Sunday, September 30, 2012

A Great Cycling Story

Congratulations to Robert Marchand. According to (here), the 100-year-old rode 100 kilometers (62 miles) in 4 hours, 17 minutes, and 22 seconds, setting a new record for a centenarian. (I don't think there's any truth in rumors that the World Anti-doping Agency is investigating.)

One of the very best things about cycling, in addition to its physical and mental health benefits and the camaraderie with fellow cyclists, is the fact that, like swimming, it's something you can keep doing later in life (as long as you can avoid the pick-up trucks).

Saturday, September 29, 2012

Arsenal 1 - Chelsea 2

Arsenal were defeated at home today by an old nemesis, and I don't mean Chelsea. The Gunners were beaten, as so often in past years, by poor defending on set pieces. Otherwise, they gave as good as they got throughout the match. Adding injury to insult, Arsenal lost Abu Diaby to another one in the first half. That's a big cause for concern, given how well Diaby has started the season after missing so many games to injury in previous seasons. Hopefully, Wenger removed him only as a precautionary measure.

Aaron Ramsey continued his run of relatively poor form. His work rate always impresses, but his passing has just not been good enough. Similarly, Gervinho who, despite scoring an excellent goal in the first half, often holds the ball too long and fails to see open teammates. Laurent Koscielny had a shambolic match, raising questions about whether he should have started, only two weeks back from injury, ahead of Per Mertesacker, who has played very well in recent weeks.

I shook my head when Arsenal replaced Podolski, rather than Gervinho, with Giroud in the second half. Podolski, who was basically invisible during the first half, looked the Gunners most dangerous player in the second, while Gervinho was pretty much playing a dervish whirling without direction. In any case, the replacement, Giroud, once again spurned an excellent chance to score late in the match after a fine pass from Cazorla.

While Arsenal fans will rightly be disappointed at the outcome, there are some positives from today's match. For one, the Gunners midfield played pretty evenly against Chelsea's very potent combination of Hazard, Oscar, and Mata. Carl Jenkinson and Kieran Gibbs continued to impress, running their legs off up and down the sidelines, contributing in the attack and getting back on defense. And the Gunners created as many legitimate scoring chances during the match. The two big differences on the day were two poorly defended set pieces and Arsenal's errant shooting. Going forward, Steve Bould clearly has more work to do with the defense and Arsenal simply need to hit the target with more of their shots, if they are to contend for silverware.

Friday, September 28, 2012

Thinking About an Optimal Coase Tax

Pigou taxes are often recommended to improve allocative efficiency and, therefore, social welfare by internalizing negative externalities to their sources (and their customers). Economists have spilled a lot of ink trying to specify what an "optimal" Pigou tax would be (see, e.g., here). Harvard's Greg Mankiw has even started a "Pigou Club" to advocate for Pigovian taxes (see here). Pigvoian taxes have even been adopted as a rule of international law in the form of the Polluter Pays Principle (see here).

Haven't any of these people read Coase (I mean read him carefully)? One of his explicit aims in "The Problem of Social Cost" (1960) was to correct an important mistake in Pigou's theory of externalities. Reconceiving externalities (convincingly) as joint- or social-cost problems, Coase argued that the socially efficient level of a Pigovian externality is hardly likely to be zero, as Pigou presumed. In virtually all cases, internalizing the first units of pollution, for example, are likely to be ruinously, if not infinitely, expensive, because of transaction costs (among other costs). The costs would surely exceed any conceivable social benefits. Therefore, those costs should be left where they fall; they should not be redistributed (by taxes or theoretically equivalent quantity-based regulations, see here) to the producer and its market.

This is not to say that Coase believes all costs of Pigovian externalities should always be left where they fall. He did not set out to reverse Pigou's policy recommendations for achieving allocative efficiency in the face of market failure, but to correct it at the margins. According to Coase, externalized costs should be reallocated to the producer up to that point where the costs of internalizing the next unit would exceed the social benefits (a standard MC = MB equation). Thus, an "optimal" Coase tax would imply not the Polluter Pays Principle but the "Polluter Pays for Inefficient Externalities Principle."

Coase's argument is both intuitive and obvious. So, it is all the more surprising that economists have not really taken it on board. They keep modeling optimal Pigou taxes, when they really should be modeling optimal Coase taxes. Admittedly, modeling an optimal Coase tax would be a more difficult enterprise because of the need to estimate transaction costs in order to determine where the marginal costs of redistributing joint or social costs would equal the marginal benefits. But that problem should be surmountable, at least in theory, and when modeling "optimal" taxes (or "optimal" anything) we are always living in a purely theoretical world in any case.

I do hope to be able to develop a model of an optimal Coase tax sometime in the next couple of years, in cooperation with one or another economist friend of mine (whose technical chops are better than my own). It will be interesting to see just how such a model differs from the various models of optimal Pigou taxes. In the meantime, I call on Greg Mankiw to rename his club after Coase, instead of Pigou.

Thursday, September 27, 2012

Question for the Day

How could Hume be so certain (in Book I, Part III) of his Treatise that all knowledge is probabilistic? In fact, he argues that knowledge is certain, but knowledge is based on ideas, which are based on perceptions of experiences; and those ideas can only be probabilistic. So, doesn't that mean that knowledge, too, must inevitably be probabilistic? And if that's the case, then by his own logic, there must be at least a slight possibility that knowledge is certain.

Obama's Surge Continues

Not only is he leading in the all-important swing states (e.g., Ohio, Virginia, Florida) (see here), but his stock on Intrade has continued to rise ever since the Democratic convention. The last time I reported on it (here), nine days ago, Obama had a 67.5% chance of reelection. Today, he's up to 75.6% on the Intrade market (here). I'm a bit surprised by this, not because Romney's been an effective campaigner (obviously), but simply because I would expect Intrade traders to react against such a wide trading disparity, which suggests a far bigger lead than the public opinion polls indicate. It'll be interesting to see whether the pro-Obama trend on Intrade is either slowed or reversed after the coming debates.

