Marginal Revolution

Non-profit prediction markets

At Bet2give, an online electronic prediction market, anyone can “bet” real money on the outcome of these events but with a twist – the “winnings” go to a charity of the person’s choice.

Here is the full article, and here is Bet2give.com.  One of the "problems" with prediction markets is that they are zero-sum investments and traders cannot on average hope to come out ahead.  So why trade?  If only people really "in the know" trade liquidity will be low.  If too many "betting for fun" fools trade, the prices don't mean that much.  You might get the right mix of informed and uninformed but who knows?  So the idea of doing these in charitable form might make some sense.

Why are gun owners so happy?

Arthur Brooks reports:

Who are all these gun owners? Are they the uneducated poor, left behind? It turns out they have the same level of formal education as nongun owners, on average. Furthermore, they earn 32% more per year than nonowners. Americans with guns are neither a small nor downtrodden group.

Nor are they "bitter." In 2006, 36% of gun owners said they were "very happy," while 9% were "not too happy." Meanwhile, only 30% of people without guns were very happy, and 16% were not too happy.

In 1996, gun owners spent about 15% less of their time than nonowners feeling "outraged at something somebody had done." It's easy enough in certain precincts to caricature armed Americans as an angry and miserable fringe group. But it just isn't true. The data say that the people in the approximately 40 million American households with guns are generally happier than those people in households that don't have guns.

The gun-owning happiness gap exists on both sides of the political aisle. Gun-owning Republicans are more likely than nonowning Republicans to be very happy (46% to 37%). Democrats with guns are slightly likelier than Democrats without guns to be very happy as well (32% to 29%). Similarly, holding income constant, one still finds that gun owners are happiest.

By the way, if you are curious, I have never even touched a gun.

Addendum: Arthur has a new (and very good) book out, Gross National Happiness.

A trip to El Bulli

Air Genius Gary Leff crossed the Atlantic for one purpose alone and now the voyage is blogged, gripping throughout.  My favorite passage is this:

Two women walked in ahead of us, they had been meandering around the grounds and then presented themselves (in sweatshirts and tennis shoes) and asked to be seated for dinner… without reservations. They were turned away in an exceptionally polite way.

Sentences of wisdom

What’s missing is a recognition of how mysterious the secret of economic growth remains, despite all the energy that economists have poured into solving it.

That's James Surowiecki, reviewing Ha-Joon Chang's Bad Samaritans and writing on free trade; the piece is interesting throughout.  The pointer is from Ben Casnocha.

Ontdek je innerlijke econoom

The Dutch edition is out now, or at least I have copies in my hands.  You can buy it at these places.  The Korean edition is out as well, but I don't know how to Google the title.

Good Letter, Wrong Address

Mark Thoma has an An Open Letter to ABC about the Presidential Debate signed by Brad DeLong, Kevin Drum, Henry Farrell, Eric Alterman and many others. 

The debate was a revolting descent into tabloid journalism and a gross disservice to Americans concerned about the great issues facing the nation and the world.... For 53 minutes, we heard no question about public policy from either moderator. ABC seemed less interested in provoking serious discussion than in trying to generate cheap shot sound-bites for later rebroadcast. The questions asked by Mr. Stephanopoulos and Mr. Gibson were a disgrace...

I agree.  The only thing the signatories got wrong was where to send the letter.  The letter should have been addressed to the American public.  After all, this debate, which came in the flurry of all the tabloid journalism of the past several weeks, was the most-watched of the 2008 presidential campaign.  The public got what it wanted.

The Horse the Wheel and Language

The tribes Europeans encountered in their colonial ventures in Africa, South Asia, the Pacific, and the Americas were at first assumed to have existed for a long time.  They often claimed antiquity for themselves.  But many tribes are now believed to have been transient political communities of the historical moment.  Like the Ojibwa, some might have crystallized only after contact with European agents who wanted to deal with bounded groups to facilitate the negotiation of territorial treaties.  And the same critical attitude toward bounded tribal territories is applied to European history.  Ancient European tribal identities -- Celt, Scythians, Cimbri, Teoton, and Pict -- are now frequently seen as convenient names for chamelon-like political alliances that had no true ethnic identity, or as brief ethnic phenomena that were unable to persist for any length of time, or even as entirely imaginary later inventions.

