Steven Landsburg posted the classic puzzle:
There's a certain country where everybody wants to have a son. Therefore each couple keeps having children until they have a boy; then they stop. What fraction of the population is female?
Being clever and worldly you may suppose that you know the answer, just as I did. 50%, right?
Every birth has a 50% chance of producing a girl. This remains the case no matter what stopping rule the parents are using. Therefore the expected number of girls is equal to the expected number of boys. So in expectation, half of all children are girls.
Clever! Except Landsburg being even more clever shows that the correct answer is in fact less than 50% (with the exact number depending on how many families there are in the country).
Clever people don't like to be told they are wrong, however, so even after much explanation (follow Landsburg in the comments to the answer post) there remains disagreement. So Landsburg is offering a big money bet:
I am therefore offering to bet him $15,000 that I’m right (with detailed terms described below). If you agree with Lubos, this is your chance to get in on the action. I will take additional bets up to $5000 per person from all comers until such time as I decide to cut this off.
If you want in, you can read the conditions and bet against Steve here.
N.B.: The correct answer does not rely on selection effects (e.g. some families have a greater propensity to have girls) nor does it involve changing the question to the average fraction of girls in a family.
Querétaro notes
Enchiladas and crepes are especially common here, often with potatoes. The best meal cost one dollar and was bought on the sidewalk from a crouching elderly woman (for all the talk about "street food," often "sidewalk food" is where it's at). It was potato, nopalitos (cactus), finely ground white cheese, and a potent chile sauce on top of a fried blue corn tortilla.
At the local Arabic-Mexican restaurant, ten chalupas can be had for $2.10.
In Mexico never eat until you are full, because you will likely encounter something even better along your way. What is hard is not finding the food but rather enforcing the optimal stopping rule.
If you are trying to argue that Mexico is a "normal" country, this city is your Exhibit A.
The much-vaunted decline in the Mexican birth rate is somehow not in evidence here; perhaps that is an artifact of who visits the Christmas displays. Plenty of police are out with guns, as a signal to deter a potential drug gang invasion.
The aquaduct has 74 arches, some as high as 30 meters; opened in 1738, it was in its day considered the greatest engineering achievement of New Spain.
As Yana notes, on the streets you will see many examples of perfect competition.
Alfred Kahn passes away at 93
Assorted links
1. Heckman, Pritzker, and the Chicago City schools.
2. New summary/critique of libertarianism.
4. Population density: Fargo, DC, and Paris.
Women and alcohol
Is there a better blog post title? Here is the abstract of a new paper, "Women or Wine, Monogamy and Alcohol":
Intriguingly, across the world the main social groups which practice polygyny do not consume alcohol. We investigate whether there is a correlation between alcohol consumption and polygynous/monogamous arrangements, both over time and across cultures. Historically, we find a correlation between the shift from polygyny to monogamy and the growth of alcohol consumption. Cross-culturally we also find that monogamous societies consume more alcohol than polygynous societies in the preindustrial world. We provide a series of possible explanations to explain the positive correlation between monogamy and alcohol consumption over time and across societies.
That's by Mara Squicciarini and Jo Swinnen.
Are CEOS paid enough? A look at sudden deaths
From Bang Dang Nguyen and Kaspar Meisner Nielsen:
An efficient managerial labor market should compensate executives according to their contribution to shareholder value. We provide novel empirical evidence about the relationship between executive pay and managerial contribution to value by exploiting the exogenous variation resulting from stock price reactions to sudden deaths. We find, first, that the managerial labor market is characterized by positive sorting: managers with high contributions to value obtain higher pay. We find, second, that executives appear, on average, to retain about 80% of the value they create. Overall, our results are informative about the workings of the managerial labor market.
Catch Shares
Catch Shares are expanding in California, Oregon and Washington starting in January.
Under the catch-share system, fishery managers set an overall catch limit at the beginning of the season. Each fisherman will own a percentage of that catch. Just like shares in the stock market, the quotas can be traded or sold. The idea is that a market-based system will give fishermen more flexibility.
Not everyone is happy. Larry Collins, president of the Crab Boat Owners Association in San Francisco, is doubtful.
Collins is concerned that a market-based system will bring market manipulation. Under the rules, you don't have to be a fisherman to buy fish quotas, so it's possible that speculators or even environmental groups could buy into the market.
"You want hedge fund managers deciding when the people catch fish? Is that who you want to own your fish, or do you want to own them?" Collins asks.
Collins is also concerned about fishermen who make smaller catches. In Alaskan fisheries that use catch shares, some smaller boats opted to sell their fish quotas.
"That concentrated the resource in fewer and fewer hands. Now, I tend to think that public trust resources should be used to employ as many people as possible," he says.
Both of these features are benefits not costs. It's true that speculation can create bubbles and other problems but speculators also make the market more future-oriented and this will help to avoid the collapse of fishing stocks by making prices a better early warning system. Moreover, if environmentalists want to buy catch shares to increase the fishing stock then I am all for it. In Modern Principles, Tyler and I discuss how we bought and retired some SO2 making the air cleaner for everyone (you are welcome! :)).
