Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, January 01, 2005

Metric Conversions Made Easy 8-)

Some eyebrows were raised, figuratively, in some e-mails as a result of my quip about metric conversions that was tacked onto a posting about dueling weather forecasts. I wrote:

For the metric-ly challenged, to convert anything in metric to non-metric, double it and add 30. E.g., 10 degrees C (stands for Canadian) is the same as 50 degrees F (stands for Foreign). Double the 10 and add 30. Works the same for weight, distance, and speed.

That conversion formula is approximately correct:

  • When you hear that we received 1 meter of snow somewhere in Canada, double it and add 30, to see that is approximately 32 inches of snow.
  • When you see that you weigh 100 kilograms, double it and add 30 to see that you weigh approximately 230 pounds.
  • When you see the speed limit is 50km/hr, double it and add thirty to see that the speed limit in most Canadian towns is 130 mph.
  • When you see that the price of gasoline is 80-cents (Canadian)/litre, double it and add 30 to see that the price is roughly $1.90 (U.S.)/gallon.
Just in case you missed it in the subject line:

Transition Economics

Transition always leaves some people worse off, even if the change would be a net benefit according to Kaldor-Hicks criteria. Those who lose during the transition have an incentive to resist, even resorting to armed resistance at times.

Here's a recent example:

Yemeni Prime Minister Abdul Qader Bajammal was threatened on Sunday by gun-totting parliamentary guards critical of the government's economic reform programme, a member of Parliament said.

"Dozens of armed men who guard the MPs, and who were gathered in front of parliament, questioned the prime minister as he arrived, denouncing his government's economic reforms," the lawmaker said yesterday.

To read more about this particular example, click here.
[Thanks to JC for the pointer to this article.]

Julie Burchill

A fascinating person - the Janis Joplin of columnists. She used to write for the Guardian, a noted left-wing British newspaper, and when she left, she bitingly wrote:
As you might have heard, I'm leaving the Guardian next year for the Times, having finally been convinced that my evil populist philistinism has no place in a publication read by so many all-round, top-drawer plaster saints.
You can read more about her here. There was even a play about her.
I wonder if she would like to join the PLO.
(thanks to Ben for the pointers)

Friday, December 31, 2004

Happy New Year!!

Pop the balloons.
p.s., I ran Spybot Search & Destroy after having visited this site and found nothing, so it's probably ok.

Pay As You Throw
Garbage Collection Services

My earlier posting about the 17-cents per bag tax on plastic grocery bags being considered in San Francisco sparked some interest on other blogs.

Bill Sjostrom, of the Atlantic Blog, wrote:
Ireland introduced a 15 cent (currently about 20 cents US) tax on plastic shopping bags in 2002. I do not know what happened to landfill, but the effect on litter was remarkable. Frank Convery and Simon McDonnell of the Department of Environmental Studies at University College Dublin claim, on the basis of a survey of unidentified retailers, that plastic bag use dropped between 89% and 99%. On the basis of the casual evidence of being the family shopper, I almost never see anyone taking bags; they almost always bring their own.
which was what I did not say nearly so well in my initial posting --- the price elasticity of demand for plastic grocery bags is so high that a 17-cents per bag tax might very well reduce their sale so much that it would likely become inefficiently low.

He also pointed out that when people bring their own bags to a grocery store, shop-lifting increases. Damn, isn't it interesting how "people respond to incentives"?

At SCSU Scholars, King Banaian wrote
We have a per bag fee for putting out garbage in St. Cloud; a green, labeled Hefty costs $2 each. This has encouraged a great deal of recycling, and more than a little searching by some for dumpsters at apartment buildings and businesses. A couple of grocery stores which have you bag your own groceries sell tote boxes; these are not very popular items as best I can tell.

We also have "Pay As You Throw" garbage collection here in Clinton, Ontario, a town of 3200 people. Furthermore it is absolutely and totally private, and, as a result, there are two different companies offering garbage collection on different days of the week. As I wrote in an editorial for the National Post back in May, 2001, the system is terrific.

