Wednesday, January 30, 2008

An economist learns a lesson?

Steve Levitt relates a fascinating account of an economist's foray into the secondary Hannah Montana ticket market. It's a great read and presents an interesting dilemma and an important lesson how much context matters for determining how much individuals value goods and services. The comments are also pretty interesting. I recommend reading them as well.

ECON 260: Updated Schedule

Here's the schedule for the next few meetings:

Friday 2/1: Finish discussion of Goodstein Chp 3 and start Chp 4.

Monday 2/4: Goodstein Chps 4 & 5

Wednesday 2/6: Goodstein Chps 6 & 7; QUIZ IN CLASS, TAKE HOME OUT (DUE 2/13)

Friday 2/8: Continue discussion of sustainability (chps 6 & 7).

Monday, January 28, 2008

ECON 260: Re-selling Subsidized Water

This doesn't strike me a particularly efficient:

With water becoming increasingly precious in California, a rising number of farmers figure they can make more money by selling their water than by actually growing something.

Because farmers get their water at subsidized rates, some of them see financial opportunity this year in selling their allotments to Los Angeles and other desperately thirsty cities across Southern California, as well as to other farms.

Wouldn't efficient pricing of water do better than providing farmers a subsidy to get more water and then allowing them to resell it to others at a higher price?

Sunday, January 27, 2008

ECON 365: Regulation in Financial Markets

Here's an interesting NYTimes article in which Yale economist Robert Schiller argues that we need more government intervention in financial markets. In particular, he believes that consecutive bubbles (stock and real estate) have reduced confidence in markets and the government needs to intervene (as it did during the depression) to help restore confidence:

The Depression-era problems he studied are mirrored by similar issues today, and they need urgent attention. The very fact that many people feel they can no longer rely on some of our financial institutions may bring a self-fulfilling prophecy, which could then fundamentally harm economic activity.

The mortgage market is suffering. People are having a hard time getting mortgages, and mortgage originators are finding it harder to sell their mortgages to those who would repackage them in mortgage securities.

The commercial paper market is suffering, too. The amount of outstanding asset-backed commercial paper, which has become a main element of an unregulated, uninsured, shadow banking system, has fallen 30 percent since August.

Other credit markets are also having problems. For example, some municipal borrowers have already had the credit ratings of their debt lowered because of the downgrading of Ambac, a municipal bond insurer, by Fitch Ratings. Problems in the bond market are likely to multiply if there are further downgradings of Ambac, or downgradings of other insurers like MBIA.

CONFIDENCE in our brokerage firms is suffering. With every announcement of major losses, some people start to wonder whether they can rely on these companies.

Schiller clearly believes that markets are operating inefficiently, but he doesn't seem to kow yet what to do about it basically arguing that we need to think about what to do.

Saturday, January 26, 2008

Both Courses: A Pollution Problem Solved?

When I was a kid, Saturday morning cartoons were inundated with anti-littering commercials. Like this one featuring Woodsy the Owl (someone you all may not even know, a casualty of the spotted owl wars -- tragic):

Or the classic "Crying Indian" PSA (which actually predates me, but I've heard it referenced often):

Today, though, anti-litter PSAs aren't common. In fact, they may not even exist (I certainly don't recall seeing any). In spite of its private efficiency (from the individuals perspective littering is a cheap way to get rid of your trash), people really don't litter intentionally anymore. This article describes the change in litter in the US and argues (perhaps correctly) that it is the result of changing the social norms (about both litter and recycling) plus increasing enforcement of litter laws. It's an interesting lesson in the power of social (as opposed to monetary) incentives as a means of solving pollution problems (by internalizing externalities).

(Random aside to illustrate how strong the "don't litter" mindset is (at least for me). 10 years ago, I was in Paris. At the time, Parisians were concerned about bombs in their garbage cans, so all the garbage cans had been sealed up. You were just supposed to throw your garbage on the ground and an army of street cleaners cleaned it up. I couldn't do it. I literally carried garbage for miles until I found a Burger King where I could go inside and throw it away.)

