Friday, November 30, 2012

Room for a Deal to Avert the Fiscal Cliff?

With more Republican senators and representatives announcing that they might be willing to vote in favor of tax hikes on the wealthy in exchange for long-term entitlement reform, the makings of a compromise are on the horizon. Whatever he said on the stump, President Obama must recognize that entitlements (i.e., social security and medicare) are unsustainable between now and the demise of the baby-boom generation (which includes me). So, some reforms are inevitable, and the looming "fiscal cliff" provides an excellent opportunity to establish a schedule for phasing in those reforms in exchange for Republicans' agreement to allow the Bush tax cuts to expire for the highest income earners.

I'm not suggesting that Obama cave to Republican preferences for partial or complete privatization of social security - such fundamental changes are probably not necessary to ensure the solvency of the system going forward. All that may be required is some amount of means-testing and/or raising marginally the age of eligibility, which seems sensible in any case as more Americans are now working into their late '60s and '70s  partly because they are living longer, healthier lives (but also partly because they have to in order to make ends meet).

This is a real opportunity to solve (or take major steps in the direction of resolving) together two major social issues the country confronts, but are difficult to resolve individually because of vested political interests. In this case, the public may be willing to accept the lesser evils of increased taxes on the wealthy and marginal adjustments to entitlements instead of the economic disaster that likely would ensue after plunging off the "fiscal cliff."

It's not a slam dunk, of course. Nothing is in the current dysfunctional state of politics in Washington (or the US more broadly). But both sides have something to gain by giving something in return. If the Republicans give on tax revenues and the Democrats give on entitlements, both sides will be able to claim a measure of victory for averting the "fiscal cliff."

Tuesday, November 27, 2012

Representative Democracy Works in the Lab

That is my too-simplistic summation from a cursory reading of an important new paper (what paper authored by the likes of John Nash and Reinhard Selten would not be important?) appearing in PNAS (here). The full citation is John F. Nash, Jr., Rosemarie Nagel, Axel Ockenfels, and Reinhard Selen, "The agencies method for coalition formation in experimental games," PNAS Early Edition, pnas.1216361109 (Sept. 20, 2012). Here is the abstract:
In society, power is often transferred to another person or group. A previous work studied the evolution of cooperation among robot players through a coalition formation game with a non-cooperative procedure of acceptance of an agency of another player. Motivated by this previous work, we conduct a laboratory experiment on finitely repeated three-person coalition formation games. Human players with different strength according to the coalition payoffs can accept a transfer of power to another player, the agent, who then distributes the coalition payoffs. We find that the agencies method for coalition formation is quite successful in promoting efficiency. However, the agent faces a tension between short-term incentives of not equally distributing the coalition payoff and the long-term concern to keep cooperation going. In a given round, the strong player in our experiment often resolves this tension approximately in line with the Shapley value and the nucleolus. Yet aggregated over all rounds, the payoff differences between players are rather small, and the equal division of payoffs predicts about 80% of all groups best. One reason is that the voting procedure appears to induce a balance of power, independent of the individual player's strength: Selfish subjects tend to be voted out of their agency and are further disciplined by reciprocal behaviors.

Monday, November 26, 2012

The Cost of International Climate Negotiations

The 18th conference of climate negotiations has just started in Doha, and no one seems very excited about them despite the fact that the Kyoto Protocol will expire at the end of this year and no extension, let alone a successor treaty, has yet been agreed. Over at Vox (here), the prominent climate economist Richard S.J. Tol comes out in favor of letting Kyoto expire:
Having flogged, ever harder for 18 years, the dead horse of legally binding emission targets, the UNFCCC should close that chapter and try something new.
Unfortunately, Professor Tol does not recommend any new and better path (or, in the parlance of climate wonks, "architecture"). He opposes binding emission reduction targets (which, after all, haven't proven very binding). But he implicitly supports the continuation of global negotiations under the UN's Framework Convention on Climate Change, which itself calls for binding emissions reduction targets. We might reasonably ask why abandonment of the Kyoto Protocol's approach does not also require abandonment of the UNFCCC. After all, it the UNFCCC process goes forward (either continuing the Kyoto approach or moving in some other direction), the annual global meetings, which Tol estimates now cost in the neighborhood of $130 million dollars per year, are bound to continue.

Might it finally be time to abandon the global, roving cocktail party known as the "Conference of the Parties" (or CoP) in favor of a more "bottom-up" approach involving negotiations between a much smaller number of major emitting countries, including the US, EU, certain EU member states including Germany and the UK, Russia, China, India, Canada, and Australia? This is the approach George W. Bush favored after he repudiated the Kyoto Protocol in 2001 (I never said he was wrong about everything).

Shutting out the rest of the world, including most developing countries and NGOs, is far from ideal, but the universal-participation approach has been tried and found wanting. Perhaps a smaller number of countries, including some that already have skin in the game, such as the EU and its member states, could achieve greater success cobbling together a set of agreements leading to the foundation of institutions that could get the ball rolling in the right direction, actually reducing greenhouse gas emissions, then expand over time to incorporate new participants.

Having said all that, I expect the parties at the Doha CoP to try to save face, and the UN's process, by extending the Kyoto Protocol, with or without new binding emission-reduction targets. If they succeed, we are likely to see continued dithering for the rest of the present decade. Failure might be a better option.