That is from David W. Anthony's The Horse The Wheel and Language: How Bronze-Age Riders from the Eurasian Steppe Shaped the Modern World.  In particular this book focuses on the origin of the Indo-European language group and the relationship between archeology and linguistics.  He is also skeptical of Jared Diamond's well-known thesis that early Europe had much diffusion of innovation in the East-West direction.  Recommended.

Climate solutions and carbon dividends

Peter Barnes, Climate Solutions: A Citizen's Guide is the full title.  This simple book is written in the form of punchlines and cartoons but it's still one of the more insightful treatments of the topic.  He is skeptical of a carbon tax:

A carbon tax will never be high enough to do the job.

A low carbon tax would create the illusion of action without changing business as usual.

His alternative proposal has four steps:

1. Carbon cap is gradually lowered 80% by 2050.

2. Carbon permits are auctioned.

3. Clean energy becomes competitive.

4. You get an equal share in the form of permit income.

The "carbon dividends" of course are intended to make the tax politically palatable.  Naturally I am worried by the idea of revenue addiction, not to mention the general practice of redistributing income from business to citizens simply because it is popular to do so.  It might feel pretty good at first but we don't want to encourage Chavez-like behavior on the part of our government.

A broader question is whether the carbon dividends in fact make the citizenry better off.  First there is the question of the incidence of the initial carbon tax, which of course falls on individuals one way or another.  Second, does just sending people money, collectively, make the populace better off?  Aggregate demand effects aside, will the fiscal stimulus make the citizenry as a whole better off?  No.  Will printing up more money and sending it to everyone, even if that is popular, make people better off?  No.

(As an aside, does the Humean quantity theory experiment redistribute wealth from corporations -- which don't sleep on pillows and thus cannot wake up in the morning to "more money" -- to individuals, who do sleep on pillows?  Or is the corporate veil fully pierced?  Just wondering...)

I fear versions of this idea whose (possible) popularity rests on tricking voters.  Being pro-science also means being pro-economic science. 

The general point remains that most discussions of global warming focus on prices and technologies alone, without incorporating realistic models of politics.  By the way, if you think John McCain is a straight talker, try this for yikes. 

The countercyclical asset

Sorry, but the problem has become worse and I have to blog this again:

In Haiti, where three-quarters of the population earns less than $2 a day and one in five children is chronically malnourished, the one business booming amid all the gloom is the selling of patties made of mud, oil and sugar, typically consumed only by the most destitute.

“It’s salty and it has butter and you don’t know you’re eating dirt,” said Olwich Louis Jeune, 24, who has taken to eating them more often in recent months. “It makes your stomach quiet down.”

Netflix pricing

It looks kind of screwy; 3 movies at a time is $16.99 a month but 8 movies at a time is $47.99 a month.  After three movies, the average cost of a rental (see the link for the numbers) is either flat or rising.  Why go for the 8 movies deal instead of setting up separate accounts and queues, thereby saving money?  Why is Netflix encouraging everyone to do the 3 movies a month version of the plan?  Why are there no quantity discounts past the 3 movies a month margin?  (And, by the way, aren't there still lower prices for newbies, at least for a while?)

I suspect this is one of those pricing models that traps a small number of overenthusiastic patrons into paying more, keep a few others away from overgorging on old Jackie Chan films and then quitting prematurely, and de facto gives most customers a pretty flat pricing structure.  Transparency is sacrificed but does anyone really care?

The pointer is from Angus Hedrick.

Charles Darwin on-line

Wow.  It's supposed to amount to about 90,000 pages; here is an article about the project.  Here are a few indicated highlights.

