The economics of Google

by  Tyler Cowen

What is Google’s key asset and comparative advantage? I am no insider but here is one interesting account:

Last Thanksgiving, the New York Times reported that Google had crossed the 100,000-server mark. If true, that means Google is operating perhaps the largest grid of computers on the planet. “The simple fact that they can build and operate data centers of that size is astounding,” says Peter Christy, co-founder of the NetsEdge Research Group, a market research and strategy firm in Silicon Valley. Christy, who has worked in the industry for more than 30 years, is astounded by the scale of Google’s systems and the company’s competence in operating them. “I don’t think that there is anyone close.”

It’s this ability to build and operate incredibly dense clusters that is as much as anything else the secret of Google’s success. And the reason, explains Marissa Mayer, the company’s director of consumer Web products, has to do with the way that Google started at Stanford.

Instead of getting a few fast computers and running them to the max, Mayer explained at a recruiting event at MIT, founders Sergey Brin and Larry Page had to make do with hand-me-downs from Stanford’s computer science department. They would go to the loading dock to see who was getting new computers, then ask if they could have the old, obsolete machines that the new ones were replacing. Thus, from the very beginning, Brin and Page were forced to develop distributed algorithms that ran on a network of not-very-reliable machines.

Today this philosophy is built into the company’s DNA. Google buys the cheapest computers that it can find and crams them in racks and racks in its six (or more) data centers. “PCs are reasonably reliable, but if you have a thousand of them, one is going to fail every day,” said Hoelzle. “So if you can just buy 10 percent extra, it’s still cheaper than buying a more reliable machine.”

Working at Google, an engineer told me recently, is the nearest you can get to having an unlimited amount of computing power at your disposal.

In other words, they are experts at building a reliable, robust system on the cheap. Here is the full story.

Tu Quoque

by  Alex Tabarrok in

Treasury Secretary John Snow gave a talk to a group of school kids in East Harlem on Thursday and implored them to save money:

It takes discipline to put money in the bank instead of using it to buy something that you really want, but its worth it.

Later that day, former President Clinton spoke on the virtues of sexual abstinence.

Just kidding about the last remark, but you gather my meaning. Hat tip to Al Kamen at the Washington Post.

Don’t they hold bake sales any more?

by  Tyler Cowen in

And what ever happened to micro-credit?

Here is just one excerpt:

The principals at the two schools in Oslo where the girls attend are horror-stricken by the fact that the girls are willing to go this far to finance their bus.

«This is something [sic] of the most shocking I have ever had the misfortune to experience,» said one of the principals to the paper. «Don’t doubt for a second that I will discuss this with the class immediately.»

It’s that strict Norwegian discipline kicking in at the end. Here is another Norwegian update, you can now file your tax return by cell phone.

Free trade with Australia?

by  Tyler Cowen in

It is widely known that the United States and Australia have been working on a free trade treaty. It is less widely reported how the treaty would handle culture. The Australian government feels it has been taking an unpopular stance, and has been reluctant to publicize the likely outcome. So what might the treaty bring?

The proposed deal caps the amount of local [Australian] content at existing levels of 55 per cent on free-to-air commercial television and 25 per cent for commercial radio, and at 10 per cent on pay TV.

If the government reduces these content levels, they cannot be raised again.

The deal also prevents the government from regulating local content levels for new media without consulting the US, which can challenge any proposed changes.

McLeod’s Daughters actress Bridie Carter told the hearing that the agreement would trade away Australia’s cultural identity.

That’s 55 percent local content, Bridie, hardly the death of Australian culture. Why not just shut out American TV altogether? And what does 2004 hold for Bridie’s show McLeod’s Daughters?

Life on Drovers Run in 2004 offers new faces and unexpected surprises [sic], heartache and laughter, and for two-star-crossed lovers, a wedding.

How about this remark:

“The Free Trade Agreement … threatens to reduce what is left of the vibrant Australian voice to a mere whisper in the future.”

In reality Hollywood gives Australian directors and stars a world platform that they otherwise would not have. Peter Weir, Russell Crowe and Mel Gibson earn huge box office around the world.

Here is the full story.

By the way Pat Boone just issued a call for cultural censorship. When will it become clear that cultural protectionism is simply another attack on free speech?

Here is a recent article on the (slow) progress of U.S.-negotiated trade agreements around the world.

Politically Incorrect Paper of the Month, v.2

by  Alex Tabarrok in

Less than three percent of the highest-paid U.S. executives are women. Why? In Performance in Competitive Environments: Gender Differences, a new paper in the Aug. 2003 QJE, the authors suggest an intriguing answer.

The authors compare male and female performance at solving mazes across different incentive systems. In a simple piece-rate system men perform slightly but not markedly better than women, on average the men solved 11.23 mazes in 15 minutes compared to 9.73 for the women, a difference of 1.5. But in a tournament, in which only the highest-paid performer wins, the men significantly improve their performance and the women hardly improve at all. As a result, the gender-gap in performance rises (men complete 15 mazes, the women only 10.8 for a difference of 4.2, stat. significant at p=0.034).