Sunday, November 25, 2012

A Really Good Sentence

From James Meek's excellent new novel, The Heart Broke In (Farrar, Straus, & Giroux 2012):
"The human race pretty much told evolution where to shove it when we invented the barbeque."

Saturday, November 24, 2012

Aston Villa 0 - Arsenal 0

This was a hard fought battle, which the weather won. It looked a perfectly miserable day to be out on the pitch with the rain pelting down hard throughout the entire 90 minutes. Villa defended high and strong, giving Arsenal players little time on the ball. Both sides struggled to create scoring chances; yet either side might have won the game - Villa on a tremendous shot from outside the box by Holman, which Szczesny managed to paw against the crossbar and out; and Arsenal on a cross to the inside post by Oxlade-Chamberlain, which Ramsey couldn't manage to direct onto the goal.

All in all, both sides probably deserved a point, which is a bit disappointing for Arsenal fans, given the two preceding performances during the past week. However, the effort and belief were clearly there, and that is all we can really ask for. In particular, Giroud deserves special credit for his play today. He seemed to be everywhere on the pitch; he held up the ball well with his back to goal; distributed with assurance and even finesse, and helped back on defense. He clearly has grown into his role on the squad.

Thursday, November 22, 2012

Acemoglu and Robinson Defend Extreme Simplification

In responding to Jeffrey Sachs's negative review of their book Why Nations Fail? (see my post on Sachs's review here), Daron Acemoglu and James Robinson (A&R) mount (here) the following defense of their highly simplified framework  - extractive institutions v. inclusive institutions - for understanding why countries succeed or fail:
We think, and perhaps Sachs disagrees, a framework that says there are 17 factors, each of them hugely important is no framework at all. The power of a framework comes from its ability to focus on the most important elements at the exclusion of the rest and in so doing in providing a way of thinking about these elements, how they function, how they have come about, and how they change. For us those elements were related to institutions and politics, and we have focused on them.
I think A&R are mostly wrong about this. Simple models of the world certainly have an important place in social science. After all, the simple models of neoclassical economics explain quite a bit (though not nearly all) of the human behavior we observe; it gives us a lot of bang for the buck, so to speak. But simple models take us only so far. As Elinor Ostrom continually reminded us, the world is a complex place, and it is populated by complex human actors. To understand how humans interact with one another (not just as governors and citizens) and with the ecological systems they inhabit, scholars need to embrace complexity, not reject it in favor of simple (and simplistic) nostrums. See, for example, Lin's 2005 book Understanding Institutional Diversity, her Nobel Prize address (here) and her more recent articles, e.g., here, and here, elaborating a Social-Ecological Systems Framework comprised of approximately four dozen variables.

If A&R are right that a framework with 17 variables cannot be a framework, then everything Lin Ostrom thought she was doing since the publication of her landmark study, Governing the Commons (1990), was a fool's errand. Heck, she didn't even understand what constitutes a proper analytical "framework." But Lin was no fool, and she had a far richer and better grounded understanding of analytical frameworks and models than A&R display. Indeed, Lin's approach to solving collective action problems to improve material welfare of individuals and the social and ecological communities they inhabit is not only more ambitious and hopeful than A&R's simple dichotomy of "extractive" and "inclusive" institutions (which is redolent of recent political distinctions between "producers" and "moochers"); it is also more productive.

A&R's simple model hardly advances the ball beyond work done over the last generation by Douglass North and other political-economic historians. As far as I can tell, it basically relabels what North, Wallis, and Weingast refer to as "natural states" v. "open-access societies," with a bulk of additional stories to support the simple dichotomous model. If anything, Acemoglu and Robinson's approach holds even less hope for fundamental institutional change in "extractive" societies than North's approach. Indeed, reading Acemoglu and Robinson, one might easily conclude that the emergence of "inclusive institutions" is mostly a matter of historical luck or accident, rather than the conscious decisions of human actors interacting in various constitutional, collective-action, and operational arenas. In their "framework," the UK and France are both "inclusive" societies, and little if any basis exists for assessing (or preferring) their very different roads to that end. As for "extractive" societies, it seems A&R have little to offer but the sage advice to become "inclusive" by extending and protecting property rights, freeing markets (with reliable contract enforcement), and establishing the rule of law. What is novel about any of that? And yet, A&R don't seem to appreciate the complexities involved in doing any of those things. As Lin showed in Governing the Commons (and many other works), establishing a property regime is one thing; establishing one that actually works in the local circumstances is quite another.

A focus on a wider array of lower-level variables can at least indicate areas where marginal improvements might be politically feasible (via collective action). And marginal improvements in one area might facilitate further improvements in other areas, leading over time to larger-scale institutional change. Moreover, with a wider variety of variables, it is possible to construct a wider variety of specific models (under the framework) that can be tested in experiments and in the field, and to code data more precisely for purposes of more precise quantitative analysis, which would be a valuable addition to the thickly descriptive approach, albeit one focused exclusively on higher state structures, A&R take in their book.

Thanksgiving Day Ride

In what was probably the last really nice day (of a really nice week) for riding for a while - 53 degrees when I left the house, 60 degrees by the time I got back - Dr. Jim and I had time for just a shortish ride out Old 37 to Sample, over to Chalmers Pike, to Bottom Rd., and back via Kinser Pike, the Cascades, 19th St., and Fee. Including a few warm-up miles, I totaled 23 for the day, which gives me about 92 for the week. I'll likely hit 100 tomorrow, but it will almost certainly be indoors on the trainer. After highs in the mid-60s today, a front is coming through tonight and tomorrow. By Saturday, the higher temperature is expected to be 35. It's that time of year, but I've been spoiled this week by the unlikely combination of balmy weather and time to ride, which I haven't had for most of the semester. I guess I should be thankful.

