The new version of GPT-4 does economics
Does the Alchian and Allen theorem apply as much to shipping the tourists as it does to shipping the goods? [notice how little context is in that prompt]
The Alchian and Allen theorem, often summarized by the phrase “shipping the good apples out,” postulates that when a fixed cost (such as shipping) is added to both high-quality and low-quality goods, consumers will tend to choose the higher-quality option because the relative price difference between high and low quality is diminished. This effect occurs because the fixed cost makes the higher-quality good relatively cheaper in comparison to the lower-quality good.
To determine if this theorem applies as much to shipping tourists as it does to shipping goods, we need to consider a few key factors:
1. **Fixed Costs**:
– For goods, fixed costs like shipping fees are straightforward and directly affect the relative prices.
– For tourists, the “fixed cost” could be interpreted as travel expenses (e.g., airline tickets, visas) or associated costs of traveling.
2. **Relative Quality**:
– When applied to tourists, the theorem would suggest that higher fixed costs of travel might influence tourists to opt for higher-quality destinations or experiences, since the relative additional cost becomes proportionally smaller once the fixed travel expense is incurred.
– In this context, “higher quality” might mean more luxurious accommodations, premium tour packages, or upscale experiences.
3. **Consumer Behavior**:
– Tourists’ behavior may be influenced by the fixed costs of travel, encouraging them to “make the most” of their trip by choosing higher-quality options once the significant travel expense is accepted.
– This behavior aligns with the theorem, suggesting that relatively higher travel costs might steer tourists toward choosing higher-quality experiences to justify the overall expense of the trip.
4. **Elasticity**:
– The elasticity of demand for tourism-related services (e.g., accommodations, dining) and tourism destinations plays a role in how strongly the theorem applies. If tourists are sensitive to price changes in these services, the theorem may have a stronger influence.
– Conversely, if tourists have a fixed budget, they may not escalate their choices in quality as much, but rather optimize within that budget.
In conclusion, the Alchian and Allen theorem can indeed apply to shipping tourists in much the same way it applies to shipping goods. When tourists face substantial fixed costs (like airfare), they might be more inclined to choose higher-quality accommodations, dining options, or experiences to maximize the value of their trip. While the application is not as straightforward as it is with physical goods, the underlying economic principle still holds: the relative attractiveness of higher-quality options increases when fixed costs are a significant factor.
Wednesday assorted links
Why doesn’t Switzerland have more air conditioners?
Installing air conditioning in Switzerland is often subject to rules set at the cantonal level. Geneva is the strictest canton. To qualify, a home owner must prove they have a legitimate need, for example, by producing a medical certificate, and install systems that capture some of the heat emissions and condensation produced.
Other cantons require air conditioners to be powered by solar panels. This increases the upfront cost for anyone without solar panels, putting them out of reach of many home owners.
Here is the full story, via Nicholas. And, via Steve Rossi, here is a Guardian article with the header “Neighbours turn on each other in Portofino air-con crackdown. Some residents of wealthy Italian village reportedly passing on photos to police who are hunting illegal units.”
Tabarrok on China: World of DAAS Podcast
I was very pleased to appear on Safegraph CEO Auren Hoffman’s World of DAAS podcast. We covered lots of material including this (lightly edited) bit on China.
Auren Hoffman (23:06.518):
Now, you’ve thought a lot about things like reshoring, building manufacturing capacity. How do you think we could be thinking about that differently?
Alex (23:24.058)
I understand that there are some concerns about China, and there is an argument and I think it’s a legitimate argument, that there are some things such as chips that we want to make sure, it’s not good to have them located in Taiwan, right? We want to make sure that we onshore those. However, I have three concerns. One is, fundamentally, I don’t think China and the United States have such a clash of interest. Of course, it’s not perfect harmony, but there’s a lot of harmony of interest between China and the United States. We do lot of trade with China, which benefits both China and the United States.
..China’s getting richer Okay, people are worried because they’re getting more military whatever but also what this means is that people in China are getting cancer. Well now there’s 1 .4 billion people who want to cure for cancer, and they’re willing to put some money into it, right? And then that’s going to increase the amount of research and development for all kinds of high-tech goods, which is amazing for us. Like, I would be thrilled if an American wins the Nobel Prize for curing cancer. I would be 99.5 % as happy if a Chinese scientist wins a Nobel Prize for curing cancer.
So we have a lot to gain from a richer China. That’s point one. Point two is that, yeah, I get the idea that we want to onshore chip manufacturing, but I think we want to friendshore, right? So we don’t want to just have protection against all countries. Like I get it, okay, a hundred percent tariff on your Chinese EVs. It’s kind of crazy, but all right. However, let’s reduce tariffs on Germany.
