2010

Year: 2010

Two Pieces on Nathan Myrhvold

If innovation is of interest to you, you might consider reading up on Nathan Myrhvold.   My mention of Josh Lerner’s new book in the previous post prompted me to think of Mr. Myrhvold, whose latest scheme is to acquire thousands and thousands of patents. What that will do to US innovation and competitiveness is anyone’s guess.   (Of course, your guess is probably more meaningful if you actually know something about the economics and policy dimensions of innovative activities).

Here’s a short profile in the New York Times and a longer piece written by Malcolm Gladwell for The New Yorker.

Gladwell has written a couple of pieces on innovation and entrepreneurship over the past year or two.   He even rediscovered some Schumpeterian ideas in a piece from a few weeks back.

No shortage of ideas, that’s for sure.

Too Much of a Good Thing

In preparation for this weekend’s big LSB Investments Summit, it might be useful to ask the question:  Is venture capital a big waste?

Well, that might be overstating it a bit, but the potential profitability of venture capital is the topic of James Surowiecki’s new piece in MIT’s Technology Review.   He diagnoses the problem of there being too much VC money out there, and the glut is putting a big crimp in the side of an industry that once produced monster profits.   On the other hand, shouldn’t we expect that a profitable industry would attract entry, driving (economic) profits to zero? (Hint: yes).    Is that a bad thing or a good thing?

Those interested in diving deep into this subject should consult Josh Lerner’s new book, Boulevard of Broken Dreams:  Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed — and What to Do About It.

Of course, I strongly endorse you reading up and peppering this weekend’s panel with questions, prefaced with things like, “I read in the recent Technology Review that…” and “Do you agree with Josh Lerner that…”

UPDATE: Here’s Lerner interviewed at Vox.

Alternative Investments Summit

Join us this Saturday, 3:30, the Hurvis room, to learn about private equity and other kinds of alternative investments. The session will be led by Bob Perille ’80, Managing Director at Shamrock Capital, the private equity firm started by Roy Disney, Walt Disney’s nephew. Alan Allweiss ’77, Managing Director at LBC Credit Partners, Dan Howell ’74, Senior Managing Director, Mesirow Financial, and Bryan Torcivia ’81, mergers and acquisitions consultant (BAT Consulting) will join Mr. Perille in explaining alternative investments and what’s wrong with hedge funds.

Mr. Perille will bring offering memoranda (an offering memorandum is a document explaining the details of an investment to potential investors), and student teams will have to decide whether to buy the firm or not, and for how much.

Last year there was a substantial prize!

Sign up in the career center or at careercenter@lawrence.edu.

Food for Thought, Students Going Bananas

This question came up in class the other day — are you peeling your bananas wrong?   As usual, the Armchair Economist Steven Landsburg has something to say about the matter:

My friend Petal peels her bananas from the bottom. Well, it’s the top, actually, since bananas grow upside down. Come to think of it, that’s not quite right either—bananas grow the way they grow, which should be right-side up by definition, even if we think of them as upside down. So let me start over. Petal peels her bananas from the end without the stem.

Petal’s method is counterintuitive and thus instantly appealing to economists, who love nothing more than to overturn conventional wisdom. Multiple experiments (well, two experiments, actually, since we only had two bananas) quickly convinced a majority of the department that Petal’s way is—surprisingly—easier than the traditional method, though the econometricians thought you’d need to test at least 30 bananas to report that result with confidence. The labor economists immediately resolved to apply for a grant.

Still not convinced?  Well, you aren’t alone.  But the peel-from-the-bottom case is a compelling one:

In the anti-Petal camp, we have the theorists who argue that peeling from the stem end must be optimal because that’s what people do. But Petal counters—and indeed this is her clincher argument—that monkeys do it her way (though I think it would be more accurate to say that she does it the monkeys’ way) and monkeys are the real experts.

If such knotty problems interest you, you should consider taking Econ 300 with me this fall.   In fact, you should consider it anyway.

Food for Thought or Thought for Food?

