Author Archive

Suppose two crossword puzzle compilers start with the same key word.

1. The word has to be divided and embedded into phrases.

2. Puzzle designers share the same sense of “taste”:  It is considered elegant to divide the key word into as many separate words as possible.

3. Puzzles have to have a certain shape (“180 degree rotational symmetry”).

So, if two or three puzzle designers start off with the same keyword they are highly likely to come up with very similar crosswords as there are only so many solutions given the constraints.

Interestingly, while same problem can occur in economics research, I believe it is less likely than in design of crossword puzzles.  For example, I attended at NBER conference on relational contracting.  This area of contract theory studies how incentives between a firm and its supplier might be aligned as they interact repeatedly (eg early “cheating” might be punished by a worsening of the relationship later on).

Many researchers at the conference had the same motivation: Why does Toyota deal with a core group of suppliers while GM acquires parts via competitive bidding? So, there are two constraints: same motivation and same theoretical approach (ie relational contracting).  And yet the papers were quite different.

The universe of potential models is infinite, unlike natural language, and hence accidental and near identical replication is less likely.  To enjoy the infinite, the human brain must know no bounds.  Some say this is the case though their claims are controversial.

(Hat tip: Matt Gaffney at Slate)

1.  Ahmad Jamal Trio at the Newport Jazz Festival 1959. I love every version I’ve ever heard of Poinciana.

2. Newton’s letter describing his theory of light, diagrams from his optics book..and much more amazing stuff.

3. Lego version of Matrix scene

In 2006, the pharma company Cephalon faced entry by generic drug producers.  It’s blockbuster drug Provigil was coming to the end of its patent protection.  The solution – buy off the competitors for an extra six year window:

Cephalon negotiated separate deals with four generic drug makers — Teva Pharmaceuticals, Ranbaxy Laboratories, Mylan Pharmaceuticals and Barr Laboratories — seeking to develop generic versions of Provigil.

Under those settlement agreements, Cephalon granted the generic drug makers non-exclusive, royalty-bearing rights to market and sell a generic version of Provigil starting in October 2011, or April 2012 if Cephalon obtains a pediatric extension for the drug. Cephalon maintains it has valid patents for Provigil until that time frame.

In documents filed with the Securities and Exchange Commission, Cephalon disclosed it received licenses to certain modafinil-related intellectual property developed by the generic-drug companies. In exchange for the licenses, Cephalon agreed to make payments to Barr, Ranbaxy and Teva “collectively totaling up to $136.00 million over the next several years.”

And this is legal apparently.

(Hat tip: Zachary Roth at Talking Points Memo)

Straight from the horse’s mouth….well, Dubner and Levitt’s, as interviewed by Jorn-Steffen Pischke of LSE.

You have to scroll down to Nov 9, 2009 to find the video.  Lots of other interesting videos there…..Sen, Krugman, Bueno de Mesquita.

For the operative who is confused about polite, Talibany behavior, the senior leadership has been kind enough to offer a code of conduct.  It is written in a spartan and logical fashion, point by point, a bit like the work of Ludwig Wittgenstein.

Number 15 is their policy on torture:

If some one admits that he is spy because you forced or tortured him, that does not make this person a spy and you can’t punish him. lt is prohibited for a Mujahid to promise to someone that if he admits then he will not be killed, he will be let go, or will not be tortured. There are two kinds of promises: the first is forcing, like you are telling him if you admit then we will let you go or we are not going torture you or put you in jail. lf you use force to cause admission, this is not legitimate. Second, you do not use force but you tell him that if you admit we will give you money or a high ranking position. This method also is not legitimate.

They recognize the possibility of false confessions using stick-based incentives like torture.  Interestingly, the humble Mujahid is not even allowed to use carrot-based incentives. There is a problem of generating false confessions from an informant who just wants to get a reward.

