Wednesday, June 30, 2010

Does the Tesla IPO offer a Test of the "Winner's Curse"?

Leading newspapers continue to discuss the Tesla IPO. During this time of bad stock market news, the market is celebrating the higher than expected Tesla stock price.

I just traded emails with a very smart Univ. of Minnesota economist who wondered whether Tesla's stock dynamics reflect diverse beliefs such that the most optimistic people concerning Tesla's future profits are most likely to buy the stock. In this case, will Tesla's new shareholders suffer from the Winner's Curse . If this wise economist is right, then do any hedge funds such as my old friend Eric Mindich of Eton Park make their money shorting stocks that just held an IPO?

Some finance nerd must have calculated what the rate of return would be on a portfolio that simply shorted IPO stocks. Now, I realize that there are time limits to how long you can sell short for. Are they binding in this case?

So what is the intuition here? In a diverse world, some of us are very high on Tesla's future while some are not. For the optimists, do they have "inside information" about the product's true quality? In this case, the optimists know that this company is truly about to boom but this isn't common knowledge. In this case, then shorting would not be a wise financial strategy.

But, if there is no issue of inside information then the average expectation of the stock's rate of return will be a more accurate estimate of the "truth" then what the most optimistic people (who will be the first ones to bid and will keep bidding even as the price goes up). When the "truth" about Tesla is revealed, will the optimists regret their early buy?

Now, there have been many IPOs recently (remember Google's?). What is interesting here is that this is a "green company". Are there environmentalist "cheerleaders" who will buy these shares for non-financial returns reasons -- i.e because they want to do the "right thing". In this case, the shorters appear to be even more likely to make money because the green investors are willing to lose $ to do the right thing and thus are less likely to engage in the due dillegence and research to investigate whether this "green company" truly has a bright future.

Tuesday, June 29, 2010

Tesla Motors' IPO Means that We Can Track the "Green Economy" in Real Time

Tesla Motors produces electric vehicles. Yesterday, it had its IPO and its current market share price is higher than expected . While I have never written a "finance paper", this case study offers a great opportunity for environmental economists to conduct some simple "event study" before/after comparisons;

Some Questions:

1. As Congress announces new tighter fuel CAFE standards, could this lower Tesla's stock price as other manufactures would invest more in electric cars? As California tightens its Pavley Standards what happens to Tesla's stock price rate of return? Relative to a control group (say the average stock price change for General Motors and Ford), does Tesla earn "excess returns" if government passes Climate Change legislation such as a carbon tax this would increase Tesla's stock price.

2. How positively correlated is the change in Tesla's stock price with increases in gas prices? If gas prices are rising and expected to stay high (peak oil), this should increase the demand for electric vehicles and raise Tesla's stock price.

3. How does the Tesla stock price move as Nissan makes new credible announcements about the development of its electric "Leaf"? It looks to me that the Leaf will be a "poor man's Tesla". If they are close substitutes, then Tesla's stock holders better be ready for some sleepless nights as they wait for Nissan Leaf announcements.

The beauty of a stock market is the real time continuous trading provides up to date information about the collective wisdom of this "green" company's financial health. This will help economists to see if the "green economy" is succeeding. A company such as Nissan makes many different cars and the Leaf is just one part of its portfolio --- thus its stock price isn't that informative about the expected profitability from making green, electric vehicles.

Since we all embrace the efficient markets hypothesis, the Tesla stock price today provides the best guess about the expected present discounted value of profits to be earned by electric car sales. This is a very good indicator of where the market thinks this new product is heading and I will be tracking it!

Monday, June 28, 2010

Vote "No" on California's Proposition 23!

As you may recall, I have written a pretty good paper analyzing voting patterns on California's environmental initiatives (see Kahn and Matsusaka 1997 ). So, given that I'm a self proclaimed expert on this stuff --- I must ask that you vote "No" on Proposition 23 in November 2010.

This proposition would gut AB32. Here is a direct quote; "Suspends Air Pollution Control Laws Requiring Major Polluters to Report and Reduce Greenhouse Gas Emissions that Cause Global Warming Until Unemployment Drops Below Specified Level for Full Year. Initiative Statute. Suspends State laws requiring reduced greenhouse gas emissions that cause global warming, until California’s unemployment rate drops to 5.5 percent or less for four consecutive quarters."

Given that the State's unemployment rate is 12% this 5.5% goal is in the distant future.

I do not believe that AB32 is a job killer. Its implementation would represent a change in the "rules of the game" and would incentivize Californian households and firms to rethink many aspects of our day to day life. The net effect of this regulation will be lower greenhouse gas emissions and a leadership position in the world's "green economy". Somebody has to be the global guinea pig, and I believe that California is well positioned to play this role.

