Luck and entrepreneurship
If you have been a lucky person in the past, good things will happen to you in the future. Or is it enough simply to think that you were lucky in the past? Relaxed, confident people may find it easier to discover subsequent opportunities. Read about some interesting experiments on the lucky. The bottom line: “Unlucky people are generally more tense than lucky people, and this anxiety disrupts their ability to notice the unexpected.”
And what about practical advice? It is suggested that visualizing yourself as lucky, in advance of a challenge, will improve the course of events.
Should you wait or go?
You are waiting in line, and must decide whether or not to stick it out or bolt. How do you choose?
Most people look back and see how many people are behind them in line. If the line behind them is long, they tend to stay in line and wait. And if they do quit, they are most likely to quit in the first three minutes.
Making this kind of comparison could be economically rational. A long line means that if and when you have to come back, you will be forced to wait anyway. So why not just get the waiting over with? (Note that the researchers try to control for this effect, although imperfectly.) A long line also suggests that many other people value the good or service, which again implies that waiting is worthwhile.
But that is not the primary hypothesis of the researchers, nor is it how I think. When I look back and see many people behind me, I feel that my lot in this matter is not so bad, and that I should stick it out. So I do.
The short article on this research is from the December issue of Psychology Today, but the article itself is not yet on-line. Here is the home page of one of the researchers, including a full citation to the article in Journal of Consumer Research. Here is a on-line summary of the work.
Brad DeLong sees the light (almost)
Brad DeLong Of the Independency of Parliament“, in Essays Moral, Political, and Literary.
The Millennium Challenge Account
The Bush administration is proposing to increase our foreign aid budget by 50 percent over the next five years. A new bureaucracy, the Millennium Challenge Corporation, would be created. Here is a summary from Slate.com:
In response to U.S. government development-assistance directive drift and to the Republican perception that aid has been hijacked by touchy-feely liberals, in March 2002 the Bush administration proposed the creation of the Millennium Challenge Account, which would be distributed via the Millennium Challenge Corp. In contrast to USAID, which administers funds to developing countries of pretty much every stripe and inclination, MCA moneys would be allocated only to those nations judged to be most committed to promoting economic freedom, governing fairly, and investing in education and health–based on scores in 16 quantitative areas (such as government effectiveness, primary education completion rate, inflation, etc.) using data collected by the World Bank, the International Monetary Fund, and other third parties. In order to qualify for MCA funds, a country must score above the median of all candidate nations in half the individual criteria in each of the three broad categories, and above the median in a corruption indicator–unless, of course, it is given a bye by the administration.
Under the current foreign aid regime, the U.S. government, often through USAID, crafts developmental priorities and projects, usually in conjunction with local governments, and oversees their implementation through mostly American contracting organizations. One of the key innovations of the MCA will be to give recipient governments a larger role in designing development programs and make them accountable for achieving results.
I remain to be convinced that this is a good idea. The countries that are truly reforming need foreign aid the least. The plan works best if you think that politicians want to push more reforms, but lack the cash to pay off special interests. The plan also works if you think that we can bribe politicians to reform. The plan works worst if you think that foreign aid leads to corruption and inferior policy. In that case we are penalizing the success stories and pushing them in the wrong direction. Of course, the very push for reforming foreign aid implies there is some truth to the latter possibility.
The real motive might be to bypass multilateral institutions and use foreign aid to reward potential allies in our foreign policy struggles. It is then Machiavellian to market this as an aid program.
If we wish to reform foreign aid, have we considered the cost-effectiveness of the alternative strategy of simply dropping dollar bills from a helicopter? No, this is not a purely facetious suggestion. After all, the Bush people tell us that we can spend our money more effectively than the government can for us. Given the lower quality of government in poor countries, we might expect private spending to be a better option there as well.
If we are going to have criteria for aid allocation, perhaps we should try to predict future growth potential, rather than looking at past reforms. Societies that are starting new investments in health care, education, and intermediate social institutions might be the promising recipients of aid dollars. If you know of any good studies on what predicts future (not current) growth, in the Granger-causal sense, please let me know.
The Slate article also notes the following:
…annual U.S. private foreign aid–via foundations, private voluntary organizations, corporate charity, religious organizations, and, most important, remittances sent home by emigrants and their descendants in the United States–amounted to roughly $35 billion in 2000, or more than three and a half times the aid handed out by the U.S. government. Private aid, like private enterprise, tends to be more focused on the bottom line of success–so the chances are better that (unlike, all too often, development funding from governments) a delivery mechanism or program that isn’t getting the job done will be replaced, pronto.