The Taliban also know a little elementary implementation theory.  One method to determine if someone is a spy is if (point 14): “There are two witnesses
that testify such person is a spy” (my emphasis).  We can improve incentives to tell the truth if we can cross-check what one person reports against what another reports.  If only one person says someone is a spy, there is the possibility the informant is lying for some reason – personal animosity, theft of the purported spy’s possessions once he is killed or incarcerated etc.  But if we require two informants to say the person in question is a spy, if the two contradict each other, the senior Taliban can at the very least investigate further.  The simplest way to encourage truthtelling is to punish both informants if they contradict each other.  The document does not elaborate on this and relies on ambiguity of outcome (fear of repercussions?) to suffice to give incentives.  The contract is incomplete in other words….another issue that is a concern of mechanism design and contract theory.

I didn’t see any repeated games insights though.  Maybe in the next version.

A basic tenet of micro theory: a firm should shut down if the price for its output is so low that it cannot even cover variable costs.  Alligator skins are fetching “prices far lower than in the past and lower even than the price of raising an alligator.”  Budding alligators farmers should turn their firms into zoos not Jimmy Choos.

At least inputs into alligator bags, shoes and watch straps are very cheap and competition between producers should make Choos and Blahniks cheaper, offering one possible resolution to the annual Xmas shopping conundrum for many confused men.  Typically but not in this case:

“Every time I go to Neiman Marcus and say every year the price is going up, they fight me tooth and nail,” said George D. Malkemus III, the president of Manolo Blahnik. “They say, ‘I’m not going to spend $4,000 for an alligator shoe.’ ”

One popular theory: Hermes is fast becoming the dominant player in the supply chain from Florida to Paris.  The firm has scarfed up many tanneries and has the market power to set the price to farmers low and the price to Blahniks high.  The middleman reaps the rents.

I don’t think they are any men’s Choos and anyway I’m quite happy in my Merrell’s.  But the Xmas shopping issue awaits….

Apparently, financial firms seem to believe that this is the case:

An increasing number of hedge funds and brokerages are scrutinizing professional poker to find talent and analytical tools, according to financial recruiters including Options Group, a New York-based executive-search company. Susquehanna International Group LLP, the Bala Cynwyd, Pennsylvania-based options and equity trading company, uses poker to teach strategic thinking.

“Someone who has made a successful living as a poker player for a few years would more likely be a good trader than someone who hasn’t,” said Aaron Brown, a 53-year-old former poker pro who is now a risk manager at AQR Capital Management LLC in Greenwich, Connecticut, which oversees $23 billion. “They know to push when they have the edge and they know how not to bust, and that’s a tough combination to find.”

I just attended an interesting NBER conference on organizational economics.  I discussed a very nice paper by Giacomo Calzolari of the University of Bologna, Italy’s best public university.  Bologna is in Emilia Romagna which has given the world Parma ham, Parmesan cheese, mortadella, prosciutto and, of course, tortellini.  Food generates much happiness for consumers and high income for producers.  It even greases the wheels of the finance:

The vaults of the regional bank Credito Emiliano hold a pungent gold prized by gourmands around the world — 17,000 tons of parmesan cheese.  The bank accepts parmesan as collateral for loans, helping it to keep financing cheese makers in northern Italy even during the worst recession since World War II. Credito Emiliano’s two climate-controlled warehouses hold about 440,000 wheels worth €132 million, or $187.5 million.

Alas, like gold, Parmesan attracts thieves:

Thieves tunneled into one warehouse in February and made off with 570 pieces before they were apprehended by the police.  “Thank heavens we caught the robbers before they grated it,” said William Bizzarri, who manages the warehouses.

Little wonder then that food is a local obsession.   Giacomo told me that he himself organized a tortellini tasting competition.  He and his friends purchased tortellini from around thirty shops that sell handmade pasta in Bologna.  Just imagine living in a city where there are that many places specializing in one artisanal culinary product!

