Monday, June 30, 2008

NBER Research and the Supply and Demand for Interesting Facts

Dora and I got a cute write up of our new paper in the Boston Globe Yesterday . I must say that I prefer this to being copyedited out of an article like what happened last week in the New York Times.

How do I know this? The piece was printed in the wednesday New York
Times . The night before (tuesday), I went to the New York Times webpage and saw my deep quote in Goodman's article. The next morning I pick up the print version and my quote is gone and it was replaced with a weird photo of a happy kid sitting on his suburban porch. I guess that the New York Times editors don't think that their ivy league educated readers can read too many words?

Fortunately for me, the Boston Globe shows better judgment. Here is the paper they are talking about.

Health, Stress, and Social Networks: Evidence from Union Army Veterans

Dora L. Costa and Matthew E. Kahn
NBER #14053

We find that veterans of the Union Army who faced greater wartime stress (as measured by higher battlefield mortality rates) experienced higher mortality rates at older ages, but that men who were from more cohesive companies were statistically significantly less likely to be affected by wartime stress. Our results hold for overall mortality, mortality from ischemic heart disease and stroke, and new diagnoses of arteriosclerosis. Our findings represent one of the first long-run health follow-ups of the interaction between stress and social networks in a human population in which both stress and social networks are arguably exogeneous.

Costa/Kahn new NBER Paper Here

Sunday, June 29, 2008

Blaming Los Angeles

When bad things happen to good people, we search for a villain and an explanation. Rachel Cline, in the NYT Sunday Magazine section, seems to blame Los Angeles for her troubles. As a recent home buyer in LA (and thus a booster to defend my property's value), I think she's giving the town a bad rap. My quick read of this piece is that she is saying that the place is cursed with bad geography, cross-group tensions and endowed with plenty of crazy people.

I can imagine that people throughout the New York City metro city area this morning read her piece and thought to themselves; "LA is weird".

Perhaps Rachel Cline's LA was weird, but my LA isn't. We live in Westwood in walking distance of UCLA. There is sunshine and blue skies for over 300 days a year. In the middle of winter it is 75 degrees and today it is 85 degrees with no humidity. In West LA, there are no smog problems. The organic farmer's markets in Santa Monica, Westwood and Beverly Hills sell fruit and veggies for half the price of what they cost at Whole Foods in boston and the quality is much better. We have lived here since January 2007. We live an outdoors life,taking advantage of the beach and the nearby walking trails.

Why am I being defensive? For reasons I don't fully understand, the East Coast elite wants to view both Los Angeles and San Francisco as strange strange places. I lived in Manhattan from ages 2 to 7 and ages 27 to 34. I also lived in the New York City metro area (Scarsdale) from age 7 to 18 so I know something about the self-select set of people in New York City who think that the Times is a better newspaper than the Post!

Given my interest in persuasion (usually on the topic of environmental interest groups trying to sway the "silent majority), it would interest me how people respond to her sad story.

In the name of balance, the New York Times should link a podcast of Randy Newman's "I Love LA". My son and I always sing that song as we drive.

June 29, 2008

I lived in Los Angeles for almost 10 years, but it all runs together. I can never remember what happened when. In memory, I’m always driving down a sunny stretch of road, listening to National Public Radio, trying not to spill my latte. Sometimes I have a splitting headache, which must mean I am on the east side or in the valley, and sometimes the ocean is glittering nearby. Occasionally I can remember the jacarandas being in bloom, which means, what? May? But that still doesn’t tell me the year. It’s just an odd lot of incidents, a memory salad. Here, look:

I was awakened by a Very Big Earthquake. I could look up the date on this, but the point is, I can’t remember it. I woke up to the sounds of dogs going crazy and then, when the crashing started, realized that the window directly over my head could guillotine me. But I didn’t move. I was going to die, and I just wanted to stay in bed. Forty minutes later, my friend Dan showed up with a flashlight. I was fine, but I still feel as if he saved my life.

I got a job on “Knots Landing.” I made a pile of money. I wrote that Halle Berry’s character would put handkerchiefs over her bedside lamps, and there they were in the scene. Red silk. I was giddy with power. Then I was fired. The whole thing lasted less than six months.

I saw a shrink who began each session by handing me a roll of masking tape. I was supposed to mark a “safe boundary” around my chair. I spent a lot of time looking at his socks, which had pictures of golf tees on them.

I spent a year too depressed to get out of bed. Which year? Picture rumpled sheets.

The riots (a k a “the civil disturbance”) came. This, of course, took place after the Rodney King verdict. Or was it the O. J. verdict? All I remember is driving west on the 10, seeing fires on my left and then watching it all on TV. Then I volunteered and spent an afternoon shoveling broken glass.

I turned 40. A friend gave me a dinner party at her splendid house, putting out her good crystal and china. The guest star was a dispirited psychic who didn’t even bother to tell me I would eventually meet the man of my dreams.

I put an ad in The L.A. Weekly and went on a date with a cameraman. He had gone to Oberlin and was wearing black Converse high-tops — totally promising! There was just something he needed to tell me before things went too far: he had been abducted by aliens. Was that going to be a problem for me?

I woke up in the hospital with no idea how I got there. I forgot everything I said or heard within seconds of saying or hearing it, but I knew my name and who was president. A week later, I saw the wreck of my little white car at a sunny impound lot in the San Fernando Valley. It seemed unlikely that the driver survived.

I went to the Oscars. A documentary I wrote the narration for was nominated. The director sat with the famous people; I was led to the third balcony with their moms. Mostly I watched the show on a monitor near the ladies’ room. Oliver Stone passed me on the stairs and said, “How ya doin’, babe?”

I was raped, I think. Although I was physically overpowered, I did know the guy, and there was no knife or gun. I remember driving home in the very early morning, wondering if I was ever going to have to see him again and, if so, what I should say.

OK, so those are the events I remember, but what’s the right sequence? In the tragic version, an ambitious New Yorker works her way to success in Hollywood only to be pummeled by circumstance (earthquake, riots, rape) into a yearlong depression. When she emerges, the car she’s driving is totaled. Sorry, kid, you tried. In the comic version, she sashays into Los Angeles wearing a sign that says “Kick me,” and it does, repeatedly (freak therapist, scary dates, gaudy award shows, bad TV). Luckily, she gets amnesia, so the riots, earthquake and joblessness don’t bother her in the least.

But of course the true sequence of events is neither of those. Big shock, I’ve lived my life in the wrong order. I crashed my car within six months of arriving and then, still confused and disoriented, attended the Oscars. I recruited the masking-tape therapist to help me start over after that, but he failed. During a vast, featureless middle period — before the earthquake but after the riots — I went on numerous blind dates, including the one with Marvin the Martian. Getting fired from “Knots Landing” kicked off my year in bed. And my introduction to nonconsensual sex occurred just before my 40th-birthday dinner. It was there, surrounded by real friends and one lax psychic, that I saw the cruel joke behind the preceding nine years of my life: amnesia had been unavailable at every moment when it might actually have come in handy. So I moved.

Rachel Cline is the author of two novels, “What to Keep” and, most recently, “My Liar,” set in Los Angeles in 1994.

Friday, June 27, 2008

Some Newsworthy Environmental Links

How will California meet the ambitious goals defined by AB32? Here is a long answer; California's ARB's Scoping Plan for Climate Change Mitigation . Will implementing this plan increase the state's economic growth?

Want to see capitalism in action? Metal Recycling becomes Profitable

Localized "Consumer City" and the New York South Street Seaport . When does a green amenity district take off and succeed as a destination for people with $ to spend? Versus when does it not?

Thursday, June 26, 2008

Economists and the Default Option: A Field Experiment

Starting with this important paper, economists have been fascinated by whether the "default option" plays a key role in consumer choice. Do even the smallest transaction costs affect important choices such as retirement planning? Does inertia keep you from making choices that would improve your overall well being?

I've run into this issue on a very mundane issue. Prof. Costa and I will soon publish our new book. We want all NBER economists to read our book. As you will see below, the NBER offers the book for free to all of its members but you have to "opt in". You need to click on the link.

