Coasean Skies

Air taxis and delivery drones may soon make the airspace between 200 and 5000 feet above ground level much more valuable. How is this airspace to be regulated? In a very good new paper Brent Skorup draws on Coase, Demsetz, and Ostrom and the law, economics and history of regulated commons to suggest new approaches.

[T]he technological shock—the commercialization of air taxis—will create novel urban airspace scarcity and collective action conflicts. When intended uses conflict, how should airspace be allocated? This is an old problem: the transformation of a common-pool resource in the face of intensive new uses for that resource.

…For traditional aviation, air traffic management is centralized and relies on complex collaboration between airlines, the general aviation industry, air traffic controllers, and regulators. Aircraft routes, payload, slot fees, airport locations, billing, and safe separation between aircraft are all highly regulated components of this interconnected system. Massive economic distortions result from the regulated rationing of airspace and terminal access. Low-altitude airspace (i.e.,200 feet to 5000 feet above ground level) offers a relatively blank slate to explore new models for air transport and to avoid command-and-control mistakes made in the past in aviation.

…Section IV introduces a different idea: that the FAA instead delimit geographic tracts of low-altitude airspace and assign exclusive use licenses to those tracts via auction for a term of years. Flight path, speed, terminal locations, aircraft size, UTM technologies, and pricing choices would largely be delegated to the tract licensees. Finally, Section V explains why this approach, which draws on real-world examples from spectrum auctions and other federal asset markets, may offer more competitive UTMs and dynamic efficiencies for low-altitude air transit. This auction approach also allows aviation regulators to focus less on scientific management of airspace and UTM interoperability and more on aircraft safety, dangerous weather, and inspections.

How much did the housing shock drive political polarization?

From Henry van Straehlen, a job market candidate from Northwestern:

This paper studies the effect of economic conditions on political polarization using micro-data on house prices, mortgages, and individual political contributions. I argue that shocks to housing wealth — the largest asset for most households in the U.S. — lead to political polarization. Using the housing market bust of 2007-2011 as an empirical laboratory, I show that negative shocks to housing wealth increase political polarization. The richness of the data enables me to use individual heterogeneity in housing location and timing of home purchase to disentangle changes in personal wealth from other factors that might be at play in determining political polarization. The effect of housing shocks on polarization is stronger during the crisis, and cannot be attributed to reverse causality or changing neighborhood composition. Survey evidence comparing homeowners and renters shows that only homeowners polarize in response to house price shocks, while renters do not — suggesting that house price shocks are not merely a proxy for other economic shocks. Furthermore, extreme politicians benefit electorally from negative house price shocks to their contributor network, whereas moderate politicians are hurt by negative house price shocks. Financial crises destabilize politics, which then can feed back into the crisis. These results provide insight into the difficulty of adopting structural economic reforms following financial crises.

Work in progress by Henry argues: “I show that when the common ownership between two firms increases through mutual fund acquisition of their stock, the firms converge in political donation behavior and lobbying activity.”

Why aren’t millennials buying boats? (the boat recession)

“So, where are all the boaters your age?” asked a 60-something-year-old, at a patio bar on Gabriola Island in British Columbia. “When I was your age, we all had boats and had great big raft-ups out on the water.”

Our group of under-40 sailors was on a weekend cruise and digging into steaming plates of fish and chips. “I’m not sure,” I answered. “Are there fewer? Maybe it’s because they can’t afford it?”

“Nah,” he said. “It’s those iPads. My grown kids have no sense of adventure, happy to sit around ‘twitting’ all day.”

My husband, Robin, and I had often discussed this question. Having become first-time boat owners only five years before, at ages 24 and 29, we were often the only identifiable 20-somethings at our silver-haired yacht club.

…According to Ellis, boat ownership has seen a steep decline in the 20- to 39-year-old age category, with approximately 41 percent fewer 20- to 39-year-olds owning boats in 2015 than in 2005. In 2005, 4 percent of American males ages 20 to 39 owned a boat; but by 2015, that number dropped to only 2 percent.

Here is the full story, via Craig Richardson.

Twentieth-century cousin marriage rates explain more than 50 percent of variation in democracy across countries today.

That is the last sentence of the abstract in this job market paper, from Jonathan F. Schulz:

Political institutions vary widely around the world, yet the origin of this variation is not well understood. This study tests the hypothesis that the Catholic Church’s medieval marriage policies dissolved extended kin networks and thereby fostered inclusive institutions. In a difference-in-difference setting, I demonstrate that exposure to the Church predicts the formation of inclusive, self-governed commune cities before the year 1500CE. Moreover, within medieval Christian Europe,stricter regional and temporal cousin marriage prohibitions are likewise positively associated with communes. Strengthening this finding, I show that longer Church exposure predicts lower cousin marriage rates; in turn, lower cousin marriage rates predict higher civicness and more inclusive institutions today. These associations hold at the regional, ethnicity and country level. Twentieth-century cousin marriage rates explain more than 50 percent of variation in democracy across countries today.