As all economists would know, to truly study which store makes the best products, you have to control all other variables apart from the store-induced variation.  As far as I understood from Giacomo, they did this by buying the same kind of classic tortellini from all the stores.  The story is that a chef from Bologna peeked through a keyhole to see the naked Venus but all he could glimpse was her navel.  His view is immortalized in the shape of the tortellini.  There is only one way to improve on Venus – by adding a lot of components of the noble pig: the filling is pork loin, mortadella, parma ham and of course parmesan cheese in just the right proportions.  The recipe is registered by the Chamber of Commerce in Bologna.   (Even a baconatarian (i.e vegetarian except for cured pork products) might be put off by the meatiness but I’m willing to give it a shot.)  To control for any bias of the people sampling the tortellini, Giacomo had a blind tasting.

The winner: Boutique de Tortellini.

They did not publish the results but word-of-mouth alone helped to increase sales at the Boutique.

Of course, there are many great food regions in Italy.  Giacomo himself actually prefers Sicilian cuisine because of its great variety and incorporation of ingredients from all across the Mediterranean.

I went to a totally fascinating talk at MIT given by Kevin Woods from the Institute for Defense Analyses.  Woods interviewed  Saddam’s key henchmen, like Chemical Ali and Tariq Aziz, who were captured after the invasion.  He also has access to documents in Saddam’s palaces and intelligence offices.  Saddam also has the “Nixon disease” and taped everything.  Woods and his team are busy listening to all of the tapes.  There were many fascinating anecdotes and I list all of them I can remember:

1. Delusions At a meeting in the mid-ninetees with leading generals and strategic thinkers, one officer offered a subtle and nuanced theory of how an invading army might be forestalled and defeated by an attrition strategy using small, fast-moving decentralized groups (a little like the fedayeen that plagued US troops in Gulf War II).  The officer compared this to the strategy used by the Russians against Napoleon.  ( I assume extreme heat replaces extreme cold as the weather component of the strategy.)  Saddam dismissed the strategy.  His argument was that the fact that he, Saddam, was still standing and alive meant that he had defeated the U.S. coalition in Gulf War I.  A coalition of thirty odd nations had been brought to its knees by him.  Therefore, since he had a winning strategy in 1991, there is was no reason to replace it for the next invasion.  Notice that Saddam also wants to learn from his mistakes – that is why he had the after-event analysis done, just like the analysis done for the US by Woods.  But Saddam is subject to so much overconfidence that he cannot use any useful information that might come out of the analysis.

From the U.S. perspective, Saddam was deliberately left in power to prevent a collapse of the country and the growth in the influence of Iran.  Saddam’s perspective was obviously different.

Saddam became more and more delusional over time.  Initially, he used to defer to his generals but by the end he started writing memos on how to organize even small groups soldiers.  Woods said that such memos are written by sergeants in the US Army so Saddam had reached this level of micromanagement.

2. Information

2.1 Every Thursday, all the cars used by the key players in the army and government had to be taken in for “maintenance”.  It was common knowledge that the batteries were being replaced in the “secret” recorders in the cars.

2.2 Saddam’s key fear was a coup.  He was suspicious if officers talked too much in case they were plotting something.  Officers at the same lateral level did not talk, fearing repercussions.  Vertical communication was OK, especially as the top brass were insiders who were most likely to have Saddam’s support.

2.3 A key player, the head of research into WMDs, was asked: Is it possible that there was a WMD program and you did not know about it?  He said it was quite possible.  First, information was compartmentalized and no-one knew anything.  After Gulf War I, many documents, resources etc were destroyed so inspectors would not find them and hold Saddam in contempt of various UN resolutions.  But this process was haphazard and no-one really knew what was and was not destroyed and whether some WMDs had been hoarded secretly.

Why did he believe that Saddam had WMDs?  Because “little Bush”, as Saddam called him, had said there were WMDs.  And if he invaded and there were no WMDs, Little Bush would be very embarrassed so he would make sure there were WMDs before saying it!