Now here is where it gets really interesting. One might think that this shows that women are less competitive than men. To test this the authors run single-sex tournaments. Surprisingly, in the single-sex tournaments the women’s performance improves considerably relative to both their performance in the piece rate system and to their performance in the mixed tournament. Women do like to compete just not against men! Men’s performance stays about the same as in the mixed tournament. As a result, when comparing the peformance of the all-male groups versus the all-female group, the gender gap shrinks considerably. Results are summarized in the figure below.

GenderCompetition.PNG

What could account for these differences? Tournament theory suggests one answer. In a tournament only the best player wins; so if some of the players are known to be better than the others, this reduces the incentives to compete. Why expend effort if the other player will amost surely win anyway? The men are slightly better at the task than the women and this effect is magnified by the numbers – there are 6 players (3 men, 3 women) so the women have to contend with 3 people who on average have slightly higher maze-solving ability.

If this explanation were the case, however, then we would expect men and women of the same ability to perform similarly but in fact women compete less aggresively than men of the same ability. This suggests another possibility. Relative to women, men may be more (over?) confident. As a result, they think they have a greater chance of winning the tournament and therefore they compete more vigorously. When given the option of choosing what level of maze to solve (with increasing rewards for more difficult mazes) the men do systematically chose more difficult mazes than the women.

What do we make of all this? First, we have an additional explanation for wage differences between men and women, especially at the highest levels where competition for promotion is a tournament. Second, we have added support for single-sex education and perhaps even single-sex firms (Astute readers will recall what happened to the women on The Apprentice before and after the groups were mixed). See also the related first volume in this series.

The authors focus on a third potential implication – the benefits of making women feel more confident (e.g. in reducing drop out rates in science and engineering). The latter, conclusion, however, doesn’t take into account the costs of effort. If men are over-confident about their abilities then they put too much effort into tournaments. Increasing women’s confidence would only make them (and the men) worse off. Other than restaurant customers, would anyone be better off if more people thought they could become a Hollywood star?

Food predictions and pronouncements

by  Tyler Cowen in

I very much enjoyed giving the keynote address to the International Association of Culinary Professionals. But this was not a crowd that wanted to hear about standard errors, or indeed numbers of any sort. They wanted raw predictions and proclamations. Here is an edited sample of what I offered up:

1. Fast food will get much better, and soon.

2. Look to eat in strip malls, not shopping malls. Low rents encourage culinary experimentation and attract immigrants.

3. America’s culinary profile is defined increasingly by ethnicity and demographics, not by geographic region.

4. French cooking, for all its virtues, is stagnating.

5. The UK, Canada, Australia, and New Zealand are all up-and-coming culinary hotspots.

And what about investment advice?

That’s what economists are really good for, no? And no one wants to hear that you believe in the weak form of the efficient markets hypothesis.

Put on the spot, I offered the following principle. If sushi restaurants are new to a country, and are succeeding, buy shares in the stocks of that country. Raw fish, of course, can be toxic. Quality can be hard to monitor with the naked eye. Sushi consumption is a sign that people are starting to trust each other.

Union-busting as cultural policy?

by  Tyler Cowen in

Once again the French are at strike:

Protesting French actors and technicians, who prompted the cancellation of most summer arts festivals last year and forced the resignation of the French culture minister this spring, are now threatening to disrupt the Cannes film festival next month. They want to pressure the government to bow to their demands on unemployment benefits.

On Monday the protesters muscled their way into a Paris theater where the annual Molière theater prizes were being awarded. Amid raucous scenes, that ceremony was held without lights or microphones. Across town they also forced “Il Trovatore” to be given in concert version at the Bastille Opera.

Here is more background:

The protesters want to revoke an agreement, reached in June by three unions and the national employers’ association in France, that reduces unemployment benefits for about 100,000 self-employed artists and technicians. The employers said that an earlier agreement was being widely abused and cost them $1 billion a year. Two leftist unions, which refused to sign the deal, have been leading the protests. Before the June agreement, if employees worked 507 hours during a 12-month period they were guaranteed 12 months of unemployment benefits. Now they must work 507 hours in 11 months to earn 8 months of unemployment benefits.

In theory the unemployment fund for cultural workers is managed exclusively by employers and representatives of artists and technicians. But inevitably the government has been drawn into the fray, with the wrath of protesters frequently directed at Jean-Jacques Aillagon, who was the culture minister until March 31. His successor, Renaud Donnedieu de Vabres, is caught between the employers’ refusal to cede and the countdown to Cannes.

Instead of all those subsidies and quotas, why don’t they just bring the unions in line? Here is the full story. Here is a post on how well the French can run a strike. To be continued…

A picture is worth a thousand words, maybe sometimes

by  Tyler Cowen in

Ever try Internet dating? How do you know that picture is for real? Is her age shaded downwards? Or what if the guy is still married?