Here is Jonathan’s (co-authored) working paper on “The origins of WEIRD psychology.

Ho hum, or hidden externalities?

The ratings agency Fitch shrugged on Tuesday at what it considered the “muted impact” on the economies and credit ratings of New York and Washington.

According to Fitch, 25,000 jobs are the equivalent of about a quarter of a percentage point of all the jobs in metro New York. In metro Washington, they’d represent about three-quarters of a percentage point of the labor force. The Washington region is already growing by about 50,000 jobs, or an Amazon HQ2, each year, according to the D.C. Policy Center. New York over the past year gained about 70,000 jobs.

Here is more from Emily Badger at the NYT.

Wednesday assorted links

1. “…the 2000s should be seen as an exceptional period in the global economy during which multinational firms benefitted from reduced labour costs through offshoring, while capitalising on existing firm-specific intangibles, such as brand names, at little marginal cost.”  Link here.

2. What can we learn from Eric Schmidt about defense acquisition?

3. How podcasts work (New Yorker).

4. “Masculinity is an abstract rage to protect.

5. Douglas Vigliotti interviews me for his podcast.

6. “Jeff Bezos himself might weigh in on dining options.

7. More of the Antikythera mechanism?  Here is my earlier post on the mechanism.

Propaganda, Nation Building and Identity in Rwanda

The lead title is “Erasing Ethnicity,” the authors are Arthur Blouin and Sharun W. Mukand, and the paper is forthcoming in the Journal of Political Economy:

This paper examines whether propaganda broadcast over radio helped to change inter-ethnic attitudes in post-genocide Rwanda. We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behavior is not cosmetic, and reflects a deeper change in inter-ethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments.

Propaganda works.

The sex recession

From Kate Julian at The Atlantic:

Gen Xers and Baby Boomers may also be having less sex today than previous generations did at the same age. From the late 1990s to 2014, Twenge found, drawing on data from the General Social Survey, the average adult went from having sex 62 times a year to 54 times. A given person might not notice this decrease, but nationally, it adds up to a lot of missing sex. Twenge recently took a look at the latest General Social Survey data, from 2016, and told me that in the two years following her study, sexual frequency fell even further.

Some social scientists take issue with aspects of Twenge’s analysis; others say that her data source, although highly regarded, is not ideally suited to sex research. And yet none of the many experts I interviewed for this piece seriously challenged the idea that the average young adult circa 2018 is having less sex than his or her counterparts of decades past. Nor did anyone doubt that this reality is out of step with public perception—most of us still think that other people are having a lot more sex than they actually are.

I enjoyed this sentence:

In a famous 2007 study, people supplied researchers with 237 distinct reasons for having sex, ranging from mystical (“I wanted to feel closer to God”) to lame (“I wanted to change the topic of conversation”). The number of reasons not to have sex must be at least as high.

This is interesting too:

“Millennials don’t like to get naked—if you go to the gym now, everyone under 30 will put their underwear on under the towel, which is a massive cultural shift,” Jonah Disend, the founder of the branding consultancy Redscout, told Bloomberg last year. He said that designs for master-bedroom suites were evolving for much the same reason: “They want their own changing rooms and bathrooms, even in a couple.” The article concluded that however “digitally nonchalant” Millennials might seem—an allusion, maybe, to sexting—“they’re prudish in person.”

The sex recession remains a puzzle.  Here is my much earlier blog post on why people don’t have more sex.

Why chess has remained popular, and why the internet is hard to predict

Those are the topics of my latest Bloomberg column, here is one excerpt:

It turns out that chess is oddly well-suited for a high-tech world. Chess does not make for gripping television, but the option of live viewing online, supplemented by computer analysis or personal commentary, has driven a renaissance of the game.

For one thing, computer evaluations have made watching more intelligible. Even if you barely understand chess, you can quickly get a sense of the state of play with the frequently changing numerical evaluations (“+ 2.00,” for instance, means white has a decisive advantage, whereas “0.00” signals an even position). You also can see, with each move, whether the player will choose what the computer finds best.

In essence, some of the suspenseful stupidities of low-level video games have been infused into eggheady chess. You can indulge your inner Pac Man without feeling guilty about it.

At first it was thought that online viewers would favor rapid and blitz chess, which are (as you might expect) more fast-paced. In fact, the slower games, including contests of five hours or more, have not put viewers off. If you are sitting at your office desk, you might wish to glance at the position every few minutes or so. A slower game means you can do that without missing much of the action, and yet still most of your work will get done. If the game is heading to a climax, you can pay full attention for that short period.

Fortunately, the software programs that evaluate the games and players are not yet infallible. So if Stockfish (one such program) indicates that your favorite player is far behind, you can hold out a slim hope that the software is wrong. “Creating artificial suspense” is one of the killer apps of the internet.

There is much more, including a discussion of basketball and trash talking, do read the whole thing.

Words of wisdom from Vitalik Buterin

Both reasoning from behavioral-economic first principles, and my personal experience, people are at their most evil out of fear, not greed. Growth means there is less fear going around.

