Results for “model this” 3165 found
The economics of storage
Data storage is becoming cheaper at rapid rates. This is one reason why I don’t ever expect a totally converged information superhighway, supplying our television, computer, music listening, etc., all in one service. Why obsess over your piping when you can have milk delivered cheaply at your doorstep? Netflix and Google’s Gmail, rather than Verizon, may represent our cultural future. Data storage and delivery also tend to be less regulated than centralized piping, plus they limit natural monopoly problems. Under this alternative model, I might receive “cultural disks” in the mail, every month or week, and decide what on those disks I am willing to pay for. Yes there will be hackers but we will be rich, the discs will be cheap and convenient, and they will offer ancillary services of organization and presentation. I can hardly wait, except now I remember I don’t even have time for the current menu of cultural offerings.
Addendum: One reader sent me this data set on the falling price storage on hard drives.
Can art trusts work?
One reader wrote me the following:
…artists who put works into the pool are depositing them at full value, tax free, right? If they instead sold these works, they’d lose 50% to a gallery and then another 50% (the marginal tax rate of any minimally successful self-employed person, even me) to Uncle Sam etc. In other words, if they sold art and invested the cash they’d only have 25 cents on the dollar to put into stocks and bonds. The question is whether any money manager could overcome this enormous handicap.
Besides, most artists tend to have more works than they can sell into such an inefficient market. For this and the reasons above, the cost of contributing to this fund may be close to zero for all but the most wildly successful participants.
What does it cost to set an art work aside?
Let’s say that the art trust can store the work at the same cost as a gallery. Then the artist already has done all the storing that he or she wants to do. Storing more works, all other things equal, is a cost rather than a benefit. And tax must be paid once the works are sold, in any case. Furthermore, when it comes time to sell the works and get the best price possible, the trust is no more effective than a gallery, and arguably less so. In fact the trust might resort to a gallery or auction house in any case, simply postponing the selling costs.
Perhaps the artist has pictures that he cannot sell at all. Why not put them into the trust? Fair enough, but if no gallery will take these pictures, how can the trust make them profitable?
The deal makes the most sense when an artist currently has an exclusive dealing agreement with a gallery. Such an artist might prefer to siphon off works to other channels, as a form of price discrimination, but is not allowed to. The sponsoring gallery does not want its market to be ruined. The trust might allow the artist to achieve market segmentation without it being labeled as such.
Nonetheless the artist pays a price for this new outlet. You have to accept a risk position in the pictures of others. Furthermore this price discrimination motive suggests that each artist will be putting his lesser pictures into the trust. You don’t want to “shade price” on your very finest pictures.
Another reader wrote:
I’m not persuaded that the art trust wouldn’t be an effective model. It doesn’t seem a lot different than the risk dilution idea of a blackjack team or the cross-trading that goes on between friends in a large poker tournament.
Again, a very good point. But you wish to share risk in this fashion when you know that you (and your team) can beat the market. In this case you are confident but want protection against bad luck. If you felt that the artists in the pool were all above-average, relative to their current prices, you might find the trust attractive. This would require each artist to judge the other artworks in the pool, which involves high information costs.
Perhaps the trust helps solve a “durable goods monopolist game.” That is, the artist wishes to precommit not to sell works in the near future. Buyers may be afraid that if they buy today, the price will be lower tomorrow. Perhaps the trust can take works off the market more effectively than a gallery can. This would provide some argument for the trust. But of course the artist must also prove to buyers that he has locked up his future output to the requisite degree; this may prove difficult.
A final issue is one of trust in the intermediary. Life insurance, or savings banks (pre-deposit insurance), promise to pay you back in a distant future. Virtually all depositors or policyholders have preferred large, solid institutions with high levels of capitalization. Older banks had fancy columns to signal they will be around for the long run. Otherwise there is simply too much risk that a small intermediary will go under. If you are “lending” a painting to an artistic venture, why not look for the most conservative and thickly capitalized institution possible?
In closing, I will repeat my bottom line from my previous post on the topic:
…decompose the transaction. Half of your income stream remains tied up in your own art and thus risky, minus the twenty percent of course. With the other half of your pension you decide to invest in not-yet-totally-famous artists. Would anyone recommend such purchases on their own merits? Is that your idea of insurance?
