Have you wondered what my dining room looks like? I have and now I know. When I was a kid, I was shipped out for clarinet lessons and sunday school lessons. We have taken a different path with the new generation. Here he is matched up with one of the best chess players in Los Angeles. He is focused like his mom.



Next week is the final week of the academic year. I can almost smell summer time.

Back in the "bad old days" before we discovered how to cook, ape/humans had to spend a fair bit of energy digesting the raw food and meat we ate. Once we learned/lucked into starting to cook ---- we didn't need to use as much energy to digest our food. The cooking took care of that. The cooking must have knocked out some nasty diseases as well. The energy we used to use to digest now went to our brains and we were able to develop above the neck. Since there are economies of scale of having a single fire, cooking forced us to socialize and to hang out together and this may have soothed the "savage beast". THUS, cooking is the key to our evolutionary rise to the top! This nice story is at the heart of this new book. I haven't read it but the New York Times book review tells a compelling story.

Dear Los Angeles DWP,

I would like to suggest a new incentive structure that will simultaneously
raise revenue for your organization and end the "water shortage" in Los Angeles.

Scrap your strange current tiered water pricing system and replace it with the
following simpler tiered water pricing system.

Choose a bimonthly quantity of water that each household should be allowed
to purchase cheaply. This will protect the poor. Suppose that each person
"needs" 10 gallons of water a day. A family of 4 will need 10*30*4*2 = 2400 gallons every two months. Charge them .05 per gallon, so they will pay $120 every 2 months for water.

For anyone who wants to consume more than 10 gallons a day, they pay 40 cents a gallon for every gallon once the household meter exceeds 2400 gallons on a 2 month billing cycle.

Unlike your current pricing scheme, my scheme treats everyone equally. It guarantees that the poor do not lose their right to water and it creates the right marginal incentives for "water hogs" to think about ripping out their grass and economizing on their water consumption. Your current incentive system encourages sprawl, big lots and lots of grass and golf. As a green economist, I certainly don't like any of these.

I believe that my proposal would be a progressive public policy that would redistribute income from the rich to the poor and would protect the environment.

With your current incentive scheme, the average price of water per gallon per square foot of land is lower than the average price per gallon per household.

Consider the following weighted average. Suppose that there are two households who each live in 8 thousand square foot yards. Calculate their total water bill if each consumes X gallons of water. Now suppose that one household lives on a 16,000 square foot yard and consumes X gallons of water while the other household consumes 0. Given your current formula, total water expenditure would decline despite the fact that the same amount of water (X) is consumed in each case.

I realize that you want to encourage sprawl and big grassy yards but I understand your formula!

best regards, mk

There is serious drought in the West. Higher prices could encourage a demand side conservation. Los Angeles Department of Water & Power is not doing its part to "solve" the problem. What if I told you that the LADWP charges households different prices for a gallon of water depending on what season it is, how large their lot size is and how many people live in their home? The first criteria sounds reasonable. The next two are insane. For the evidence, click Los Angeles DWP's Residential Water Pricing Schedule

LA DWP has a multi-tiered water pricing schedule such that if you use less then your marginal price per gallon is lower than if you use more. Because of the drought, the tier II water prices will go up by 45% in June 2009 while the tier I prices will stay constant.

Now here is what is interesting. According to the data, consider two families who live in zip code 90024;

Matt Kahn lives in a home with a lot size less than 7,500 and there are 3 people in his house; he stays on the first tier of the water schedule if he consumes
less than 28*748 gallons every two months.

Consider Candy Spelling (Aaron's widow) who lives in the same zip code. Suppose there were 10 people in her home (her staff) and because she has a lot of more than 43,000 square feet. She stays on the first tier of the water schedule if she consumes less than (76+14)*748 gallons every two months! I am paying for a lot of watering of her grass!

LA DWP just proudly announced that it has raised Tier II water prices by 44% but hasn't raised Tier I prices (to protect the poor). But, if the rich who live on big lots all have a sufficiently large Tier I access (the (76+14)*748 gallon segment) then they may never reach the Tier II. In this case, the "new incentive" won't affect anyone's behavior and the drought will continue.


As an economist, I'm used to "state dependent pricing" but I'm not used to this "individual characteristics pricing".

Isn't this discrimination? She faces a different (cheaper) marginal pricing schedule than I do because she has a big staff and a big lot. Is this the right incentive structure to encourage conservation?