India fact of the day

Ratio of the estimated number of fake doctors practicing in Delhi, India, to the number of real ones: 1:1

That is from Harper's Index, May 2008.

The safety of elevators

Nonetheless, elevators are extraordinarily safe—far safer than cars, to say nothing of other forms of vertical transport. Escalators are scary. Statistics are elusive...but the claim, routinely advanced by elevator professionals, that elevators are ten times as safe as escalators seems to arise from fifteen-year-old numbers showing that, while there are roughly twenty times as many elevators as escalators, there are only a third more elevator accidents. An average of twenty-six people die in (or on) elevators in the United States every year, but most of these are people being paid to work on them. That may still seem like a lot, until you consider that that many die in automobiles every five hours. In New York City, home to fifty-eight thousand elevators, there are eleven billion elevator trips a year—thirty million every day—and yet hardly more than two dozen passengers get banged up enough to seek medical attention. The Otis Elevator Company, the world’s oldest and biggest elevator manufacturer, claims that its products carry the equivalent of the world’s population every five days.

And I like this passage:

Two things make tall buildings possible: the steel frame and the safety elevator. The elevator, underrated and overlooked, is to the city what paper is to reading and gunpowder is to war. Without the elevator, there would be no verticality, no density, and, without these, none of the urban advantages of energy efficiency, economic productivity, and cultural ferment.

Here is the article, interesting throughout.

Sunspots forever

David Cass, formerly an economist at the University of Pennsylvania, has passed away.  His contributions were notable:

He made singular contributions to economic theory, including the introduction of the "Cass-Koopmans" growth model, the discovery of the "Cass" criterion for Pareto efficiency in overlapping generations models. With Karl Shell, he discovered the importance of extrinsic uncertainty (sunspots) in economic dynamics.  His work with many coauthors on incomplete financial markets was extremely influential.

The main idea of sunspots models is that when multiple equilibria are present, expectations can determine which equilibrium comes to pass.  This is a twist on rational expectations; under RE people expect the true model but Cass showed that what is the true model will depend on what people expect.  If I recall correctly, Cass also helped figure out when problems with infinities will render growth models incoherent or invalid.  Cass's version of "high theory" is exactly what is out of fashion today but in the 1980s it was the rage.  I believe some of his work will return in importance.  Here is Cass on scholar.google.com.

Thanks to Chester Norman for the pointer.

Good paper titles

"Do Funds-of-Funds Deserve Their Fees-on-Fees? "

The answer, of course, is yes.

Russ Roberts asks about Beethoven's slow movements

I was giving a talk and I referred to Beethoven's slow movements as some of the most splendid creations of humankind.  Russ asked me for a list, so I'll nominate the following:

1. The Emperor Concerto.  This warhorse is a much underrated piece of music, especially the slow movement.  The best recording, and indeed one of the best classical recordings of all time, is Michelangeli-Celibidache.

2. Beethoven's 9th.  You could try the recordings by Abbado, Barenboim, or Klemperer, among others, for sublime takes on the slow movement.

3. The Late String Quartets, most of all Op.132 but indeed all of them.  The slow movements are done best by Quartetto Italiano or the Busch Quartet, noting that the latter has inferior sound quality.

4. Hammerklavier Piano Sonata.  Schnabel's take on the slow movement is the most profound, but his outer movements are a mess.  Gilels or Pollini are safer.  The box of late piano sonatas by Solomon covers the slow movements beautifully as well; when push comes to shove that is my pick.

Richter-Rostropovich are the choice for the slow movements in the cello sonatas.  And don't forget Ivan Moravec playing the slow movement in the Appassionata.

Assorted links

1. Tim Harford and Dan Ariely, mano a mano on Amazon

2. Utah baby names

3. Money does buy happiness; the ongoing collapse of the Easterlin paradox

4. New video game detects your brain waves

The Mobi

The Mobi is Germany's mobility bonus, funding that covers moving, relocation and retraining costs for unemployed Germans seeking work anywhere in the world.

