You are currently browsing the category archive for the ‘economics’ category.

From the AEA citation:

Matthew Gentzkow has made fundamental contributions to our understanding of the economic forces driving the creation of media products, the changing nature and role of media in the digital environment, and the effect of media on education and civic engagement. He has thus emerged as a leader in a new generation of microeconomists applying economic methods to analyze questions that were historically analyzed by non-economists. His empirical work combines novel data, innovative identification strategies and careful empirical methods to answer questions at the interface of economics, political science, and sociology.  This work is complemented by significant theoretical work on information, communication, and persuasion.  Gentzkow, both on his own and in collaboration with his frequent co-author, Jesse Shapiro, has played a primary role in establishing a new and extremely promising empirical literature on the economics of the news media.

I think of Matt’s work as straddling political economy and industrial organization. The latter area is extremely mature and yet Matt, often with Jesse Shapiro, has made extremely original contributions with a focus on the media. (I note that he has produced interesting papers on brand preferences more recently, closer to traditional IO concerns.)

I am most familiar with his work on media bias and reputation (JPE, 2006). Consumers want to take an action that fits the state of the world. They have some prior distribution over the states. The media can produce a signal that potentially informs this decision. The consumers are also trying to assess the quality of the media as well as take optimal actions. That is, there is a second dimension of uncertainty over the “type” of the media. If the media’s signal has low probability given the consumers’ prior, they will infer the media is bad quality. Hence, there is an incentive for the media to lie or “spin” to fit the prior of the consumers. There are many other results but this key logic underlies all of them. The model uses differing priors which is a non-standard assumption. It is non-standard as it may not yield a tractable model or crisp, falsifiable results (among other more philosophical reasons). But Gentzkow and Shapiro show that it is possible to handle such a setting.

I am less qualified to judge empirical work but I did see Matt and Jesse’s paper on ideological separation on the internet. Cass Sunnstein has claimed that the internet has created polarization of opinions as people just go to websites that fit their ideological preferences. Using data on internet use, reporting of ideological preferences, and measures of media bias of a site based on fraction of conservatives and liberals visiting the site, Gentzkow and Shapiro calculate conservative exposure of conservatives and liberal. The difference is a measure of isolation. This number is surprisingly low.

Finally, Kamenica and Gentzkow have introduced a new kind of principal-agent/receiver-sender into economic theory. The receiver’s (e.g. a judge or jury) action depends on the state of the world. The sender (e.g. a prosecutor) has his own preferences and chooses an information structure, i.e. a distribution of signals as a function of the state, to influence the receiver. They show that the sender will deliberately choose a noisy signal structure to persuade the receiver. For example, the prosecutor may choose an investigation that deliberately delivers guilty signals for innocent defendants. If this probability is low compared to the probability of guilty signals for guilty defendants, the judge will convict any defendant for whom there is a guilty signal, even though the defendant might be innocent. If the prosecutor wants to maximize the rate of conviction, by using noisy signals, we can achieve a higher conviction rate than with perfect signals. This paper has stimulated research on “Bayesian persuasion”.

All this work is quite original and quite sophisticated. The AEA is right in concluding:

His work is creative without sacrificing quality.   He has established himself as a role model in both substance and execution.

Your kid leaves her phone lying around. You find the scatterbrain never bothered to change her password as you guiltily break into her phone. You follow the trail of texts from last Saturday night. The slang is beyond you but Google translates. Shocked you find the supposed naïf and her friends were trying score some pot and booze from the cool crowd in school.

How should you respond?

You immediately want to go Putin-style hard on her ass. Confrontation, grounding, extra math classes. But any confrontation will likely reveal you accessed her phone. The stakes will only increase. Password changes, another phone purchased with the proceeds from the baby-sitting business..who knows where it will all end up?

You think through your strategy. Before this crisis, your threshold for the gateway drug was caffeine. So no Coca Cola has crossed the girl’s lips. But it seems she’s graduated from Izzes to Corona. Surely that worse than Coca Cola so you should come down like a ton of bricks? But one thing is certain – your access to her secret life is over because she’ll close off the information superhighway. How will you know if and when she’s “chasing the dragon” as people apparently said when you were young? You realize your threshold for intervention is coke (the drug) not Coca Cola. Just keep an eye on her messages till you see “yeyo” and then intervene.

