Tag: econ 240

Natural Resource Damage Assessment

It is too bad that as we begin looking at benefit assessment in my environmental and regulatory classes that we have this gusher gushing up the Gulf Coast providing us with such a vivid real-time example.  So how do we go about valuing environmental benefits? Well, here’s a recycled piece from Slate.com, here’s Trudy Cameron at at The New Palgrave Dictionary of Economics, and here’s the guys over at www.env-econ.net with some estimates of lost fishing value.  That should get you started.

As you know (or should know), there are a couple of ways of doing this.  One is through market-type valuations, and another is through “contingent” valuation methods.  We economists typically prefer watching what people do rather what they say they would do in some hypothetical situation, but sometimes we get what we get.

And for those of you who think this is no big deal, it would appear that you are wrong.

Where Can the Answer Be Found?

Well, the Department of Interior finally got around to approving a wind farm off Cape Cod.   This seems to be an executive branch move, though I suppose Congress could rescind it legislatively (if it could override a veto) or cut funding to Interior for implementation. The long-running, and I do mean long running, standoff pitted on the one side former Senator Ted Kennedy and like-mined people living there who think windmills are something of an eyesore. Others, such as Kennedy’s nephew, Robert, call them a financial “boondoggle,” that will cost Massachusettsians a lot of money in additional energy costs.

On the other side is an odd coalition of business and environmental groups.  Businesses like money and environmental groups like wind, so there you have it.

Obviously, the monied interests will not throw in the towel after fighting this for nine years — they are going to sue sue sue.

Such is the regulatory process.

13 Bankers or 1 Federal Puppet Master?

On the news that Goldman Sachs allegedly engaged in securities fraud and also posted $3.46 billion in quarterly earnings, the intersection of politics and high finance is of special interest.   My Political Economy of Regulation class read Simon Johnson’s “Quiet Coup” about the cozy relationships between Wall Street and federal regulators as a possible example of capture theory (making a convincing case to some).

Now Johnson is back with 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, bolstering his case with the help of co-author James Kwak.  Tyler Cowen reviews the book for The Huffington Post and comes to a much different conclusion:

Much as I admire their analysis and exposition, I see the problem a bit differently than they do. Whereas they see banks as the puppet master and our government as the fool, I wonder whether it is not more accurate to think of the government as running the show….

[N]amely that the U.S. government stands at the center of a giant nexus of money raising, most of all to finance the U.S. government budget deficit and keep the whole show up and running. The perception at least is that our country requires the dollar as a reserve currency, requires New York City as a major banking center with major banks, and requires fully credible governmental guarantees behind every Treasury auction and requires liquid financial markets more generally. Furthermore the international trade presence of the United States (supposedly) requires the federal government to strongly ally with major commercial interests, just as our government sides with Hollywood in trade and intellectual property disputes. To abandon banks is to send a broader message that we are in commercial and political decline and disarray, and that is hardly an acceptable way to proceed, at least not according to the standards of the real Washington consensus.

Back to square 1, I guess.  I see a discretionary writing assignment for Friday on the horizon.

 

UPDATE: Russ Roberts interviews Johnson on EconTalk, and a summary of the interview.

LSB Returns in Spectacular Fashion!

This weekend the Lawrence Scholars in Business program bis hosting a number of esteemed alums from the investment world. This weekend’s program kicks off at 2 p.m. over in the Warch Campus Center.

LSB Investment Management Summit If you have even an inkling of interest the financial markets coordination of savings and investment, the regulation (or absence thereof) of the financial sector, or even a career in that field, you should think about coming out.  (This couldn’t come at a better time for my 240 class, which is learning about the Stigler-Peltzman Capture Theory).

The participant information is below and you should sign up in the career center ASAP, or sooner.

Lawrence Scholars in Business Portfolio Management Summit

Dean DuMonthier ’88 • portfolio manager, Copia Capital
Copia Capital is a Chicago-area investment firm that manages hedge funds invested in the utilities, industrials, energy and materials sectors. The company is a subsidiary of Morgan Stanley’s hedge fund company, FrontPoint Partners.

Chuck Saunders ’84 • partner and senior portfolio manager, NorthRoad Capital Management
NorthRoad Capital Management is an employee-owned investment firm in New York City.  Saunders manages the firm’s international and global public equity portfolios for both private  and institutional clients.

