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The now metered and paywall protected NYT reports:

The Obama administration is engaged in a fierce debate over whether to supply weapons to the rebels in Libya, senior officials said on Tuesday, with some fearful that providing arms would deepen American involvement in a civil war and that some fighters may have links to Al Qaeda.


Even if fighters do not have links to Al Qaeda or Hezbollah, what is there to guarantee that they are or will remain friendly to the Western allies?  Gaddafi while historically unfriendly had finally been seduced with Mariah Carey concerts and Coca Cola. Arming the rebels might fulfill a short term objective of regime change but at the cost of creating an armed future enemy.  What’s the debate?


This is an easy one: North Korea thinks (1) the US is out to exploit and steal resources from other countries and hence (2)  Libya was foolish to giving away its main weapon, its nascent nuclear arsenal, which acted as a deterrent to American ambition. Accordingly,

“The truth that one should have power to defend peace has been confirmed once again,” the [North Korean] spokesperson was quoted as saying, as he accused the U.S. of having removed nuclear arms capabilities from Libya through negotiations as a precursor to invasion.

“The Libyan crisis is teaching the international community a grave lesson,” the spokesperson was quoted as saying, heaping praise on North Korea’s songun, or military-first, policy.

In a perceptive analysis, Professor Ruediger Franks adds two more examples that inform North Korean doctrine.  Gorbachev’s attempts to modernize the Soviet Union led to its collapse and the emancipation of its satellite states.  Saddam’s agreement to allow a no-fly zone after Gulf War I led inexorably to Gulf War II and his demise.  The lesson: Get more nuclear arms and do not accede to any US demands.

Is there a solution that eliminates nuclear proliferation?  Such a solution would have to convince North Korea that their real and perceived enemies are no more likely to attack even if they know North Korea does not have a nuclear deterrent.  Most importantly, the US would have to eliminate North Korean fear of American aggression.  In a hypothetical future where the North Korean regime has given up its nuclear arsenal, suppose the poor, half-starved citizens of North Korea stage a strike and mini-revolt for food and shelter and the regime strikes back with violence.  Can it be guaranteed that South Korea does not get involved?  Can it be guaranteed that Samantha Power does not urge intervention to President Obama in his second term or Bill Kristol to President Romney in his first? No.  So, we are stuck with nuclear proliferation by North Korea.  The only question is whether North Korea can feel secure with a small arsenal.

Tomas Sjostrom and I offer one option for reducing proliferation in our JPE paper Strategic Ambiguity and Arms Proliferation.  If North Korea can keep the size and maturity of its nuclear arsenal hidden, we can but guess at its size and power.  It might be large or quite small – who knows.  This means even if the arsenal is actually small, North Korea can still pretend it is big and get some of the deterrent power of a large arsenal without actually having it.  The potential to bluff afforded by ambiguity of the size of weapons stockpiles affords strategic power to North Korea.  It reduces North Korea’s incentive to proliferate.  And this in turn can help the U.S. particularly if they do not really want to attack North Korea but fear nuclear proliferation.  Unlike poker and workplace posturing à la Dilbert, nuclear proliferation is not a zero-sum game.  Giving an opponent the room to bluff can actually create a feedback loop that helps other players.


An insightful analysis from John Quiggin at Crooked Timber of the organizational economics of Arab dictatorships.

The element of truth is that the Arab monarchies have good prospects of survival if they can manage the transition to constitutional monarchy. And it makes sense for them to do so. After all, a constitutional monarch gets to live, literally, like a king, without having to worry about boring stuff like budgets and foreign affairs. And, in the modern context, the risk that such a setup will be overthrown by a military coup, as happened to quite a few of the postcolonial constitutional monarchs, is much diminished. By contrast, there’s no such thing as a constitutional dictatorship or tyranny and no way to make the transition from President-for-Life to constitutional monarch. That’s not to say all the monarchs in the region will survive, or for that matter, that all the remaining dictatorships will fall. But the general point is valid enough.

With this corollary for Saudi Arabia

The other big problem is that this can’t easily be done in Saudi Arabia. There are not even the forms of a constitutional government to begin with. Worse, the state is not so much a monarchy as an aristocracy/oligarchy saddled with 7000 members of the House of Saud, and many more of the hangers-on that typify such states. These people have a lot to lose, and nothing to gain, from any move in the direction of democracy.

If you were the President of the United States and, on camera, you were asked

If there is an uprising in Saudi Arabia the likes of which we have seen in Tunisia, Egypt, and Libya, will the United States stand by the protestors and ask the regime to leave?

how would you answer?

The Texas legislature is on the verge of passing a law permitting concealed weapons on University campuses, including the University of Texas where just this Fall my co-author Marcin Peski was holed up in his office waiting out a student who was roaming campus with an assault rifle.

This post won’t come to any conclusions, but I will try to lay out the arguments as I see them.  More guns, less crime requires two assumptions.  First, people will carry guns to protect themselves and second, gun-related crime will be reduced as a result.

There are two reasons that crime will be reduced: crime pays off less often, and sometimes it leads to shooting. In a perfect world, a gun-toting victim of a crime simply brandishes his gun and the criminal walks away or is apprehended and nobody gets hurt.  In that perfect world the decision to carry a gun is simple.  If there is any crime at all you should carry a gun becuase there are no costs and only benefits.  And then the decision of criminals is simple too:  crime doesn’t pay because everyone is carrying a gun.