That being said, it is the market, not I, who will have the final word in this matter.
Why are people conservatives or liberals?
I’ve long suspected that many political debates boil down to a relatively small number dimensions or core value judgments. And I believe these values often are rooted in basic personality.
George Lakoff tries to put some meat on these bones. In a nutshell, he sees conservatives as siding with a “Strict Father” model, and liberals as siding with a “Nurturant Mother” model.
Lakoff writes:
My findings indicate that the family and morality are central to both worldviews…What we have here are two different forms of family-based morality. What links them to politics is a common understanding of the nation as a family, with the government as parent. Thus, it is natural for liberals to see it as the function of the government to help people in need and hence to support social programs, while it is equally natural for conservatives to see the function of the government as requiring citizens to be self-disciplined and self-reliant and, therefore, to help themselves.
The linked essay presents the hypothesis in more detail. For more detail, buy Lakoff’s fascinating book, Moral Politics. Note, however, that he definitely sides with the liberal point of view. I would argue, in contrast, that liberals misapply what is good family policy to larger polities, where a stricter and more impersonal approach is appropriate.
My take: I’ve never met an intelligent person who couldn’t come up at least five good objections to Lakoff’s thesis. But Lakoff’s writings make more progress on a difficult topic than anything else I have read to date. They also explain, in my view, why libertarianism, in practice usually ends up closer to the right wing than to the left. “Individual responsibility” is a core moral intuition for most libertarians, and this puts them closer to conservatives, despite the considerable differences.
That all being said, let’s say you realized that your political views followed from your core personality. Let’s say also that personality is something that, in large part, you do not choose. Either you are born with it, or your upbringing shapes you from an early age. Shouldn’t that make you less rather than more confident of your political views? After all, it would be a mere genetic accident that conservative or liberal politics should feel as right to you as they do.
Media Bias
Discussions of media bias are a sort of political Rorschach test – what you see depends on what you already believe. Despite this, I think the evidence is consistent on a few points.
1. Journalists tend to be more liberal than the average American. A recent Pew poll confirms previous studies of journalists. In this study, journalists did not describe themselves as liberal (which previous studies did find to be very common) but their attitudes tended to be very liberal. For example, 51% of Americans thought homosexuality should be accepted, while 88% of journalists in the national media thought so.
2. Very few journalists describe themselves as conservative. In the same Pew poll, 33% of Americans described themselves as conservative while 7% of journalists said they were conservative. Previous studies have found that journalists overwhelmingly vote for Democrats, except during the 1950’s – probably because Eisenhower was the most liberal of recent GOP presidents, when compared to the competition.
3. Analysis of American news consistently shows biases. In the 1990’s, for example, numerous studies found that it was relatively rare for ex-GOP leader Newt Gingrich to get positive press coverage. I found it interesting that one study found Bob Dole’s coverage was about 50% positive/50% negative. I wonder what it was about the future Viagra spokesman that made him lovable by the media?
Those who see the media as dominated by conservatives probably focus on Rush Limbaugh, the Fox network and some other high profile conservatives. They could also justly point out that media is big business, and owners probably favor legislation that benefits them (a la Rupert Murdoch), even though some media entrepreneurs such as Ted Turner are quite liberal.
So here’s my analysis of media bias: the journalism profession, on the average, is quite liberal and they also believe in the ethic of objective reporting. This creates a situation where much reporting is probably informed by liberal values, but presented in a “manner of fact” way. As a result, there are a lot of angry conservative readers and viewers who are flustered by this type of reporting.
Since the whole journalism profession is pretty much liberal, it’s probably hard for more conservative owners to impose their will on the newsroom – although they try quite hard sometimes. The end result – an untapped market of conservative viewers that can be catered to by the likes of Limbaugh and the Fox network. The Al Frankens of the world probably focus on the high-profile conservatives (like Rush) and ignore the average news reporter, while the Limbaugh’s obsess over the New York Times – a model for much of the journalism profession – and ignore successful niche players such as Fox.
Jean-Jacques Rousseau’s public opinion theory
It’s pretty well known that Rousseau thought that the public was always right. But while reading On the Social Contract translated by Donald A. Cress, I came upon this less frequently discussed quote:
“The former [‘will of all’] considers private interest and is merely the sum of private wills. But remove from these [private] wills the pluses and minuses that cancel each other out, and what remains as the sum of differences is the general will,” which Rousseau claims in the previous paragraph is “always right” and tends towards the “public utility.”