Understatement of the Day

From Pat McQuaid, head of the UCI (here), after reports emerged that the USADA had delayed sending the UCI the dossier on the Lance Armstrong case because it was still gathering evidence:
"It is at very least unusual that USADA would still be gathering evidence against a person after it has found that person guilty."
Unusual? Yes. Surprising? Not when one considers the lack of due process in the USADA's witch hunt so far. Apparently, the agency is working overtime to frame the guilty.

Wednesday, September 26, 2012

Group Size, Transaction Costs, and the Robustness of Common Property Regimes

It is commonly understood that transaction costs rise with the number of participants, and that this principle might limit the viability of common property regimes to successfully manage common pool resources over long time periods, especially under social-ecological conditions of growth in aggregate demand relative to supply.

Today, I attended a presentation which compared two common property agricultural regimes in the Swiss Alps, where it seems one system had too few members to make it viable, especially given the relative heterogeneity of economic production in their region, where tourism was at least as important to the local economy as agriculture. 

A typical common property regime will give participants equal rights to access and use common pool resources, but also impose on those users various duties to maintain the resource, etc. In the case where a CPR has very few members, however, the costs of bearing maintenance obligations may exceed the benefits of cooperative resource management, especially when demand for the resource, e.g., the  pasture, does not create a high risk of over-exploitation.

I find very interesting the implication that common property regimes may lack robustness as a result of either too large a group or two small a group of participants. (Of course, other ecological, geographical, and institutional circumstances matter as well.)

Tuesday, September 25, 2012

Lifeboat Economics?

At Concurring Opinions (here), Maxine Eichner offers a nuanced critique of Michael Sandel's new book, What Money Can't Buy (see my own recent, but less nuanced, discussion of that same book here). Toward the end of her critique, she raises the question of whether the rise of the rational self-interest model of neoclassical economic theory has led to the erosion of previously important social norms. As an example, she points to John Jacob Astor IV (1864-1912), one of America's richest and most influential men, who went down on the Titanic. After placing his pregnant wife onto a lifeboat, Astor helped two immigrant children get aboard with her before he stepped back onto the Titanic. Many other men did the same, giving up their spaces on lifeboats so that women and children might be saved.

Putting gender-based issues aside, Eichner wonders whether such other-regarding behavior remains conceivable in the current climate of self-interest above all else. I'm not sure of the answer, but I can easily picture in my mind a political cartoon, in which a ship named "The Economy," is sinking after striking an iceberg labelled "Financial Markets." As the passengers scramble and panic, Republican politicians dressed as crewmen run among them yelling, "Women and children back. Job-creators first!"

Something like this (only less amateurish):

Stop Blaming the Replacement Refs

It's not their fault. They're amateurs doing the best they can under trying circumstances. How many of us think we could do better, surrounded by giant humans wearing helmets and shoulder pads, yelling coaches,  tens of thousands of screaming spectators, TV commentators parsing our every decision, and millions of viewers?

Any blame for ruining professional football games should not be placed on the shoulders of the men in the striped shirts but on their employer, the NFL and its greedy owners, who would rather sacrifice the integrity of the game than pay a bit more for professional officials to do a professional job.

Monday, September 24, 2012

Books I've Been Reading

bookjacket Daniel P. Carpenter, The Forging of Bureaucratic Autonomy: Regulations, Networks, and Policy Innovation in Executive Agencies, 1862-1968 (Princeton 2001). An important contribution to the literature on how administrative agencies built coalitions to further their missions (mainly as mid-level managers perceived them) and to sustain political legitimacy. Of particular interest to me are Carpenter's respective descriptions of the historical evolution of the Agriculture and Interior Departments. While the former gained substantial political autonomy during the Progressive Era, the later did not. And the effects of that distinction are felt to the present day in respective agency policies and cultures. It's not the most exciting book I've ever read, but it's very rich in substance.

Herman Hesse, The Glass Bead Game (Magister Ludi) (Holt, Reinhart & Winston 1969). I haven't read Hesse's masterpiece since 1985. What a great pleasure to read it again after so many years. I only wish I could read it in the original German. After Thomas Mann (who is portrayed in the book as the former Magister Ludi Thomas van der Trave), Hesse is probably my favorite German fiction author (although he gets a good run for his money from Heinrich Boll, Theodor Fontane, and, of course, Goethe). 

Interesting Talk on Law & Film

"From Cataclysm to Utopia ... Law, Film & Propaganda at the beginning of the Communist Poland," by Jaroslaw Kuisz a lecturer at Warsaw University and editor of the on-line journal Kultura Liberalna. As the title of his presentation suggests, Kuisz's talk was about the ideologically-determined reconstruction of the Polish film industry following World War II. Of course, film everywhere has been used as a propaganda device, especially during times of major political or military upheaval. In early communist Poland, film was used to sow pro-Soviet sentiment among Poland's post-war population, and inculcate notions of "Soviet legality" and "Soviet justice." Reflections of Nazi, Polish-Underground, and Soviet law ran as undercurrents throughout each of the films Kuisz discussed, which were made between 1947 and 1950.

Sunday, September 23, 2012

Man City 1 - Arsenal 1

This was the kind of game where both teams fully merited a point. It was an exceptionally played match by two technically astute sides, characterized by tight marking in the midfield and short, crisp passing. In the first half, Arsenal's tight passing was particularly impressive; probably the best we've seen so far this season. Unfortunately, they don't give points for quality of passing; you've got to put the ball into the net and Arsenal just couldn't manage that feat. Despite the loss, this game proved no less than Arsenal's earlier wins that the Gunners will be a team in contention for silverware this season.

Arsenal arguably was the better side in the first half. More than once they carved open the Man City defense on the counterattack, but failed to score. Gervinho, in particular, was a bit clumsy one or two key touches, especially when Ramsey had played him in clear on goal. When City scored in the 40th minute, one couldn't say it was against the run of play, but it did mark a somewhat surprising let down in Arsenal's otherwise taut defending. The Gunners lined up to defend the corner along the 6-yard line, which gave Man City's big men a free run towards the goal to meet the ball. Manone came out to punch the corner away but he was beaten to the ball by Joleon Lescott, who headed it simply into the net.