Since I wrote that article, the "tipping fee" at the local landfill has increased, and so our garbage fees have increased to $2/bag. Also, as I predicted then, one of the three companies initially serving the town no longer does; but it is profitably serving other towns nearby, and so it can enter quickly, should the existing duopoly collude to raise prices.

Tsunami Warnings and Economic Efficiency

In hindsight, I can't imagine that the lack of a tsunami warning system for the Indian Ocean would pass the Hand Test (also called "the calculus of negligence"). If it wouldn't, then who is the least cost bearer of this risk? And if bureacrats with some gubmnts wouldn't foot the bill for the system, who, then, becomes the least-cost insurer?

Judging a Wine by the Bottle's Dimple

According to this study, there is a positive correlation between the size of the dimple in the bottom of a bottle of wine and the price of the wine [link via Newmark's Door]. What this means is that when someone brings a bottle of wine as a gift, I can roughly estimate how much they spent for the wine, depending on how deep the dimple is, as if I care [note: my tastes in wine run to the screw-top variety, as indicated by my work with the Philistine Liberation Organization].

If others catch on to this scheme, then surely a market will develop for plonk with a big-dimpled bottle as a false signal, and this wine will temporarily become the wine of gifting. But that will happen only for awhile, for surely most recipients will not take long to discover the true quality of the wine.
Meanwhile, check it out at tonight's parties!

An Economic Cost of Bowl Games

Phil Miller, at Market Power, notes that many people in Boulder, Colorado, skipped worked to watch the CU bowl game. He speculates about whether this lost output is included as a cost in the tabulation of the economic impact of bowl games.

Let's see..... if we apply this to the NHL lockout, does this mean there will be more output in Canada this year as fewer people miss work, especially during the playoffs? If so, It would primarily come from those on the night shift.

Thursday, December 30, 2004

Tsunami Warnings: Type I and Type II Errors

Last month I posted on Type I vs. Type II errors, with reference to punitive damages. Now Stephen Karlson at Cold Springs Shops has an excellent piece relating those concepts to tsunami warning systems (and implicitly to the strength of one's Bayesian priors):

We have a classic inference problem. Suppose the null hypothesis is that the earthquake has generated a dangerous tsunami. The government still does not know what its magnitude will be. The beachgoers have no idea how accurate the government's projection is, if one is issued. If you reject the null hypothesis, and it is true, a Type I error, do you drown, or do you see three brief increases in the local surf?

Would your answer be any different if your beach front had a history of tsunamis?

Under what circumstances would you make additional investments in tsunami warning systems?

And people say statistics is dry. I commend this primer on the various sorts of errors in inference researchers may be subject to.

And don't forget to give to some relief programme.

Nominal vs. Real Rent

In some economies, it is clear that the nominal rent for an apartment is far less than the real rent: tenants are expected to make additional side payments to superintendents or watchmen for services that one might expect would be provided by the landlord (click here for a classic example).
[Thanks to JC for the tip]

Everyone knows the real rents exceed the nominal rents; they just don't know for sure by how much. The problem in these situations is that it is costly to acquire the necessary information about real rents (which are also more uncertain) to make rational maximizing choices. These information costs have effects on efficiency similar to those of a sales tax -- they reduce it.

How much do people have to pay to get jobs as watchmen or supers in these economies?

Kofi Annan Should be Removed

Claudia Rosett argues that

By now, the debate outside the U.N. walls has expanded from calls for Mr. Annan to resign over Oil for Food to arguments that he really ought to resign over U.N. toleration of genocide, in which he has played a sustained part...

The scandals in the Oil for Food programme are being ignored and/or hushed up; U.N. peace-keepers have at times had less-than-honourable behaviour; and the U.N. bureaucrats have carefully insulated themselves from anything and anyone requiring accountability. If it is to survive as an institution, it must clean house, starting at the top.

