Posts tagged ‘economics’

Misc Links

| Gabriel |

  • Useful detailed overview of Lion. The user interface stuff doesn’t interest me nearly as much as the tight integration of version control and “resume.” Also, worth checking if your apps are compatible. (Stata and Lyx are supposed to work fine. TextMate is supposed to run OK with some minor bugs. No word on R. Fink doesn’t work yet). It sounds good but I’m once again sitting it out for a few months until the compatibility bugs get worked out. Also, as with Snow Leopard many of the features won’t really do anything until developers implement them in their applications.
  • I absolutely loved the NPR Planet Money story on the making of Rihanna’s “Man Down.” (Not so fond of the song itself, which reminds me of Bing Crosby and David Bowie singing “Little Drummer Boy” in matching cardigans). If you have any interest at all in production of culture read the blog post and listen to the long form podcast (the ATC version linked from the blog post is the short version).
  • Good explanation of e, which comes up surprisingly often in sociology (logit regression, diffusion models, etc.). I like this a lot as in my own pedagogy I really try to emphasize the intuitive meaning of mathematical concepts rather than just the plug and chug formulae on the one hand or the proofs on the other.
  • People are using “bimbots” to scrape Facebook. And to think that I have ethical misgivings about forging a user-agent string so wget looks like Firefox.

July 20, 2011 at 3:46 pm

Misc Links

  • Lisa sends along this set of instructions for doing a wide-long reshape in R. Useful and I’m passing it along for the benefit of R users, but the relative intuition and simplicity of “reshape wide stub, i(i) j(j)” is why I still do my mise en place in Stata whenever I use R. Ideally though, as my grad student Brooks likes to remind me, we really should be doing this kind of data mise en place in a dedicated database and use the Stata and R ODBC commands/functions to read it in.
  • The days change at night, change in an instant.”
  • Anyone interested in replicating this paper should be paying close attention to this pending natural experiment. In particular I hope the administrators of this survey are smart enough to oversample California in the next wave. I’d consider doing the replication myself but I’m too busy installing a new set of deadbolts and adopting a dog from a pit bull rescue center.
  • In Vermont, a state government push to get 100% broadband penetration is using horses to wire remote areas that are off the supply curve beaten path. I see this as a nice illustration both of cluster economies and of the different logics used by markets (market clearing price) and states (fairness, which often cashes out as universal access) in the provision of resources. (h/t Slashdot)
  • Yglesias discusses some poll results showing that voters in most of the states that recently elected Republican governors now would have elected the Democrats. There are no poll results for California, the only state that switched to the Democrats last November. Repeat after me: REGRESSION TO THE MEAN. I don’t doubt that some of this is substantive backlash to overreach on the part of politically ignorant swing voters who didn’t really understand the GOP platform, but really, you’ve still got to keep in mind REGRESSION TO THE MEAN.
  • Speaking of Yglesias, the ThinkProgress redesign only allows commenting from Facebook users, which is both a pain for those of us who don’t wish to bear the awesome responsibility of adjudicating friend requests and a nice illustration of how network externalities can become coercive as you reach the right side of the s-curve.

May 31, 2011 at 10:22 am

Farming the Rails

| Gabriel |

The current issue of Sunset has a full-page pictorial of a concept for a dining foodie car in an LA-SF bullet train. Let’s put aside the fact that the route doesn’t make any sense. (Current plans are to build a short proof-of-concept track in a very rural part of the San Joaquin valley, later to be extended all the way from Fresno-Bakersfield. Getting the rest of the way from Bakersfield to LA requires going under or around the Tehachapi mountain range. That or transferring to a three-hour bus ride on the 5).

Instead, let’s think about the dining car itself. The pictorial shows a dwarf citrus tree in the car for passengers to pick fruit either to eat out of hand or for juicing. (As the owner of an orange tree, I can tell you that the pictured dwarf tree would make about two carafes of orange juice). Similarly, there is a “Self-Harvest Salad Bar. Snip and dress your own organic greens from a hydroponic vertical garden and choice of on-tap vinaigrettes.” Because, you know, there is no more efficient way to grow lettuce and oranges than to put a farm on a rail car and rocket it up and down the state at 150 mph. Similarly, it shows solar panels on the roof to, I kid you not, power the espresso machine and “grow lights” for the aforementioned dwarf citrus tree. I’m not an engineer, but I guarantee you that the extra weight and/or drag implied by the solar panels (and changes to the fuselage necessary to accommodate them) would imply fuel costs at least an order of magnitude greater than the power generated by the panels. I mean, who comes up with this shit?

