Tuesday, January 31, 2006

Lazear to Chair CEA

In the Winter of 1990, I took a labor economics course at the University of Chicago taught by a Dream Team. Kevin Murphy, Bob LaLonde, Bob Topel and Ed Lazear team-taught this class. While I'm surprised that he accepted the job, it is a great selection. He is a brilliant, articulate guy who is thin enough to look good on CSPAN TV.

He is an active academic microeconomist. In fact, just this weekend I read his lead article in the Journal of Labor Economics on entrepreneurship. He neatly combined theory on who self selects to be an entrepreneur with empirics using a unique data set on which Stanford MBAs choose this occupation. He is also a "Chicago economist". Does the Bush Administration really embrace our libertarian instincts?

As a microeconomist, what issues will he focus on? Perhaps pensions? He is an expert on incentives. Maybe he could make government policy more nuanced about incentive effects in health care and other fields?

Is it surprising that the popular media has given so little attention to his hiring and Bernanke's hiring? Perhaps Keynes was right, we are dentists and dentists don't merit much attention.

January 31, 2006
White House Aide Picked

WASHINGTON, Jan. 30 (AP) — President Bush has chosen a Stanford University business professor as chairman of his Council of Economic Advisers, the White House announced Monday.

The professor, Edward P. Lazear, will succeed Ben S. Bernanke, who will lead the Federal Reserve, succeeding Alan Greenspan.

Mr. Lazear, of Portola Valley, Calif., has taught human resources, management and economics at Stanford's graduate school of business since 1992 and is senior fellow at the Hoover Institution, the conservative policy research center at Stanford.

A year ago, Mr. Bush appointed him to his tax reform advisory panel.

The White House press secretary, Scott McClellan, said Mr. Bush intended to nominate Mr. Lazear to be a member of the council. Whenever the nomination is approved by the Senate, Mr. McClellan said, the president intends to designate Mr. Lazear as chairman.

Monday, January 30, 2006

The Supply of New Housing in Sprawl Cities

The article below tells an interesting story about option value in real estate. In Las Vegas, developers sell condos in buildings that do not exist yet. In the story told below, as construction costs have increased by 30% in Las Vegas, developers have been canceling projects and returning the condo deposits back to potential buyers.

The article does not explain why construction costs have increased so much so quickly. It can't be the price of land. What has happened in the local labor market?
Are there new housing regulations that must be met that have raised costs?

The article hints at an interesting behavioral economics issue. If I want to buy a condo in a building that has not been built yet and if I pay a 10% deposit of $70,000 on the condo (so purchase price of $700,000), what does the developer owe me if he chooses not to build the building? An interest opportunity cost argument would say the owes me my $70 grand plus interest. The people receiving these refunds seem to be saying that they are owed more because they missed out on housing appreciation and they must search again for a new place. Obviously, the right contract would have called for the developer to pay a larger fee back to initial purchasers if he defaults on building the new building.

January 29, 2006
National Perspectives
The Disappearing Las Vegas Condos

THREE weeks ago, Eli Verdnikov, an engineer in Los Gatos, Calif., received a letter saying that the apartment building he planned to retire to — Icon Las Vegas — would not be built. In the envelope was a check for $73,672.81, the 10 percent deposit Mr. Verdnikov had paid, plus interest.

The developer of the building, Related Las Vegas, a partnership between two large and well-known companies, expected Mr. Verdnikov to accept the refund as payment in full. (Its letter explained that, by depositing the check, Mr. Verdnikov would be waiving any further rights.)

But Mr. Verdnikov wants more than the $73,672.81. Since he agreed in May 2005 to buy the 1,400-square-foot, two-bedroom apartment near the Las Vegas Strip for $728,900, its value, he says, has increased. "To purchase something similar, we would need to pay $200,000 more," said Mr. Verdnikov, who has been looking for a new apartment with his girlfriend, Gitty Stone. So Mr. Verdnikov is suing for the gain he would have realized if the apartment had been built.

"He deserves to get the benefit of the bargain," said Will Kemp, a lawyer with Harrison, Kemp & Jones in Las Vegas, who is representing Mr. Verdnikov and a dozen other Icon buyers.

As the market for high-end condos levels off, more and more people may find themselves in Mr. Verdnikov's position: with contracts to buy condos that will never be built. And some hope to recover the profits they believe they would have made.

In Las Vegas alone, developers have canceled at least four other buildings in the last year, including one called Aqua Blue that was to contain a Michael Jordan health club. Dozens of other buildings, in which units have been sold, may never break ground, said Brian Gordon, a principal at Applied Analysis, a Las Vegas consulting firm. Mr. Gordon said there are 97 condo projects in the works in greater Las Vegas, representing more than 52,000 units.

"I don't think anyone would expect that all these projects will move forward," Mr. Gordon said. He predicted that fewer than half of them would be built in the next five years. Of course, if the market cools enough, some buyers may be happy to get their deposits back.

The pitfalls for condo buyers may be particularly deep in and around Las Vegas, where construction prices have been skyrocketing. Mr. Gordon says some of his clients who are developers have reported a 30 percent increase in the cost of labor and materials in the last year alone. That means that developers who presell apartments may find construction costs wiping out profits even before they break ground.

In the letter to Mr. Verdnikov and the other buyers, Related Las Vegas said that the rise in labor and material costs had affected the viability of the project.

Still, the Icon cancellation came as a surprise, in part because its developer is a partnership of two giants: the Related Group of Florida, which calls itself the nation's leading condo developer, headed by Jorge Perez, and the Related Companies, headed by Stephen M. Ross, the developer of the Time Warner Center in Manhattan. Icon's two 48-story towers were expected to be completed in 2007 and 2008.

Mr. Perez was out of the country and could not be reached for comment, a company spokesman said. Reached on his cellphone, Martin Burger, the president of Related Las Vegas, hung up.

In contrast to its current silence, "the company relied heavily on its own reputation in marketing the building," said David Ezra, owner of Ezra International Realty, which sold some 60 units in the building. He added that he thought the excuse of higher construction costs "might work for a first-time developer, but it doesn't work for Related."

Mr. Verdnikov, who is 62 and plans to retire just around the time Icon would have been finished, said he walked away from another project to buy from Related. "We switched it because of their very heavy advertising," he said. "They convinced us they were better."

But whether Mr. Verdnikov — or any buyer — can receive more than a refund of his deposit depends on a number of factors. Some contracts for unbuilt condos allow the seller to back out if it cannot obtain proper financing (a phrase sometimes so vague as to constitute a get-out-of-deal-free card, lawyers say). The contracts for Icon Las Vegas contained no such financing contingency. Related did claim the right to back out if it failed to sell at least half of the units in the project. But observers say the company far exceeded the 50 percent goal, and statements made last year by Mr. Burger support that view.

Other contracts specifically limit damages for cancellation to the amount of the deposit, or to that amount plus interest. Such provisions are generally enforceable, said Eric Glazer, a Hallandale, Fla., lawyer who often represents condo buyers. Someone planning to buy a condo that hasn't been built yet might try to delete that clause from the contract of sale. But in most cases, condo developers will not negotiate provisions. "They have a standard contract; it's take it or leave it," Mr. Glazer said.

The contract at Icon included no limitation on damages, Mr. Kemp said, which is why he believes his clients could win "benefit of the bargain" if the case goes to court. "It's a standard measure of damages in contract law," he said, though he said he had not seen it applied in a case involving an unbuilt condo building.

Mr. Kemp is also representing more than 100 buyers of units in a Las Vegas development called Krystal Sands. In that case, the developer chose to sell the land the building was going to be built on, and buyers received their deposits back. Again, Mr. Kemp is seeking the "benefit of the bargain" for his clients. (A lawyer for the developer, Cam Ferenbach, said that he thought the company had a good defense, but said, "I don't want to try the case in the press.")

In Nevada, condo developers generally take "reservations" for unbuilt units. Then they trade the reservations, which are nonbinding, for signed contracts. At Icon, it was Related that made the decision to convert reservations to contracts last summer, Mr. Kemp said. In the suits he has filed against Related, he charges not only breach of contract, but "fraudulent misrepresentation," because, he said, "they continued to reassure these people that they were going to build, and then they didn't build."

Real estate brokers who sold units in canceled projects may also have grounds for a lawsuit, and Mr. Ezra, for one, says he is considering legal action. Mr. Ezra said the 60 units his firm sold at Icon were worth about $50 million. Ezra International Realty stood to receive about $1.5 million in commissions from Related Las Vegas, which pays brokers 3 percent commissions on each sale. Mr. Ezra said he has not received any offer of compensation from Related, which he said he earned because he produced "ready, willing, and able" buyers.

Related could suffer damage to its reputation. David J. Wine, the vice chairman of the Related Companies, was clearly concerned about the fallout as news of the Las Vegas cancellation spread. Reached by telephone in New York, Mr. Wine said: "The Related name is a powerful one. We have an incredible reputation for delivering to our customers. I think we can say that, over all, this is a very unusual situation, and that our followers will appreciate, in the long run, our being candid and straightforward, because that is the kind of company we are."

Mr. Wine said that, in Nevada, "projects are marketed and sold at the earliest stages of anywhere in the country."

In many other states, including New York, to sell apartments, "you have to have a building permit," Mr. Wine said. That means the project is bound to be well under way by the time buyers put down deposits. As a result, he said of the Icon cancellation, "this would never happen in New York."

Wednesday, January 25, 2006

Transport Infrastructure and Sprawl

Highways are durable goods. Many highways were built in the 1950s. Out near denver the amount of driving has soared since then and now the roads are clogged. This article below provides details about a public policy fight over whether road expansion is "good public policy". The article does not mention road pricing as a means of solving congestion problems. The article slightly naively keeps talking about mass transit investments as a means of getting people off of the roads. In 1970, 5% of Denver's workers commuted by public transit and in the year 2000, 5% of Denver's workers commuted by public transit. Clearly, this is car country and even if you build light rail people will continue to take their cars. The Denver CBD is not enough of an employment hub.

