The Perfect Substitute

Intentional tennis shirking?

2009-07-06T11:50:00.005-04:00

Growing up, I found tennis a bit difficult to watch, and felt it was heading down the path of becoming more and more trying to watch as I got older. Racquets were becoming large and increasingly powerful-- great for the average weekend player, but for the elite it seemed to reduce the length of rallies. (Are there any statistics to confirm/refute this?) Further, those that had the most success seemed to be those that could utilize the technological characteristics of the racquet best. However, in recent years, it seems that technology has yielded to strategy and all-around performance, and those that play a fuller, more fan-friendly game seem to have the most success. The numbers could well bear my assertion out to be wrong; I don't have any statistical proof one way or the other.

Clearly, this comes on the heels of yesterday's epic men's final at Wimbledon. However, I was struck by something else over the weekend. During the women's final, Venus Williams squared off against her sister, Serena Williams, and lost in straight sets. But I noticed a curious thing happening during particularly crucial points on Venus' serves during the match-- she'd throw a poor toss in the air for her serve, and grab the ball on the way down. There's no penalty for this-- she simply throws the ball up again a moment later and serves it.

There are two questions here. First, was it actually happening? That's a numbers issue. Are there any incongruities in her poor tosses? Are they evenly distributed across matches and within matches? I don't have the data; the issue could be put to rest right there...or could be rather interesting...

...because, second, even if the numbers bore it out, was it intentional? Realize that tennis serves, even in the women's game, are in excess of 100 mph and require a significant degree of concentration and timing to return. This means that there's an advantage to be had in disrupting the returner. However, if a spike in faulty tosses increased during more pressure packed moments, it could also mean that the server simply got nervous and failed in the heat of the moment. So that's the pair of situations, if the numbers bear it out-- and given the repetitious nature of serving in tennis, I'd find it a more difficult argument to make that the pressure played an uninteded role on the server.

(A third question, of course, is if the failed tosses do actually have an adverse effect on the opponent.)

I have no idea who to even ask if mis-tosses on serves are tracked...but for a professional tennis player, there sure seemed to be a lot of poor tosses. And at pretty opportune times as well.

Things you hope your students don't mention to you...

2009-07-06T10:11:00.004-04:00

Let's start off the week with some nonsense-- more happiness rankings! Here is the CNN rundown of the new rankings, which puts Costa Rica at the pole, followed by the Dominican Republic and Jamaica. And, pray tell, what are the criteria?

In a report released Saturday, the group ranks nations using the "Happy Planet Index," which seeks countries with the most content people.

In addition to happiness, the index by the New Economics Foundation considers the ecological footprint and life expectancy of countries.

Happy Planet Index?! Prison rodeo!?

The New Economics Foundation is here. The intro page for the Happy Planet Index is here, and the pdf report itself is here. The final rankings are on page 63 of the pdf. Components of the Happy Planet Index are: Life expectancy, life satisfaction, and ecological footprint. The goal with the final metric is to achieve "one-planet living." I'm guessing they're against colonizing Mars.

I liked this one: "The planet’s overall HPI score of 49 out of 100 reflects the fact that humanity as a whole has much to change..." Remember those nonsense days of yesteryear when a HPI of 49 used to be considered good? Now look how far we've come! Also of note-- by their index, China's doing nearly twice as much towards the end of a "happy planet" than North America. Just consider that sentence for a little bit.

Figure 6 in the report is a scatterplot of happy life years vs. GDP per capita, by country.

How Do We Measure Free?

2009-07-06T08:50:00.002-04:00

Over the weekend, with people cheering freedom everywhere, I couldn't help but wonder how economists will deal with the trend of zero retail price (i.e. free) in measuring economic growth. In a world of Wikipedia and open source, and various other products provided at zero price, how do we measure GDP? Do we put more emphasis on the value-added approach?

If you believe Chris Anderson, this will only become more important over time.

Yet Another Set Up, I Am Sure.

2009-07-05T16:38:00.002-04:00

DC Council Member and poster child for detestable politicians Marion Barry was arrested. Again. The Washington Post reports:

At about 8:45 p.m., a woman traveling near the intersection Good Hope Road and Anacostia Drive flagged down a U.S. Park Police officer to report that a man in a vehicle nearby was stalking her, said Sgt. David Schlosser, a Park Police spokesman. That man, Schlosser said, was Barry.