3. Nepotism, Cowardice and Stupidity

Saddam lived in fear of a coup mounted by the Republican Guard. His solution was to create the Special Republican Guard, whose main remit was to protect him against coups particularly from the Republican Guard.    You would think that the head of this outfit would be a fearsome figure who would terrify any budding coup plotters.  Woods asked other leading figures if this was indeed the case and the answer was a resounding NO!  Why?  Saddam was well aware of the “who monitors the monitor problem” – what is the head of the Special Guard mounted a coup himself?  Saddam’s solution was not original: appoint a relative.  Make sure the appointee is a coward so he would not dream of mounting a coup.  Just in case he is tougher than you might think, choose someone stupid so he cannot mount a successful coup and is too stupid  to recognize someone else’s good ideas for a coup.

4. WMDs

Saddam did not have them in 2003 and hid that fact and in 1991 he had them but did not use them.  Why did he not use them in 1991?  He thought the U.S.has lots of chemical weapons and would not hesitate to use them.  Ditto Israel.  Why did he not reveal that he had no weapons in 2003? That would embolden aggressors and leave him naked in the face of an internal coup or an external threat like Iran.  This is the part of Woods’ work I was familiar with and is cited in my paper Strategic Ambiguity and Arms Proliferation with Tomas Sjostrom.

For an economist, some of Saddam’s strategies are reminiscent of themes in the economics of organizations…promotion of dumb managers, though for quite different reasons, the difficulties of coordinating across divisions…

Another theme is also familiar to game theorists though we have no clear answer: it is very hard for one player to understand the strategic intent of another.  It is very hard for one player to communicate his strategic intent to the other indirectly: presumably Big Bush thought it was obvious which side had defeated the other and could not imagine that Saddam would even consider Gulf War I a win for the Iraqi regime!  This leads the players to have two quite different interpretations of the same event and creates room for future errors.

How should one player credibly communicate his strategic intent and beliefs to another?  This is the fundamental question for the US from this excellent and interesting study by Woods and his team.

Obama is close to a decision on the U.S. strategy is Afghanistan.  What is the rational way to approach this decision assuming the U.S. is maximizing its own payoff?  This is the “realist” assumption rather than one incorporating a moral component, though it is not too hard to jazz up some of the analysis to deal with this objective function too.

First, think through whether we should be there in the first place.  What is the threat to the U.S. if Afghanistan falls to the Taliban?  Will Al Qaeda move back in or not?  If the belief is that the Taliban is not a threat to the U.S. and Al Qaeda will not move in, the realist conclusion is to withdraw and focus on counterterrorism.  This is the debate taking place within the Obama adminstration

Second, what if the Taliban is a threat and/or Al Qaeda will flourish in a Taliban-led Afghanistan?  This is the more interesting case from the strategic perspective and an analysis has been provided by Nolan Miller.  He applies it to Iraq as his paper was written during the election but it could equally be applied to Afghanistan.

The U.S. strategy affects two other players, Karzai and the Taliban.  If the U.S. adopts an aggressive approach and commits to a large military presence, this reduces the incentive of the Taliban to be aggressive and their effort is more likely to be futile.  But equally there is a free rider problem for Karzai: if the U.S. is exerting effort anyway, this reduces the incentive of Karzai to do so.

These two effects go in opposite directions.  If Karzai is weaker than the Taliban in the absence of intervention, the reduction in his effort after U.S. intervention is outweighed by the reduction in the effort of the Taliban.  In that case, it is better to adopt an “output-based” strategy where the U.S. commits to a security level that it tries to achieve regardless of the Karzai government’s and insurgent’s effort.

This appears to be the pertinent case if  the belief is that we should pursue counterinsurgency rather than counterterrorism.  Miller also explores more complex solutions.

I haven’t pre-ordered the Saran Palin “Going Rogue”.  Many of the juicy details have already leaked out.  She did the disastrous Katie Couric interview because she “felt sorry” for her.  The McCain campaign manager Steve Schmidt gets slammed for shouting at her over the phone after Palin gets tricked into taking a fake call from Nicolas Sarkozy etc. etc.

In fact, according to the Times:

The most sustained and vehement barbs in this book are directed not at Democrats or liberals or the news media, but at the McCain campaign. The very campaign that plucked her out of Alaska, anointed her the Republican vice-presidential nominee and made her one of the most talked about women on the planet — someone who could command a reported $5 million advance for writing this book.