Happy Thanksgiving!

A day for giving thanks for all the good things in our lives. A day for gathering family together and remembering family who are not with us. A day for watching football. A day to kick off the holiday shopping season. And, most of all, a day of gluttony without apology.

Wednesday, November 21, 2012

Arsenal 2 - Montpellier 0

Arsenal secured their place in the first knock-out round of the Champion's League with a comfortable 2-0 win at home to French champions Montpellier. The match started slowly, with Arsenal missing a number of passes, and the first half finished with neither side mounting much of a sustained attack on the other's goal. Arsenal did, however, look the more dangerous side.

Arsenal seized control, and settled their fans' nerves, early on in the second half when Jack Wilshire simple slotted the ball into the net following a fine cross from Vermaelen that Giroud nodded down in the box right to Wilshire's boot. Even more impressive was Arsenal's second goal, scored in the 63d minute, when Podoski combined with Giroud on a beautiful move. Podolski passed into the center from the left wing, and continued  his run into the box. Giroud picked him out with perfectly weighted pass over the top of the defense, which Podolski took on the full volley, scorching the ball over the outstretched body of the Montpellier keeper, who looked like he was doing a reverse swan dive. It was reminiscent of some van Persie - Song combinations last year, and it was every bit as good.

After the second goal, Montpellier seemed resigned to the inevitable, and offered little resistance. Arsenal could well have scored one or two more, but they wouldn't have made the win any more comprehensive.

Between them, Giroud and Podolski have now scored as many goals as van Persie had at this point last season. That's a very good sign for the Gunners, who are now almost spoiled for choice with so many players coming back from injury. After two strong matches in a row, the Gunners should be brimming with confidence going into this weekend's Premiership fixture away to Aston Villa, who are lurking in the relegation zone.

Monday, November 19, 2012

"Law, Politics, and Cost-Benefit Analysis"

The final published version of my new article of that title is available at the Alabama Law Review's website, here.
Abstract: This Article explores the significant role cost–benefit analysis (CBA) plays in facilitating or impeding legislative and regulatory policy decisions. The Article centers around three case studies of CBAs the EPA prepared under three different presidents: (1) Clinton Administration changes to Clean Air Act air quality standards for ozone and particulate matter; (2) President Obama’s recent decision to suspend the EPA’s reconsideration of the Bush Administration’s air quality standard for ozone; and (3) the George W. Bush Administration’s “Clear Skies” legislative initiative. The first two case studies demonstrate, between them, how well-constructed CBAs can facilitate social-welfare-enhancing and impede welfare-reducing rules, even in cases where explicit consideration of costs is legally prohibited. The third case study tells a more complex story of how CBAs can be manipulated either to promote welfare-reducing regulations or impede welfare-enhancing regulations. When that happens, however, the virtuous transparency of CBAs renders those efforts liable to discovery and disclosure, as in the case of the Bush Administration’s failed “Clear Skies” initiative. The Article concludes with an assessment of the implications of the case studies for our understanding of the role of CBA in political (both legislative and regulatory) processes, and with a call for more qualitative and quantitative empirical research on the use and abuse of CBA as a political tool.

Money v. Math in College Athletics

The Big Ten Conference currently has 13 schools in it; in 2014, it will have 14. So, why doesn't it change its name to the Big Fourteen Conference? It's the math - not the real math, but the economic math. The Big Ten is the oldest Division I college athletic conference, and it is one of the profitable. Moving from the ACC to the Big Ten in 2014 is predicted to double the University of Maryland's annual league revenue to nearly $25 million. Meanwhile, by expanding its network further into the northeast, the conference could earn more than $200 million in additional revenue (see here). Changing the name of the league to reflect the actual number of teams comprising it would result in a loss of "good will," which (simply put) is the difference between the value of a firm's assets and the firm's market value. A well-recognized and -respected brand name has value in and of itself, which means that voluntarily changing a well-recognized and -respected name is costly.

The bottom line (literally, in this instance) is that the label "Big Ten" is worth more to the universities that comprise it than the accuracy of their addition. They are counting dollars, not member schools.

Sunday, November 18, 2012

A Rare Two-Ride Weekend

Forest Ride with Dr. Jim on Saturday and Orchard Ride on my own today. A total of just under 50 miles. Man and I out of shape, but the weather is glorious, and is expected to continue through the coming week, during which I have no classes because of the Thanksgiving holiday. I hope to make time for at least a short ride (or intervals) each day.

In case you're wondering what else academics like me do during holiday weeks, I have a batch of student essays to read and grade, a final exam to begin drafting, and spring courses to start prepping. In my spare time, I'll be working on one writing project or another.

Saturday, November 17, 2012

Governor Pence's First Day in Office

In an interview with the Indianapolis Star (here), Governor-elect Mike Pence of Indiana says that as soon as he takes office he will impose a moratorium on new regulations (except those that are federally mandated); then he will pray for wisdom.

I wish he would pray for wisdom before deciding to impose a moratorium on regulations. Anyway, it seems likely that a Pence administration will continue the Daniels administration's attacks on environmental regulation in the deeply misguided belief that a trade-off necessarily exists between protecting environmental health and safety and economic prosperity.