How many new jobs will this legislation create? I'm not sure but some very smart, well meaning people have devoted ample effort to shaping this regulation. They have devoted this effort at ARB out of a sincere desire to achieve "sustainable growth". In my interactions with the staff at the Air Resources Board, I see no truth to claims that this is a centralized power grab by lovers of "big government".

Direct democracy is pretty funky stuff. Here is what California will vote on in the fall.

Secretary of State Debra Bowen Assigns Numbers to Ballot Measures Certified for

November 2 General Election, Invites Ballot Arguments



SACRAMENTO – Secretary of State Debra Bowen today announced the proposition numbers for the 10 measures set to appear on the November 2, 2010, Statewide General Election ballot and invited interested Californians to submit arguments to be included in the Secretary’s Official Voter Information Guide. The guide, also known as the ballot pamphlet, is mailed to every voting household in California.



The 10 propositions on the November 2 ballot are listed below, along with the Legislative Counsel’s digest or the Attorney General’s title and summary.



Proposition 18 SBx7 2. Safe, Clean, and Reliable Drinking Water Supply Act of 2010. (Chapter 3, 2009). (1) Under existing law, various measures have been approved by the voters to provide funds for water supply and protection facilities and programs. This bill would enact the Safe, Clean, and Reliable Drinking Water Supply Act of 2010, which, if approved by the voters, would authorize the issuance of bonds in the amount of $11,140,000,000 pursuant to the State General Obligation Bond Law to finance a safe drinking water and water supply reliability program. The bill would provide for the submission of the bond act to the voters at the November 2, 2010, statewide general election. (2) This bill would take effect only if SB 1 of the 2009-10 7th Extraordinary Session is enacted and becomes effective. (3) This bill would declare that it is to take effect immediately as an urgency statute



Proposition 19 Changes California Law to Legalize Marijuana and Allow It to be Regulated and Taxed. Initiative Statute. Allows people 21 years old or older to possess, cultivate, or transport marijuana for personal use. Permits local governments to regulate and tax commercial production and sale of marijuana to people 21 years old or older. Prohibits people from possessing marijuana on school grounds, using it in public, smoking it while minors are present, or providing it to anyone under 21 years old. Maintains current prohibitions against driving while impaired. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local governments: Savings of up to several tens of millions of dollars annually to state and local governments on the costs of incarcerating and supervising certain marijuana offenders. Unknown but potentially major tax, fee, and benefit assessment revenues to state and local government related to the production and sale of marijuana products. (09-0024.)



Proposition 20 Redistricting of Congressional Districts. Initiative Constitutional Amendment. Removes elected representatives from the process of establishing congressional districts and transfers that authority to the recently-authorized 14-member redistricting commission. Redistricting commission is comprised of five Democrats, five Republicans, and four voters registered with neither party. Requires that any newly-proposed district lines be approved by nine commissioners including three Democrats, three Republicans, and three from neither party. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Probably no significant change in state redistricting costs. (09-0027.)



Proposition 21 Establishes $18 Annual Vehicle License Surcharge to Help Fund State Parks and Wildlife Programs and Grants Free Admission to All State Parks to Surcharged Vehicles. Initiative Statute. Establishes an $18 annual state vehicle license surcharge and grants free admission to all state parks to surcharged vehicles. Requires deposit of surcharge revenue in a new trust fund. Requires that trust funds be used solely to operate, maintain and repair the state park system, and to protect wildlife and natural resources. Exempts commercial vehicles, trailers and trailer coaches from the surcharge. Requires annual independent audit and review by citizen's oversight committee. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Increased state revenues of about $500 million annually from the imposition of a surcharge on the VLF to be used mainly to fund state parks and wildlife conservation programs. Potential state savings of up to approximately $200 million annually to the extent that the VLF surcharge revenues were used to reduce support from the General Fund and other special funds for parks and wildlife conservation programs. Reduction of about $50 million annually in state and local revenues from state park day-use fees. These revenue losses could potentially be offset by increases in other types of state park user fees and revenues. (09-0072.)



Proposition 22 Prohibits the State from Taking Funds Used for Transportation or Local Government Projects and Services. Initiative Constitutional Amendment. Prohibits the State from shifting, taking, borrowing, or restricting the use of tax revenues dedicated by law to fund local government services, community redevelopment projects, or transportation projects and services. Prohibits the State from delaying the distribution of tax revenues for these purposes even when the Governor deems it necessary due to a severe state fiscal hardship. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Significant constraints on state authority over city, county, special district, and redevelopment agency funds. As a result, higher and more stable local resources, potentially affecting billions of dollars in some years. Commensurate reductions in state resources, resulting in major decreases in state spending and/or increases in state revenues. (09-0063.)



