Remember that 4:00pm on Mondays means EconTeaBA. This time, we plan to bring some COFFEE as well, and, of course cookies! For those of you in Game Theory, take a well-deserved cookie as you hand in your well-written paper.
The Times They Are A-Changin’
I just made my way over to Briggs because I have a 20-page paper due, and I am, like, totally stressed out about it.** I was wondering why there were students milling around outside, and it turns out that they were victims of the time change — the building is supposed to open at 1, but evidently security didn’t push its clock forward yet.
At any rate, this brought to mind some calculations my colleague Paul Fischbeck and I made about the changes in pedestrian risks associated with daylight savings. The moral of the story — watch yourself crossing the street, especially when it’s dark outside.
There are some interesting regulatory policy implications of the time change. If you are interested, here are my thoughts posted at the Organizations & Markets blog last year.
**Well, not, like, totally.
Happiness is a Scarce Resource
You new majors have probably been wondering why you have been a little more cheerful, had a bit more bounce in your step, a little extra rational exuberance, so to speak.
The answer, my friend, is that economics students are generally a happy bunch.
At least in Germany:
Justus Haucap, of Heinrich Heine University of Düsseldorf, and Ulrich Heimeshoff, of the University of Bochum, surveyed 918 students of economics and other social sciences in 2005, then estimated how studying each of the different fields affected individual life satisfaction…. The news is good — for economics students, anyhow… [T]he researchers identified a positive relationship between the study of economics and individual well-being.
For those of you looking for a boost of good cheer, look no further than right here.
Why Close Reading is Important
In the opinion piece below, Alan Blinder explains why it is critical to carefully read documents, especially if they involve legislation and even more importantly if they affect the Federal Reserve Bank.
Alan Blinder – Opinion piece on PBS
January 2010 “The Future of the Federal Reserve”
Do you ever get the feeling that this country is over-lawyered? Well, here’s another example.
Ron Paul, the libertarian congressman who wants to abolish the Federal Reserve, has long promoted a first step in that direction. The so- called Paul bill would subject the Fed’s monetary policy decisions to GAO audits. Like most economists, I find the idea, well, appalling.
But I breathed a sigh of relief when a modified version was appended to the House’s financial reform bill late last year. The Paul-Grayson amendment added what I thought was an important clause. Let me read it to you.
“Nothing in this subsection shall be construed as interference in or dictation of monetary policy to the Federal Reserve System by the Congress or the GAO.”
That sounds like a strong affirmation of the Fed’s independence, right? I certainly read it that way and so did my students. Then I talked to a lawyer.
So put on your lawyers glasses and read it again. Nothing in this subsection shall be construed as interference and so on.
Read literally, the sentence does not instruct Congress to keep its nose out of monetary policy. Instead, it asserts that the proposed law does not interfere with monetary policy even if you think it does. Orwell’s big brother would have been proud. He gave us war is peace, freedom is slavery. Now the House thought police give us interference is not interference.
Ladies and gentlemen of the House, could we please fix this?
The Bad Seed?
As students of 450 know, not all nonstandard contracts are designed to establish or maintain market power. That, indeed, is one of the central messages of Oliver Williamson’s work:
Transactions that are subject to ex post opportunism will benefit if appropriate safeguards can be devised ex ante
This is useful to keep in mind as we watch the antitrust suit against seed-giant Monsanto that is unfolding in America’s heartland. The case speaks to managerial v. entrepreneurial capitalism, contracting for innovation, and the role of a non-standard contract.
Continue reading The Bad Seed?
Summer Internship Opportunities
Act quickly if you wish to take advantage of the internships indicated below.
Summer Internship in Washington D.C: Still accepting applications
Sweet, Stephen [Stephen.Sweet@cgkfoundation.org]
Sent: Thursday, March 11, 2010 8:12 PM
To:
Merton D. Finkler
Attachments:
Dr. Finkler,
I wanted to alert you that several great (and unexpected) internship positions have just became available in this summer’s Koch Internship Program, so we are going to continue accepting applications from interested candidates for a few more days. Please let your students know that this paid opportunity ($13.00/hr) is still available for those who are interested in gaining valuable professional experience in an organization that advocates free-market principles. Candidates who want to be considered for the program have until March 17th to submit their application materials. I will be available to answer any questions about the internship, so feel free to circulate my contact information.
Thank you!
Steve
Stephen Sweet
Program Coordinator, Marketing and Recruiting
Charles G. Koch Charitable Foundation
www.cgkfoundation.org
Ph: 202.215.7491
Course Evaluations “Opportunity”
No kidding, we really care what you have to say. It helps us to gauge how we’re doing, make specific improvements to a course, and make improvements to our teaching generally. In the spirit of Bjorklunden weekend, consider it an opportunity!
Here’s the Provost again:
DearLawrence Student,
It is time to do the end of term course evaluations. This term, we will be continuing the on-line course evaluation procedure. T he instructions for completing the forms are at the bottom of this note. The on-line course forms will be available from MARCH 5 (at 5:00pm) TO MARCH 23.