This is an interesting public opinion theory. It assumes that aggregate public opinion has two components – a selfish and biased component and a component that produces the “right” public policy. The difference between the optimal policy and the median voter’s policy is due not to ignorance or systemic error, but to selfish desires that undermine the provision of public goods. If readers know of a published formal model of this theory, or applications of this theory, feel free to email me.
Girls’ names are more inventive
Her parents called her Apple Blythe Alison Martin, hardly a common moniker. The trend, however, is more general:
…the “mutation rate” in names is higher for girls than for boys. Parents, in other words, are more liable to be inventive when choosing a name for a baby girl. The researchers have found that for every 10,000 daughters born in America there is an average of 2.3 new names. For sons, the figure is 1.6.
Why might this be?
One possibility is that in a society where family names are inherited patrilineally, parents feel constrained by tradition when it comes to choosing first names for their sons. As a result, boys often end up with the names of their ancestors. But when those same parents come to choose names for their daughters, they feel less constrained and more able to choose based on style and beauty.
Here is the full story. Here is another summary, with a link to the original research. African-Americans appear to be much more creative in naming than others, see Alex’s discussion.
The bottom line:
Most new parents copy existing names when naming their babies, say Bentley and his colleague Matthew Hahn of Duke University in Durham, North Carolina. Nonetheless, the overall distribution looks like a product of random copying, they demonstrate. Bentley and Hahn modelled the allotment of baby names in the United States during the twentieth century. The names follow a pattern called a power law: most names are present at a very low frequency, while a small handful are very common.
That being said, it remains a mystery why parents take more chances with the names of their baby girls. But here is the best part of the article, a paean to the leadership abilities of my parents:
But that does not explain the rise of Tyler, which first appeared in the top 1,000 in the 1950s, and reached the top ten in 1992.
I can remember a time when the only other “Tyler” in my mental universe was Henry Kissinger’s dog.
Oil prices and time
Allow me to quote the ever-intelligent Arnold Kling:
In forecasting oil prices, I tend to defer to the efficient markets hypothesis. In some sense, oil in the ground has to compete with bonds and other interest-bearing assets. So, a reasonable approximation is that oil prices should be expected to go up at the interest rate. So, if the interest rate is 5 percent, then oil prices should go up at 5 percent, plus something for storage cost. If people thought oil prices were going to rise faster than that, they would keep the oil in the ground. If they thought that oil prices were going to rise more slowly than 5 percent (if that is the interest rate), then they would sell oil and buy bonds.
So my tendency is to assume that markets are efficient and predict that oil prices will rise at the interest rate.
This is called the Hotelling rule. But hey, didn’t Julian Simon tell me that most natural resource prices, in real terms, are falling over time? And surely the evidence is on his side. What gives?
Is oil exempt from Simon’s prediction? (How do VCRs fit into the picture?, the gentle reader might ask…)
Do markets systematically underestimate the rate of technical change, and thus the rate of price decline?
Or are falling prices an equilibrium because arbitrage-ready inventories are already essentially zero (no more selling is possible and the Saudis won’t pump more), and natural resource costs of production are falling rapidly as well? In other words, yes prices are falling but you can’t sell tomorrow’s oil today at a profit. Prices will be lower tomorrow but costs of production will be lower too. Good enough, but then the Hotelling rule doesn’t hold at the relevant margin.
I’ve never had good answers for these puzzles. Here is one useful survey of some models and the literature, scroll down a bit for the most relevant parts. Try this article as well. This literature suggests that most of the standards “outs,” such as changing costs of production, or new discoveries, don’t square the circle for anything other than the short-run. Holding oil still ought to yield (risk-adjusted) market rates of return, unless again investors are fooled into underestimating how much prices will fall.
My take: In my gut I don’t believe in the Hotelling rule. But I couldn’t tell you why not; I do understand that the arbitrage conditions of the model are fairly simple. If you wish to create some disagreement over lunch, raise this question with some economists you know. In the meantime, if you’re not confused, it means you don’t know what is going on.
Do deficits boost real interest rates?