Let’s reduce tariffs on Europe. In fact, let’s create a free trade, even a free immigration block among the Western democracies, you know, including Japan, Australia, New Zealand. So, let’s not turn a small problem in foreign policy, which is to make sure that we have a ready military supply. Let’s not turn that into trying to create a fortress America Which is going to make us poorer and actually less safe instead, you know, let’s build up the free world. Okay, let’s create an immigration and free trade with Europe and Canada and Mexico and so forth. Let’s build up the free world. That’s point two.
Point three is that look. It’s very, very easy to take a foreign policy argument and turn it into rent seeking for the benefit of special interests and protectionism for the benefit of special interests. Right? So at one point in the United States, probably even still today, you know, we were prohibiting mohair imports. Okay. Why? Because we use mohair to make military uniforms. The whole thing is ridiculous. But it’s very easy, almost inevitable, that this kind of argument is turned into a special interest trough.
I think this is one of my best podcast appearances because we covered some new material on crime, the universities, why Tyler and I are able to cooperate on so many projects, a conspiracy theory I believe and more. Listen to the whole thing.
Video games and looks
We investigate the relationship between physical attractiveness and the time people devote to video/computer gaming. Average American teenagers spend 2.6% of their waking hours gaming, while for adults this figure is 2.7%. Using the American Add Health Study, we show that adults who are better-looking have more close friends. Arguably, gaming is costlier for them, and they thus engage in less of it. Physically attractive teens are less likely to engage in gaming at all, whereas unattractive teens who do game spend more time each week on it than other gamers. Attractive adults are also less likely than others to spend any time gaming; and if they do, they spend less time on it than less attractive adults. Using the longitudinal nature of the Add Health Study, we find supportive evidence that these relationships are causal for adults: good looks decrease gaming time, not vice-versa.
That is from a new NBER working paper by
Emergent Ventures India, eighth cohort
Post and selection by Shruti Rajagopalan:
Lakshay Taneja is an innovator and entrepreneur with a background in blockchain and AI. He received an EV grant to develop his project aiming to harness ocean and tidal energy to generate electricity.
Madhulash K. Babu is a 24-year-old entrepreneur and electronics engineer and the founder of Edodwaja. He received his EV grant to develop flowbus/lab on wheels to bring the latest technology to schools allowing students to have hands-on STEM lab experiences.
Ryan Nadar is an engineering student and received his EV grant for his research on ion batteries.
Samay Sanghvi is a 17-year-old self-taught engineer from Mumbai. He received his EV grant to develop gliders to generate electricity from high altitude winds, at his start-up Alteon Energy which aims to generate 7.5Mw/h with just $12m (about 4.5x cheaper than solar in India).
Divyanshu Dembi is an antitrust lawyer and writes at Impatiently Curious. He received the EV grant for his podcast Jack of all knowledge with people doing interesting projects in the field of law, policy, arts and technology.
Sriram Kuchimanchi is a social entrepreneur and the founder of Smarter Dharma. He received an EV Grant to build India’s first data-driven open platform for sustainable materials and solutions which can help accelerate the decarbonising of the building industry from the design stage.
Junaid Ahmed is a 21-year-old entrepreneur and founder of WalkingPal – the world’s first walking buddy app – with a mission to change the way how people cover their last mile, by making walking more fun and the preferred way to commute.
Akshin Makkar is a 17-year-old from Toronto, Canada, building a drone-related application to help farmers with ground-weed problems in an agricultural setting.
Nikhil Garg is a 15-year-old high-school dropout working as a software engineer for the last four years. He received his EV grant to develop his startup bytecubetech. He is also working on Advisely, to help students who wish to study abroad.
Ayush Chauhan is a high-school student and young entrepreneur who was awarded an EV grant to expand multi-device charging station system to improve electricity access in underserved areas in rural India.
Moksh Soni is a 20-year-old innovator from Mandi, Himachal Pradesh. As a teenager, he made an electrolyzer by stripping a bus tire for rubber and cutting up some old steel plates from his mother’s kitchen. He received his EV India grant to design a relatively smaller electrolyzer, in a lab, and hopes to produce greater yields of hydrogen.
Amanjot Singh and Sehaj Pasricha are 19-year-old AI engineers. Badal Panchani, also 19, has worked as a developer and designer, and ran a natural science community. They received their EV grant to move to Bangalore and start Wayfarers Space, their start-up which aims to create a social environment for those on unconventional paths.
Indraneel S. Bankapure is a journalist and indologist from Kolhapur, Maharashtra. His organization Virasat: Indian Heritage Initiative hopes to introduce the wonders of Indian culture to the world. He received his EV grant to develop a machine learning tool which will help identify and recreate sculptures in their original glory.
