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“Bob Dylan drew upon a rich lode of old folk tunes for most of his early songs,” Hyde writes. “That’s not theft; that’s the folk tradition at its best.” It seems that nearly two-thirds of Dylan’s work between 1961-63 — some 50 songs — were reinterpretations of American folk classics. In today’s corporate-creative environment, in which Disney was allowed to change the basic nature of copyright law back in the 90s so that their signature mouse wouldn’t fall into the public domain, Dylan’s early work would’ve landed him in court.
from a post at Mental Floss. The punchline:
Hyde argues that “there are good reasons to manage scarce resources through market forces, but cultural commons are never by nature scarce, so why enclose them far into the future with the fences of copyright and patent?
I am generally opposed to IP law, but I think this oversimplifies. There is room for argument about patents. (For example, I came across this story today about drugs for rare diseases. It is hard to see how drugs that will benefit a total of 3 people on the whole planet can be financed without monopoly rents.) However, copyright for music and other creative works is a solution to a non-existent incentive problem.
But I am somebody who is very anxious to have the Afghan government and the Pakistani government have the capacity to ensure that those safe havens don’t exist. And so it, I think, will be an important reminder that we have no territorial ambitions in Afghanistan; we don’t have an interest in exploiting the resources of Afghanistan. What we want is simply that people aren’t hanging out in Afghanistan who are plotting to bomb the United States.
Obama said this in an interview with NPR (transcript.) He actually says “hangin’ out” but the transcriber apparently wanted to maintain an air of formality and wrote “hanging.” You can hear it here, around the 12:30 mark. He chuckles a bit when he says it.
These are conspicuoulsy different ways for a President to talk, especially about something as serious as terrorism. It says something about the man himself and it also draws a sharp contrast with Bush, whose standard catch phrase at these moments would be “rout out the terrorists.”
Previous installment in the series.
In an article about their famous restaurant surveys, Nina and Tim Zagat write
Over the years that we’ve spent surveying hundreds of thousands of diners, one fact becomes clear: Service is *the* weak link in the restaurant industry. How do we know? Roughly 70% of all complaints we receive relate to service. Collectively, complaints about food prices, noise, crowding, smoking, and even parking make up only 30%. Moreover, the average rating for food on our 30-point scale is usually two points higher than the average rating for service. Given the fact that identical people are voting, and that there are hundreds of thousands of them, this deficit is dramatic.
They go on to give some advice to the restaurant industry for improving service. But don’t these results say that in fact we don’t care about service? They show that we choose the restaurants with good food despite their bad service. Sure we complain about the service, other things equal who doesn’t want better service. But we can live with bad service if we get good food.
Its a standard example of a game that has no Nash equilibrium. But what exactly are the rules of the game? How about these:
You have fifteen seconds. Using standard math notation, English words, or both, name a single whole number—not an infinity—on a blank index card. Be precise enough for any reasonable modern mathematician to determine exactly what number you’ve named, by consulting only your card and, if necessary, the published literature.
Hmm… maybe it does have a Nash equilbirium. But after reading the article (highly recommended), I am still not sure. I think it comes down to whether or not the players are Turing machines. (Fez flip: The Browser)
No, not because of this, although it can get rough.
I teach the third course in the first year PhD micro sequence at Northwestern and I also teach my intermediate micro course in the Spring. I am just finishing up teaching this week and my students will soon be writing their evaluations of me. They will grade me on a scale of 1 to 6.
Because I am the third and last teacher they will evaluate this year, I face some additional risk that my predecessors did not. Back in the fall, when they evaluated their first teacher they had only one data point with which to estimate the distribution of teaching ability in the Northwestern economics faculty. An outstanding performance would lead them to revise upward their beliefs and a poor performance would revise their beliefs downward.
As a result, when the students sit down to evaluate their fall professor, even a very good performance will earn at most a 5 because the students, now anticipating higher average performance in the winter and spring, will be inclined to hold that 6 in reserve for the best. Likewise, very bad performances will have their ratings buoyed by the student’s desire to save the 1 for the worst.
When Spring comes, there is nothing more to learn. By now they know the distribution and the only thing left to do is to rank their Spring professor relative to those who came earlier. If he is best he gets a 6, if not he gets at most a 4. His rating is a mean-preserving spread of the previous ratings.
