Actuaries to the rescue? A market-based solution to an externality problem

I promise I'll go back to our regularly scheduled program of topics that are non-gun related soon enough (sneak preview: coming soon will be topics on the economics of the star wars 'death star', state tax subsidies and their effect on business, and an interesting new pricing strategy for drinks in bars), but I ran across a kind of brilliant market-based solution that might bypass some of the trickier gun control issues.  So at least this version of gun control policy is in an area I actually know something about and is more of a standard economic solution to a problem. In a post similarly titled to my earlier post over the weekend, the author presents her son's idea:

Game Theory, Externalities, and Vaccinations

One of the problems with having an economist in your family is that, no matter how hard you try to fight against it, you get sucked into looking for interesting questions about human behavior.  Such is the burden that my wife bears.

Yesterday, our son had his one-year old round of vaccinations at the doctor's office which sparked a question from my wife, Katie.  But first, a little more background:

Internet governance, international trade, and the future of the web

Today in Dubai a meeting will be held that may, in part, shape the direction of the internet in the future.  While we all take for granted now that it's just "there," in actuality the protocols and standards for the internet are governed and directed by policymakers in the U.S. and around the world. 

This article in the Economist lays out the situation quite well:

"THE rules of the internet decide its speed, safety, accessibility, flexibility and unity. They therefore matter not just to computer enthusiasts, but to everyone with a stake in the modern world. On December 3rd officials from more than 150 countries, plus do-gooders, geeks and other interested parties, will meet in Dubai to argue about how to run the network—and fight over who should control it.

Since the internet’s creation, a ragtag bunch of academics, engineers, firms and non-profit outfits have been in charge. That delights innovators but has been a nightmare for the tidy-minded, and especially for authoritarian governments. They would like the net to be run like the world’s telephone system, with tight standards and clearly set charges. The Dubai meeting brings the chance to write new rules, with a review of an elderly treaty: the International Telecommunication Regulations."

Twinkies, Pizza, Health Care, Hockey, and Black Friday Economics

There has been no more divisive topic in Wisconsin over the last two years than the words "union" and "collective bargaining," which made me hesitant to write this post.  However, over the last few weeks there have been some really interesting economic events in the news surrounding labor issues.  Besides that, we are about to start a unit on monopoly in my principles of microeconomics class and a bargaining unit in my game theory class, so these topics are of particular relevance to my students right now.  Thus, I'm going to attempt to do the impossible: write a fairly balanced, informative post on labor issues that presents some interesting questions for discussion.  You can let me know whether I succeeded.

Data Visualization

As students are churning toward the end of the semester, many are starting to get to the point where they are thinking about how to present the results of projects they've been researching for the last few months.  I thought this would be a good time to highlight another growing trend (and career path) in social science: creative data visualization.

Carbon ranching

Externalities and market failure have been on my mind lately - partly because we just finished that unit in my intro econ class, partly because I'm a public economist and that's a good chunk of what we spend our time thinking about, and partly because I've been reading a lot about California's new greenhouse gas emissions permits which went into place yesterday.

The economics of campaign finance

So you're an applied social science student and are interested in advocating for issues you believe in, but you want a high paying job?  Here's a career path for you:  Political consulting.

One of the stories that comes out towards the end or shortly after every campaign season is always about the amount of spending done leading up to the election.  (See a really good summary graphic from the NY Times here, or a more detailed set of facts from a watchdog group on campaign spending here)

This was the first true post-Citizen's United election season and the result is an estimated $6 Billion spent on elections in the U.S. this year.  Where does that money go? (and how can you pocket a chunk of that sweet, sweet cash for yourself? you might be asking)

Chili Parlors, Community, and Geography

This weekend I made my son Cincinnati Chili for the first time.  If you've never heard of Cincy chili, wikipedia has a pretty good brief summary or if you're up for something a little more complete, here is an ethnographic - type study of chili and it's importance in Cincinnati culture: The Story of Cincinnati Chili.  From the picture above, you can see that he is perhaps a little young still but I wanted to get it into his blood as soon as possible, and it was a pretty big hit.  (FYI: the peas were a concession to healthiness because he's a baby and not a sanctioned ingredient).