Arsenal 5 - Tottenham 2

Tottenham dominated the first 17 minutes of the match, during which two events of note occurred: Emmanuel Adebayor scored to put his team up 1-0, and then got himself sent off with a straight red card for a stupidly dangerous tackle on Santi Cazorla. That seemed to take all the steam out of Tottenham. Arsenal were able to take advantage of Tottenham's disarray, dominating possession, piling on the pressure, and scoring three times in the last 30 minutes of the first half: Mertesacker on an excellent header (his first for the Gunners), followed by Podolski and Giroud on a couple of poacher's goals. 

Arsenal came out in the second half sitting back and looking to counter attack. Their fourth goal came on a sweeping move of beautiful one-touch football not seen around the Emirates for the past few years. Cazorla was the beneficiary of a inch-perfect cross by Podolski, and his placement was unerring. The game looked to be comfortably in the back pocket, but then Arsenal, as is their want, let down their guard. Gareth Bale scored for Spurs on a fine shot from just outside the 18-yard box. After that the game was wide open, with 10-man Tottenham creating almost as many chances as they conceded. Both teams might have scored another goal or two. The game might have ended either in a tie or with Arsenal doubling their pleasure. As it happened, on Arsenal were able to take advantage with Theo Walcott scoring in second-half stoppage time.

Walcott played a fine overall game today. It was his speed that opened up the Spurs defense time and time again. But I'll never understand why his teammates or the team manager ever let him take free kicks or corners, especially when the likes of Cazorla and Arteta are on the pitch. Olivier Giroud also continued his run of good form in today's match. He's starting to round into the kind of front man that Wenger thought he was acquiring from Montpellier in the off-season. 

All told, this was a decent, confidence-building result for the Gunners, especially coming against their arch-rivals. But the fact that Arsenal were only able to get into the game after Spurs were reduced to 10 men should temper our enthusiasm; it remains to be seen whether Arsenal can score and defend as well against 11 men. The somewhat sloppy and profligate second-half display suggests that the Gunners still have a lot of work to do.

Monday, November 12, 2012

Flood Insurance as Welfare for the Wealthy

Hurricane Sandy, now ranked as the second most costly natural disaster in US history (after Katrina), provided a stark reminder that living along the ocean can be very dangerous. So, why do people build there? Here are what I think are the top three reasons:

1. The ocean is very beautiful, and sea breezes (as least in summer) are delightful.

2. Property values along the ocean front are high.

3. The federal government subsidizes coastal development by providing below-market flood insurance through FEMA's National Flood Insurance Program.

Of those three reasons, the third is far and away the most important. If the federal government did not provide below-cost flood insurance in coastal areas there would be much less building in the coastal zone, property values there would be much lower, and storm surges would cause far less damage.

So, why does the federal government subsidize coastal construction via flood insurance? Because of the political influence of development interests, which demanded the federal government fill the void left by private insurers who refused to provide coverage in flood-prone areas because it made no economic sense to do so. The private insurance industry understood better than members of Congress that it makes no sense to insure construction on shorelines that were under consistently high and measurable risk of inundation and erosion.

FEMA contends that the National Flood Insurance Program was not created to subsidize development of coastal properties but to "control" floodplain development more generally. As evidence, FEMA points to rules that prohibit it from providing flood insuring in certain designated areas. But the incentives created by the National Flood Insurance Program are inconsistent with any expressed desire to curtail coastal development. The fact is that, in the absence of the program, only the most fool-hardy would choose to build in those areas.

As things stand, taxpayers are subsidizing the building and rebuilding of coastal dwellings, and the benefits mainly go to the wealthiest segments of the population. It is a form of welfare for the rich. According to a 2007 CBO report (here), fully 40% of properties protected by national flood insurance had market values in excess of $500.000, and 12% were worth more than $1 million. (According to the CBO report, non-coastal properties protected against floods are worth far less money.) The same segment of the population that benefits from the subsidy of National Flood Insurance (a gift that keep on giving) is most vociferous about the need to reduce the budget deficit by cutting federal aid programs for the least advantaged.

Even before allowing the Bush tax cuts to expire, Congress should stop the subsidies that encourage the wasteful cycle of coastal building, destruction, rebuilding, destruction, and more rebuilding along America's coasts.

Sunday, November 11, 2012

A Hilly Weekend

I haven't blogged much about my own cycling in the past couple of months mainly because I haven't been riding much in the past couple of months. I simply haven't had much time for anything other than spinning on the trainer in the basement. When I have had some time to ride, either the weather hasn't cooperated or I was simply too tired to get out.

Finally, after four trips in the past five weeks, I'm home for an extended period, and with the warm if blustery weather this weekend, I was able to make a bit of time for a short course of hill repeats around Griffy Lake. Yesterday, I rode up the south hill five times and the north hill once, followed by an hour of spinning on the trainer. Today, I initially intended to drive up to Indy to ride with my friends, but given how little I had been riding lately, I wasn't sure I could keep up with them for 55 miles, especially in crosswinds gusting up to 30 mph. Instead, I did another 45 minutes of hill repeats, six times up south Griffy and once up the north side. I still plan to spin on the trainer for another hour tonight.

I'm not sure whether this is going to constitute my winter routine, but in 45 minutes of hill repeats I can attain a training stress score of 50-70, depending on how hard I can push myself.