People who oppose the road expansion must either be concerned about "scale" effects or they are worried about "composition" effects meaning what types of people are likely to be moving to their communities.

January 25, 2006
Clogged Rockies Highway Divides Coloradans
SILVERTHORNE, Colo., Jan. 22 - When Interstate 70 was built through here in the 1960's and 70's, the Colorado Rockies were largely rural and remote, and the old roads that the highway replaced were a widely recognized danger.
Over the years, as the population grew, delays and frustrations on the highway began to mount. Traffic jams at nosebleed altitude became common. In 8,800-foot-high Silverthorne, which was little more than a gas station pit stop a generation ago, with a grocery that got fresh produce only on Thursdays, alpine meadows gave way to factory outlet stores.
Now state officials are considering a major and contentious widening project for Interstate 70 that is dividing people over the question of who the highway is for and how it transformed these mountains.
The project is a variation of a drama that is playing out across much of the West as once-rural outposts are transformed into brimming settlements with newfound political and economic clout in transportation decisions.
As the Federal Highway Act of 1956 established the Interstate System and helped open vast expanses of the West, highways like Interstate 70 changed just about everything by putting on the map distant places that had been mostly untouched.
Now, the very places that were changed, like Silverthorne - 65 miles west of Denver - are wading in as aggressive and muscular participants in discussions about what comes next.
In Nevada, the expansion U.S. 95 connecting Las Vegas and its sprawling western suburbs has resumed after environmentalists settled a lawsuit last year over the effect of increased vehicle emissions on nearby residents.
The proposed Legacy Highway in Utah, extending south of Salt Lake City, was blocked for years before receiving final approval this month.
Elsewhere in Colorado, a plan for a toll road across the once-empty plains east of Denver was put on hold last year after opposition from residents.
Transportation experts, politicians and residents agree that the stakes and implications of these fights are enormous, touching on tenets of the West that are scriptural: unbridled growth, local identity, civic autonomy and an uneasy dependence on government.
Here in Colorado, where Interstate 70 is crucial to the tourism economy and the state's image as the mountain playground of the West, businesses, residents and interest groups do not remotely agree on what to do.
"The question is, How much do we really want to improve I-70 - and do we want to improve it so much that it changes the character of our communities?" said Gary Severson, the executive director of the Northwest Colorado Council of Governments. "That's the tightrope."
The idea that transportation systems can reshape the regions through which they pass is well established. As far back as the Erie Canal and the transcontinental railroad, geographers and historians say that getting from Point A to Point B has always been at least partly about property values, boosterism and the restless American impulse to move on and create anew.
But that pattern is being given a decidedly new twist here on a road that was hailed and agonized over as one of the most daunting stretches of the Interstate System.
Places like Silverthorne - incorporated in 1967, when it was populated mainly by highway construction workers - have become destinations for shopping or homebuilding and tend to favor an expansion of the highway that would deliver more of the bounty that Interstate 70 has already bestowed. Towns closer to Denver, like Idaho Springs, which have not seen the influx of vacation homes or tourists and which also have many more commuters to Denver, say mass transit must be on the table.
Some politicians and residents say that doing nothing may be the wisest course. Colorado's population in and out of the mountains is expected to increase by 50 percent in the next 20 years, pushing people toward mass transit as traffic congestion worsens.
Not everything that has happened here is a result of transportation, of course. The explosion of population and the economy since the completion of Interstate 70's last leg in 1979 - the second tube of the Eisenhower/Johnson Tunnel at 11,000 feet across the Continental Divide - also coincided with a demographic transformation as members of the post-World War II generation reached their peak earning years, stock and real estate markets boomed and changes in tax law made buying vacation real estate more attractive.
Resorts that opened or grew during the highway's early years - like Vail, in 1962, Keystone in 1970 and Beaver Creek in 1980 - have moved toward year-round operations and real-estate development that bring more visitors and residents.
The results have all fed back into the equation of traffic, which is increasingly bumper-to-bumper on weekends in winter and summer. Another record was set last year for the number of cars trying to squeeze through the four lanes of the Eisenhower/Johnson Tunnel in one month - just over 37,000 a day, last July.
Issues of class and clout have further clouded the picture.
Summit County, where Silverthorne is located, was one of the fastest-growing counties in the nation in the 1990's, with the population up 83 percent. Equally important, many residents and politicians say, is that the nine counties along the Interstate 70 corridor - led by Summit and Eagle, where the big resorts and the biggest waves of homebuilding are concentrated - are becoming more and more important to the state's economy.
In 2000, a private study commissioned by the state found that the corridor produced about $2 billion in recreation revenue, out of $9.3 billion statewide, and generated $136 million in state and local tax revenues.
"Do we accommodate growth, or do we stifle it? That is the question," said Lou DelPiccolo, Silverthorne's mayor, who favors a highway widening plan.
Thirty miles east, in Clear Creek County, where the growth has been slower and the big payoff from the highway never quite materialized, political leaders like the Idaho Springs mayor, Dennis Lunbery, are asking the opposite question: Could they survive the widening of the highway?
Idaho Springs, confined in a narrow canyon - the back door of City Hall is less than 100 feet from the Interstate's westbound guardrail - would be destroyed, Mr. Lunbery said, by the miasma of asphalt, noise and dust that a bigger highway, and the years of construction, would bring.
Mr. Lunbery said he thought that the state, in its environmental assessment of the corridor, had "stacked the deck" toward a highway-widening option by excluding any plan that costs more than $4 billion. Most mass transit proposals would add at least another $2 billion to $4 billion.
Coincidentally or not, widening is what the destination communities farther west mostly want. Many people farther west also worry that a mass transit rail line, however good it may be for closer-in communities like Idaho Springs, could turn resort communities into bedroom communities, full of commuters catching the train to their offices in Denver.
The executive director of the State Department of Transportation, Thomas E. Norton, who is expected to make a decision on the corridor later this year, said he was open to all options.
"I don't think there is a bias in my perspective," Mr. Norton said. "There is a bias toward best use of the public dollar, and until you can get really high transit kinds of usage, the economics are not there. Rail that can move 10,000 people an hour looks great, but if only 12 days of the year it would be used by that many people, it's not an efficient use of dollars."
Many people, including Mr. Lunbery, who expects the state's study to be challenged in court almost no matter what happens, think that nothing will happen for years on the corridor - partly because of the difficulty in finding the money - and that worsening traffic is, for now, the only certainty.
Gary Lindstrom thinks that is a good thing. He is a legislator in the Colorado House whose district includes much of the corridor. He is also a Democratic candidate for governor this year and favors the mass transit idea, but he agrees with Mr. Norton that for now it does not appear feasible. Time will change that equation, Mr. Lindstrom said.
"The worst thing we can do is widen the highway," he said. "We need to keep the congestion so people will be interested in the transit."
No matter what unfolds, Linda Wellington and her husband, Bill, who have lived all their lives here, will probably not see it. Ms. Wellington has watched it all - the good and the bad - and often talked it over with her father, a career highway worker, before he died, who regularly plowed the highest passes of the old road before Interstate 70 was built.
"At one time I was bitter. I'd say, 'Dad, don't you hate all the people and the traffic?' and he'd say, 'We need to move forward,' " said Ms. Wellington, who is in her 50's. "So that's where I am now. You can't stop it. It's here, we've built it, and you can't close the door."
The Wellingtons are planning to move. Mr. Wellington, who is 56, said he had been looking at a place in northeastern Colorado, out on the plains toward Kansas, where it is not as crowded as the mountains have become and where their son now lives. He will hate to leave, he said, but things have changed too much to stay.

Tuesday, January 24, 2006

Academic Economists as Media Stars

Do economists get enough popular media attention? I'm not talking about Sachs, Barro, Stiglitz, Krugman or Summers. These guys generate buzz. But, there are many economists, especially at the University of Chicago, who somehow don't get their share. Perhaps the unintended consequence of this "injustice" is that these tough guys work harder and churn out better stuff.

The New York Times Magazine has written profiles of Steve Levitt, Roland Fryer and Larry Summers in recent years. These pieces nicely melded descriptions of these guys with a sense of how their life's journey has shaped their research. The New York Times Magazine is getting ready to write another of these pieces about a prominent urban economist from Cambridge and I had the opportunity to talk to a smart reporter today about his subject.

As I answered this reporter's questions, I wondered whether we merit more coverage. I asked this reporter why the New York Times doesn't write more pieces about academics. He politely passed on answering this question. Universities seem to only make the New York Times when fat cats give lots of money or larry summers says something juicy.

Given our quirky, politically incorrect worldview, I would think that economists would be naturals to appear on Fox and the New York Post. In past blogs, I argued that we are under-represented in the Congress. We are under-represented in Hollywood movies and per-idea we are under-represented in the New York Times. Perhaps we should sue! We are being discriminated against.

Measuring Environmental Sustainability

Yale's ESI index is a useful tool for starting a discussion about how we measure environmental sustainability (http://www.yale.edu/esi/). Are environmental problems getting better or worse? Environmentalists fear policy complacency and in addition they have genuine concerns about the impacts of climate change, deforestation, and the rise of the automobile around the world. Will environmentalists be pleased that across countries, the Yale ESI index indicates that richer nations are more "sustainable"?

I thought that the Yale team has posted a nuanced response to their critics (see

These researchers admit that there is a fundamental index numbers issue. To give a concrete example. Suppose that every university can be rated on the quality of its football team and the quality of its economics faculty. If U.S News and World Report gives equal weight to each of these factors, then Harvard will be ranked close to the middle of the pack. If you place a weight of .9 on faculty quality, Harvard will look a lot better. So, subjective weighting decisions play a key role in index determination. The ESI team weights all of their categories equally. Let's take a look at their categories.