Over the course of the meal, my wife and I got to talking about regional foods and their importance to the quality of life in a particular place.  We've lived in a number of places and visited lots of others and one of the things that makes us really enjoy being someplace is a sense of culinary identity.  Wisconsin has beer and cheese and brats among other things (some of you might be surprised to know that cheese curds are completely foreign food in much of the country).  Cincinnati has chili and a few other things like Goetta.   Maryland where my wife is from has blue crabs from the Chesapeake Bay.  When we lived in North Carolina, we had Carolina barbeque and also some really great chicken and biscuit places tightly packed around Winston-Salem.  I've spent a lot of time in Chicago and one of my favorite things to get there is an Italian Beef sandwich.  Coastal South Carolina and Georgia have "low-country" cuisine, and don't even get me started on New Orleans and the mouthwatering bounty associated with that region.

The Productivity of the Waterfront and Two Hearted Ales

I'll let the secret out now: I spend my happy hours at the Waterfront Bar and Grill with colleagues in the social science department.  Regularly.  We like the atmosphere and the food.  Sitting outside in the summer is nice, even with the algal bloom off the lake.  And they always have Bell's Two Hearted Ale (a Michigan IPA) on tap.  However, what is most important to us is we talk about work.  And we really love doing so.  We actually get a ton of program planning done and classroom exercises created.  To me, this illustrates the importance of our social relationships to our jobs.

Halloween: Social Contract?

 

One thing you should know about the Ferguson household is that my wife is a notorious Halloween Grinch.  She's always grumpy on Halloween and has no interest in decorations, costumes, or most importantly ... handing out candy.

The role of government

A funny thing has happened on the way to an election that seems to have largely become a direct referendum on the role and size of government more than any specific policies - we got reminded just how much we all depend on government in a crisis and of the power and necessity of collective action and risk pooling.  Personal Responsibility and Job Creators can only carry us so far when mother nature decides to decimate everything in her path, it seems. 

Bob Schieffer's Mom

Another debate season ends with one of my favorite American traditions: Bob Schieffer quoting his mom: "Go Vote.  It makes you feel big and strong"

I know it's cheesy, but it's also very true.

On a related note, if any students are looking for a fun and interesting 21st century election year research topic ... We heard a lot in the last election about it being the first "social media" election with Twitter and Facebook just beginning to gain importance in fund raising and advertising - I think I would dub this the first "meme" election.  Somewhere in pages and pages of The Google there is a really interesting research paper that would also be an excuse to look cheezburger cats with "binders full of women"and Lord of the Rings characters decrying their lack of "horses and bayonets."  Semiotics project anyone?

The Importance of "The Ponder"

We have a person in our department who is a wonderful historian and teacher.  Let's call him Labid Scheim.  His first reaction to external stimuli is typically to "ponder".  He uses that precise word.  I was originally a bit critical of his persistence to ponder.  Alliteration aside, my concern was that such pondering may constrain an immediate effort to get something done when we really need as many people as possible instrumentally driving our program and department forward.  This is certainly not unique to him- many professors in our department and around the country take this approach.  Consequently, it feels like we do not have an instrumentally productive enough division of labor to be efficient as a department.  But then again, maybe Dr. Scheim offers us a reminder of the dangers of pursuing outcomes "efficiently"...

Marriage Decreases Gun Violence? (and subtle racial coding)

In last night’s debate the following question was asked: “What will you do to get assault weapons out of the hands of criminals?”

Romney answered: “What I believe is we have to do, as the president mentioned towards the end of his remarks there, which is to make enormous efforts to enforce the gun laws that we have, and to change the culture of violence that we have … And I believe if we do a better job in education, we'll give people the hope and opportunity they deserve and perhaps less violence from that. But let me mention another thing. And that is parents. We need moms and dads, helping to raise kids. Wherever possible the benefit of having two parents in the home, and that's not always possible. A lot of great single moms, single dads. But gosh to tell our kids that before they have babies, they ought to think about getting married to someone, that's a great idea. Because if there's a two parent family, the prospect of living in poverty goes down dramatically. The opportunities that the child will be able to achieve increase dramatically. So we can make changes in the way our culture works to help bring people away from violence and give them opportunity, and bring them in the American system.”

Economics ... it's not just about money!