(In equilibrium we will have a tiny bit of crime, just enough to make sure everyone still has an incentive to carry their guns.)

But the world is not perfect like that and when a gun-carrying criminal picks on a gun-carrying victim, there is a chance that either of them will be shot.  This changes the incentives.  Now your decision to carry a gun is a trade-off between the chance of being shot versus the cost of being the victim of a crime.  The people who will now choose to carry guns are those for whom the cost of being the victim of a crime outweigh the cost of an increased chance of getting shot.

If there are such people then there will be more guns.  These additional guns will reduce crime because criminals don’t want to be shot either.  In equilibrium there will be a marginal concealed-weapon carrier.  He’s the guy who, given the level of crime, is just indifferent between being a victim of crime and having a chance of being shot.  Everyone who is more willing to escape crime and/or more willing to face the risk of being shot will carry a gun.  Everyone else will not.

In this equilibrium there are more guns and less crime.  On the other hand there is no theoretical reason that this is a better outcome than no guns, more crime.  Because this market has externalities:  there will be more gun violence.  Indeed the key endogenous variable is the probability of a shootout if you carry a gun and/or commit a crime.  It must be high enough to deter crime.

And there may not be much effect on crime at all.  Whose elasticity with respect to increased probability of being shot is larger, the victim or the criminal?  Often the criminal has less to lose.  To deter crime the probability of a shooting may have to increase by more than victims are willing to accept and they may choose not to carry guns.

There is also a free-rider problem.  I would rather have you carry the gun than me.  So deterrence is underprovided.

Finally, you might say that things are different for crimes like mugging versus crimes like random shootings. But really the qualitative effects are the same and the only potential difference is in terms of magnitudes.  And it’s not obvious which way it goes.  Are random assailants more or less likely to be deterred?  As for the victims, on the one hand they have more to gain from carrying a gun when they are potentially faced with a campus shooter, but if they plan make use of their gun they also face a larger chance of getting shot.

NB:  nobody shot at the guy at UT in September and the only person he shot was himself.

In economic theory, the study of institutions falls under the general heading of mechanism design.  An institution is modeled as game in which the relevant parties interact and influence the final outcome.  We study how to optimally design institutions by considering how changes in the rules of the game change the way participants interact and bring about better or worse outcomes.

But when the new leaders in Egypt sit down to design a new constitution for the country, standard mechanism design will not be much help.  That’s because all of mechanism design theory is premised on the assumption that the planner has in front of him a set of feasible alternatives and he is desigining the game in order to improve society’s decision over those alternatives.  So it is perfectly well suited for decisions about how much a government should spend this year on all of the projects before it.  But to design a constitution is to decide on procedures that will govern decisioins over alternatives that become available only in the future, and about which today’s Constitutional Congress knows nothing.

The American Constitutional Congress implicitly decided how much the United States would invest in nuclear weapons before any of them had any idea that such a thing was possible.

Designing a constitution raises a unique set of incentive problems.  A great analogy is deciding on a restaurant with a group of friends.  Before you start deliberating you need to know what the options are.  Each of you knows about some subset of the restaurants in town and whatever procedure the group will use to ultimately decide affects whether or not you are willing to mention some of the restaurants you know about.

Ideally you would like a procedure which encourages everyone to name all the good restaurants they know about so that the group has as wide a set of choices as possible.  But you can’t just indiscriminately reward people for bringing alternatives to the table because that would only lead to a long list of mostly lousy choices.

You can only expect people to suggest good restaurants if they believe that the restaurants they suggest have a chance of being chosen.  And now you have to worry about strategic behavior.  If I know a good Chinese restaurant but I am not in the mood for Chinese, then how are you going to reward me for bringing it up as an option?

When we think about institutions for public decisions, we have to take into account how they impact this strategic problem.  Democracy may not be the best way to decide on a restaurant.  If the status quo, say the Japanese restaurant is your second-favorite, you may not suggest the Mexican restaurant for fear that it will split the vote and ultimately lead to the Moroccan restaurant, your least favorite.

Certainly such political incentives affect modern day decision-making.  Would a better health-care proposal have materialized were it not for fear of what it would be turned into by the political sausage mill?

The government in Egypt is cutting off communications networks, including mobile phones and the Internet.

The decision to get out and protest is a strategic one.  It’s privately costly and it pays off only if there is a critical mass of others who make the same commitment.  It can be very costly if that critical mass doesn’t materialize.

Communications networks affect coordination.  Before committing yourself you can talk to others, check Facebook and Twitter, and try to gauge the momentum of the protest.  These media aggregate private information about the rewards to a protest but its important to remember that this cuts two ways.

If it looks underwhelming you stay home, go to work, etc.  And therefore so does everybody who gets similar information as you.  All of you benefit from avoiding protesting when the protest is likely to be unsuccessful.  What’s more, in these cases even the regime benefits from enabling private communication, because the protest loses steam.

Now consider the strategic situation when you lines of communication are cut and you are acting in ignorance of the will of others.  The first observation is that in these cases when the protest would have fizzled, without advance knowledge of this many people will go out and protest.  Many are worse off, including the regime.

