Marginal Revolution

Hanson on Bounties

Robin beats me to a story on bounties in the Washington Post.  I couldn't have said it better so here is his full post.

A Post article today, Bounties a Bust in Hunt for Al-Qaeda:

Jaber Elbaneh is one of the world's most-wanted terrorism suspects. In 2003, the U.S. government indicted him, posted a $5 million reward for his capture and distributed posters bearing photos of him around the globe.  None of it worked. Elbaneh remains at large, as wanted as ever. ...

Since 1984, the program has handed out $77 million to more than 50 tipsters, according to the State Department.  ... In 2004, Rep. Mark Steven Kirk (R-Ill.) visited Pakistan to assess why Rewards for Justice had generated so little information regarding al-Qaeda's leadership. He discovered that the U.S. Embassy in Islamabad had effectively shut down the program. There was no radio or television advertising. ...

In 2004, Congress passed a law authorizing the State Department to post rewards as high as $50 million apiece -- a provision with bin Laden in mind. Last fall, Rep. Dan Boren (D-Okla.) went further, introducing a bill that would raise the cap to $500 million. The State Department has declined to boost the reward for bin Laden, arguing that more money was unlikely to do any good and would only add to his notoriety.

Let's see, billions spent via ordinary means, and millions offered in bounties, and it is the bounties they blame for Al-Qaeda's notoriety and failing to catch leaders?  The billions are spent and gone, while the millions in bounties we only lose when they actually work.  How then is this data suggesting we should prefer ordinary means to bounties?

Here is one of my previous posts on bounties.  The Rewards for Justice program has actually brought in some big catches.

Markets in everything, Japan edition

Mobs are legal entities here. Their fan magazines and comic books are sold in convenience stores, and bosses socialize with prime ministers and politicians.

Here is the full story, which focuses on the continuing powerful role of the mob in Japan.  Get this:

The most powerful faction, the Yamaguchi-gumi, is known as "the Wal-Mart of the yakuza" [TC: do they promise "Always Lower Prices"?]  and reportedly has close to 40,000 members.

No, this is neither Bryan Caplan nor Robin Hanson

It's Sir Thomas Browne, one of my favorite writers I might add, circa 1672:

Again, Their individual imperfections being great, they are moreover enlarged by their aggregation; and being erroneous in their single numbers, once hudled together, they will be Error it self. For being a confusion of knaves and fools, and a farraginous concurrence of all conditions, tempers, sexes, and ages; it is but natural if their determinations be monstrous, and many waies inconsistent with Truth. And therefore wise men have alwaies applauded their own judgment, in the contradiction of that of the People; and their soberest adversaries, have ever afforded them the stile of fools and mad men; and, to speak impartially, their actions have made good these Epithets.

You'll find the full passage here.  The point resembles Bryan but there is something about the spirit which reminds me more of Robin.  It's one of my favorite pastimes to find passages in early texts which in some way presage Robin Hanson; this means having to reread Gulliver's Travels every now and then.  By the way, the Burial Urn and the Garden of Cyrus are probably Browne's most compelling works.

Wuthering Heights

When Dante Gabriel Rossetti read the novel Wuthering Heights, he wrote to a friend: "The action takes place in Hell, but the places, I don't know why, have English names.

That is from Jorge Luis Borges, Selected Non-Fictions.

Wheat Prices are Down

Rice prices remain high, however, although world production is up a little bit (data on rice). Hat tip to Carpe Diem.

Good sense on food prices

It seems to me odd to fault the World Bank for advice some 15 years ago to eliminate import protection--so that domestic prices could come down at the time--while at the same time complaining about high prices now, even with the benefit of hindsight.  If developing countries had all kept their import protection, the global supply of food would have been lower today, not higher. (That is because import protection would have led global production to be reallocated from efficient exporters to inefficient importers.) If you are for self-sufficiency, you must be willing to live with high prices.   

No, that's not me, that's from Dani Rodrik.

Bernanke's bubble laboratory

Manias can persist even though many smart people suspect a bubble, because no one of them has the firepower to successfully attack it. Only when skeptical investors act simultaneously -- a moment impossible to predict -- does the bubble pop.

...Mr. Bernanke hired finance experts who had broad interests and were eager to work with the university's deepening bench of theorists. He lured Dilip Abreu, known for work in game theory, back from Yale, to which he had earlier defected. Making a virtue of an institutional weakness, the absence of a business school, Princeton assimilated the finance scholars into the economics department and freed them to pursue research.

They are building on work done by the late Hyman Minsky, whose once-ignored ideas about investing manias are now in vogue, and the late economic historian Charles Kindleberger, whose 1978 "Manias, Panics and Crashes" is a classic. But compared with Mr. Minsky or another student of bubbles, Yale's Robert Shiller, the Princeton trio focuses less on mass psychology than on mathematical models. These they use to show how bubbles can be created even in markets that include rational, calculating investors.

Here is the full story, interesting throughout.

Retail loyalty card programs

From some time ago, Kevin Drum reports:

I really loathe retail loyalty card programs. 

These programs serve two functions.  First, they are a form of price discrimination.  Buyers who are willing to collect and show the cards pay lower prices while the "I can't be bothered with this ****" types pay higher prices. 

Second, retail loyalty cards enforce partial collusion ex post in an oligopolistic setting.  In other words, cards and frequent flyer programs "lock in" buyers to their favored firms.  Once that lock-in is accomplished, all firms have weaker incentives to cut price to lure away buyers from their favorites.  (The smarty-pants point is to note that firms have to give buyers a better deal upfront in anticipation of this lock-in but still if the company moves first with a non-negotiable offer it still can come out ahead and raise the P/MC ratio.)

The first function is usually welfare-improving, the second function usually is not.  Overall you personally benefit from loyalty card programs if you don't mind holding the cards (you have a thick wallet) and you have a strongly favorite company/product anyway.  In the latter case you are likely locked in anyway, so the strengthening of the lock-in effect doesn't so much restrict your freedom.  This is tricky of course because you might miss out on preemptive price cuts from your favorite firm to keep you, since maybe they don't otherwise know how much you love their stuff.  Still, I will stick with this mechanism as a plausible guess of the net effect.

You suffer from loyalty card programs if...you hate them.  Not only do the programs and the smiling clerks bug you but you are the kind of person who ends up paying more.  Which means you hate the programs even more.  Which means...

But wait: the equilibrium seems to converge and so Kevin Drum's anger at retail loyalty card programs remains, in reality, quite low. 

Brazil facts of the day

1. Brazil has become a net creditor nation for the first time in its history.

2. About 15% of the Congress is under formal investigation for crimes, ranging from attempted homicide to money laundering.

3. Since 2005 more than 20 million people have entered "the middle class," defined as a monthly income of $635.  The percentage of middle-class Brazilians has grown from 34% to 46%.

Those facts are all from "Brazil Joins Front Rank of New Economic Powers," in Tuesday's Wall Street Journal.

Economicwoman.com

That is the site address for a new blog on feminism and economics.  Allison, the blogger, points us to a YouTube channel on feminist economics.

Here is Allison's advice for economics undergraduates; feel free to add to it in our comments section.