Economist wins Nobel Peace Prize

by  Tyler Cowen in

The winner is Muhammad Yunus, economist (!) and founder of the micro-credit movement, along with his Grameen Bank.  Here is the story.  Here is his Wikipedia entry.  Here is my New York Times column on micro-credit.  Here is the best piece on what we know about micro-credit.  Here is Yunus’s book on micro-credit, which also serves as a memoir and autobiography.  It is a captivating and well-written story.

This is a wonderful choice.  The funny thing is, they never would have considered this guy for the Economics prize. 

I would write more, but a) read my column, and b) the Topalov-Kramnik sudden death speed chess tiebreakers are being played this morning, watch them live here.  Susan Polgar offers running commentary here.

Why hasn’t South Africa done well?

by  Tyler Cowen in

Dani Rodrik reports:

South Africa has undergone a remarkable transformation since its
democratic transition in 1994, but economic growth and employment
generation have been disappointing.  Most worryingly, unemployment is
currently among the highest in the world. While the proximate cause of
high unemployment is that prevailing wages levels are too high, the
deeper cause lies elsewhere, and is intimately connected to the
inability of the South African to generate much growth momentum in the
past decade.  High unemployment and low growth are both ultimately the
result of the shrinkage of the non-mineral tradable sector since the
early 1990s.  The weakness in particular of export-oriented
manufacturing has deprived South Africa from growth opportunities as
well as from job creation at the relatively low end of the skill
distribution.  Econometric analysis identifies the decline in the
relative profitability of manufacturing in the 1990s as the most
important contributor to the lack of vitality in that sector.

Here is a non-gated version of the paper.  The bottom line is that South Africa is de-industrializing. 

If you read only one book by Orhan Pamuk

by  Tyler Cowen in

The White Castle is short, fun, and Calvinoesque.  Not his best book but an excellent introduction and guaranteed to please.  Snow is deep, political, and captures the nuances of modern Turkey; it is my personal favorite.  The New Life isn’t read often enough; ideally it requires not only a knowledge of Dante, but also a knowledge of how Dante appropriated Islamic theological writings for his own ends.  My Name is Red is a complex detective story, beloved by many, often considered his best, but for me it is a little fluffy behind the machinations.  The Black Book is the one to read last, once you know the others.  Istanbul: Memories and the City is a non-fictional memoir and a knock-out.

Auction strategy and dating

by  Tyler Cowen in

In a standard English auction participants keep on bidding until one person is left with an unambiguously highest offer.

In a Dutch auction, which is used to sell tulips, the auctioneer starts out with a high price and keeps on lowering it until someone bites.  The auction then ends.

A large literature considers the conditions under which these two approaches yield the same expected revenue. 

In terms of dating, if you run an English auction you go out with many people, if not simultaneously then relatively closely bunched in time, and you stick with the one who offers the most.  If you run a Dutch auction you signal clearly your standards (lowering the standards over time if need be), and stick with the first person who bites.

I believe that strongly Christian women are more likely to run a Dutch auction.  Perhaps non-religious women are more likely to run Dutch auctions as they get older.

The economics literature suggests that if bidders are risk-averse, the Dutch auction is more likely to yield higher revenue (in the limiting case, grab quickly any positive consumer surplus, before it goes away).  Alternatively, if the seller thinks that bidders would be more enthusiastic if they saw each other’s ongoing bids, this tends to encourage an English auction.  In other words, hidden but not too hidden qualities encourage English auctions.

Here are other kinds of auctions.

Demand curves slope downward

by  Tyler Cowen in

A fact or two which Krugman leaves out about the Medicare drug coverage:
— If you don’t want a doughnut hole, you don’t have to have it.
> In every area, there are plans which cover drugs in that coverage
> gap.
>
> — There are also plans offering no deductible.
>
> — The original estimate of premium was $37. Then it went down to
> $32. In every state but Alaska, you can get coverage for less than
> $20. And in many states, there are plans for less than $10 month.
>
> — When the Medicare bill became law, people said no companies would compete for the Medicare drug coverage. That has turned out not to be true, and the competitive marketplace has helped drive down costs for taxpayers and those in Medicare.

Why is it so hard to keep the house clean?

by  Tyler Cowen in

The simplest hypothesis is that we like to complain about a dirty or messy house but in fact we are observing an optimum.  We just don’t want to put more time in.

The behavioral economist believes we are making the same mistake over and over again.  What might that mistake be?

1. We clear away papers, books, and dirt, but we do not develop new systems for preventing their future accumulation.  In other words, we reduce the immediate stress but discount the future stress of future dirtiness at too high a rate.

2. A free-rider problem, combined with ill-defined property rights, means that piles accumulate repeatedly.  Cleaning is like removing a few cars from one lane of a two-lane highway.  New cars (piles) step in quickly to fill the temporary gap.  In a multi-person household, cleaning just shifts the traffic into different lanes rather than pricing the road.

A real solution might involve the random destruction or taxation of the property of other household members, so as to limit accumulation in the first place.  Bonuses for savings could help as well, since savings are a relatively liquid and low storage cost means of carrying wealth.

3. We overrate the liquidity value of inventories.  We want many things at hand which are of little or no use, perhaps because of an endowment effect.  Most people should throw away anything they have not touched for the last three years. 

4. Framing effects mean that we can get used to many kinds of messes.  The real problems come from the people who keep their homes clean.  Tax them and their cleanliness, for the same reasons that Bob Frank wishes to tax status goods.

Here is my previous post Tyler Cowen, Ramist.  Here is my idea of how to clean up the house.  Here is my post on the tennis ball problem.

Should pro-immigration forces favor a fence?

by  Tyler Cowen in

I am beginning to wonder:

Legislation passed by Congress mandating the fencing of 700 miles of
the U.S. border with Mexico has sparked opposition from an array of
land managers, businesspeople, law enforcement officials,
environmentalists and U.S. Border Patrol agents as a one-size-fits-all
policy response to the nettlesome task of securing the nation’s borders.

Critics
said the fence does not take into account the extraordinarily varied
geography of the 2,000-mile-long border, which cuts through Mexican and
U.S. cities separated by a sidewalk, vast scrubland and deserts,
rivers, irrigation canals and miles of mountainous terrain.  They also
say it seems to ignore advances in border security that don’t involve
construction of a 15-foot-high double fence and to play down what are
expected to be significant costs to maintain the new barrier.

And, they say, the estimated $2 billion price tag and the mandate that
it be completed by 2008 overlook 10 years of legal and logistical
difficulties the federal government has faced to finish a comparatively
tiny fence of 14 miles dividing San Diego and Tijuana.

"This is the feel-good approach to immigration control," said Wayne
Cornelius, an expert on immigration issues at the University of
California at San Diego.

Construction of a fence, of course, would defuse many other pressures.  Here is the full story.

Hmm…

by  Tyler Cowen in

…some argue that since the last tickets sold are usually the most expensive, airlines have too much incentive to sell $1,000 tickets when no seats are available if the penalty is only $400 to bump a cheaper-fare passenger.

That is from the 10 October Wall Street Journal, p.D1.