Results for “age of em” 17243 found
Correlation-Seeking
Richard Squire has an important new paper in the Harvard Law Review:
…This Article identifies a pervasive opportunism hazard created by
contingent debt that lawmakers and scholars have overlooked. If liability on a firm’s
contingent debt is especially likely to be triggered when the firm is insolvent, the
contract that creates the debt transfers wealth from the firm’s creditors to its
shareholders. A firm therefore has incentive to engage in correlation-seeking – that is,
to incur contingent debts that correlate, or that through asset purchases can be made to
correlate, with the firm’s insolvency risk. The consequence is an overuse of contingent
debt that destroys social wealth through overinvestment, higher borrowing costs,
financial distress, and potential systemic risk. Correlation-seeking is especially
pernicious because, unlike other forms of shareholder opportunism such as asset
substitution, it can reduce risk to shareholders even as it increases shareholder returns.
It's long been known that a firm close to bankruptcy has an
incentive to gamble because if the gamble pays off the
shareholders prosper and if the gamble fails then the shareholders are no worse off (since the firm was already close to bankruptcy).
But gambles like this
add to shareholder value primarily by transferring wealth from
the creditors who bear the downside risk without any hope of upside gain.
Squire shows how this idea is magnified when we add
contingent debt and correlated asset returns. A contingent debt is one that must
be paid only in certain states. If the shareholders take on
contingent debt and at the same time buy assets with low or negative
payoffs in the same set of states then the shareholders can focus the downside risk into the states in which they are bankrupt anyway – thus focusing the downside risk onto unsecured creditors.
Correlation seeking of this kind becomes easier with contingent
securities and more difficult to monitor. As Squire points out even as AIG was writing credit default
swaps (a type of contingent debt) on MBS it was buying MBS for its own portfolio and of course the ultimate unsecured creditors, the taxpayers, paid the price.
A revisionist perspective on ADHD
This article is not perfect, but it is much better than most MSM coverage of its topic. Here is one good paragraph:
That said, some adults with ADHD are highly intelligent, energetic, charismatic and creative, and are able to focus intently on a narrow range of topics that interest them. David Neeleman, the founder of JetBlue Airways, and Paul Orfalea, founder of Kinko's, have spoken out about how the disorder helped them come up with innovative ideas for their corporations, despite their having done poorly in school.
I have tried to track this point through the research literature, but it still seems to me that the way in which ADHD brings a high variance of attention — rather than just jumpy, scatterbrained behavior — is poorly understood. There is, by the way, some preliminary evidence that ADHD is overrepresented in entrepreneurs.
Financial reform and why it is hard to blog
Paul Krugman writes an Op-Ed on where the political debate is at and I agree with most of his points. Of particular importance is this one:
So what the legislation needs are explicit rules, rules that would force action even by regulators who don’t especially want to do their jobs. There should, for example, be a preset maximum level of allowable leverage – the financial reform that has already passed the House sets this at 15 to 1, and the Senate should follow suit.
I favor this but I nonetheless think it remains problematic. The more binding the leverage restrictions, the more banks and other intermediaries may try to recreate implicit leverage off the balance sheet. (This is one reason to push for decentralized market monitoring, though I am not suggesting exclusive reliance on that.) It's fine to call for maximum transparency, but mostly that's just wishing for a different world. Activities off the balance sheet are off the balance sheet for a reason and it is hard to squeeze many of them into traditional accounting conventions. Nor should we try to ban off-balance sheet banking, as it would happen somewhere — both geographically and in some corner of the financial sector – and indeed many of these transactions limit rather than raise risk.
The upshot is that managing off-balance sheet risk requires an ongoing, hammer and tongs approach. There isn't any "once and for all" solution to banking regulation and the harder we try to find one probably the more we will end up relying on regulator discretion and judgment.
Bank regulation is a tough slog, it depends on the quality of the bureaucracy and the periodic attention of a somewhat responsible legislature, "toughness" can be counterproductive, the historic periodic of regulatory "easiness" relied on cartelization and near-automatic profits, and it is like a chess game whereby the private sector eventually finds a way around most of the binding regulations.
And now we can return to why financial reform is hard to blog. There's always a new proposal and a big tizzy over the particular contents of that reform. Whatever one thinks of the specific suggestions, I keep returning to the notion that the quality of the regulators — most of all Congress — truly matters.
How many times can one say that? How many times can one think that and run away in fear?
Arnold Kling has good remarks on transparency.
Does incarceration make people black?