[click the image for full size]

I guess I should be grateful they didn’t describe plans for an aquaculture car or a composting car. It’s one thing to talk about putting hydroponics in a moon base, but that’s because the transportation costs for getting food to the moon are millions of dollars per pound. Transportation costs in getting food onto a train means sending a van from the train station to the supermarket. That or you could just not eat for the three hours you’re on the train and have dinner when you get to San Francisco, which I’ve heard has restaurants in it.

As I fumed about this, I realized that this isn’t just a really stupid idea for a train’s dining car, but a reductio ad absurdum of the whole idea of locavorism. Just as it is much cheaper and ecologically sound to grow food on a farm and have it loaded onto a train at the station, or to generate power at a power plant and transmit it to a train via overhead lines than to produce the food and power on the train itself, to a lesser extent it is more efficient to grow food in a rural farm and truck it into a city (accepting the trivial carbon emissions implied by a few “food-miles”) than it is to devote extraordinarily valuable urban or suburban land to agriculture, thereby increasing the commute times (and by extension, the carbon emissions) of people who might have made denser commercial or residential use of that land.

Gains from specialization and trade people, gains from specialization and trade.

May 11, 2011 at 4:28 am 1 comment

Fashion is danger

| Gabriel |

Dear Senator Feinstein,

I am writing to you both as a constituent and as an expert on creative industries. I want to thank you for your opposition to the IDPPPA (S. 3728) bill that would extend formal (and actionable) intellectual property rights to the fashion industry.

As you know, the Constitution authorizes Congress “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” That is to say, intellectual property rights are meant to correct a market failure of insufficient creativity. The idea that an industry that releases hundreds of creative designs every spring and fall has a shortage of creativity is frankly absurd.

Not only is it implausible to imagine that we would see more fashion in a world with the IDPPPA but to the contrary we should see less. Fashion is currently the only creative realm where one can create freely without worrying about concepts like infringement, clearance, or licensing. IDPPPA would end this and create a world where (much like biochemists or musicians) fashion designers would spend less of their time at the drafting table and more of their time with lawyers. This would both imply a deadweight loss and increase barriers to entry. One need only look at the decline in creativity in hip hop music following Grand Upright and Bridgeport to see how the extension of IP rights to fashion would create gridlock effects that would completely swamp whatever marginal incentive effects IP would provide.

Please have your staff contact me if I can be of any assistance on this issue.

Gabriel Rossman
Assistant Professor
Sociology, UCLA

March 2, 2011 at 3:06 pm 2 comments

Coals to Newcastle

| Gabriel |

NPR’s Planet Money notes that some of what’s driving the current North African / Mideast political struggles is commodity prices. Fair enough, but what shocked me is that “Egypt is the world’s biggest importer of wheat.”

WTF? As any reader of the classics knows, in the ancient world Egypt was the world’s biggest exporter of wheat. The Roman revolution involved so many battles in and near Egypt because to control the Roman mob you needed to feed them and that required control of Egypt. Antony and Cleopatra were able to, in effect, besiege Octavian without leaving home just by cutting off Egyptian exports. Even earlier than that we see “all the world” (including Jacob’s sons) buying Egyptian grain in Genesis 41 & 42.

So we have this puzzle that somehow in the last two thousand years the breadbasket of the Mediterranean can no longer feed itself. I don’t know how this occurred but I have three speculations (which are not mutually exclusive):

  • Malthusian trap. The Egyptian population increased to consume the available grain
  • Mismanagement. A series of bad policies somehow crippled Egyptian grain production. (The Aswan Dam? Other aspects of Nasserism? Urban sprawl over prime delta farm land?)
  • Climate change. It’s no puzzle why Tunisia is not as agriculturally rich as was the Roman province of Africa — the Sahara has been growing. But AFAIK this has less of an impact on Egypt, which has always been more closely tied to the Nile than to other aspects of climate. Similarly, soil exhaustion shouldn’t be as much of an issue (as it would be in America) since the Nile floods replenish the soil.

I’m genuinely curious about this.

February 21, 2011 at 3:28 pm 1 comment

Plan B

| Gabriel |

Over at OrgTheory, Brayden discusses the lack of a meaningful “plan B” for people whose academic career doesn’t pan out. I’m convinced that one very concrete way you see the repercussions of the lack of a plan B is that so many people are willing to work as lecturers for very little money and under unpleasant conditions (no job security, half your time on the freeway, very heavy teaching loads, little prestige, etc). These are talented people, they are after all PhDs, and it seems like they could have more stable and remunerative lives outside of academia. The fact that they don’t exercise this option reflects either a strong nonpecuniary attachment to academia or a more objective lack of salvage value to the highly asset specific human and social capital they developed in graduate school. That is, staying in academia under bad conditions reflects either emotional or practical barriers to a “plan B.”