Variable Description Component
Urban population weighted NO2 concentration SYSTEM
Urban population weighted SO2 concentration SYSTEM
Urban population weighted TSP concentration SYSTEM
Indoor air pollution from solid fuel use SYSTEM
Percentage of country's territory in threatened ecoregions SYSTEM
Threatened bird species as percentage of known breeding bird species in each country SYSTEM
Threatened mammal species as percentage of known mammal species in each country SYSTEM
Threatened amphibian species as percentage of known amphibian species in each country SYSTEM
National Biodiversity Index SYSTEM
Percentage of total land area (including inland waters) having very low anthropogenic impact SYSTEM
Percentage of total land area (including inland waters) having very high anthropogenic impact SYSTEM
Dissolved oxygen concentration SYSTEM
Electrical conductivity SYSTEM
Phosphorus concentration SYSTEM
Suspended solids SYSTEM
Freshwater availability per capita SYSTEM
Internal groundwater availability per capita SYSTEM
Anthropogenic NOx emissions per populated land area STRESS
Anthropogenic SO2 emissions per populated land area STRESS
Anthropogenic VOC emissions per populated land area STRESS
Coal consumption per populated land area STRESS
Vehicles in use per populated land area STRESS
Annual average forest cover change rate from 1990 to 2000 STRESS
Acidification exceedance from anthropogenic sulfur deposition STRESS
Percentage change in projected population 2004-2050 STRESS
Total Fertility Rate STRESS
Ecological Footprint per capita STRESS
Waste recycling rates STRESS
Generation of hazardous waste STRESS
Industrial organic water pollutant (BOD) emissions per available freshwater STRESS
Fertilizer consumption per hectare of arable land STRESS
Pesticide consumption per hectare of arable land STRESS
Percentage of country under severe water stress STRESS
Productivity overfishing STRESS
Salinized area due to irrigation as percentage of total arable land STRESS
Percentage of total forest area that is certified for sustainable management STRESS
World Economic Forum Survey on subsidies STRESS
Agricultural subsidies STRESS
Death rate from intestinal infectious diseases VULNER
Child death rate from respiratory diseases VULNER
Children under five mortality rate per 1,000 live births VULNER
Percentage of undernourished in total population VULNER
Percentage of population with access to improved drinking water source VULNER
Average number of deaths per million inhabitants from floods, tropical cyclones, and droughts VULNER
Environmental Hazard Exposure Index VULNER
Percentage of total land area under protected status CAP
Ratio of gasoline price to world average CAP
Percentage of variables missing from the CGSDI "Rio to Joburg Dashboard" CAP
Knowledge creation in environmental science, technology, and policy CAP
IUCN member organizations per million population CAP
Local Agenda 21 initiatives per million people CAP
Corruption measure CAP
Rule of law CAP
Civil and Political Liberties CAP
World Economic Forum Survey on environmental governance CAP
Government effectiveness CAP
Democracy measure CAP
Energy efficiency CAP
Hydropower and renewable energy production as a percentage of total energy consumption CAP
Dow Jones Sustainability Group Index (DJSGI) CAP
Average Innovest EcoValue rating of firms headquarted in a country CAP
Number of ISO 14001 certified companies per billion dollars GDP (PPP) CAP
World Economic Forum Survey on private sector environmental innovation CAP
Participation in the Responsible Care Program of the Chemical Manufacturer's Association CAP
Innovation Index CAP
Digital Access Index CAP
Female primary education completion rate CAP
Gross tertiary enrollment rate CAP
Number of researchers per million inhabitants CAP
Number of memberships in environmental intergovernmental organizations GLOBAL
Contribution to international and bilateral funding of environmental projects and development aid GLOBAL
Participation in international environmental agreements GLOBAL
Carbon emissions per million US dollars GDP GLOBAL
Carbon emissions per capita GLOBAL
SO2 Exports GLOBAL
Import of polluting goods and raw materials as percentage of total imports of goods and services GLOBAL

Monday, January 23, 2006

Cross-Country Environmental Sustainability Rankings --- the "ESI Miami"

The new environmental sustainability index (ESI) has been put out by yale and columbia researchers. The U.S is ranked 28th out of 133 nations. This article below is missing a key fact. One key component of this ESI index is carbon dioxide production per-capita. Excluding this category, what is the U.S ESI rating? This article does not report the index weights used but I'm guessing that the U.S would be a top 5 nation if you downweight this category. The index weights play a key role in shaping the outcome. Think about ranking U.S universities, would Harvard be ranked as a top university if the quality of the football team at the school received a weight of .99? Univ. of Texas might be ranked higher!

There are other mysteries here also. Two years ago, England was ranked 65th on this index but now it has jumped to #5. I can't imagine that a country's environmental fundamentals could change so much in 2 years. Either the authors have changed their ranking methodologies or somebody lied to them about the core data.

This article below is not subtle about measurement error and strategic reporting. In conducting cross-country research, there are often "apples and oranges" issues that some nations don't monitor the pollution or collect it in different units. I would like to know how these researchers imputed data values in this case.

What this ESI report achieves a "salient moment" forcing people to think through whether they are happy with the relative ranking of their nation. Some politicians may face hard questions on whether they are doing enough. It will interest me whether President Bush is asked about this report and whether he feigns interest in its implications?

Finally, note that this is a relative ranking; the authors do not draw a line in the sand and say, "all nations who score above a xx are on a sustainable path"

January 23, 2006
United States Ranks 28th on Environment, a New Study Says

WASHINGTON, Jan. 22 - A pilot nation-by-nation study of environmental performance shows that just six nations - led by New Zealand, followed by five from Northern Europe - have achieved 85 percent or better success in meeting a set of critical environmental goals ranging from clean drinking water and low ozone levels to sustainable fisheries and low greenhouse gas emissions.

The study, jointly produced by Yale and Columbia Universities, ranked the United States 28th over all, behind most of Western Europe, Japan, Taiwan, Malaysia, Costa Rica and Chile, but ahead of Russia and South Korea.

The bottom half of the rankings is largely filled with the countries of Africa and Central and South Asia. Pakistan and India both rank among the 20 lowest-scoring countries, with overall success rates of 41.1 percent and 47.7 percent, respectively.

The pilot study, called the 2006 Environmental Performance Index, has been reviewed by specialists both in the United States and internationally.

Using a new variant of the methodology the two universities have applied in their Environmental Sustainability Index, produced in four previous years, the study was intended to focus more attention on how various governments have played the environmental hands they have been dealt, said Daniel C. Esty, the director of the Yale Center for Environmental Law and Policy and an author of the report.

The earlier sustainability measurements "tell you something about long-term trajectories," Mr. Esty said. "We think this tool has a much greater application in the policy context."

For instance, Britain ranked 65th in last year's sustainability index, but 5th in the latest study, among the 133 nations measured. Among the reasons for the earlier low ranking, Mr. Esty said, was that "they cut down almost all their trees 500 years ago and before," something that modern British governments could not control.

The 16 indicators used in the latest study, the report says, provide "a powerful tool for evaluating environmental investments and improving policy results."

The report will be issued during the World Economic Forum, an annual conclave of business and political leaders which meets in Davos, Switzerland, this week. Mr. Esty said the report was also intended as a tool to help monitor progress on the environmental issues included among the Millennium Development goals adopted by 189 nations at the United Nations Millennium Summit.

"It's like holding up a mirror and having someone help you see what you couldn't see before," he said. But the report acknowledges "serious data gaps" that resulted in leaving more than 65 countries out of the rankings. In addition, some thorny methodological issues, like how to measure land degradation or loss of wetlands, have no widely accepted solutions, the report noted, and the authors used the best measures they had available.

Like the sustainability index produced last year, the pilot study ranks countries within their geographic peer groups, so that nations in arid regions or tropical ones can be measured against one another. So Belgium's overall ranking of 39, with a 75.9 percent score, can be viewed by region and by issue. Belgium ranks last, for instance, among European countries in protection of its water resources.

Air quality rankings tend to favor less industrialized nations like Uganda, Gabon, Ecuador and Sri Lanka. Among the countries of the Americas, the United States ranks in the bottom third on this scale.

In the Americas, the United States is at the bottom of the scale measuring agricultural, forest and fisheries management, in part because the study is weighted against countries with a high level of crop subsidies. The study's authors say that such subsidies "in agriculture, fisheries and energy sectors have been shown to have negative impacts on resource use and management practices."

In the area of environmental health, the study measured such factors as sanitation, lead exposure and indoor air pollution, a particular concern in the least developed countries, where indoor home fires may be common. In those measures, the richest countries, including the United States, Canada, Australia, New Zealand, Japan, France, Britain, Ireland and the countries of Northern and Central Europe score near 100 percent.

On the same scale, the poorest countries fared worst, with 32 of 37 sub-Saharan African nations, along with Bangladesh, Haiti, Yemen, Tajikistan, Laos, Cambodia and Papua New Guinea, scoring at or below 40 percent. Chad and Niger rank last in the world, with scores of 0 percent and 1 percent, respectively.

"In the zone we capture as the field of play, they're at the very bottom," Mr. Esty said. "It doesn't mean that nobody there has a toilet. It means a very, very small percent do."

The energy sustainability portion of the index factors national wealth into measurements of energy efficiency and greenhouse-gas emissions. Nonetheless, all but three of the top 25 spots in the worldwide rankings are occupied by countries in economic distress, including Uganda, Chad and Myanmar. Switzerland, Costa Rica and Peru are the exceptions.

The study's definition of renewable energy resources does not include nuclear power - in part, Mr. Esty said, because countries with a high proportion of nuclear-fueled energy, like Japan, the Czech Republic and France, reaped the benefits of their energy choices by earning high rankings on the study's other scales, like the air quality index measuring particulate matter.