It all smacks of paranoid high school behavior.  Tina Fey not only did a great Palin on SNL but also the sense of Palin we see in the book reviews was captured in Fey’s movie “Mean Girls”.  This Venn Diagram captures it all:

Independent Joe Lieberman is driving Gail Collins and the progressive left crazy.  He caucuses with the Democrats and holds a plum committee chairmanship on the strength of largely voting with the Democrats.  But he is threatening to filibuster the healthcare reform vote in the Senate.  The only way to give him the incentive to drop this threat is to threaten him in turn – strip him of his chairmanship if he filibusters the vote.

The problem is that Lieberman knows that if he filibusters, the Democrats do not have the incentive to carry out their threat because they need his vote in the future.  Their threat to strip him of his chairmanship is not credible. This is a classic issue in deterrence theory: how can we make our threat to bomb the Soviets if they bomb us credible?  Many of the strategies do not transfer (e.g. the automated response à la Doomsday machine in Dr. Strangelove), but one does: the Democratic leadership has to rely on reputational devices to incentivize Lieberman.

Forgiving Lieberman may create future defections as the Democratic leadership shows they are wimps.  Carrying out the threat shows that Reid and Obama are tough and signals they will be tough in the future.   This is the slippery slope argument and the classic “act crazy to get a reputation for toughness” strategy.  Dick Cheney gets this strategy (though it seems to be the only strategy in his arsenal).

If Lieberman finds the threat credible,  the Democrats do not even have to carry it out because he will not filibuster.  But if he does not find it credible, he will filibuster.  Then you face the problem of losing his vote in the future if you accept the slippery slope argument and feel you must punish Lieberman for his treachery.

To evaluate this possibility, we have to consider the credibility of Lieberman’s threat to vote Republican in the future if he stripped of his chairmanship.  The Republicans are too extreme for the Connecticut voter.  If Lieberman votes with them or switches parties, he is in trouble at home.  So you can rely on his reelection motive to discipline him and get his vote on some mainstream Democratic issues.

There is also a subtle way to give Lieberman the incentive to go along with his punishment without ganging up with the Republicans.  It is a “penal code” to design dynamic incentives and it was discovered by Dilip Abreu.  The penal code boils down to forgiving Lieberman gradually over time to get his cooperation in the future.  In this scenario, this requires some deviation from standard seniority principles for allocation of committee chairs.  Put a stopgap person, Al Franken, in charge of Lieberman’s committee. Tell Lieberman that Franken will step down if Lieberman is on board in future.  Otherwise, goodbye chairmanship forever.  If this subgame is triggered as Lieberman is bloody minded, Franken should step down in favor of whoever is in line for the chairmanship now if  Lieberman is ejected.  This might be necessary to get this person on board with the plan to deviate from the status quo procedure for allocation of committee chairs.

And if all this Machiavellian structure falls apart, Al Franken is Chair of an important committee.  He is a professional comedian while the rest of the Senate are amateurs.  That seems like an improvement to me.

Not exactly. But the story is about the same guy who I blogged about before (United Breaks Guitars):

After baggage handlers at United broke his guitar last summer and the airline refused to pay for the $1,200 repair, Mr. Carroll, a Canadian singer, created a music video titled “United Breaks Guitars” that has been viewed more than 5.8 million times. United executives met with him and promised to do better.

So how was Mr. Carroll’s most recent flight on United?

Same as usual:

This Everyman symbol of the aggrieved traveler was treated, well, like just another customer. United lost his bag.

In an interview, Mr. Carroll said that for more than an hour on Sunday, he was told he could not leave the international baggage claim area at Denver International Airport, where he had flown from Saskatchewan. He said he had been told to stay because his bag was delayed, not lost, and he had to be there to claim it when it came down the conveyor belt.

“I’m the only person pacing around this room,” Mr. Carroll said, recalling how he was caught between an order from United staff members to stay and collect his bag, and a federal customs official telling him he had to leave the baggage claim area. The bag never showed.