Proposition 23 Suspends Air Pollution Control Laws Requiring Major Polluters to Report and Reduce Greenhouse Gas Emissions that Cause Global Warming Until Unemployment Drops Below Specified Level for Full Year. Initiative Statute. Suspends State laws requiring reduced greenhouse gas emissions that cause global warming, until California’s unemployment rate drops to 5.5 percent or less for four consecutive quarters. Requires State to abandon implementation of comprehensive greenhouse-gas-reduction program that includes increased renewable energy and cleaner fuel requirements, and mandatory emission reporting and fee requirements for major polluters such as power plants and oil refineries, until suspension is lifted. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Potential positive, short-term impacts on state and local government revenues from the suspension of regulatory activity, with uncertain longer-run impacts. Potential foregone state revenues from the auctioning of emission allowances by state government, by suspending the future implementation of cap-and-trade regulations. (09-0104.)



Proposition 24 Repeals Recent Legislation that Would Allow Businesses to Carry Back Losses, Share Tax Credits, and Use a Sales-Based Income Calculation to Lower Taxable Income. Initiative Statute. Repeals recent legislation that would allow businesses to shift operating losses to prior tax years and that would extend the period permitted to shift operating losses to future tax years. Repeals recent legislation that would allow corporations to share tax credits with affiliated corporations. Repeals recent legislation that would allow multistate businesses to use a sales-based income calculation, rather than a combination property-, payroll- and sales-based income calculation. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Annual state revenue increase from business taxes of about $1.7 billion when fully phased in, beginning in 2011-12. (09-0058.)



Proposition 25 Changes Legislative Vote Requirement to Pass a Budget from Two-Thirds to a Simple Majority. Retains Two-Thirds Vote Requirement for Taxes. Initiative Constitutional Amendment. Changes the legislative vote requirement necessary to pass the state budget from two-thirds to a simple majority. Provides that if the Legislature fails to pass a budget bill by June 15, all members of the Legislature will permanently forfeit any reimbursement for salary and expenses for every day until the day the Legislature passes a budget bill. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Unknown changes in the content of the state budget from lowering the legislative vote requirement for passage. Fiscal impact would depend on the composition and actions of future Legislatures. Minor reduction in state costs related to compensation of legislators in years when the budget bill is passed after June 15. (09-0057.)



Proposition 26 Increases Legislative Vote Requirement to Two-Thirds for State Levies and Charges. Imposes Additional Requirement for Voters to Approve Local Levies and Charges with Limited Exceptions. Initiative Constitutional Amendment. Increases legislative vote requirement to two-thirds for state levies and charges, with limited exceptions, and for certain taxes currently subject to majority vote. Changes Constitution to require voters to approve, either by two-thirds or majority, local levies and charges with limited exceptions. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Potentially major decrease in state and local revenues and spending, depending upon future actions of the Legislature, local governing bodies, and local voters. (09-0093.)



Proposition 27 Eliminates State Commission on Redistricting. Consolidates Authority for Redistricting with Elected Representatives. Initiative Constitutional Amendment and Statute. Eliminates 14-member redistricting commission selected from applicant pool picked by government auditors. Consolidates authority for establishing state Assembly, Senate, and Board of Equalization district boundaries with elected state representatives responsible for drawing congressional districts. Reduces budget, and imposes limit on amount Legislature may spend, for redistricting. Provides that voters will have the authority to reject district boundary maps approved by the Legislature. Requires populations of all districts for the same office to be exactly the same. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Likely decrease in state redistricting costs totaling several million dollars every ten years. (09-0107.)

Can an Economist Avoid Being a "Hubristic Gasbag"?

I've now realized that nobody will like my forthcoming book (Basic Books September 2010) titled climatopolis . The Right Wing of the political spectrum will be unhappy that I believe the climate science that climate change could be a real threat to our society (if we don't change our ways). The Left Wing will be unhappy that I argue that free market capitalism and individual rational choice will allow us continue to thrive as climate change unfolds. Capitalism has caused climate change but its evolutionary flexibility will allow us to do a "Houdini" in the face of anticipated changes in our climate conditions. To see me discuss these "hot botton" issues watch this .

I have one fan. I'm grateful to this person for boosting my self confidence.