Dear Bureau Family Members:

The following NBER book will be available from the publisher soon. If you would like a copy, please click this link to place your order:


Heroes and Cowards: The Social Face of War
Dora L. Costa and Matthew E. Kahn
Princeton University Press

I had hoped that the NBER would consider an experiment with our book where they would send a NBER member a copy of the book and only not send you a copy if you click the link. So this would be an "opt out".

Would more NBER people read our book under the 2nd regime?

Tuesday, June 24, 2008

Glaeser/Kahn Paper on the Greenness of Cities

Tomorrow, I'll have a quote in a New York Times Article from June 25th 2008 . The article is about the impact of high gas prices on housing in the distant suburbs of major cities such as Denver. Ed Glaeser and I will release our paper that ranks metropolitan areas with respect to their household carbon dioxide emissions as a NBER Working Paper pretty soon. Los Angeles looks pretty green based on our ranking. Temperate climate and clean electric utilities (running on natural gas) help to offset the driving.

If you are real eager to see the short version of the paper, go to

UPDATE: I've been humbled. I woke up this morning and got my New York Times and
I see that my quote was edited out of the article. I've been replaced by a photo of a happy kid. Serves me right for boasting prematurely!

A Distinctive Substitution Effect: High Rents Cause Los Angeles Residents to Live in Their Cars

Substitution Effects and Homelessness

In other news, some Duke Univ. Researchers have decided to teach us about hyperbolas.
Apparently, Gallons of gas consumed = miles*(gallons per mile)

June 24, 2008
M.P.G. Can Mislead When Searching for Fuel Efficiency

In an era of climate change and expensive gasoline, a vehicle’s fuel efficiency, measured in miles per gallon, is an increasingly important factor to consider when shopping for a car.

But two Duke University business school professors say m.p.g. is a flawed measure and leads to a fundamental misconception about efficiency. They say the United States should do what some other countries do, which is rate cars by amount of fuel consumed for a given distance, gallons per 100 miles, for example.

The problem, Richard P. Larrick and Jack B. Soll write in Science, is that people perceive that fuel consumption falls in a linear fashion as m.p.g. increases. Surveys by the professors of college students found the perception that trading in a car that registers, say, 34 m.p.g. for one with 50 produces a greater savings than swapping an 18 m.p.g. vehicle for a 28 m.p.g. model.

In fact, the researchers say, the relationship between consumption and m.p.g. is curvilinear, and there is a greater savings at lower m.p.g.’s. Over 10,000 miles, the 28 m.p.g. car uses 198 fewer gallons than the 18 m.p.g., more than double the savings of the 50 m.p.g. car compared with the 34 m.p.g. one.

With this new measure, the researchers suggest, consumers would more easily see the value of swapping an inefficient car for one that is even just modestly more efficient.

The "Freakonomics" of Sewage Analysis: Which city uses the most cocaine?

This is funny. We detectives are always looking for clues. Sewage may smell but it offers important evidence for what its producers have been up to. In a city of 8 million people, one is likely to find traces of everything in the waste.

One big drug test for L.A.: sewage analysis
Experts are examining the outflow in several U.S. and European cities, and the data can be revealing.
By Marla Cone, Los Angeles Times Staff Writer
June 24, 2008

Which city uses more cocaine: Los Angeles or London? Is heroin a big problem in San Diego? And has Ecstasy emerged in rural America?

Environmental scientists are beginning to use an unsavory new tool -- raw sewage -- to paint an accurate portrait of drug abuse in communities. Like one big, citywide urinalysis, tests at municipal sewage plants in many areas of the United States and Europe, including Los Angeles County, have detected illicit drugs such as cocaine, methamphetamine, heroin and marijuana.

Law enforcement officials have long sought a way to come up with reliable and verifiable calculations of narcotics use, to identify new trends and formulate policies. Surveys, the backbone of drug-use estimates, are only as reliable as the people who answer them. But sewage does not lie.

Since people excrete chemicals in urine and flush it down toilets, measuring raw sewage for street drugs can provide quick, fairly precise snapshots of drug use in communities, even on a particular day.

The results have been intriguing: Methamphetamine levels in sewage are much higher in Las Vegas than in Omaha and Oklahoma City, Okla. Los Angeles County has more cocaine in its sewage than several major European cities. And Londoners apparently are heavier users of heroin than people in cities in Italy and Switzerland.

"Every sample has one illicit drug or another, regardless of location," said Jennifer Field, an environmental chemist at Oregon State University who has tested sewage in many U.S. cities. "You may see differences from place to place, but there's always something."

The new practice of testing sewage has illuminated an environmental threat: Many urban waterways around the world are contaminated with low doses of cocaine and other illicit drugs from treated sewage.

So far, this "sewage forensics" or "sewage epidemiology" has not been widespread. Treatment plants do not regularly monitor sewage for street drugs. The Environmental Protection Agency is planning to add illicit drugs to the array of substances that could be monitored daily at treatment plants.

Unlike prescription drugs and personal care products, which are a hot topic in environmental contamination, illicit drugs have long been below the radar.

Christian Daughton, chief of environmental chemistry at the EPA's National Exposure Research Laboratory, first proposed the tests in 2001.

"To me, chemicals are chemicals. All chemicals, whether legal or illegal, have the potential to get into the environment, and living organisms have a potential to be exposed," Daughton said.

Daughton, who was interested in environmental ramifications, realized that the data could help law enforcement, sociologists and others trying to gauge trends in drug abuse.

Most of those experts rely on door-to-door annual surveys, which are based on questioning of 70,000 people nationwide. Based on that, they estimate that more than 20 million Americans used illicit drugs in 2006.

Scientists in Italy, led by Roberto Fanelli and Ettore Zuccato, were the first to implement his idea, testing sewage in London; Milan, Italy; and Lugano, Switzerland, in 2005.

Amphetamines, including Ecstasy, were the least prevalent drugs in the three cities, whereas marijuana was widely detected, the Mario Negri Institute for Pharmacological Research reported in the online version of the journal Environmental Health Perspectives on their work, published last month.

For every 1,000 people, about 210 milligrams of heroin were used daily in London, compared with 70 in Milan and 100 in Lugano. Amphetamine use also was higher in London.

The scientists were even able to use sewage to estimate individual use and weekly trends. For instance, they estimated that people in Milan used twice as much cocaine, about 35 grams per person per year, than Italy's government surveys had suggested. Cocaine use peaked on Saturdays, while heroin and marijuana use remained steady weeklong.

In the United States, officials at the Office of National Drug Control Policy looked for cocaine in sewage from Los Angeles County and 23 other regions in 2006.

Untreated sewage at all eight treatment plants tested in Los Angeles County contained cocaine metabolite, according to data obtained from the Los Angeles County Sanitation Districts. Palmdale and Lancaster had the highest concentrations, averaging 3.5 parts per billion. The lowest, averaging 1.4 ppb, were from Long Beach and Valencia.

In all the Los Angeles County locations, the cocaine metabolite was more concentrated than in Omaha and in Italian, Swiss and British cities, which all had less than 1 ppb, according to a comparison of several studies.

Other tests have shown that some U.S. cities have a bigger methamphetamine problem than Europe. Within the U.S., Las Vegas' concentrations were five times higher than Omaha's and twice Oklahoma City's, said Field, who conducted those tests.

Comparing cities can be tricky. Concentrations can fluctuate because of volumes of flow, time of day and how long waste travels through sewers, which gives drugs a chance to degrade.

"This has caught on only recently, and people are still trying to understand the uncertainties," said Field, who is currently analyzing data from 96 locations in Oregon.

Jennifer de Vallance, spokeswoman for the White House's Office of National Drug Control Policy, said the testing of sewage in 2006 was an experiment to see if it could provide useful data to federal drug officials at a low cost.

"It came back very favorable. Our determination was that it probably could be done on a larger scale," she said.

EPA Assistant Administrator Benjamin Grumbles said that the EPA and the national drug office are "working on the details" of a voluntary program at sewage plants that will test for illicit drugs.

