Wednesday, January 28, 2015

I'm Only Happy When It Rains

As much as I adore the Emerald City and the bluest skies I've ever seen, Seattle sure is First Among Nations when it comes to petty meddling in constituents' affairs.

From NPR via Mrs. JR, Seattle garbage cops will rifle through your curbside rubbish and fine you for not... get this... composting.

It would be tedious of me to review the economic difference between a resource and waste, so I won't. But I will ask what moral intuition prompts this sort of thing. Am I missing some sort of uncompensated externality here? You pay sanitation services to haul off your refuse. So long as it's not something that will release harmful contaminants into the countryside or damage the landfill liner, how is it a concern of the state or your neighbors what you define as rubbish? If your compost is valuable to your neighbors, why haven't they paid you to take it off your hands?

Maybe there's a market opportunity there. Uber, but for used coffee grounds.

Tuesday, January 27, 2015

Matching Pennies and the Blizzard that Wasn't

Imagine if you will a game. It's not a very exciting game. Perhaps it's something you play with a cellmate in a Javanese prison when all you've got is the grimy clothes on your back and a couple of stray coins you've managed to pick from the pockets of the guards. The name of the game is Matching Pennies. Here's how you play.

Each of you has one standard US penny. Each penny is inscribed with the bust of a US president on one side (heads, or 'H') and the other side with the image of a famous Washington DC landmark (tails, or 'T'). Out of view of the other player, you select either H or T. Once selected, you reveal your choices at the same time. If the coins match, you both win. If they do not match, you both lose.

Like I said, it's not a very exciting game. But it's a pedagogically useful game once you expand it a little bit. As I've described it, you have a 50% chance of both winning, assuming you choose randomly (Schelling effects aside). But if you have a chance to have a round of non-binding cheap talk before you scurry off to make your selection, "let's pick heads, bro," your chances of winning ~theoretically~ approach 1 (empirically, there are almost always some vandals/defectors/rogues/fools). Cheap talk is one way of coordinating activity for greater mutual benefit.

Today is the 27th of January, 2015. Meteorologists have been predicting a massive blizzard for the Northeast for the past few days now. What was supposed to be three feet in some places was more like four inches. The dismay of tobogganers is matched only by the chagrin of economists who were eager to observe the effects of Uber's plans to suspend surge pricing during the sneaux.

The idea, she is this: surge pricing entices otherwise recalcitrant drivers onto the roads. If you need a ride badly enough, one will be available. On the margin, passengers may be more willing to go out for the evening for whatever reason strikes their fancy. Do away with the surge pricing, and you should see more stranded passengers. That, or delayed service, or whatever other inconvenience you might easily imagine.

But in this case, Uber's livery service will act more like a game of matching pennies, with the announcement that surge pricing will be suspended acting like the cheap talk round. More of the rider players will select 'T' and sit it out in their apartments rather than risk being stranded without a reliable ride home. There should have been both supply-side and demand-side effects if the announcement were working properly. This storm would have been an ideal opportunity to test how stationary the demand curve would have been with enough advance warning.

Alas, it was the blizzard that wasn't. We'll have to wait for the next one to find out. Let's hope Uber has the foresight and the courage to once again put their signature pricing scheme on hold to discover whether or not folks are any good at forward induction.

Cheap talk: totes magotes euvoluntary, you guys.

Monday, January 26, 2015

Porn v. Prostitution, Prolific Profits.

Warning, salty language ahead. Porn star Lisa Ann on the difference between porn and prostitution.

Note the central thesis: the profits earned by corporate interests are evidence that pornographic actresses provide a great deal of consumer surplus. She contrasts this with one-on-one prostitution, in which the workers are relatively anonymous, there is no corporate structure in the US (with some exceptions for Nevada bordellos), and profits are low.

High-end golf courses often hire professional players to instruct members on the finer points of how to select and swing a club. These same pros earn more on the PGA tour, bring more enjoyment to more punters if you will. Would anyone claim that pro golf instructors are being exploited in the off-season?

Not everyone has what it takes to be a Jack Nicklaus or a Lisa Ann. Not everyone wants to be a Jack Nicklaus or a Lisa Ann. It might be a fine thing to share your talents with more people, to bring more felicity to the world, but the labor calculus is up to the worker as much on the links as between the sheets. Assessment of opportunity costs can be a hard slog, but it's made no easier (or more accurate) when done on others' behalf.