There is a general principle at work here. The older you get the more you know about your opportunity costs, the more decisively you act in response to unanticipated opportunities. (There is a countervailing force which I believe on net makes us more conservative when we get older, but that is the topic of a later post.)
I guess I am the Tyrone Slothrop of Northwestern University. I’ve been doing research on the theory of the “democratic peace” – the finding that democracies rarely attack each other. This has been called “an empirical law” in international relations. This idea is famous enough that it is offered as a rationalization for spreading democracy by both left- and right-wing politicians.
Why might democracies be more peaceful? And how about a regime like Iran? Fareed Zakaria says : “Iran isn’t a dictatorship. It is certainly not a democracy.” It is something in the middle. There are elections but an elite also controls many things such as the appointment of the Supreme Leader who has enormous power.
I have done some research with David Lucca and Tomas Sjostrom where we offer a theory for why these regimes which we call limited democracies might be the most warlike of all. And the data does suggest that countries like Iran are very warlike, especially when facing a similar limited democracy.
Here is brief attempt to explain the theory informally – it is done using game theory in the paper. Conflict occurs via combination of greed and fear – two of the causes of war according to the great Greek historian Thucydides. Each side does not know if the other is motivated by greed or fear. Greedy leaders are hawkish. But, even if one side is not greedy, they turn aggressive because the other side may be greedy. So, both sides become aggressive whether it is because of greed or fear of greed. We study how political institutions can control greed or stimulate fear.
In fact, the logic above is our model of dictatorship where leaders interact with no thought for the wishes of their citizens. It is our pure model of greed and fear. It is inspired by the famous logic of the “reciprocal fear of surprise attack” due to Thomas Schelling.
In a democracy, the voters may punish a leader who starts a war unnecessarily. As leaders want to stay in power, this controls greed. But the voters may also punish a leader who is weak in the face of aggression. This unleashes fear as democratic leaders are aggressive in case they are too dovish in an aggressive environment. So, democracies can be peaceful against each other as dovish voters control their leaders. But they can turn aggressive very rapidly if they are concerned their opponent will be aggressive. In a dictatorship, the leader does not fear losing power but no-one controls his greed.
Now, suppose the leader can survive in power if he pleases the voters or if he satisfies a hawkish minority who favor war. This regime has some properties of a democracy – the leader survives in power in the same scenarios as the leader of a full democracy. But he also survives if he starts an unnecessary war – just like a dictator would. The leader only loses power if he is dovish in the face of aggression. Then, neither the average citizen nor the hawks support him. This type of regime which we call a limited democracy is the most aggressive of all. The leader fears losing power and the voters cannot control his greed. So, a little democracy can make things worse if it leads to a regime like this.
The theory leads to a bunch of predictions which we try to confirm in data. I took a shot at explaining the ideas in a talk I gave to Kellogg MBAs. The video is here in case you’re interested (you need Real Player to view it). The article is here (you need Adobe Acrobat to view it).
The town I live in is facing a zoning controversy. An old family-run restaurant on a downtown corner has gone out of business and put the property up for sale. The high bidder is Dairy Queen. But the town’s zoning board is set to reject the sale.
At first there doesn’t seem to be any economic rationale for elected representatives of the town stopping what the citizens of the town are evidently voting for with their dollars. The argument would be that the reason Dairy Queen is the high bidder is that Dairy Queen expects to earn the most in that location. Since their earnings come from providing a valuable product and service, this must mean that giving the space to Dairy Queen will generate the most value for the citizens of my town. Why doesn’t the zoning board see this?
Well, they just might be smart enough to see that the simple argument I have given is flawed. The flaw is that it assumes that Dairy Queen faces the same market conditions as any other bidder for the space.
Bidding for the right to enter a market is determined not by the amount of value the business will create, but the amount of that value that the business gets to keep. The share of value that the business gets to keep is determined by market conditions. Generally, businesses that face competition get a smaller share of the value they create than businesses with less competition.
Because of this, unregulated markets for scare commercial real estate will not necessarily lead to an efficient allocation. A bank may be more valuable to the community and yet lose the bidding to Dairy Queen. Zoning boards can, in principle, correct this by intervening.