Climate Change in a Second Obama Administration

I see a good deal of optimism expressed on the web about what Obama might be able to accomplish in various policy arenas during his second term. Frankly, I'm not persuaded that the political dynamics in the country have changed enough to make much difference on particular issues, including climate change. The Republicans still have a solid majority in the House; and the Democratic majority in the Senate still is not sufficient to overcome the de facto super-majority vote requirement based on the threat of filibuster. I don't see any climate deniers in Congress becoming climate believers. And I don't see any reason to believe that Republicans will be willing to compromise more (except perhaps on immigration) having failed in their mission to make Obama a single-term president through a policy of perfect noncooperation.

The only hope for change in Republican obstructionism on climate policy would be pressure from Republican state governors, like Chris Christie, who may finally be realizing that their states stand to bear massive costs from inaction (although former California governor Arnold Schwarzenegger recognized that fact many years ago, to no avail). And not all Republican governors are as pragmatic as Christie. Wing-nuts like Rick Scott in Florida probably wouldn't accept the reality of climate change even if the sea rose above their ankles in their governors' mansions.

Meanwhile, I don't see Obama making a major push for a new climate initiative during his next half-term in office (which is really all the time he has before becoming a lame duck). He doesn't have to worry about another election, but the president is probably no more likely to expend precious political capital on climate change than he was during the first term, when he quiescently allowed a climate law to die in the Senate after passage in the House. Instead, I see him focusing on issues that even his base considers more pressing, including (1) avoidance of the fiscal cliff, (2) immigration, (3) adjustments to and implementation of his health care initiative (on which he clearly believes his historical reputation hinges), and (4) filling likely openings on the US Supreme Court.

If I'm right, then climate change in the second Obama Administration will continue to be relegated to the administrative process, in the hands of the EPA. The main problem there is that the Clean Air Act (CAA) remains a relatively poor vehicle for making domestic climate policy; and the courts could soon overturn one or more of EPA's current batch of climate regulations under that statute (particularly the "tailoring" rule under which EPA tailors the language of the Act so as to be able to regulate fewer sources of CO2 and other greenhouse gases). If they do, then climate regulation under the CAA could become untenable (because of the very high administrative and compliance costs, if EPA had to regulate thousands of additional, relatively minor, sources in accordance with the statute).

In short, as much as I'd like to see movement on the adoption and implementation of an effective national climate policy, I just don't see it happening anytime soon. Am I overly pessimistic?

Political Polling Bias

Political quant Nate Silver performs a post-mortem on polling organizations, and finds a fairly widespread  bias favoring Republicans (see here). Of nearly two dozen major polling groups, all but four were biased toward Republicans, which might explain why so many people believed that the presidential election would be closer than it turned out.

Among the more reliable (least biased) polling organizations were Mellman, IBD/Tipp, Grove Insight, Quinnipiac, We Ask America, and JZ Analytics. The worst by far was Gallup (among the oldest and previously most respected sources of public opinion polls), with a bias of 7.2 points in favor of Republicans, followed by the American Research Group, with a bias of 4.5 points in favor of the Republicans. The most bias favoring Democrats (2.5) came from the Pharos Group.

In future directions, RealClearPolitics and similar accumulators of opinion polls might consider using  weighted averages based on Silver's bias rankings.

Saturday, November 10, 2012

This Just In...

President Obama won Florida. (But Karl Rove still thinks Romney won.)

Arsenal 3 - Fulham 3

After starting well with a couple of early goals from new boys Giroud and Podolski, Arsenal blew its 2-0 lead even before the first half ended. Then, in the second half Arsenal players starting spending too much time on the ball, and were caught in possession time and time again by the pressing Fulham defense. Substitute Jack Ramsey started the trend, but it was Mikel Arteta whose lack of ball protection was most costly. He gave the ball away just outside the penalty box before reminding everyone just why it's called a penalty box, hauling down the player who dispossessed him. Berbatov converted the kick as cool as you like, and Arsenal were suddenly down 3-2. 

But then the Gunners suddenly woke up, and were even again after just a few minutes, when Giroud, who had seemingly squandered a good chance that deflected off the post to Walcott, converted Walcott's subsequent cross with his second good header of the match. Berbatov undoubtedly would have given Fulham the lead again in the 76th minute, but for an excellent, last-ditch defensive effort by Laurent Koscielny. 

Finally, in the last gasps of stoppage time, Fulham gave the ball away in their own half. Arshavin took it and went on the attack. When he attempted to cross it into the box, it hit a Fulham player's elbow, which was raised, and the Ref called a penalty. It may have been a bit harsh. Arteta stepped up to take what turned out to be the final kick of the match, which turned out to be a fairly tame effort which Mark Schwarzer reached out to save with his left hand. That one play pretty much reflects the state of play for the Gunners today and over the past few weeks.

Arsenal got a draw out of a match they should easily have won. The bright side is that they got goals from   two players who have not been in poor scoring form this season, with Olivier Giroud especially impressing throughout the match. Theo Walcott also had a decent game, and Carzorla seemed to have more room to operate than he has found the last few games.

The dark side is that Arsenal squandered a two-goal lead in a game at home, despite the fact that they were playing their four best defenders, with Vermaelen replacing the woeful Andre Santos at left back. The defense still looked quite fragile, especially on set pieces. The absence of Abu Diaby in midfield continues to be very noticeable. Hopefully, he will be back soon. 