Looking for a conversation starter?  Perhaps you should take a sample off this menu from Alex Tabarrok over at Marginal Revolution:

Suppose that you are a cow philosopher contemplating the welfare of cows.  In the world today there are about 1.3 billion of your compatriots.  It would be a fine thing for cows if all cows were well treated and if none were slaughtered for food.  Nevertheless, being a clever cow, you understand that it’s the demand for beef that brings cows to life.  How do you regard such a trade off?

If each cow brought to life adds even some small bit of cow utility to the grand total of cow welfare must not beef eaters be lauded, at least if they are hungry enough?  Or is the pro beef-eater argument simply repugnant?

Should a cow behind a haystack of ignorance choose the world with the highest expectation of utility?  In which case, a world of many cows each destined for slaughter could well be preferable to one with many fewer but happier cows.

Or is it wrong to compare the zero of non-existence with existence?  Should a cow philosopher focus on making cows happy or on making happy cows?  If the former, would one (or two) supremely happy cows not be best?

As I tell all my students — cows are more like gold and buffalo are more like oil.

Are you feeling lucky, Prius?

My colleague Paul Fischbeck is in the news for calculating the incremental risks from driving a Toyota with an accelerator problem.  According to his press release:

In the U.S., there is a little more than one fatality for every 100 million miles driven. The average U.S. vehicle logs about 13,000 miles each year. Based on these averages, for the 2.3 million Toyotas being recalled, there are about 340 fatalities every year for causes unrelated to the accelerator. The accelerator problem is adding about six deaths every year to this total — meaning that the accelerator problem is increasing the driving risk by about 2 percent.

So there’s a meat-and-taters public policy question for you — do the benefits of fixing the problem justify the costs of a massive recall?   To put this in context, a 2 in a million chance is about the same as flipping a coin 19 times and getting heads every time.

See you in 240.

Are You Ready for Some Econ?!?

It’s come to my attention that many of you have not registered for Spring term.   You can’t be serious!

Here’s what’s in store:

  1. Professor Galambos: Econ 100: INTRODUCTORY MICROECONOMICS (Q) 12:30-02:20 TR
  2. Professor Karagyozova Econ 120: INTRODUCTION TO MACROECONOMICS (Q) 11:10-12:20 MWF BRIG 223 09:50-11:00
  3. Professor Galambos Econ 180: ENTREPRENEURSHIP IN THE ARTS & SOCIETY (S) 09:00-10:50 TR
  4. Professor Gerard Econ 240: POLITICAL ECONOMY of REGULATION (W) 03:10-04:20 MWF
  5. Professor Gerard Econ 280: ENVIRONMENTAL ECONOMICS 09:50-11:00 MWF
  6. Professor Finkler Econ 320: MACROECONOMIC THEORY (Q) 09:50-11:00 MW and  08:30-09:40 T
  7. Professor Finkler Econ 425: ENTREPRENEURSHP & FINANCIAL MARKETS 12:30-02:20 TR
  8. Professor Karagyozova Econ 460: INTERNATIONAL ECONOMICS (G,Q) 01:50-03:00 MWF

Count ’em, two courses on entrepreneurship, a new 400-level chance to take International, and my new writing-intensive course on the political economy of regulation.   If you are itching to take that one, signal your interest by getting on the waiting list.

The schedule for next year is up on Viking as well.  Start planning ahead if you need to fill those econ boxes.

Economics TBA — today at 4 p.m.

After a scintillating weekend up north, we are back for the home stretch of the second term.  And what better way to finish a Monday than TeaBA with the economics faculty and students?

Today will be the Oliver Zornow Tea, for his spectacular finish in the this weekend’s game theory tournament.  Today’s cookies are courtesy of Mr. Zornow.

We will also hear a presentation from a group in The Economics of the Firm (Econ 450), examining the role of the football coach in the division III schools.  Can we measure his performance in terms of wins and losses?  Or is it a multi-attribute principal agent model?

Should be a corker.  See you there.

Zornow wins Lawrence Economics evolutionary game tournament

Many of us just returned from Björklunden, where we spent the weekend talking about game theory, outsourcing at Lawrence and elsewhere, and the economies of Monterrey, Bangalore, Seattle, and Johannesburg. And we enjoyed late (?) winter in Door county, as well as Georgi’s guitar playing and Sunghun’s piano music.