Thursday, January 24, 2008

ECON 260: The Cost of Becoming a Low Carbon Society

Several economists offer their thoughts on the best way (and the costs associated) with moving to a low carbon society:

Given projected world population dynamics, this objective requires reducing per capita emissions in the second half of this century from about 2 tonnes carbon equivalent (tC) to about 0.3 tC per year. In other words, the world will have to cut emissions to the per capita average of India today – quite a significant reduction for most industrialised countries (US average per capita emissions are about 5tC) and for countries that aim at similar lifestyle standards. For example, 0.3 tC is the amount of greenhouse gases emitted by an individual flying – one way – from the EU to the US East coast!

Clearly, a world with 0.3 tC per capita per year will be a different world. What are the optimal strategies and the related economic costs of achieving this ambitious, but seemingly inevitable, target?

Click the link to read their answers to these questions.

The Britney Economy

In previous blog posts, I've discussed the strategies I'd recommend to celebrities seeking to reduce their exposure to intrusive paparazzi. In brief, I recommended that celebrities do more to increase supply and drive down the price (because they don't seem to have any ability to reduce demand while remaining celebrities).

Demand though -- at least for Britney Spears -- may be too large for these techniques to make much of a dent. This article estimates just how much Britney is worth to the gossip economy:

The Paparazzi
A Britney photo garners anywhere from $250 (for a run-of-the-mill shot of her at Starbucks) to $100,000 or more. The photo agency X17, which has a team trailing her 24-7, estimates that Britney accounts for 30 percent of its revenue: It sold $2.5 million worth of Britney photos in 2007 alone, including $500,000 for its exclusive Bald Britney pics. Competitor Splash News says that Britney accounts for 10 to 15 percent of its business, boosted this year by $200,000 for photos of Britney in a hot tub. All told, Britney probably makes up a full 20 percent of the paparazzi business.

Estimated average annual take: $4 million

The Media
If it seems like every time you see a newsstand, Britney is on the cover of another magazine, that's only because…she is. A celebrity tabloid with Britney Spears on the cover sells 1.28 million newsstand copies, some 33 percent more than the average. Between January 2006 and July 2007, Britney was a cover subject of People, Us Weekly, In Touch, Life & Style, OK!, or Star a total of 175 times in just 78 weeks. During that period, newsstand sales of issues with her on the cover amounted to a staggering $360 million. She's also topped the annual Yahoo Search rankings in six of the past seven years, slipping to No. 2 only in 2004, when Paris Hilton briefly stole her crown. Searches for Britney were up 60 percent in 2007, the year of her divorce, shaved head, and car wreck. "If there was no Britney, would all Web traffic stop?" asks Vera Chan, senior editor at Yahoo. "I would hesitate to give her that much power, but it's hard to argue with the facts."

Estimated average annual take: $75 million

ECON 365: Unintended Consequences

Here is a link to the recent Freakonomics column on unintended consequences that I referred to in class.

Also, in case you are interested here is prominent economics blogger Tyler Cowen's thoughts on the article.

Note -- while the unintended consequences they identify certainly reduce the expected benefits of the programs they describe, the existence of these negative consequences does not necessarily imply that the laws are, on net, bad. While it would be great to remedy these adverse effects, it's still possible that these laws improve outcomes by more than whatever the next best alternative is.

Wednesday, January 23, 2008

ECON 365: Ed Glaeser on the Role for Gov't Post-Katrina

A couple years ago, one of my students left me a message telling me I needed to turn on NPR immediately because my adviser, Ed Glaeser, was dealing with several very irate callers upset by his suggestion that the government shouldn't invest much in rebuilding New Orleans. He argued that the money would be better spent simply offering cash to all New Orleans' pre-Katrina residents. His argument is that we should insure people and not places. The idea of not rebuilding New Orleans touched a nerve and callers from across the country wanted to let Ed know that he was a big idiot. While it was amusing to listen to my adviser deal with the callers, the argument he makes is, in my opinion, not without merit. It certainly offers an interesting response to the 4 questions Gruber outlines in chapter 1.

Please read Glaeser's full argument here:

ECON 260: Nobel Laureate Thomas Schelling on Uncertainty and Climate Change

Please read this essay by Nobel laureate Thomas Schelling describing his views on several of the themes we will discuss this week.