The second observation is that even in those cases when protest coordination would have been amplified by private communication, shutting down communication may nevertheless have the same effect, perhaps even a stronger one.  There are two reasons for this. First, the regime’s decision to shut down communications networks is an informed one.  They wouldn’t bother taking such a costly and face-losing move if they didn’t think that a protest was a real threat.  The inference therefore, when you are in your home and you can’t call your friends and the internet is shut down is that the protest has a real chance of being effective.  The signal you get from this act by the regime substitutes for the positive signal you would have gotten had they not acted.

The other reason is that this signal is public.  Everyone knows that everyone knows … that the internet has shut down.  Instead of relying on the noisy private signal that you get from talking to your friends, now you know that everybody is seeing exactly the same thing and are emboldened in exactly the same way.

It’s as if the regime has done the information aggregation for you and packaged it into a nice fat public signal.  This removes a lot of the coordination uncertainty and strengthens your resolve to protest.

Addendum: Tyler has some related observations.

At this stage of the Chicago Mayoral election we have the following candidates: Rahm Emmanuel and a bunch of people who for entered a race they had almost no chance of winning and so presumably were motivated by something other than being the Mayor of Chicago.  It is past the stage when new candidates can enter the race.  Perhaps you dread having Rahm Emmanuel as Mayor, but at this point wouldn’t removing him be even worse?  Just sayin’.

Illinois governor Pat Quinn is considering whether to sign into law a tax bill that includes a new tax on online retailers, the so-called Amazon Tax.  Until now, online transactions are not taxed in states where the retailer has no physical presence (with a few exceptions.)  The new measure would end this in Illinois, treating Amazon as an Illinois retailer so long as one of its online affiliates is based in the state.  (Every state has thousands of online affiliates.)

Amazon is responding by playing chicken.  From Presh Talwalker:

So Amazon is fighting back at Illinois with a threat. Amazon has emailed its commissioned affiliates the following message:

We regret to inform you that the Illinois state legislature has passed anunconstitutional tax collection scheme that, if signed by Governor Quinn, would leave little choice but to end its relationships with Illinois-based Associates. [emphasis mine]

The following logic seems to explain the motive. If Amazon ends its affiliate relationships in Illinois, then it would have no physical presence in the state, and hence it would get around the bill.

The email levies harsh criticism at Illinois and is meant to garner sympathy. In reality, the move is calculated and strategic.

Amazon is threatening all affiliates on purpose – even though it doesn’t have to. Here is an interesting tidbit the Chicago Tribune reported:

The bill applies only to affiliates that have at least $10,000 a year in revenue. But if large retailers, such as Amazon, cut off all affiliates in Illinois, it would end commission streams to small Web sites, such as bloggers, who might sell Amazon goods at their sites. Amazon could not be reached for comment.

Amazon is playing a classic retaliatory strategy. If Illinois wants to pass this law, then it will do everything to hurt the state and even otherwise innocent and small-time bloggers, who might decide its time to complain to Gov. Pat Quinn.

There’s more in Presh’s article here. (Amazon seems to understand reputation building because it carried through with its threat in Colorado when that state passed a similar measure.)

My view is that the threat is credible even ignoring reputation-building.  The lost revenue from sales tax would dwarf the losses from cutting off affiliates.

Today the commissioners of the FCC will meet to vote on a new proposed policy concerning Net Neutrality.  It is expected to pass.  Pundits, policymakers and media of all predispositions are hyperventilating over the proposal but none link to it and I can’t find the actual document anywhere.  Does anybody have a link to it?

From Bloomberg (the firm not the man):

New York Mayor Michael Bloomberg, who has been mentioned as a potential U.S. presidential candidate, said he doesn’t believe an independent can win.

Bloomberg, who isn’t affiliated with Republicans or Democrats, said a candidate running outside the two-party system couldn’t get a majority of the 538 votes in the Electoral College, which would trigger a provision in the U.S. Constitution giving the House of Representatives power to decide the election.

“Unless you get a majority, it goes to the House,” he said today during a conference sponsored by the Wall Street Journal in Washington. “It’s going to go to the Republicans because the Republicans have just taken over the House.”

I guess billionaires can do backward induction.  If only people who can do backward induction were billionaires….

A dozen Cook County judges deemed unqualified by legal organizations won reelection on Nov. 2, a result that left their opponents searching for better ways to educate city voters and strengthen Chicago’s judiciary.
Two judges rated “not recommended” in a Judicial Performance Commission pilot project only barely topped the 60 percent of votes necessary to keep their jobs. Their support was stronger in the city than in the Chicago suburbs.
Read the article.  Background is here.


Last week there were numerous celebrations at Northwestern in honor of our colleague Dale Mortensen, one of the new Nobel Laureates in Economics.  There were two highlights.  First, here is Dale opening a bottle of champagne with a sword.

and here is a really lovely moment captured on voicemail at 5:30AM CDT.

(thanks for that last bit of clarification Dale! 🙂 )

I double-checked to make sure it wasn’t April 1 when I saw this story in the Independent:

The Queen asked ministers for a poverty handout to help heat her palaces but was rebuffed because they feared it would be a public relations disaster, documents disclosed under the Freedom of Information Act reveal.