"This is sensitive for various communities because these substances do have a stigma attached to them," Daughton said. San Diego, for example, refused to grant permission to researchers.

The Sanitation Districts of Los Angeles County don't test for illicit drugs because iDrug Enforcement Administration permits to handle controlled substances would be needed, said supervising engineer Ann Heil.

"It's too hard to test for it. We can't have morphine lying around to calibrate equipment," she said.

Some researchers are now checking the environment for illicit drugs. Traces of prescription drugs have been detected in some drinking water supplies, and cocaine and other drugs have been found in rivers. No one has tested drinking water for illicit drugs.

"Since most of these residues still have potent pharmacological activities, their presence in the aquatic environment may have potential implications for human health and wildlife," the scientists from Milan reported in February.

Although few researchers are studying the effect of these ultra-low doses, scientists say the threat to people is probably minimal. To get a typical dose of cocaine, someone would have to drink 1,000 liters of raw sewage, Field said.

For now, this new drug test remains anonymous. Wastewater from thousands, sometimes millions, of people is pooled at treatment plants, so it cannot be tracked to any individual or specific location.

But because waste also can be tested in local sewers, questions about privacy have been raised.

"You could take this down to a community, a street, even a house," Daughton said. "You can do all kinds of stuff with this. It's sort of unlimited."

Monday, June 23, 2008

Progress not Regress

The next generation of Kahns are cute and happy. This is progress relative to our recent past. I congratulate my brother. I'm trying to be a good uncle.

This young lady can be united with her first cousin.

My only regret in this life is that I'm not at the UCEI Energy Camp right now.

Sunday, June 22, 2008

Dora Costa and Robert Fogel at the Washington DC National Archives this Tuesday

Everybody knows that our nation's Capitol is a delightful place to be during the summer time. My wife loves humidity so I hope you attend her talk about our new Princeton Press book. As a bonus, you'll also hear from Robert Fogel.

Press Release
June 4, 2008
National Archives Holds Program on Military Records June 24
Heroes and Cowards: The Social Face of War

Washington, DC…On Tuesday, June 24 at 11:30 AM, the National Archives will host Heroes and Cowards: The Social Face of the War. The program, which is free and open to the public, will be held in Room G-24 of the National Archives Building, located on Pennsylvania Avenue between 7th and 9th Streets, NW (enter at 700 Pennsylvania Avenue, NW).

Economic historians Dora Costa and Robert Fogel will discuss how they use military records from the National Archives in their ongoing research. Dora Costa will also discuss her forthcoming book, Heroes and Cowards: The Social Face of War, written with her husband, Matthew E. Kahn. Based on government documents and Civil War soldiers' journals, the book explores the role social capital plays in people's decisions. The book also examines the experience of African-American soldiers and makes important observations about how their comrades shaped their lives.

Dora L. Costa is Professor of Economics at MIT where she teaches economic history. She is also a research associate in the National Bureau of Economic Research's programs on the Development of the American Economy and on Aging and the co-director of the working group Cohort Studies. Professor Costa is coauthoring Heroes and Cowards: The Social Face of the War with her husband Matthew E. Kahn, a professor of Economics at the University of California, Los Angeles.

Robert W. Fogel, a Nobel laureate in economics, is an economic historian and scientist. Fogel serves on the faculty of the University of Chicago’s Economics Department and School of Business. He is also a Research Associate at the National Bureau of Economic Research.

For information on other National Archives records-related programs and workshops, see the Know Your Records web page.

The National Archives is fully accessible. To request an accommodation (e.g., sign language interpreter) from the Know Your Records (KYR) program staff, please e-mail or call 202-357-5333 two weeks prior to the event.

# # #

For press information contact the National Archives Public Affairs staff at 202-357-5300.


Saturday, June 21, 2008

New UCLA Center for Corporate Environmental Performance

Prof. Magali Delmas and I are getting ready to launch a new center at UCLA's Institute of the Environment. Pretty soon when you go to, you'll be able to read about what our new Center for Corporate Environmental Performance is up to. We are currently seeking out firms who are interested in partnering with us. We believe that we have some interesting things to tell you.

In thinking broadly about the big think issue of how modern firms address the opportunities and challenges posed by environmental issues, it is important to keep in mind what some of the best thinkers have had to say. Let's listen to Dr. Friedman.

The Social Responsibility of Business is to Increase its Profits
by Milton Friedman

The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.

When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free en­terprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing em­ployment, eliminating discrimination, avoid­ing pollution and whatever else may be the catchwords of the contemporary crop of re­formers. In fact they are–or would be if they or anyone else took them seriously–preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.

The discussions of the "social responsibili­ties of business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.

Presumably, the individuals who are to be responsible are businessmen, which means in­dividual proprietors or corporate executives. Most of the discussion of social responsibility is directed at corporations, so in what follows I shall mostly neglect the individual proprietors and speak of corporate executives.

In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose–for exam­ple, a hospital or a school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.

In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.

Needless to say, this does not mean that it is easy to judge how well he is performing his task. But at least the criterion of performance is straightforward, and the persons among whom a voluntary contractual arrangement exists are clearly defined.

Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he rec­ognizes or assumes voluntarily–to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He ma}. feel impelled by these responsibilities to de­vote part of his income to causes he regards as worthy, to refuse to work for particular corpo­rations, even to leave his job, for example, to join his country's armed forces. Ifwe wish, we may refer to some of these responsibilities as "social responsibilities." But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are "social responsibili­ties," they are the social responsibilities of in­dividuals, not of business.

What does it mean to say that the corpo­rate executive has a "social responsibility" in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price in crease would be in the best interests of the corporation. Or that he is to make expendi­tures on reducing pollution beyond the amount that is in the best interests of the cor­poration or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire "hardcore" un­employed instead of better qualified available workmen to contribute to the social objective of reducing poverty.

In each of these cases, the corporate exec­utive would be spending someone else's money for a general social interest. Insofar as his actions in accord with his "social responsi­bility" reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money.

The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct "social responsibility," rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.

But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.

This process raises political questions on two levels: principle and consequences. On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are gov­ernmental functions. We have established elab­orate constitutional, parliamentary and judicial provisions to control these functions, to assure that taxes are imposed so far as possible in ac­cordance with the preferences and desires of the public–after all, "taxation without repre­sentation" was one of the battle cries of the American Revolution. We have a system of checks and balances to separate the legisla­tive function of imposing taxes and enacting expenditures from the executive function of collecting taxes and administering expendi­ture programs and from the judicial function of mediating disputes and interpreting the law.

Here the businessman–self-selected or appointed directly or indirectly by stockhold­ers–is to be simultaneously legislator, execu­tive and, jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds–all this guided only by general exhortations from on high to restrain inflation, improve the environment, fight poverty and so on and on.

The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This jus­tification disappears when the corporate ex­ecutive imposes taxes and spends the pro­ceeds for "social" purposes. He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise. On grounds of political principle, it is intolerable that such civil ser­vants–insofar as their actions in the name of social responsibility are real and not just win­dow-dressing–should be selected as they are now. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expendi­tures to foster "social" objectives, then politi­cal machinery must be set up to make the as­sessment of taxes and to determine through a political process the objectives to be served.

This is the basic reason why the doctrine of "social responsibility" involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce re­sources to alternative uses.

On the grounds of consequences, can the corporate executive in fact discharge his al­leged "social responsibilities?" On the other hand, suppose he could get away with spending the stockholders' or customers' or employees' money. How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what ac­tion of his will contribute to that end? He is presumably an expert in running his company–in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his hold­ ing down the price of his product reduce infla­tionary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could an­swer these questions, how much cost is he justi­fied in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropri­ate share of others?

And, whether he wants to or not, can he get away with spending his stockholders', cus­tomers' or employees' money? Will not the stockholders fire him? (Either the present ones or those who take over when his actions in the name of social responsibility have re­duced the corporation's profits and the price of its stock.) His customers and his employees can desert him for other producers and em­ployers less scrupulous in exercising their so­cial responsibilities.