Plagued by high unemployment due to the turmoil of re-unification and rigid labour laws, Germany has been helping its skilled and less-skilled jobless workers match up with foreign employers searching for manpower.

The country has also been offering financial support to cover moving and transportation costs for the hordes of unemployed Germans in search of jobs across the European Union, and even as far away as Australia and Canada.

The mobility bonus strikes me as a move of desperation. The Germans have created a bloated welfare state and now they are paying people to get off the welfare rolls and get out.  I wonder what Rawls would have said?

Even now, I see an opportunity for America:

Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!

Kindle

It's pretty good.

The worst part: On day one the screen froze and it wouldn't even turn off.  Natasha had to read the instructions and press on a battery point with a pin to reboot it.  What if that happened to me on an airplane?  Must I now always carry around a small, sharp pin?

The best part: For fiction -- that is fiction I'm actually going to read -- I would rather use this screen than a traditional book.  It is somehow easier to have a more focused appreciation of the words without being distracted by the book as a whole.

The actual worst part: For non-fiction it is not fast enough for real scrolling, flipping through, browsing and reading.  The machine is best for linear, sequential consumption of the text.

I'm not sure if this entry should go under the "Books" or the "Web/Tech" category.

The pointer is from Chris Masse

The link, which has further explanation, is here.  Chris's prediction markets blog is here.

Very small countries

Here is James Surowiecki on the economic problems of Iceland.  Google tells me that Iceland has about 316,252 people.  Fairfax County is over three times more populous but it hardly receives any out-of-state attention.  Of course Fairfax County has neither its own language nor its own culture (apart from a lunch tradition, that is) but for economic questions that should not matter much.

One question is whether we should be trading asset claims to the future creditworthiness of very small units.  Let's say there were tradeable shares in the future prospects of assistant professors.  A low share price wouldn't do much for your mid-contract review and maybe not for your mortgage prospects either.  It seems that noise traders can wreak more havoc on small units, if only because volatility relative to retained earnings may be larger.  Maybe the real problem is when the small units cannot self-insure; imagine the public uproar if the Icelandic government were caught selling itself short.

Why we shouldn't boycott the Olympics in any way

A wheelchair-bound Chinese torch bearer has rocketed to national fame after fending off protesters in Paris, becoming a symbol of China's defiance of global demonstrations backing Tibet.

Jin Jing, a 27 year-old amputee and Paralympic fencer has been called the "angel in a wheelchair" and is being celebrated by television chat shows, newspapers and online musical videos after fiercely defending the Olympic torch during the Paris leg of the troubled international relay.

Protesters denouncing Chinese policy in Tibet threw themselves at Jin. Most were wrestled away by police but at least one reached her wheelchair and tried to wrench the torch away. Jin clung tenaciously to what has become a controversial icon of the Beijing Olympic Games until her attacker was pulled off.  Her look of fierce determination as she shielded the torch, captured in snapshots of the scene, has now spread throughout China, inflaming simmering public anger at the protests. "I thought we had lost in France, but seeing the young disabled torch bearer Jin Jing's radiant smile of conviction, I know in France we did not lose, we won!" said one of tens of thousands of Internet postings about the incident.

Here is the story.  Here are further ramifications and don't worry they'll be happy to give up their coal factories too.

Readsplat

The Economist has a new travel blog, the new Fuchsia Dunlop book is only "good," the first issue of Reason magazine under new editor Matt Welch is out (so far I like it; it's less cultural, less left-wing and more current affairsy than before), finally I am into Wilco, Vishnu's Crowded Temple is an interesting account of the blend between Indian politics and religion, Arthur Brooks's Gross National Happiness argues that the traditional conservative recipe makes people happy, Ramon Llull is a much underrated medieval thinker, here's a blog on giving away your rebate, and here's Ryan Holiday on how to master what you read; his technique is the opposite of mine which is simply to read and move on.  And here is why congestion pricing died in New York.