"DonQuixotedeKaw
3 days ago I really like this guy, he's not a hubristic gasbag.
The answer to the last question, asked at 56:45 is at the "PJ Series" playlist.
YT search; 4670D3458F353C6B

I've added this video to the far larger playlist,
"Conceiving A Panacea" 1504D87AB1D74D9C "

Sunday, June 27, 2010

30 Years Have Past Since the Movie Airplane Opened!

Time flies. For a quick proof, you can read this nerdy article about the making of the 1980 hit movie Airplane. "Do you like gladiator movies?" As a 14 year old, I think I knew that the pilot was a strange dude.

For a second piece of evidence, consider Han Solo from Star Wars. My son has watched Star Wars Movies 4-6 at least 5 times each but when my wife showed him a photo of Harrison Ford and his recent marriage as reported in People Magazine --- my son had no idea who "the old dude" was.

Saturday, June 26, 2010

A City Slicker in Sequoia National Park

Imagine a place where your Blackberry doesn't work and you don't care. A place with 1700 year old redwood trees that even your 9 year old son thinks are pretty cool. This place exists. It is called Sequoia National Park . I now know more about central California than I thought I would ever know. I'm also now a fan of the Fresno Bee. Things change.

I saw the world's biggest tree (General Sherman), we saw bears, lizards, and some fast moving rapids. We ate at the same Mexican Restaurant for 3 nights in a row and I may have permanent indigestion. I even shocked the world swimming in the motel pool with my son. I was the only dude with no tattoos. I guess I'm really uncool.

Each day, we would drive two hours roundtrip into the National Park and then hike around for 3 to 4 hours. This was too much exercise and at night I could barely move. The hotel beds were too small and the toliet had a strange smell (perhaps the upstairs motel guests?) but despite these small slights --- we still had a great time.

We returned to Los Angeles and had the pleasure of finding two dog turds in our garbage cans. I knew this would happen. Garbage cans are placed in front of our home on wednesday mornings and then the garbage trucks arrive before noon to empty them. But, we were out of town and our gardeners must have been late to roll them up our driveway so some kind dog owners were nice enough to give us their precious dogs' droppings and didn't even bother to tie the plastic bag. Nice!

I'm still caught up with this bad review that Climatopolis received. It occurs to me that I'm going to be set up as the "bad boy" of the climate change set because I do not foresee "doom and gloom" in our hotter future. For those of you who want hope and optimism, I've got it for you in abundance. Our best days are ahead of us!

I want my book to be remembered as a "neo-classical economist's vision for how an economy evolves in the face of anticipated but ambiguous risk (climate change)". We learn, we experiment and we adapt. Sink or swim baby.

To provide just one example of how economists view climate change; suppose that climate change affects Los Angeles' water supply. The introduction of floating water prices (i.e higher prices to reflect increased scarcity) would go a long way to helping us to adapt. The Economist Magazine appears to agree with me. Scarcity will actually nudge us to adopt more efficient means to allocate increasingly scarce resources (i.e water) --- adopting new rules of the game help us to escape.

Switching subjects, this article on GMO salmon is pretty interesting. If the salmon double in size, what happens to the equilibrium price? Supply has shifted out but does demand shift in or remain constant? How many people will freak out about "Frankenfood"?

Climatopolis is Roughed Up by Publishers Weekly

It is clear that Publishers Weekly is not a big fan of my work. I sense an ideological bent to the short review below. My book made this reviewer angry but he/she doesn't explain why. Part of me is pleased by this response. I've hit a nerve!

Climatopolis: How Our Cities Will Thrive in the Hotter Future.
Matthew E. Kahn, Basic, $26.95 (288p) ISBN 978-0-465-01926-7

"Kahn (Green Cities) takes a sanguine look at how cities will fare under climate change. He admits that global warming could be catastrophic, but "a small cadre of forward-looking entrepreneurs will be ready to get rich selling the next generation of products that will help us all to adapt" and that "the story will have a happy ending." Analyses of global cities yield such scattershot observations as that by helping people rebuild in disaster-prone areas such as flood zones, governments "actually put more people at risk;" that "due to its recent economic development, China will be spared horrible outcomes faced by other developing nations;" and that globalization will protect us against local agricultural failures (and if crops fail everywhere, entrepreneurs will have incentives to provide dried fruit instead of fresh). On how the urban poor will cope with climate change, Kahn shrugs his shoulders writing, "the truth is that this group has always faced hardship…the question is, how much worse will their quality of life be?" In comparison with the abundance of thoughtful and astute books predicting life under climate change, this one is remarkably shallow. (Sept.)"

The review makes no mention of the fact that I am an economist and that the book's novelty is to embrace the tools of micro-economics for thinking about our evolving response at both the individual level and the government level to the very real threat of climate change.