This facet of "social responsibility" doc­ trine is brought into sharp relief when the doctrine is used to justify wage restraint by trade unions. The conflict of interest is naked and clear when union officials are asked to subordinate the interest of their members to some more general purpose. If the union offi­cials try to enforce wage restraint, the consequence is likely to be wildcat strikes, rank­-and-file revolts and the emergence of strong competitors for their jobs. We thus have the ironic phenomenon that union leaders–at least in the U.S.–have objected to Govern­ment interference with the market far more consistently and courageously than have business leaders.

The difficulty of exercising "social responsibility" illustrates, of course, the great virtue of private competitive enterprise–it forces people to be responsible for their own actions and makes it difficult for them to "exploit" other people for either selfish or unselfish purposes. They can do good–but only at their own expense.

Many a reader who has followed the argu­ment this far may be tempted to remonstrate that it is all well and good to speak of Government's having the responsibility to im­pose taxes and determine expenditures for such "social" purposes as controlling pollu­tion or training the hard-core unemployed, but that the problems are too urgent to wait on the slow course of political processes, that the exercise of social responsibility by busi­nessmen is a quicker and surer way to solve pressing current problems.

Aside from the question of fact–I share Adam Smith's skepticism about the benefits that can be expected from "those who affected to trade for the public good"–this argument must be rejected on grounds of principle. What it amounts to is an assertion that those who favor the taxes and expenditures in question have failed to persuade a majority of their fellow citizens to be of like mind and that they are seeking to attain by undemocratic procedures what they cannot attain by democratic proce­dures. In a free society, it is hard for "evil" people to do "evil," especially since one man's good is another's evil.

I have, for simplicity, concentrated on the special case of the corporate executive, ex­cept only for the brief digression on trade unions. But precisely the same argument ap­plies to the newer phenomenon of calling upon stockholders to require corporations to exercise social responsibility (the recent G.M crusade for example). In most of these cases, what is in effect involved is some stockholders trying to get other stockholders (or customers or employees) to contribute against their will to "social" causes favored by the activists. In­sofar as they succeed, they are again imposing taxes and spending the proceeds.

The situation of the individual proprietor is somewhat different. If he acts to reduce the returns of his enterprise in order to exercise his "social responsibility," he is spending his own money, not someone else's. If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any ob­jection to his doing so. In the process, he, too, may impose costs on employees and cus­tomers. However, because he is far less likely than a large corporation or union to have mo­nopolistic power, any such side effects will tend to be minor.

Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.

To illustrate, it may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects. Or it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to chari­ties they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.

In each of these–and many similar–cases, there is a strong temptation to rationalize these actions as an exercise of "social responsibility." In the present climate of opinion, with its wide spread aversion to "capitalism," "profits," the "soulless corporation" and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.

It would be inconsistent of me to call on corporate executives to refrain from this hyp­ocritical window-dressing because it harms the foundations of a free society. That would be to call on them to exercise a "social re­sponsibility"! If our institutions, and the atti­tudes of the public make it in their self-inter­est to cloak their actions in this way, I cannot summon much indignation to denounce them. At the same time, I can express admiration for those individual proprietors or owners of closely held corporations or stockholders of more broadly held corporations who disdain such tactics as approaching fraud.

Whether blameworthy or not, the use of the cloak of social responsibility, and the nonsense spoken in its name by influential and presti­gious businessmen, does clearly harm the foun­dations of a free society. I have been impressed time and again by the schizophrenic character of many businessmen. They are capable of being extremely farsighted and clearheaded in matters that are internal to their businesses. They are incredibly shortsighted and muddle­headed in matters that are outside their businesses but affect the possible survival of busi­ness in general. This shortsightedness is strikingly exemplified in the calls from many businessmen for wage and price guidelines or controls or income policies. There is nothing that could do more in a brief period to destroy a market system and replace it by a centrally con­trolled system than effective governmental con­trol of prices and wages.

The shortsightedness is also exemplified in speeches by businessmen on social respon­sibility. This may gain them kudos in the short run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats. Here, as with price and wage controls, businessmen seem to me to reveal a suicidal impulse.

The political principle that underlies the market mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all coopera­tion is voluntary, all parties to such coopera­tion benefit or they need not participate. There are no values, no "social" responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.

The political principle that underlies the political mechanism is conformity. The indi­vidual must serve a more general social inter­est–whether that be determined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not.

Unfortunately, unanimity is not always feasi­ble. There are some respects in which conformity appears unavoidable, so I do not see how one can avoid the use of the political mecha­nism altogether.

But the doctrine of "social responsibility" taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a "fundamentally subversive doctrine" in a free society, and have said that in such a society, "there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Friday, June 20, 2008

Grief and the Geography of the Brain: New Evidence from UCLA

The neuroscientists get to have a lot of fun with fMRI machines. This article below based on UCLA research sketches a simple experimental design for figuring out what parts of a person's brain "light up" when exposed to different grief stimuli. Due to cost, the sample size in these experiments are really small. Does this raise issues concerning how one formally tests hypotheses?

I have some notes on how to use fMRI technology for studying preference issues in environmental economics. Some people have found my proposed experiment to be pretty interesting while others have just found it to be disturbing. Please get in touch with me if you have a spare fMRI machine that I can borrow.

June 20, 2008

Study shows that chronic grief activates pleasure areas of the brain
Findings could change how health professionals treat the disorder

Mark Wheeler,


Grief is universal, and most of us will probably experience the pain grief brings at some point in our lives, usually with the death of a loved one. In time, we move on, accepting the loss.

But for a substantial minority, it's impossible to let go, and even years later, any reminder of their loss — a picture, a memory — brings on a fresh wave of grief and yearning. The question is, why? Why do some grieve and ultimately adapt, while others can't get over the loss of someone held dear?

Reporting in the journal NeuroImage, scientists at UCLA suggest that such long-term or "complicated" grief activates neurons in the reward centers of the brain, possibly giving these memories addiction-like properties. Their research is currently available in the journal's online edition.

This study is the first to compare those with complicated and noncomplicated grief, and future research in this area may help psychologists do a better job of treating those with complicated grief, according to Mary-Frances O'Connor, UCLA assistant professor of psychiatry and lead author of the study.

"The idea is that when our loved ones are alive, we get a rewarding cue from seeing them or things that remind us of them," O'Connor said. "After the loved one dies, those who adapt to the loss stop getting this neural reward. But those who don't adapt continue to crave it, because each time they do see a cue, they still get that neural reward.

"Of course, all of this is outside of conscious thought, so there isn't an intention about it," she said.

The study analyzed whether those with complicated grief had greater activity occurring in either the brain's reward network or pain network than those with noncomplicated grief. The researchers looked at 23 women who had lost a mother or a sister to breast cancer. (Grief is very problematic among survivors of breast cancer patients, particularly among female family members who have increased risk based on their family history). They found that, of that number, 11 had complicated grief, and 12 had the more normal, noncomplicated grief.

Each of the study participants brought a photograph of their deceased loved one and were shown this picture while undergoing brain scanning by functional magnetic resonance imaging (fMRI). Next, they were scanned while looking at a photograph of a female stranger.

The authors looked for activity in the nucleus accumbens, a region of the brain most commonly associated with reward and one that has also been shown to play a role in social attachment, such as sibling and maternal affiliation. They also examined activity in the pain network of the brain, including the dorsal anterior cingulate cortex and the insula, which has been implicated in both physical and social pain. They found that while both groups had activation in the pain network of the brain after viewing a picture of their loved one, only individuals with complicated grief showed significant nucleus accumbens activations.

Complicated grief can be debilitating, involving recurrent pangs of painful emotions, including intense yearning, longing and searching for the deceased, and a preoccupation with thoughts of the loved one. This syndrome has now been defined by an empirically derived set of criteria and is being considered for inclusion in the DSM-V, the psychiatric manual for diagnosing mental disorders.

O'Connor, who is a member of UCLA's Cousins Center for Psychoneuroimmunology, cautions that she is not suggesting that such reveries about the deceased are emotionally satisfying but rather that they may serve in some people as a type of craving for the reward response that may make adapting to the reality of the loss more difficult.