Fewer, larger boats is also a benefit not a cost. Under the current system the influx of small boats is simply a form of rent-seeking which raises net social costs–too many fisherman chasing too few fish. Catch shares reduce over-capitilization in the industry raising productivity (see also Modern Principles on this point).
The main problem with catch-shares is setting the size of the catch, which inevitably is a politicized process. Massachussetts congressmen, for example, are trying to withold funds from NOAA until catch shares are increased. Nevertheless with so many fishing stocks nearing collapse it is clear that some limits are needed. Moreover, before catch-shares are put in place few people in the industry appreciate that temporary limits can lead to long-term increases in catch as the fishing stocks recover to sustainable levels. After catch-shares are put in place, however, it is sometimes the fishermen who lobby for greater limits not for monopoly reasons but as they come to recognize that a smaller limit leads to a larger stock and larger profits.
Here is my previous post, Reversing the Decline in Fish Stocks, on catch shares with more links.
Hat tip: Daniel Lippman.
Six euros a day is a lot for an altruist and enough for the selfish
These Indonesian miners,in primitive conditions not seen in most places for more than a century, often wear no protection,carrying up to 100 kilos of sulfur on their shoulders, climbing steep rocky paths and descending the volcano for 3 kilometers, bare foot, twice daily, choking from stinking, toxic fumes. For this shortened, blinding, gagging life in hell, they are paid 6 Euros a day. These conditions destroy their lungs, eyes and other tissues. “We work in hell,” said the miners, “our eyes and lungs burn the whole day, but there’s nothing we can do. Otherwise, we’re scared we’ll have nothing to eat.”
Here is a very good photo and I thank Steve D. for the pointer.
Kalamazoo beer exchange
Depending on what customers purchase, the prices will rise or fall.
“It’s an ever-evolving happy hour,” Flora said.
The prices will never go higher than around 10 percent the base cost, but will drop to as much as 50 percent below base cost.
For example, a Bell’s Two-Hearted Ale may be $3 normally.
But, depending on the “market” activity (i.e. patrons buying tendencies) it could be as much as $3.25 or as little as $1.50 (prices fluctuate in increments of 25 cents).
The prices will change every 15 minutes and there will be, at random, a “stock market crash” – signified by air horns – when all 28 beers are sold at a low rate for five minutes.
The full story is here and I thank Dave Kirsammer for the pointer.
Here is a picture of Kalamazoo.
Japanese claims about China
In reality, China’s residential property bubbles are obvious. But the real danger lies elsewhere. So-called “loan platforms” established by local governments pose a much more serious risk. In the 1990s, China centralized its tax system and rendered local governments dependent on Beijing’s coffers. In order to make up the budget shortfall, local governments established these funding vehicles through which they can obtain commercial loans. In 2008, when Beijing mobilized a massive Â¥4 trillion pump priming, it ordered local governments to bear one-third the cost themselves. This triggered a stampede. As of the end of June this year, there are 8,221 platforms and their outstanding loan balance is Â¥7.7 trillion, of which 20 percent to 25 percent are deemed “problematic” by the China Banking Regulatory Commission.
That is from The International Economy, Fall 2010, from a senior and anonymous Japanese official, not on-line. Bernard Connolly discusses a related scenario and considers whether such defaults might lead to a depreciation (!) of the yuan. You should consider the claims speculative, though I do not think you should dismiss them.
For the pointer I thank Steve Hanke.
Assorted links
Are unions the enemy of the arts?
At Avery Fisher Hall and Alice Tully Hall in Lincoln Center, the average stagehand salary and benefits package is $290,000 a year.
To repeat, that is the average compensation of all the workers who move musicians' chairs into place and hang lights, not the pay of the top five.
Across the plaza at the Metropolitan Opera, a spokesman said stagehands rarely broke into the top-five category. But a couple of years ago, one did. The props master, James Blumenfeld, got $334,000 at that time, including some vacation back pay.
How to account for all this munificence? The power of a union, Local 1 of the International Alliance of Theatrical Stage Employees. "Power," as in the capacity and willingness to close most Broadway theaters for 19 days two years ago when agreement on a new contract could not be reached.
The full article is here and I thank Victor N. for the pointer.
Books to crave: *A Great Leap Forward: 1930s Depression and U.S. Economic Growth*
From the ever-interesting Alexander Field:
This thoughtful re-examination of the history of U.S. economic growth is built around a novel claim, that potential output grew dramatically across the Depression years (1929-1941) and that this advance provided the foundation for the economic and military success of the United States during the Second World War as well as for the golden age (1948-1973) that followed. Alexander J. Field takes a fresh look at growth data and concludes that, behind a backdrop of double-digit unemployment, the 1930s actually experienced very high rates of technological and organizational innovation, fueled by the maturing of a privately funded research and development system and the government-funded build-out of the country's surface road infrastructure. This substantive new volume in the Yale Series in Economic and Financial History invites renewed discussions on productivity growth over the last century and a half and on our current prospects.