Here is a link to the relevant research on private foreign aid.
Liability and flu vaccine
Liability law appears to be a critical factor behind the vaccine shortage:
As legal liabilities have chased many vaccine-makers out of the market, there are fewer manufacturers. This means less overall ability to produce additional doses, and less investment on new, faster ways to make vaccines.
In the US about 185m people risk serious flu-related illness each year.
At one time the US had 20 flu vaccine manufacturers. Today there are just four: Aventis, GlaxoSmithKline, Merck and Wyeth.
After the second world war the science of cell cultures led a boom in vaccine production. But gradually profit margins thinned on vaccines, as the government became a big buyer of them. Increasing legal liability drove many makers out of the vaccine business.
Today smaller biotech companies have entered the game. But they lack the capacity and the distribution to solve near-term shortages, experts say.
“One of the problems with vaccines is you put them in healthy people,” says Louis Galambos, history professor at Johns Hopkins University and an expert on vaccine manufacturing. “Now we’re in a situation where we have too few producers.”
Congress passed a law in 1986 to limit liability on vaccines for children. There are no such liability limits for adults, however.
Pharmaceuticals companies are inhibited by the particular structure of the US vaccine market, experts say. The US government is a large buyer of vaccines, leaving relatively poor profit margins on vaccines.
Here is the full story from The Financial Times.
Vernon Smith on Iraq
Our colleague, Vernon Smith writes in today’s Wall Street Journal about privatizing the Iraqi economy, based in part on an idea pioneered in Alaska. See also my earlier post on why oil has been a curse to the discovering countries. Here are some key quotes:
For long-term success, the enormous task of nation rebuilding in Iraq requires attention to more than the creation of a political democracy. No matter how well-intentioned and democratic it might be, the next government will be tempted to corruption, violation of rights and expanded political power if it owns and controls the great economic wealth potential of Iraq. This is the time, and Iraq is the place, to create an economic system embracing the revolutionary principle that public assets belong directly to the public …
In Iraq, the rights in question are to the former government’s producing properties, transportation, terminal facilities, waterways, land and subsurface rights. These assets should first be declared transferred to the account of the citizens, recognizing the birthright of each citizen to a personal, empowering property right in the land and assets of the country of their birth. All citizens should have an equal share in this fund and be issued the same number of share claims to the fund.
Over a period of several decades, all Iraqi assets should be auctioned to the highest bidders in an individual, national and international business competition so that each asset or bundle of complimentary assets is transferred to the bidders who value them most for production, development or exploration. The auction could begin by selling existing producing oil properties, refineries, pipelines, and gathering, separating and terminal facilities over the next several years, then move to mineral, oil and gas exploration leases, and to land surface rights.
The proceeds would be deposited in a giant mutual fund for investment in index securities of the world’s stock markets and monitored — but not managed — by the U.N. Investing in stock indexes would minimize the need for discretionary financial management, and the prospect of the next government exercising or re-establishing any central control over Iraqi assets. The Iraqi Fund should be a closed-end fund whose shares are tradable and listed on world stock exchanges. The proceeds of each new property auction would be deposited to the account for investment in index funds. Redemptions at market value would go to any Iraqi citizen who elects at any time to cash out any portion of his shares.
There is a very important precedent, in part, for this action — the Alaska Permanent Fund. The state of Alaska elected to put a portion of its vast Prudhoe Bay annual royalty revenue into a citizens’ Permanent Fund for investment in securities. Each year a dividend from this fund is paid to every Alaskan citizen. This Fund was the first to recognize the full rights of citizens to share directly in the income from public assets.
This Fund, however, had three important shortcomings that should not be repeated in the proposed Iraqi Fund.
†¢ First, Alaska did not put all of Prudhoe Bay state revenue into the people’s account. A portion of it went to the state government. When oil prices went up, the state succumbed to the temptation to repeal its income tax and spend its oil income like there was no tomorrow. Consequently, today the Alaskan state government has a budget crisis and a deficit gap, but the 600,000 Alaskan citizens still share equally in the dividends from their Fund, now worth $27 billion….
†¢ Second, the Alaska Fund is not a ready source of private investment and venture capital for its individual owners. This is because there are no tradable certificate shares in their mutual fund. This lack of liquidity denies citizens’ access to capital markets: An individual citizen cannot sell some portion of his shares for investment in a private start-up business, or borrow against the shares for such investment. …
The Iraqi People’s Fund would consist of tradable shares; all public property would be held, then sold, for the account of the fund; and the new government would be required to obtain its revenue from taxes levied on the citizens who are willing to elect them and finance their spending programs. The government could not raid the fund to finance its operations. All this could be made explicit in the Iraqi constitution.