As we say in MBA world, Carroll has “turned a crisis into an opportunity” – he has a business speaking to customer service reps:

This latest episode provided him with fresh material for his most recent performance, which was why he was flying on United — to speak to a group of customer service executives on Tuesday (though without his best shoes and “United Breaks Guitars” CDs that were in his still missing suitcase).

Three very nice Pinot Noirs, all under $25.

First, Martinborough Vineyards Russian Jack, NZ 2008: $19 from Wine Bottega in the North End of Boston.  Best wine for everyone but me.  Cherries, floral nose and very smooth.  Coconut taste at end suggests oak.  My second best.

Second, A to Z Pinot Noir, Oregon 2007:  Widely available.  But rough to begin with.  Still classic cherry.  Consensus worst of three.  But I would buy it and drink it again as it was quite good nevertheless.

Third, Soris Pere and Fils, Santenay, 2006:  $25 at Formaggio Kitchen.  Multi-layered.  Stinky barnyard and hay as well as cherry.  But tannic. My favorite, everyone else’s number two.

Overall, very good wines at this price.  Had some Vin Santo (Allegrini 1999) as well that our guests brought.  Four bottles of wine between four people at one sitting!  Didn’t feel worse for wear the next day.  Either liver is in trouble or the wines were good.  Hope it is the latter.

Don’t go here.  It’s expensive, the food is good but not great, the atmosphere is corporate and the service is poor.

We’ve been looking for a good Italian food and Rialto got “Best of Boston” so we thought we’d give it a shot for a wedding anniversary dinner.  At first, we were happy to be put in a quiet area but a few minutes later a large table nearby was filled by management consultant types and the room became distinctly louder.  It also slowed down the food service.  Our server forgot to bring my wife’s wine and had to be reminded.  When the pasta finally arrived, my wife’s dish was a little cold and my pasta was congealed and overcooked.  Fresh pasta is often sticky and gooey but this was over the top.  It tasted good but for the price it was hardly transporting.  Then, someone at the consultants’ table stood up and started making a speech. Fine if you have a private room but rude when there are fifty other people who are trying to have a civilized meal.  It would never happen in a really classy restaurant.

The much cheaper Anteprima in Chicago dominates and, if I could afford it, I would go to Spiaggia for an excellent if even more expensive meal.  La Summa in the North End is still the best Italian restaurant we’ve found locally.

Larry David is a good source of material for this blog (though hbo may force youtube to delete the clip!):

Iran is worried that it ships uranium overseas to be processed, it will simply be stolen.  The Obama administration is worried that Iran is playing the Charles Grassley strategy.  Grassley dragged along health care negotiations, hoping “death panel” furor would explode and bring the whole enterprise to an end.  Iran might want to drag along negotiations while it secretly expands uranium production behind the scenes.  There is a kind of joint hold-up problem and it brings to mind an old paper of Oliver Williamson’s – Credible Commitments: Using Hostages to Support Exchange.

In Williamson’s model, a  seller makes an investment to sell a product to a buyer.  If the buyer cancels the order, the seller is held up and his investment is wasted.  Knowing this, he may underinvest.  One way for the buyer to guarantee payment is to give the seller an asset that he values but the seller does not.  If the buyer should cancel payment, he loses the hostage.  And the seller has no incentive just to keep the hostage as it is useless to him, unlike say a monetary hostage.  Williamson offers a cute interpretation where the buyer is a king and he has two daughters whom he loves equally but one is uglier than the other.  The ugly one should be sent as a hostage to the seller according to Williamson.

We can do the same thing with Iran.  They are giving us a hostage, uranium, and we must give them a hostage in return.  It should be something we value but they do not.  If we take their uranium, they keep our hostage.  This gives us good incentives to return the uranium.  If we value the hostage, Iran will be willing to transfer the uranium and we will have profitable exchange.

Malia and Sascha are out of the question of course: Dick Cheney would suggest we take the uranium and let Iran keep the Obama daughters.  Well actually, if we really have no intention of keeping the uranium – after all we are refining it so it is useless in weapons production, we can hand over a valuable hostage to facilitate the transfer.  They’ve got to be seen an asset for those of all political persuasions.  The answer is obvious: Dick Cheney and Jimmy Carter have to live in Tehran while the uranium is being processed in Russia.