You contemplate home schooling. You head over to the liquor cabinet and fix yourself a Scotch. Straight, no chaser.




Harold Pollack of UofC interviews Jon Gruber on the future of the healthcare act. Here is one exchange:

Jon:Right now, there is a successive subsidization of healthcare for many through Medicare – many rich people don’t need the excessive benefits of getting Medicare – and for many through the employer system. So I think we can get there in a different sharing route, but the bottom line is right. The constraint is going to be the financing.

Harold: By the way, you have now permanently prevented yourself from winning a high elective office in the United States despite your charisma, they be playing this tape back in an endless loop with a guy with a deep voice in the background.

Jon: I’ll guarantee it further by highlighting that guns are a public health issue.

From Bloomberg:

The latest fare study, by a Boston-area travel-tech startup called Hopper, found that Thursday is the cheapest day to purchase a ticket, with weekends the worst. The best fares were found for Wednesday departures, while returns were cheapest on Tuesday for domestic flights and on Wednesday for international trips. Friday was the most expensive day to fly home both domestically and abroad, likely because Friday and Sunday are two of the heaviest traffic days for airlines worldwide.

But don’t get too excited:

Still, as airlines become ever-more sophisticated at pricing—and keep tight checks on seat capacity—savings are relatively narrow. The difference between the “worst” and “best” purchase days was $10 for domestic flights and $25 internationally. Fare differences in departure and return days topped out at $60 for international flights, and even less domestically, according to Hopper. “I think the airlines have just become a lot better at the yield management piece so there’s no longer this predictable way you can outwit them,” says Patrick Surry, Hopper’s data scientist, calling the days of frequent consumer “big wins” largely over.

Wutherings Heights singer sells tickets for $80-$250 but they are on sale for $1000s on eBay.  She’s still running up that hill when it comes to ticket pricing


Farhad Manjoo has an interesting article on Netflix’s selection of oldish movies:

Like salmon, Hollywood movies are governed by rigid life cycles. First, a movie is released in theaters. A few months later, it heads to second-run outlets like airlines and hotel pay-per-view, and later it goes to Blu-ray, DVD and digital services that allow you to purchase or rent films à la carte.

Then, about a year after a film’s theatrical release, trouble kicks in. That’s when a movie is made available to pay-TV channels like HBO, Starz and Epix. These premium periods are exclusive; when a movie gets to a pay channel, it often can’t be shown on any other streaming service. This usually means it gets pulled from à la carte rental services, too. Right now, for instance, HBO is showing “This Is 40,” “The Hobbit” and “Moonrise Kingdom,” among other titles. Because of the network’s exclusive hold over those titles, you can’t rent those films from any other digital service….

Why are movies released in this staggered way? And why can’t the system change to accommodate an all-you-can-eat plan? Money, of course.

HBO and other premium networks have agreed to pay billions of dollars for the exclusive run of major studio films. HBO has said that, despite the cultural cachet of its original programs, movies are its most popular content; consequently, it has purchased rights to about half of all the movies released by major studios in the United States until beyond 2020. At least in this decade, then, a monthly movie plan that offers all of the movies isn’t going to happen.

Zeke Emanuel, healthcare advisor to President Obama (and brother of Rahm and Ari) thinks:

Even though the health law’s “employer mandate” requires that companies with 50 or more workers pay a penalty of $2,000 per employee if they do not provide health care, many large companies now spend far more than that to offer coverage. As a result, Mr. Emanuel says they will be able to pay the penalty, give workers a raise and shed the burden of providing coverage by sending workers to the public exchanges.

The press is picking this up and focussing on the $2000 penalty and saying it is too small. But note the “give workers a raise” part. In a competitive labor market, just dumping workers on the exchanges without compensating them is not an option. They would exit and find jobs with companies that do offer them health insurance. To prevent this, you would have to raise their salaries. It would have been great if the NYT article could have added analysis of expense of this and hence whether the end of employer provided health insurance is really on the horizon.

Also, the big advantage Walmart etc have over the private exchanges is the ability to negotiate volume discounts. Is a decentralized private exchange ever going to be able to match those rates?

Economists of all stripes agree that there is no reason companies should also be in the business of providing health insurance to their employees. But there still seem to be many steps to there from here.

From NU:

Jean Tirole, chairman of the Foundation Jean-Jacques Laffont/Toulouse School of Economics and scientific director of the Institute for Industrial Economics, University of Toulouse Capitole in France, is the recipient of the 2014 Erwin Plein Nemmers Prize in Economics.