Those unfamiliar with Emergent Ventures can learn more here and here. The EV India announcement is here. More about the winners of EV India second cohort, third cohort, fourth cohort, and fifth cohort. To apply for EV India, use the EV application, click the “Apply Now” button and select India from the “My Project Will Affect” drop-down menu.
If you are interested in supporting the India tranche of Emergent Ventures, please write to me or to Shruti at [email protected].
Finally, exchange rate models seem to work pretty well
Exchange-rate models fit very well for the U.S. dollar in the 21st century. A “standard” model that includes real interest rates and a measure of expected inflation for the U.S. and the foreign country, the U.S. comprehensive trade balance, and measures of global risk and liquidity demand is well-supported in the data for the U.S. against other G10 currencies. The monetary and non-monetary variables play equally important roles in explaining exchange rate movements. In the 1970s – early 1990s, the fit of the model was poor but the fit (as measured by t- and F-statistics, and R-squareds) has increased almost monotonically to the present day. We make the case that it is better monetary policy (inflation targeting) that has led to the improvement, as the scope for self-fulfilling expectations has disappeared. We provide a variety of evidence that links changes in monetary policy to the performance of the exchange-rate model.
That is from a new NBER working paper by Charles Engel and Steve P.Y. Wu. For how long will this last?
Tuesday assorted links
Beware research in large teams
Teamwork has become more important in recent decades. We show that larger teams generate an unintended side effect: individuals who finish their PhD when the average team in their field is larger have worse career prospects. Our analysis combines data on career outcomes from the Survey of Doctorate Recipients with publication data that measures team size from ISI Web of Science. As average team size in a field increased over time, junior academic scientists became less likely to secure research funding or obtain tenure and were more likely to leave academia relative to their older counterparts. The team size effect can fully account for the observed decline in tenure prospects in academic science. The rise in team size was not associated with the end of mandatory retirement. However, the doubling of the NIH budget was associated with a significant increase in team size. Our results demonstrate that academic science has not adjusted its reward structure, which is largely individual, in response to team science. Failing to address these concerns means a significant loss as junior scientists exit after a costly and specialized education in science.
That is from a new NBER working paper by
Europeans deserve to be as cool as Americans
That is the (very good) title they gave my recent Bloomberg column. Should Europe have more air conditioning? Basically yes. Here is one excerpt:
Some 90% of the US has air conditioning, according to one estimate, compared to only 19% for Europe. Worldwide, the US, China and Japan account for about two-thirds of all air conditioning…
And yet it will not be easy to make Europe as cool (speaking only in terms of temperature) as America. Much of the continent faces higher energy prices than does the US, and there are taxes — in France, they are 20% on AC systems.
And then there are the esthetics. Many Europeans complain that artificially cooled air is less healthy or less pleasant to breathe — a view this American has some sympathy for. (I am not much bothered by the heat and enjoyed the fresh air of Siena.) European buildings are also on average older than those in the US, and were not built to make AC units easy to install. So issues may arise from local regulations and historic-preservation laws.
Some Europeans also have an option unavailable to Americans if the temperature truly is unbearable: They can take the entire month of August off. They can swim in the Mediterranean, or take a quick flight to Finland or Ireland. The economic lesson that people adjust to their circumstances is borne out by these realities.
Personally, I would prefer a world with less air conditioning, or with temperatures not so low. And in Europe in particular, I enjoy how the relative paucity of AC forces people outdoors and into public squares. But that is only me. In sum;
So the best argument an American can make for why Europe should have more air conditioning is this: because Europeans want it. There are cultural forces keeping the shift toward more AC from proceeding as quickly as it ought to, but the transition will eventually happen. Why not accelerate the pace of installation and get to where much of Europe is likely to end up anyway?
My current hotel in Ireland…has no air conditioning.
The pay of Presidents (from my email)
Adjusting for inflation, President Biden is one of the lowest-paid Presidents in American history. See the first and last figures in this analysis from 2012.
This source’s figures are all in 2012 dollars, and there’s been 39% cumulative inflation since then, while the President’s nominal salary has stayed fixed at $400,000/year (nominal). So Bill Clinton’s average real salary over his presidency – the lowest real historical pay as of the time of this source’s analysis – would be worth $403,100 today, just barely edging out Biden’s current salary of $400,000. (But Clinton’s average real salary was probably lower than Biden’s average salary over the course of Biden’s presidency. There have been a few years when the President’s real annual salary was below its current level, including during most of Clinton’s presidency.)
The last time the President’s real salary dropped down below its current level, Congress voted to double it.
That is from TP.
Monday assorted links
1. Live caption glasses let the deaf see conversations. And use ChatGPT to estimate true male height.
2. Claims about claims, this guy says it’s happening.
3. Karpathy on RLHF.
4. Pro-progress will win when it wins women.
5. How you would do in various Olympic sports, a ranking. And Olympic performance per capita.
US Human Experimentation Without Consent or Contract
In July 1946, 20-year-old Helen Hutchison walked into the Vanderbilt University prenatal clinic in Nashville, Tennessee. Helen found herself pregnant after her husband had returned from combat in World War II. The pregnancy, however, had not been easy. During her visit to the clinic Helen’s doctor handed her a small drink.
