Future Imperfect

Economist David D. Friedman has posted a draft of his manuscript, Future Imperfect, and he welcomes your comments.

This book is about technological change, its consequences and how to deal with them.

. . .

Much of the book grew out of a seminar I teach at the law school of Santa Clara University. Each Thursday we discuss a technology that I am willing to argue, at least for a week, will revolutionize the world. On Sunday students email me legal issues that revolution will raise, to be put on the class web page for other students to read. Tuesday we discuss the issues and how to deal with them. Next Thursday a new technology and a new revolution. Nanotech has just turned the world into gray goo; it must be March.

Since the book was conceived in a law school, many of my examples deal with the problem of adapting legal institutions to new technology. But that is accident, not essence. The technologies that require changes in our legal rules will affect not only law but marriage, parenting, political institutions, businesses, life, death and much else.

ReHomesteading the Great Plains

Frederick Jackson Turner defined the frontier as a density of less than 6 people per square mile and declared that in 1893 the frontier was closed. But in the past fifty years, farming has become more efficient and millions of people have moved from the Great Plains to the coastal cities. As a result, the frontier has been reborn. Kansas is more of a frontier state today than it was in 1890!

Some people see the depopulation of the Great Plains as a wonderful opportunity to create the world’s largest wildlife reserve – the Buffalo Commons. Depopulation, however, is not pleasant for the people who remain who find themselves unable to afford those public goods and amenities supportable only with a larger population. Residents are fighting back, however, with an old policy, homesteading.

It’s not Lincoln’s 160 acres but Marquette, Kansas is giving away a little less than an acre to anyone willing to homestead (literally build a home) on nearby land. Several other small towns in Kansas have competitive offers (one even offers free cable).

Thanks to Curtis Melvin for the link.

Can this be true?

Here is a surprise:

So far there appears no evidence whatsoever of the “tax cut for the rich” charge. Changing regulations have reduced the burden of each income quintile except that at the very top. From the standpoint of all federal taxes, 2001 represents increased income progressivity as compared with the previous decades.

That’s Econopundit and here is the full post and data, thanks also to Bruce Bartlett for publicizing these results. The original source, I might add, is the non-partisan Congressional Budget Office. Note that the figures include the effects of excise, payroll, and corporate taxation, not just income taxes.

My take: We have to be careful how we interpret the figures. If “the rich are getting richer,” the top quintile can be paying more, in relative terms, even if the top marginal rates are falling. That being said, the top quintiles still appear to be carrying their share of the burden. Thanks to Brock Sides for a useful email.

Addendum: Here is some critical analysis, I am heading to my conference and don’t currently have time to evaluate it.

Markets in everything, the continuing saga

Leading British authors have auctioned off the names of characters in their new books to raise funds for charity.

Successful bidders at the third charity auction for victims of torture included a man who paid £1,000 to see his mother’s name appear in the next novel by the Irish writer Maeve Binchy. Another secured a role in books by two authors, bidding £950 for the children’s writer Philip Pullman and £240 for Sue Townsend, the creator of Adrian Mole.

And one author was also a bidder. Martina Cole, whose own work raised £220, paid £1,000 for her name to appear in the next book by Sarah Waters, who wrote Tipping the Velvet. Tracy Chevalier, whose novel Girl With A Pearl Earring, was adapted into a film, raised £300.

Adi McGowan, a City trader, paid for his mother, Muriel, to appear in the next Binchy book as a surprise birthday present. He said his mother was a fan of the author, whose novel Circle of Friends was adapted into a Hollywood film.

“I usually give a book as a birthday present,” he said. “Maeve’s a favourite. My mother has been waiting eagerly for her next book – now she’s actually going to be in it.”

Here is the full story. Here is a blog post about buying personalized romance novels more generally. Here is a related story of a couple who tried to auction off the naming rights for their baby. No company was willing to pay $500,000, so they named him Zane.

My take: To get mentioned on this blog, all you have to do is send us a useful link, failing that try $100 or more.

People resond to incentives, parts 10371 and 10372

Price discrimination is profitable, so firms try to price discriminate. But consumers don’t like paying high prices, so they try to avoid price discrimination. An April 7 Wall Street Journal article (registration may be required) by Scott McCartney illustrates these propositions nicely.

A one-way ticket from Washington, D.C. to Louisiana (the article doesn’t state which city) costs $698. A round-trip ticket costs $218. Travelers who want to fly one way buy round trips and throw away away the return-trip tickets.

Flying round trip in the middle of the week is especially expensive. New York to Houston and back is $1972. But a round-trip ticket that includes a Saturday stay is much cheaper. One such ticket for New York and Houston is $232. So some travelers buy a round-trip ticket that includes Saturday from New York to Houston and a second round-trip ticket that includes Saturday from Houston to New York. Savings: $1508.

Flying into some hub airports is expensive. New York to Detroit is $559. But New York to Detroit to Akron is $221. Guess what some New York to Detroit travelers do? (If they don’t have baggage to check.)