The prize carries a $200,000 stipend, among the largest monetary awards in the United States for outstanding achievements in economics. The 2014 prize marks the 11th time Northwestern has awarded the prize. The Frederic Esser Nemmers Prize in Mathematics and the Michael Ludwig Nemmers Prize in Music Composition will both be announced this spring.

The Nemmers prizes are given in recognition of major contributions to new knowledge or the development of significant new modes of analysis. Six out of the past 10 Nemmers economics prize winners have gone on to win a Nobel Prize. (Those who already have won a Nobel Prize are ineligible to receive a Nemmers prize.)

Looking forward to hanging out with Jean next year.


The standard story about Obamacare has two steps: (1) We need young people to join so that average costs are low. Prices will reflect average cost because of insurer competition and so healthy young people will cross subsidize less healthy older people. (2) This cross subsidy will only operate if the young get Obamacare. They may not because the price is greater than their payoff from going without insurance. Hence, the individual mandate is necessary to hold this together. If the tax is too small or the website failure too forbidding, young people will not join and the whole thing will collapse as adverse selection drives up prices and further reduces participation etc – the so-called “death spiral”.

But this story is persuasive if young and old people are in the same pool. Obamacare allows pricing based on age so young and old people are in different pools. The young do not subsidize the old. If the young do not get Obamacare the old still get their insurance and they can live happily ever after (or at least get statins and heart bypasses). At a second cut there is a bit of a cross subsidy because Obamacare imposes a 3-to-1 ratio on prices of older age groups versus new. If this constraint does not bind, no problem. Even if it binds, it is relaxed if the young do not participate in their pool so prices go up in that pool allowing higher prices in the older pools.

Still, within a fixed age based pool there can be adverse selection. How big is it?  There is a working paper by Handel, Hendel and Whinston that gives us an idea. There is an impact of adverse selection because at least when you allow just two plans, one covering 90% of costs and the other 60%, only the latter trades. But what happens if you also drop the individual mandate? The last column of Table 12 on page 41 gives their forecast based on their model and the data. Participation is 87%-90% for those 50 and older. But is only 63-70% for those 25-40.

This is the death spiral, but only among the young. It does not affect the older population. First, age-based discrimination innoculates the old from the non-participation of the young. Second, the 50+ crowd (which I am fast approaching!) need health insurance so they all get it.

(Also, this analysis ignores subsidies which would increase participation further even in 25-40 age group…)

Melissa Harris at the Chicago Tribune has written a nice story about Purple Pricing at NU.    (The photographer asked us to look serious and we complied!) Melissa also interviewed Nick Kokonas whom we talked to originally. He decided not to use auctions for Next restaurant tickets. Here is his current rationale:

“Even if we could charge more, I don’t want to,” he said. “The economists say I’m being inefficient; that it’s a rational thing to take more money, if people are willing to pay it. But I’m convinced people would be willing to pay it only once. If we allowed people to pay $2,000 to eat at Next, but it feels like it’s worth $500, they’re not coming back. And I’m not in this for a one-time sale of some gizmo. We want to be around for 20 years.”

But here is the point: Since the tickets can be resold, they end up on Craiglist etc and people pay $2000. People do not end up with the great deal Kokonas wants to give them to persuade them to be repeat customers. They still end up paying $2000 for a $500 meal but the extra $1500 goes to a scalper and not to Kokonas. The scalpers are exploiting Kokonas’s “irrationality” to make money. So, if Kokonas really wants to achieve his objective he must be more old school and sell tickets at the door. This subverts his business model as Next becomes more like Frontera Grill with a set menu and random revenue stream. A compromise might be to auction off some fraction of seats and sell some at the door. This at least captures scalper surplus. If you do not want the extra money, use it to set up a Achatz- Kokonos Institute for the Culinary Arts (AKICA).

In the Tribune article, Jeff talks about interesting ideas to leverage the secondary market if resale can be fully controlled by the originator. When this happens, it would be possible to implement the Kokonas social welfare function: Set a price P for a ticket. All resale has to go through your system and the resale price must be P. You can set P as low or as high as you want depending on your desire to give consumers a good deal.

A couple of days ago, someone who currently has individual insurance could either sign up for insurance on an Obamacare exchange or pay a penalty. Now, these people can keep their current insurance and they will not have to pay a tax penalty. In other words, their outside option to the exchanges just got better.