I appreciate that Lisa Ann acknowledges that prices contain information, but I'd appreciate it more if she would refrain from assuming others' BATNA. The world is a large place, and there is a great deal of space for a multitude of careers. Consider the possibility that some sorts of sex work can be complements rather than substitutes. Perhaps some of Lisa Ann's feature films are used by working girls to prime clients for one-on-one attention, similar to how pro golf instruction helps recreational golfers better appreciate the skill and finesse on display at the PGA's Masters Tour.

h/t Mistress Matisse for the link.

Friday, January 23, 2015


Is gossip euvoluntary? Gossip raises or lowers someone's relative social status without their knowledge or consent.

Gossip is dang close to ubiquitous among humans. It certainly predates civilization (pre-writing cultures in the Amazon Basin and on Papua New Guinea gossip just as much as your nosy Aunt Gertrude) and it definitely happens in early childhood.

The just-so story of atavistic gossip is something like this: subsistence foragers desperately needed to know whom to trust. Successful bands developed keen senses for when (and how) to communicate important social information relatively error-free. Gossip emerged from the selection process, together with all the attendant hedging (admissions of third-hand sourcing, "I heard", &c) and clear signals that the speaker is gossiping rather than doing some other sort of talk.

Q: do all the tacit norms surrounding gossip help keep it euvoluntary? I think folks understand that the problem isn't so much with the gossip as with the behavior that triggers it. And as long as everyone's in on what gossip is, what it means, and how (un)reliable it is, is it really a problem?

Ignoring for the moment that it's utterly impractical to attempt to curb gossip, I don't think anyone really wants to ban it. Sure, you'll hear folks in leadership positions urge people to exercise restraint, but very rarely do you find any sincere attempts outside of, say, military basic training to quash gossip.

Hm. Maybe if we thought about prices more like we think about gossip we wouldn't get so bent out of shape every time we think the rent is too damn high. Maybe what those prices are doing is hen-clucking around the water cooler about the relative value of that apartment.

Thursday, January 22, 2015

Pay Structure, Rent Contests, and Euvoluntary Institutions; Angus on the NBA

Click all the way through for KPC plankowner Kevin Grier's thoughts on how the NBA pay structure affects the final product you see on your TV screen or in the arena.

It's a good exercise in analytical economics to follow incentives and institutions through to their logical conclusions, and this includes not just current teams and their players, but potential future players as well.

One thing that puzzles me a bit is how it is the world has any decathletes. To the best of my knowledge, there is nowhere in the world a professional decathlon league. The training required to achieve the physical conditioning needed to be an effective decathlete carries with it a massive opportunity cost. If you have the natural talent required to excel at the 100-metre dash, running long jump, shot put, high jump, 400-metre run, 110-metre hurdles, discus throw, pole vault, javelin throw, and 1,500-metre run, you probably also have the natural talent required to excel at rugby, cricket, soccer, baseball, or other sport where you could earn considerable returns in both direct salary and endorsements. Amazingly, we still see, every four years, a slew of humans good enough at each of these events to compete internationally in the Olympics. Why is it that people still train in athletic events like this when they could make a far more comfortable living as even a third-string wide receiver in the NFL?

So what's the deal? To anyone but an economist, the answer is obvious: love of the sport. It's a wide world (of sports) and some people love track and field (or Greco-Roman wrestling, or what-have-ye) enough that they're perfectly willing to forgo participation in the rent contest that is pro sports. This should tell us something about the other side: it's likely that there are inframarginal big league athletes: they are telling the unvarnished truth when they say they're in it for the love of the game.

Here's the question I have. Assuming that the same sorts of tech trends that are gutting the world of print and music will sooner or later turn their inevitable electronic eye towards pro sports, what will happen to the incentives faced by young people?

The overarching purpose of information-age tech is to reduce transaction costs. Uber matches passengers with drivers. AirBnB matches travelers with hosts. I'm not sure what it would look like, but Uber for hockey doesn't seem all that outrageous. Even the atavistic tribalism evoked by local teams can probably be reproduced without all the organizational baggage of a formal league structure. Probably. And with free agency, the superstar effect Angus mentions would likely become a lot more powerful.

But the kids? Would kids put all the blood, sweat, and broken teeth into the game as they do now?