Christopher Serra ’92 • senior equity research analyst, Thrivent Investment Management
Thrivent Asset Management is the securities brokerage and financial advisory subsidiary of Thrivent Financial for Lutherans, which provides financial and insurance products and services to nearly 3 million members.  Thrivent Investment Management offers full and discount brokerage services, mutual funds and education funding products.

Markus Specks ’06 • hedge fund analyst, Varde Partners, Inc.
Varde Partners, Inc., is a privately-held investment advisor specializing in alternative investments and distressed assets. Headquartered in Minneapolis, the firm also has offices in London and Singapore.

Please sign up in the Career Center or e-mail: careercenter@lawrence.edu

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.

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.

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 Fourth Branch: Coming to An Administration and A Classroom Near You

    For those of you wondering what Economics 240, The Political Economy of Regulation is all about, it’s about stuff like this.

    With much of his legislative agenda stalled in Congress, President Obama and his team are preparing an array of actions using his executive power to advance energy, environmental, fiscal and other domestic policy priorities…. Any president has vast authority to influence policy even without legislation, through executive orders, agency rule-making and administrative fiat.

    Legislation gets all the attention, and regulation does all the dirty work.

    In Econ 240, we will study “the fourth branch of government” (a.k.a., administrative agencies), including the continuing evolution and growth of the U.S. regulatory system, the process by which regulations are proposed, written, implemented, and enforced, and the tools used to evaluate the costs and benefits of regulations.

    It’s designated writing intensive, and I couldn’t be more excited. See you in there.

    Kudos to Professor Shober

    This looks interesting. The best way to foment effective policy outcomes is to allow administrative agencies to do their thing unfettered. How do they solve the agency problem? I guess we’ll have to read the book and find out.

    Order now!

    Splintered Accountability: State Governance and Education Reform

    Arnold F. Shober

    The No Child Left Behind Act declared that improving education in every school in the United States was a top national priority. However, this act did not acknowledge how state departments of education have successfully constructed reforms for the past few decades, despite the power struggle between governors, legislators, school districts, and state boards of education. Drawing upon archival sources, state budget documents, interviews, and statistical analysis, Splintered Accountability amply demonstrates that sustained education reform is best left in the hands of the relatively autonomous state departments of education in order to maintain curriculum standards, school finance, and teacher licensure systems. Comprehensive and successful education reform originates from within state education agencies, propelled by savvy state superintendents.

    The Rise and Fall of Investment Banking: Theory of the Firm Edition

    For those of you taking a break from trivia to study for a 450 Exam, Daniel Gross gives a broad brush account of the importance of ownership structure and agency issues. Here’s the basic argument: (1) investment banks go public (i.e., allow members of the public to buy ownership shares); (2) raising equity capital allows banks to expand and compete with international considerations; (3) growth in size correlated with a growth in clout, whereby banks effectively “captured” regulators; (4) growth in size led to acute agency problems, whereby management plundered shareholders a la Berle and Means.

    Whew, that was fast.

    Market Failure and Drug Approval

    Here’s a question for you true believers out there, is there a market failure rationale for FDA approval of pharmaceuticals and medical devices? And, if so, what is it?

    Well, that’s exactly the question that Daniel Klein and Jason Briggeman of George Mason University asked more than 300 economists with expertise in health economics, the FDA, information and uncertainty, and regulatory policy.

    They asked you, too, and you can check it out by participating in this 25-minute interactive exercise.

    For those of you without 25 minutes, here’s a snippet:

    Due to pre-market approval, drugmakers face costs, delays, and uncertainties that suppress the development of new therapies. Famous studies of the introduction of beta-blockers showed that many tens of thousands of American deaths could be attributed to the delay between approval in Britain and in the United States. Scores of other drugs have been delayed that plausibly would have saved many other lives. But pointing concretely to delays in the approval of well-known drugs can only illuminate a potentially larger problem: the extra costs and uncertainties imposed by the pre-market approval process may prevent the development of many drugs. Those losses–of not-developed drugs, of wouldhave-been benefits–are impossible to identify or quantify, but they are no less real.

    I would be very interested to hear your thoughts both before and after your take the survey.