Traditional economic theory says “yes.” Deficits require governments to borrow more in capital markets. The increased demand pushes up real interest rates; this effect should be especially pronounced when we are at or near full employment.
But for a long time standard empirical work said “no.” Significant real interest rate effects from deficits are hard to find in the data.
A puzzle, no? More generally there are few propositions about real interest rates that I find convincing.
While the debate remains unsettled, some recent research, published by the Federal Reserve Bank of Philadelphia, offers a new spin on the problem. The claim is that expected future deficits have a significant impact on real interest rates, even if current deficits do not. Announcements that future deficits will be high, for instance, appear to raise real interest rates. If correct, this theory would allow us to resurrect a classical view of the macroeconomy. Relative price effects would reign supreme and the case for fiscal responsibility would be cemented.
I would welcome these conclusions but nonetheless I have my doubts. Once you postulate that individuals are so forward-looking, should not Ricardian Equivalence hold? Then it is the level of government spending that should matter, not the level of the deficit. And doesn’t the entire hypothesis rest on the expectations theory of the term structure of interest rates? Yet the expectations theory otherwise appears to be falsified. If you don’t know those technical terms, the bottom line is the following. The basic model relating deficits to other macroeconomic variables is murky, yet this hypothesis assumes a fairly simple set of relationships.
So where are we left? I’ll suggest a macroeconomic law. When in doubt, opt for moderation. This holds for both deficits and future expected deficits. And I suspect Alex assents as well.
Thanks to Bruce Bartlett for the pointer. His blog is an excellent place to follow developments on fiscal policy and supply-side macroeconomics. Supply-side economics has a bad name in this country. In part some of the Reagan advisors oversold the idea that tax cuts would increase total revenue. Let’s not forget that supply-side ideas, when applied in the proper context, have proven successful in many other countries.
How to maximize the return from caffeine (and other stimulants)
Take small sips, and spread them out across the day. Don’t start your morning with too much coffee, yeah that means you too. Here is the full analysis, from the ever-insightful Randall Parker. This result reminds me slightly of the Barro-Gordon model of monetary policy. Don’t take your inflation all at once. If you haven’t had some inflation in a while, a mild dose of inflation can provide a nice stimulus.
Facts about Sweden
1. No new net jobs have been produced in the Swedish private sector since 1950.
2. “None of top 50 companies on the Stockholm stock exchange has been started since 1970.”
3. “…well over 1 million people out of a work force of around four million did not work in 2003 but lived on various kinds of public welfare programs, such as, pre-pension schemes, unemployment benefits, sick-leave programs, etc.”
4. “Sweden has dropped from fourth to 14th place in 2002 among the OECD countries (i.e., affluent industrialized countries) in terms of GDP per capita since 1970.”
Here is a more complete summary. Here is the paper itself. Here is Nils Karlson, the author of the relevant essay. Here is some debate on whether Sweden is richer than Mississippi and Alabama. Admittedly Sweden has a higher quality of public goods and offers more leisure time.
My take: I’m willing to take the Swedish model seriously. I’ve been to Stockholm several times and loved it. That being said, how attractive will this model remain when it offers only half of the per capita income of the United States?
This is a real question, not a rhetorical one. On one hand, freer societies will reap especially high benefits in an era of rapid technological change. On the other hand, the innovations of the United States, and other countries, indirectly subsidize Swedish government spending.
The marginal product of NBA players
Most of you have read Moneyball by now, so why not measure the marginal products of NBA players as well? After all, playoff time and the MVP award are just around the corner. Wayne Winston, professor of decision sciences at Indiana University, has tried to crack the numbers:
“Basketball’s a team sport, and lots of things aren’t tracked,” Winston says. “Like taking the charge, going through a screen, tipping a ball to your teammate, saving a ball from going out of bounds. That’s where our system comes in. All these little things should translate into points.”
One problem: Traditional plus-minus systems tend to overrate average players on good teams and underrate good players on lousy ones. After all, a zero plus-minus rating on the Los Angeles Lakers is not the same as a zero rating on the Los Angeles Clippers, mostly because one team has Kobe Bryant and Shaquille O’Neal and the other has Marko Jaric and Chris Kaman.