The study was funded by the California Breast Cancer Research Program. Other authors included David K. Wellisch, Annette L. Stanton, Naomi I. Eisenberger, Michael R. Irwin and Matthew D. Lieberman, all of UCLA.

The UCLA Cousins Center for Psychoneuroimmunology brings together research expertise in the behavioral sciences, neuroscience and immunology to understand the interplay of psychological and biological factors in disease and how the resiliency of the human body can be aided by positive behaviors, attitudes and emotions. The center is part of the Semel Institute for Neuroscience and Human Behavior at UCLA, an interdisciplinary research and education institute devoted to the understanding of complex human behavior, including the genetic, biological, behavioral and sociocultural underpinnings of normal behavior, and the causes and consequences of neuropsychiatric disorders.

Thursday, June 19, 2008

An Update on House Price Dynamics in Beverly Hills (Zip Code 90210)

We keep hearing about the housing price meltdown. has some facts about the ritzy 90210 zip code on the west side of Los Angeles (1 mile east of UCLA). You can double difference the data presented below. The blue line presents time trends over the last 5 years in average home prices in 90210 while the red line presents average home prices in Los Angeles county. I see divergence big time. What will President Obama do about this inequity? Is this just a bubble? Have you sold short your shares in Beverly Hills real estate?

Wednesday, June 18, 2008

A Correct Analogy? Hoover is to Stanford as MFI will be to the University of Chicago?

I am a graduate of the University of Chicago and so is my wife. We were thrilled to learn that the University will be starting up the Milton Friedman Institute (MFI). The MFI will both honor a great man and will help to guarantee that the University of Chicago remains a serious place in academic economics. The NBER has greatly helped all Boston schools and I envision that the MFI will play a similar role.

Some of the humanities faculty at the University of Chicago disagrees. They clearly anticipate that the MFI will be the new Hoover Institution and fear what has happened at Stanford. See Stanford University and the Hoover Institution

A distinction needs to be made. I don't believe that Hoover is officially a part of Stanford University. The MFI represents a major initiative by the UC's provost to build bridging connections across the various economics units on campus.

The humanities departments should be aware that if the MFI succeeds as a fundraising enterprise that there will be more resources for their departments to grow. These departments are being pretty cynical in implicitly arguing that the Deans and Presidents have been captured by conservative ideology.,0,5015442.story
Naming U. of C. research center after Nobel Prize winner has faculty split
Critics says proposed Milton Friedman Institute would be a right-wing think tank
By Jodi S. Cohen

Tribune reporter

June 18, 2008

Few names are more associated with the University of Chicago than Milton Friedman's.

But that's exactly the problem, say some faculty who want to put the brakes on a plan to name a new research center after the Nobel Prize-winning economist.

In a letter to U. of C. President Robert Zimmer, 101 professors—about 8 percent of the university's full-time faculty—said they feared that having a center named after the conservative, free-market economist could "reinforce among the public a perception that the university's faculty lacks intellectual and ideological diversity."

About a half-dozen faculty members aired their concerns Tuesday in a meeting with Zimmer and Provost Thomas Rosenbaum, who remain committed to the project. Rosenbaum said the university plans to put about $500,000 toward launching the center next year, but it hopes the expected $200 million endowment for the center will come mostly from private funds from alumni and business leaders.

"It is a right-wing think tank being put in place," said Bruce Lincoln, a professor of the history of religions and one of the faculty members who met with the administration Tuesday. "The long-term consequences will be very severe. This will be a flagship entity and it will attract a lot of money and a lot of attention, and I think work at the university and the university's reputation will take a serious rightward turn to the detriment of all."

The controversy highlights tensions between the university's historically conservative economics department and law school and the generally liberal humanities and social sciences.

It also renews a split on campus about Friedman himself, who brought prestige to the university through his economic approach, which became known worldwide as the "Chicago School" of economics, but also garnered ill will from those who thought his policies led to social injustice and inequality.

The Milton Friedman Institute, proposed by faculty members who included three Nobel Prize winners in economics, is intended to attract visiting scholars who will conduct research on topics related to economics, business and law. It will promote workshops, seminars and lectures.

The institute will be centrally located in buildings that now house the Chicago Theological Seminary, which is moving to a new location.

Rosenbaum said the center will not push any particular point of view.

"We are honoring a great scholar, and that is the intent here," Rosenbaum said. "We are supportive of a wide range of ideas across the spectrum of ideologies, and it's not intended to promote any ideology."

But faculty critics are concerned that it will be one-sided, attracting scholars and donors who share a point of view.

They point to sentences in the institute proposal noting that its focus would "typify some of Milton Friedman's most interesting academic work," including his critical analysis of monetary policy and advocacy of market-driven forces over government planning of the economy.

"I don't think any institute of any educational institution should be so strongly aligned behind a single ideological program," said U. of C. music professor and department chair Robert Kendrick.

Friedman won the Nobel Prize in 1976, a year before he retired from the U. of C. after 30 years of teaching. He died in 2006.

"For many people who travel around the word, the university has had a pretty bad reputation that is tied to the Chicago School and economic principles that Milton Friedman advocated," said Yali Amit, a U. of C. statistics and computer science professor. "We don't think it's a great idea to strengthen this reputation."

Economics professor Lars Peter Hansen, chair of the committee that proposed the institute, said the opponents are confusing Friedman's economic scholarship with his social and political views. He said the center will not have any "particular political slant."

John Cochrane, a business school professor who served on the Friedman Institute committee, also emphasized that the center will be nonpartisan.

"There will be no ties to any party," he said. "It will not be a home for administration officials while Republicans wait out the [ Barack] Obama administration."

Columbia University economics professor Jagdish Bhagwati laughed when he heard about the latest debate at the Hyde Park campus.

"It is nonsensical to object. . . . Chicago should be proud it has someone like Milton on its rolls," he said. "Anybody who can claim that Milton was not one of the major thinkers of his time is crazy."

Copyright © 2008, Chicago Tribune

Tuesday, June 17, 2008

Housing Foreclosure and Local Community Quality of Life Degradation

Suppose that you are a home owner in some suburb and for random reasons your 10 closest neighbors default on their mortgage payments. Do their actions lower your quality of life? It is possible that they defaulted because they anticipate that their equity is negative and that home prices will fall further. If their home price dynamics are correlated with yours, then their default will predict a further price decline of your house but this doesn't mean that their default CAUSED your house to fall in price. The key counter-factual here is what would have been your home price dynamics if your neighbors hadn't defaulted.

In thinking through some of the local quality of life issues related to neighbor default, I post this; My Anderson Forecast Presentation

Here is the core argument. There can be a cross-neighbor negative externality if when my neighbor defaults his house remains vacant for months and becomes a crack-den. In this case, my quality of life can decline because of the "new news" that my house is adjacent to a scarry place. The Mayor of Los Angeles believes that this is a serious issue in at least 10 zip codes in LA. Beverly Hills 90210 is not one of them but 90002 is.

What is the market failure here? As this blog entry makes clear the issue is "who is the residual claimant" on a house when it goes into default?

If there was a single bank who now owns the house after a default, this bank could turn around and sell to a renter and the house never becomes a crack-den --- there is no externality in this case just a transfer from the original owner who loses $ on the sale to the lucky renter.

BUT, if many investors each own a small % of a mortgage then a transaction cost issues arises for how this mortgage is aggregated into a single claimant. The answer here might be random assignment. For the pool of defaulted homes, each of these homes should be allocated in a lottery system where the banks have more lottery tickets if they owned a larger % of the last mortgage. My proposal would reduce transaction costs of determining who owns the house after a default and would reduce vacancy times and thus minimize the "vacancy" externality.

Will Rising Obesity Lower Crime? Evidence from Choice Based Samples

Upon entering prison, the average prisoner has a lower Body Mass Index than the average person in the population. When I told my 6 year old son this, he wondered if we could reduce crime by getting fatter. He is smart like his mom. As you will see below, the author of this study conjectures that the unobservable "personality type" is driving both the propensity to be "lean and mean" and to engage in criminal activity. He doesn't test this claim but it is possible.