An important event happened this week that I hope will be one more step along the path toward de-bunking the idea that economics is solely the study of greed and money and selfish profit-seeking behavior.  Too often students (and non-students including some of my social science colleagues!) get this impression and are turned off by the subject, perhaps because of the way we teach our introductory classes with an over-emphasis on traditional interpretations of price-based competitive markets and also because most of the time when an economist is quoted or interviewed in the news they are being asked about events on Wall Street or actions of the Federal Reserve. 

The truth is that we do talk a lot about money in economics, although for most economists that is simply a shorthand unit of measurement that we use for convenience.  We could do most of our analysis by considering any unit of measurement that relates to optimizing decision behavior -whether that is time, happiness, health, knowledge, equity (or yes, sometimes money).

If you had just one question...

Imagine if you could ask a presidential candidate just one question.

To make it more interesting, let’s stipulate that before the candidate could answer, he would have to accept an injection of truth serum.  For the first time, the candidate would say out loud what he is privately thinking.

Allow me to share with you my question to President Obama, and what I believe would be his response.

Belonging, Education, and Civil Society

I want to bring up an interesting study out of Stanford to talk about the role of educators as productive members of civil society.

Walton and Fisk (a psychologist and sociologist, respectively) found that women perform far better in traditionally male disciplines (math and engineering) when they are made to feel like they belong, that they "fit in" with those disciplines.  Essentially when women are around sexist men who make them feel like they should try fitting into more typically female disciplines (writing, for example), women tend to do worse in their math and engineering performances.  In addition, when women hear uplifting stories about how well women do in math and engineering, they will feel like they belong and perform better.  Part of this might be because they will work harder to learn math and engineering, and part of this might be the simple confidence boost that gets them to productively use the knowledge they already have in their brains. Either way, feeling like you belong really matters to how well you will perform at something, especially if you've been told before that you do not belong (in either subtle or overt ways).

Democrats Dilemma

In the days since the October 3 presidential debate, national polls continue to show President Obama maintaining a slight lead over Governor Romney.  These national polls are misleading and, I suspect, are lulling Democrats into believing that the debate was something less than the unmitigated disaster for them that it really was.

Recession blues

I can live with rampant foreclosures, skyrocketing unemployment, massive government budget cuts, and a plummeting stock market, but when a recession has threatened the existence of Fender guitars we've reached a point where the very threads of society are about to be ripped asunder. 

An interesting article in the NYTimes over the weekend about how Fender Musical Instruments, Inc has been hit hard by the recession.  This is a good example of an economic "luxury" good, and this is the type of good you would expect to take a hard demand hit when incomes go down during an economic slowdown.  Making matters worse are a complex combination of effects caused by Wall Street insiders, changing musical genre tastes, competition from international firms with cheaper mass production techniques, and even Mitt Romney!

Education policy - follow up

I wanted to continue some of the questions raised by Nels in his earlier posts here and here.  I think one of the biggest challenges to come to grips with in education reform is in figuring out what our goals are ... do we want to guarantee a certain baseline of knowledge or do we want to push the frontier as possible.  Probably both, but how do we weigh each of those goals?  This is a fundamental question in everything from early education tracking to availability of vocational schools to relative funding of public higher ed and community colleges vs. elementary and secondary school. 

Expanding the discussion on religious freedom and opposition to the ACA

I noted in my presentation about the Affordable Care Act (ACA) that the requirement that insurance plans provide contraception at no extra cost was fiercely opposed by the Catholic Church and others on the grounds of religious freedom.  As a result, the Obama administration exempted “religious employers” from the requirement, but there are still several court challenges in the works.  Dr. Sweat and I noted in our comments that this opposition is interesting given that large percentages of religious women and Catholic women use contraception.  A summary of this data and a link to more detail can be found here: http://www.guttmacher.org/media/nr/2011/04/13/index.html.

I also noted that I find it productive to see the opposition to this aspect of the ACA as going beyond a concern with religious freedom.  Providing contraception is opposed by many on the right and opposition to it is connected to other policy proposals and views: pro-life views, support for more restrictions on abortion, opposition to comprehensive sex education, proposed fetal personhood legislation, and the vote to defund Planned Parenthood. 

A Story of Education, Part II

As you can imagine, the rant on Part I is really what you can almost feel as an on-the-ground consequences for teachers.  And it is certainly not sustainable.  That quote is from a high quality teacher.  She is not perfect.  However, she does not need to be perfect, because it would be ridiculous to suggest that all (or, in fact, any) teachers could be. They especially cannot be perfect if you evaluate them by narrow outcomes that must be achieved not by them but by the (sometimes) dozens of students they teach at a time, students who each feel different constraints on their lives. These constraints are made even more illogical and insurmountable when considering the lack of resources flowing to education.