Schlosser declined to repeat what Barry told the officer with respect to the incident. My guess: "B!^*# set me up."

Homo Economicus as Real People

2009-07-04T22:24:00.005-04:00

Thaler says:

Behavioral economics is the study of Humans in markets.

Actually, it is quite often the study of college students in labs. Behavioral economists accuse more traditional economists of substituting a fake person ("Homo economicus") in the real world, and that they simply reintroduce real people. However, to do this they often swap out the real world in exchange for a lab. Second-order rationality, anyone?

Fast forward to 2008, and the world of mortgage shopping had become a much more complicated place. Borrowers were quoted low initial “teaser” rates that would jump later to some higher level, depending on market interest rates at the time, and there were prepayment penalties for paying off the loans early. For such mortgages, an A.P.R. was no longer an adequate measure of the loan’s cost.

He must have wrote this before the new foreclosure data. How many of these problems were actually due to financial regulation and political manipulation? It is just as easy to say that this would never happened if not for our artificial secondary mortgage market.

Some critics contend that behavioral economists have neglected the obvious fact that bureaucrats make errors, too. But this misses the point. After all, wouldn’t you prefer to have a qualified, albeit human, technician inspect your aircraft’s engines rather than do it yourself?
The owners of ski resorts hire experts who have previously skied the runs, under various conditions, to decide which trails should be designated for advanced skiers. These experts know more than a newcomer to the mountain. Bureaucrats are human, too, but they can also hire experts and conduct research.

So, as evidence that people aren't capable of making decisions, you cite real world examples where people acknowledge their own shortcomings and defer to experts for help? How Homo economicus of them!

More importantly, it seems that behavioral economists are still missing the point. It is not simply that bureaucrats just make errors, but that 1) They have less incentive to get the answers right; 2) They often have different incentives altogether; 3) Politicians ultimately run the show, and paternalism of this sort has a lot more to do with the interest of the parents than the children.

Hat Tip: TC @ MR

Dirty Mind Economics

2009-07-03T08:19:00.002-04:00

Nude Safety Airline Videos

Dirty econ talk thread (PG-13)

Pick-up Lines for Economists I

Pick-up Lines for Economists II*

Economics of Pick-up Lines

*I read this list for the first time as an undergrad, and I can recall not being able to understand several of them. Not the case this time. Just another way in which a doctorate in economics pays.

Not From The Daily Show

2009-07-02T12:26:00.001-04:00

Hat Tip: Ellis Heath

Nash Equilibrium

2009-07-02T01:06:00.002-04:00

From XKCD:

Homework Assignment for Libertarians

2009-07-01T14:29:00.003-04:00

Next time you are in a thrift store, check to see if there are any children's books that were printed prior to 1985. The Consumer Product Safety Commission is advising thrift stores to refuse children's books printed prior to 1985 unless they are welling to test it for lead. See slide 6 here. I don't particularly care for the phrase "books have a limited useful life (approx 20 years)."

Are they complying? I'll report back after the next visit, but please let us know if you can add to the data.

In the mean time, I have no intention of throwing away the He-Man books I'm passing down to my kids.

Sobel on Rule of Law

2009-07-01T09:11:00.004-04:00

At this link, you can find Russ Sobel in a brief 5 minute video discussing the thesis of his new edited volume Rule of Law: Perspectives on Legal and Judicial Reform in West Virginia.

You can think of this book being almost a response to this quote from former West Virginia Supreme Court Judge Richard Neely:

As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone else's money away, but so is my job security, because the in-state plaintiffs, their families, and their friends will reelect me.

On a smaller note, the video at the first link gave me an overwhelming sense of being in grad school again. The position of the camera is roughly from the couch in Sobel's office, so it gives you the feeling of sitting on his couch while he lectures you from his desk about the importance of the rule of law to the economy. Many WVU students get this experience, with the advantage of the video format being that you don't have to wait in the long line of other students wanting to learn from him.

Hat Tip: Josh Hall at DOL for the pointer.

Is Orange Juice a Status Good?