To create another scale that disproportionately favored nuclear-energy users would have undermined the overall reliability of the study, he said. As a result, the renewable-energy rankings tilt heavily toward countries reliant on hydropower, like tiny Bhutan.

The study shows that annual carbon dioxide emissions, measured as metric tons per $1 million of gross domestic product, average about 363 tons. North Korea, Turkmenistan, Ukraine, Uzbekistan and Mongolia rank at the bottom of the scale, with amounts ranging from Mongolia's 1,992 tons to North Korea's 4,859 tons.

Carbon dioxide emissions from nations with rapid economic expansion, like China and India, are more than double the world average (731 tons and 621 tons, respectively). The United States, at 171 tons per $1 million of gross domestic product, ranks well behind some other nations in the Group of 8, the major industrial powers - France (56), Japan (57), Germany (80) and Britain (118) - but close to Canada (168), ahead of Australia (209) and far ahead of Russia (914).

Saturday, January 21, 2006

Benevolent Urban Planners?

The Mayor of New York City is a very rich man. Paul Allen is shadow governing Seattle. He is also a very rich Microsoft man. Would there be less corruption and better urban governance if every serious city were run by the super rich? The logic might be that these folks have satisfied their own taste for material goods and will not steal from the public and instead will focus on being a "kind king". Was Nelson Rockefeller a good leader of New York State?

You might be concerned that the super-rich do not have a common man's touch. Bill Clinton could feel the poor's pain. Can Mike Bloomberg? You might worry that the super-rich only know the best neighborhoods of the entire city they are supposed to run. The truth here is that such a candidate would have to work extra-hard to prove to the metro reporters that he/she wasn't a snob.

The virtues of the super-rich candidate is the absence of corruption and the absence of capture. A rich union offering campaign contributions will not have the same pull with a billionaire as with a broke candidate. If the rich can pre-commmit to not "be for sale" how can this be a bad thing?

We see Corizne in New Jersey, maybe Bill Gates should run for Vice President?

You might worry that American is supposed to be one person/one vote not one dollar/one vote. Maybe that is a worry but there are checks on the power of the executive.

January 21, 2006
Seahawks Rise, as Does Seattle, in Hometown Tycoon's Vision

SEATTLE, Jan. 20 - For years, Paul G. Allen was the invisible billionaire here, a tentative tycoon with a yacht longer than the football field where his Seattle Seahawks will play Sunday.

But just as the Seahawks have shed years of obscurity in their first shot at the Super Bowl in more than two decades, Mr. Allen's prints appear everywhere as he remakes his hometown into an urban center to match his peripatetic passions.

As an investor, Mr. Allen, who founded Microsoft with Bill Gates, has had a kind of reverse Midas touch, losing billions on ill-fated ventures. But it is a different story in Seattle, which some here are calling Allentown, a nickname that cuts two ways, inciting both hope and fear. Seattle's major institutions are being drawn to Mr. Allen's vision of a new-century city built around compact urban living and a biotech job engine that some officials suggest could one day rival that of the Boeing Company, which still builds planes here.

At a time when many cities are trying to find their footing in the global economy, Mr. Allen is redesigning whole parts of Seattle with the help of what could amount to almost a billion dollars in public investment. The city, known for airplanes, software and coffee, is moving swiftly into a role as a place whose monied elite promote philanthropy, global health and the life sciences - gambling on a new economy that some worry may never materialize.

"I'm just trying to do some things that are good for the city and have a positive return on investments," Mr. Allen, who will turn 53 on Saturday, said in an interview.

And while his portfolio has shrunk by about $10 billion from ventures elsewhere, according to independent analyses of his holdings, his wealth was pegged at $20 billion by Forbes magazine, and his Seattle properties are surging.

"What's happened so far has exceeded my expectations," Mr. Allen said of his fast-moving Seattle developments in biotechnology, real estate, philanthropy, art and sports.

Critics say Mr. Allen has become a social engineer with cranes and cash.

"The job projections may be vastly overstated because no one really knows how big biotech will be, and we're still not sure how much this is going to cost the city," said Peter Steinbrueck, a Seattle City Council member who has known Mr. Allen since grade school.

But Mr. Steinbrueck added, "We're getting a very attractive urban neighborhood" that most cities would jump at the chance to have. What bothers many Seattleites, he said, is the image of a very wealthy man controlling so much of the city - philanthropy, sports, government.

Of late, it is hard to avoid the reach of Mr. Allen's empire. The Seahawks' "12th man flag," a tribute to the noise from fans that can upset the rhythm of the 11 opposing players on the football field, flies atop the signature Space Needle. Mr. Allen has owned the team since 1997, and says few things now thrill him more than the chance to slap hands with middle-aged men in Seahawks blue hair and face paint.

Down below, one of the biggest private urban makeovers in the country is briskly taking shape under Mr. Allen's hand. While his better-known partner in Microsoft wealth, Mr. Gates, is spending his fortune on reshaping the world, particularly global health and poverty, Mr. Allen has focused on his own backyard.

His company, Vulcan, is trying to build a biotech hub and housing for 10,000 or more. Nearby, researchers in white lab coats study frozen 56-day-old mice as part of the $100 million Allen Brain Atlas, an effort to go where no neuro-cartographers have gone before.

And the $240 million museum he set up to honor the hometown hero Jimi Hendrix will take a step into the visual arts this spring, becoming - for a time - a showcase for rarely seen paintings by Monet, Renoir, Van Gogh and Picasso, among others.

And yet, despite the fact that Mr. Allen's influence has never been greater here, he remains an enigma. In the city where he grew up, Mr. Allen, a librarian's son, is little known, and his appearance on the football field and in the locker room at last week's Seahawks game caused the kind of stir usually reserved for Bigfoot sightings.

The mayor, Greg Nickels, has met Mr. Allen only once, said Deputy Mayor Tim Ceis. Stimson Bullitt, whose family has been a driving force in broadcasting, real estate and philanthropy here for nearly a century, said he did not know him. Most politicians, though they receive campaign contributions from Vulcan, say they have never met Mr. Allen.

"You hear all these stories from people who go to dinner at his house and they wait for him to arrive and then when he materializes, you don't know what door he came in from," said David Brewster, who founded Town Hall, Seattle's idea salon and culture center. "He is a real interesting eccentric, and this town has always had a high tolerance for that sort of thing."

Mr. Allen, who has been in remission for Hodgkin's disease since 1985, has been a part of three big waves during his life: the personal computer, the Internet and private space travel. (Vulcan financed the rocket that launched successfully in 2004, winning the Ansari X Prize.) For a man who has his own submarine and bought Captain Kirk's chair from "Star Trek," it can seem like he is casting about, trying not to miss a bet.

In the interview, Mr. Allen said he had no specific master plan for the city he was remaking, and he laughed at the idea that he was Carnegie in khakis. If anything, his idea is a back-to-the-future Seattle he remembers as a boy, where people got around the center of town by walking, combined with a New Urbanist view made expansive by the sheer size of Mr. Allen's wealth.

In the South Lake Union area just off downtown, he plans to build 10 million square feet - the rough equivalent of a dozen 50-story towers - of condos, European-style alley-fronted homes, biotech and medical research facilities, hotels and retail space, with a trolley car connecting it all. The projects are ahead of schedule, with the cluster of condos built around a luxury hotel, Pan Pacific, and a Whole Foods store set to open later this year.

The words "Rethink Urban" and the eco-friendly phrases of "sustainability" and "authenticity" and "urban sanctuaries" are used in almost every presentation of what Mr. Allen is trying to do with the 60 acres he owns in South Lake Union.

The South Lake Union plan also includes a retirement home, moderate-income apartments, a big new park, and medical research facilities drawn to the magnet of Fred Hutchinson Cancer Research Center, a non-Vulcan property that moved to the area before Mr. Allen began to build.

"The thinking was to really have a place with activity going on all the time," said Ada M. Healey, the head of Vulcan real estate.

Ms. Healey said South Beach in Miami Beach, the pedestrian shopping area in Santa Monica, Calif., and the Pearl District in Portland, Ore., were inspirations.

But each of those neighborhoods has been criticized as one-dimensional and empty of children or people from certain income groups. Ms. Healey said the demographic trends and costs of in-city living might be beyond Vulcan's ability to do much to attract families.

Mr. Allen said he "pushed my people" to come up with a new-century neighborhood, with green building principles and tight density, imagining a community of scientists who were never more than a few minutes stroll from their experiments.

But the biotech idea, which many cities are pursuing, has been oversold, Councilman Nick Licata said, and ultimately may not be the kind of job producer worthy of substantial public investment. And Mr. Allen's experience in Portland, where he encouraged development around a sport complex he owned, ended in bankruptcy and hard feelings between city officials and Mr. Allen.

Still, in Seattle, the Seahawks have taken the town by storm. The $430 million stadium where they play, Qwest Field, with its urban intimacy and its sophisticated use of video and computer graphics, has been a fan favorite since it opened for football in 2002, after a substantial public investment and about $100 million from Mr. Allen. He asked his executives to try to re-create an atmosphere similar to the one Mr. Allen felt while attending University of Washington football games as a boy.

"For a sports team owner, you better enjoy this because it doesn't get any better," he said.

Coming on the heels of a dot-com bust that left Seattle leaders wondering about their next economic engine, the city approved most of what Mr. Allen asked for in the South Lake Union area, and the public investment could total $500 million to $1 billion, with traffic improvements and other infrastructure changes, city officials said.

"Paul Allen is doing some very good things," Mr. Steinbrueck said, "but it's tainted by the public image people have of him - this very rich, flamboyant guy who hasn't grown up. He is seen as an enigmatic guy who wants to fulfill his fantasies from childhood."