But what about the inside option? First, the policies traded on exchanges are regulated. They have a cap on the maximum amount consumers can be charged per year. They cover pre-existing conditions etc. They are higher quality than the contracts traded outside the exchange. Second, the plans on the exchange are subsidized based on income. These two factors can imply the inside option is better than even the new outside option.

There are two countervailing effects. First, given the disfunctionality of, it is impossible to calculate the inside option! Second, there could be a selection effect that makes the prices increase on the exchanges and leads to a “death spiral”. Specifically, if the people who currently have individual insurance are healthy and stay out of the exchanges, and there are a large number of them, prices could skyrocket in the exchanges. Then, paying the tax penalty makes more sense and the exchanges collapse.

Surely resolving the first countervailing effect is only a matter of time. This debacle should have been avoided but it is possible to fix. The second effect is potentially more problematic. It should be possible to estimate the size of the death spiral with enough data. Jon Gruber should be able to do it. I don’t have the data and can only offer an anecdote. On my way to the airport, my cab driver and I started discussing Obamacare. He and his two kids are on his wife’s individual insurance which costs them $1600/month and has huge deductibles. He was looking forward to getting Obamacare. He did not know about the subsidies. When I told him he got very excited. I used by smartphone to access the Kaiser Family Foundation subsidy calculator to guess what his family would have to pay for a silver plan. It was well below their current payments because they got a big subsidy. But how many people like him are there? How many people are buying plans in the individual marketplace in the first place? Someone should work this out.

Amazon wants to use small bricks-and-mortar retailers to sell more Kindles and eBooks. They are trying to incentivize them to execute their business strategy:

Retailers can choose between two programs:
1) Bookseller Program: Earn 10% of the price of every Kindle book purchased by their customers from their Kindle devices for two years from device purchase. This is in addition to the discount the bookseller receives when purchasing the devices and accessories from Amazon.
2) General Retail Program: Receive a larger discount when purchasing the devices from Amazon, but do not receive revenue from their customers’ Kindle book purchases.

EBooks are an existential threat to retailers. But no one small bookstore can have a significant effect on the probability of the success of the eBook market through its own choice of whether to join Amazon’s program or not. Hence, it can ignore this existential issue in making its own choice. Suppose it is beneficial for a small bookstore owner to join the program ceteris paribus. After all, people are coming in, browsing and then heading to Amazon to buy eBooks – why not capture some of that revenue? Many owners independently make the decision to join the program. Kindle and eBook penetration increases even further and small bookstores disappear.

From Bloomberg:

UnitedHealth will “watch and see” how the exchanges evolve and expects the first enrollees will have “a pent-up appetite” for medical care, Hemsley said. “We are approaching them with some degree of caution because of that.”

An interpretation from Think Progress:

Get that? The company packed its bags and dumped its beneficiaries because it wants its competitors to swallow the first wave of sicker enrollees only to re-enter the market later and profit from the healthy people who still haven’t signed up for coverage.

From the always interesting Erik Erickson at Red State:

So the question is do we want to stop Obamacare or do we want to stop the debt ceiling increase? My view is that we cannot do both at the same time. We might dare to dream, but the debt ceiling will be increased one way or the other.

Right now the GOP is holding up very well in the press and public opinion because it is clear they want negotiations. The GOP keeps passing legislation to fund departments of government. It has put the Democrats in an awkward position.

But the moment the GOP refuses to raise the debt ceiling, we are going to have problems. Remember, the last time you and I wanted the GOP to fight on the debt ceiling, the attacks from our own side were particularly vicious.

They’ve been vicious over the shutdown too, but now that we are here, the water ain’t so bad and only a few ankle biting yappers continue to take shots at conservatives from the GOP side.

It will not be so with the debt ceiling. And the GOP will no longer seem very reasonable. The debt ceiling fight will become an impediment to undermining Obamacare.

The main target is defunding Obamacare. Since the House will cave on the debt limit, not good to link defunding Obamacare to the debt ceiling. Link it to CR. Logic seems good if you like the objective. Also, it reveals that right believes debt limit will be raised. Hence, bondholders can relax.

Here’s my accurate but unsubtle description of Coase’s methodology (listen to audio for my brief moment of fame). Reporter does a good job though.