The AAUP likes to think that we can solve this by organizing lecturers and demanding better contracts for them and/or a greater ratio of ladder:contingent faculty. This may be true on the margin, but the big picture is that academic labor has a right-shifted supply curve and this drives down the market clearing price. Politics and institutions can only take you so far away from the economic fundamentals, especially in a sector whose primary stakeholders (i.e., ladder faculty) would resist redistribution of compensation and privilege and whose other major stakeholders (i.e., state governments and tuition-paying students) are already straining under Baumol’s disease and wouldn’t welcome a further rise in total payroll implied by an adjunct labor contract. You see a similar set of dynamics with artists (also chapter 4 of Creative Industries).

The dirty secret of academia is that we elite research faculty get to have large graduate programs, low teaching loads, and cheap course-buyouts because there is a large pool of people who are so attached to academia that rather than pursue “plan B” they willingly form a spot market for teaching at about $7000 total compensation per class (or less than half the cost of having a ladder assistant professor teach the class). Giving our graduate students the emotional and practical resources to take plan B seriously would undermine our power as people who depend on a flexible labor force and our self-esteem as people whose self-image is based on training a new generation of scholars, but would be an act of humanity to the people who spend five to ten years being trained by us but nonetheless find it doesn’t work out as planned.

January 27, 2011 at 3:20 pm 11 comments

Why Steve Jobs and Jeff Bezos May Succeed Where Kevin Martin Failed (and why we might regret it)

| Gabriel |

OK, so first thing is that those of you who are not telecom nerds should know is that Kevin Martin was the chairman of the FCC during George W. Bush’s second term. His agenda at the FCC was to force multi-system operators (i.e., cable and satellite companies) to provide ala carte pricing. We already have this for premium cable (HBO, Showtime, etc) but not for “basic” cable. The way basic cable television works is that the cable channel charges the carrier a fee for each subscriber, whether or not the subscriber requested or even ever watches the channel. So for instance, before I canceled my cable subscription, about $2 or $3 of my exorbitant cable bill to Time Warner would get passed on to Disney for the privilege of having ESPN, even though I have never watched this channel ever. The reason is that many other people love ESPN and get far more than $3 a month worth of pleasure from viewing it. Disney knows this and tells Time Warner that it’s all or nothing. Long story short, Kevin Martin failed in this agenda and nothing happened with a la carte cable pricing.

A few months ago, Steve Jobs charged up the reality distortion field and unveiled a few products, one of which was eliminating the abomination that was the buttonless iPod Shuffle. The most important “one more thing” reveal though was the new version of the Apple TV. The old Apple TV was basically a stripped down Mac Mini that used the “Front Row” 10-foot user interface to access your iTunes library. It was primarily oriented towards downloading purchased content and storing it on the device’s hard drive. The new Apple TV is basically the same as a Roku in that it emphasizes streaming over local storage.

Both AppleTV and Roku can stream Netflix and each also has an a la carte video service, iTunes rentals and Amazon video-on-demand, respectively. While Netflix is somewhat similar to a traditional cable business model insofar as it’s a monthly subscription fee for “all you can eat,” the two a la carte services represent a decisive break from the cable television business model. Instead of all you can eat, you buy an episode ($1 for 24 hour rental from Apple, $2 for perpetual access from Amazon).

This is a potentially disruptive innovation for the television industry because one of the main ways the industry had practiced price discrimination (and therefore increased both revenues and quantity) was to engage in bundling. A switch to a la carte will probably result in an increase in consumer surplus per unit demanded but a drastic decrease in quantity supplied. (“Consumer surplus” is econ jargon for the subjective experience of a “bargain”).

Suppose that my household values watching True Blood and Mad Men at $5 an episode, Top Chef at $2 an episode, and Mythbusters and Toddlers and Tiaras at 50 cents an episode. Now suppose that my next door neighbors have the exact opposite set of preferences. In both cases there is a total of $13 of demand for television per household per week. If the cable company charges $12.99 per week, both my neighbor and I will write the check, but do so reluctantly as we’re just barely this side of the indifference curve.