The second half started with the same end-to-end, free-flowing football that characterized the first half. Both teams created decent scoring chances within the first few minutes, but Arsenal seemed to have a little less possession and a bit more trouble coping with Man City's tight midfield marking. As the half wore on, Arsenal seemed to run out of ideas. When they got the ball in the final third, they just couldn't seem to find the right pass to create a real threat on Man City's goal. It was the kind of half where you could be excused for wondering whether Robin van Persie might have made a difference with a moment of individual brilliance.
But then, as the game moved into the final quarter hour, Man City started to cede more and more of the possession to Arsenal, looking mainly for chances to counterattack. And Arsenal eventually made them pay with about 10 minutes left, when Koscielny put the ball in the net following a deflected corner kick. It was no less than the Gunners deserved for all their hard work and skillful play.

Just about everyone on the Gunners played well today. But I'd like to pick out for special commendation three defenders. First, Carl Jenkinson, who looks increasingly comfortable on the right side of the defensive and confident in the attacking third. Second, central defender Per Mertesacker read the game really well, and broke up several incipient Man City attacks with smart positional play. Third, Laurent Koscielny made a few brilliant defensive plays in the final 15 minutes of the match, before scoring the all-important game-tying goal.

Finally, as a matter of strategy, I'm unsold on Gervinho playing as lead striker. He often looks dangerous when he's running at the defense (like a good winger), but he's not strong enough to hold the ball with his back to goal, and he is too often wasteful with his touches, passing, and shots. Other options for the central attacking role included, of course, Giroud, who was signed to play that position but hasn't managed to hit is stride yet in Arsenal colors, or Podolski.

The Economics of Bicycle Theft

Here, at the Priceonomics Blog. Stolen bikes are not particularly lucrative, so the key seems to be the low cost, especially risk of detection, of the enterprise. This is why, when I commute to school, I always carry my bike into my office. I would not leave anything but a beater locked to an outdoor bike rack.

Saturday, September 22, 2012

The Unplumbed Depths of Associate Justice Stephen Breyer

Asked to pick five books that have influenced him intellectually, Justice Breyer's first choice was Alexis de Toqueville's Democracy in America, which he describes in words Vincent Ostrom would have applauded:
It’s a masterpiece of sociological and political analysis. In the 1830s, Tocqueville looked at the newly democratic America and described it in terms that, for the most part, are applicable today. For example, he spoke of the clamour that he heard when he reached the shores of America. Law in America rises from the bottom up, it isn't decreed from the top down. When we have a new problem, we start with vigorous debate and discussion that can sound like clamour.
Tocqueville is a constant presence at the Ostrom Workshop in Political Theory and Policy Analysis. One of the two main meeting rooms at the Workshop is named in his honor and his portrait hangs on its back wall.  

The full interview with Justice Breyer, and his other four choices of influential books, are (here) at The Browser.

Friday, September 21, 2012

Farber's Suggestions for Regulatory Reform

Spurred by an upcoming conference on conservative approaches to environmental protection at Duke, Dan Farber (here) offers some good suggestions for regulatory reform, which should appeal to sensible conservatives. I would offer one further suggestion:

Congress should give EPA and the states more authority to design real regulatory experiments (with control groups) to gather data on the variables that influence the relative effectiveness and efficiency of different approaches to regulatory policy in varying circumstances. This is not just a matter of giving more regulatory discretion to regulators, but more in the nature of limited authorizations to design and carry out what amount to field experiments to determine combined social-ecological consequences, with evaluated outcomes feeding back into the policy process.

Sandel on Economics

I read Michael Sandel's 2009 book, Justice, and was underwhelmed by it. The book seemed geared more toward an undergraduate audience and paled in comparison to other, much deeper books published in the same period, particularly Amartya Sen's The Idea of Justice

Sandel has a new book out, What Money Can't Buy, which consummates his sustained attack on the way Economics is taught and practiced in the US. The book has received a lot of commentary and criticism already, some of which has deterred me from reading the book. Today, Sandel has an article in Prospect (here), which summarizes some of the main themes of his book. That summary, far more than any of the critiques I have read of his book, has finally convinced me that it's not worth reading.

I don't disagree with everything Sandel says is wrong with the way Economics is currently taught and practiced. I fully agree, for example, with his assertion that economics is not a "value-neutral science," and that every economist should read Adam Smith and John Stuart Mill carefully to understand how closely economics is connected to moral and political theories. Much of that connection has been obscured by misguided efforts to turn economic theory into some kind of social physics.

But some of the practical implications Sandel draws are not only bad economics but morally obtuse. Here is a representative passage:
Consider the case for a free market in human organs—kidneys, for example. Textbook economic reasoning makes such proposals hard to resist. If a buyer and a seller can agree on a price for a kidney, the deal presumably makes both parties better off. The buyer gets a life-sustaining organ, and the seller gets enough money to make the sacrifice worthwhile. The deal is economically efficient in the sense that the kidney goes to the person who values it most highly. 
But this logic is flawed, for two reasons. First, what looks like a free exchange might not be truly voluntary. In practice, the sellers of kidneys would likely consist of impoverished people desperate for money to feed their families or educate their children. Their choice to sell would not really be free, but coerced, in effect, by their desperate condition.
Even if we granted Sandel's supposition that poverty would "coerce" kidney sales by poor people,* it hardly follows that such a market would therefore be immoral. Should poor people be deprived of the opportunity to capitalize on a (relatively speaking) unneeded organ in order to better their material conditions? Sometimes the only thing worse than being exploited (if that's what Sandel wants to call it) is not being exploited.