Suppose you are the dictator of an African country and we would like to get you out and establish a well-functioning democracy and economy.  What should we do?

Billionaire Mo Ibrahim has come up with an idea from finance: pay for performance.  He has established a prize of $5 million to go to a democratically elected leader three years after he leaves office.  The prize also gives you an income of $200,000 for the rest of your life.

Seems like a nifty idea in principle but the prize seems too small.  As a non-African example, think of Hamid Karzai in Afghanistan.  His brother is reputed to be heading the heroin trade out of Afghanistan.  If he is sharing the revenue with his Hamid K, the Ibrahim Prize is small potatoes.  Soros etc. have got to pony up too to make the prize bigger (the name of the prize may have to be changed!).

And there is a second problem – we would like well-established non-elected or fishily-elected leaders to step down too.  The Ibrahim Prize could be extended to Ahmadinejads, Musharrafs or Gaddafis too.  This creates an “ex ante moral hazard problem”: you might fight to become a despot and then magnanimously step down having set up clean elections.  This might be fanciful – are strongmen so forward-looking or patient?  Even if they are, presumably this strategy is only feasible in weakly institutionalized countries where despots would arise anyway.  Finally, the precise rules for getting the prize might be kept deliberately vague to discourage such gaming by strongmen.

I think the benefits of broadening the class of potential recipients is worth the risk.

Rochester, NY

Spousal compromise led to going to Damned United over Where the Wild Things Are.

It was great!  I grew up in England so kids reading the Wizard comic, Michael Parkinson on the telly, people eating fish and chips actually out of a newspaper etc. takes me wistfully back to Dear Old Blighty.  My wife doesn’t get the cultural references and finds the idea of using newspaper as a wrapper really revolting.  The movie is about Bryan Clough, the brilliant, ambitious and vain soccer manager and she has never heard of him.

Despite all this, she loved the movie too.  So, I think it can fly in America.  It’s totally un-Hollywood.  The people are ugly, the weather sucks in many scenes (it is England after all!) and it’s about Clough’s short and terrible spell as manager of Leeds United.  Pretty original movie idea (most sports movies involve a struggle leading to improbable victory) and could have failed miserably.  But it succeeds on many levels.

The two main protagonists are Clough and his partner Peter Taylor and their relationship is rich and complex.  The competitiveness between Clough and the manager of Leeds United is deep but childish.  And underlying it all it, of course, there is the class system creaking along with upper class members of the football association doling out fines and suspensions to vicious working class players.  England has a North-South divide with the once wealthy North now subservient to the prosperous South.  And Clough is a Northener and you see the world through his eyes.  None of this is as obvious as I make it here and that’s the charm of it.

All of this hangs on a story of Clough’s rise and fall which is exciting even if you know nothing about soccer.  The director does a wonderful job.  There is a scene where Clough cannot bear to watch the game and waits in his office.  He follows the score via the shouts he hears through the frosted glass windows of his office.  As the fans jump and cheer, their shadows darken the office and we see are as exhilarated as Clough. The acting is superb too. Now I’ve oversold the whole thing and you will hate it.  Talk yourself down and go see it.

The Vatican just cut the price for Anglicans to join the Catholic Church.  Converts can keep some Anglican traditions and still become Catholics.  For instance, married Anglican priests can convert and become Catholic priests!

As the Anglican Church loses market share to the Catholic Church, what will they do? Traditional economics would imply some sort of price cut by the firm under attack.  If Catholics can allow married priests, surely Protestants can allow some confessions and indulgences (i.e. payments for absolution from sins) for Catholics wanting to move the other way.  Over-indulgences led to the Protestant Reformation but the Catholics Church’s aggressive move to get market share is going to lead to a price war and a reduction of product differentiation.  Of course, if there is very little switching as Protestants are very loyal to their faith, the Catholic Church will end up cannibalizing its own market – for instance, Catholic priests may demand the same marriage rights granted to their converted brethren.