Ronald Coase has passed away.

Coase was the last “classical” economist. His style is closer to Marshall than to Samuelson. He asked deep questions and proposed simple but deep answers without using maths. So, a certain style of doing economics passes away with him.

The work of his I am most familiar with concerns the theory of the firm: Why are some transactions mediated through markets while others take place within firms? Suppose Microsoft and Nokia have to work together to supply phones. MS can own human capital that generates software, Nokia can generate the hardware and they can exist as separate firms and trade. Or MS can produce the end software/hardware product and employ Nokia workers in an integrated firm.  Coase’s point is that if there are no transactions costs, there is property-right neutrality. Both institutions should generate the same joint surplus and it does not matter whether they are integrated or not. People often stop there and that is all they know about the “Coase Theorem”. But in fact, Coase’s second point is that property right neutrality is crazy hence there must be transactions costs and we must study these as well as the usual costs of production we normally invoke. Once we have a good understanding of transactions costs, we will understand why some transactions take place through firms and other through markets.

The downside of having a classical style is that no-one really understands what you mean. First, there was controversy about the Coase Theorem itself – was it in fact a  theorem? Coase never called it that (I think it was Stigler who coined the phrase) and Samuelson though it was wrong. But, I think by now we do believe it is a theorem and the property right neutrality obtains for transferable utility (MasColell, Whinston and Green has a simple argument).  But what are these pesky transactions costs that determine the boundary of the firm? There we have no consensus. One leading theory invokes costs of haggling ex post if two firms are not integrated (Wiliamson got the Nobel Prize for this theory). The other says there are no costs of haggling ex post and bargaining in efficient but there is a hold up problem in bargaining as surplus is split. Knowing this firms underinvest ex ante. The allocation of property rights affects the ex post division of surplus and hence this leads to a theory of optimal property rights (this theory has been developed by Oliver Hart with his co-authors Sandy Grossman and John Moore (GHM)).

The counterargument to Williamson’s theory is typically that if haggling generates transactions costs, we should see vertical integration and no outsourcing. No interior solutions! The counterargument to GHM is more esoteric. It turns out that there are contracting solutions that are consistent with typical GHM solutions and resolve the hold-up problem. In some sense, the Coase Theorem goes through in GHM models.

So what can we learn from the Nokia and MS merger? It seems they are looking for a Ballmer replacement who is working at Nokia. And there are intellectual property issues:

Mr. Ballmer said Microsoft and Nokia had not been as agile separately as they would be jointly, citing how development could be slowed down when intellectual property rights were held by two different companies.

But also from the same NYT article:

Large acquisitions are fraught with peril, especially in the technology business, where there are challenges to integrating employees from different backgrounds into a coherent whole.

First, Coase is right – there are transactions costs that destroy property right neutrality. Second, both Williamson and GHM theories are consistent with the facts. Maybe ex post efficient trades are not occurring because of haggling over MS’s and Nokia’s intellectual property. Or knowing that surplus will be extracted by the other party ex post given its monopoly power over its patents, neither firms is fully invested in the joint venture.

So, the bottom line is that Coase had some simple but deep insights and we are still working out the implications.

I talked to my father a couple of days ago. He’s excited ahead of his trip to India because the British pound is trading at 100 Rupees!

Why is that and what does it have to do with the Food Security Bill that gives some minimal level of food support to the Indian population?

Debraj Ray answers these two questions:

1. Rupee fluctuations:

The basic economics of this is pretty simple. Imagine a huge stock of hard-currency-denominated investible funds, forever sloshing around in search of the best returns. For a developing country, the urge to tap into these funds is immense……. And so it was that India started on the Great Upward Path: money pouring into its coffers from abroad, accompanying tariff and quota liberalization then permitting easy purchase of foreign goods without a huge depreciation in the rupee, the outward drain being more than easily matched by the inward flow.

QE, by keeping interest rates very low in the United States and the rest of the “developed world,” certainly helped here, as hot money scrambled to take advantage of relatively attractive portfolios in emerging markets.

And what money goes in comes out after the Fed hints that their easy money policy may be coming to an end and interest rates are on the rise. Hence fluctuations

2. Food Security Bill:

It is interesting that the very same business interests which have completely disregarded the dangers I’ve discussed are now floundering around for a scapegoat. Let’s see now: it must be the damn Government which is to blame. And we’re off to the usual races: cut back government spending, and yes, social spending for those lazy masses must be the first to go….