We also held the first Lawrence Economics evolutionary game tournament. This competition follows in the tradition started by Robert Axelrod, who organized a computer tournament in the 1970’s to see what kind of behavior will be most successful in an evolutionary game. Participants entered strategies (described as algorithms), and each such entry became an agent in Axelrod’s world. These agents met randomly and played the prisoners’ dilemma game. Our competition also featured random encounters and the prisoners’ dilemma game.

Though many were betting on strategies such as “sneaky” and “defector,” in the end Oliver Zornow’s “foolfor7” took the $25 prize, to be awarded at Monday’s Econ TeaBA. “Foolfor7” started alone but reproduced faster than any other strategy, and avoided being exploited with its trademark “fool me 7 times, shame on you, fool me 8 times, shame on me” approach to life in a squareful of pixels. We used the fun, convenient and easy to learn Netlogo software to run the simulation. If you’d like to play with the parameters and check out how the various strategies would fare in different populations, download the free netlogo software and open this Netlogo file (download the zip file and double click on it to unpack it).

Free and fun agent based model simulator

Pareto Improvements, Film at 11

Tom Hazlett continues to beat the drum to auction off the spectrum.   What does that mean?

Professor Hazlett estimates that selling off this spectrum could raise at least $100 billion for the government and, more important, create roughly $1 trillion worth of value to users of the resulting services. Those services would include ultrahigh-speed wireless Internet access (including access for schools, of course) much improved cellphone coverage and fewer ugly cell towers. And they would include other new things we can’t imagine any more than we could have imagined an iPhone just 10 years ago.


What’s the downside?

Off to Björklunden

The faculty and students are headed to the great whitish north for its (first annual) departmental retreat, featuring presentations from Economics of the Firm (my personal favorite),  Game Theory, and Urban Economics courses.     It’s not too late to sign up.

Speaking for the economics of the firm course, there will be presentations on:

*** why Lawrence outsources its food service (can’t we do this ourselves?)

*** why Lawrence has its own campus security (why not use a professional security company?)

*** why Lawrence has its own vehicles for student use (why not use Enterprise?  They pick you up!)

*** why universities have endowments, and how reliant Lawrence is on its endowment (I’m not sure, and I don’t know… looks to be a good one)

    If you can’t make it this weekend, we hope to see you Monday for tea!

    “the secret, multibillion-dollar systems that U.S. intelligence agencies use to monitor the communications, transactions, and associations of people in this country and around the world”

    Slate.com has an extended dialog with Shane Harris, the author of The Watchers: The Rise of America’s Surveillance State.   Here’s the prelude:

    The Watchers is really a book about [Admiral John] Poindexter, the visionary Ph.D., former national security adviser, disgraced Iran-Contra conspirator, and father of one of the most far-reaching and reviled surveillance initiatives of the post-9/11 era, Total Information Awareness. The Bush administration gagged Poindexter when TIA ignited a firestorm in Congress in 2003, and after being removed from his position at the Defense Advanced Research Projects Agency (the Pentagon’s R & D shop, known as DARPA), the admiral appeared to recede from the national stage. But he gave you unprecedented access—14 long interviews about his philosophy and career—and in your book, he emerges not as the caricature civil libertarians have come to know and loathe but as a nuanced, surprisingly sympathetic character.

    I’d imagine this is an interesting piece for folks interested in organizations or regulatory policy generally.   I look forward to reading this one.

    Checking Your Financial Plumbing

    At the recent Lawrence Scholars in Business banking summit, alumnus Rob Bearman suggested that a young person interested in a career in banking would do well to learn all s/he could about the recent financial crisis.   He suggested Andrew Sorkin’s Too Big to Fail as a good start.   Another place for a more academic flavor is the recent Journal of Economic Perspectives Symposium on Financial Plumbing.

    The list looks like a good place to start an independent study project.  I can’t speak for the quality of the articles, except to say that the JEP authors are generally recognized area experts, and the pieces tend to be very readable and heavily documented.