Looking forward to seeing what’s going to happen.

Update: Thanks to all the commenters who helped to reveal my lack of knowledge on religious matters.  It seems that the potential for cannibalizing the Catholic market has been recognized. Here is today’s Times story Pope’s Offer Raises Idea of Marriage for Catholic Priests:

“The invitation also extends to married Anglican clergy. And so some have begun to wonder, even if the 82-year-old Benedict himself would never allow it, would more people in the Catholic Church begin to entertain the possibility of married Catholic priests?

“If you get used to the idea of your priests being married, then that changes the perception of the Catholic priesthood necessarily,” said Austen Ivereigh, a Catholic commentator in London and a former adviser to Cardinal Cormac Murphy-O’Connor of Westminster.

“We face the prospect in the future of going to a Catholic church in London and it being normal to find a married Catholic priest celebrating at the altar, with his wife sitting in the third pew and his children running up and down the aisle,” he said.”

There is also an arbitrage opportunity dismissed by the Catholic Church:

“Could a Catholic man convert to Anglicanism, be ordained as an Anglican priest, then rejoin the Catholic Church under the new Anglican rite? (The Vatican spokesman, the Rev. Federico Lombardi, dismissed that idea as “a trick.”)”

The Times has a great excerpt from “Too Big to Fail: How Wall Street and Washington Fought to Save the Financial System — And Themselves” by Andrew Ross Sorkin.  It recounts Lehman’s efforts to sell itself to Morgan Stanley and Bank of America.  The Morgan Stanley deal failed as Lehman was not clear about what it wanted – a merger, selling a part of itself etc.  But there was also an issue of what Lehman was really worth and Morgan Stanley tried to find that out in tense questioning:

“The Morgan team began to throw out a barrage of questions: How are things marked? they asked, Wall Street jargon for how the assets were valued. Were you able to sell them inside your marks? How much business has left the firm?”

In other words, there was asymmetric information: Lehman knew the value of its assets but Morgan Stanley did not.

The next attempt was Bank of America.  They called their main deal maker at B0A Greg Curl on a Saturday night and

“Mr. Curl, though intrigued to be getting a call on a Saturday night, was noncommittal; he could tell they must be desperate. “Hmm … let me talk to the boss,” he said. “I’ll call you right back.” The boss was Ken Lewis, the silver-haired chief executive of Bank of America.)”

There is a potential lemons problem triggered by asymmetric information – you do not want to pay more that the value of Lehman Bros to acquire it. The fact they are trying to sell it signals it may not be worth that much.   It is combined with incentives to misrepresent information to strike a good deal:

“Mr. Fuld [Chair of Lehman] explained that he would want at least $25 a share from Bank of America to buy Lehman; Lehman’s shares had closed that day at $18.32. Mr. Lewis thought the number was far too high and couldn’t see the strategic rationale. Unless he could buy the firm for next to nothing, the deal wasn’t worth it.”

The deal fell through.  A question remains: was there a trade that could have made both parties happy?  This would rely on a synergy between the potential buyer’s assets and the assets of Lehman.  The bluffing and lemons problem makes it hard to see gains from trade.  I’m going to buy the book but this excerpt makes it seem that Fuld did not do a good job selling Lehman and tried to get too much for it.  For example, opening up the books might have saved it.  This is a bad option in the sense that it puts you in a terrible bargaining position.  But it is better than what happened

One of the tenets of rational expectations is that the expectation of a future event can move markets now.

Superfreakonomics is not even out yet.  But a couple of pages from one chapter related to global warming have found their way onto the internet (perhaps a whole chapter was posted earlier?).  And they’ve created a little warming for Levitt at the hands or blogs of Brad DeLong and Paul Krugman.

It’s hard to really make head or tail of it without reading it or seeing a real review.  Tim Hartford has one and interestingly even he is skeptical of the global warming chapter.  Well, I’ve put in my pre-order at Amazon and look forward to writing about Superfreakonomics.