And what basis in reality is there for Sandel's simplistic presumption that a market for kidneys would be laissez faire? There's no reason to believe that kidney or other conceivable organ markets would be completely unregulated, so that the organs would all go to the highest bidders. At the very least, we would expect medically-based regulations concerning tissue-matching, etc. In all probability, a legal kidney market would (and probably should) be quite heavily regulated.

Finally, what about the morality of allowing people to die for want of kidneys that a legal market would supply? At the very least, Sandel's moral argument is woefully inadequate.

*Sandel seems not to appreciate that completely voluntary exchange and complete coercion are the two extremes of a long continuum. Every day my hunger coerces me to buy food, but that does not mean my choices are completely involuntary. Likewise, the fact that a person is poor does not mean that a choice to sell a kidney is completely involuntary.

Very Interesting Profile of Clinton Economic Guru Robert Rubin

Here, at Bloomberg Business Week. Talk about shades of grey...

Thursday, September 20, 2012

One Thing I Think I Learned Today

For me a good haircut is merely the absence of a manifestly bad haircut. 

Whether the cut is good, bad or indifferent, I feel fortunate at my age to still have hair to cut.

Wednesday, September 19, 2012

One Thing I Think I Learned Today

"Ordoliberalism," which developed in Germany in the 1950s, constitutes an important and interesting precursor to the New Institutional Economics (as represented by the likes of Coase, North, and Williamson), and offers a distinctive challenge to Austrian-style libertarianism  and other decidedly anti-government forms of neoliberalism/conservatism.

When Peter Grossman and I get around to a third edition of our Law & Economics textbook, I think I'll have to add something about Ordoliberalism and the German Institutional School (a.k.a., the Freiberg School) that founded it. In the meantime, this paper is recommended: Gerhard Schnyder and Mathias Siems, "The Ordoliberal Variety of Neoliberalism," in S. Konzelmann and M. Fovargue-Davies, eds, The Faces of Liberal Capitalism: Banking Systems in Crisis (London: Routledge 2012), pp. 250-268.

Doubling Down on Misunderstanding Coase

I came across a paper on SSRN entitled, "Transaction Costs Can Encourage Coasean Bargaining." Here is the abstract:
When there are three parties, it is well known that the Coase Theorem may not hold even when there are no transaction costs, due to the emptiness of the core of the corresponding cooperative game [Aivazian and Callen (1981)]. We show that the standard Coasean bargaining game involving three parties is strategically equivalent to an asymmetric three player majority game. Hence, when there are three parties, the Coase Theorem fails if and only if the core of the corresponding three player majority game is empty. We use this equivalence result to derive all instances in which the Coase Theorem will and will not hold with three parties, and show that the Coase Theorem will actually hold most (over 80 per cent) of the time. We also demonstrate, in contrast to Aivazian and Callen (2003), that it is always possible to find a set of transaction costs which, when introduced into a frictionless bargaining situation, will cause an empty core to become non-empty. In other words, with suitably designed transaction costs, it is possible for the Coase Theorem to hold in cases where, in the absence of those transaction costs, it would fail to hold. When there are three parties, rather than hindering agreements, transaction costs can encourage Coasean bargaining.
I have not read the article and do not plan to because, based on the title and abstract alone, the entire project strikes me as misguided. In the first place, we have the problem of defining "Coasean bargaining," as opposed to bargaining simplicter, about which I have blogged on more than one occasion (see, e.g., here). But this paper suffers from an even deeper problem, which really amounts to an outright contradiction, which is disclosed in the second to last sentence of the abstract: "with suitably designed transaction costs, it is possible for the Coase Theorem to hold in cases where, in the absence of those transaction costs, it would fail to hold." By definition, a world of positive transaction costs (of whatever type) is not a world in which the Coase Theorem can apply because the theorem is defined in part by the absence of transaction costs (plus all the other standard assumptions of neoclassical economic theory). There is an outright contradiction between the existence of positive transaction costs and the Coase theoretic assumption of costless transacting.

My conclusion is that whatever the author believes he is writing about, it is not the "Coase theorem;" and whatever bargaining he observes is not "Coasean bargaining" (however defined).

Why Shouldn't a Nice Jewish Boy Like Jesus Have Had a Wife?

See here.

Major Works of Elinor Ostrom

Mike McGinnis (IU, Political Science, SPEA, & Ostrom Workshop) and I have just received a contract from Routledge to edit and write an introduction for a 4-volume collection of major works by, and relating to, our late lamented friend and colleague Elinor Ostrom. The volumes will be published in 2014 as part of Routledge's series, Critical Assessments of Leading Economists.

Beware of Simple Solutions to Complex Problems

Over at The Atlantic (here), Noah Smith offers what he labels an "easy" two-step solution to the problem of global climate change:
The way to save our planet is clear. Step 1 is to embrace natural gas as a "bridge" fuel, limiting the risks from fracking and helping China and other developing countries to switch from coal to gas. Step 2 is to fund research to ensure that the jaw-dropping three-decade plunge in solar power costs continues for two decades more. Natural gas is the temporary ally. Cheap solar is the cavalry that will ride in to finally save the day. 
I have just two points to make about Smith's proposed solution: (1) Neither of his steps is nearly as simple as he makes it sound; and (2) his presumptuousness about the potential of solar power is breathtaking.

Normally, I wouldn't even bother reading an article with a title like, "The End of Global Warming: How to Save the Earth in Two Easy Steps." In this case however, I thought it might be useful for making the pedagogical point that Lin Ostrom often stressed: simple solutions do not exist for complex, combined social-ecological problems. Those who offer simple nostrums as panaceas are not serious problem-solvers.

Montpellier 1 - Arsenal 2

I did not get to see the game live yesterday, but watched it in the evening. Arsenal really dominated the first half, and were unfortunate to go down 1-0 on a pretty weak penalty call at the very edge of the box with both players facing away from goal. More than anything, the call raised the hackles of the Arsenal squad, who proceeded to take the lead back from Montpellier within 8 minutes on goals by Podolski (form a sweat flowing attack right up the center of the pitch) and Gervinho on a tap in from a beautiful cross by Jenkinson (who is looking increasingly comfortable in the right fullback position). At that point, it looked as if Arsenal might run away and hide.