These course evaluations are very important to course instructors, and I hope you will take the time to fill them out carefully. Faculty use them to make changes in courses that will benefit your education. They are a significant part of Lawrence’s efforts to make certain we have the strongest possible academic program– and that strength is good for everybody.
One change this term is that whenever you log on to Voyager you will be immediately directed to the evaluation site. This is being done to help remind you of the importance of completing the evaluations.
Thanks for your help.
David Burrows
Provost and Dean of the Faculty
“in this, the most efficient of all possible worlds”
Following this past weekend’s performance of Candide on campus (with our own Alex Gmeinder in the leading role), I was reminded of this sight gag in a set of slides by Professor Richard Langlois of the University of Connecticut.
For those of you not in Economics 450, that’s recent Nobel Prize winner, Oliver Williamson, pictured delivering a lecture. Professor Langlois appears to be chiding him about the rather strong efficiency implications of transaction cost economics.
You can read the full explanation at the Organizations & Markets blog.
Should You Take Out a Student Loan, Or Issue Equity?
BACK BY POPULAR DEMAND!!!
Great post over at Cheep Talk about Kjerstin Erickson, who is selling a 6% stake in her lifetime income for $600,000.
Think of Kjerstin as a self-managed firm. She could issue debt or equity. The Modigliani-Miller theorem explains why most people in Kjerstin’s position choose to issue debt. Her income is taxed, but interest on debt is often tax-deductible.
But a key difference between Kjerstin and a firm is that you if you acquire Kjerstin you cannot fire the manager. So your capital structure is also your managerial incentive scheme. Debt makes Kjerstin a risk-lover: she gets all the upside after paying off her debts and her downside is limited because she can just default. With equity she owns 94% of her earnings no matter what they are.
Why don’t Lawrence and other colleges and universities ask for an equity stake rather than providing student loans? Evidently, economists from Milton Friedman to James Tobin have advocated such a system and it seems to work only too well. Hence the beneficiaries opportunistically opting out of the deal.
Ah, well.
Fast Growing Young Firms Dominate New Employment
A study released today by the Kauffman Foundation documents the significant influence young companies have on employment growth in the United States. Companies that are less than five years old and employ between 50 and 250 employees are likely to make the largest contribution to both economic output and job growth. Check out the press release, or better yet, read the report.
The End is Near
Many students find the end of the term the ideal time to break up with that not-so-special person they’ve been seeing. Maybe your returns to scale in the relationship are constant or even decreasing. Or maybe you really don’t have that much specific capital invested in the relationship (K is low). Or, perhaps, you’ve found a relatively higher redeployment value for your affections. If that’s the case, transaction cost theory suggests that you might consider outsourcing your break up.
That’s right, a mere $10, will get you into a “basic break up,” with escalating rates based on increasing specificity (engagement, divorce), but, interestingly, not based on increasing complexity.
Huh.
Economics Tea, Today at 4
Today marks the last regular season Economics TeaBA before the start of our playoffs — the finals’ week TBA. We will discuss what happened at the investment summit (including the performance of the triumphant winning team of Molly Ingram, Rana Marks, and two people who are not in my Econ 300 class), and find out if there are any takeaway messages.
We can also tell you about courses for next term and for next year, who will be on leave, the I&E reading group, what it means to be an entrepreneur, and ideas for improving the quality of the chocolate chip cookies (pay more?).
See you in the Fishbowl around 4.
Price Discrimination, Girl Scout Cookie Edition
The Girl Scouts are in the news again, this time for ruthlessly exercising market power:
Girl Scout cookies sell for different prices in different areas. The going price is either $3.50 or $4.00 depending on where you live. Local Girl Scout councils are actually allowed to set any price they want…
Well, perhaps not ruthless. The author incorrectly titles it “price gouging,” when in fact it is simply a form of third-degree price discrimination, I suppose. I would be interested in seeing data on different prices across different markets. Do you think the different elasticities of demand stem from differences in income? Differences in tastes? Differences in close substitutes? Why isn’t there entry to wipe away the excess profits? I could spend the rest of the day thinking about this (and probably will).
For you 450 readers, perhaps there is an arbitrage opportunity out there for a would-be (Kirznerian) entrepreneur.
I am definitely going to check the price before I commit to Girl Scout cookies for the Economics TeaBA.
Speaking of the TeaBA, see you Monday at 4.
Reminder: LSB Investments Summit Today
There is no bigger LSB supporter than trustee Bob Perille ‘80, who is spearheading today’s LSB investments summit. Mr. Perille is the managing director at Shamrock Capital and a very sharp cat, indeed. That should be reason enough to come out today.
But, of course, there’s more. Mr. Perille will be joined by Alan Allweiss ‘77, Dan Howell ‘74, and Bryan Torcivia ’81. That’s a lot of talent in one room.
The Summit starts at 3:30 over in the Hurvis room.
Here is Prof. Galambos’ original post on the matter.
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.