Marginal Revolution

Former markets in everything

Curved barrel machine gun (1953).

At the link you'll find many other silly ideas.  Might the Finnish portable sauna someday make a comeback?  #7 is extremely silly, as are some of the others.

For the pointer I thank The Browser.

Time is money

If traders are located 100 miles away from an exchange, they face a delay of one millisecond whenever they seek to trade a price via their computer screen. Few serious investors can afford to be that late to prices that flash so quickly. The blink of a human eye takes 300 milliseconds; many traders now operate in the smaller realm of microseconds.

Here is the longer story.  I liked this bit:

Mr Greifeld said there might have to be measures to ensure speeds within the co-location facilities were the same. “We might have to give everybody the same length cable, believe it or not,” he said.

For the pointer I thank Christian Meyer.

Teacher Performance Pay: Experimental Evidence from India

In an impressive new paper, Karthik Muralidharan and Venkatesh Sundararaman provide evidence on the power of teacher incentives to increase learning.  The paper is impressive for three reasons:

1) Evidence comes from a very large sample, 500 schools covering approximately 55,000 students, and treatment regimes and controls are randomly assigned to schools in a careful, stratified design. 

2) An individual-incentive plan and a group-incentive plan are compared to a control group and to two types of unconditional extra-spending treatments (a block grant and hiring an extra teacher).  Thus the authors can test not only whether an incentive plan works relative to no plan but also whether an incentive plan works relative to spending a similar amount of money on "improving schools."

3)  The authors understand incentive design and they test for whether their incentive plan reduces learning on non-performance pay margins.

The results are as follows:

We find that the teacher performance pay program was highly effective in improving student learning. At the end of two years of the program, students in incentive schools performed significantly better than those in comparison schools by 0.28 and 0.16 standard deviations (SD) in math and language tests respectively....

We find no evidence of any adverse consequences as a result of the incentive programs. Incentive schools do significantly better on both mechanical components of the test (designed to reflect rote learning) and conceptual components of the test (designed to capture deeper understanding of the material),suggesting that the gains in test scores represent an actual increase in learning outcomes. Students in incentive schools do significantly better not only in math and language (for which there were incentives), but also in science and social studies (for which there were no incentives), suggesting positive spillover effects....

School-level group incentives and teacher-level individual incentives perform equally well in the first year of the program, but the individual incentive schools significantly outperformed the group incentive schools in the second year....

We find that performance-based bonus payments to teachers were a significantly more cost effective way of increasing student test scores compared to spending a similar amount of money unconditionally on additional schooling inputs.

Surprisingly, since absent teachers are a big problem in India, reduced teacher absenteeism per se does not appear to be the primary mechanism by which incentives improve learning.  Instead the primary mechanism appears to be more intensive teaching, including more homework and classwork and better attention to weaker students, this greatly increases the relevance of these results to teaching in the developed world.

Addendum: See also Karthik's comments on the comments at 26.

The temptation tax

Banerjee and Mullainathan offer a different explanation, one which shows how temptation might interact in a unique way with poverty. Suppose, they argue, that there are certain goods that people are tempted by, such as candy, or coffee, or cigarettes. Then suppose that as people get richer, they spend a decreasing proportion of their income on these goods; not a smaller absolute amount, but a smaller proportion. (There’s only so much money you’re likely to spend on cigarettes, no matter how rich you get.) Finally, suppose you’re realistic enough to know that you’ll be just as tempted in the future by these items as you are today.

In sum, your “long term self” knows that you will spend money on temptation goods in the future, but places no value on that spending. (Your long term self doesn’t like the fact that you’ll spend money on cigarettes, even though your today self wants it.) Knowing that you will spend this money amounts to a “temptation tax” on future wealth. This is a disincentive to save for the future. Why save today? After all, your future self will just squander the money on cigarettes!

But as you get wealthier, the effective “tax rate” is lower, because temptation goods are a smaller proportion of your income. With a lower tax rate, your disincentive to save shrinks. Perversely, if you expect to be wealthier in the future, you have a greater incentive to save and invest! Banerjee and Mullainathan show that this can create a poverty trap. When you expect to be poor in the future, you are less likely to save and invest, which keeps you in poverty. When you expect to be wealthy in the future, you are more likely to save and invest, which makes you wealthier still.

