Marginal Revolution

Outsourcing, taken to extremes

If backward time travel is also somehow possible, maybe firms in the future will choose to outsource some of their operations to the past, locating their manufacturing and other services in lower-wage time periods. This opens the possibility of transtemporal gains from trade... assuming, of course, that governments don’t implement effective trade barriers.

That is Glen Whitman, here is more, interesting throughout.  By the way, Stephen King was right: the movie Jumper is quite good, albeit it requires a taste for conceptual science fiction counterfactuals.  It's the best treatment of teleportation I know, with of course references to Plato's Ring of Gyges.  Catch it on video if you can.

It's OK to live together before marriage

The latest word is here, namely that the previously established relationship between cohabitation and marriage failure seems to have gone away.  I hope I have made a few of you happy today.

Andreessen on The Psychology of Human Misjudgment

Great insights from two legendary entrepreneurs - that's what Marc Andreessen is offering up in a series of posts on Charlie Munger's The Psychology of Human Misjudgment.  Munger is Warren Buffet's long-time partner and vice-Chairman at Berkshire Hathaway.   Andreessen writes:

Mr. Munger's magnum opus speech, included in the book, is The Psychology of Human Misjudgment -- an exposition of 25 key forms of human behavior that lead to misjudgment and error, derived from Mr. Munger's 60 years of business experience. Think of it as a practitioner's summary of human psychology and behavioral economics as observed in the real world.

Here's a taste of Munger:

...almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behavior. But this is not often so. For instance, I think I've been in the top five percent of my age cohort almost all my adult life in understanding the power of incentives, and yet I've always underestimated that power. Never a year passes but I get some surprise that pushes a little further my appreciation of incentive superpower.

...We [should] heed the general lesson implicit in the injunction of Ben Franklin in Poor Richard's Almanack: "If you would persuade, appeal to interest and not to reason." This maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives...

Andreessen is going through the speech and offering comment from his own experiences.  Here's Andreessen with an important example:

...the result of shifting from stock options to restricted stock should be obvious: current employees will be incented to preserve value instead of creating value. And new hires will by definition be people who are conservative and change-averse, as the people who want to swing for the fences and get rewarded for creating something new will go somewhere else, where they will receive stock options -- in typically greater volume than anyone will ever grant restricted stock -- and have greater upside.

Read the whole thing, it's the first post in a series I'm very much looking forward to reading.

Pay-As-You-Drive Car Insurance

The new issue of Democracy: A Journal of Ideas (registration, but easy and free) is very interesting.  Here is one proposal, from Jason Bordoff:

Drivers who are similar in all respects—age, gender, driving record—pay roughly the same premiums whether they drive 5,000 or 50,000 miles per year, even though the likelihood of a collision increases with each mile. This “all-you-can-drive” pricing scheme imposes significant costs on society: more traffic accidents, congestion, air pollution, greenhouse gas emissions, and dependence on oil.

...the effect of PAYD on miles traveled and gasoline consumption would be significant: a 6.5 percent reduction under conservative estimates, and others suggest the reduction could be as high as 10 percent. To put that in perspective, it would take an 81-cent-per-gallon increase in the gas tax to achieve a 6.5 percent reduction in miles driven.

Monitoring costs seem workable, at least in principle with computerized odometers, so why don't companies do this?