To compensate, Winval’s ratings are weighted to take into account every other player on the floor. For every time segment a player is in a game, the system tracks the other nine players on the floor, the length of the segment and the score at the start and end of the segment.”
In other words, he tries to measure marginal product in terms of points, adjusting for the values of the other players. The system is called Winval, here is the article, the paper version has more information. And who comes out on top? Please sit down, the five best players in the NBA, according to this measure are:
1. Hedo Turkoglu (who? he plays for San Antonio but doesn’t even start)
2. Vince Carter (a well-known star, but universally considered soft and a choker)
3. Kevin Garnett (the likely MVP for this year)
4. Brad Miller (very good player, but not elite)
5. Manu Ginobili (very good player, perhaps headed toward elite status)
Shaq, Kobe, and Tim Duncan are not in the top ten. None of the five, except for Garnett, crack a recent USA Today straw poll for NBA mvp. (By the way, here is last year’s Winval list.) Now maybe these rankings are right and conventional wisdom is all wet. Marginal product is, well…marginal product. But what are some other options?
1. A player with a high rank could have a really bad replacement, thus boosting his measured marginal impact.
2. Some players are “momentum” players, they are put in when the tide is turning.
3. Some players are wonderful for the time they play but could not keep it up for the whole game. They look great when you see them, but they are not worth very much overall.
4. The econometric model is somehow misspecified, but of course you can always say this.
The bottom line: I’m still puzzled by how much the measurements diverge from common sense. The NBA offers gobs and gobs of measurable information. Yet intuition remains indispensable when we try to estimate marginal product. By the way, Winval predicts that Mitchell Butler (who?, 13.4 minutes per game) is the best Washington Wizard.
Is the universe everywhere the same?
Maybe not. According to some recent research it is shaped like a funnel or a medieval horn. The link offers a useful picture. This would be big news indeed:
This model would force scientists to abandon the “cosmological principle”, the idea that all parts of the cosmos are roughly the same. “If one happens to find oneself a long way up the narrow end of the horn, things indeed look very strange, with two very small dimensions,” says Holger Then, a member of the team.
At an extreme enough point, you would be able to see the back of your own head. It would be an interesting place to explore – but we are probably too far from the narrow end of the horn to examine it with telescopes.
Ponder that if you want some distraction from your taxes. The universe would be finite as well. This might eliminate the paradoxical notion that I have a near-double out there somewhere, writing a blog called MarginalCounterRevolution.
But are we sure of the result? Of course not:
Both of the crucial observations are still ambiguous, however, and may be statistical flukes. Over the next year or so, WMAP and other experiments will test whether large blobs really are lacking and whether small ones really are elliptical.
The bottom line: When I hear more on this, I’ll let you know.
War Politics
In 1995 the most prestigious journal in economics, the American Economic Review, published one of the most controversial papers in its long history, War Politics: An Economic, Rational-Voter Framework (JSTOR). Gregory Hess and Athanasios Orphanides modeled voters as caring about two presidential abilities, the ability to make war and the ability to manage the economy. To get reelected an incumbent President must convince voters that his combined abilities make him better than a challenger.
This simple model has some profound implications. If the economy is doing well, the President is up on one score and without evidence can be assumed to be as good as the challenger in war-making ability. Thus, the President gets reelected. But if the economy is doing badly then an incumbent who cannot present evidence that he is of superior war-making ability will lose for certain. Crucially, an incumbent can’t demonstrate war-making ability without a war – thus when the economy is doing poorly and the President is up for reelection the model predicts more wars.
Hess and Orphanides define a war as “an international crisis in which the United States is involved in direct military activity that results in violence.” Using data from the International Crisis Behavior Project they compare the onset of wars in first terms when there is a recession with the onset of wars in first terms with no recession and second terms. If wars are random these probabilities ought to be the same. Stunningly, however, they find that in the 1953-1988 period wars are about twice as likely in first terms with a recession than in first terms with no recession and second terms (60 percent to 30 percent). The probability of this result occurring by chance is about 5%. Various extensions and modifications produce similar results.
Need I mention that the Hess and Orphanides model has proven to have predictive power?