The $10 billion Saudi university

A picture is here and yes they claim the finished version will have both male and female students and Western faculty.  A question we've been asking over lunch lately is the following: how much would it really cost to set up a first-rate university -- and not just a technical school -- in Asia?  Let's say an Asian businessman were willing to put up $10 billion in endowment: how good would the school be?  I see three major problems:

1. Many Asian governments cannot precommit to respecting academic free speech; nor for that matter can the Saudis.

2. An excellent university must be part of an intellectual network near other excellent universities.  Arguably with the internet this effect is weakening over time.  Still, if they tripled my salary I wouldn't move to Saudi Arabia or for that matter Japan and that is for reasons related to network effects.

3. Such universities could not precommit to the governance systems (please don't laugh) that have been so effective in bringing American schools to dominate the world rankings.  In fact the more money that one person or government gave, the greater the commitment problem might be.  By these governance systems I mean faculty control of appointments, with academic-based monitoring by the Dean and Provost, independent boards, and Presidents willing and able to raise enough money to maintain financial independence for the future.  That's a pretty tall order but you'll find all those qualities in the successful American colleges and universities.  Long-run financial independence also requires a more general culture of philanthropy which is found only in the United States.

Technical schools aside, I do not expect American colleges and universities to lose their leadership role in the immediate future.  And if they do, the real competitors will prove to be Europe, the UK, and Canada, not Asia.

The world isn't flat, installment #736

Wolf Totem, by Jiang Rong, is the most widely read book in China since Chairman Mao's Little Red Book.  In the United States it's been out since March 27 and still it has only one Amazon review and a negative one at that.  So far I find it compelling and I am enjoying its panpsychic vulgarities.  It's also a good guide to how the Chinese think about their foreign policy.

Questions that are rarely asked

Why isn't there more science fiction theatre?

Markets in everything

How much is a Twitter account with nearly 1,500 followers worth? Rocketboom founder Andrew Baron wants to find out, and launches a publicity stunt that will spark a debate about trust and privacy: He’s selling his Twitter account, including the followers.

Here is the full story, and thanks to Chewxy for the pointer.  And here is how to custom-order jeans on Second Life.

Financial Compensation for Organ Donors is Working

Only one country in the world has eliminated the shortage of transplant kidneys.  Only one country in the world has legalized financial payments to kidney donors.  That country is Iran.

In an important report, transplant surgeon nephrologist Benjamin Hippen argues that the Iranian system has saved thousands of lives and it should be used if not as model then to inform America's efforts to eliminate its deadly shortage.

In the Iranian system organs are not bought and sold at the bazaar.  Instead a non-profit, volunteer-run Dialysis and Transplant Patients Association (DATPA) mediates between recipients and donors.  Recipients who cannot be assigned a kidney from a deceased donor and who cannot find a related living donor may apply to the DATPA.  The DATPA identifies a possible donor from a pool of people who have applied to the DATPA to be donors.  Donors are medically evaluated by transplant physicians, who have no connection to the DATPA, in just the same way as are non-financially compensated donors.

The government pays donors $1,200 plus limited health insurance coverage.  In addition, charitable organizations also provide renumeration to impoverished donors.  Thus demonstrating that Iran has something to teach the world about charity as well as about markets.  Will wonders never cease?  Recipients may also contribute to donor remuneration.

Hippen reports that the system works well, although better follow-up of donors would be an improvement.  He concludes with a call to legalize financial compensation in the United States.

The economics of the male pill

Might there soon be a pill for men?  Standard theories of tax incidence (borrowing from the Coase theorem) say that if so, it shouldn't much affect the quantity of intercourse.  Either the gains from trade are there or they are not.  The initial burden of taking the pill might change the distribution of those gains across the sexes, but at the end of the night the final result should still be the same.

Only not!

If you are a man who can credibly signal he is taking such a pill, it is like paying the woman for that final result you so desired.  The woman no longer has to perform the costly pill-taking action herself.  And indeed the typical equilibrium is in fact that the man does the paying.  But with the male pill you are paying her in a way that will flatter her, not insult her.  Nice, eh?