As I posted earlier, it is difficult to see why the Canadian gubmnt hasn't spoken out.
[Thanks, again, to Ben for the pointer.]

Defence against Anthrax

A recent article in the Jerusalem Post (registration required) says a defence against anthrax is in the early, and promising, development stages:
Dean of the chemistry faculty at the Technion, Ehud Keinan, called the invention "revolutionary, one that will have a profound impact in the war against terror."
[Thanks to Ben for the pointer]

Wednesday, December 29, 2004

Why it is good to give for the tsunami victims

Tyler Cowen gives two good reasons:
  1. Economies of Scale in giving -- and so the more we give to this cause, the more efficient the gifts.
  2. The fleeting images -- we think we will, but then we forget or don't get around to it.

Amazon Honor System

Or, if you are in Canada and wish to donate directly to the Canadian Red Cross, please click here.

Click Here to PayLearn More

A Pseudo Survey of of the State of
Canadian Business

The Washinton Post has an interesting pseudo survey article (once you get past the first few paragraphs of hand-wringing about Bombardier and Nortel). The article presents an eye-opening summary of some of the Canadian firms that have had success in the face of international competition. It also nicely dispels the myth that foreigners are taking over Canadian businesses:
Canada [huh? what an over generalization] periodically worries about warnings that foreigners are gobbling up its companies and "hollowing out" Canada's corporate soul. Studies generally do not support the fears, however.

The C.D. Howe Institute, a business-oriented think tank, concluded that "hollowing out" is largely a myth, and that foreigners control about 20 percent of Canadian corporations -- about the same proportion as 15 years ago.

I have another nit to pick: on what basis does the writer think C.D. Howe is a "business-oriented think tank"? My own perception is that it is market-oriented. Check its site out and see for yourself.

Did the Earthquake Affect
the Earth's Rotation?

By all accounts, yes it did, at least probably. Here is one early report:

Enzo Boschi, the head of Italy's National Geophysics Institute, likened the quake's power to detonating a million atomic bombs the size of those dropped on Japan during World War II, and said the shaking was so powerful it even disturbed the Earth's rotation.

``All the planet is vibrating'' from the quake, he told Italian state radio. Other scientists said it was early too say whether the rotation was affected by the quake.

It turns out that Boschi had only good guesses about the effect of the quake on the earth's rotation. The measurements had not been completed when he offered the above opinion.

I realized it couldn't have been much of a problem for humanity: the sun continued to rise and set at the forecasted times; and the mainstream media didn't make a big fuss about it.
Here's Slate's piece on the effect of the quake on the earth's rotation.

To read more than you might ever want to try to understand on this topic, try this site and a few of the links there. [Thanks to Jack, Chris, Ben, and JB for the help and pointers]

My conclusion: the quake was caused by Al Sharpton's effect on global warming.

Canadian Gubmnt Should
Challenge the U.N.

The Canadian gubmnt has often held itself out as highly moral and principled. So why have Canadian gubmnt leaders not spoken out against the corruption and terror fostered by the recent and extreme wave of U.N. scandals? This is a question asked by my colleague, Salim Mansur, writing in the Trono Sun:

The UN for a long time has been the last refuge providing a semblance of legitimacy to the world's worst scoundrels. This was not in the scheme of things when the founding assembly first met in San Fransciso nearly 60 years ago.

In time, however, the UN became what it is, a huge bureaucracy unaccountable to any authority but itself. And the iron law of any bureaucracy is to self-perpetuate.

Apalling record

Annan by any measure is hugely discredited. His record is appalling. He has been at the centre of failed UN missions from Somalia and Bosnia to the criminal tragedies of Rwanda and Darfur, has shown no leadership on the most compelling post-Cold War security issue of global terrorism, and presides over a scandal in which his son, Kojo Annan, allegedly profited because of connections.

But as the head of the UN bureaucracy, Annan knows he is protected.

Now if only a Canadian prime minister would insist on restoring the good name of the UN by speaking out against those who have sullied it.