What we have is a bill that purports to bring food security to the majority of India’s population, and possibly the overwhelming majority of India’s poor, plus the additional benefits to mothers and children, for about 6% of the Indian government budget. Not for 12%, as in defense, or 9%, as in the fuel subsidy. And certainly not for the same impact, rupee for rupee, on India’s international deficit.

It’s crazy to link 2. with 1. Must the poor and innocent always pay for the vagaries of financial  markets? I hope not.


Foreign Policy reports:

India’s two most prominent economists have never really seen eye-to-eye. Amartya Sen, a Nobel Prize-winner and Harvard professor, believes in public interventions to alleviate extreme poverty and reduce inequality while Jagdish Bhagwati, a professor at Columbia and author of the bestselling book In Defense of Globalization, favors a more free-market, growth-first approach.

In recent weeks, the two have caused something of an uproar — “Academic Brawl,” proclaims the Economic Times – with a terse back-and-forth in the letters page of the Economist.

What is it all about? For the answer, I turned to the blog of a third prominent Indian economist (and apparently excellent cook) Debraj Ray:

1. Economic growth is fundamentally uneven.

2. Looking at rates of growth per person will fail to reveal this basic fact. High growth and extreme inequalities can co-exist. Indeed, they often do.

3. There are a number of ways to deal with uneven growth. The most important of these is occupational choice: education and training to enter new sectors. But occupational choice is slow (it will often take a generation), and it is imprecise (by the time we’re done retraining, the economy may have hared off somewhere else).

4. So other ways need to be found to even out that unevenness.

5. But wait — why won’t the good old market take care of it? It might: if growth in one sector trickles to another via expanding demand. If software engineers like potatoes, the potato farmer stands to gain. Or the tourist industry. Or hairdressers. Just how strong these intersectoral bonds are is a profoundly empirical question. Is there enough work on assessing these strengths? The simple answer is no: not nearly enough. To simply hope that the bonds will work is no good.

We have now arrived at the heart of the matter: is (5) enough? That is what the debate needs to be about. Not about Bhagwati, and not about Sen.

6. And if (5) isn’t enough, what then? Then we are left with two alternatives:

7. Active and sustained government intervention to even things out. Social spending on education. On health. [On] nutrition. On transportation and communication networks. On minimal safety nets. The market can take care of the cool stuff. The public sector gets a less sexy role: getting the basics right. That is what Drèze and Sen (and frankly, many others) are about.

Failing (7) and provided that (5) fails as well, we have just one option:

8. Sustained, crippling social conflict, not just cutting across class lines but along any marker which can be arrogated for the purpose: religion, caste, geography, language.

Via Matt Yglesias:

[B]efore Apple launched its own iOS Maps app, Google Maps for iOS was already markedly inferior to Google Maps for Android. Not because Google was incapable of producing a great Google Maps app for iOS but because they didn’t want to make one.

To get out of that bind, Apple has never needed to make a product that’s actually superior to Google Maps. What they’ve needed to do is produce an application that clears two bars. One is that it has to be good enough that your typcial doesn’t-care-too-much phone consumer doesn’t reject iOS out of hand. The other is that it has to be good enough such that if Google doesn’t want to lose the entire iOS customer base it has to scramble and release a great Google Maps app for iOS and not just for Android. Apple’s Maps app easily clears both of those bars. Before the release of iOS 6, the inferiority of Apple’s Google-powered iOS Maps app to Android’s Google maps was a real reason to prefer an Android phone. Today, there is no such reason. Not because Apple Maps is as good at Google Maps, but because Google Maps for iOS is as good as Google Maps for Android.

From his webpage:

Dani Rodrik will be the Albert O. Hirschman Professor of Social Science at the Institute for Advanced Study in Princeton as of July 1, 2013. Before then, he was the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He has published widely in the areas of international economics, economic development, and political economy. His research focuses on what constitutes good economic policy and why some governments are better than others in adopting it.

Didn’t see anything on the IAS webpage announcing it as yet.


Hot off the presses at NYT:

A prominent and well-connected economist who has openly supported opposition figures has resigned from several posts and abruptly left Russia under mounting pressure from investigators, officials of the university he leads said on Wednesday.