Royal aides were told that the £60m worth of energy-saving grants were aimed at families on low incomes and if the money was given to Buckingham Palace instead of housing associations or hospitals it could lead to “adverse publicity” for the Queen and the Government.

Check out their request.

Obama has an interesting strategic decision to make about how to engage the Tea Party.  If there is one power that the President has, even when he has lost momentum policy-wise, it is to control attention.  How should he use this power in relation to the Tea Party?

Right now the Tea Party has few leaders, and none with any real power. Obama can essentially anoint a leader by picking him/her out of the crowd and engaging directly.  For example, by personally responding in a press conference to some attack and addressing the Tea Partier by name.  As the Tea Party tries to internally organize, a well-targeted salvo could throw a wrench in the works. On the other hand, it could backfire and provide them with a much-needed lightning rod.

He could frame the upcoming election as “sane, albeit perhaps incompetent Democrats” versus “nutty Tea Partiers.”  By doing so he would raise the stakes for the Tea Party higher than they might want to make them.  In its infancy, the Tea Party may not be ready for an up-or-out test.

Obama could be wisely waiting until after this election to make any move like this.  It may even be that he and the Tea Party have a mutual interest in keeping their profile low for now.  Because making this election out to be a test of the Tea Party’s fitness can only really have consequences in the event they fail to make a good showing.  In that case, the Tea Party disappears and Obama loses a potentially valuable third-party threat in 2012.

Instead, if they tacitly agree to view the Tea Party as too young to be a big contender this November, they both keep their hopes alive in the event of defeat.  Which of course means that the mainstream Republicans should have exactly the opposite incentive.

Now I am trying to figure out how this fits in with the story.

Abdelbasset al-Megrahi.  He was the Lockerbie bomber who was released from a Scottish prison because he had just a few weeks to live.  As it turns out, he lived for a year and may live for many more.

The public outrage has an uncomfortable edge to it.

Clinton yesterday implied strongly that Megrahi’s release, and his continued survival long beyond the three months predicted by Scottish ministers, meant justice for the families of the dead had been denied.

Let’s get this straight.  We agree on the following ranking of outcomes, from best to worst.

  1. Alive and in prison
  2. Alive 1 year after being released from prison.
  3. Dead 1 week after being released from prison.

But its easy to get confused because, conditional on learning that he was going to be alive 1 year later, we see that releasing him was a mistake.  Because we assumed that he was going to die in a week so that 1 and 2 were not feasible.  Now that we see that 1 was actually feasible we are outraged that he is alive.  When we feel outraged that he is alive we start to think that means that we wish he was dead.  But alive/dead is just the signal that we made a mistake. What we really wish is that we hadn’t made the mistake of setting him free.

Hertz made a merger offer to Dollar, an offer that made it difficult for Dollar to approach another suitor.  But Dollar is trying to wriggle out of its chastity belt and flirt with Avis.  Each marriage carries the risk that the Feds step in before the relationship is fully consummated.  After all the merged firms might have the market power to hike up prices.  A preliminary analysis suggests given the current segmentation of the rental market into leisure and premium classes, antitrust issues are less of a threat to merger to Hertz than for Avis:

“The rental car market is segmented into two categories: premium and travel/leisure. Hertz and Avis classify themselves as premium car rental companies renting to travelers on business and those who otherwise are less sensitive to price and more attuned to service and car quality. Both companies also operate in the leisure market. Budget is Avis’s leisure market subsidiary, while Hertz has its Advantage leisure subsidiary. Hertz has offered to divest itself of this subsidiary as part of this transaction and in response to any antitrust objections.

Dollar Thrifty classifies itself as travel/leisure.

At first blush, this would appear to give Hertz a free pass, as the company does not define itself as being in Dollar Thrifty’s market segment and the Advantage subsidiary is quite small.”

But even in this scenario, market power issues arise.  In the existing market structure, Dollar sets its prices ignoring the impact they have on Hertz and Avis profits and focussing on just its own profits.  In particular, Dollar captures some premium customers from Hertz and Avis if its prices are sufficiently low.  This kid of cutthroat competition is the essence of capitalism and is to be lauded.

But of there is a Dollar-Hertz merger say, the competition from the leisure car rental division cannibalizes the profits of the premium car division.  There is less of an incentive for Dollar-Hertz to cut prices and leisure rental from the firm will become more expensive.  Now, Avis can raise the price of Budget cars.  This will allow Dollar-Hertz to raise leisure car prices more and a lovely – for firms! – spiral of rising prices will ensure.  And this is without any collusion between the firms- the basic forces of competition are dampened by the merger.

How big is this effect?  It’s going to depend on substitution effects between premium and leisure segments.  All my colleagues who do empirical I.O. will be gainfully employed and I hope I will be drinking good wine at their houses (yes, they will each have multiple houses).