[Thanks to Ben for the pointer. ]

Niggardly? Please Look it up if you don't already know what it means!

It looks as if the Times of India knows what "niggardly" means, even if lots of people in the U.S. don't. Check out the links posted by Tom Hanna.

Tuesday, December 28, 2004


The Canadian Disguise Kit that I mentioned in an earlier posting comes with a little reference guide on "How to Speak Canadian, Eh?" But here is a very thorough, helpful set of guides. There are several links down the right side of the page, and they all lead to interesting information about Canada. If you are planning a visit to Canada, it is a good site to visit first. It might also be a good link to send to your friends who voted for Kerry and who later emoted that they were considering moving to Canada.

The first such guide I can remember (though I'm sure there have been many over the years) appeared in the National Lampoon shortly after I moved to Canada. As I recall, they said that Canadians' favourite colour is gray and their/our favourite dessert is tapioca pudding. Here's a list of the articles (but I cannot find the articles themselves on-line and, unfortunately, no longer have my copy of the that issue).

17 Cents for a Grocery Bag?
We Must be in California

The City of San Francisco is considering charging a 17-cents-per-bag levy on grocery bags to discourage their use and disposal. (See here for details [registration required] ).

I'm all in favour of considering user fees when an activity imposes negative externalities, but this seems extreme. First, I'm not sure how big the externalities from grocery bags are -- where I live, most people recycle the plastic grocery bags, and it is difficult to think of re-cycled bags as meriting a user fee.

Second, I suspect the price elasticity of demand for plastic garbage bags is so high that a 17-cent charge is much higher than the efficient charge. My ad hoc observations from stores that charge only two cents per bag is that LOTS of people bring their own bags when they go shopping.

Policy makers who ignore elasticities are quite likely to make bad policy.

Monday, December 27, 2004

Richard A. Posner
for the Nobel Prize in Economics

Even though I am not (this year) on the list of potential nominators, if I were, I would nominate Richard Posner to receive the next Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.

He has, throughout his career, done more than any other economist to further the understanding of economic analysis of law in particular and economic analysis of anything in general. No topic has eluded his analysis, and he has brought a raft of tools, knowledge, and experience to every topic he has investigated. No matter what he studies, he always applies and extends basic economics: (1) people respond to incentives, and (2) actions and choices involve the use of real resources.

He has challenged myriad knee-jerk positions held by people of all political stripes, and he has had a major impact on how the courts apply economics in all their cases.

He was a founding editor of The Journal of Legal Studies, which extended the application of economic analysis beyond anti-trust and regulation, which had been the major areas of overlap until then. His text/treatise Economic Analysis of Law, now in its 6th edition, was a pioneering work. It demonstrated, more than any other work, how careful yet consistent application of economic analysis can elucidate legal principles, legal decisions, and the evolution of legal institutions. Through everything he has written, he has relentlessly applied The Economic Way of Thinking.

I know he has done a considerable amount of work in other fields (law!), but subtract all that work from his C.V. and you still have the contributions of someone who has clearly and substantially moved the frontiers of economics outward in major ways that will forever benefit the rest of society.

Here is his week-long diary that he published in Slate back in January, 2002. Here is a list of his 2003-04 output. and Here is his website at the Univ of Chicago Law School. And you can explore the list of his available books (e.g. Sex and Reason, his attack on public intellectuals, and his work on Aging and Old Age) by clicking this box if you are in Canada:

If the committee were to award the Nobel Prize in Economics to Richard Posner, it would not be the first time it awarded the prize to someone who was a not exclusively an economist by training. Others who come to mind are socionomist, Gunnar Myrdal (1974), and psychologist/political scientist/organization theorist Herbert Simon (1978).

Update: for more information about Posner, read this

Asteroid-Earth Collision?

At the Marginal Revolution, Tyler Cowen has another posting (with this update) about the possibility of an asteroid hitting the earth.