To get a sense of my book's tone and core logic, you have a choice. You can watch

video #1 or

video #2.

Wednesday, June 23, 2010

My January 2010 Talk at the UCSB Bren School on Adapting to Climate Change

In January 2010, I had the honor of giving a speech at the UCSB Bren School. I'm not sure if I was the most dignified guest but I had a great time and made many new friends.

I believe in teaching by counter-example. If you'd like to see how not to give a big think talk on how our cities will cope with climate change, watch this .

Monday, June 21, 2010

If Beijing and Shanghai Are Too Expensive for Young Men to Buy Homes then New Cities will Thrive --- Phoenix Revisited

The Song Remains the Same. The members of Led Zeppelin were wiser than we thought. Today, young men in Beijing and Shanghai are finding that they cannot afford to buy a tiny apartment . Their girlfriends are dumping them unless they can buy a car and an apartment. Is life fair? As the ratio of young men/young women goes to infinity in China this marriage market is growing tough. While I have argued before that a little bit of international migration could cure this imbalance, I'd like to discuss a different issue here.

My loyal readers are well aware of my January 2010 paper about China's cities. If you need another copy go here . In this paper, Zheng, Liu and I argue that migration across China's major cities is creating an open system of cities. Beijing and Shanghai are not the only big cities in China. If rents grow too high, both workers and firms will leave. Just as millions of people left the Northeast over the last 40 years to go to the Sun Belt, a similar trend will play out in China. Now, there is an interesting Chicken and egg issue here of who will move first but it is highly intuitive that jobs that do not feature large learning spillovers or deal making can leave Shanghai and Beijing and locate in cheaper land rent areas and workers will follow. Cities such as Houston and Phoenix have much lower home prices than Coastal U.S cities. In a similar spirit, workers in China can live in the "next tier" cities and have much lower home prices so their effective real wages will be higher and their romantic lives may improve.

So, I predict that a consequence of the runup in real estate prices in the China's Superstar cities will be a migration to the next tier cities.

Sunday, June 20, 2010

Do We Agree that a Multi-Billion Dollar Fast Train from Los Angeles to Las Vegas Would be a Good Keynesian Investment?

I'm hoping that Peter Gordon and Ed Glaeser will join me in endorsing spending government billions so that I could have the option of taking a fast train from Los Angeles to Las Vegas . Some policies just feel like a "free lunch" and this would appear to be classic example. If anyone would like to join me in taking out an adverstisement in the newspaper, we could all co-sign it and demonstrate our united front as we create "green jobs" and improve transit access for my part of the country. Before, I get too excited here -- I should ask somebody to calculate the average cost of this train per rider. Would it be less than $10,000?

Determining the "Optimal Regulation" of Methyl Iodide Use in Agricultural Production

There are costs and benefits of using chemicals for growing food such as California strawberries.

There are risk costs of using Methyl Iodide;
"“I’m not in blanket opposition to the use of pesticides, but methyl iodide alarms me,” said Theodore A. Slotkin, a professor of pharmacology and cancer biology at Duke University Medical Center and a member of the scientific review committee. “When we come across a compound that is known to be neurotoxic, as well as developmentally toxic and an endocrine disruptor, it would seem prudent to err on the side of caution, demanding that the appropriate scientific testing be done on animals instead of going ahead and putting it into use, in which case the test animals will be the children of the state of California.” "


Top researchers such as John Froines from UCLA have investigated the consequences of exposure to this stuff for creatures and for humans. For some public discussion look at this .


There are also benefits from using this stuff;

"Injected into soil before crops are planted, the fumigant spreads through the soil to kill insects, weed seeds, plant diseases and nematodes. It can be applied by drip irrigation under a special protective tarp or injected into the soil using a tractor that automatically places a tarp over the ground after application."

The State has made a regulatory decision to allow this chemical to be used.

"California has provisionally approved methyl iodide and will issue a final decision after the public comment period ends June 29.

During Thursday’s hearing, pesticide regulators voiced confidence in the scientific basis for their decision.

“The review associated with this material is the most robust and extensive in the history of the department,” said Mary-Ann Warmerdam, director of the state regulatory agency.

Ms. Warmerdam said that based on the available data, the chemical could be used safely with precautions like respirators, impermeable tarps and extra restrictions on use around schools, businesses and homes.

The scientific review committee, which was commissioned by the regulatory agency, vehemently disagreed."


What can an economist do here to improve public health in this case?