2009-07-01T07:48:00.003-04:00

From CNN's dumbest business moves of 2009:

Tropicana drinkers, it turns out, are as passionate about packaging as they are about pulp. That's why they rebelled when parent company PepsiCo and consultancy Arnell overhauled the juice line's packaging in January as part of a $35 million branding campaign called "Squeeze."

Tropicana fans said the simplicity of the new design reminded them of store-brand generics. And who wants to be mistaken for a generic consumer?

Within a month, the public's flogging by e-mail, phone, and blogs forced PepsiCo to bring back the old straw-in-an-orange cartons. Other parts of the campaign remain, but PepsiCo will probably think twice before it tries updating this icon again.

Do people really waste their time complaining about their orange juice containers? I find it hard to believe OJ is a status symbol but what explains people taking the time to complain about the box cover. Like with protesting, I am without a good social science theory to explain it.

Luther: Further Arguments on Government Regulation

2009-06-30T16:10:00.001-04:00

Playing devils advocate, Ryan makes a case for government regulation. He claims that regulation can be beneficial when time inconsistency is inherent in the situation and feedback mechanisms are slow. Simply put, government can acquire information that individuals cannot and, therefore, can pass regulations that are in the actual best interests of individuals.

Ryan is correct to point out that there are "a number of unknown effects caused by everyday products we encounter throughout our normal lives." However, the solution he suggests makes several bold assumptions.

1. Government is more capable of acquiring information (specifically when there is a delay between choices and consequences) than individuals.
2. Once this information is acquired, government regulation is the best way of dealing with the problem.
3. Government officials are guided explicitly by what is best for individuals as a whole rather than what is best for themselves.

I am skeptical. I'll say that #1 is possible, but unlikely. I am just not convinced that a centralized bureaucracy is better at gathering information than decentralized market participants. It seems to me, though, that the argument for regulation falls apart at #2. If the market is superior in cases where accurate information is available, why not just collect and publish the relevant information? Why is it necessary to mandate (via regulation) how people should act with respect to that information? It is one thing to say that individuals make bad decisions because they do not have enough information. It is quite another to say that even in the face of information they continue to make bad decisions. I doubt politicians are better equipped than I am to make decisions regarding what is best for me. So give me the information (which I will discount accordingly) and let me decide.

So if publishing information is a better solution than regulating, why is it that government officials often choose to regulate? The answer concerns #3. Government officials are primarily guided by their own interests. In some cases, this refers to their own financial interests. They pander to a rentseeking minority at the expense of the majority in exchange for campaign contributions or under-the-table compensation. In other cases, this refers to their own psychic interests. They think you should live your life a certain way and will use the force of law to see to it that you do.

Now that sounds more like the regulation I see in the real world.

A slightly more technical response is under the fold.
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Interesting lines that spur my interest...

2009-06-30T09:25:00.003-04:00

So far only Denmark has taken the radical step of indexing the pensionable age to life expectancy.

Say what you will about Scandinavian countries and their take on the government's role in the economy and its results-- and there's quite a lot to talk about-- but perhaps it is a greater reliance on the public sector that allows for more ingenuity in public programs? Does an economy more dependent on the private sector relegate itself to a more vanilla public sector?

That quote is from this week's Economist, in the intro to this week's section on ageing.

A Hayekian Critique of Higher Education

2009-06-30T07:56:00.007-04:00

Online now is my critique of the higher education system in general, as it is typically managed by the state. I have another co-authored chapter, but I suspect readers of this blog are more interested in the competitive process and how information is lost in centrally planned systems. It is to be a chapter in a book on improving and lowering the costs of higher education.

Below the fold are the main points of Getting It Right: Where University Systems Lose Information in Designing Programs.
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-It opens with a discussion of why central planning can only mimic individual planning. The main example is explaining why we don't see parking within parking garages managed by some central planner, and instead people are permitted to choose their own parking spots.

-Provides an overview of the different state systems, with special emphasis on Ohio so that it may serve as a concrete example throughout the text. The last paragraph of that section describes current events in Ohio higher ed, which sounds like the plot of Star Wars episodes 1-3.