The opportunity to bet on the possibility is not on Tradesports, yet, perhaps because there is insufficient interest (though p2p mentions something about NASA bookies)[Thanks to Jack for some of the pointers].

At recently updated 45 - 1 odds imagine the arbitrage possibilities between the time of Tyler's first posting about the CNN statement of 300-1 odds (and which CNN had not updated as of Sunday evening) and the later update from NASA of 45-1 odds. If this event were listed on Tradesports, imagine, too, the jump in hits on the NASA website.

Another reason it hasn't been listed on Tradesports, yet, might have to do with the prediction that it won't hit until 2029, if it does at all. Still another might have to do with phrasing the bet so there would be no confusion or disagreement might be difficult. What about this, for a start:

"An asteroid presently identified as "Asteroid 2004 MN4" will either hit the earth (or be redirected away from the earth out of concern for the possibility that it might hit the earth) before April 14, 2029 (GMT)."

One way to bet on it might be by trading shares of insurance company stocks; I wonder if some insurance companies keep tabs on this sort of thing -- how many of them have individuals specifically assigned to watch the NASA asteroid impact website?

Anyway, what are the odds I'll be around to worry about it (other than for my children, grandchildren, and friends)?

Sunday, December 26, 2004

Tough Love -
Another Thing to Do With Those Gifts

Houston Dad Puts 3 Sons' Presents On EBay

From the Washington Post (registration required):

...their father told them [ages 9, 11, and 15] Santa was not pleased with their fighting, cuss words and obscene gestures....

"These are normally really good kids," said Dad...
Dad even admitted that he and Mom were partly to blame for being too lax at times.

But enough was enough. The warning of an impending sale came earlier in the week at a sit-down between offspring and parents.

"We told them they were destroying each other and the
calm and peace in the household. It had to stop," said the man... The boys pledged to be nice but were back to their old ways the next morning.

That night, Dad announced that he would indeed be putting $700 in video console and games up for sale on eBay. The oldest boy double-dared his dad to make good on his word.

Son should not have done that.

Dad said Mom has been in tears since the showdown.
"I don't do it outwardly," he said, "but I'm crying on the inside."

Not a bad decision, given the situation.
I wonder how many times parents make threats they don't intend to carry out, leading them to situations like this.

Will these people figure out what the incentives are and respond to them? Are they rational maximizers?

Happy Boxing Day

Today is Boxing Day in Canada and elsewhere - a great day for post-Christmas sales.
Upon moving to Canada many years ago, one of the first stories I heard about the origin and meaning of Boxing Day is that this is the day well-to-do people box up the gifts they received but don't really want and give the reboxed gifts to their servants. I doubt this story is completely accurate, but it provides another opportunity to mention re-gifting.
One of the best and most thorough descriptions of Boxing Day was just updated at Snopes, which is an excellent website for checking just about anything.
Since Christmas came on Saturday in 2004, the legal day off for Christmas might be Monday, and the legal Boxing Day holiday might be Tuesday.
One creative on-line merchant began its Boxing Day sale at midnight on Christmas Eve!

Taxation by Regulation

In one of the first few issues of The Bell Journal of Economics and Management Science, back in 1971 (issue #2?), Richard Posner had an article by the title, "Taxation by Regulation." The gist of the article was that firms and customers are taxed [and that real resources are diverted from one use to another] via regulatory schemes that permit, require, and/or induce cross-subsidization. Under these schemes, some low price elasticity of demand users were charged high prices, and the excess revenues were used to provide services to customers who otherwise would not be willing or able to cover the marginal costs of providing the services to them.

Even though Posner didn't use this example, full-size passenger jet service to London, Ontario, was an example of taxation by regulation that I often used in my classes when I first started teaching at The University of Western Ontario. Post de-regulation, London is now served by small commuter planes and by regular van service to Toronto and Detroit airports. Under the regulatory regime, customers flying on the high-volume routes were paying higher-than-competitive fares and subsidizing those of us who traveled to London, Ontario. The bigger planes were nicer and more comfortable than the commuter planes, but they were also a use of more of society's scarce resources.