1. We can devise an auditing and credible punishment system to signal to farmers who use methyl iodide that their efforts to engage in costly precautions such as; "
respirators, impermeable tarps and extra restrictions on use around schools, businesses and homes" will actually be enforced and monitored. Farms won't take these costly actions if they believe that the regulatory threat is not credible. The audit probability must be high and the punishment conditional on being caught cheating must be high.

2. There is economic geography work to be done here in identifying which farming areas are adjacent to suburban communities featuring more homes and more people. In this case, the damage caused by the pollution externality --- the release of methyl iodide --- will be larger because there will be more victims exposed. The regulatory agency could consider a "moat strategy" in which farmers owning land close to the suburbs would not be allowed to use this chemical.

There could also be a label campaign that farmers who use this chemical would need to tell future land buyers that this chemical was used there. I bet that many farmers whose land is adjacent to California suburbs are considering selling their land to suburban developers. If developers are willing to pay less $ for farmland where this pesticide has been used (and if this is common knowledge), the farmers who want an option value to sell their land to developers in the future will not use the pesticide today! This would be a free market solution to the externality problem and Coase would be proud!

3. Returning to the product label, I can't tell if methyl iodide use in growing strawberries solely affects the soil where the berry is grown? Or does the chemical also get into the strawberry fruit itself? In the first case, only the people who live near the production site and the workers who work there will be affected. In the second case, then consumers of strawberries (such as my family) will also be affected. We have the right to a product label --- information about the consequences of exposure would increase the demand for "organic strawberries". (I'm assuing that organic strawberries are grown without this stuff), consumers would face higher prices for this higher quality fruit as the organic farmers would lose some of their produce output to the bugs.

Environmentalists need to figure out an easy to understand "grading scheme" for how they inform consumers about the consequences of consuming a given product. I realize the world is complex but we need a simple trusted "report card" scheme of "A, B, C, D" and then let consumers vote with their wallets. Environmental certification will continue to be a major middleman in helping us mitigate potentially serious health externalities such as this case.

Saturday, June 19, 2010

Does Money Matter?

Have you noticed that economists continue to ask the same question in many different settings? When public schools spend more money, do students receive a better education? Rick Hanushek has written on this. In health economics, do regions that spend more on health achieve better health outcomes? The Dartmouth researchers continue to work on this.

While it appears obvious that having a pot of gold opens up more possibilities for achieving your goals (you hire better teachers, have nicer classrooms, invest in clean surgical tools and modern medical machinery), there is no law of physics that money is spent productively and that the $ is focused on achieving the stated goal of improving the health of the patients or improving the quality of the student's education.

In fact, the natural resource curse literature suggests that "income windfalls" do not lead to much improvements in the average joe's quality of life. This paper by Caselli and Michaels is the most convincing evidence on the claim that exogenous increases in Brazil's cities local income leads to little gains for the average guy as money goes missing and is grabbed by special interest groups.

In the case of the U.S, could something similar be taking place as public sector employment rises and public sector wage premiums (above the workers' next best alternative) be higher in areas that attract higher levels of expenditure. There is a causality issue here. Do public sector unions become more powerful in areas where more government Medicare expenditure is taking place? If this is the case, then the Unions will grab a larger % of the resources for themselves and fewer $ will flow to patient care and the researcher will recover a small effect of $ on health. But, the omitted variable here is the implicit tax rate.

In the case of the Dartmouth Atlas, we need to run two field experiments to settle this issue;

Field Experiment #1: Take 1000 sick people and make 300 clones of each one. With the 300,000 people, randomly assign them to different hospitals in different geographical areas and study their survival probabilities. Since there are 300 clones, the researcher can control for patient heterogeneity with individual fixed effects and recover hospital fixed effects for ranking the hospitals in terms of quality. The researcher could also observe the Medicare reimbursement claims to rank these hospitals on costs. Do the more unionized hospitals have higher costs of care?

Field Experiment #2: randomize Medicare Lump Sum payments to hospitals and test out how their employment, wages and capital stock (new cafeterias?) change as a function of receiving this "windfall". If money matters, then those hospitals that receive more of this randomized windfall should experience the greatest improvements in productivity (death rate reductions). This would yield a test of whether hospitals spend their $ on improving patient health or improving the quality of life and aesthetics of the hospital as a whole (fresh paint).

Without these two designs, can the important policy question (does $ matter?) be answered conclusively? Empirical economists continue to debate each other concerning what is "convincing evidence". In the 1970s, an OLS regression with aggregate state level data was convincing. In the 1980s, an OLS first differenced regression with micro panel data was convincing. In the 1990s, a natural experiment design or a state law change creating some randomization (an instrumental variable) was convincing. Now, we live in the age of field experiments and randomization at the individual level (i.e assignment of a given patient to the left door or right door determined at random). For scholars who cannot run such an experiment, what do we conclude about their work?