“What is it?” she asked.
“It’s a little cocktail,” her doctor replied. “It’ll make you feel better.”
“Well I don’t know if I should be drinking a cocktail,” she responded in jest.
“Drink it all. Drink it all down” (quoted in Welsome 1999, p. 220).Helen did as her doctor ordered.
Three months later Helen’s daughter, Barbara, was born. Not long after, Helen began to experience some frightening health problems; her face swelled, and her hair fell out. She then experienced two miscarriages, one of which necessitated 16 blood transfusions (Welsome 1999, p. 220). Baby Barbara experienced her own health problems from early childhood. She suffered from extreme fatigue and developed an autoimmune disorder and eventually skin cancer.
…Unbeknownst to Helen, she and her unborn baby had been subjects in a government-funded experiment. She was one of hundreds of women who received an experimental “cocktail” between 1945 and 1947 during one of their prenatal visits, compliments of the U.S. Atomic Energy Commission (AEC), which provided the materials (Wittenstein 2014, p. 39).
The 829 women of the Vanderbilt clinic were but a few of hundreds of thousands of individuals, mostly U.S. citizens, who would be subjected to illegal experiments and suffer human-rights violations during in the post-World War II period at the hands of scientists with funding and materials provided by the U.S. government. These experiments were meant to provide the government with information about the effects of atomic weapons on the human body to advance military capabilities in the name of “national security.”
This paper tells the story of U.S. government activities related to human experimentation after World War II.
That’s Coyne and Hall writing on Dr. Mengele, USA Style: Lessons from Human Rights Abuses in Post World War II America. It’s interesting that these immoral experiments using radiation and also agents of chemical warfare are less well known to the public than say the Tuskegee Study even though they involved far more people.
IRA manufacturing delays
Some 40 per cent of the biggest US manufacturing investments announced in the first year of Joe Biden’s flagship industrial and climate policies have been delayed or paused, according to a Financial Times investigation.
The US president’s Inflation Reduction Act and Chips and Science Act offered more than $400bn in tax credits, loans and grants to spark development of a US cleantech and semiconductor supply chain.
However, of the projects worth more than $100mn, a total of $84bn have been delayed for between two months and several years, or paused indefinitely, the FT found.
Here is more from Amanda Chu, Alexandra White and Rhea Basarkar at the FT.
What I’ve been reading, or not reading
1. August Strindberg, The People of Hemsö. Hardly anyone (non-Swedish?) reads this classic novel any more, but it holds up as one of the more compelling creations of its time. Direct and compelling. Swedish people on an island, but will this marriage work? Why has it so faded from our attentions? I’ve long loved Strindberg, so why did it take me until so late in life?
2. Michael McVicar, Christian Reconstruction: R.J. Rushdoony and American Religious Conservatism. Another very good book no one told me about, somehow I stumbled on it browsing Amazon. You can make Rushdoony sound like a nut, but you also can make him sound like one of the most influential figures in the 20th century history of American conservatism and also libertarianism. Would the modern home schooling and Christian home schooling movements exist without him? And yet he believed in extreme theocracy. This book also has plenty of meaty material on the Volker Fund, Gary North, FEE, and much more.
3. Dawn Ades and David F. Hermann, Hannah Höch. As part of my attempt to brush up on the Weimar period, I have been reading and browsing through this excellent picture book of works by one of Germany’s most famous dada artists. Here are some images.
4. Paul Collier, Left Behind: A New Economics for Neglected Places. Spoiler: he does not say “tax them so people leave.” If I had a nickel every time he misrepresented the views of Milton Friedman and market economics… We are told that shock therapy failed in Russia, but not that it succeeded in Poland, which followed through with it consistently and ran less corrupt privatizations. Somehow each subsection in this book is too short. He ends up in a sensible state capacity view, but it would have been much simpler if he had started there.
5. Marina Münkler, Anbruch der Neuen Zeit: Das Dramatische 16. Jahrhundert. An excellent analytical overview of the 16th century, which of course is what set the stage for so much of what was to follow. Not surprisingly, has more of a Central European emphasis than many Anglo works on the same period.
Paul Cooper, Fall of Civilizations: Stories of Greatness and Decline covers classic themes with intelligence.
Justene Hill Edwards, Savings and Trust: The Rise and Betrayal of the Freedmen’s Bank is a good contribution to economic history and also black history.
I have not yet been able to start Jeffrey Ding, Technology and the Rise of Great Powers: How Diffusion Shapes Economic Competition.