Cable T.V. is boring, the sky is dark and it’s snowing.  What can you do to entertain yourself? One answer:

When Nancy Bonnell, 31, thinks of her baby girl due next month, she recalls the December snow that she and her husband, Brian, endured: “We lived in the apartment and had nothing to do.”
So they cooked in their Derwood home, they grew restless and then they — well, you know.
The couple had been trying to have a baby and originally thought it might happen during a post-Christmas vacation to the Cook Islands in the South Pacific. They could nickname her “Cookie Girl,” they thought.
Then Bonnell learned during the second week of January that she was expecting. She deduced that she had conceived sometime during the snowstorm. Time for a new nickname.
“It was more like ‘Snow Angel,’ ” she said.
Yet that theory was quashed in a 1970 paper by Richard Udry, a demographer at the University of North Carolina at Chapel Hill. He found no statistically significant upswing in births associated with the blackout. “It is evidently pleasing to many people,” he concluded, “to fantasize that when people are trapped by some immobilizing event which deprives them of their usual activities, most will turn to copulation.”
Someone should go back and look at the data and see if it was analyzed correctly.  Surely a Q.J.E. if you can show convincingly that snow leads to nookie.

That’s the subject of an article in Slate that leads with:

So, a Treasury secretary, a labor union leader, a hedge-fund billionaire, and an heiress walk into a conference call.

You will recall that the estate tax was temporarily repealed and it will come back in full force in 2011 unless some new legislation is passed. I have praised estate taxes before.

Salakot Slap:  gappy3000.

Regional data is available on civilian deaths from insurgent activity and counterinsurgent activity in Afghanistan.  There is also data on the level of insurgent attacks.  In principle, this might allow an analysis of the impact of civilian deaths on insurgent and insurgent support.  If civilian deaths caused by insurgents cause an increase in support for counterinsurgents, perhaps the local population will give information about insurgent location to the opposite side.  Then, insurgent attacks will decline.  If civilian deaths caused by caused counterinsurgent activity increase support for insurgents, perhaps insurgents find more recruits leading to more attacks in the future etc etc.

A recent paper by Condra et al attempts to study these issues.  One key finding:

“Counterinsurgent-generated civilian casualties from a typical incident are responsible for 6 additional violent incidents in an average sized district in the following 6 weeks.”

Are the causal statements water-tight?  I wasn’t sure but certainly the questions are apt.  This account summarizes many of the study’s findings.

BP’s cap on the ruptured gulf coast oil well is a two-edged sword.  On the one hand, there is a good chance it will hold and the problem will be solved.   On the other hand,  the cap makes it harder to verify whether this solution has failed.

The cap means that pressure is diverted elsewhere underground.  Right now there is a camera in place pointing at the capped part of the well.  When the cap was not in place this camera made it common knowledge whether oil was flowing into the gulf and it made quite clear how much.  With the cap however, “seepage” in other locations can only be measured by noisy tests that can easily be disputed by both parties.

For example, BP will cite:

Some seepage from the ocean floor is normal in the Gulf of Mexico, according to University of Houston professor Don Van Nieuwenhuise.

“A lot of oil that’s formed naturally, by the Earth, ends up escaping or leaking to the surface in the form of natural seeps and yes, there are a lot of these all around the world,” he said.

and the government will argue:

“If the well remains fully shut in until the relief well is completed, we may never have a fully accurate determination of the flow rate from this well. If so, BP — which has consistently underestimated the flow rate — might evade billions of dollars of fines,” Markey, D-Massachusetts, said in a letter to Allen released Sunday.

The deadweight loss of negotiation and litigation means that even if the risk to the gulf is substantially reduced by having the cap in place, it may still be better to uncap the well and seek solutions (such as extraction of the flowing oil) that can be monitored directly by the camera that is already there.

Yesterday on the NPR hourly newscast the lead-in to the barefoot bandit story was this “A man allegedly known as the barefoot bandit…”  Perhaps I had too much time on my hands (I had a doctor’s appointment and they always go like this:  Step 1) you are 30 minutes too early Step 2) please wait for an additional hour in a room with no AT&T reception Step 3) Stop wasting our time, your blood pressure is 120 over 70, go away and never come back) but this struck me as a strange way to phrase it.

Journalists apparently have a self-imposed rule that suspects should be “alleged” to have done whatever they are suspected of, at least until they are convicted.  Presumably this is to avoid prejudging guilt.  Now, since this guy was just picked up, the rule applies and he is “allegedly” something.  But allegedly what?  “Allegedly known as the barefoot bandit.”  Is it a crime to be known as the barefoot bandit?  And is that what he is accused of?

OK, there were some crimes committed and all of these crimes are thought to have been committed by the same person and that, so far unidentified, person has been given a proxy identity “the barefoot bandit.” Now we are trying to find the barefoot bandit.  The linguistic complication is that since “the barefoot bandit” is not a real identity you cannot say that someone “is” the barefoot bandit.  Whoever this criminal is, he is “AKA (*also* known as) the barefoot bandit.”  We are not literally looking for someone who is called the barefoot bandit, as if that by itself is a crime.  We are looking for the person who committed the crimes which have been grouped together by that heading.

So we are looking for the person who (not by his own choice has come to be) “known as the barefoot bandit.”  And now we have to somehow fit the “allegedly” in there in order to comply with the journalistic moral code.  That’s the problem and the NPR copyeditor seems to have just stuck them together without trying to parse the final product.

Probably he didn’t have the spare time afforded by a futile doctor’s appointment.  Or if he did, he had no iPhone reception to make the necessary changes before the newscast went live.