Here is one option:

Zeri now sifts through this city’s bustling singles scene with a local off-line dating service called CheckMates, which screens its members – some 90% of whom are refugees from the online world – using everything from Google searches to driver’s license verifications.

“My clients care about physical and financial safety, but more simply, they worry about people’s ability to misrepresent themselves online,” says CheckMates founder Carole Shattil, who for $1,500 and up will personally scour the city’s singles scene in search of a potential match.

“I meet every one of my clients,” who number around 1,100, she says. “Online services can’t do that.”

Or perhaps the photo poster can offer outside certification:

Hoping to ensure the quality angle are upstart businesses such as LookBetterOnline.com, an 8-month-old Los Angeles company that links daters with local professional photographers.

The resulting head shots, which cost $129 and aim to walk the tightrope between oddball self-portrait and soft-focus silliness, can be posted on any online dating site and are accompanied by a logo that notes the month and year the photo was shot. Gold certification (an additional $20) adds age, height and weight while platinum status ($50) includes a criminal record, marital status and bankruptcy filing review.

Of course some daters may prefer a criminal record in their significant other. And I enjoyed that last bit about the bankruptcy review. For another $100, perhaps they will report how many “naked puts” you have written.

How about this service?

Of growing concern are “organized efforts to bilk American men,” often in the form of foreign women who ask for plane fare to the USA and then vanish.

“We’re trying to clean up this industry,” says Herb Vest, founder of Dallas-based TrueBeginnings, a 6-month-old site that boasts a partnership with a criminal-record database firm called Rapsheets.com, which stockpiles 150 million records compiled from more than 110 state and county agencies.

“I don’t want to introduce someone to a felon,” Vest says.

Here is the full story. And yes, sometimes I title these posts “Markets in Everything.”

Celebrity misbehavior

by  Tyler Cowen in

Celebrities appear to engage in more anti-social behavior than the rest of us. What might be some reasons for this?

1. Famous people are simply crazy.

2. Rich people can get away with more.

3. Stars seek publicity, even “bad” publicity, to boost their celebrity.

4. Many celebrities are young and thus immature.

5. Celebrities are stressed, lack privacy, and are out of touch with the real world.

6. Celebrities get away with more because they can. You cannot substitute for them very easily.

Some of these propositions receive explicit tests from Todd Kendall of Clemson University. Kendall looks at technical fouls in the NBA; this penalty is assigned when a player hits another, screams at the referee, or engages in other forms of unsportsmanlike conduct. We learn the following:

a) Technical fouls are positively correlated with bad behavior off the court.

b) The more dominant a player is on a team, the more likely he commits technical fouls. Remember this guy?

c) Youth does not predict a player’s propensity to commit technical fouls. In fact older players commit more technical fouls. (Note to self: counterexample)

d) Committing technical fouls, adjusting for other variables, is not associated with higher income (this goes against number three above.

e) On a given team, technical fouls are not “contagious.”

f) Much of bad behavior is not predicted by any particular variable and thus can be thought of as idiosyncratic.

My take: The worst offenders are frustrated, spoiled brats who hate losing, can’t stand their teammates, but carry their teams on their backs.

Addendum: It is not easy to get your parents to sue you, read this update from the world of tennis.

DVD facts and quotations

by  Tyler Cowen in

1. “Between January and mid-March this year, Americans spent $1.78 billion at the box office. But in the same period they spent $4.8 billion…to buy and rent DVD’s and videocassettes.”

2. “There’s not a sector of the entertainment industry to which DVD is not a significant, if not the dominant, contributor of revenue…”

3. Nowadays “basically the movies are commercials for the DVDs.”

4. “What no one knows is how long the windfall will last…”

5. “…in five years when you can download a movie as fast as a song, that will go away.”

Here is the full story. Here is my earlier post on the boom in DVD revenue. Here is a related post on the decline of the audience for television programs. Here is an article on the future of Netflix.com. Here is an article on the new paper DVD, yes you read that correctly.

My thoughts on food

by  Tyler Cowen in

The Baltimore Sun interviews me on food, dining, and globalization. Here is my favorite bit:

Sociologist/food scholar Alice Julier of Smith College says she’s not sure if Foodland is characterized by more abundance or just the absence of clear authorities on how to make choices.

“There’s sort of a continual argument going on,” says Julier, who will not be attending the conference. “There’s a pastiche of voices speaking to what’s good and what’s not.”

In the din is the voice of Tyler Cowen. He knows the complexity of it all, yet a brief conversation with him suggests that on one level, at least, it’s simple: Try the China Star, order the Szechuan chili chicken.

Read the whole story, as they say. Just don’t put down your Szechuan chili chicken.

Addendum: Here is my on-line ethnic dining guide for the DC area, which includes a longer review of China Star.