I encourage you to draw out our respective "step functions" on a sheet of paper with gallons on the x-axis and marginal cost ($ per gallon) on the vertical axis.

Planning ahead is always a wise move. In this spirit, UCLA has announced its new 10 Year Plan . I suggest taking a look at the comments being posted there by faculty. Bill Zame offers some smart thoughts. I would like to offer a few thoughts for the Campus Leaders to consider.

There is a fundamental incentive problem related to intellectual "sprawl". Every leader when his/her time is done wants to be able to point to something lasting and say; "My legacy is that I created the "XX" and the "YY"." The problem is that this creates mission creep. A more modest legacy would be; "When I took over UCLA ; the Economics Department was the 12th best in the world and I helped to keep it ranked 11th in the face of free agency and private schools attempting to lure our top faculty." That isn't a "sexy" legacy but it is a very important.

In a time of cuts, what should be cut? People are using the words "selective excellence". I don't know who or how those words will be defined. In a diverse setting, everyone will have a different definition of "excellence". A business school dean might honestly say; "well, who is bringing in the most $?" (new drug development, new engineering breakthroughs). A publicity minded Dean might say; "who generates the most external buzz about our campus? (i.e Jared Diamond, Coach Wooden etc).

Compare UCLA's History Department and its Economics Department. Today, the history department appears to have roughly 80 faculty while the economics department (after the departures that will happen this summer and in the summer of 2010) will have roughly 35 faculty. How did this imbalance occur? In a "fair" society, each department should have 50 but out of my own self-interest, I wish the numbers were reversed. Choices made in the 1970s appear to have very long run consequences.

The Internet offers some interesting information. Do you get paid $10,000+ to give a talk? This website "names names" and prices to see some of the big stars on your stage! Here is one data point of a well known economist making Good $ per talk . Has the recent recession cooled off this "superstar" market?

My son lives quite a life. He spends a fair bit of time with adults, nerdy adults. Below, I reproduce a photo of Russ Walker (Grist), myself and my heir at an environmental conference where we were having a discussion in front of 250 people. I was in charge of the kid that day and was worried that I would lose him. So, I brought him up on stage.

When I was a graduate student, my famous macro teachers would say that a recession is a good time to take a vacation. We laughed but we wondered what the "real unemployed" were doing during recessions. Since the key models featured no geography and zero migration costs across islands (i.e. cities), it was puzzling why anybody was actually unemployed. But in the real world of undiversified local labor markets, home ownership where home prices and wages are positively correlated and social capital and family tying you to a given area (and thus you can't cheaply move to a booming island), we knew that unemployment can happen. As factories close, what happens to the displaced? Derek Neal taught us that they took a big pay cut moving to the low wage service sector. But for those who don't find work, what are they doing? Are they searching? Are they "chilling"? Are they investing in their skills or drinking and smoking and depreciating? Are they starving as they face period by period budget constraints (i.e consumption today = income today) or do they face dynamic PDV budget constraints and are able to take a nice vacation before the economy heats up again?

Today's New York Times hints that artists actually like recessions. During a downturn , there are fewer corporate clients asking the artists to make full sculpture nudes of the CEO of the firm. With the opportunity cost low, artists can focus on their "real passion" and not sell out to the man.

On the environmental front, I hope that firms are thinking about how to reorganize themselves as the next boom starts up and as they anticipate carbon pricing. Such pro-active investments during a downturn would ease the adjustment. Now you might say that they are liquidity constrained and can't make these investments but that is a testable claim.

I live 100 yards away from an elementary school. Each morning frantic parents pull up and park their cars in front of my house to deliver kids to school. The precious children impose an externality on my household. The kids and their drivers stomp on the nice plants we have planted in the soil between the street and the sidewalk. This is a fairly large rectangle measuring perhaps 70 feet by 10 feet. In the name of reducing our carbon footprint, we pulled out all of the grass and planted low water "cute" plants. To our surprise, the soccer moms and dads and their great children appear to take pride in stomping on our plants. I caught myself getting ready to pick up an 11 year old today and tossing him. The parents are worse. They lie as they "apologize" and then do the same thing the next day. I am tempted to cut their tires. This would be an accident of course. In Los Angeles, I do have a secret goal of becoming rich as I star in the new reality video series "Professors Gone Wild".

There is an interesting property rights issue here that keeps popping up. The LA Times wrote this about this issue.

I like this Grist Article from 5/18/2009 !