The economist, Sergei Guriev, has been questioned repeatedly in a case that stems from a report that he co-wrote that harshly criticized the treatment of Mikhail B. Khodorkovsky, the imprisoned oil tycoon and one-time political rival to President Vladimir V. Putin.

A centrist figure who is at home among Russia’s power brokers, Mr. Guriev drew attention a year ago for publicly declaring his support for the anti-corruption blogger Aleksei Navalny.

I’ve read Guriev’s papers in the past but his name seemed particularly familiar. I realized the Mikhail Golosov has presented a joint paper with Guriev and others at the Nemmers Conference just last week. Some people think Stalin’s policies were necessary to push labor from the countryside to industry and hence the hardship they caused, while cruel, had some long term positive economic impact. Chermukin, Golosov, Guriev and Tysvinki argue, using data they collected and a two sector growth model, that Stalin’s policies reduced welfare significantly in the long run.

This guy is hardly a radical.

Via the FT:

Airlines that offer this either send travellers an email inviting them to upgrade or travellers can go direct to the airline’s website.Once you’re on their site, rather than them saying, ‘you can pay £400 to upgrade’, you can now say, ‘I’ll pay £300’,” explains Ken Harris chief executive of Plusgrade, the technology company behind the platform. “There may be a minimum upgrade price and there will be an indicator which shows the strength of your offer.” The airline will then email you at least 72 hours before your flight to tell you if your bid has been successful; if not, you retain your original reservation.

Taking things to another comfort level:

Along with upgrades, you can also pay a nominal fee to ensure the seat next to you is not occupied.

To extract surplus and reduce information rents from high types, “low” types must be punished with inefficient allocations. Expect to be seated en masse if you do not purchase an upgrade even if the plane is half empty.


“Thibs is a guru,” Gibson said. “He understands the game plan.
“He had me guarding Ray Allen. That’s how much confidence he has in everybody’s ability to guard on defense. He really drew up and knew what the team was gonna do.
Every time they ran down and ran offense, it was exactly what Thibs showed us on paper.”

I enjoy my Mother’s cooking all too rarely. This is good for my waist line but bad for my taste buds. I have resorted to consumption of frozen Indian food as a poor substitute. I was surprised to find that Whole Foods carries a reasonable brand, Tandoor Chef, that has some decent options. Of course, these products come with a Whole Foods price tag.

On a recent trip to Devon Av., I happened to notice that the Fresh Farms supermarket carried these same products. Unfortunately, the prices are benchmarked against Whole Foods – no good deal there. But the supermarket also carries much cheaper products by Healthy Tiffin and they bear a remarkable resemblance to the Tandoor Chef products, e.g. both have Paneer Tikka Masala cooked in a relatively healthy way (if that is possible!). On closer inspection, Healthy Tiffin and Tandoor Chef are both made by Deep Products. I have been enjoying the arbitrage opportunity for a few months now. I worry that Deep Foods will reduce the quality of the Healthy Tiffin products to prevent arbitrage!


In a few years, this blog will focus on the concerns of “fifty-something” professors. Retirement communities in Florida and California will be the main topic of discussion. Before that comes the fiftieth birthday party. Should it be “celebrated” with  a public gathering of some sort, ignored completely, or with some significant event involving just the nuclear family?  In investigating the final option a few years in advance, expecting to be really decrepid by then and hence need a lot of help to move around, I looked at the National Geographic tours. They have a sophisticated pricing scheme:

                                  Tier Pricing

Our trip costs are determined by group size. (As you can imagine, we’re able to secure lower per-person rates with
larger groups.) When you sign up for a trip, its highest cost will be noted on your initial invoice and then adjusted 30
days prior to your departure. If for any reason the group falls below the minimum number of guests, a small group
surcharge may be applied. (We have found that our guests prefer to pay a bit more rather than have their trip canceled.)
Please note that trip physicians, lecturers, and GeoEx staff are not included in the guest count to determine per-person
trip cost.

For an exotic trip to Turkey, this boiled down to: $9350 (6–7 guests), $7950 (8–9 guests), $7450 (10–11 guests), $6350 (12 guests).

The higher the volume, the lower the price. No penalty for booking early. But at these prices, I’m leaning towards ignoring the 50th landmark completely and putting the money down for a foreclosed home in Florida.

I just flew to La Guardia from O’Hare. It is spring break so the plane was full. The United agent tried to persuade two people to take a later flight. Initially, she offered  $300. No-one took the bait. She upped the ante to $400. Still no volunteers. Then, she raised the stakes to $400 plus a first class seat.