There should be room in the proposal for a temporary transition mechanism. For example, sales of citizen shares in the fund might be limited at first, but gradually lifted as citizen registrations and claims were settled, and the auction/sales mechanisms became established. Also, an initial budget set-aside for financing the new government might be in order, but this budget should decline on a fixed planning schedule at 15%-20% per year as the new government gets its tax and spending program together.
This action would launch the new Iraqi state as one based on individual human rights, and the rule of law, and anoint it with rock-hard credibility by giving every citizen a stake in that new regime of political and economic freedom. The objective is to undermine any citizen sense of disenfranchisement in the country’s wealth, economic and political future, and to galvanize citizen support for a democratic regime. Now is the time to act, before post-war business-as-usual creates de facto foreign and domestic spoils-of-war property right claims, leaving out a citizenry brutalized enough by a totalitarian regime, and in sore need of empowerment in their own future.
Quality Moonshine
Madsen Pirie at the Adam Smith Blog reports on another example of market provided quality in the absence of government law:
A new study from the International Centre for Alcohol Policies (ICAP) estimates that at least half of the alcohol consumed in the world is non-branded, locally produced. The generic term ‘moonshine’ covers everything from Irish poteen to Russian samogon to Mexican pulque, plus a local equivalent just about everywhere.
Moonshine has a ‘buyer beware’ reputation, and is often associated with toxins ranging from methanol to paint thinner, not to mention rat faeces and battery acid for extra flavour. Cases of blindness, paralysis and death are sometimes reported.
According to the new study, these are very rare exceptions. Chemical testing of samples world-wide reveals that “most of the moonshine produced is of reasonably high quality.” Marcus Grant, President of ICAP, suggests that reputable moonshine producers take care to do nothing to harm repeat customers. In contrast to moonshine’s ‘raw’ image, a taste testing saw some Russian Samogen actually beat Cutty Sark.
What are the best Christmas gifts?
Experiences, not possessions. Concerts and travel are remembered for longer than clothes and jewelry. The result is robust to different ages and groups, but tends to be strongest for high-income individuals. Here is the full story, here is another summary. Here is the original paper. The home page of Van Boven, one of the researchers, offers many interesting papers on human psychology.
The economics of capturing Saddam
Eugene Volokh draws our attention to the following article about Iraq. Here is a snippet from the abstract:
The capture of Saddam Hussein…demonstrates that poor intelligence is not inherent in U.S. guerrilla war-fighting; the United States overcame it by identifying the central weaknesses of its opponents. In this case, the central weakness was money — and this was not only a financial weakness, but also a cultural one.
Here is some more of the substance:
The guerrillas did have one major vulnerability: money. The Baathist regime long ago lost its ideological — and idealistic — foundations. It was an institution of self-interest in which the leadership systematically enriched itself. It was a culture of money and power, and that culture permeated the entire structure of the Iraqi military, including the guerrilla forces that continued to operate after the conventional force was defeated. Indeed, the guerrillas substituted money for recruitment. In many cases, they would pay people outside their ranks to carry out attacks on U.S. troops as a supplement to attacks by the main guerrilla force.
The culture of money made the guerrillas vulnerable in two ways. First, they relied on support from an infrastructure fueled by money. Whatever their ideology, they purchased cooperation with money and intimidation. Second, much of the money the guerrillas had was currency taken from Iraqi banks prior to the fall of Baghdad. A great deal of it was in U.S. dollars, which continued to have value, but most of it was in the currency of the old regime. One of the earliest actions of the U.S. occupation forces was to replace that currency. Over time, therefore, the resources available to the guerrillas contracted.
The United States brought its financial resources into play, purchasing information. As U.S. money surged into the system and guerrilla money began to recede, the flow of information to the United States increased dramatically. Obviously, much of the information was useless or false, and it took U.S. intelligence several months to tune the system sufficiently that operatives could evaluate and act upon the intelligence. Over time, the very corruption of the Baathist system was turned against it.
Mistaken predictions about this war have not been in short supply. But let’s hope they are right.
Why not more price discrimination for medicine?
Physicians and hospitals can not waive or significantly reduce their fees they charge to uninsured patients even if they want to because they would technically be committing Medicare fraud! Ant’ mindless and impersonal government bureaucracy great?!