Bill Sjostrom at the Atlantic Blog updates this concept of taxation-by-regulation with his criticism of Walter Williams proposal to put a cap on gubmnt expenditures:
The problem here is that Williams is wrong to say that revenues can be raised by taxes, borrowing, or printing money. There is an important fourth way:
mandatory expenditures.
Interestingly, the example Bill provides has to do with airlines, only in this case it is the provision of wheelchairs at airports.
Mandating free wheelchairs is a form of taxation. Suppose the government paid for the wheelchairs ... out of general revenues. The effect would be the same, except the tax would be borne by all taxpayers. If the government paid for the wheelchairs out of a levy on airline tickets, the effect would be the same as if they require the airlines to provide free wheelchairs.

Williams' proposal to fix government expenditure at a fraction of GDP does not address the issue of taxation by regulation (emphasis added). Moreover, it could seriously aggravate growth by giving governments an incentive to extract income from direct control: mandatory expenditures, the draft, and so on. These are all forms of taxation not covered by Williams' proposal.
Digression: What are the comparative social costs of having people use their own wheelchairs vs. having wheelchairs provided by para-transit to and from the airport, by airports, by airlines, and then by whomever meets them at their destination? In other words, if someone needs a wheelchair, why wouldn't they use their own? And if there are instances where it would be helpful to customers to have wheelchairs available in airports, why not let airlines compete to provide them?

More on Gifts and Economics

Now that most Christmas gift-giving is over, how many of you received a gift which reduced your utility? [e.g., ... uh....., well, I'd better not post about it, but it does not take much imagination to concoct several examples].

How many of you received gifts which you would never have acquired on your own, even at no charge, but which you appreciate because of the (dare I say) love you have for the person who gave it to you?

How many of you received gifts which you would never have bought had you received cash equal to their market value but which you are nevertheless delighted to have, either because of the person who gave it to you or because of the luxurious feeling that you would never indulge if spending your own money [see below]? (nearly all the gifts I receive are in these two categories).

Many economics bloggers have written recently on the economics of gifting, including The Econoclast, Tyler Cowen, Ben Muse, and King Banaian.

Tyler cites this article written last year, a reference to Waldfogel, asserting that on average people would pay 16% less than the market value for the gifts they receive. In my view that is not even close! If I went into the store and saw most of the gifts I receive on sale for 25% off their regular prices, I still would not purchase many, if any, of them. In that sense, 16% as an estimate of the dead-weight loss due to Christmas gift-giving is way too low.

At the same time, if people offered me the regular prices for the gifts I receive, I would decline their offer! There are two reasons: First, as is common, I experience a type of inertia in that I need to be compensated more to make a change, no matter which direction the change is headed (This effect is well-noted here by Kahneman, Knetsch, and Thaler). I know this attitude flies in the face of what many think of as rational maximizing and opportunity costs. So be it.

Second, even though I, personally, would not pay regular price for some of the gifts, I would not dream of parting with them just because of my attachment to the giver - - - that attachment adds considerably to my utility.

In this paper by Prendergast and Stole, it is argued that we could hypothetically show people how much we care by offering them a choice between the gift, itself, or the cash we would spend on the gift. E.g., "I like you enough and know you enough to want to give you this gift, but you can have the cash if you'd rather."

But we do not do this, according to P&S , as some sort of pre-commitment strategy: we give the gift instead of offering the choice to prove to them we think we know them well enough to buy that gift for them. It's a fun idea, but I don't know anyone who thinks that way. I figure we do not offer a choice between the gift and the cash because we do not want to put recipients on the spot and/or we do not want to be told we have made a bad choice. But the idea does lead to this:

Implication -- when a group of people get together and exchange gift certificates, it's time to call a halt to the process.

UPDATE: Look what happened in Tyler Cowen's family when they all agreed not to give Christmas presents this year! I hope he posts more to explain this!

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