Friday, January 20, 2006

Adjusting to Climate Change in Africa

As climate change takes place, some nations will be better able to cope and adapt than others. This article below tells a sad story about how cow herders in Kenya are migrating far in search of rainy areas so that their cows can eat some grass. The problem is that these cows are entering wildlife parks competing with endangered species for food and perhaps grossing out the western eco-tourists.

I wonder if this article foreshadows future stories about how people in LDCs are coping with climate change. Clearly migration is one strategy but if property rights are not well define or are not enforced then congestion will take place in those parts of these nations that have suffered the least from climate change. I could imagine that this will exacerbate tensions between different groups if there is true scarcity of lands that receive ample rain and climate change exacerbates this scarcity.

For organizations such as the World Bank, what are effective loans it could make to such countries to help them cope with changing climate? This article does not mention climate change. I could be completely wrong about this trend playing a role in the low supply of rain in this region. Still, I do not think there has been enough research done on the question of how climate change might affect the spatial distribution of the population in various poor nations. Some Yale researchers have argued that if agricultural profits fall, that there will be more urbanization in such cities and this will exacerbate urban congestion. This point must generalize throughout Africa as people seek to escape their misfortune.

January 20, 2006
Chyulu Hills Journal
Where the Zebra and the Wildebeest Roam, Cows Do, Too

CHYULU HILLS, Kenya, Jan. 13 - A new species, endangered in its own way, may soon join the black rhino, zebra, buffalo and wildebeest that roam this hilly reserve: the cow.

Vast herds of livestock, many of them feeble from the long journey here, are clustering around Chyulu Hills, an out-of-the-way park in southeastern Kenya several hours from Nairobi. They are also wandering into the park, prompting rangers to chase down and arrest the nomads watching over them.

"It's against the law," said Simon Mutuku, a ranger for the Kenya Wildlife Service at Chyulu Hills National Park. His job is the protect the park's two dozen black rhinos, some of the relatively few indigenous rhinos in Kenya to have survived rampant poaching in the 1970's.

The influx of cattle into nature parks is but one sign of a fierce drought that has devastated nomadic communities, especially those in the remote and neglected north and northeast. Desperate to save their herds, nomads have driven their cows into areas normally off limits, setting off a fierce debate in Kenya, which relies heavily on its unspoiled natural areas for tourism.

Drought is a regular feature in this part of the world, where the rains are fickle and the climate harsh. Just before Christmas, when Kenyans usually hold lavish holiday feasts, emaciated babies began appearing in hospitals in Wajir and Mandera, in the north. At least 40 people are reported to have died in recent weeks.

Kenya's drought is part of a crisis affecting millions in the Horn of Africa. The World Food Program has appealed for resources to feed 2.5 million people in Kenya, 1.4 million in Somalia, 1.5 million in Ethiopia and 60,000 in Djibouti.

"The emergency we face in the Horn today is the result of successive seasons of failed rains," Holdbrook Arthur, the group's regional director for eastern and central Africa, said in a statement. "Consequently, pastoralists living in these arid, remote lands have very few survival strategies left and require our assistance to make it through until the next rains."

As the Kenyan government and relief agencies scramble to respond, nomads have scattered in search of pasture and water for their herds. Tens of thousands of cows are now believed to be grazing in the forests around Mount Kenya, a popular draw for visitors. Cows have also approached and in some cases entered the grasslands at Nairobi National Park, Amboseli National Park and Tsavo East National Park.

As the suffering grows, pressure is building on the government to relax its ban on grazing in the parks. To drive home the point, herdsmen took about 60 cows to the Nairobi residence of President Mwai Kibaki on New Year's Day. During a drought in 2002, the former president, Daniel arap Moi, had opened the gates of the presidential compound to livestock, but Mr. Kibaki's guards rebuffed the herdsmen, who moved on to Uhuru Park, in the city center.

Francis X. ole Kaparo, speaker of the National Assembly, contends that the government ought to open protected areas to cattle until the crisis passes. "What would be the need of preserving forests and other natural resources when people are dying?" he asked at a recent news conference. "Of whose benefit will the resources be if people perish due to the current famine?"

But the tourism minister, Morris Dzoro, has argued against opening the parks, saying that Kenyans would suffer even more if tourism, a major source of foreign currency, were adversely affected, and that in any event, the reserves could provide only a tiny fraction of the grazing space needed by the cows.

Outside the Chyulu Hills reserve, herdsmen say they are losing dozens of cows each day. When the cows become so weak they can no longer stand, they are often abandoned on the road, where they lie for days until they die. Then they are skinned, with the hides providing a little compensation.

Given the difficulty of keeping them alive, cows are rapidly losing value. An animal that once fetched well over $100 is now going for a third of that, nomads say.

Lemaiyan Shangwa, one of the herdsmen camped on the outskirts of the reserve, said two of his brothers had been arrested for crossing park boundaries with the family cows. The fine in each case, he said, amounted to about one cow.

But the family's herd is dwindling by the day, Mr. Shangwa said. He had 250 cows a month ago, and now has only 54 still standing. "That's all my family has in the world," he said.

Mr. Shangwa said one elder saw so many of his cows die that he began crying openly, shocking all the other herdsmen, who are known for their stoic ways.

Simon Kipaipei, who has lost about 20 of his 200 cows, said the government had to act soon because the cows were becoming too weak to walk any further. The herdsmen gathered here now huddle with their livestock near water in Makindu, where the animals guzzle water meant for the local population.

Peter Njoroge, a water specialist with German Agro Action, predicts that Kenya's situation will grow still worse until more water resources are developed in remote communities. Until then, though, he sees the opening up of Chyulu Hills National Park to cattle as a sensible stopgap measure.

"Inside the game reserve there is grass," he said. "The herdsmen can see the grass. But they are told that the grass can't be eaten."

The Cost of Urban Zoning: Type 2 Diabetes and Obesity?

Recently urban economists such as Ed Glaeser and Joe Gyourko have been examining the intended and unintended consequences of zoning and other land use controls. In a recent blog entry, I talked about the consumer price index for "healthy foods" such as fruit and veggies in the inner-city. I argued that because supermarkets and other superstores are zoned out that the poor (who don't own cars) face higher prices for such goods and substitute to junk food and this exacerbates Type 2 Diabetes and obesity problems.

The New York Times article below provides some hard facts about the differential probability that a bodega carries "healthy food" relative to supermarkets. You might say that such stores carry what they think their consumers want to buy. My point is to ask the "what if" question: "If urban areas were zoned for larger stores, would the center city poor have a greater variety of healthy foods to choose from and would this mitigate certain health problems?"

This article seems to imply "yes". While urban planners have tried to argue that "sprawl makes us fat", I'm wondering if urban zoning contributes to the fatness of a certain subgroup of the population. Evidence that sprawl does not make us fat is clearly seen in Matt Turner (University of Toronto Economics Department) recent work. When people suburbanize, they do not gain weight. The "Sex In the City" urban ladies would not gain weight if they sprawled out to suburban Houston. This is Turner's key finding.

January 20, 2006
New York Pushing Better Diet in Poorer Neighborhoods

Look in just about any bodega in the city's poorer neighborhoods and it is easy to find shelves well-stocked with potato chips, sodas and doughnuts. But just try to find something healthier like fruits or vegetables.

For many low-income city residents, such bodegas are more common shopping options than supermarkets with a much larger roster of healthy items.

So in an effort to provide healthier food choices, city health officials have enlisted bodega owners in an effort to encourage the sale of low-fat milk.

The program, which health officials hope to extend to items like fruits and vegetables if it proves successful, is an attempt to combat the city's obesity epidemic. As the rate of obesity in the city continue to rise, so do associated chronic diseases like Type 2 diabetes.

The milk program follows studies indicating that healthy food is scarcer and more expensive in poorer neighborhoods. Many of those communities are served primarily by bodegas in which, compared with supermarkets, the sale of fresh fruit is limited, unhealthy foods are heavily promoted and vegetables are almost nonexistent.

Besides announcing the milk program yesterday, the Health and Mental Hygiene Department released the results of its survey of the availability of various healthy foods in the Bedford-Stuyvesant and Bushwick neighborhoods of Brooklyn.

The agency found that only one in three bodegas there sold reduced-fat milk, but that 9 out of 10 supermarkets in the neighborhoods did. More than 80 percent of the 373 food stores surveyed in the two neighborhoods were bodegas.

The department is beginning the milk program in three areas with similar food problems: central Brooklyn, the South Bronx and Harlem. Those areas have some of the city's highest obesity rates. In Bedford-Stuyvesant, for example, 30 percent of adults are obese, though the citywide rate is 20 percent.

For several months, the two dozen bodegas that have signed up for the milk program will offer customers discounts on low-fat milk and pass out fliers provided by the health department. There is no financial incentive for the bodegas to participate, but health officials said they have received a positive response.

"Bodegas are essential food providers in our communities, but healthy options are often unavailable," said Dr. Thomas R. Frieden, the city's health commissioner. "Cutting down on unnecessary calories and saturated fat can prevent diabetes, heart disease and other serious health problems. Most people want to be healthier, and even small lifestyle changes - like switching to 1 percent milk, eating more fruits and vegetables and increasing physical activity - can make a big difference over the long term."

The department's survey in the two Brooklyn neighborhoods found that a scarcity of low-fat milk was just one of many obstacles to healthier eating.

The most common products advertised by bodegas, the survey found, are sugar-laden sodas and sports drinks. Nearly half the stores also advertised cigarettes.

"A typical school has five stores advertising cigarettes within a three-block radius," according to the report.

Bodegas are also much less likely than supermarkets to stock fruits and vegetables, it said. While the majority of bodegas and supermarkets carry some kind of fresh fruit, only 21 percent of the bodegas in Bedford-Stuyvesant offered apples, oranges and bananas. Supermarkets were four times more likely to carry all three.