Perhaps President Obama will nudge us with an double stuff oreo subsidy?

June 17, 2008
Vital Signs
Exercise: Link Is Seen Between Crime and Fitness
Thinking about a life of crime? You may want to hit the gym first.

A new study that looked at the physical characteristics of about 5,000 Arkansas inmates found that most were athletically fit when they entered prison. The researchers referred to them as mesomorphs.

Oh, there were also endomorphs and ectomorphs — fatties and skinnies to the lay people. But the study found that they were less likely to have been imprisoned for violent crimes.

The researchers, whose study appears in The Social Science Journal, used body mass index, a measure of height and weight, to assess fitness.

Scientists have long explored whether physical traits play a role in criminality — a field that has fallen into disrepute when its practitioners advanced claims about characteristics like race.

The new study does find that mesomorphs make up an unusually large percentage of the prison population, from 62 percent to 73 percent.

But that does not mean that being fit is a predictor of criminal tendencies, said one of the authors, Jeffery T. Walker of the University of Arkansas.

“Those who are fit may have personalities that are more likely to make them violent,” Dr. Walker said in an e-mail message.

“In essence,” Dr. Walker said, “what drives them to be fit also drives them to be violent. It is also likely that those who are fit find themselves in violent situations more.”

Monday, June 16, 2008

My New Favorite Weekly: The Economist

My wife subscribes to The Economist. I subscribe to People and Sports Illustrated. I am a sophisticated guy. There is an article this week in the Economist that I will read twice because it talks about my work. The Economist's Article about the geography of green products . This paper just received a revise and resubmit from the Berkeley Electronic Press, so it can't be that bad! You should judge for yourself. You can download a copy of the paper at the Economist's website or from here . If you are looking for more research on environmentalism's consequences in unusual places take a look: at this new working paper.

Friday, June 13, 2008

Celebrities Want to Meet You (for a price)

On the Westside of Los Angeles, you can fairly often spot celebrities trying to live their lives. But, now I see that there are active "middlemen" helping buyers meet these celebrities. The Market for Ordering a Celebrity to Be Nice to You . The only thing that I didn't like about this website is that it wasn't fully honest about the price of ordering any specific celebrity. If you want Magic Johnson singing and dunking at your daughter's 10th birthday party, how much will this cost you? $25?, $25,000? We have the right to know but this website is being discreet.

Some prominent economists have gotten involved in this line of work.
I wonder if econometricians are in high demand? Again, I would like to see the pricing gradient.

Thursday, June 12, 2008

Paul Ehrlich Wants You to Watch Soap Operas!

Peter Gordon is a wise man. I appreciate his point out this new working paper.
New Working Paper linking TV Watching To Reduced Fertility in Brazil . I plan to watch game #4 of the NBA finals tonight. I predict that this will have a causal effect on my beer drinking and eating nachos. Stay tuned for news on the unintended consequences such as weight gain and my future fertility patterns.

Wednesday, June 11, 2008

Random Stuff

For a while, I've dried up and had nothing to blog about. The only strong view I've felt recently is that I would like to hear Ben Bernanke explain in detail what is the economic model in his head about how the "real economy" and government policy interact to determine growth and inflation? Is he a short run Philips Curve guy? What ideas embodied in the last 30 years of Chicago/Minnesota/UCLA Macro does he take seriously? Which Prescott/Lucas ideas bounce around in his head as he makes policy? I'm not a macro economist but I'd like to believe that our head macro-guy has kept his credentials up to date.

Switching gears. Is this an exciting time in academic economics? One way to judge is to thumb through the papers that will be presented at the Summer Institute.
NBER Summer Institute Sessions

Finally, if everyone is saying to not buy a Hummer maybe now is the time for the plunge?,0,3959657.column
From the Los Angeles Times
Steve Lopez: Deriding the mayor's aide and his Hummer
Steve Lopez

June 11, 2008

A gazillion people are stuck with cars the size of oil tankers as gas prices close in on $5 a gallon, but the guy I really feel sorry for is Jaime de la Vega.

Not only is Los Angeles Mayor Antonio Villaraigosa's transportation deputy shelling out a small fortune to fuel his Hummer, but he's got the added pressure of setting an embarrassingly bad example.

Even as people switch to smaller cars and public transportation in droves, he's sticking with a monster.

I know, because just before noon Tuesday, I happened to be wandering around the City Hall basement and came upon De la Vega's copper-colored H3 in Space 26, under a sign that says "Mayor/Council Staff."

Out of the goodness of my heart, I've decided to help him out. I've called and e-mailed him, offering to take the insatiable hog off his hands. Even though the H3 is the smallest Hummer model, it still gets only 14 mpg in city driving.

"My offer is $75 cash," I said in an e-mail. "If it's in really good condition, I might go as high as $100, but only if you fill the tank first. My plan is to donate it to the National Guard."

Good deal, right? Everybody wins, including the Armed Forces.

But so far, De la Vega has not answered.

If he worries about how he'd get to work, he should do what I did and talk to some people who have recently switched to public transit. Tuesday morning at Union Station, Tustin resident Karen Park, who commutes to an advertising-marketing job in downtown L.A., told me how the switch to Metrolink was saving her money. Leaving her crossover SUV home seems like the right thing to do, she said, given the traffic and the environment.

Maybe she'd like to be deputy mayor for transportation.

This would be a great time for some leadership in that position, if you ask me. Traffic is lighter because of gas prices, and there's an excellent opportunity to capitalize on that momentum and heavily market flex time, working from home, carpooling, riding a bike and taking the train.

I checked Craigslist to see what De la Vega might get for his car if he sold it there. But it seems to be a buyer's market. As of 3 p.m. Tuesday, 18 Hummers had been posted for sale since Sunday.

"Take over our lease," pleaded one ad.

In another attempt to help the deputy mayor, I drove out to Pasadena to see what he might be able to get on a trade-in.

The Hummer part of the Team Chevrolet, Hummer and Hyundai dealership on Colorado Boulevard is housed in a building the size of an airplane hangar. But on Tuesday, it was as empty as a schoolhouse on Saturday morning. It can't help that there's an Arco station across the street selling premium for $4.59 a gallon.

Before I could find the showroom door, a salesman with a toothy smile hurried over from the Team Chevrolet and Hyundai side of the lot. I thought I detected the kind of desperation you might see on a hiker who'd been lost and alone for weeks, surviving on squirrel meat. But the salesman said he'd sold a Hummer just a day earlier.

"Most people who can pay $70,000" for the souped-up, locomotive-sized H2 "don't worry about the price of gas," he said.

I'll bet that's true.

Managers Jose Nunez and Chuck Bontempo told me Hummers still go out the door occasionally, but sales are much better on the Hyundai and Chevy side of the lot, with smaller cars doing well.

I'm sorry to report, for De la Vega's sake, that they're not paying top dollar on Hummer trade-ins. In fact, some Hummer owners have been so insulted by the trade-in offers, they decided to buy small commuter cars and park their Hummers in the garage until the price of gas dips.

A salesman named Adrian Morales, just 19 years old by his count, seemed to think he could sell me on the appeal of a Hummer despite it all. They're "stuck with" two 2007 models, he said, and I'd be saving $16,000 in discounts and rebates.

Morales opened the door of a $66,000 black-on-black H2 so galactic in size that it is exempt from having to post miles-per-gallon estimates in the window.

So what does Morales say if he's asked about mileage?

"I just tell them 'Don't worry about it,' " he said, adding that it's a low-maintenance vehicle, so they'll save in the long run.

He threw open a door to reveal an interior slightly smaller than the Staples Center.

And what if someone asked him about the vehicle's impact on global warming?

"I'd just ask them how much longer they're going to be living."

Is De la Vega taking notes? These aren't bad lines to use when someone asks why the transportation chief in a city with legendary pollution is driving a Hummer. And Morales wasn't finished extolling the advantages of super-sizing.

"If you get into an accident, nothing will happen to you," he said. "You'll just kill the other person."

Why is this kid not the sales manager?

Call me, Jaime. If you're reluctant to sell to me, I can hook you up with Morales.