Courtesy of Craig Depken, economist at U. Texas–Arlington, comes another example. The Texas Rangers are giving to some of their ticket holders scrip that is good for free food and beverages at their ballpark. The scrip seems to be easily counterfeited. Guess what will happen. Extra credit: how long before the Rangers declare the scrip invalid?

(Mrs. Newmark, who has no economics training but who’s been living with an economist for 26 years, suggests that maybe the Rangers expect counterfeiting and are using the free food as a way to sell more tickets. Alternatively, she hypothesizes that the ballpark food is poor enough, and travel and ticket costs high enough, that counterfeiting will impose small costs on the Rangers.)

Microsoft: damned if it does and damned if it doesn’t

Lynne Kiesling, Brad Delong, Steven Bainbridge, Arnold Kling, Alex, and others recently had an interesting discussion about Microsoft and bundling. (Lynne links to the main posts, but see also the comments and trackbacks.)

Here’s an amusing and possibly instructive footnote to that discussion. According to the Los Angeles Times, “. . . Microsoft is coming under fire for what it isn’t bundling.

As Windows users are being plagued by computer viruses, spam, buggy software and Web pop-up ads, some are questioning why the Redmond, Wash.-based software behemoth has failed to integrate security and repair features that would make computers less prone to problems.

. . .

But bundling security features directly into Windows isn’t so simple, Microsoft supporters say.

The company, after all, has been punished by regulators in the U.S. and Europe for leveraging Windows to take over lucrative new markets, including Web browsers and software for playing audio and video files. Presumably, a move to add security software would face the same kind of regulatory scrutiny.

Personally, I don’t think antitrust action is the primary reason why Windows lacks security features. I think the primary reason is that Microsoft was surprised by the extent of the problem, similar to how it was surprised in the mid 90s by how rapidly and deeply the Internet caught on.

But it sure would be hard to prove that.

Height

For two centuries, the American man stood tall in the world. Literally. But today the average Dutch man is six foot one and the average American man is much shorter. Even as little as fifty years ago, American men were considerably taller than Dutch or other European men but since the mid 1950s the Northern Europeans have shot up while Americans have grown wider but not taller. No, it’s not a composition effect due to immigration. Native born, English-speaking American men are only five feet nine and a half and this has not changed much in more than a century. Why then the difference?

One possible clue is the enormous impact that nutrition can have on height. In Guatemala the native Mayan man averages only five foot two, so short compared to the Spanish-descended Ladinos that most people assumed the difference was genetic. But lo and behold when a million Guatemalans fled to the United States a natural experiment began – the children of the American Maya are four inches taller than the Guatemalan Maya of the same age and about as tall as the Ladinos. Good nutrition, especially in the growth years of infancy, 6-8 years and adolescence can increase height in remarkable fashion.

But if the problem is poor nutrition then surely the figures for the average American ought to be masking a growing drift in height between the well-fed rich and the poorly-fed poor? And yet that appears not to be the case. The mystery remains.

The discussion is based on Burkard Bilger’s excellent piece in the New Yorker. See also this interview with Bilger.

Adam Smith on the morality of financial compensation

I have a new article on the shortage of human organs. Regular readers will be familiar with my views so I won’t go into the details but I was especially pleased with the conclusion examining moral objections to organ selling.

Adam Smith noted that in his time there were “some very agreeable and beautiful talents of which the possession commands a certain sort of admiration; but of which the exercise for the sake of gain is considered, whether from reason or prejudice, as a sort of public prostitution.” As examples, Smith lists acting, opera singing and dancing. Today the list strikes us as peculiar, perhaps even foolish. What could possibly make opera singing admirable when done for free but despicable when done for pay?

And yet, however peculiar the views of Adam Smith’s contemporaries were on financial compensation for opera singers we can an at least say this in their favor–no one ever died because of a shortage of singers.

Addendum: I learned of the Smith quote from a wonderful paper on prostitution by Martha Nussbaum, Whether from Reason or Prejudice: Taking Money for Bodily Services. I can’t find the paper online but it is reprinted in Liberty for Women which has a number of other excellent papers.

The stock market prices presidential candidates

…[political] platforms are capitalized into equity prices: under a Bush administration, relative to a counterfactual Gore administration, Bush-favored firms are worth 3-8 percent more and Gore-favored firms are worth 6-10 percent less. The most sensitive sectors include tobacco, worth 13-25 percent more under a favorable Bush administration, Microsoft competitors, worth 15 percent less under a favorable Bush administration, and alternative energy companies, worth 16-27 percent less under an unfavorable Bush administration.

This result was generated by correlating firm-specific equity returns with the Iowa Electronic [Presidential] Market forecasts. In other words, when Bush’s electoral fortunes went up, “Bush stocks” rose as well.

Here is the full paper. Here is the home page of the researcher, Brian Knight.

The bottom lines: 1) Overall the market did regard Bush as “better for business” than Gore. 2) Equity markets moved more rapidly than did the Iowa markets. 3) If the outcome of a Presidential election truly matters to you, your position can be hedged fairly easily. 4) Presumably there are “John Kerry stocks” right now.

Thanks to Eric Crampton for the pointer.

Why can’t you choose your cable channels?