The funny thing is, I don't expect the male pill to be popular at all.  The key question is to figure out which assumption of the basic model is not satisfied.

One possibility is that women will infer that a man taking the pill is essentially paying other women for sex and she values him less highly.

Another possibility has to do with credibility combined with lags.  If it's focal for the woman to be taking the pill, the woman is in any case taking her pill in advance.  The male pill would have impact, at the margin, only on women who weren't really planning on having sex at all.  And what kind of man spends his energy targeting such women?  Yes, some men indeed do target such women, but then we're back to the male pill not really being so popular.

A third possibility is that women in any case want the man to use a condom, if only to prevent STDs.  If the man is on the pill, it is harder to make that request without insulting him and thus a woman doesn't want her new paramour to be on the male pill.

Addendum: Megan McArdle adds a fourth explanation.

Bittergate

You've probably already read or heard the remarks but here goes:

"It's not surprising that they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment."

There you have it: some truth, some correct implicit moralizing, elitist scorn and condescension, some false implicit time series (guns and religion do not closely track economic decline), and some totally unpopular cosmopolitan sympathies.  The "they" is the clincher, a hypostatizing and vaguely offensive generalization, yet one which we are all prepared to make in different contexts.

By the way, here is John Lott meets Barack Obama, worth reading for the scene of the encounter.

I think increasingly that Obama is very much a rationalist, in both the good and the bad senses of that term. 

If I think about what makes me bitter, it is highway and roadway construction and bad airports and the attendant delays.  You can decide for yourself what that makes me cling to.

Assorted links

1. Using TiVo fast forwards to predict American Idol winners.

2. An optimistic view of the mortgage market.

3. John Rawls on the superiority of baseball; recall I once described him as the least Hansonian thinker ever.

4. The legacy of Milton Friedman; Brad DeLong comments.

5. Does foreign occupation really cause suicide bombing?

"Guns don't kill people, trading guns does"

Well, that is a joke of sorts.  But here is Jim Kessler's piece on deepening gun ownership.  He writes:

There are 280 million firearms in private hands in America, and last year there were about 300,000 gun crimes. That means that at least 279,700,000 guns did nothing wrong. We also know that in 89 percent of crimes, the person using the gun was not the person who originally bought it. In 34 percent of crimes, the firearm was bought in one state and used in a crime in another. And in 32 percent of crimes, the firearm was less than three years old.

This indicates that the root of America’s gun crime problem is not the number of guns in the hands of Americans, but an extensive web of gun trafficking operations that funnel firearms to criminals.

...The first step is to make gun trafficking a federal crime, not a term of art...Trafficking should be redefined as selling multiple guns out of a home, car, street, or park that have two or more of the following characteristics: obliterated serial numbers, are stolen, are new in the box, or are sold to underage buyers or people with felony records. This would still allow individuals to privately sell firearms to people they know or trust, and it would put the onus on sellers to demand a background check for those they don’t.

None of this seems quite right to me.  It seems to confuse "how things are done now" with "how things could be done if people needed substitutes."  For instance if this proposal were adopted, criminals might acquire guns at a young age and simply never give them up.  (Think of the idea as raising the liquidity premium on owning a gun.)  Or criminals might buy more guns from each other.  I can see that it makes sense to shut off some avenues of gun flow, such as gun sale shows with no buyer verification.  But once the stock of guns is high, I don't think trying to control the flow is likely to prove an effective means of gun control.  Forcing the seller to verify the quality of the buyer is one form of a tax, and yes it will raise the price, but it is in turn hard to verify how well the seller performed this responsibility.  It seems less efficient than a simple and direct excise tax, for instance.

Addendum: Alternatively, you might pose a tax incidence question: how does taxing the stock of guns differ from taxing the flow of trade?  Both will raise price but taxing the flow limits "the velocity" of guns.  Taxing the flow should hurt "whim killers" but it won't so much discourage regular killers.  The former get all the publicity but are they really the bigger problem?