On paper, this Arsenal squad should be competitive for a Champion's League spot next year, but the results of their last few Premiership matches have left players and fans alike bereft of confidence. 

Friday, November 9, 2012

Protecting Auto Franchises Against Direct Sales by Auto Makers

NPR is reporting (see here) this morning on a lawsuit filed in New York against Tesla for selling its cars directly to customers in that state from its own showroom, rather than via franchisees (see here). Franchise laws originally were adopted to prevent auto makers from opening retail showrooms in direct competition with their own franchisees. This suit constitutes an effort to apply those laws against a car marker that has no franchisees either in New York or in any other state. At first blush, it seems to me that this application of a state's auto franchise law would violate the Dormant Commerce Clause for unreasonably burdening interstate commerce. But, then again, I'm not a Con Law scholar. Most importantly, I wish I could afford a Tesla.

Wednesday, November 7, 2012

Seven Observations about the Elections

1. While the national popular vote tally was was quite close, the electoral college was not. The incumbent garnered 303 votes, while the challenger only grabbed 206 (with Florida's 29 electoral votes yet to be declared for either side).

2. President Obama lost only two of the states he carried in the last election, Indiana and South Carolina, which are the two most Republican-leaning states that he won in 2008.

3. With several House and Senate races yet to be determined, it looks as if the composition of Congress will remain unchanged, with the Demos holding the Senate and the Repubs controlling the House.

4. I'm hoping to see some solid academic analysis in the coming months of the total net effect of the Tea Party on the Republican Party's electoral campaigns. It seems clear enough that in case of the Indiana senatorial contest, which is the only one I followed at all closely, the Tea Party basically cost the Republicans a seat in the Senate.

5. Whatever the net effect of the Tea Party on Republicans' electoral prospects, it seems clear that the Party is going to have to change its strategic direction to some extent (beyond cynical attempts to limit exercise of the franchise), in light of changing demographics, if it is to prosper in future elections. The New York Times has an interesting column on that issue here.

6. The US Supreme Court's Citizens United decision does not seem to have much effect on outcomes, though it certainly did feed the coffers of local TV networks across the country (the Supreme Court's contribution to economic stimulus), while condemning millions of innocent Americans to a form of torture by repetitive airing of inhumane videos. Citizens United remains a lamentable constitutional ruling, but it did not have the dramatic impact that many of its opponents feared.

7. Since it appears that President Obama won the popular vote as well as the electoral college contest, I don't foresee any big push to get rid of the electoral college, which is unfortunate. And given the structure of the Senate, there's still no hope for filibuster reform. (I say, go back to the old system and make filibusterers actually hold the floor, as Jimmy Stewart did in Mr. Smith Goes to Washington.)

Tuesday, November 6, 2012

Was Mourdock's Loss in Indiana "Something That God Intended"?

Indiana Republicans paid a high price this evening for choosing Tea Party nut-job Richard Mourdock over the incumbent Senator Richard Lugar in last spring's primary election. Lugar almost certainly would have won a seventh term in the Senate over Democratic challenger Joe Donnelly. Mourdock was several steps too far to the right, even for Hoosiers. Might Mourdock have won if he hadn't spouted theological nonsense at the final debate? God only knows.

What's Wrong with This Picture?

The above graph purports to display a growing "supply gap" in oil supplies relative to demand associated with an increasing physical scarcity of oil, known as "peak oil." My friend and frequent co-author Peter Grossman delivered a colloquium at the Ostrom Workshop, during which he explained why this graph is almost certainly wrong: (1) it assumes completely price-inelastic demand for gas (the price elasticity isn't great, especially in the short run, but it's not zero, see, e.g., here) and (2) ignores potential substitution effects (as well as incentives created by rising oil prices to develop new substitute fuels). As Peter argued, real gaps between supply and demand tend to result not from normal market processes, but from misguided government policies that control prices (or impede supply-demand equilibrium in some other way). The broader theme of his talk was the history of energy policy failure in the US over the past half century, which is also the subject of his forthcoming book, US Energy Policy and the Pursuit of Failure (Cambridge 2013).

Voting and Not Voting Are Both Rational Activities

According to public choice theory, voting is an irrational act because the costs of voting for a single individual inevitably exceed the influence that individual's one vote can have on any particular election outcome (see here). This calculation is based on a restrictive definition of "rationality," which only counts material costs and benefits. But many people gain significant psychic benefits from voting, believing that they are contributing, however marginally, to some candidate's victory or defeat. If those psychic benefits are incorporated into our cost-benefit calculations, then it's easy to understand why so many of us take the time and effort to vote, even if our votes do not significantly affect outcomes. Voting certainly is rational for people who feel good enough about voting (whether because they consider it a social obligation or just enjoy participating in the process) that it offsets their costs of doing so. And that remains true even if they are making cognitive mistakes about the extent to which their votes count. After all, we remain only boundedly rational creatures.

The real "paradox of voting" seems to me to be an integral part of the public choice argument itself. If voting is irrational, then no one should vote. But if no one votes, then it certainly becomes rational to vote because chances of effecting outcomes is then very high. In other words, the more people pay attention to the public choice theory of irrational voting, the more rational voting would become.