I don’t ever watch Bravo but still I must pay for it:

In the dream world of some television viewers, they would pay their cable or satellite companies only for the channels they want. Some might not pay for MTV, because they don’t want their 8-year-olds watching it. Others would turn down ESPN Classic, because they’ve already seen the 1975 World Series. Others would eschew TeleFutura, because they don’t speak Spanish.

Reality is far different.

No U.S. cable or satellite company offers what are called “a la carte” plans. In order to get the Discovery Channel from Comcast Corp. cable company, for instance, Washington viewers have to pay for an “expanded basic” package that includes MTV, FX, MSNBC and 33 other channels.

Here is one relevant article.

Why are consumers forced to buy a bundle? Cable companies claim that choice would require expensive boxes, but few observers believe this claim.

More plausibly, price discrimination is at work. Consider a simple example with two individuals. John values Disney at $100 a year and FoxNews at $10 a year; Sally has the reverse valuations. Without bundling, the cable company will offer each channel for about $99, and sell a channel to each consumer, reaping $198 in revenue (N.B.: I am assuming that the cable company has a good idea of demand in general, although it cannot identify which consumer is willing to pay how much for what.)

In lieu of this set up, sell the bundle for $109 to each consumer, reaping a greater revenue of $218. The company makes greater profit.

More importantly, aggregate welfare is higher. In this case each consumer receives two channels instead of one.

Monopolies, regulated or otherwise, tend to bundle commodities when demands are scattered and the marginal cost of additional service is low. In this context, once the program is made, you can sell it cheaply to additional customers. So why not try to get the entire package into everyone’s hands?

You can spin your own numbers, with varying results, but the overall lesson is clear. While there is a general problem with monopoly in the cable market, bundling can make that problem better rather than worse. So don’t complain next time you have to “click-remote” through those Farsi and exercise channels.

Thanks to Curtis Melvin and Robert Saunders and James for relevant pointers. The ever-excellent Arnold Kling offers useful remarks on bundling as well.

More on graduate study in economics

Four months ago Tyler enthusiastically recommended EconPhd.net for students thinking about graduate work in economics. I second his recommendation and add some observations:

1. The site makes clear that getting accepted to the top tier economic graduate programs is difficult. Christian Roessler, who runs the site, discusses “PhD fields in order of difficulty of entry” and concludes that of 28 graduate fields, economics ranks fourth-toughest (below computer science, physics, and math). In strong support of this conclusion is some information about individual students accepted and rejected during 2002 and 2003 for 47 schools (Excel spreadsheet). These students were not randomly selected, so we must take care in generalizing, but if one examines the thumbnail sketches of the applicants who were rejected by Harvard, MIT, and Stanford, the conclusion seems inescapable.

2. If an applicant is undeterred by these odds, it’s clear that he or she should be well prepared in math. Susan Athey, Stanford professor, writes, “Real analysis is an especially important class because it tends to be demanding everywhere, and forces you to do logical and formal proofs. Get a good grade in this class.” Roessler writes, “If you really want to delight the adcoms (you do), take topology and functional analysis (real analysis II) too.” For more on the math used, Google “math camp” economists. The ambitious student can also look at what mathematics courses Professor Thomas Sargent suggests for economics Ph.D. students .

3. Fortunately, there are a lot of very fine economics programs below the ones in the top tier. Roessler has listed, for many schools, each school’s particularly strong fields (Excel spreadsheet).

4. It seems like a good idea for any student applying to graduate school in economics to apply to more than just a couple of schools. One aspiring economist, Chris Silvey, has posted his results:

Rejections: Duke, UCLA, Minnesota, Rochester, Wisconsin, U. of Washington, Berkeley.

Acceptances: UC San Diego, Ohio State, Maryland, Cornell, Texas A&M (all with money); UC Davis and Virginia (financial aid to be announced).

Wait-listed: U. of North Carolina, Chapel Hill.

5. It also seems like a good idea to read about the experiences of some current graduate students. Here are three who have many interesting things to say: Ngan Dinh (U. of Chicago) first year, second year; Santosh Anagol (Yale); and Rob McMillan (Stanford).

6. The economics department at Davidson College has collected some useful information and links.

Explicit rules have costs

Relationships between people can be governed by explicit rules and also by informal understandings. Explicit rules often seem more efficient and more equitable, but they can have significant costs, too. A recent incident in the National Hockey League illustrates. Discussing Todd Bertuzzi’s blindside attack on Steve Moore, which resulted in Moore sustaining a concussion and three fractured vertabrae in his neck, Los Angeles Times reporters Helene Elliott and Elliott Teaford write (unfortunately, no longer free):

The incident ignited a firestorm of criticism of the NHL’s tolerance of fighting and rough play. But many players, observers and officials say Bertuzzi’s attack was an indirect consequence of the instigator rule, which was adopted in 1992 as part of the league’s effort to minimize the fighting that bloodied its image in the 1970s.

In its current form, the instigator rule mandates penalties and suspensions for players who start fights and accumulate instigator infractions over the course of a season. However, many say it has made players reluctant to retaliate against cheap shots for fear they’ll get an instigator penalty and put their teams at a disadvantage.