Leafy green vegetables like spinach and kale were found in only 6 percent of the bodegas surveyed. Bodega owners said an important reason they did not carry healthier foods was that they are not very popular.

Even when healthy food is available, bodegas often charge more for it than supermarkets do. In Bedford-Stuyvesant, the average cost of a gallon of milk was 79 cents more in a bodega than in a supermarket.

In order to compile the report, health department workers visited all food stores within a five-mile radius in central Brooklyn. In the bodegas and supermarkets, they recorded both the availability of certain types of food as well as the prices. They also examined the restaurants in the same area.

While national fast-food chains like Burger King and KFC accounted for 13 percent of 168 restaurants surveyed, three out of four restaurants sold only takeout food. The most common categories in the survey were Chinese, Latin American and pizza.

Health officials concede that it is hard to get people to change their eating habits, but they believe they can make a start by heavily promoting good habits and making nutritious food more available.

At a bodega in Harlem, where the milk program was starting yesterday, children at nearby Public School 57 were happy to try low-fat milk. As crossing guards passed out the department's fliers on the product's health benefits, Tiffany Rodriguez, 11, said that she had drunk only whole milk before but that she liked her first sip of the low-fat alternative.

"I think this tastes better than the regular milk," she said.

Thursday, January 19, 2006

The Urban Tragedy of the Commons and Wi-Fi Networks

The rise of Wi-Fi networks in cities would appear to be a classic free rider issue.
The only thing missing in this article below is a celebrity such as Meryl Streep worrying that these things cause cancer. I would hope that the local phone company would attempt to sabotage these networks to continue to collect money on local modem dialups.

It is an interesting case study of whether public goods can be provided without government.

January 19, 2006
Advocates of Wi-Fi in Cities Learn Art of Politics

SEATTLE, Jan. 18 - The idea of building citywide wireless networks from the community level was suspiciously simple back in 2000, although the plans sounded like the work of underground revolutionaries. "All of us were very idealistic, and all quite strongly opinionated," said Adam Shand, founder of Personal Telco, which had visions of such a network in Portland, Ore.

There as elsewhere, it was seen as a three-step process.

First, build home-brew Wi-Fi antennas and develop software to make outdoor wireless networks affordable and practical.

Second, persuade thousands of people in each city to stick Wi-Fi antennas out their windows, on their roofs or in their places of business to serve collectively as the nodes of a network. (Some groups sought to share existing commercial broadband Internet access - often regardless of whether an Internet service provider allowed that kind of sharing - while others wanted to build a separate community network.)

Third, link those thousands of nodes into neighborhood networks that would themselves connect into a cloud of free citywide Wi-Fi coverage. That's free as in free beer as well as free as in freedom: most advocates envisioned no restrictions on content or participation, and no access charges. In contrast, almost all early Wi-Fi hot spots were pinpoints of service, had fees attached and restricted use.

Step 2 was never completed, which is why victory speeches seem, at first glance, out of place. Nonetheless, "community wireless accomplished spectacularly well what it set out to do," said Dana Spiegel, president of NYCwireless, a volunteer wireless advocacy group in Manhattan.

While attendance at some community networking groups has plummeted and some smaller groups have disappeared, their technical and political impact has never been higher. Wireless advocates no longer dangle dangerously from rooftops mounting antennas built inside potato-chip cans, although some still provide technical help to business owners and nonprofit groups in creating free Wi-Fi hot spots.

"The problems that were hard in 2001 were technical ones," Mr. Spiegel said. "Now, they're personal and relationship and political ones. The technology, we almost don't even think about it anymore."

Greg Richardson, president of Civitium, a consulting firm, says that movement was the impetus for government-run citywide wireless Internet plans. Mr. Richardson has been a consultant on municipal wireless policy and technical issues for Philadelphia, San Francisco and other cities.

Community wireless gave municipal planners "the validation that a lot of those ideas could work," Mr. Richardson said. Early and continuing municipal efforts to provide small areas of free access in parks and downtown districts were and still are often created in conjunction with these community groups.

The move from building physical networks to building political influence, many advocates say, stems in part from an August 2004 forum organized by the Champaign-Urbana Community Wireless Network in Illinois.

At the event, many community wireless leaders met for the first time. Sessions were conducted with politicians and members of nonprofit groups interested in diversifying media ownership. Sascha D. Meinrath, the network's project coordinator, said he saw a political awakening hit the technically focused participants.

"We could develop all of these technologies, we could come up with the holy grail of wireless technologies, and then it would be illegal to deploy it," he said. After they returned from the conference, several wireless advocates became involved in the political debates over municipal broadband. These debates intensified after Philadelphia announced in late 2004 that it would build a citywide Wi-Fi network.

In quick succession, other cities announced their own plans, including Minneapolis; San Francisco; Anaheim, Calif.; and Tempe, Ariz.

Much of the advocates' involvement has centered on stressing network neutrality, in which a network operator has little say over what devices are used on a network and for what purpose.

The issue became more prominent after recent statements by the chief executive of AT&T (the former SBC) suggesting that content providers like Google might be required to pay fees to reach AT&T's Internet access customers. Scattered reports also indicate that some access providers may be blocking or interrupting Internet phone services.

Michael Oh of NewburyOpen.net, a commercially sponsored free Wi-Fi zone on Newbury Street in Boston, said, "I don't think anyone in the SBC world or the policy-making world would have anticipated that there would have been anyone at the table like us when it came to municipal wireless."

Many wireless advocates said they already had relationships with local politicians, and now were stepping up to the state level; some were contacted by officials trying to make sense of broadband policy. Richard MacKinnon, founder of the Austin Wireless City Project, testified at state hearings in Texas and joined in a successful fight against a bill to restrict municipal broadband service.

Wireless advocates "have done more to bring forward the concerns of network neutrality as well as open access" than anyone else in the political process, Mr. Richardson said. "They have a very loud voice in an advocacy role."

A policy statement by NYCwireless lists several principles that define network neutrality: a city or network builder must resell service to other Internet service providers, avoid restrictions on content or types of service (like Internet phone service) and allow all legal devices to be connected to the network - meaning that Internet telephone adapters and wireless cameras would be as legitimate as laptop Wi-Fi cards.

Because of concerns over neutrality, many community groups have focused on how to create independent networks that require neither government support nor an Internet connection to be useful.

The Champaign-Urbana network is developing software that allows computers and Wi-Fi gateways to organize into a larger network as they find other nodes. The approach is called mesh networking; the software would be open sourced and distributed at no cost. (Mesh networks are to be the basis of all the municipal Wi-Fi networks currently planned, but are to use commercial equipment and proprietary software.)

Seattle Wireless is taking a different approach to creating fixed networks using wireless equipment. Since 2000, its founder, Matt Westervelt, and other members have planned to create a central point that would act as a relay medium for local groups seeking to connect their offices, create temporary networks for events or offer Internet connections to others.

His organization raised $2,500 for a climber to place network equipment on a cellular tower on Capitol Hill, one of the highest spots in Seattle. The cost of upkeep is to be donated by a private company.

Community advocates want to use both these independent networks and municipal broadband to carry new kinds of locally focused services and data.

Mr. Oh and The Boston Globe (a division of The New York Times Company) are experimenting in locations around Boston with what they call Pulse Points: freestanding Wi-Fi nodes with no Internet connections. These nodes carry only local discussion boards and information.

At a Pulse Point in the South Station train terminal, every other board posting in the early days "was a flame about why there was no free Internet access," Mr. Oh said. Now, the spot is routinely used to exchange information and personal stories.

Mr. Spiegel said that the transition from hardware and networks to the higher level of programs and politics was inevitable as networks spread.

"In the end, what all of us were trying to do was to change the way people thought about communications," he said. "The Internet wasn't something that you sat down at the computer to use, but that it was something that permeated our lives - it just didn't have the distribution to permeate our lives."

Wednesday, January 18, 2006

Consumer Price Indices in Center City Communities

Superstores have only slowly entered major cities. A number of economists are now hard at work documenting the consumer surplus gains when Walmart enters a local market. There are interesting political economy questions of why major cities have been slow to rezone areas to allow superstores to enter. Clearly smaller incumbent firms will lose out if these lower cost firms enter. A classic Olson pressure group story would posit that consumers face high transaction costs to work together to lobby for law changes that would allow superstores to enter. There is also a free rider problem here. Incumbent firms recognize that they win from the status quo zoning and lobby to keep this barrier to entry in place.

For reasons not explained in this Times article below , HOme Depot has recently opened up in Brooklyn and demand for its products is quite high. This case study highlights that the center city poor who are unlikely to have cars (which would allow them to shop and search in the suburbs) face higher prices than everyone else. This lowers their real income.

An obvious point is that these superstores not only offer lower prices but also more variety. A serious analysis of how much the urban poor gain from the entry by stores such as Walmart or Home Depot would have to take into account both factors.

While many people bemoan the rise of superstores such as BArnes and Noble or Starbucks, Walmart, or Home Depot ---- it strikes me that these companies deliver a low risk, low price product. It is true that some funky, quirky businesses can't compete with these companies but is this really such a bad thing?

January 18, 2006
Square Feet
Bringing a Big-Box Store to a Tough Area of Brooklyn

Each week, about 25,000 customers find their way by car, foot or public transportation to a five-month-old Home Depot store at 585 DeKalb Avenue, which sits on a five-acre site next to Public School 54, in a residential section of Bedford-Stuyvesant, Brooklyn.

"It's excitement all day long," said Ricky Campbell, the manager of the store, which has a steady flow of contractors and residents from the neighborhood and from areas not far away, like Williamsburg, Flatbush and Prospect Heights.

It is the 1,940th store in the Home Depot chain, but the first big-box store in Bedford-Stuyvesant.