Finally, not everyone gets much of a thrill from voting, including those who don't like the choices on offer, those who feel they have better things to do with their time than wait in line to vote, and those who are convinced that their vote cannot make a difference. Those individuals comprise the majority of Americans who do not, in fact, vote. For them, it is certainly rational not to vote based on their subjective valuations of the costs and benefits of voting.

Saturday, November 3, 2012

Manchester United 2 - Arsenal 1

Here in Phoenix, the game started at 5:30 am, which was fine since my body is still on Eastern Time. In fact, it was nice to be able to watch the entire match before my conference resumed. Well, it was nice in theory.

Arsenal continued their poor run of form - in fact they got poorer - in a 2-0 loss at Old Trafford. The game was not nearly as close as the scoreline would suggest. Man U should have had at least one more goal (Rooney missed the target entirely on a penalty) and would have had several more but for the outstanding goalkeeping of Vito Mannone. The Gunners, for their part, did not create a single decent scoring opportunity throughout the match, until stoppage time at the end, when first, Giroud missed a good chance and, with the final kick of the game, Santi Cazorla scored.

This was not just a case of the usual suspects (e.g., Giroud and Podolski) not getting the job done; normally reliable players, such as Vermaelen, Cazorla, and Arteta, were missing clearances and passes in abundance. The whole team, excepting Mannone, looked lethargic. Some might say the outcome was sealed when Jack Wilshire, playing just his second competitive match after 17 months out injured, was sent off with a second yellow card in the middle of the second half. In fairness, the game was over long before that.

Arsenal clearly need a lot of help if they are to become competitive again. First and foremost, they need forwards who can (1) create chances and (2) take them. Giroud is simply this year's model of Chamakh. I really cannot say what's wrong with Podolski, who should be better (but the same is true of Vermaelen and others of longer standing at the club). Second, and equally important, Andre Santos is just not good enough at left back; on defense he is lost, and on offense his passing is often poor.

Friday, November 2, 2012

Lee Anne Fennell on "Resource Access Costs"

A regular reader asked for my thoughts on Lee Anne Fennell’s new paper on “Resource Access Costs” (available here), which is forthcoming in the Harvard Law Review. Since I was planning to read the paper (as I do all of Lee's work) anyway, I'm happy to comply. The flight to Phoenix last night, with the rare luxury of a row to myself, afforded me ample time and space to finish reading the paper, and to draft this blog post about it. This is not a formal review of Lee’s article; it’s just a blog post raising issues that struck me on a first reading. So, any criticisms should be treated as tentative at best and discounted accordingly.

I should begin by pointing out for those who don’t already know it that Lee is perhaps the most gifted, creative, and incisive of the current generation of property scholars, which is saying a great deal because property, and property theory in particular, has become a very lively field in the past couple of decades. It is always a special thrill to read Lee’s new papers because I’m bound to learn things I didn’t know, or see ideas I thought I understood well viewed in a novel way, through a different and always illuminating lens.

Lee’s new paper on “Resource Access Costs” does not disappoint. In it, she takes on one of the biggest concepts in all of modern property theory (and in all of economic theory), “transaction costs,” and subjects it to a sustained critique, which she intends to lead to an abandonment of the concept in favor of a more useful and better defined conception of “resource access costs.” Put very simply, she finds the concept of “transaction costs” (a phrase, she notes, Coase never actually uses) to be ill-defined sometimes over-inclusively, sometimes under-inclusively. Do transaction costs include or exclude the costs of monitoring and enforcing performance? Is strategic behavior a transaction cost? Different scholars provide different answers to these questions, creating ambiguity about the scope of “transaction costs.”

Lee also (quite rightly) takes issue with a predominant normative theme in the literature that reducing transaction costs is always desirable because it results in more trade (with the unwarranted and usually unstated assumption of ever-increasing gains from trade). Her point (which Demsetz has also made), is that transaction costs cannot be equated with inefficiency in this way because the costs of reducing transaction costs may sometimes be greater than the benefits gained from further trade. For example, one very easy way to increase the amount of transacting in society would be to get rid of rules against trespass and theft. But such a move would hardly enhance social-welfare. Indeed, among its other functions, property itself serves as an impediment to inefficient resource reallocations, as Lee notes.

So far, so good. But Lee’s analysis raises issues with Coase that (a) were not part of the problem Coase was confronting or (b) he actually dealt with effectively. First, Coase (since 1937) was interested in impediments to market transacting that might require alternative “social arrangements,” such as firms or governments. For him, as for the Old Institutionalist, John R. Commons, the transaction was the basic unit of economic activity and the focal point of analysis. He was not writing a general theory of property, but only treated property as it facilitated (or impeded) transacting. Second, Coase never argued that transaction costs were an especially important category of costs – more important than, say, production costs, transportation costs, or the costs of exclusion. Rather, Coase just observed that transaction costs were an important category of costs that neoclassical economists were simply assuming away. 

As Lee suggests, Coase’s framework did assume the existence of property rights, but Coase (a) explicitly acknowledged that property rights are costly to define and maintain, and (b) ultimately agreed with Steven Cheung that the assumption of property rights is unnecessary in (and even inconsistent with) the mythical world of the Coase Theorem. As Cheung pointed out (before Pierre Schlag, whom Lee credits for the observation), in the world of the Coase Theorem there is no reason to prefer market allocations over those of socialist central planners. And, according to Cheung (in his 1998 presidential address to the Western Economic Association), Coase also approved of his choice to relabel “transaction costs” as “institution costs,” which might be an alternative solution to at least some of the conceptual and terminological problems Lee identifies in her paper.