FIFA experimented with a “sudden-death” overtime format during the 1998 and 2002 World Cup tournaments, but the so-called golden goal was abandoned as of 2006.  The old format is again in use in the current World Cup, in which a tie after the first 90 minutes is followed by an entire 30 minutes of extra time.

One of the cited reasons for reverting to the old system was that the golden goal made teams conservative. They were presumed to fear that attacking play would leave them exposed to a fatal counterattack.  But this analysis is questionable.  Without the golden goal attacking play also leaves a team exposed to the possibility of a nearly-insurmountable 1 goal deficit.  So the cost of attacking is nearly the same, and without the golden goal the benefit of attacking is obviously reduced.

Here is where some simple modeling can shed some light.  Suppose that we divide extra time into two periods.  Our team can either play cautiously or attack.  In the last period, if the game is tied, our team will win with probability p and lose with probability q, and with the remaining probability, the match will remain tied and go to penalties.  Let’s suppose that a penalty shootout is equivalent to a fair coin toss.

Then, assigning a value of 1 for a win and -1 for a loss, p-q is our team’s expected payoff if the game is tied going into the second period of extra time.

Now we are in the first period of extra time.  Here’s how we will model the tradeoff between attacking and playing cautiously.  If we attack, we increase by G the probability that we score a goal.  But we have to take risks to attack and so we also we increase by L the probability that they score a goal.  (To keep things simple we will assume that at most one goal will be scored in the first period of extra time.)

If we don’t attack there is some probability of a goal scored, and some probability of a scoreless first period.  So what we are really doing by attacking is taking an G-sized chunk of the probability of a scoreless first period and turning it into a one-goal advantage, and also a L-sized chunk and turning that into a one-goal deficit.  We can analyze the relative benefits of doing so in the golden goal system versus the current system.

In the golden goal system, the event of a scoreless first period leads to value p-q as we analyzed at the beginning.  Since a goal in the first period ends the game immediately, the gain from attacking is

G - L + (1-G-L)(p-q).

(A chunk of sized G-L of the probability of a scoreless first period is now decisive, and the remaining chunk will still be scoreless and decided in the second period.)  So, we will attack if

p - q \leq G - L + (1 - G - L) (p-q)

This inequality is comparing the value of the event of a scoreless first period p-q versus the value of taking a chunk of that probability and re-allocating it by attacking.  (Playing cautiously doesn’t guarantee a scoreless first period, but we have already netted out the payoff from the decisive first-period outcomes because we are focusing on the net changes G and L to the scoring probability due to attacking.)

Rearranging, we attack if

p - q \leq \frac{G-L}{G+L}.

Now, if we switch to the current system, a goal in the first period is not decisive.  Let’s write y for the probability that a team with a one-goal advantage holds onto that lead in the second period and wins.  With the remaining probability, the other team scores the tying goal and sends the match to penalties.

Now the comparison is changed because attacking only alters probability-chunks of sized yG and yL.  We attack if

p - q \leq Gy - Ly + (1 - G - L) (p-q),

which re-arranges to

p - q \leq y\frac{G-L}{G+L}

and since y < 1, the right-hand side is now smaller.  The upshot is that the set of parameter values (p,q,y,G,L) under which we prefer to attack under the current system is a strictly smaller subset of those that would lead us to attack under the golden goal system.

The golden goal encourages attacking play.  The intuition coming from the formulas is the following.  If p > q, then our team has the advantage in a second period of extra time.  In order for us to be willing to jeopardize some of that advantage by taking risks in the first period, we must win a sufficiently large mass of the newly-created first-period scoring outcomes.  The current system allows some of those outcomes (a fraction 1-y of them) to be undone by a second-period equalizer, and so the current system mutes the benefits of attacking.

And if p<q, then we are the weaker team in extra time and so we want to attack in either case.  (This is assuming G > L.  If G< L then the result is the same but the intuition is a little different.)

I haven’t checked it but I would guess that the conclusion is the same for any number of “periods” of extra time (so that we can think of a period as just representing a short interval of time.)

Obama has two focal options in Afghanistan, “Stay the Course” or “Cut and Run”.  Stay the Course means continuing the current counterinsurgency (COIN) strategy of “winning hearts and minds” of Afghan civilians.  Cut and Run means getting out as soon as possible and leaving the Afghans to deal with their own mess.  In either scenario it is optimal to sack McCrystal.

McCrystal is a strong believer in COIN so if you want to Cut and Run, it s better to replace him with someone else, a true believer in Cut and Run.  If Obama wants to Stay the Course, McCrystal is a possible candidate.  But there is a reputational cost, looking weak, to Obama of retaining McCrystal.  Replacing him carries the risk that the COIN strategy fails.  But Petraeus is the author of COIN so this risk is minimized if Petraeus replaces McCrystal.  So, even if you want to Stay the Course, it is optimal to sack McCrystal.

Pretty simple?

Afghan security firms provide armed escorts for NATO convoys.  Some firms lost their employment because of violent incidents where they killed civilians.  But NATO Convoys them suffered greater attacks and the security firms were re-employed.  There is an obvious incentive problem:

“The officials suspect that the security companies may also engage in fake fighting to increase the sense of risk on the roads, and that they may sometimes stage attacks against competitors.