Here is the core article.  For the pointer I thank Rachel Strohm, who tweets about Africa and economic development.

Robert Pozen on Lehman Brothers

In his new book he writes:

In my view, the adverse repercussions of Lehman' failure could have been substantially reduced if the federal regulators had made clear that they would protect all holders of Lehman's commercial paper with a maturity of less than 60 days and guaranteed the completion of all trades with Lehman for that period.

As I interpret that recommendation, it is to guarantee the obligations which are vulnerable to run-like behavior, but not to guarantee debt obligations more generally.

Here is my previous post on Pozen's fine book.

Addendum: James Kwak comments.

Progress

Assorted links

1. Profile of Zero Hedge.

2. Health care expenditures, in graphic form.

3. The Law of One Price: Costco vs. Manhattan.

4. "These factors combine to make our era the most consistently and consequentially deluded and unadaptive of any era ever.": Robin Hanson is on a roll.  Or how about this:

Our dreamtime will be a time of legend, a favorite setting for grand fiction, when low-delusion heroes and the strange rich clowns around them could most plausibly have changed the course of history.  Perhaps most dramatic will be tragedies about dreamtime advocates who could foresee and were horrified by the coming slow stable adaptive eons, and tried passionately, but unsuccessfully, to prevent them.

This is a test (but not a trick)

I'm interested in understanding why MR has such a high-quality comments section.  I'd like you to consider this passage, from today's Guardian (not today's Onion), and try to write high-quality comments on it.

The statement, read out by Archbishop Silvano Tomasi, the Vatican's permanent observer to the UN, defended its record by claiming that "available research" showed that only 1.5%-5% of Catholic clergy were involved in child sex abuse.

Let's see how you do.  If you can indeed produce high-quality comments, it means you're better than the other blog commentators.  If you can't, maybe it means that Alex and I are in some way better with regard to what we post and how we present it.  In that case, once our splendid framing is off-scene, you revert to your usual, rotten selves.  I want you to end up with most of the credit.

The Ultimate Productivity Blog

I give it an A+. 

I found this at the excellent Twitter site of Michael Nielsen, recommended by an MR reader.  He also refers us to this interesting article on neurology and athletic performance and this piece on the surprises of mathematics.

Here is his blog and here is his blog post on the future of scientific journals.  Here is Michael on the future of science.

Most of all, I like his six rules for rewriting.

Hail Michael Nielsen, who justifies Twitter all on his own.

*SuperFreakonomics*

Doing the math, you find that on a per-mile basis, a drunk walker is eight times more likely to get killed than a drunk driver.

The subtitle of the book is Global Cooling, Patriotic Prostitutes, and why Suicide Bombers Should Buy Life Insurance and you can pre-order it here.  The authors are...come on guys...need I tell you?

The Harper and Collins press blurb offers this summary:

"SuperFreakonomics challenges the way we think all over again, exploring the hidden side of everything with such questions as:

• How is a street prostitute like a department-store Santa?
• Why are doctors so bad at washing their hands?
• How much good do car seats do?
• What's the best way to catch a terrorist?
• Did TV cause a rise in crime?
• What do hurricanes, heart attacks, and highway deaths have in common?
• Are people hard-wired for altruism or selfishness?
• Can eating kangaroo save the planet?
• Which adds more value: a pimp or a Realtor?"

I would stress different angles.  My favorite part of the book was the presentation of the List-Levitt critique of experimental economics.  In particular the authors discuss whether the subject participants are more cooperative to begin with and also whether they are primed to please the experimenter.  The biographical information on John List is fascinating.  There is a very good revisionist account of the Kitty Genovese story; the neighbors didn't perform as miserably as many people think.  Terrorists are especially likely to rent rather than buy, especially unlikely to take out life insurance (which doesn't pay off in cases of suicide), and likely to have a large number of cash withdrawals relative to other transactions.

Geo-engineering, as a response to global warming, receives more pages than any other single topic.

This book is recognizably in the style of Freakonomics, a book I suspect you already have made up your mind about.  I will say only that SuperFreakonomics is a more than worthy sequel, a super sequel you might say.  If you're a fan of Freakonomics, you'll like this too.  This really is the fall season of big, big books.