Maybe no-one was willing to delay their trip. Or perhaps now the blandishment was ever increasing, people were waiting for the better deal.

Obvious solution is to give insurance: if the deal gets better, the people who bit first get the better deal too.

From Business Week:

Do you favor or oppose taxes on bank depositors?

I am totally against it. First, deposits under 100,000 are insured. What happened to that insurance? How could the euro group agree to taxing deposits as small as one euro? What is the meaning of deposit insurance in the euro zone? Second, deposits include the savings of honest people who have paid their taxes and saved for retirement, to buy a home, educate their children or whatever. Why pay a hefty additional tax? And how would these people feel when they woke up on Saturday morning to be told, “Sorry guys, we are not letting you withdraw your money anymore, until we sort out how to take a big chunk away from you.” And why? Because two banks out of the tens operating in Cyprus made bad investment decisions three years ago to help Greece out of its crisis, and got hit by the troika. What’s the incentive that banks now have in the European Union to treat risky investments with caution? If one of them takes bad risks the others will pay for it; if it works well for it, it will keep the profits. A classic scenario for market breakdown.

Trade of shares is going to be taxed by some countries inside the EU. The usual counter argument is that this will simply cause trading to move outside the tax zone to, in this case, the U.K. and the U.S. To try to get around this, the countries involved require that the tax be paid wherever the trade takes place:

The tax would be owed no matter where the trade took place, as long as a European security or European institution was involved. The law has been written so broadly that if a French bank bought shares in an American company on the New York Stock Exchange, the tax would be owed.

But who is going to report the trade? The EU authorities are relying on a prisoner’s dilemma to do the monitoring for them:

There is every chance that markets from other countries will not be very cooperative, meaning that to learn if a German bank traded in New York the authorities might have to rely on the bank to report it to them. But then there would be the risk that the tax authorities would learn of it otherwise, perhaps through an audit or from a report by an Italian bank that happened to be on the other side of that trade.

Mr. Bergmann, himself an economist, compared that to “the prisoners’ dilemma,” a classic concept in economics in which two people arrested for a crime would do best if neither confessed, but either would do very badly if he did not confess while the other did. If the authorities did find out, it would be tax fraud under the proposed law.

If the Italian bank reports the trade but the German bank does not, does the Italian bank get a reward? Is the tax forgiven? This is not clear from the article. (I also had a hard time finding the actual law but perhaps I did not look hard enough.) If the Italian bank is liable for tax if it unilaterally reveals the trade, then the game is a coordination game:

If the German bank does not reveal the trade, the Italian bank avoids the tax if it does not reveal but pays the tax if it does. Hence, not revealing is a strict best response to not revealing by the opponent. On the other hand, if the German bank is expected to reveal the trade, if the Italian bank does not reveal the trade, it pays a big fine. If it also reveals the trade, it just pays the tax. Hence, reveal is a strict best response to reveal. Then, the blog post should be called Coordination Games Everywhere.

Would love to know what the facts are. Or are they ambiguous? This would introduce uncertainty and then papers can be written about this possibly…

Interesting article about the Cameron government’s use of Thaler tricks to improve government servies and save money:

Take the job centre in Loughton, where he describes – step by step – the minutiae of how his team has encouraged advisers to be forward-looking, specific and to give their clients a sense of progress; all of which, studies have shown, have a big impact on people reaching their goals, he says.

“So instead of jobseekers having to show they’ve looked for at least three jobs in the last two weeks, advisers will now say, ‘OK, let’s talk about what you are going to do in the next two weeks’. They will ask what their client needs to work on. ‘So, you said you needed to work on your CV. So when will you do that. OK, Wednesday morning after breakfast.’ The client is then encouraged to write it down in a little booklet they get. And all the things you need to do before you get your job have been compressed on to one side of paper and designed in such a way that when you go through it with the adviser, you’ve done a third of it straight away. That in itself gives you a strong, immediate sense of progress.”

The results speak for themselves. On the top floor of the job centre where it was trialled for three months, about a fifth more jobseekers were off their books in 13 weeks compared with the floor below where processes remained unchanged.

I still need a nudge to buy the book though.


Jeff’s Twitter Feed

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 905 other followers


Get every new post delivered to your Inbox.

Join 905 other followers