In a paper in Social Problems, Saperstein and Penner find that there is a surprising amount of variability in racial identification in the NLSY. Some of this variation is due to error or other random factors but some of it also appears to be systematic. In particular, the authors find that if someone has been incarcerated they are more likely to self-identify as black as well as to be independently identified as black. As the authors put it
Results show that respondents who have been incarcerated are more
likely to identify and be seen as black, and less likely to identify
and be seen as white, regardless of how they were perceived or
identified previously. This suggests that race is not a fixed
characteristic of individuals but is flexible and continually negotiated
in everyday interactions.
Here is a key table. In the first column is the respondent's self-identification, European or Black, in 1979. Thus 95% of the people who identified as European in 1979 and who were not incarcerated between 1979 and 2002 identified themselves as White in 2002. In other words, racial identification for the non-incarcerated was quite stable. But only 80% of the people who identified as European in 1979 and who were incarcerated between 1979 and 2002 identified themselves as White in 2002. Thus incarceration appears to affect how people identify themselves.
The result is surprising at first but makes sense once one sees it as a natural extension of Akerlof and Kranton's work on identity.
Note that there are some issues with the data since the precise
questions asked and options given changed over time (hence the change
from "European descent" to "White")–nevertheless, the differences
conditioning on incarceration appear to be robust–but see the paper
for more.
Hat tip Gabriel Rossman.
Assorted links
1. Judging bloggers by their books. (it's a tie for first)
2. The defining books of recent French literature? (in French, useful list in any case)
3. Richard Thaler: trading up in the NFL draft isn't worth it.
The iPad
Could this be the medium through which the fabled convergence finally occurs?
Most of all, think of it as a substitute for your TV.
It has the all-important quality of allowing you to bend your head and body as you wish (more or less), as you use it. By bringing it closer or further, you control the "real size" of the iPad, so don't fixate on whether it appears "too big" or "too small."
The pages turn faster than those of Kindle. The other functions are also extremely quick and the battery feels eternal.
So far my main complaint is how it uses "auto-correct" to turn "gmu" into "gum."
While I will bring it on some trips, most of all it feels too valuable to take very far from the house.
On YouTube I watched Chet Atkins, Sonny Rollins, and Angela Hewitt.
Note all the categories on this short post!
Still true, you beasts
I will try to buy an iPad later today, we'll see with what success. In the meantime, Matt Fraser reminds me of my words from a few years ago:
So go ahead, buy your iPad, and feel the joy of technological advance (and the status it conveys). But think twice before whining when Apple inevitably introduces its faster, sleeker, less-expensive next generation of iPads. As economist Tyler Cowen, himself an early adopter, put it during the iPhone kerfuffle: “It is you people, who resent Coase (1972), you people who induce wage and price stickiness and widen the Okun gap. You people, who don’t know what it means to sit back and enjoy your consumer surplus. You beasts!”
Are taxicabs allocated optimally?
Here are some simple facts, for instance:
On a Saturday at 11 p.m., it’s easier to hail a cab on the nightclub-and-bar-filled Lower East Side than at Grand Central Terminal. Columbus Circle gets more passenger pickups than the Port Authority bus station. And make sure you are in the right neighborhood: taxi rides are 25 times as likely to start in the West Village as in Washington Heights.
I am wondering whether these patterns are optimal in the economic sense.
One non-optimality is that too many cabs cruise (and deliver passengers) in the crowded part of the city, not taking congestion costs into account. But that we already knew. Congestion aside, is there another suboptimal clustering effect?
If I go hear Joe Lovano at the Village Vanguard (West Village, heavily cabbed), 11 p.m. show, I know I don't have to walk back to my uptown hotel or take the subway. So I make cab-dependent plans and I go to the late show rather than the early show. Some particular cabbie benefits from the fact that other cabbies have cultivated a pool of ready customers in the area. It's like a well-functioning singles bar with lots of matches.
If one extra cab were allocated away from the West Village and to Washington Heights, would that create on net more valuable cab-consistent plans? That's an empirical question, but the basic issue is whether marginal spillover externalities are more potent in very dense or very sparse clusters.
You'll note that, by law, cabs are supposed to charge a single rate for all rides. That leads to a shortage of trips in dangerous areas, but it doesn't answer the question about where the marginal externality is greater. It could be that the sparse cluster cannot achieve critical mass and thus investing there is largely a waste.
A second question is whether the marginal external benefit is greater for the cabbie or the rider. As Coase's logic indicates, riders can be misallocated just as cabs can be. Maybe I'm going to the wrong night club.
Addendum: I liked this bit:
At 3 a.m. on a Sunday, passengers stumble into more cabs at 10th Avenue and 27th Street in Chelsea than anywhere else in the city. About as many taxi trips begin there at that hour on average as at 9 a.m. on a weekday at the Seventh Avenue entrance to Penn Station.