Now suppose that someone (say, Apple or Amazon) starts selling shows a la carte. If the price point is 50 cents both my neighbor and I will still watch all five shows. However we’ll only be paying $2.50 a week and will be getting $10.50 in consumer surplus. If the price point is $2, each of us will get three shows and pay $6, for $6 in consumer surplus. If the price point is $4.99 we’ll each buy two shows, pay almost $10, and get two cents of consumer surplus. There is no price point where we both pay $12.99 like we used to. At any one a la carte price point, both my neighbor and I will pay less than we used to, watch the same or less amount of tv, and get the same or higher consumer surplus.

Thus a switch to an a la carte model implies much lower costs to the consumer. Because revenues would fall, so would production by some combination of reduced numbers of shows and reduced production values. Basically, we’re looking at an end to the television renaissance we’ve enjoyed since the late 1990s as people like me decide that we’d rather pay $10 or $20 a month for the few shows we love and do without the rest than pay $50 a month for a bunch of stuff, most of which we don’t even really like.

However desirable the trade-off of less viewing for a much lower price may be, it may prove unsustainable in the long run. I may love Mad Men so much that $2 an episode to stream to my Roku feels like a bargain. However these shows may only be economically viable because there are also some people who have a marginal attachment to the same show and the current business model of cable bundling lets the content producers effectively get several dollars per episode from the cult following and maybe fifty cents an episode from the casual viewers.

For instance, Battlestar Galactica was only just barely profitable and that was achieved by combining high per-viewer revenues from a small numbers of viewers who really got the show (i.e., viewers who loved it for Laura “Airlock” Roslin and Gaius Baltar)  and low per-viewer revenues from a larger number of viewers who just watched once in awhile (i.e., viewers who tuned in to see the spaceships shoot at each other). However contemptible the latter viewers might be, the show wouldn’t have been renewed without them (which might not have been a bad thing given how the show eventually jumped the shark with the whole “final five” business).

That is to say, television may not be economically viable when priced on an a la carte basis and this could lead to a decline in volume and possibly quality of original programming. This will probably involve a slow decline but could be catastrophic. The most likely scenario for a catastrophic collapse is if the studios forecast that a la carte means declining revenue and try to pare back their cost structure in anticipation. This would probably lead to a militant slate getting elected at both WGA and SAG and an even worse strike / soft strike than we had on the last contract cycle.

November 1, 2010 at 5:26 am 42 comments


| Gabriel |

Traditional news organizations have a long-standing ethical code (but no legal restriction) against paying their sources. On the other hand, exclusives with sources can be valuable, especially when those sources can tell us about something cool like sex and/or murder involving celebrities (or at least attractive white girls aged 15-30) rather than some boring shit about Congress or whatshisface from that place where they don’t like us.

The Atlantic has a very interesting story about Larry Garrison, a freelance news producer whose job it is to square the circle between the value being offered and the refusal to pay. Mr. Garrison’s basic business model is to quickly identify people who have been thrust into the news, offer to (for lack of a better term) represent them, and then withhold their appearance from news outlets that refuse to take Garrison on as a segment producer. Mr. Garrison mostly gets paid for being a segment producer and his sources either get kickbacks for these producing fees or more often he gets them book deals and/or arranges for them to license various artifacts and footage to the news outlet (the rule against paying sources for testimony allows a loophole for buying photographs, etc, from them and in practice there’s a lot of implicit bundling).

This whole set of business arrangements is similar to payola in two respects, one of which is articulated in Coase and the other described in Dannen.

First, the Coase point is that while payola is often conceived of as a bribe to corrupt the broadcaster it can just as easily be conceived of as a payment for a valuable input and hence a payola prohibition is a monopsonistic cartel: the purchasers of an input conspire to fix a low price. Specifically, record labels refuse to pay anything for publicity and news organizations refuse to pay for sources. This cartel can be informal (as it is with news and as it was with music trade group agreements in 1917 and 1986) or formal (as with the payola law of 1960). Either way, it’s vulnerable to cheating.

Second, the point illustrated in Dannen is that when cheating occurs, the requirements of plausible deniability and/or etiquette will promote the emergence of brokers who can extract rents for their trouble. In the case of news that would be Mr. Garrison and in the case of pop music in the late 1970s and early 1980s that would be a cartel of sketchy radio consultants affiliated with the mafia.