The Arsenal squad that took the pitch after the halftime break looked exactly like the same players who left the pitch 15 or 20 minutes earlier, but they certainly didn't play they same. At times they looked tired or lethargic; they certainly lacked the cutting edge they showed throughout most of the first half. I wonder whether it had anything to do with the fact that Arsene Wenger was relegated to the stands (serving the first of a three-match touchline ban in the CL) and defensive guru Steve Bould was the man in charge. It really looked as if Arsenal were playing to protect their lead, rather than extend it. Many times when they got the ball, they seemed content to pass it around the defense and the midfield, forcing Montpellier players to chase, before eventually passing back to goalkeeper Manone, who would thump the ball back down to the other end of the field.

As so often happens when teams play to defend a slim lead, Arsenal invited a great deal of pressure on to their defensive third of the pitch, and the defense nearly succombed. Montpellier were unlucky not to have scored at least once in the second half, when they showed more attacking prowess than I think anyone suspected they possessed. Manone prevented a sure goal with one fabulous save (Belhanda really should have done better with his shot from point-blank range - a foot either side of the goalkeeper would have done it).

As I see it, Arsenal were lucky to escape Montpellier with the win. But as the old saying goes, it's better to be lucky than good. Arguably, Arsenal deserve a bit of luck after all the injuries and player departures of the past couple years. But they will need more than luck to progress to the late stages of the CL or challenge for the EPL title.

Next up, a big EPA match against Man City on Sunday, followed by Chelsea next week. These will be the first big tests of Arsenal's ambitions this season.

One Thing I Think I Learned Yesterday

I'm hoping to make this kind of post a regular feature of my blog: "One Thing I Think I Learned Today." And I want it to be something substantial, rather than just some trivial observations. I'll kick it off by relating something I think I learned yesterday in the Seminar on Institutional Analysis and Development, where we were focusing on models and methods.

I learned that the "internal validity" of laboratory (and possibly field) experiments is largely determined by (or a function of) replicability of experimental conditions and outcomes, rather than the pure logic of the experimental structure. I find this interesting for several reasons, not least of which is its resonance with my recent work on cost-benefit analysis as a decision tool (see here). I find that the two "saving graces" of that otherwise malleable and manipulable tool are its twin formal requirements of transparency of assumptions and replicability. Needless to say, replicability is a prime component of all quantitative empirical and experimental work.

Tuesday, September 18, 2012

Obama with Large Lead in Presidential Prediction Markets

While public opinion polls tend to show President Obama with a fairly narrow 3-6 point lead over Mitt Romney (see here), the incumbent's reelection is virtually certain (barring huge changes in the state of the world between now and election day) according to Intrade, the leading presidential prediction market. As of today, Romney holds only a 32.5 chance of unseating the president (see here, here, and here).

Presidential prediction markets operate essentially like sports betting houses, establishing probabilities (or odds) of election outcomes based on what individuals are willing to pay to purchase prediction shares in candidates. Social science research has found that prediction markets tend to be substantially more accurate than opinion polls, especially months ahead of the actual election (see, e.g., here).

David Brooks on Mitt Romney's "Desperately Inept Presidential Campaign"

Here, in the New York Times. I can only imagine that the paleo-conservatives and uber-libertarians who now dominate the Republican party will respond by labeling Brooks a socialist because he believes, like Ronald Reagan, in a "social compact" of "common citizenship."

Sunday, September 16, 2012

Weekend Rides

Saturday: Only had time for an hour training session, so I rode hill repeats from Griffy Lake; 9 times up the steep first part of the south hill (from the lake parking lot to the trails parking lot), then once up the north hill to home. About 1500 total feet of climbing.

Sunday: 31-mile ride with Dr. Jim to Lake Lemon, around the lake, and back home. The ride was as fun and hard as the weather was beautiful. We averaged about 17.5 mph for the ride, which included just about the same amount of climbing as yesterday's training ride.

Saturday, September 15, 2012

Arsenal 6 - Southampton 1

Throughout the first half of today's match, Arsenal's attacking play was breathtaking; the players moved off the ball and strung together one-touch passes as if they were playing against no defense. To be fair, it was sometimes difficult to distinguish Southampton's defense from no defense at all. Indeed, the newly-promoted squad's defenders scored two of Arsenal's first four goals. In return, Arsenal gave up a soft goal - the first they've conceded all season - to Southampton just before halftime. No doubt Arsenal's new defensive guru, Steve Bould, will have had something to say about it during the break.

Aside from that one defensive lapse, Arsenal's first half may have been the best display of total team performance witnessed at the Emirates since the glory days of the "Invinsibles." The ball was in Southampton's defensive third of the pitch for fully 45 percent of the first half.

Almost inevitably, the second half was an anticlimax.Arsenal were more languid and not as sharp with their passing, looking more for chances on the counterattack. But the second half was a more open affair as Southampton played more attacking football than they showed at any point in the first. While that aggression did lead to few shots on goal (and one off-target chance that Lambert really should have converted), it also left Southampton open to Arsenal's counterattack.

Arsenal scored its fifth goal in the 72d minute, when some nice combination play set Aaron Ramsey free in the box; he twisted and turned a finally put a shot that came back off the post to the feet of Gervinho who even had time to take an extra touch before simply sliding the ball into the net. Having finally opened his scoring account for the season with two goals today, Gervinho will have gained some much needed confidence. He always looks threatening and displays plenty of skill, but too often he fails to get his shots on target. His first goal today was very well taken; the second, he couldn't have missed if he had tried.

Gervinho's goal deflated Southampton. From that point on it was only a question of whether Arsenal would score some more, and they did. Walcott, who came on as a second-half substitute, scored a simple goal on a rebound in the 88th minute

The match confirmed that Arsenal's two outstanding new boys, Carzorla and Podolski, are developing a great partnership, of which we had just seen glimpses before the international break. Today, the duo were absolutely brilliant in their combination play, playing series of one-two passes to open up the Southampton defense on several occasions. Cazorla may already be the best player in the Premiership.