The suspicions raise fundamental questions about the conduct of operations here, since the convoys, and the supplies they deliver, are the lifeblood of the war effort.

“We’re funding both sides of the war,” a NATO official in Kabul said. The official, who spoke on the condition of anonymity because the investigation was incomplete, said he believed millions of dollars were making their way to the Taliban.”

This is a Mafia tactic: To get people to pay from protection, you have to create the demand for protection.  Supply creates its own demand.  There is also a reverse effect:  The security firms sometimes bribe the Taliban to keep away from the convoys.  With this source of steady income, the Taliban have no incentive to disband and may even have an incentive to expand.  Demand creates its own supply.

The second circle seems less pathological than the first.  If we cannot find the Taliban ourselves and kill them or bribe them then to stay away from the convoys, we have to use a local security firm.  The security firm is an intermediary, adding value and generating surplus.  The first circle is destroying surplus, like the Mafia.  It is creating a public bad, a security problem, to generate a transfer.

Beyond punishing anyone who is caught planning a deliberate attack, it is hard to see any simple solution.  Fewer and fewer countries want to be involved in Afghanistan and so using our own troops is difficult.  The Taliban might prefer to be employed in the real economy.  But the main alternative to attacking NATO convoys is growing opium.  Is that any better than attack and theft?

The entire episode signals that Afghanistan is a Mafia state with leaders acting an profit maximizers, destroying surplus to capture a bigger slice of what’s left of the economic pie.   A depressing state of affairs after eight years of war.

Naming rights raise a lot of money.  Think of professional sports stadiums like Chicago’s own US Cellular Field  (does US Cellular still exist??)  The amazing thing to me is that when Comiskey Park changed names to “The Cell,” local media played right along and gave away free advertising by parroting the name in their daily sports roundups.  Somehow the stadium knew that this coordination/holdup problem would be solved in their favor.

We should seize on this.  But not by selling positive associations to corporations that want to promote their brand.  Instead lets brand badly-behaving corporations with negative associations.

The Exxon Valdez oil spill is a name that stuck.  Every single time public media refer to that event they remind us of the association between Exxon and the mess they made.  No doubt we will continue to refer to the current disaster as the BP Gulf spill or something like that.  That is good.

But why stop there?  (Positive) advertisers have learned that you can slip in the name of a brand before, after, and in-between just about any scripted words and call it an ad.  The Tostitos Fiesta Bowl.  The Bud Lite halftime show. The X brought to you by Y.  These are positive associations.

Think of all the negative events and experiences that are just waiting to be put to use as retribution by negative association.  “And today I am here to announce that the BP National Debt will soon reach 15 trillon Dollars.”  Or “The BP recession is entering its fifth consecutive quarter with no end in sight.”

Why are we wasting hurricane names on poor innocents like Katrina and Andrew?  I say for the 2010 hurricane season we ditch the alphabetical order and line em up in order of egregiousness.   “Hurricane Blackwater devastates the Florida Coast.  Tropical Storm Halliburton kills hundreds in Central America.”

The nice thing about negative naming is that supply is virtually unlimited.  Cities don’t go selling the names of every street in town because selling the marginal street requires lowering the price.  But you can put the name of every former VP at Enron and Arthur Andersen on their own parking meter and the last one makes you want to spit just as much as the first.  Hey, what about parking tickets?  This parking ticket is brought to you by Washington Mutual.

Suddenly the inefficiency of city bureaucracy is a valuable social asset.  Welcome to the British Petroleum DMV, please take your place in line number 8.  And some otherwise low-status professions will now be able to leverage that position to provide an important public service.  “There’s some stubborn tartar on that molar, Ms. Clark, I’m going to have to use the Toyota Prius heavy-duty scaler.  You might feel some scraping. Rinse please.”

“Good Afternoon, Pleasant Meadow Morturary, will you be interested in Goldman Sachs cremation services today?” Or  “Mr. Smith we are calling to confirm your appointment for a British Petroleum colonoscopy on Monday.  Please be on time and don’t eat anything 24 hours prior.”

Just as positive name-association is a lucrative business,  these ne’er-do-wells would of course pay big money to have their names removed from the negative icons and that’s all for the better.  If the courts can place a cap on their legal liability this gives us a simple way to make up the difference.

And I am ready to do my part.  As much as I like one-word titles Sandeep and I are going to add a subtitle to our new paper.  Its going to be called “Torture:  Sponsored by BP.”

Rand Paul, referring to criticism of BP’s handling of the oil spill says

“What I don’t like from the president’s administration is this sort of, ‘I’ll put my boot heel on the throat of BP,'” Paul said in an interview withABC’s “Good Morning America.” “I think that sounds really un-American in his criticism of business.”

“And I think it’s part of this sort of blame-game society in the sense that it’s always got to be somebody’s fault instead of the fact that maybe sometimes accidents happen,” Paul said.

This is symptomatic of the perennial time-inconsistency problem that comes with incentives for good behavior.  The incentives are structured so that when bad outcomes occur, BP will be punished.  If the incentive scheme works then BP acts in good faith and then it is true that bad outcomes are just accidents. The problem is that when the accidents happen it is true that BP was acting in good faith and so they don’t deserve punishment.  And if doling out the punishment requires political will then the political will is not there.  After all, who is going to stand up and demand that BP be punished for an accident?