Read more from Dr. Rangel. And don’t neglect to peruse his further comments on national health insurance, and yet more is here. These are some of the most accurate and pungent observations on the topic I have seen.
Letters of recommendation
Students ask professors to write letters of recommendation for them. Today’s professors frequently respond by asking the student to write a first draft of the letter. Henry Farrell at CrookedTimber comments on this practice. Obviously the ethics of such a request are questionable. Furthermore it puts the student in a very difficult position. How great can you claim to be and keep a straight face, not to mention a reputation for probity?
That being said, I am not very worried about the practical repercussions. Most people, especially undergraduates, do not know how to write a very good recommendation letter. They fail to realize that such letters, to be effective, should offer very specific and pointed comparisons. Those few students who understand this fact are probably too shy to call themselves “comparable to Greg Mankiw as an undergraduate.” Nor will they write “comparable to your Professor Mediocre [fill in the name yourself!] as an undergraduate.” So if a professor asks the student to write the letter, the professor does not care about the letter or student very much. The resulting letter is likely to be very generic and thus not very effective. In addition, the professor probably has a hard time saying much about the student. This again suggests the letter will be less than overwhelming, no matter who writes it.
The really good candidates still will be able to produce credible signals of quality. They will find some professors able to make coherent and specific claims on their behalf. In fact, if professors ask the lesser students to write their own letters, the relative advantage of the very best students may rise.
A Reader’s Dilemma
A reader, who wishes to remain anonymous and whom I shall refer to only as Jedi Knight, writes with a difficult problem:
I love your Marginal Revolution blog enough to read it every day. In fact, I check back several times a day and I’m disappointed when I find no new entries.
However, I have told no one about it. Your blog makes me appear smart and full of interesting takes on the topics of the day. If I shared with people where I get my information, people would not be anywhere near as impressed with me.
So, I have a dilemma. I should hope that your blog stays popular enough to encourage you to keep up your publishing efforts, but I don’t want to be the one who spreads the word. I can only imagine that there are many others out there like me…
Dear Jedi Knight,
First, you imagine correctly. Many readers have come to us with exactly this dilemma. How can one keep a public good private? We at MR have puzzled over this and have several suggestions. Instead of telling your friends about MR try telling strangers. Sidle up to someone on the street and whisper “Pssst, want some good econ blog? Marginal Revolution is phat.” We have found that this works well. Also, as Cowen and Tabarrok (2000) discuss, there are two strategies in the arts. Sell to a lot of people at a low price or sell to a few cognoscenti at a high price. You, Jedi Knight, are among the cognoscenti! Send cash. Or at least shop at Amazon with the MR link /marginalrevol-20.
The commissar vanishes, Beatles style
[Yoko] Ono’s weirdest piece of video trickery comes on the recently released DVD “Lennon Legend: The Very Best of John Lennon.” On one film, for the classic song “#9 Dream,” Ono has edited herself into the original video. There you will find her mouthing the backup vocals that were sung on the original hit recording by Lennon’s girlfriend at that time, May Pang.
In addition:
Ono has dropped [Paul McCartney’s] name from the songwriting credit on “Give Peace a Chance.” The song was written by Lennon only, but at the time the songwriting duo was still putting their two names on everything.
Here is the full story. McCartney, on his side, removed Lennon’s songs “Maggie Mae” and “Dig It” from the re-release of the Beatles’s Let It Be album. He never thought much of these songs, so he added another Lennon composition, “Don’t Let Me Down,” in their place. He also has sought to have many of the Beatles songs switched from the universal “Lennon-McCartney” tag to “McCartney-Lennon.”
Adam Smith suggested that people become more insecure about reputation, the more reputation they have. The theme of vanity as an addiction dates back to the early Christian writers, such as Boethius. But my query is simpler: don’t these people have anything better to do? Oh yes, if the title of the post interests you see here.
New numismatics blog
There is a new blog on numismatics, blogspot.shekel.com. Here is a sample post defending the private trade in antiquities. Blogger Aaron Kendal also offers commentary on Middle Eastern politics and current events.
The Return of the King, French style
I just saw the third installment of Lord of the Rings in a French cinema, on the Left Bank. The crowd loved it, although they kept on laughing at all the faux endings. (I’m not giving anything away by noting that the movie is longer than it needs to be. In the last fifteen minutes it repeatedly feels as if it is just about to end.) Interestingly, “Frodo,” in the subtitles, is presented as Frodon. You know, like “Napoleon” and “Michelin.” That is just in case you might have thought that Frodon wasn’t French. Yes I know about the silent n, still I thought this was ridiculous.