So, my question for those who are knowledgeable about such constraints- what are they?  Let's see if we can map a realistic theoretical and empirical picture of what needs to be taken into consideration for meaningful public education policy.  

Secondly, how might we get there?  Let's see if we can map that out too.  

I dont mean to be too formulaic in this, as that might be part of our problem (too much positivism!).  But I think it would be good to get the best general knowledge we have out there so this blog can offer a nice primer for those interested in applying social science to education.

A Story of Education, Part I

Virginia has decided that teachers were overpaid for not producing adequate results.  Well, not all of Virginia.  Just a few in power.

The ideology is simple, actually.  No Child Left Behind just needs some tweaks (i.e. expect more from (I'm paraphrasing) lazy, incompetent teachers) to make the 2014 target work.

Right.

The basic ideology is that standardizing expectations, particularly in Math and English, across the country will even the playing field because everyone, no matter their background, will be expected to perform at the same basic level or better.

Funny thing is, now states are realizing that they will not be making their 2014 target.  So they have two solutions: increase demands on teachers, or decrease the expectations.

Who are the 47 percent?

I'm sure by now you are aware of Gov. Romney's offensive comments about how "it's not my job" to worry about the 47 percent of Americans who pay no federal income tax.  That comment was caught on film last May and released by the respected magazine  Mother Jones on Monday.  On Friday Gov. Romeny finally released his 2011 tax returns, and we learned that he only paid 14 percent tax on a roughly $20 million income, far less than middle class families.  In fact, since most of the Governor's income came from investments, Romney paid less in federal taxes than low-income workers, who with their employers pay 15 percent of wages in payroll taxes for Social Security and Medicare.   Romney continues to refuse to release tax returns prior to 2010.  Instead, he paid an accountant to issue a written statement that Romney actually did pay taxes in those years.

Vanishing history and Quantitative Research

Interesting story making the rounds on the interwebs today that has particular relevance for our social science students thinking about research projects ...

Constitution Day follow-up: Job Lock and Health Care

Yesterday the Social Science Department held our annual Constitution Day speaker series event, this year on the topic of health care and the Affordable Care Act or "Obamacare."  I talked a little bit about the unique aspects of health care as economic market and some of the specific challenges we face in figuring out an efficient and equitable market structure for it.  Health care is fundamentally different from shoes or hamburgers, and as a result some of the traditional economic predictions about competition, pricing, and allocation can't simply be applied in a cookie cutter fashion to all markets the way the first few chapters of an intro econ textbook might lead you to believe.

A couple of things that I had to cut for time (I think I still used about double the time I had been allocated - sorry to all of you in the audience) and so I want to expand on them a bit here:

Should charities be run like corporations?

I stumbled across this article over the weekend that has some relevance to some of our recent posts on charity and altruism.  The question is: should charities be run like corporations - high executive salaries, lots of advertising to build market power, maybe even publicly traded stocks?  A summary of key points provided by the fine students at Centives.net:

Space Tourism

 

I recently read an interesting article in the NY Times about the growth of the "Space Tourism" market and the increasing competition among firms to capture customers.  This caught my attention for two reasons: (1) We reside on a campus with a strong tourism program and I couldn't help but idly wonder if this will be a course offered here someday and (2) my wife is obsessed with the idea of space tourism.

Strategic pricing and the app store

In honor of today's anticipated new iPhone announcement, I've been thinking about app pricing in the iTunes store and some of the interesting network effects and strategic behavior I've been observing lateley.

Streams of income

My wife and I took our honeymoon in the Rocky Mountains a few years ago (hopefully she's not reading this and won't realize I have no idea how many years it was?!?) and last Christmas my mother in law donated some money to help protect the parklands there as a very thoughtful gift to us.  As a result, we've been getting the quarterly Nature Conservancy magazine this year, and one came in the mail yesterday with something I found pretty interesting.

Following up on my recent post about life insurance, this latest issue had the following statement in bold on the wrap-around cover:

"Protect rivers and create streams of income: Support the natural world you love while also providing yourself with income and significant tax savings!"