Taxi trips may also offer a more objective guide to night-life trends than Zagat: late-night pickups in the meatpacking district dominate other popular areas like Sheridan Square and St. Marks Place. The East Village barely cracks the top 10 on early Sunday mornings, but if you need a cab, try Third Avenue and 11th Street.
There's also a new iPhone application that tells you where to stand to maximize your chances of getting a cab; I wonder if this will turn out like portfolio insurance in 1987!?
Why the Massachusetts mandate is stronger than the federal mandate
Reihan Salam pursues the issue:
Reader Jim Fair kindly pointed me to an important provision in the Massachusetts law that is not present in ACA, as I understand it. The following is from a summary provided by Healthinsuranceinfo.net:
- If you buy individual health insurance through Commonwealth Choice you may face a pre-existing exclusion period. No pre-existing condition exclusion period can be applied unless you have a break of 63 or more days of continuous coverage. Pre-existing condition exclusion periods can last up to 6 months. Commonwealth Choice plans can look back 6 months to see if you actually received care or treatment for a condition. In addition, pregnancy can be considered a pre-existing condition in individual health insurance. Genetic information cannot be considered a pre-existing condition.
- No preexisting condition exclusion period can be imposed if you are HIPAA eligible.
This strikes me as a powerful disincentive to going without coverage that effectively strengthens the mandate.
Sentences to ponder
More than two months after the earthquake that devastated Haiti, at least 30 survivors who were waved onto planes by Marines in the chaotic aftermath are prisoners of the United States immigration system, locked up since their arrival in detention centers in Florida.
The full and outrageous story is here. Their "crime," by the way, is not having proper visas. Some were pulled from the rubble of the earthquake and none have criminal histories.
Assorted links
2. Taxes per person.
3. Does the Flynn effect account for most of age-related IQ decline?
4. Russia eliminates two time zones (why do you people love this stuff?)
5. Freakonomics film is coming out soon.
6. Interview with Elinor Ostrom.
7. How to complete a census, with Christopher Walken.
Attracted to Evil?
In transcranial magnetic stimulation (“TMS”), a coil of wire is placed near the head. Alternating current flowing through the coil induces a magnetic field with a strength of up to 2.5 teslas (one tesla is 20,000 times the strength of the earth’s magnetic field). The field passes harmlessly through the skull and influences the electrical
signals passing among neurons in the brain.
(Image and quote from Progress Daily.)
TMS has been used to stimulate or suppress different centers of the brain including those involved with attention, language and memory. A new paper in PNAS used TMS to disrupt part of the brain involved in judging intention and morality. Here is a summary:
Magnets can alter a person's sense of morality, according to a new report in the Proceedings of the National Academy of Sciences.
Using a powerful magnetic field, scientists from MIT, Harvard University and Beth Israel Deaconess Medical Center are able to scramble the moral center of the brain, making it more difficult for people to separate innocent intentions from harmful outcomes….
Magnetic fields made people judge outcomes more than intentions.
The effect was small and temporary but no less disturbing especially if the effect could be made to operate at a distance. Perhaps the tin-foil-hat-people have had it right all along.
How does Netflix receive your discs so early in the morning?
Someone from Netflix writes to me:
The post office doesn't scan any DVDs for us. The envelopes come to us from the post office in standard mail cages. The envelopes are opened and inspected (currently by hand) by the nearest Netflix hub starting extremely early in the morning. After inspection, they're scanned by a computer. It's not until the DVD is actually scanned that it's marked as returned.
Netflix has spent quite a bit of time hacking the USPS, as it were. They've found they have a much higher customer satisfaction rate, as well as being easier to get new customers, if one-way transit time is only 1 day. It's hard to achieve in most places, but in high density areas like the SF Bay Area it's very cost-effective.
The same correspondent references this article on related information, and more.
Further assorted links
1. Will the Obama mortgage plan help?
2. U. Chicago graffiti is nerdy.
3. Karaoke is dwindling, thank goodness.
4. Markets in everything: Stroop test on your toilet paper roll.
5. Will clearinghouses solve OTC problems?
6. Margaret Atwood discusses Twitter; very good link.
7. GJ: "Labor hoarding is so twentieth century."
8. Controversial brand name, from Germany. I love this associated photo.
How mandate penalties will be enforced
From the Joint Committee on Taxation:
The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.
There is much more discussion here and I thank Joe Kristan for the pointer. Megan McArdle adds comment. Maybe the legal issues here are not yet clear, but so far it is not looking good.
Ahem!
Leave your comments here.