Is Biomass a "Green" Energy Source?

The Devil is in the Details. If a pulp and paper factory has a lot of biomass produced as a byproduct of production, should it be encouraged to burn that stuff to generate electricity? In aggregate could such alternative energy sources help us to rely less on coal fired power plants? As discusseed here, environmentalist critics are worried that too much of this activity will be triggered by well meaning subsidies for renewable power generation.

The environmentalists are worried that toxic air emissions will rise as all of this biomass will be burned. They point out that coal fired power plants produce two dimensions of "bads". They produce greenhouse gas emissions and local air pollution (particulates and sulfur dioxide). Thus, there are "co-benefits" of reducing our % of power from coal power plants because we get two benefits from swapping out solar or wind for coal.

If we switch over to producing more power using biofuels, how much local health damage does this create? This depends on several factors including; 1. how many people live in the airshed near where the biomass would be burned? 2. how sensitive is their health to elevated toxics levels? 3. how much are they willing to pay to avoid this marginal increase in sickness?

As you can see, this is complex --- so the case for and against biofuels will vary on a case by case basis. As the article details, there are even more items to keep straight. There are carbon life-cycle issues to figure out such as whether the energy source is "carbon neutral" or not?

I don't think that we can rule out any "renewable" power generation approach right now. All of our options (including nuclear) should be explored and through competition and learning, let's see which one wins. That said,I also believe in property rights. Land owners next to biofuel burning locations will suffer as the toxic fumes drift over and lower local land values. This bad externality should be internalized by the biofuel burners. An emissions tax with local refund of the revenue would handle that.

Friday, June 18, 2010

Disaster Compensation Fund Claims as a Test of Corruption Activity in the U.S

Similar to his job after the 9/11/2001 attacks, Kenneth Feinberg has been called in to be King Solomon again. He will divide up the $20 Billion BP dollars among the "victims". But, how large will the denominator be? Will 8 guys file a claim or 8 billion guys? In both of these case studies, it would interest me --- how many "deserving people" did not file and how many folks who had no genuine claim to the damage fund file a claim seeking dough? This second group represent the corrupt set. Social scientists should be able to use these natural experiments to do some new research on "who engages in corruption". Such statistical profiling might be useful in the future for identifying demographic groups that are more likely to submit a false claim. The rational regulator should give those claims a second look.

UPDATE: I see that my post anticipated the next day's New York Times piece. This article has a funny discussion of "general equilibrium" effects. Consider a Oklahoma Steakhouse that has a famous maincourse of steak and shrimp. If it can no longer buy Gulf Shrimp (because of the Spill), is it a victim who can seek damages?

An economist would ask; "in terms of shrimp price and shrimp quality, what can you substitute to if you can't buy the Gulf Shrimp?" On the consumer side, will your customers stop coming to your restaurant or will they substitute and buy your tofu salad rather than the steak and shrimp? In this second case, then your loss is the change in your profit as consumers make different choices.

So, Ken F. would want to know --- how much aggregate consumer surplus were Gulf Shrimp eaters gaining? This is one measure of part of the damage that the BP Spill created. We would also want to add in the "producer surplus". For a lawyer such as Ken, this could be a difficult calculation and some may try to play him for big bucks claiming that their lossses are huge.

Thursday, June 17, 2010

How Will President Obama Get His "Groove" Back?

What can President Obama do to get back on his "A-game"? He can't call the "A-Team" (but he could hire Mr. T for the CEA). He is losing the fight with the BP Oil Well. He has invested heavily in ungrateful allies in Afghanistan. The country's economy appears to be flat right now with everybody delaying investments waiting to see what will happen next but the Fed and the Congress have no "Keynesian Ammunition" left in the gun to nudge us towards growth. The macro economy appears to be floundering and he faces a serious Congressional election this November. No Republican appears to want to work with him on anything.

He can welcome the Lakers to the White House. He can watch Michelle O. plant organic stuff in his big backyard but will these touches help him get the magic back?

We know that a Reagan or a Thatcher would use military action to focus the country and re-establish leadership and the chain of command. For a variety of reasons, this option is not open to our leader.

We are supposed to celebrate his health care plan but I can't say that I understand it. It appears to be a transfer to the poor who did not have access to health insurance and now will have coverage. A fair nation should redistribute to the less fortunate but it also appears that this legislation will have many unintended consequences as it plays out and is actually implemented.