August 27, 2010 at 11:56 am

Zero marginal productivity

| Gabriel |

One of the intellectually exciting but practically horrifying ideas being discussed recently on econ blogs is the “zero marginal product” worker (see here and here). That is, labor that contributes nothing to the firm, or at least doesn’t contribute enough to justify the minimum wage and overhead. If you take this seriously and game it out, you’re faced with the prospect of large-scale permanent unemployment which is not only a bad thing for the underclass themselves but tends to produce politics of redistribution that look a lot less like TH Marshall or John Rawls than Gaius Gracchus or Hugo Chavez.

Anyway, I was particularly interested in this post (h/t MR) because it makes explicit that once you take into consideration the possibility of catastrophic failure, you can even have workers whose marginal productivity is negative, at least in expectation. The logic underlying negative productivity gets into theoretical issues reviewed in my paper (with Esparza and Bonacich) on spillovers in Hollywood, but the theoretical Ur-cites for this downside model are Jacobs in sociology and Kremer in economics. Basically, every so often a worker will create a catastrophic failure. If the probability of creating a screw-up is a function of skill then it makes sense to avoid low skilled workers, even if on the median day they would have nontrivial positive productivity. The scary thing about negative productivity (in expectation) is that it implies that there might still be some nontrivial permanent unemployment even if we tried every plausible policy intervention to make hiring low-skilled workers more attractive: a lower minimum wage, eliminate the payroll tax, single-payer (which would make moot the current stigma on not providing health benefits), reasonably generous wage subsidies, etc.

August 11, 2010 at 4:30 am

Doing well by doing good

| Gabriel |

In the course of a recent post describing Haitian resentment of relief workers (who they view as stealing their jobs), Bryan Caplan links to a much older post he wrote (as inspired by a Cowen talk) about the “cargo” practice in rural Mexico. In this system anyone with wealth is expected to take on public office during which he funds public expenses from his private wealth. Caplan and Cowen describe this as providing an extreme incentive to either avoid wealth accumulation or to become an evangelico, which is a voluntary form of social death.

At first I found this pretty convincing (in part because I’ve heard an almost identical analysis from Alex Portes). However I was thinking about it some more and I realized that it’s a little more complicated than that. First of all, this dynamic is not unique to modern rural Latin America. An almost identical practice of euergetism was common in the ancient world, which didn’t exactly have the state capacity to collect a Value-Added Tax. Instead they relied on a combination of direct levies (conscription from the middle classes and euergetism from the big shots) and the relatively minor state treasuries came from the highly inefficient practice of tax farming the provinces. For instance, although Pericles financed most of his Athenian public works out of tribute from the other members of the Delian League, he offered to pay for them out of pocket on several occasions. Although euergetism was important in classical Greece and the Hellenistic world, I’m going to focus on Republican Rome as an example.

The main way euregetism worked in Republican Rome was through the aedileship (municipal officer), which was the second step in the cursus honorum. Every year four ambitious young men were made aediles and during their tenure they provided many municipal services, especially the ludi (games) which provided the young man an opportunity to show off his wealth and connections by bringing in exotic animals, gladiators, performers, etc. An arms race developed for largesse and spectacle and many aediles went heavily into debt.

So far this is all consistent with the picture drawn by Caplan, Cowen, and Portes, of the expectation of magnificent philanthropy being an indirect form of high marginal tax rates, with all that implies. Note though that their model implies that:
a) people would tend to avoid public service either directly or by forgoing wealth accumulation in the first place
b) the poor bastards who get stuck with public service would be bled dry

However neither of these are entirely true in the Roman Republic. The simplest way to demonstrate this is that there is a power-law distribution for how often families held the consulship. This implies cumulative advantage and thus holding high political office must have been, on net, profitable. How could this be given the massive expenses necessary to achieve and exercise high political office?

Consider the case of Gaius Julius Caesar. He was driven heavily into debt by his aedileship and praetorship (a judicial office that followed the aedileship). However then he was made propraetor (military governor) of outer Spain during which he won a lot of wealth by conquest and acquired the patronage of Crassus. Caesar then became consul (albeit in an especially ugly fashion) and went back North of the Alps to acquire enormous wealth in Gaul. So basically, the early stages of political office were expensive, but they provided the opportunity for later provincial administration where one could squeeze the provincials. Put more broadly, philanthropy is the price of purchase for political rent-seeking which could be extremely valuable. Likewise, my understanding is that in Latin America there are many opportunities for rent-seeking that are opened by embedding oneself in a patronage system. This may actually be the most invidious aspect of the system — it may not so much discourage wealth accumulation per se so much as redirect efforts away from positive sum wealth creation and to negative sum rent-seeking.

May 20, 2010 at 3:00 pm 2 comments

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