"It's a shot in the arm for local shoppers," said Kenneth Adams, president of the Brooklyn Chamber of Commerce. "The project helps satisfy pent-up consumer demand in Bed-Stuy and neighborhoods beyond it. Bed-Stuy has fantastic housing stock and lots of do-it-yourselfers. The store should be very successful."

The company also saw great potential. "Bedford-Stuyvesant was a void for us," said Mike LaFerle, vice president for real estate at the home improvement retailer, based in Atlanta. The chain, begun in 1978, opens 5 to 10 stores a week around the country. The official opening of a new store in Charleston, Staten Island, tomorrow will increase the number of stores in New York City to 19.

"Bedford-Stuyvesant falls between our Hamilton Avenue, Long Island City and Woodhaven Boulevard stores," Mr. LaFerle said. "It's an underserved community with a lot of redevelopment and people investing in their homes. It's a very family-oriented neighborhood with a lot of brownstones and single-family homes. A lot of communities look to us for home improvement."

Mr. Campbell pointed beyond the store's 241-car parking lot. "If you look right out this door, you see buildings being renovated," he said.

The Home Depot is in a renovated industrial building that was built by I.B.M. in 1977. A 60,000-square-foot space on the second floor, with a separate entrance, has been occupied by the Brooklyn Job Corps Academy, a training program, since 2001.

As part of a full renovation costing more than $15 million, an 11,256-square-foot mezzanine was created, where customers designing high-end kitchens and picking out appliances could escape the hustle and bustle of those shopping for lumber on the main floor. Home Depot paid for the renovation of the interior, and the building's owner paid for upgrading the infrastructure and the Job Corps center renovation.

The store has roughly the same area, at 111,974 square feet, as a Home Depot built from the ground up.

"Retrofitting a building is always interesting," said Alex Arancio, real estate manager of the chain's New York metro region. "It had contiguous space, 30-foot-high ceilings, and floorloads and basic infrastructure suited to our needs."

Mr. Arancio negotiated a 20-year renewable lease in the spring of 2004 with Octagon Properties, the building's owner. The company would not disclose the terms.

Frank Zuckerbrot, a partner at Octagon Properties, whose construction arm, Cook & Krupa, did the renovation work, said: "We had a vision for redeveloping the existing industrial building into a retail center from the first moment we looked at the property. We were a little ahead of the market. It took some time to attract the appropriate types of tenants."

Octagon entered into a joint venture to redevelop the property in 1998 with American Technological Solutions, a computer repair company, which had succeeded I.B.M. as a tenant. In 2000, the company moved to Texas and sold its share in the venture to Octagon.

Octagon had a deal with a supermarket to become a tenant, but that fell through. A hospital and pharmaceutical company also considered the site.

"It didn't make sense keeping the property industrial," Larry Smith, an Octagon partner, said. "It would have been underutilized that way."

Because a residential renewal had been going on for some time in the neighborhood, the timing seemed right for a home improvement store in Bedford-Stuyvesant. Indeed, Mr. Zuckerbrot asserted, "Home Depot was an out-of-the-ballpark home run for the tenant, broker and community."

Clara McDonald, a customer who owns a brownstone nearby on Hancock Street, said she "couldn't be happier." She had driven to the store with her friend Betty Jones from Crown Heights, who was searching for a part for an old thermostat.

Another customer, Vurnell Martin, said he had spent about $20,000 at the store on numerous items including cement, jigsaws, beams and handsaws, for the renovation of his brownstone in Prospect Heights. "We don't have to travel too far," he said. Nearby, his contractor, Trent Slade, counted out 20 two-by-fours needed to frame the bedroom walls of the house.

Some local leaders are restrained, though, in their assessment of the store's benefits for Bedford-Stuyvesant.

"On the positive side," said City Councilman Albert Vann, who represents the area, "a big-box store like Home Depot in Bed-Stuy provides sizable employment of local residents and discount prices for supplies and materials used by homeowners and contractors. When you go for the big box, there's also some negative impact. I've been told that there's a local paint store and some hardware stores whose sales are down."

Tuesday, January 17, 2006

How Would You Reduce New Jersey Political Corruption?

The wealthy new governor of New Jersey talks a good game. As the Times quotes from his lofty inaugural speech, he wants to fight corruption in state government. The interesting piece of economics in his speech refers to how public contracts are awarded. Moving forward, Gov. Corzine called for awards "by competition and quality, not contributions." This sounds good but how will his government know a high quality bid on contract when it sees one? This article could have been a lot more interesting if it focused on examples of how New Jersey Government has overpaid for basic services in the past.

How can he give his government employees incentives so that they seek out low cost, high quality bids on contracts rather than accepting kickbacks and giving the contract to cronies at a higher price than would have been achieved through a competitive auction for the right to do the contract?

The article is vague about whether New Jersey really features more corruption in government than other states and if so why so? A Chicago economist might ask whether detection probabilities of corrupt officials is lower in New Jersey and are punishments for those caught more lax? Or does Corzine believe that the people of New Jersey are just "naturally corrupt"? My brother lives in New Jersey and that would offend him!

If Corzine gives some of his millions to these civil servants would they steal less? There is a development literature that posits that in a LDC you can pay your civil servants well so that they fear being fired (efficiency wages) or pay them nothing and let them steal their income. Is New Jersey an example of the second one?

If Corzine actually tries to clean up New Jersey politics, will there be any unintended consequences? Will the people who are currently getting rich off of overpriced government contracts really let their golden goose be taken from them? The New Governor better live a highly ethical life during his term in office.

January 17, 2006
Corzine Takes Oath and Pledges to Clean Up New Jersey Politics

Jon S. Corzine, former Wall Street executive and United States senator, took the oath of office today as New Jersey's 54th governor, promising to make ethics reform his highest priority.

"I call on all my fellow public servants to join in an historic effort to end the toxic mix of politics, money and public business at every level of New Jersey government," Mr. Corzine said at the State Capitol in Trenton.

He also said he would not shy away from trying to fix a state with a budget gap that he estimates could reach $6 billion.

"The games are over," he said. "New Jersey must put its fiscal house in order. The time of one-shot budget fixes is past. It's time to balance the books."

Mr. Corzine, a Democrat and former United States senator, was elected last year after spending $38 million of his own money in a bitterly contested race that was one of the most expensive in the state's history. He takes over from acting Gov. Richard J. Codey, who took the reins when Gov. James E. McGreevey after he admitted having an extramarital affair with a man and resigned in 2004.

Mr. Corzine, in a 20-minute speech delivered after a 19-gun salute, said he knew he was facing a tough challenge to right the state's finances. He said that Mr. Codey told him in November, just after Mr. Corzine was elected, that his transition report to him could be summed up in one phrase.

"The state is pretty much broke," Mr. Corzine recalled the acting governor saying.

In addition to the ballooning state deficit, Mr. Corzine also faces the possibility that the state's Transportation Trust Fund, the $805 million account that the state uses to maintain roads, bridges and rail lines, will run out of money this summer. In addition, the state's school construction fund is plagued by scandal, even as it has fallen billions of dollars short of accomplishing its mission of improving outdated schools.

He said the state "like every responsible family, must learn to live within its means." Every program would be examined, he said, to make sure spending was what it should be, and his administration would "root out spending that merely serves political not public purposes."

He also said the state was losing too many jobs, and must work harder to create new jobs in more futuristic industries, like those that could develop stem cell research.

"We have done too little to fight for the high-end replacements - jobs in biotechnology, genomics, energy production, and finance," he said.

While he is committed to issuing property tax rebates, he said he wanted to move finally on the long-delayed and much talked about constitutional convention to enact property tax reform to bring relief to homeowners who face the nation's highest property taxes.

In his speech today, he kept going back to the phrase that became his refrain in his election night victory speech: "Hold me accountable."

While the governor talked about his tougher fiscal policies, he also seemed to be saying that he was most troubled by New Jersey's image, within the state and outside, of rampant corruption among its public officials.

"It is simply inexcusable that we have a state government that again and again ranks low in public trust and esteem," he said. "In the face of all our state can be, our self-government too often falls short of what it should be."

He pointed out that New Jersey is under court order on a variety of state functions, including the financing of poor or low-performing school districts, on the management of its child welfare system, its housing and borrowing policies and management of its law enforcement system. Also, he said, the United States attorney has stepped into a governance role of the state's medical school.

"This is not self-government, it is government by judicial fiat born of inaction or sometimes more regrettably, of neglect." he said. "And most troubling, that neglect is sometimes rooted in private or political gain, at the expense of the public interest."

He said the public let him know during his campaign that they wanted change.

"We must remember, it is the people for whom we work," he said. "To do that we will need real reform. And my highest priority will be ethics reform.

"Old orders and old ways may not pass easily, but the moment has come, the cause is urgent, and the will to act is at hand."

He said that public contracts had to be awarded "by competition and quality, not contributions." He also proposed making the job of state comptroller an elected position, not an appointed one, to make it is a true "independent watchdog over the state finances chosen by the people, responsible to the people and committed to restoring the people's trust."

Mr. Corzine, who amassed a fortune on Wall Street, said it was possible to bring "public integrity and sound finances" to state government.

"We will do it by choosing what is difficult but right, over what is easy but wrong," he said.

Technological Optimism: An Explanation for Rising Obesity and Opposition to the Kyoto Climate Treaty?

The big intuitive idea behind "Moral Hazard" is that when we know we have ex-post insurance then we take more risks ex-ante. So, we are more likely to smoke in bed if we own home insurance. Does this same idea help to explain why we are getting fatter and why the U.S has not been eager to sign an international greenhouse gas treaty such as Kyoto Protocols?

This Times article reported below highlights that new weight loss drugs are almost ready for consumers. Abstracting from costs of side effect (the article below says that these drugs give you bad gas), these drugs are a type of "insurance". After we get fat, we can take these and lose weight. A "Technological optimist" would smugly smile and say "I told you so". Our smart profit driven scientists have come up with a fix for the problem.