Maybe. Maybe not. It seems likely that the ones who do are all in it for the love of the game, for the glory. What if instead of European soccer, the incentive model for US pro sports were something like Shaolin kung fu? Would the games be better? Worse? For those kids who would otherwise be indulging hoop dreams, what would they do instead?

Consider the possibility that one of the knock-on effects of the NBA/NFL/MLB compensation structure is that it lures, on the margin, kids away from drugs and crime and towards a low-p, high-return activity. How might you test this hypothesis?

Tuesday, January 20, 2015

EE and Distributive Justice

There are, broadly speaking, two types of justice in the Western canon. Commutative justice is concerned with the nature of transactions, of fair dealings, of proper recompense for injury. Commutative justice is justice in action, of change. Distributive justice is concerned with the nature of endowments, of wealth, of access to opportunity. Distributive justice is justice at rest, in cross-section.

Much moral miscommunication arises because of either the conflation of these two or a stubborn refusal to consider anything more than one at once. You might say that part of the EE project is to encourage Distributive Justice types to consider that their favored interventions have commutative justice implications, which may over time worsen distributive consequences.

It's probably fair to say that, at least compared to other social science disciplines, economics is concerned overmuch with commutative justice. Or perhaps it's more accurate to say that economics is relatively silent on distributive justice. There's something near-cultlike about the Paretian criteria embedded in our foundational theorems, and when you make value-free, true claims such as "at the Pareto frontier, you can't make anyone better off without making someone else worse off" you risk sounding like a champion of injustice to someone who believes in a commanded-by-providence duty of charity.

I generally attempt to square the circle by harping on the "mutually" part of "mutually beneficial trade." It's hard to make folks better off by denying them opportunities for exchange. I think I should also expand that by saying it's hard to make folks better off by denying them opportunities for charity.

Charity begins at home, always and everywhere. Part of the problem of everything-as-politics is that it shifts folks' attention on the margin away from the home, away from the community, away from the comfortable Dunbar's Number sphere towards the affairs of a nation of over 300 million souls. Do you know where your state-managed charitable donations go? Do you care? Or if you're on the other side, do you know who signed your checks? Do you have fellow-feeling? Gratitude?

Adam Smith was wise enough to point out that we can still get our daily bread without the benevolence (or, indeed, the beneficence) of the baker, but he was also careful enough to make this a de minimis observation: malevolent or indifferent bread will keep you alive, but it will sicken the soul.

What do we gain by foisting every little calculation on the petty bureaucrats in DC? What do we lose by ignoring the neighbors on our streets? Is this a fair trade? Is this a euvoluntary exchange?

Monday, January 19, 2015

And Dignity For All.

Rev. Dr. Martin Luther King Jr. Day always raises my melancholy. I'm melancholy for the rubbish Whig history of race relations I was taught in my public school. I'm melancholy thanks to the public opinion surveys and FBI crime data I've worked with. I'm melancholy because there is easily-picked low-hanging fruit right there rotting on the branch: end the thrice-damned drug war once and for all.

I think I'm mostly melancholy because of an ongoing, resolute refusal of folks to grant commonplace dignity to all. Some of us refuse to grant dignity because of profession choice, others because of what folks choose to pursue a hobbies, or with whom they wish to have sex, or to which gods they pray. Some folks withhold dignity on the grounds of income or spending habits. Others withhold dignity related to military service or the lack thereof.

I'm a dishwater-dull, American, white, suburban dad. I've got it better than almost everyone on earth. I count myself extremely lucky that I can afford the luxury of merely indulging melancholy rather than suffering impotent rage over easily-corrected injustices. Everyone on earth should have a presumption of dignity, not just people like me. I suppose it's my ordinary human frailty that the best I can do is to teach my children and the few who heed me here at EE (& elsewhere) to respect the autonomy of strangers, to lend them dignity regardless of race, of social status, of profession, of gender, of age, of nationality.

Dignity is much like trade: it is mutually beneficial. By delimiting what others are allowed to do with their time and talent, the universe of exchange opportunities available to me quite naturally expands. Will some of the choices folks make be non-euvoluntary? Perhaps. But when people are denied the dignity to discover for themselves what is best in life, they necessarily suffer the often-grim alternatives. Build euvoluntarity. Build dignity.