An impossibly crude theory of museums
The ever-insightful David Nishimura asks why museums are so strongly discouraged from selling works in their inventories. I have seen (informal) estimates that U.S. museums display no more than five percent of their collections over a few years. Nishimura asks:
In fact, museums often end up with stuff that they cannot exhibit or that is of little or no relevance to what they are all about (it’s not only relatives who end up receiving gifts that are better intentioned than chosen!). Storage space is another issue, as is the cost of insurance.
Museums also evolve over time. Nearly all older American museums, for example, started out with collections of European paintings of decidedly mediocre quality. Skip forward a few generations, and those museums’ galleries are at an entirely different level — the legacy of wealthy patrons, vastly improved connoisseurship, and the dispersal of so many old European collections. And so what was once exemplary is now the stuff sold in bulk by third-rank auction houses. Is it so bad that such works be sold off, especially if the proceeds can be used to acquire better items not well represented in the collection?
In practice, museum directors who “deaccession” artworks come under heavy criticism. Why? Here is where a very crude theory, too crude to possibly be true, comes in.
Stop thinking of visitors as the museum’s customers. Instead the customers are the donors. Donating a picture is like spending money. The donor gives a Picasso to MOMA, in return purchasing the feeling of “having given a Picasso to MOMA.” This yields tax, networking, and other privileges in this life, as well as a long-term legacy. Museums, in turn, take some care to attract viewers, so that their real customers — the donors — have greater feelings of satisfaction about the whole enterprise.
In this “model,” selling off artworks makes customers (donors) nervous. “How do I know they won’t sell off my [sic] Picasso once I’ve died?” It is only a slight reassurance to respond: “We only sell off the second-rate pictures in our inventory.” So museums sit on their huge and growing stashes of art. In this manner they signal their trustworthiness to future donors.
Under some assumptions this outcome is roughly efficient. Donating a picture to a vault is how that donor wishes to “spend” her resources. The donor may self-deceive into thinking that the donated work is a masterpiece. By the time the truth is revealed, she has passed away. Subsequently selling the work to a museum in Topeka would damage future donors more than it would benefit Kansas viewers. The museum community, of course, does not like to admit that its donors are the primary customers (how would viewers and government funders feel?), so it must present other reasons why deaccessioning is bad. At the same time the museum faces a “time consistency” problem, and would like nothing more than to sell off its dross.
The policy bottom line: Government funding eases museum needs for funds, and makes it easier for museums to keep pictures in vaults. The funding subsidizes the legacies of dead donors, eases time consistency problems for future donors, and limits the real supply of art, to the detriment of viewers. That’s just in this fantasy model of course, not in the real world.
Kristof on child labor
Here is Nicholas Kristof on the terrible consequences of so-called international labor standards.
It’s appalling that Abakr, like tens of millions of other children abroad, is working instead of attending school. But prohibiting child labor wouldn’t do him any good, for there’s no school in the area for him to attend. If child labor hawks manage to keep Abakr from working, without giving him a school to attend, he and his family will simply be poorer than ever.
And that’s the problem when Americans get on their high horses about child labor, without understanding the cruel third world economics that cause it. The push by Democrats like John Kerry for international labor standards is well intentioned, but it is also oblivious to third world realities.
Look, I feel like Scrooge when I speak out against bans on sweatshops or on child labor. In the West, it’s hard to find anyone outside a university economics department who agrees with me. But the basic Western attitude – particularly among Democrats and warm-and-fuzzy humanitarians – sometimes ends up making things worse.
Kristof goes beyond attacking soft-headed thinking, he also suggests a soft-hearted alternative.
It’s bribery. The U.N. World Food Program runs a model foreign aid effort called the school feeding program. It offers free meals to children in poor schools…. “If there were meals here, parents would send their kids,” said Muhammad Adam, a teacher in Toukoultoukouli.
School feeding costs just 19 cents per day per child.
I spoke with officials at the World Food Program [you can donate at this link, Alex], and they’d be thrilled to have private groups or individuals help sponsor school feedings. Children in Africa will be much better off with a hot meal and an education than with your self-righteous indignation.So here’s my challenge to university students: Instead of spending your energy boycotting Nike or pressing for barriers against child labor, why not sponsor school meals in places like Toukoultoukouli?
Aside: The only thing Kristof misses is that the soft-hearted demand for international labor standards often masks labor union protectionism. Another case of bootleggers and Baptists. And here is Tyler with more on the economics of child labor.