    Enjoy!


    Innovation & the World Economy

    That’s the title of Robert Litan’s speech from the Foreign Policy Research Institute, and it is a crisp and interesting read.  Here’s a taste:

    Entrepreneurs are vital to the economy not only because of the innovations they bring to the market, but also for the jobs they create. The Kauffman Foundation sponsored a study recently to look at the source of job growth in the United States since 1980. The conclusion is remarkable, or at least I believe it to be. Since 1980 until the recession, all net new jobs—net meaning gross jobs minus layoffs — have been created by firms under five years old. Think about that. That means all existing firms as of 1980 have not increased their employment since that year. In fact, if anything, the firms that existed in 1980, as a group, have lost employees. Using these data, we have made a rough estimate that at least 1/3 percent of our employment and a somewhat smaller fraction of our GDP since 1980 is due to young new firms that have since grown. These are amazing facts.

    The piece contains some nice blurbs about the difference between state-guided capitalism, managerial capitalism, and entrepreneurial capitalism.   These concepts seem to follow the Schumpeterian notion of innovation, which is why it’s important to understand Schumpeter (!)

    The Nature of the (Urban) Farm

    From our pals over in Environmental Studies:

    Does meeting with fellow students and faculty to talk about running a farm in the ghettos of Oakland, dumpster diving to feed pigs, and corralling runaway turkeys in downtown Oakland sound like fun?

    During the Spring term  Green Roots and the Environmental Studies program will be sponsoring a for credit campus read program.  The book is Farm City: The Education of an Urban Farmer, by Novella Carpenter.  Her work covers topics including sustainable agriculture, urban communities, and healthful eating.  As a special treat, the author will be in the Fox Cities in mid-April, just before Earth Day!

    Contact Andrew Knudsen knudsena@lawrence.edu or Jason Brozek jason.brozek@lawrence.edu for more information.

    The New Palgrave Encylopedia of Economics, Redux

    While dredging through Steven Landsburg’s excellent, yet interminable, chapter on perfect competition, we took a brief break to contemplate the Austrian critique paused to think about some of the Austrian critiques of the competitive model.   To wit:

    The trouble with the concept from the Austrian point of view… is that it describes an equilibrium situation but says nothing about the competitive process which led to that equilibrium. Indeed, it robs the firm of all business activities which might reasonably be associated with the verb ‘to compete’ (Hayek, 1948). Thus, firms in the perfectly competitive model do not raise or lower prices, differentiate their products, advertise, try to change their cost structures relative to their competitors, or do any of the other things done by business firms in a dynamic economic system. This was precisely the reason why Schumpeter insisted on the irrelevance of the concept of perfect competition to an understanding of the capitalist process.

    That passage, of course, is from The New Palgrave Dictionary of Economics, which is one of the fabulous economics resources offered through The Mudd.

    Having trouble with the Principal-Agent Model? Wondering about empirical work on the make-or-buy decision?  Need a quick primer on health economics or the ins-and-outs of the logit model?   This might be a good starting place.

    The Cartoon Introduction to Economics

    Well, the future of pedagogy has arrived in the form of The Cartoon Introduction to Economics. If you’ve ever wondered what economics would be like if someone with a sense of humor was teaching you, this might be the book for you. I have a copy if you are interested in coming by and taking a look at it.

    Professor Bauman will be on campus April 26 to promote his book and maybe to help us to understand economics a little better.

    Here’s a bit of his stand-up act. I find it laugh-out-loud funny in parts, but worry that he’s right about the Snickers bar.

    The Gales of Creative Destruction…

    Well, the good news is that the new site architecture is in place and it looks pretty fabulous  — thank you toschumpeter Jay Dansand and the gang for transporting the site.

    The bad news is that some of our pithy posts from last week have been vaporized.

    Overall, I judge the change to be Kaldor-Hicks efficient but not Pareto improving.   And, again, if you find this sort of joke amusing, you might consider subscribing to the RSS feed.

    On the right there, just because we can, that’s Joseph Schumpeter.