Finally, this was exactly the kind of confidence builder (even if it was only against a Premiership "minnow") Arsenal needed going into a week when they will travel to Montpellier in the first round of Champion's League play and then to defending Premier League champion Man City.

Wednesday, September 12, 2012

Michael Lewis's Profile of the President as Human

Here, in Vanity Fair. Conservatives will complain that it's little more than election-year hagiography - the verbal equivalent of the fake documentaries they show at party conventions before presidential candidates' acceptance speeches. I actually found the piece insightful. And, of course, Lewis (author of Liar's Poker, Money Ball and The Big Short, among other notable books) is a terrific writer. He weaved a fascinating narrative out of a series of relative short one-on-one sessions, including on the basketball court.

I don't buy Obama's claim that he generally excludes practical political considerations from the tough decisions he has to make on a daily basis; I don't believe anyone who ignored political considerations could gain election to the highest office in the land in the first place. Which is not to say that Obama sometimes chooses (as other presidents before him have done) to make politically unpopular decisions. In any case, Lewis certainly does bring out the man behind the politician. 

I'd like to see someone do the same for Mitt Romney.

Tuesday, September 11, 2012

Ezra Klein Puts His Finger on the Nature of the Unemployment Problem

Here, in the Washington Post.

Really Good PowerPoint Slides

Here, featuring presentations by really good economists at last week's conference on growth and development at Stockholm University, sponsored by the Institute for International Studies. PowerPoint presentations are available from the following economic luminaries (among others): Daron Acemoglu, Robert Barro, Angus Deaton, Esther Duflo, Michael Kremer, Robert Lucas, Paul Romer, and Andrei Schleifer.

Sunday, September 9, 2012

Sunday Orchard Ride with Dr. Jim

27 miles in one hour, 35 minutes, with 1252 feet of climbing.

But the most pertinent stats concern the glorious weather: 68-70 degrees, a light northwest breeze, and moderate humidity.

Peter Z. Grossman | Energy, Economics, Policy, & History

My friend and frequent co-author, Peter Grossman, has started a new blog of his own, which is sure to contain  worthwhile, even essential, reading. Peter's a terrific writer and one of the smartest people I know.

Peter Z. Grossman | Energy, Economics, Policy, & History:

'via Blog this'

Saturday, September 8, 2012

Work Less, Worry Less, Accomplish More?

That is my hope. I have started experimenting with approaches for coping with an undesirable and unintended consequence of my deliberate choice to become a more thoroughly interdisciplinary scholar: a reduction in scholarly productivity.

When I moved from Indy to Bloomington in  summer 2011, I chose to take on teaching and service obligations in three different units of the University  - the Maurer Law School, the School of Public and Environmental Affairs (SPEA), and the Ostrom Workshop - knowing that they would take more of my time and energy. I did not at the time realize, however, just how much time and energy they would consume. I have felt increasingly spread thin and stressed out. Without question my scholarly productivity has suffered, even as I've taken on board more research projects.

So, this is the problem to be solved: how to regain a higher (though not necessarily my prior) level of scholarly output while coping better with my various academic obligations across campus. I have devised a strategy comprising three elements: (a) improve the organization of my class preps, committee meetings and other administrative responsibilities, conference presentations, and research and writing; (b) condense work into shorter but more focused intervals; and (c) build in more time (not less) for rest and relaxation (including more time on the bike and more time with my family) to reduce my overall stress level and rebuild energy for those more focused work sessions.

How confident am I that this strategy will solve the problem? I can't really say. It's an experiment, the success or failure of which will be measured along two, equally-weighted dimensions: (1) my overall productivity; and (2) my overall sense of well-being (e.g., reduced stress and increased happiness). Instead of burning the candle at both ends and feeling like I'm not getting enough done, I hope (perhaps vainly) that I can burn it at neither end and get more done.

I'll let you know what I discover (although it might be a while before I have a sense of how it's going).

Friday, September 7, 2012

Did Obama Really Mention Climate Change in His Nomination Acceptance Speech?

In the US, standing up for science apparently now counts as an act of great politically bravery. To be fair, I hadn't expected him to mention it.

Thursday, September 6, 2012

UK and Australia to "Link" Emissions Trading Systems

If states are viewed as individuals in international law, then the establishment and subsequent linkage of national emissions trading systems may be viewed as a bottom-up approach to climate change mitigation, in contrast to the top-down approach of globally negotiated treaties. The advantage of linked emissions trading system is to increase the number of potential traders, which (all else being equal) should improve the liquidity of the larger market.

The EU established the world's first trading system for carbon dioxide in 2005. Australia's own system is just getting off the ground. Last week, the two agreed to link up their carbon markets as of 2018 at the latest (see here). In the meantime, substantial changes will have to be made to the structure of Australia's system to make it compatible with the bigger and well-established EU system. This is a potentially significant step towards a operational global market in carbon dioxide (and possibly other greenhouse gases). It is only an incremental step, however, because a truly global and effective carbon market would require the participation of all the world's largest emitting countries, including China, the US, Russia, and India.

The US came close to enacting an emissions trading system for greenhouse gas emissions in 2010; the House passed the bill, but the Senate failed to follow suit. The mid-term elections later that same year put paid to any such possibility. At this point, it seems likely that China will establish a cap-and-trade system for carbon dioxide long before the US does, which is not to say that it is likely to happen any time soon in China. Meanwhile, an electoral change in Australia's political leadership could easily derail it's own nascent commitment to its own carbon market, let alone linkage with the EU scheme. (The EU's own system is so well established at this point that it could be immune to dismantling, unless China and the US continue to do little or noting to mitigate CO2 emissions over the next decade or so).

Still, last week's agreement between the EU and Australia must be taken for the good news that it is. Such incremental, regional agreements (even if they emerge only slowly) may be the best hope for real, measurable carbon emissions reductions over the next 20-30 years.