Perhaps, the same logic also applies for climate change. A technological optimist will say that we will figure out how to handle it when we get there. New Levees, better air conditioning etc.

January 17, 2006
2 Approaches to the Nation's Obesity Epidemic Coming Up for Review

Two new approaches to weight loss are up for review by federal regulators. And they represent vastly different solutions to the nation's obesity epidemic - for consumers and for the companies behind the drugs.

One, called Acomplia, would be a prescription pill to control appetite by blocking the same brain receptors that stimulate the "munchies" in marijuana smokers. Some financial analysts see Acomplia as the most promising new drug of the year, and they predict multibillion-dollar sales eventually for its maker, the French company Sanofi-Aventis.

The other, with the proposed name Alli, is a weight-loss drug that works by blocking the body's absorption of fat. Since 1999 it has been sold in the United States as the prescription medication Xenical. GlaxoSmithKline is proposing an over-the-counter version, a prescription-quality alternative to the diet remedies available in drugstore aisles and over the Internet.

Glaxo plans to draw on some of the same marketing techniques it used in 1996, when it successfully commercialized Nicorette chewing gum and Nicoderm skin patches, which had formerly been sold only by prescription. But the history of Xenical, which was introduced by Roche in the United States seven years ago to rosy Wall Street forecasts that never fully materialized, may be a cautionary tale for Sanofi and its Acomplia cheerleaders.

If approved, Acomplia and Alli would be the first new developments in weight-loss medicine since the late 1990's. An estimated 200 other possibilities are in the research pipeline as companies seek an elusive cure for obesity. None of the others, however, is close to regulatory review.

Advocates for the obese and overweight, a group that now includes two-thirds of the American population, hope that the over-the-counter availability of Alli and the approval of Acomplia will provide new options, and suggest that the drugs might even be used together by patients who want help losing weight.

"I think if we could get obesity treatments to a situation like cholesterol where there are several different products, where one or two in combination might be successful, at least that would arm physicians with more than they have now," said Morgan Downey, executive director of the American Obesity Association, a patients' advocacy group in Washington.

The Food and Drug Administration has scheduled an advisory panel hearing for Jan. 23 to review Alli. And the F.D.A. could make its decision on Acomplia as soon as next month.

Both drug companies are seeking approval in a difficult regulatory environment, as the F.D.A. is moving cautiously in the wake of the Vioxx debacle. Any diet drug is up against a backdrop of safety issues from the past - most notably problems with the diet drug combination fen-phen. Fenfluramine, the "fen" half of the combination, was withdrawn from the market in 1997 after it was found to cause heart damage.

Xenical has shown itself to be moderately effective and has a long safety record. But Alli - a name the company has proposed because the drug must be allied with a weight-loss program - faces the higher hurdle required when prescription drugs are proposed for sale without a doctor's oversight. "You have to not only provide data that shows it's safe, you have to show that it's safe when it's misused," said Gerald Meyer, a former F.D.A. associate commissioner.

As the F.D.A. weighs Glaxo's proposal, the company is proposing that its sales be restricted to adults 18 and over to prevent misuse by teenagers. And yet, a factor that limits Alli's potential for overuse is its tendency to cause flatulence, diarrhea or even sudden loss of bowel control.

Those side effects are among the reasons Xenical has never lived up to analysts' original forecasts.

Worldwide sales quickly rose to nearly $750 million in 1999, the first year Xenical was available in the United States. As patients realized it was not an obesity cure-all, though, sales fell off and now hover at about $500 million a year worldwide, mainly outside the United States.

As regulators assess Acomplia from Sanofi, analysts see a positive sign in the fact that, as the February date for F.D.A. action on the drug approaches, the agency has not yet announced a hearing by an advisory panel of experts. That could mean regulators have no serious reservations about the drug. In medical conferences, Sanofi has presented data that shows that Acomplia is not just a weight-loss drug but also a way to control a constellation of disorders - high cholesterol, high blood pressure and elevated blood sugar - that frequently accompany obesity.

The only other weight-loss drug approved for long-tem use is Meridia, introduced by Abbott Laboratories in 1997. Some doctors have avoided using it because of its link to increased blood pressure, one of the reasons for its tepid sales. According to IMS Health, Meridia had total United States sales in 2004 of $72 million. Xenical's United States sales in the same year were $102 million, IMS said. Worldwide sales of Xenical were about $500 million, according to Roche, which licensed the drug to Glaxo for over-the-counter marketing.

Glaxo means to promote Alli as not just a pill, but a plan. Consumers who purchase the drug will also get a guide offering weight-loss and exercise tips - including a fat and calories gram counter and a healthy eating guide with menus and shopping lists. They will also be able to log into a free online behavioral support program.

Studies have shown that in combination with a weight-loss program, prescription Xenical led to an average of 12.4 pounds of weight loss in six months, about double the amount lost by patients on the same weight-loss program who were taking a placebo. Those patients took 120 milligrams six times a day.

Steven L. Burton, vice president of weight control products for Glaxo's consumer health division, said studies showed that the over-the-counter dose of 60 milligrams, three times a day, achieves about 80 to 85 percent of the weight lost by those taking the 120-milligram dose.

The prescription version costs about $100 a month, and is generally not reimbursed by health plans. Alli would cost significantly less, although Mr. Burton would not reveal the exact price.

One obesity expert, Dr. Louis J. Aronne of Weill-Cornell Medical Center in New York, said that an over-the-counter version of Xenical would be a welcome substitute for the unproven and, in some cases, dangerous weight-loss remedies currently sold without prescription. Many of those are classified as nutritionals and do not require F.D.A. approval.

"If you look at the products out there right now, it's really a sad state of affairs," Dr. Aronne said. "The way the rules are, there's very little oversight of these products. So given that, I think the entry of something like Xenical would clearly make it the first safe, proven and effective therapy."

Xenical blocks the body's absorption of fat by preventing the gastrointestinal tract from breaking down fats into smaller molecules. The fat that is not absorbed gets flushed down the toilet, the reason for the drug's gastrointestinal side effects. People who eat too much fat risk extreme cases of those effects, one way the drug can alter behavior.

Aside from potential embarrassment, the drug's only known potentially serious side effect is that it also reduces the absorption of some vitamins. But problems can be prevented by taking a multivitamin.

Dr. Sidney Wolfe, who leads the Public Citizen Health Research Group, warns generally against using weight-loss medications. Dr. Wolfe, who is among those expected to testify at the Alli hearing, says that diet and exercise remain the preferable way to lose weight.

But Mr. Downey, of the American Obesity Association, said his group would speak in support of the over-the-counter version.

"I think our point is going to be it's had this track record for some time," Mr. Downey said. "There's been no major safety problems or abuse of it. Converting it to O.T.C. is a different market and it's going to bring a product that's more affordable to more people."

Gbola Amusa, a medical doctor and financial analyst for Sanford C. Bernstein & Company, said his company was not forecasting sales of Alli because of uncertainties and the fact that the revenue would be split by Glaxo and Roche.

Mr. Amusa said he viewed Acomplia as a far more exciting product, and he has predicted that sales could exceed $5 billion by the end of the decade. A number of other analysts have similarly optimistic projections of $2 billion to $5 billion.

Acomplia is a selective cannabinoid blocker, a new class of drug that several companies are researching in the race to manage obesity. Studies have shown that Acomplia, when combined with a weight-loss regimen, resulted in average losses of 19 pounds and 3.5 inches around the waist in patients who took it for one year. Those taking a placebo lost an average of five pounds. A study also found that risk factors for heart disease and diabetes improved, and that Acomplia had fewer serious side effects than Xenical or Meridia, with mild gastrointestinal upset and dizziness in some patients.

Sanofi has not yet indicated its pricing plan for Acomplia. But as a prescription drug, it would presumably cost more than over-the-counter Alli. If Acomplia proves significantly more effective than Alli, price may not be an issue for many of the dieting masses. But researchers have cautioned that Acomplia falls far short of being a magic bullet for losing weight.

"I think over all," Mr. Downey said, "the kind of modest weight loss with Acomplia is less than people thought they might see."

Monday, January 16, 2006

Diabetic Investments in Pre-Empting Amputation and Liquidity Constraints

Paul Krugman has written an intriguing editorial about diabetes and health insurance in the 1/16/2006 New York Times. "Insurance companies will often refuse to pay $150 for a diabetic to see a podiatrist, who can help preven foot ailments associated with the disease. Nearly all of them, though cover amputations, which typically cost more than $30,000. ... The point is that we can't deal with the diabetes epidemic in part because insurance companies don't pay fr the preventive medice or disease management, focusing only on acute illness and extreme remedies."

Krugman is assuming that diabetics are liquidity constrained or he is assuming that diabetics under-estimate the probability that complications will lead to amputation.

Liquidity constraints mean that one does not invest in projects that have a positive expected present discounted value becaue you don't have enough cash now to pay the upfront costs. If diabetics have $150 in their wallet and know that a consequence of having untreated diabetes is amputation, won't this group see the foot doctor?

In a series of papers, Jim Heckman has documented that liquidity constraints are not an important factor in explaining why some people don't go to college. College tuition is much more expensive than seeing the foot doctor. If people aren't liquidity constrained for the college choice issue, how can they be liquidity constrained for seeing the foot doctor?

Let's consider the 2nd point. If the typical type II diabetic under-estimated the probability of having an amputation then government can play a role as an "Honest information broker" educating the public about the actuarial probabilities. IF people believe such public health announcements, then maybe more diabetics would go to the doctor regardless of their insurance status or what is covered by insurance.

Implicitly, Krugman is telling a behavioral story about diabetics. He is claiming that they are poor, not wise, and impatient. The data say that the first point is right. Doctors say the 2nd and 3rd points are also true but are they right?

Under what conditions will self interested economic agents do a better job looking out for themselves?