He'll buy and sell your Hummer before lunch and send you back to work in a fuel-efficient Hyundai the size of a clamshell.

And remember, I'm only trying to help.

Friday, June 06, 2008

Do 42 Year Old Academics Still Function?

I often ask myself, am I functioning? Am I doing anything that is interesting or important? 80% of the time my answer is "no" and 20% of the time, my answer is "maybe".

As I write this silly blog entry, I'm trying to write and revise several new papers. Ed Glaeser and I will soon release our study of the Urban Footprint. Lucas Davis and I are on the verge of having a really good paper.

On an unrelated note, I would like to inform other bloggers that if you want to raise your "hit count" then put the words "Britney Spears" in your blog entry title.

If I had to make the case, that I am functioning --- here is the evidence that I would present;

New NBER paper on Stress and social networks , Costa and Kahn (2008)

Geography of Green Products , Kahn and Vaughn (2008)

Walking the Walk, Kahn and Morris (2008)

Costa and Kahn, Princeton Press Book 2009

Thursday, June 05, 2008

Crime and Punishment: The Case of Pooper Scooper Laws

I wonder if Gary Becker had this specific example in mind when he wrote his 1968 JPE paper on Crime and Punishment? Google Scholar says that it has been cited 2941 times. Not bad, Gary! As I remember it, one of Gary's assumptions is that it is costly for the state to detect malfeasance. In the case of enforcing pooper scooper laws, NYC's sanitation dept. has hired 7 more poop cops and this has caused a 40% increase in poop tickets.

Now Jim Heckman would argue to not forget about self selection. What type of sanitation worker chooses this line of work? Is this considered a high amenity sanitation job?

This NYT article hints at the "cat and mouse" game played between the owners of the dogs and the public servants who are monitoring them.

New York Times
June 5, 2008
Scoop It Up or Pay: On Patrol With Enforcers of the Dog Law

It was just after dawn when Theo Otibu began prowling Ditmas Park in Brooklyn in his unmarked Sanitation Department car. He scanned the sidewalk for an elusive prey, one known only by the droppings of its best friend: the dog owner who does not scoop.

He spotted a woman in a long black coat leading a small white dog. Mr. Otibu, who has been a police officer in Ghana and a United Nations monitor in Bosnia, brought the car to a stop alongside a minivan and watched her in stony silence through his side mirror.

He could see all the telltale signs of negligent intent: the irritated expression, the hurried pace, the absence of a plastic bag in the pocket. “People who pick up have time,” he said earlier. “You can look at some people right away and say, ‘This person is not going to pick up after their dog.’ ”

The anxious woman and her dog made their way down the street, and Mr. Otibu rolled slowly with them. But after five long minutes of hushed stakeout, the dog did not go.

“It’s a lost,” he said, pulling away.

Dressed in plain clothes and driving white hybrid Toyotas, Mr. Otibu and the 14 other agents in the Sanitation Department’s Canine Task Force fan out across the five boroughs each day to enforce the city’s “pooper scooper” law, which went into effect 30 years ago and became the model for other large cities.

The city’s 311 complaint line received about 3,000 complaints about dog waste last year, up from 2,100 in 2004, and so the Sanitation Department has added seven agents to the task force. In the first 11 months of the current fiscal year, which ends on June 30, they handed out 869 summonses, an increase of roughly 40 percent over the same period a year before.

The maximum fine, $100, which has not changed since the law was passed, is likely to go up soon: A bill increasing it to $250 is awaiting Gov. David A. Paterson’s signature. A spokesman for the governor said on Wednesday that Mr. Paterson was reviewing the measure.

(The parks department, which issues the tickets in city parks, has discretion to fine $50 to $1,000.)

The most summonses have been issued in the Bronx, with 335 in the first 11 months of this fiscal year, compared with 215 in Brooklyn, 157 in Queens, 109 in Manhattan and 53 in Staten Island.

“The more people you put out there, the more summonses you get,” said Sanitation Commissioner John J. Doherty, who wrote his first ticket as a sanitation enforcement agent in 1973 to a couple who didn’t curb their dog. Curbing dogs, or making them go in the gutter as opposed to the sidewalk, was the law at the time. (It is still on the books, but rarely enforced.) “We put more people on it. But still it’s not always easy to catch someone.”

To issue a summons, the agent must witness the dog doing its business and the owner walking away. With about a half-million dogs spread across the city’s 305 square miles and an offense that can take less than 30 seconds, the odds are against the agents. Most agents find only one or two so-called K-9 violations in progress each day. (The task force also issues $200 fines for dogs that are off-leash, and for throwing household trash in city garbage cans.)

“We try to do the best that we can, but it’s hard out there,” said Mr. Otibu.

The difficulty of Mr. Otibu’s job is some measure of how much the law has become second nature to the city’s dog owners since 1978. When Section 1310 of the State Public Health Law — the scooper law — went into effect, the violations were more widespread, and more conspicuous.

“It was infuriating,” said Roberta Pliner, an Upper West Side resident. “People would get dressed up for work, dressed up for the theater, and you’d take one step outside and step into it.”

A consumer advocate, Fran Lee Weiss, lobbied heavily for the law, saying children were being infected by a roundworm often found in dogs, Toxocara canis, via excrement. (Health officials determined at the time that the threat from roundworm larvae was real, but not as widespread as Ms. Weiss often suggested.)

While she raised the ire of many dog owners, Ms. Weiss, the president of a group called Children Before Dogs, found support among her neighbors. Ms. Weiss, who is 98 and now lives in California, “was known as the Pooper Scooper Lady,” her son Barry Weiss said. “People would come up to her on the street and shake her hand.”

After the law passed, pet stores began to sell scooping tools, and from 1978 to 1980, at least five New Yorkers received patents.

While virtually no dog owner cleans up with anything more than a plastic bag or a piece of paper now, a bow to the more “refined” methods can be found on the Sanitation Department’s aging signs, which depict a stooped stick figure behind his dog, broom and waste pan in hand. The department does not have a budget for new signs.

By 9 o’clock, prime dog-walking time was waning and Mr. Otibu still had not found any violators. He was anxious. He sped to a spot in Bushwick that he had visited earlier in the day and is popular with dog walkers.

Suddenly, as he made a second trip around the corner of Bushwick Avenue and Seigel Street, he spotted a man in gray sweat pants with two dogs, one of which was crouching, off-leash. “I have him for the off-leash, but now I’m going to wait to see if he picks up.”

He watched as the man turned from the pile and headed toward the agent’s car. It was the moment Mr. Otibu had been waiting for. “I’m going to write him a ticket,” he said, getting out of the car.

The man showed Mr. Otibu his identification and a Patrolmen’s Benevolent Association card. He said that he was a police officer, but that he had forgotten his badge in his apartment. As he went with his dogs to retrieve it, Mr. Otibu wrote him a $200 ticket for not having a dog on leash. When the man returned, he still did not have his badge. He took his ticket and went home.

“I’m not sure he’s a real cop,” Mr. Otibu said. “But that’s not my problem. My problem is to give out a ticket.”

A little later on a nearby corner, he spotted another crouching dog. The owner was on his cellphone, another tip-off. Mr. Otibu watched as the dog deposited in the grass. Not a bag in sight.

Mr. Otibu approached and asked for picture identification. Without identification, agents cannot write summonses, and a number of dog owners sometimes refuse to show ID or claim to have left it at home. Leaving dog waste is a health code violation, not an arrestable offense, so in those cases, agents have to let the matter drop.

The man told Mr. Otibu that he had left his identification at home. He then found a piece of paper on the street, picked up his dog’s small offense, and began to walk away, promising to return with his ID.

Mr. Otibu followed him, at a distance, down the block. Then he stopped and watched the man go. He sensed it would not be worth waiting and turned back toward his car.

“It’s a lost,” he said.

Wednesday, June 04, 2008

Would You Buy a $6 Million Dollar Home Next to Britney Spears?