-University systems have statewide coordination problems. Out of concern of "budget redundancy" there is an attempt to determine which schools offer which programs. Some states extend this to include which programs the private schools can offer. This creates a bizarre set of programs...If University A has a criminal justice program, University B needs A's permission to offer a criminal justice program. Emphasizes the forms of cooperation that are created through competition.

-Taxpayer subsidies have little support on the grounds of correcting an externality, and result in a more regressive tax system. Regardless, subsidizing children with resident parents while attending college makes no sense on economics grounds. A better approach to increasing the educational attainment of the population would be to subsidize the repayment of student loans for new graduates.

-Many states enact price controls over schools in the form of tuition freezes, or don't allow differentiation of price across universities. Does it make sense for the state to shield students from the information that some schools are lower cost providers than others? Tuition is seldom differed across majors or classes. A student taking a large class gets a lower quality product and has a lower marginal cost, but has no incentive to take the larger class for these reasons. Finance and Economics sends a fairly similar signal to prospective employers, but a finance professor costs much more than an economics professor, but students are shielded from this fact also.

-Political Economy Problems: If we were talking about gas stations instead of universities, statewide planning boards would probably be recognized as cartels serving to protect the existing institutions.

Which Experts are Competent?

2009-06-29T16:31:00.005-04:00

I found this 1992 paper by James Shanteau to be very interesting, it surveys the literature and summarizes which fields have experts that outperform laymen counterparts, and which do not. Table 1 is below the fold for your viewing pleasure.

The one that took me by surprise is that of the medical profession (nurses and physicians) that winds up on both sides of Table 1 because the literature is very mixed about the performance of these professions over their laymen counterparts. After thinking more broadly about all the activities that go into your own health care, it is less surprising. If you hurt your ankle or come down with a cold, chances are good you already know what to do. As a nursing student, we were told to simply ask people what they think is wrong, with the reasoning being that they are almost always right.

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Formal Dress and the Rate of Return to Teaching

2009-06-29T09:52:00.004-04:00

Zero in the long-run. As my former students can attest, this is good news for me. One of my colleagues here at SPEA described me to a visiting job candidate as "an extremely casual dresser," which is the description I prefer to go by. When teaching externalities, I got a much larger laugh than I expected from my students by using my appearance as an example of the inherent difficulties of determining when externalities should be dealt with in public policy.

More about the study below the fold:
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Terry Tate, Office Linebacker

2009-06-29T09:12:00.001-04:00

Came across this classic economics lesson in monitoring and the principle-agent problem:

Friday Abstract Round-Up

2009-06-26T18:36:00.003-04:00

Does Trade Openness Improve Environmental Quality? (JEEM)

The literature on trade openness, economic development, and the environment is largely inconclusive about the environmental consequences of trade. This study treats trade and income as endogenous and estimates the overall impact of trade openness on environmental quality using the instrumental variables technique. We find that whether or not trade has a beneficial effect on the environment varies depending on the pollutant and the country. Trade is found to benefit the environment in OECD countries. It has detrimental effects, however, on sulfur dioxide (SO₂) and carbon dioxide (CO₂) emissions in non-OECD countries, although it does lower biochemical oxygen demand (BOD) emissions in these countries. We also find the impact is large in the long term, after the dynamic adjustment process, although it is small in the short term.

Justin's Take Away: In OECD countries, where there usually are strong private property rights, openness to trade increases environmental quality. In non-OECD countries, which usually have poor property rights, pollution tends to be a bigger problem. On the environmental front, I think this paper might hurt the free trade movement while helping the libertarian movement. The two are not mutually exclusive, but it is a rather rare feat to help one while hurting the other.

The Effects of Consumer Directed Health Plans on Health Care Spending (NBER)

We use unique data from an insurer that exclusively offers high-deductible, "consumer-directed" health plans to identify the effect of plan features, notably the spending account, on health care spending. Our results show that the marginal dollar in the spending account is entirely spent on outpatient and pharmacy services. In contrast, inpatient and out-of-pocket spending were not responsive to the amount in the spending account. Our results represent the first plausibly causal estimates of the components of consumer-driven health plans on health spending. The magnitudes of the effects suggest important moral hazard consequences to higher spending account levels.