A similar logic is at work in pollution-permit trading markets, although with a twist. The naive argument is that the social cost of a unit of carbon emissions is the same regardless of who is the emitter, but the benefits vary. And the benefits will be reflected in the polluters’ willingness to pay for permits. If we attach a high value the output of producer A, then producer A should be more willing to pay for the right to produce (and therefore pollute) than producer B whose output we value less.
But again this depends on the market conditions. Producer B might be in a competitive market where, at the margin, it internalizes all of the gains from increased output and Producer A might be a monopolist whose marginal revenue is less than price and therefore internalizes only a fraction of the gains.
(The twist is that pollution rights are divisible and so the appropriate calculation is at the margin which flips the comparison between competitive and monopolistic producers. Real estate is indivisible (or at least much less divisible) and so average calculations take over.)
This points to an advantage of a carbon tax over a market-based permit system. A carbon tax can be customized by industry and market conditions. A permit market treats all polluters equally.
Both know how to use the tactics of the Prisoner’s Dilemma to get their subjects to squeal. George Stephanopoulos explains it this way:
“He flashes a glimpse of what he knows, shaded in a largely negative light, with the hint of more to come, setting up a series of prisoner’s dilemmas in which each prospective source faces a choice: Do you cooperate and elaborate in return (you hope) for learning more and earning a better portrayal–for your boss and yourself? Or do you call his bluff by walking away in the hope that your reticence will make the final product less authoritative and therefore less damaging? If no one talks, there is no book. But someone–then everyone–always talks.”
And according to Matt Alexander in “How to Break a Terrorist…” the Prisoner’s Dilemma is a still mainstay in the arsenal of methods employed against Al Qaeda.
Nice to know that the story we use to motivate the first game anyone learns in a game theory course might actually be true.
I teach undergraduate intermediate microeconomics, a 10 week course that is the second in a two-part seqeunce at Northwestern University. I have developed a unique approach to intermediate micro based originally on a course designed by my former colleague Kim-Sau Chung. The goal is to study the main themes of microeconomics from an institution- and in particular market-free approach. To illustrate what I mean, when I cover public goods, I do not start by showing the inefficiency of market provided public goods. Instead I ask what are the possibilities and limitations of any institution for providing public goods. By doing this I illustrate the basic difficulty without confounding it with the additional problems that come from market provision. I do similar things with externalities, informational asymmetries, and monopoly.
All of this is done using the tools of dominant-strategy mechanism design. This enables me to talk about basic economic problems in their purest form. Once we see the problems posed by the environments mentioned above, we investigate efficiency in the problem of allocating private goods with no externalities. A cornerstone of the course is a dominant-strategy version of the Myerson-Satterthwaite theorem which shows the basic friction that any institution must overcome. We then investigate mechanisms for efficient allocation in large economies and we see that the institutions that achieve this begin to resemble markets.
Only at this stage do markets become the primary lens through which to study microeconomics. We look at a simple model competition among profit-maximizing auctioneers and a sketch of convergence to competitive equilibrium. Then we finish with a brief look at general equilibrium in pure exchange economies and the welfare theorems.
There is a minimal amount of game theory, mostly just developing the tools necessary to use mechanism design in dominant strategies, but also a side trip into Nash equilibrium and mixed strategies.
In the coming weeks I will be posting here my lecture notes with a brief introduction to the themes of each. I am distributing these notes under the Creative Commons attribution, non-commercial, share-alike license. Briefly, you are free to use these for any non-commercial purpose but you must give credit where credit is due. And you are free to make any changes you wish, but you must make available your modifications under the same license.
Today I am posting my notes for the first week, on welfare economics.
I begin with welfare economics because I think it is important to address at the very beginning what standard we should be using to evaluate economic institutions. And students learn a lot from just being confronted with the formal question of what is a sensible welfare standard. Naturally these lectures build to Arrow’s theorem, first discussing the axioms and motivating them and then stating the impossibility result. In previous years I would present a proof of Arrow’s theorem but recently I have stopped doing that because it is time consuming and bogs the course down at an early stage. This is one of the casualties of the quarter system.