As a voluntary exercise, try and place his arguments within the frameworks outlined in chapter 1 of Goodstein. Which ethical viewpoint is Schelling most likely to subscribe to? Would you describe his approach as more conservative or progressive?

The Economics Behind Changing Marriage

Justin Wolfers and Betsy Stevenson (who were in graduate school with me and are now at Wharton) use basic economics to explain how and why marriage is changing. I highly recommend reading the whole thing. Here are some teaser excerpts:

So what drives modern marriage? We believe that the answer lies in a shift from the family as a forum for shared production, to shared consumption. In case the language of economic lacks romance, let’s be clearer: modern marriage is about love and companionship. Most things in life are simply better shared with another person: this ranges from the simple pleasures such as enjoying a movie or a hobby together, to shared social ties such as attending the same church, and finally, to the joint project of bringing up children. Returning to the language of economics, the key today is consumption complementarities — activities that are not only enjoyable, but are more enjoyable when shared with a spouse. We call this new model of sharing our lives “hedonic marriage”.

So is marriage doomed? Marriage in which one person specializes in the home while the other person specializes in the market is indeed doomed. The opportunity cost of having women stay out of the labor force is likely to continue to rise — particularly as young women are surpassing men in educational attainment and higher education is becoming more important for market success. The reach of markets will continue to expand, allowing individuals and families to reap the returns to specialization through market-mediated trade with other specialists, rather than requiring a domestic specialist in each home.


Thus marriage isn’t dead, it is, again, transforming. Hedonic marriage is different from productive marriage. In a world of specialization, the old adage was that “opposites attract,” and it made sense for husband and wife to have different interests in different spheres of life. Today, it is more important that we share similar values, enjoy similar activities, and find each other intellectually stimulating. Hedonic marriage leads people to be more likely to marry someone of their similar age, educational background, and even occupation. As likes are increasingly marrying likes, it isn’t surprising that we see increasing political pressure to expand marriage to same-sex couples.

About time?

At some point in the past, I tried to convince my students that they should offer investors shares of their future earnings rather than take out loans to pay for their education. Simple calculations suggested that this would be a reasonably good investment for investors. I felt that some entrepreneur could probably do ok putting in the work to create this market.

Now, it appears, that someone is giving it a try:

Randy Newsom, relief pitcher for the Cleveland Indians, is selling 4% of his future major league salary. There are 2,500 shares in the IPO so each share gets you a claim to 0.0016% of his future salary including bonuses. Shares sell for $20 each.

Tuesday, January 22, 2008

All Courses: Bryce's Objectives

At the heart of any microeconomic analysis are the objectives and constraints faced by the relevant agent. In order to help you better understand my decisions throughout the course (and to reiterate the value of an economic framework for understanding decisions), I will frequently pull back the curtain and let you peek into my mind by outlining what I believe the relevant objectives, constraints, and tradeoffs are in the given situation.

In that vein, let me start off this blog by outlining the objectives that will largely shape the choices I make throughout the course.

1) Develop intuitive economic framework that students can (and will) employ to more deeply understand questions and issues throughout life.
2) Provide and develop empirical skills that will prepare students for their remaining undergraduate work and for life in general. I hope to cultivate the intuitive and technical skills necessary to provide good empirical description of topics and the to test causal hypotheses.
3) Improve students ability to express thoughts and arguments verbally (via both the spoken and written word).
4) Facilitate the creation of functioning social relationships among all members of the tutorial (including myself).
5) Respect the process – do not care only about ends, but also the means. I want to class to be challenging, fair, and fun. I think that it is important to create an experience that people remember fondly.
6) Provide deeper understanding of public and environmental economics -- what are the relevant questions and currently known answers in these areas.

ECON 365: Public, First Assignment

Before class on Thursday, please email me brief descriptions of 2-3 public policy topics/debates/questions that you find very interesting or you think are the very important.
Please include a description of why you think this topic is important and identify who are the sides in the debate and the sources of the disagreement between them (e.g., what assumptions or "facts" are in dispute).

This doesn't need to be a polished paper. I am more interested in your thoughts than the quality of your writing at this point.

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