Euro Crisis

I read an interesting article in the NY Times over the weekend about how U.S. companies are planning for various contingencies of Greece exiting the EU or even the Eurozone collapsing.  International financial issues aren't exactly my area of economic expertise, but the practical questions of how day-to-day contracts are handled in the event of a re-organization I found pretty interesting.  These include such plans as those of Bank of America considering having "dump trucks full of cash ready to drive over the border into Greece to continue to pay local employees and suppliers in the event money is unavailable."  (Anyone else sense the making of a new Die Hard movie plot?  Bruce Willis - call me!)

As a thought experiment, imagine you are a business in Hudson, WI on the border between WI and MN: 

Hyphens as a signalling mechanism

The economist in me could not stop thinking about inefficiency and wasted effort today as a team of us sat tediously pouring over a grant proposal and checking it for minor formatting issues or inconsistencies.  Four highly trained individuals (whose time is presumably valuable) spent about 2 hours today (after spending countless hours all summer) essentially debating, among other things, when it was appropriate to shorten "first-generation" to "FG" and when it should be "first-generation" with a hyphen vs. "first generation" without a hyphen.  This was all in order to appease future readers of our grant who, I'm 99.999999% sure couldn't care less.  None-the-less, this is the way the game is played, and everyone has to do it lest their grant ends up in the trash can for appearing unprofessional.

Copyrights and economic efficiency

As anyone who had me for a class last semester knows, I've recently developed a renewed interest in questions of intellectual property, patents, and copyrights.  This topic is at the forefront of the news in the tech world this week as the fallout from the Apple vs. Samsung case is beginning to sort itself out and Google is preparing for their inevitable court case. 

There are some really strong economic arguments both in favor and against strong intellectual property protection. The basic case is as follows: 

Ecosystem Services and Civil Society- The Solution?

I watched an interesting TED talk earlier today about an NGO out in Portland, Oregon called The Freshwater Trust.  The Freshwater Trust figures out ways in which ecosystem services and technology can couple to address the speed and scale of water degradation.

I am wondering a few things right now:

What does (should) "civil society" do?

This is a theme I would like to come back to often and have others take up.  I am not entirely sure we have a good grasp on it, either as academics or as regular laypeople.  

Can I start with this as universally agreeable outcomes (or, in social science speak, dependent variables)?  We want social order (e.g. coordination and cooperation; safety and security) that offers real opportunities for high standards of living (e.g. health, happiness).  

How do we get there?

Your money or your life?

I spent a good chunk of last week visiting with one of my old college friends who is someone who has strong opinions on a lot of subjects.  One of his targets last weekend was insurance markets which he thinks should be regulated like utilities (another of our friends is an actuary, so insurance tends to come up as a topic - we have more fun than it sounds like though, don't worry).  Another target was the market for a number of financial derivatives which he feels are immoral in that many of them are betting on failure and disasters.

These are things most of us outside Wall St. don't think about everyday, and he made some good arguments, but I generally played the devil's advocate and the "good free-market-economist" to most of his points, pointing out the value of insurance and in managing risk, etc.  This morning though,  I think I found a story that really puts the debate about insurance and derivative regulations in stark perspective:

Congrats to Xanthi

Our congratulations to one of our outstanding APSS majors, Xanthi Gerasimo, on being named to the USA Rugby Academic All-American Team!  Also, be on the lookout for the seminal interdisciplinary research paper on the growth of Rugby in the upper midwest, coming soon to a conference near you ...

Shark Week externalities

Here's a negative externality example in honor of shark week.  Apparently scientists have found that the ocean is now caffeinated off the coast of Oregon from Portland hipster coffee run-off.  Sharks in the pacific northwest will now have a caffeine buzz ... What's next, frickin' laser beams?

That Starbucks mermaid better watch out!

Cap & Trade slippery slope

In my econ classes, we spend a lot of time talking about Cap & Trade and other market-based solutions to economic problems such as pollution.  This recent article in Slate follows the concept of efficient markets to a potentially uncomfortable extreme. 

In China (and likely elsewhere), it has not been unheard of over the years for the wealthy to hire body double stand-ins to serve their prison sentences.  Some have justified this practice and its effectiveness. After all, the real criminal was punished by paying out the "market value of his crime", while the stand-in’s punishment intimidated other criminals, keeping the overall crime rate low. In other words, a “cap-and-trade” policy for crime.