That is from Vitalik Buterin, reviewing Stubborn Attachments on TwitterAnd this:

I have a different take on “growth is good for harmony” (52-53). Arrow’s theorem doesn’t become more or less true if a conflict is between, say (+5, +1) vs (+1, +5) or (+2, -2) vs (-2, +2). Rather, the reason why the latter is more disharmonious is loss aversion.

And:

Redistributing money to the rich (p88) is risky because the rich are not necessarily aligned with general population. Caring for old people (p91) is valuable not just for the sake of present individuals, but also as a commitment to future old people who are present-day workers.

Here is my earlier Conversation with Vitalik Buterin.  And here is Garett Jones’s tweet storm on the book.

Underargued claims, installment #1437

From Tim Wu, in a recent NYT Op-Ed, he presents a polemic against “monopoly”:

Postwar observers like Senator Harley M. Kilgore of West Virginia argued that the German economic structure, which was dominated by monopolies and cartels, was essential to Hitler’s consolidation of power. Germany at the time, Mr. Kilgore explained, “built up a great series of industrial monopolies in steel, rubber, coal and other materials. The monopolies soon got control of Germany, brought Hitler to power and forced virtually the whole world into war.”

To suggest that any one cause accounted for the rise of fascism goes too far, for the Great Depression, anti-Semitism, the fear of communism and weak political institutions were also to blame. But as writers like Diarmuid Jeffreys and Daniel Crane have detailed, extreme economic concentration does create conditions ripe for dictatorship.

The first ten words are already a give-away, as is the beginning of the second cited paragraph.  For contrast, this is from Thomas Childers, well-known historian of Nazi Germany:

In his biography of Henry Kissinger, historian Niall Ferguson notes that “old man Thyssen” — that is, German steel magnate Fritz Thyssen — “bankrolled Hitler.” Businessmen such as Thyssen using their financial assets to assist the Nazis was “the mechanism by which Hitler was funded to come to power,” according to John Loftus, a former U.S. attorney who prosecuted Nazi war criminals.

But the Nazis were neither “financed” nor “bankrolled” by big corporate donors. During its rise to power, the Nazi Party did receive some money from corporate sources — including Thyssen and, briefly, industrialist Ernst von Borsig — but business leaders mostly remained at arm’s length. After all, Nazi economic policy was slippery: pro-business ideas swathed in socialist language. The party’s program, the Twenty-Five Points, called for the nationalization of corporations and trusts, revenue sharing, and the end of “interest slavery.”

And Wu’s two other cited sources?  Both focus mainly on IG Farben.  Diarmuid Jeffreys is “an award-winning journalist and television producer with thirty years’ experience in the media industry.”  He does have a book on IG Farben and the making of the German war machine, but it does not demonstrate how economic concentration brings totalitarian regimes to power, instead focusing on how IG Farben profited from Nazi war aims and helped build the Holocaust.  Earlier in the 1930s, IG Farben had in fact resisted Nazification. though the company did jump on board once it saw Nazification as inevitable.

Here is the Daniel Crane essay on antitrust and democracy.  Try this excerpt: “… it does not necessarily follow that Farben’s monopolistic position in the German chemical industry is causally related to the rise of fascism—or that monopoly enabled Nazism. Two matters should give us pause before making such an inference.”  Read p.14 to see what follows, but here is one tiny bit: “Though gigantic, Farben remained smaller than three American industrial concerns—General Motors, U.S. Steel, and Standard Oil. Nor was Farben’s wartime market power exceptional.”  On the other side of the ledger, Crane does note that fascistic governments, once in power, find it easier to take over and co-opt more highly concentrated industries, Farben being an example of that.  So there is an argument here, but mainly one data point and also some very serious qualifiers.

Does that all justify the sentence “But as writers like Diarmuid Jeffreys and Daniel Crane have detailed, extreme economic concentration does create conditions ripe for dictatorship.”?  “Ripe” is such a tricky, non-causal word.

I would instead stress that war, civil war, scapegoating, and deflation create the conditions “ripe for dictatorship.”  You might want to toss Russia and China into the regression equation, or how about Cuba and North Korea and Albania and Pol Pot’s Cambodia?  How would the coefficient on industrial concentration end up looking?  I’d like to know.

When big business is the target, and tech in particular, the standards of proof for Op-Eds seem to decline.  Somehow, because we all know that the big tech companies are bad, or jeopardizing democracy, it is OK to make weakly argued claims.

Hey, wait a minute!

In November 1931 Churchill also published an article entitled ‘Fifty Years Hence’ in Maclean’s Magazine, in which he made some absurd predictions — that we would grow only those parts of chickens we wanted to eat, for example — but also some astonishingly accurate ones.  ‘Wireless telephones and television…

That is from the new and excellent Andrew Roberts, Churchill: Walking with Destiny.  It is true of course that the fifty years prediction was off.  Here is the Churchill essay.