Think BP Cleaned Up All the Oil After the Deepwater Horizon Oil Spill? Think Again

The Telegraph has the story and photos, here, of beach closures along the Louisiana coast in the wake of Hurricane Isaac, which cascaded waves of tar balls all along the coastline.

Books I've Been Reading

Charles L. Jr Griswold, Adam Smith and the Virtues of Enlightenment (Cambridge 2009). A really helpful and sympathetic exegesis of Smith's Theory of Moral Sentiments, making it much easier to understand the rhetoric and organizational structure of Smith's great but neglected work.

Brett M. Frischmann, Infrastructure: The Social Value of Shared Resources (Oxford 2012). A very important contribution to our economic understanding of infrastructure as a common or public good. The analysis is rigorous and compelling. As someone whose own work is primarily concerned with natural resources and environmental protection, I particularly enjoyed the chapter on "natural infrastructure." Those who are more interested in roads and bridges or telecommunications will find a great deal in the book that is useful to their work. Here's what Lin Ostrom had to say about the book:
Faculty and students across the social sciences and engineering will all find Brett Frischmann's new book to provide essential guidance for the analysis of diverse types of infrastructure resources and how policies affect the effectiveness, efficiency, fairness, and sustainability of outcomes. Rarely can one find such a broad and useful foundation for digging in and understanding the complexities of modern infrastructures. An extraordinary book.

Leo Tolstoy, War and Peace [1869]. Filling another gap in my literary education, I started reading this book on a recent trip to Quebec City (thank goodness for Kindle for saving me from having to carry such a massive tome), and am now up to the first Epilogue. It is a deservedly famous book, particularly for its insights into the war of 1812 (not the one between the US and British but Napoleon's invasion of Russia) and the state of Russian society at that time. I confess I found the salon set-pieces less gripping reading than the battle descriptions and military strategy narratives (perhaps that's a gender thing).

Wednesday, September 5, 2012

A Good Show

I took the family to see American Idiot this evening at the IU Auditorium. The young actors, singers, and musicians were all terrific (especially the drummer, although probably pay undue attention to percussionists). The music was, of course, the star of the show. It reminded me of when I took my daughter to see Green Day live eight years ago on their American Idiot tour. It was one of the best shows ever (and I saw The Who play live four times in the '70s). As between a Broadway version of their music and seeing Green Day perform live, it's really not a close call. Nevertheless, Green Day probably isn't coming to Bloomington (or even Indy) any time soon.

On the Technological Threat to Higher Education

Here, in the Washington Monthly.

Romney v. Romney

Yesterday, the Democratic convention aired a video tribute to the late Senator Edward Kennedy, which contained excerpts from a 1994 Senate campaign debate between Kennedy and Mitt Romney. In that clip, Romney strongly asserted a pro-choice position. I suspect we'll see many similar clips in Obama campaign commercials between now and the election. Obama will use "liberal Romney" as a surrogate to attack "conservative Romney."

Here is a somewhat longer set of excerpts from that 1994 debate between Romney and Obama:

Farber Criticizes the DC Circuit for Rewriting EPA Regulations

The regulations at issue were EPA's cap-and-trade rules for interstate air pollution, a problem that EPA has been trying, without much success, to deal with virtually since its inception (in 1970). The case at bar was EME Homer City Generation v. EPA. Dan Farber's concise and pointed critique is here. It's not clear to me, however, that Dan's critique reaches the court's ultimate decision in the case to strike the regulations. He does not argue explicitly that the case was incorrectly decided under the law. And it seems at least possible that the court might still have overturned the regulation, even if it had been more restrained in expressing its opinion.

At least now the DC Circuit has provided EPA with clear parameters for rule-making on interstate air pollution. So, when it tries again - for at least the fourth time - to regulate pollution from upwind states to protect air quality in downwind states, it will have a better chance of surviving judicial review. That's not to say that I disagree with any of Dan's critique or approve of the court's aggressive over-reaching. I don't. I'm just looking for a silver lining. On the other hand, EPA probably thought it knew exactly what it needed to do to promulgate an interstate air pollution rule that could survive judicial review based on the last three rules that the court struck down.


On a separate matter, Dan Farber has also posted a handy side-by-side comparison of Republican and Democrat party platforms concerning energy and the environment (here). I would have referenced it in a separate post, only I just don't think party platforms are very significant (although I appreciate that others, e.g., here, think they give insights into a party's aggregate ideology and governing strategy).

Tuesday, September 4, 2012

Adam Smith on Contracts under Duress

Much to my surprise, Adam Smith argues in The Theory of Moral Sentiments (VII.IV.12) that the "common sentiments of mankind" demand fulfillment of some promises made under duress to "highwaymen," even though it is universally accepted that such promises are not legally enforceable.
If we consider the matter according to the common sentiments of mankind, we shall find that some regard would be thought due even to a promise of this kind; but that it is impossible to determine how much, by any general rule that will apply to all cases without exception. The man who was quite frank and easy in making promises of this kind, and who violated them with as little ceremony, we should not chuse for our friend and companion. A gentleman who should promise a highwayman five pounds and not perform, would incur some blame. If the sum promised, however, was very great, it might be more doubtful, what was proper to be done. If it was such, for example, that the payment of it would entirely ruin the family of the promiser, if it was so great as to be sufficient for promoting the most useful purposes, it would appear in some measure criminal, at least extremely improper, to throw it, for the sake of a punctilio, into such worthless hands. The man who should beggar himself, or who should throw away an hundred thousand pounds, though he could afford that vast sum, for the sake of observing such a parole with a thief, would appear to the common sense of mankind, absurd and extravagant in the highest degree. Such profusion would seem inconsistent with his duty, with what he owed both to himself and others, and what, therefore, regard to a promise extorted in this manner, could by no means authorise. To fix, however, by any precise rule, what degree of regard ought to be paid to it, or what might be the greatest sum which could be due from it, is evidently impossible. This would vary according to the characters of the persons, according to their circumstances, according to the solemnity of the promise, and even according to the incidents of the rencounter. and if the promiser had been treated with a great deal of that sort of gallantry, which is sometimes to be met with in persons of the most abandoned characters, more would seem due than upon other occasions. It may be said in general, that exact propriety requires the observance of all such promises, wherever it is not inconsistent with some other duties that are more sacred; such as regard to the public interest, to those whom gratitude, whom natural affection, or whom the laws of proper beneficence should prompt us to provide for. But, as was formerly taken notice of, we have no precise rules to determine what external actions are due from a regard to such motives, nor, consequently, when it is that those virtues are inconsistent with the observance of such promises.
What I found astounding about this paragraph is Smith's total disregard for the economic incentives his ethical proposition would entail. If individuals in society generally followed his moral standard of making good even on relatively small promises to thieves, what would be the likely effect on the rate of highway robbery? From an economic perspective at least, the jurisprudential rule (which Smith acknowledges) seems far more sensible the "common sentiments of mankind," as Smith sees them. Of course, there is good reason to question whether Smith has a proper handle on the "common sentiments of mankind" in this instance.