You have to feel sorry for Ed McMahon. He had to listen to all of Johnny Carson's bad jokes for all of those years and now he is having trouble meeting his hefty mortgage payments in a fancy community just north of UCLA. Compounding his troubles is the fact that he has Britney Spears as a neighbor. A large press contingent surrounds her house waiting for her to make a public appearance each day. This has discouraged people from bidding and buying Ed's home. Do these issues arise in other cities?

The Challenge of Selling a Los Angeles Mansion Near Britney Spears

Knowing that the Lakers will Defeat the Celtics, this will help home prices to start to rise here again.

Tuesday, June 03, 2008

Are Doctors for Sale? Can a Drug Company Influence a Doc with a Free Lunch and Free Notepads?

Suppose that you are a new Economics PHD and at your first job you are asked to teach economics 101. You must pick a textbook for this course. Many superstars have written such books and just to name a few names that you might pick there are books by; Krugman, Mankiw, Stiglitz, Phelps, Nordhaus, Samuelson, Case & Fair and others who I can't remember. But suppose that a startup publisher called "Kahn's slimebags" sends you a comic book and claims that it is a econ 101 textbook. Suppose that I send an attractive person to talk to you about adopting my book and suppose that I throw a great conference in Las Vegas where I pay for your trip and hotel and for 2 hours during your 3 day stay you must listen to me praise my "textbook" (i.e the comic book). Will you adopt my book?

This New York Times article claims that doctors have gotten themselves all riled up over the pernicious effects of "free gifts". The article hints at a counter-factual; doctors are making bad choices (i.e prescribing the wrong drug or a drug that is unlikely to be cost-effective) because they have been captured by the drug companies. To pre-empt this behavioral response, doctors are now expected to refuse all gifts.

This raises several issues related to behavioral economics. As a Chicago Economist, you could shower me with free stuff and I will take it. I like a free lunch but I will feel no guilt when I don't adopt your product because I was on to you and your little scheme.

This logic raises the issue of why doctors (who are supposed to be our most ethical people?) are trapped in this trap? I was happy to see that UCLA gets an A for not taking free stuff but I wonder what psychological model of people explains why a fraction of doctors feel the need to reward those who have been nice to them by adopting their products. A theory of fairness should argue that doctors should be focused on taking care of the patient not their relationship with the drug rep.

Now you may counter that the drug rep's sales pitch has convinced the doctor to update his subjective probability of the effectiveness of the new drug but a sophisticated bayesian would recognize that the drug company has an incentive to over-state its new product's effectiveness. A serious doctor should wait for a 3rd party verification that is published in a leading peer review journal before switching to an unproven medication.

June 3, 2008
Survey of Medical Schools Is Critical of Perks

Most medical schools in the United States fail to police adequately the money, gifts and free drug samples that pharmaceutical companies routinely shower on doctors and trainees, according to a ranking by the American Medical Student Association.

Only 7 of the 150 medical schools included in the rankings received a grade of A while 14 were given a B. Sixty got a failing grade, and the student association found that 28 schools, or nearly one in five, were in the midst of revising their conflict-of-interest policies.

“These policies are incredibly important to protect the educational experience students have at school and the quality of the education they’re getting,” said Dr. Brian Hurley, president of the student association. Schools that shield students from marketing messages will produce doctors who provide better care to patients, Dr. Hurley said.

The student association will routinely update the grades it gives medical schools, which are listed on a school-by-school basis at The grades will be officially released Tuesday.

Mount Sinai School of Medicine in New York, the University of Pittsburgh Medical Center and University of California schools at Los Angeles, Davis and San Francisco were among those receiving top grades.

The role played by pharmaceutical and device makers in the education of doctors has become an increasingly controversial topic, with some top medical schools placing a growing number of restrictions on the longtime practice of providing free food, gifts and educational seminars to trainees.

The Association of American Medical Colleges advocated in April that schools ban many of these perks. The proposal was the result of a two-year study of the issue by the association.

Dr. Sidney Wolfe, director of the health research group at Public Citizen, a consumer advocacy organization, said the medical college association’s proposal “would be relatively meaningless without this critical surveillance system” created by the students.

“Most of the medical school bureaucracies are getting too much money and other forms of largess from the drug industry to initiate these healthy, long overdue policies on their own,” Dr. Wolfe said.

The student association, which represents more than 67,000 medical students, residents and practicing physicians, began its ranking in November when it requested conflict-of-interest polices from all of the nation’s medical colleges. The association made at least four attempts to receive the policies from every school in the country, but 16 schools declined to submit a policy and 29 did not respond at all. These schools, along with 15 that did submit policies, were given failing grades.

Two graders who were unaware of the identity of the schools did the scoring.

Gabriel Silverman, a medical student at the University of Pittsburgh School of Medicine who oversaw the grading, said medical students were increasingly put off by school policies that allowed drug companies to market their products to doctors and faculty members.

“We see all these pharma sales reps in clinics with free lunches and marketing paraphernalia giving us the hard sell,” Mr. Silverman said.

Dr. David Blumenthal, director of the Institute for Health Policy at Massachusetts General Hospital, said the student survey was important because students were significantly affected by the rules that applied to their faculty.

“In the same way that faculty pay attention to how they’re rated by students in their teaching,” Dr. Blumenthal said, “it seems to me that schools should pay attention to how students evaluate policies in fields that are of substantial importance to the future of the students.”

Monday, June 02, 2008

Should California's ARB Trust Computable General Equilibrium Models for Judging AB 32's Likely Economic Effects?

Magic is in the air. The California Air Resources Board (ARB) faces a hard economic and political problem. It is mandated to implement climate change mitigation regulation. AB32 mandates a 80% cut below 1990 Greenhouse gas emissions levels by 2050! A reasonable question is what will be the costs and benefits of this regulation for the California economy and for consumers and firms?

To answer these important questions (or at least to take the heat off of politicians who endorse AB32), computable general equilibrium models (CGE) are being used to predict scenarios and likely impacts of regulation.

"ARB is starting to develop the Scoping Plan mandated by the Global Warming Solutions Act of 2006 (AB 32). Economic analysis is being developed and used to support the development of the Scoping Plan. The following contains information on three economic models, including links to more information on the models, their applications, and previous peer reviews."

California's AB32 and CGE Economic Models

While I appreciate the importance of forming predictions of the future, I also believe in confidence intervals! To be honest, these CGE models are crap. These black box models must take a strong stand on dozens of behavioral responses where in each of these cases we don't really know what the elasticity is. Feed in 20 bad estimates and you won't get back a great tasting meal.

Let me give you one example, suppose that a cap and trade system for carbon dioxide raises the price of water in Los Angeles by 2 cents per gallon --- how will this price increase change consumption of firms, households, and people who flush the toliet in Los Angeles? These CGE proponents don't know the answer but they make assumptions to generate a number and politicians then believe that the wise economists know the answer. (Why would a carbon tax raise the price of water? Pushing water around California is highly energy intensive and much of this electricity will come from natural gas fired power plants and they create greenhouse gases).

The CGE crew's model isn't science, it is magic and it makes economists look bad.

Here is my counter-proposal. The Air Resources Board should conduct a series of field experiments to actually estimates the structural demand and supply elasticities that it needs to judge how consumers and firms will adapt to the new post-AB32 pricing. Once these estimates exist, then these estimates could be plugged into the CGE models.

Even then I wouldn't be happy. If you sit down and read the technical documention to these CGE models, you will see that they are static models. In English, the models make no assumptions about technological change. I would bet my remaining hair on the top of my head that if energy prices go up in California that renewable energy technological advance will take place and this will lower the cost of complying with AB32 but this type of "endogenous technological advance" is ignored by the CGE crew.

Unfortunately, the politicians appear to be in such a rush they have gotten ahead of the basic research. I hope they are not shopping around for CGE models that generate results that they like.

I realize that my tone is sharp here but AB32 is multi-billion dollar regulation. Academic economists, rather than consulting firms, should be asked to do the heavy lifting here to figure out the likely impacts of the program. Now, if our best guesses don't actually affect any real policy decisions then you can delegate these model estimates to consulting firms. But, I've always hoped that economists are useful people whose ex-ante predictions do affect policy maker behavior by improving their information rather than simply "rubber stamping" what the politicians wanted to do.