Quick Observation on Labor Costs in Health Care

2009-06-26T10:58:00.004-04:00

Mankiw points out that medical professions, most notably doctors, are much more expensive in the U.S. and that this is a growing trend. Roberts rightly, in my opinion, refers to this as a symptom rather than a cause. Why do I think Roberts is right?

Most industries simultaneously find labor compensation increasing AND prices falling. To non-economists, this is often perplexing: why is it that an input cost can increasing while an output price falls?

The answer is because of productivity. As labor becomes more productive (because of capital investments, skills, experience, whatever) it is able to increase its value by producing more output and hence lower prices. Labor is, in a sense, being rewarded for making costs and prices fall.

I think our institutions in health care have damaged this important link between productivity and output. I suspect that if you look at laser eye and plastic surgery, you find that doctor compensation will have also increased as prices have fallen. If I have time, I'll look for the data and report back.

Now, T=5

2009-06-26T08:00:00.004-04:00

Today is my five year wedding anniversary, and what a great five years it has been. Married life is much more fun than I would have expected, and it has been steadily getting better with each year. I am extremely thankful to have Lisa in my life, let alone to have her tied to it with ball and chain. That's right, I'm the ball and chain.

And might I add an "In your face!" to the Clergyman who was so concerned about our marriage prospects that he felt he needed to call our parents. Questioning him about r-squares and self-selection bias in his favorite "divorce predictor studies" remains one of my favorite personal highlights.

My wife the behavioral economist.
My wife the behavioral economist II.
My wife the political economist.

Professor Goes to Prison

2009-06-25T22:18:00.002-04:00

I suspect his new colleagues will not be impressed with his CV:

OHN BZDIL, III, who worked as the Manager of the Pediatric Neurosciences Department of the Neurological Institute at Columbia University, was sentenced today by United States District Judge SIDNEY H. STEIN to 15 months in prison for defrauding Columbia of more than $180,000.

[He] submitted reimbursement requests to Columbia for spinal muscular atrophy studies purportedly performed by a medical professional affiliated with Columbia. In fact, the studies were never performed....submitted reimbursement requests for various items purchased from Amazon.com for his personal use... [and] also submitted reimbursement requests for expenses incurred at the Skytop Lodge, in Skytop, Pennsylvania, in connection with his wedding.

CNBC's Top States for Business

2009-06-25T14:31:00.002-04:00

Here.

West Virginia is dead last for business friendliness, which according to CNBC is "the states on the perceived “friendliness” of their legal and regulatory frameworks to business."

Here is the chapter on the unintended consequences of business regulation in West Virginia from Unleashing Capitalism.

Hat Tip: Suzie Witmer

New Online Property Tax Database

2009-06-25T10:24:00.001-04:00

Very cool stuff:

This online database presents data on the property tax in all 50 states. Because accurate data provide the critical foundation for sound governmental decision-making, the Lincoln Institute of Land Policy and the George Washington Institute of Public Policy joined in a partnership to provide information and support public policy concerning the property tax, probably the most controversial tax in the United States.
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This new site provides data sets and links relating to the property tax and its role in state and local finance in all 50 states. The interface allows users to access property tax and data online in a variety of forms, including tables of the most frequently sought figures, a query system for creating new tables, and a downloadable database. This data will be of value to a wide variety of users, including journalists, public officials, and researchers.

SPEA is Number 3

2009-06-24T22:38:00.003-04:00

U.S. News & World Reports has my department here at SPEA, Public Finance and Budgeting, ranked at #3 in the country for 2008. Congrats to my more senior colleagues for their great work.

Here's the Top-10:

1	Syracuse University Syracuse, NY
2	University of Georgia Athens, GA
3	Indiana University--Bloomington Bloomington, IN
4	University of Kentucky Lexington, KY
5	Georgia State University Atlanta, GA
6	New York University New York, NY
7	SUNY--Albany Albany, NY
	University of Connecticut West Hartford, CT
9	University of Nebraska--Omaha Omaha, NE
10	Harvard University Cambridge, MA

AFL-CIO Hard Hats

2009-06-24T14:39:00.003-04:00

Click on this link, you will find it so deliciously rich with hypocrisy, you won't have room for dessert.

Hat Tip: Kipesquire