Monday, September 3, 2012

Labor Day Ride

I labored hard today on a ride out to the Morgan-Monroe State Forest and back with Dr. Jim. We averaged  17.1 mph for the 32-mile ride, which included three sizable climbs (Beanblossom; Old 37 up to Hindustan, and Firehouse Hill) and a total of 1330 feet of climbing (according to my iBike; PerfPro says it was over 2000 ft). It was good to burn some of the excess of calories I've consumed over the weekend.

Sunday, September 2, 2012

Predictive Preview of the Democratic National Convention

"We Still Can, We Still Can," out of Iraq, getting out of Afghanistan, bin Laden dead, Bush's deficit, Wall St. doing fine, Main St. struggling, GM saved, stimulus worked but Republicans prevented more, Romney for 1%, Obama for Middle Class, Middle Class, Middle Class, our celebrities are better than their celebrities, Clinton, Clinton, Clinton, Clinton, ... Obama.

Liverpool 0 - Arsenal 2

Arsenal finally got off the schneid for the season in the middle of the first half at Anfield, when a loose pass by Liverpool's Steven Gerard in the middle of the field led to a quick counterattack orchestrated by Lukas Podolski and Santi Cazorla. Podolski got the ball to  Carzorla, who drove at the center of the Liverpool defense, while Podolski busted a gut to get into the box. Carzorla found him with a nice return pass. Podolski took one touch before putting a strong left footed shot back across the goal and into the back corner of the net. It wasn't exactly a goal against the run of play, though arguably Liverpool looked the slightly more dangerous side during much of the first half.

The same two players combined for Arsenal's second goal of the season. This time, Cazorla fed Podolski at the edge of the Liverpool box, and made a darting run toward the near post. Podolski held the ball momentarily, then played an inch-perfect pass into the diminutive Spaniard, who dispatched a strong shot from close range that Pepe Reina could not stop. Clearly, Podolski and Cazorla are cohering into a potent offensive force. Now, they just have to figure out how to get the woeful and somewhat lost-looking Olivier Giroud into the mix. Cazorla tried, making a couple of brilliant long passes out of Arsenal's defense to create counter-attack opportunities, one of which fell to Giroud. But he couldn't take advantage of any service he received.

Arsenal's defense looked solid and well-organized throughout the match (credit to assistant coach Steve Bould), holding its shape well and taking care of business in the box. Back-up keeper Vito Mannone had very few saves to make, which is exactly what you want when your first-choice keeper (Wojciech Szczesny) is out injured. He did, however, make two fine saves in the last five minutes of the match to preserve the clean sheet.

There were a couple of worrying signs in defense. Kieran Gibbs occasionally seemed over-eager to join on the attack, leaving Arsenal vulnerable to attacks down the left wing. Per Mertesacker gave the ball away needlessly on a couple of occasions in the first half, and let Luis Suarez get in front of him on a couple of occasions in the second half. Still, it's hard to complain about another clean sheet.

Aside from scoring Arsenal's first goal of the season, Podolski's work rate was especially impressive; he always seemed to be wherever he was needed, whether defending in his own third, linking play in the middle of the pitch, or looking for goal-scoring opportunities on offense. His pace and positioning on the field are very promising signs for the Gunners. Abu Diaby had a much, much better game than he had in the first two matches of the season; he made some really good runs and his passing was much more accurate. And nothing more needs to be said about Cazorla, who has impressed since he first stepped on the field at the start of the season.

During the first half, I was wondering whether Diaby and Arteta should switch positions. Arteta did not look up to the defensive challenges of the holding midfield role, which also compromises his creative skills linking to the attack. But in the second half, he made some terrific defensive plays to stop Liverpool attacks. Perhaps Wenger views Arteta as an equal solid but somewhat more creative version of Scotty Parker, who is among the best holding midfielders in the Premiership. Anyway, who am I to question Arsene Wenger's strategy, especially when the team hasn't given up a single goal in three Premier League matches?

The bottom line is that this was a good away win for the Gunners, against a Liverpool side with which they are pretty evenly matched (at least at this point) - neither team seems likely to challenge Man U, Man City, or Chelsea for the title but both will have legitimate hope of attaining a Champion's League place.

Saturday, September 1, 2012

Summing up the Last Night of the Republican Convention

An empty chair; an empty suit.

Whatever happened to the good old days, when a celebrity would just hug a candidate?

Saturday Morning Hill Repeats

I was surprised to see dry roads when I awoke this morning. I checked the radar, which showed only some light rain floating around the area, so I decided to head outside for a ride. I didn't want to get too far away from home in case the heavens opened, so I contented myself with another, slightly increased round of hill repeats: 4 times up each side of Griffy Lake. Over 1500 feet of climbing in just 18 miles. I would have liked to have gotten in a longer ride, but given my expectation that I'd be stuck inside on the trainer today and tomorrow, I feel lucky to have gotten out at all.