This is the unraveling of incentives.  Because the incentive worked only because BP expected to get punished whether or not it was an accident. To prevent this, it is the politician’s job to stir up outrage, justified or not, in order to reignite the political will to dole out the punishment.  The blame game is a valuable social convention whether or not you believe there is someone to blame.

Hertz is making an offer for Dollar-Thrifty.  Consolidation of this sort helps all players in the industry by reducing capacity and allowing all firms, including those outside the merger, to raise prices.  (I already talked about this in a post about the United-Continental-US Airways merger dance.)  There is an incentive then to stay outside the merger and gain from it.  There has to be a countervailing force to overcome the positive externality of a merger.  In the rental car case, it seems Dollar has access to a leisure-traveller market that Hertz would like to get their hands on.   And there is an interesting twist to the merger deal they signed with Dollar.  The Avis CEO would like to bid for Dollar (or so he says) and writes to Dollar:

“[W]e are astonished that.. you have compounded these shortcomings by agreeing to aggressive lock-up provisions, such as unlimited recurring matching rights plus an unusually high break-up fee (more than 5.25% of the true transaction value, as described by your own financial advisor), as a deterrent to competing bids that could only serve to increase the value being offered to your shareholders.”

Hertz has built in a nifty-seeming “match the competition” clause into its agreement with Dollar,  If other bidders emerge, Hertz gets to match their bids and there is a break-up fee that deters Dollar from accepting another suitor.

There are several strategic effects.  If Avis truly wants the Dollar leisure market access, this clause clearly makes it hard for them to acquire it.  But it leaves Hertz vulnerable to a spoiling strategy by Avis:  Avis can start bidding up the price Hertz pays for Dollar by make high bids for Dollar.  Avis won’t win Dollar but will leave Hertz stuck with a big payment.

Spoiling may backfire if its triggers a future price war if Hertz is forced to take a short-run perspective and slash prices to survive .  We will see what happens in the next few days.

It is apparently the Democrats’ intention to use the budget reconciliation process to finalize the health care overhaul.  By means of this process, a plain majority of 51 Senators will be required to pass the compromise bill, rather than the 60 that would be required to fight off a Republican filibuster.  An arcane Senate rule plays center stage:

So if reconciliation is such a powerful tool, why didn’t the Democrats use it earlier? Because of another restriction, known as the Byrd rule — named for West Virginia Senator Robert Byrd , who introduced it in 1974. The Byrd rule allows the minority party to block the use of reconciliation if a bill isn’t tied strongly enough to the budget process. The full health care bill the Senate passed in December would have violated the rule (and possibly jeopardized support from many centrist Democrats hoping to avoid controversy).

But, because Democrats passed a full health reform bill in December with 60 votes and are only proposing to make changes to that through reconciliation, it’s easier for them to argue that those changes are simply about making the bill fit the overall budget.

The rule is well-defined, apparently, but nevertheless open to intepretation.  The spirit is to prevent reconciliation, a normally technical phase of the budget process, from being used to enact new legislation.  The Republicans are clearly right to complain that pushing the health care bill through reconciliation violates that spirit.  (Although Democrats counter that Republicans have used it more often in the past.)

But there is a big difference between fair play within the conventions of the Senate and fair play in the eyes of the public.  And in fact, bright line rules like the Byrd rule have more powerful rhetorical value in the broader public debate than he said-Reid said sniping about the cryptic, often unwritten, norms of the Senate.  As the quoted paragraph above points out, despite a flagrant violation of the spirit of the reconciliation process, passing health care in this way is probably within the letter of the Byrd rule.

And that will be ceremoniously confirmed on the floor of the Senate when Republicans raise the question and the Senate parliamentarian gives a ruling.  (By the way, the presiding member of the Senate can ignore the Parliamentarian, and the Parliamentarian can even be replaced by the Senate Majority Leader, but presumably it would not come to that.)  No matter how much Republicans cry foul, ironically the Byrd rule will essentially certify a maneuver it was intended to prevent.

T-Cow disagrees that Paul Krugman should be Fed Chairman:

Elsewhere I have to strongly differ with the Johnson-Kwak proposal that Paul Krugman be selected.  I don’t intend this as a negative comment on Krugman, if anything I am suggesting he is too dedicated to reading and writing and speaking his mind.  The Fed Chair has to be an expert on building consensus and at maintaining more credibility than Congress; even when the Fed screws up you can’t just dump this equilibrium in favor of Fed-bashing.  What lies on the other side of that curtain isn’t pretty.  Would Krugman gladly suffer the fools in Congress?  Johnson and Kwak are overrating the technocratic aspects of the job (which largely fall upon the Fed staff anyway) and underrating the public relations and balance of power aspects.  It’s unusual that an academic will be the best person for the job.

Even if you think that Krugman would be the best person for the job that doesn’t imply that we should give him the job.  The decision is between Krugman doing what he is doing now and Bernanke as Fed chairman versus Krugman being Fed chairman, nobody doing what Krugman is doing now and Bernanke going back to teaching Princeton undergrads.  To prefer the latter it is not enough that Krugman is a better Fed chair than Bernanke.  His advantage there must compensate for the other changes in the bundle.

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