Marginal Revolution

Drill, drill, drill?: the economics of drilling

Matthew Kotchen and Nicholas Burger have done a real study of the economics of drilling in ANWR (ungated, published version here).  Ben Muse reports some of their results:

What are the benefits?  Kotchen and Burger estimated that the oil had a value of $374 billion (writing in July 2007, they assumed a long-term price of $53/barrel), but that it would cost $123 billion to extract and market.  The net return of $254 billion is divided consists of industry rents of $90 billion, Alaska tax revenues of $37 billion, and Federal tax revenues of $124 billion.

Under the authors' understanding of incidence, consumers wouldn't benefit much at all because oil prices would not fall noticeably.  Still, drilling makes economic sense if the loss of environmental amenities is valued at less than $1,141 a person (per American, not per Alaskan) and that was with a price of oil roughly half of today's price. 

At today's price of oil, a rough estimate of the benefit -- not counting environmental costs -- is over $600 billion.  So the whole issue seems much more important than I had thought just one hour ago.  Some approximation of taxes and transfers and auctions are available, so these gains can be redistributed to some extent if you wish.

That's a lot of wealth.

My IM dialogue with Ezra Klein

Find it here.  Here is Ezra's version of Markets in Everything.

Tabarrok in Variety

"Unstable characters run amok in Tabarrok's oddball oeuvre..."

Apparently, my movie producer brother and I have more than family in common!

Here and here are previous MR posts on my brother's oddball oeuvre.

The economics of secession

The classic paper is Buchanan and Faith, AER 1987.  Here is a recent extension of this classic work, with a dash of economic determinism:

Secessionist movements present themselves to the global public as analogues of colonial liberation movements: long-established identities are denied rights of self-determination by quasi-imperial authorities. Self-determination is presented as the solution to the challenge of peaceful coexistence between distinct peoples. The global public not only accepts this message but reinforces it: both Hollywood and diasporas relay it back to populations in developing countries. In this paper, we will argue that the discourse of secessionist movements cannot be taken at face value. We will suggest that a more realistic characterization of secessionist movements is that their sense of political identity is typically a recent contrivance designed to support perceived economic advantage, if the secession is successful, and facilitated by popular ignorance.

There are, of course, plenty of successful secessions.  Slovakia has been successful nation because of a language and a desire to be free of Czech rule, backed by EU free trade, EU largesse and political precommitment.  Or secession can help you break free of an evil empire, such as when Georgia left the former Soviet Union.  The most likely American state to make a success out of secession is, I think, Texas (or offer up your pick in the comments).  A Texan nation is hardly a good idea, but at least the state is big, has a diversified economy, has an outlet to the water, has a history of independence, and has a border with another nation, namely Mexico. 

The least likely American state to make a success of secession is, I think...Alaska.  The state takes in lots of federal money, has only a small natural population base, and is not too far from Russia.  Here are some data on which states receive the most on net from the federal government.  According to these numbers, only the state of New Mexico benefits more in (proportional) fiscal terms.  The states which fare the worst from federal transfers are New Jersey, Connecticut, New Hampshire, Minnesota and Illinois.

On decay

Robert Gibbons wrote:

When I first read Coase’s (1984: 230) description of the collected works of the old-school institutionalists – as “a mass of descriptive material waiting for a theory, or a fire” – I thought it was (a) hysterically funny and (b) surely dead-on (even though I had not read this work). Sometime later, I encountered Krugman’s (1995: 27) assertion that “Like it or not, … the influence of ideas that have not been embalmed in models soon decays.” I think my reaction to Krugman was almost as enthusiastic as my reaction to Coase, although I hope the word “embalmed” gave me at least some pause.

Thanks to several MR readers for recommending this paper.  I would have written: "Like it or not, the influence of ideas soon decays."

My IM chat with Ross Douthat

It is here and it was produced yesterday afternoon.  The point about fertility was borrowed from Steve Sailer.