Coase never argued (unlike Posner, for example) for transaction-cost minimization as a normative goal. Rather, his own critique of Pigou’s approach to externalities suggests that Demsetz’s purported critique of Coase, on which Lee relies quite extensively, is misguided. Just as some externalities are not worth internalizing because the costs would outweigh the benefits, so transaction costs should only be reduced to the point where the marginal benefits of the next unit of reduction would equal the marginal costs (MC=MB). Coase was adamant about the need to compare the respective costs and benefits of all alternative “social arrangements.” As he said in his justly famous 1960 article “The Problem of Social Cost,” our topmost concern in choosing among alternative social arrangements should be with the “total effect.”

In short, Coase agrees with Lee (as do I) about the problems associated with the various, inconsistent, and sometimes pernicious ways in which the phrase “transaction costs” is thrown about by the self-described, but faux “Coaseans,” who specify a normative goal of approximating the world of the “Coase theorem” via “Coasean bargaining” that would occur if only society could reduce unnecessary impediments to transacting.

The most important insight in Lee’s paper is her recognition that transaction-prevention costs also must be treated as important in a world where many people try to appropriate the property of others without permission. Owners undertake various kinds and extents of investments to prevent unwanted transfers, including building fences, installing security devices, and occasionally filing costly lawsuits. Lee is quite right that these costs are just as important to overall social welfare (or, as Coase refers to it, the “social product”) as the costs associated with consummating welfare-enhancing transactions. As she quite rightly observes at the top of page 25, property as an institution is at least as much about resisting unwanted transfers as it is about transactions.

That said, I remain unconvinced that her preferred phrase “resource access costs” marks a substantial improvement; in any case, it’s not enough of an improvement. Replacing the overly broad category of transaction costs with an even broader category of resources access costs would create as many problems as it would solve. Lee herself notes several possible objections to her formulation towards the end of her paper, including the fact it focuses too much on access, ignoring or subsuming other potentially important cost categories. I think she’s absolutely right about that, but I don’t buy her attempt to rationalize her focus on access, rather than, say, use, based on the assertion (p. 50) that the law cannot directly compel uses. At least sometimes, the law does compel uses, as in the use-it-or-lose-it system of western water law’s prior appropriation doctrine or adverse possession. Indeed, property law generally has an entrenched “bias” against “non-use” (as John Sprankling, among others, has shown). The law also, sometimes, prevents uses, including nuisance-causing and illegal activities. Those are costs imposed on property owners by the legal system.

As an alternative solution to the real problems Lee exposes, we might be better off specifying in finer detail  the wider variety of cost categories associated with creating, protection, and transferring property rights. Those categories might usefully include “exclusion costs” (a term that could cover the problem of preventing unwanted transactions over property), “access costs,” and “use costs.” In fact, each of the sticks in the conventional bundle of property rights (with all due respect to those scholars who would reject the bundle-of-rights approach to property) could define a separate cost category to go along with other well understood cost categories, such as production costs, information costs, strategic behavior, monitoring costs, enforcement costs, etc.

Every reason exists to insist that legal scholars as well as economists be more specific about the sources or types of costs they are contemplating. And of course, they need to compare them all within a total cost framework. (In this respect, the myopic focus of some scholars on transaction costs in property allocation is similar to the myopic focus of some environmental scholars on compliance costs in preferring cap-and-trade or tax-based approaches to traditional forms of regulation, regardless of comparative monitoring and enforcement costs.)

It’s also worth noting that one person’s “exclusion costs” might be another person’s “transaction cost.” Assume, for instance, that X owns Blackacre, which he does not want to sell, and Y wants to acquire Blackacre from him (by hook or by crook). It might be argued that X’s cost of preventing a transfer to Y might be identical to Y’s costs of acquiring Blackacre by such a transfer. Are these costs better described as belonging to the one rather than the other, and categorized the one way as opposed to the other? Coase might say that they are in fact joint-costs of X and Y stemming from a conflict over ownership, access, and/or use of Blackacre.

Finally, I would be surprised to learn that Lee truly believes it is possible at this late date to rid the literature of “transaction costs,” whatever its pathologies in use. We can certainly hope, however, that scholars will bear in mind that they are not the only costs that matter within either the legal system or the wider economy. At the very least, scholars should not use ambiguous phrases like “transaction costs” (or “resource access costs” for that matter) without delineating precisely what they mean by them, so as to avoid possible confusion. 

Thursday, November 1, 2012

The Economist Endorses Obama

While many economists have endorsed Mitt Romney (see here), The Economist has now endorsed President Obama for reelection (see here).

Link to the Ostrom Memorial Celebration

The formal ceremony, held on Oct. 15, 2012, can now be viewed in its entirety, here. It is well worth watching for those who were unable to attend the event.

Why Roger Ailes Should Vote to Reelect President Obama

As president of Fox News Channel, the last thing you might expect Mr. Ailes to do is vote for President Obama. But he, along with the various pundits, announcers, and reporters at Fox News, would appear to have a substantial interest in a second Obama Administration. After all, which is likely to maximize viewership and, therefore, revenues, cheerleading for a Romney Administration or viciously criticizing any and every thing done by the Obama Administration?

By the same token, Rachel Maddow and her colleagues at MSNBC should seriously consider pulling the lever for Governor Romney.