We are supposed to celebrate that he kept us from falling into a Great Depression but this counter-factual logic is not clear. How did the stimulus plan stabilize the economy? How do we really know the causal effect here? We still haven't seen what Ben Bernanke has cooked up for us in 2012 as he focuses on cleaning up the Fed's balance sheets.

I am certainly happy that he is our President and I support his re-election (and certainly against any Republican opponent with the exception of Big Mike Bloomberg).

If he is our president for the next 6.5 years, how can his life improve? What can he accomplish over this time period. If he anticipates divided government, what legislation can he enact? School uniforms? Such "small ball" may impress Dick Morris but I wonder if President Obama is getting the urge to return to the Senate.

So, I don't know the answer to this post's core question. Inside the White House, the Brain Trust must be puzzled by their loss of command over the news cycle. A good speech can only take you so far.

Priorities over the Life-Cycle

I live in Los Angeles and tonight is game 7 of the NBA Championship Playoffs. My team, the Laker, is playing my old home town's team (the Boston Celtics). In the past, this would have been a very big deal to me but I find that I don't care. As a younger man, I knew the commissioner of the NBA (David Stern) quite well. His older son was a good friend of mine. I apologize Mr. Stern -- I have lukewarm feelings about Luke Walton and all of your other products. I don't think that the game has changed. Instead, I think that I have changed.

I don't have the free time I used to have. The urgency and the emotion I used to feel in these "life and death" struggles has vanished. While they are great athletes, their feats on this small court just don't matter. I realize that we need to be distracted and we need some co-ordination mechanism to allow us to focus on the same thing to give us something to talk about but why this stuff?

When I was a kid, I was shocked that my father didn't really care about my Knicks and Yankees -- he feigned interest and he knew the star players and he took me to a couple of games but he didn't really care. Now, I understand.

Who are my new heroes now that I've dropped Michael Jordan and Dave Winfield?

You won't believe this but my new hero is Gen. Dwight D Eisenhower. This book convinced me. In truth, he reminds me of myself. Bald, a leader, charismatic and informed with an ability to work well in teams. As time passes, his contributions to the U.S seem to be fading.

Wednesday, June 16, 2010

Bill Gates Applies Peer Pressure on the Super Rich to Nudge Them to Give Away 50% of Their Wealth

For people worth more than a billion dollars, is there a declining marginal utility from income? Bill Gates is trying to start a virtuous collusive cycle. He wants the world's richest people to give 50% of their income to some big pot of $. The details are here . Suppose that he achieves high goal and the $600 billion dollars is collected. What would he do with this money? What cause merits this type of investment?

Now, I would give it all to the National Science Foundation and the National Institute of Health and allow them to decide what basic research to fund with the understanding that any new intellectual property would be open source and distributed around the world (so no patented drugs would come from this work).

Will other Billionaires follow Warren and Bill and give away big chunks of their hard earned $? The Carnegie Conjecture says that they will do so to not spoil their kids but many of these rich people have very large families so per-kid the fortune doesn't look so big.

Does peer pressure work with this group? Is this group different from you and me?

I respond to peer pressure. My Institute is trying to raise more $ for our day to day activities. I could have gone and asked Bill Gates to fundraise for us but instead I start to teach summer school next week. It still isn't too late for you to sign up and be my student. I'm a good teacher. There have been thousands of students at Chicago, Columbia, Harvard, Stanford, Tufts and UCLA who I've taught some pretty good stuff to.

Here is the class!

Monday, June 14, 2010

Do Economists Influence Public Policy?

We are in a deep recession and the President wants to create jobs. Most economists would say that allowing real wages to fall will help to stimulate such job growth. But, this article states that "The White House on Monday will issue new rules that strongly discourage employers from cutting health insurance benefits or increasing the costs of coverage to employees, administration officials say."

This is good news for incumbent workers who already have jobs but it will clearly have the unintended consequence of discouraging these firms from hiring new workers.

As economists, we have seen this before and provided are rating of two thumbs down. I'm thinking about the good work done on the unintended consequences of the Americans with Disabilities Act by Tom Deleire and by Acemoglu and Angrist in this JPE paper .

Recall their abstract:

"The Americans with Disabilities Act (ADA) requires employers to accommodate disabled workers and outlaws discrimination against the disabled in hiring, firing, and pay. Although the ADA was meant to increase the employment of the disabled, the net theoretical effects are ambiguous. For men of all working ages and women under 40, Current Population Survey data show a sharp drop in the employment of disabled workers after the ADA went into effect. Although the number of disabled individuals receiving disability transfers increased at the same time, the decline in employment of the disabled does not appear to be explained by increasing transfers alone, leaving the ADA as a likely cause. Consistent with this view, the effects of the ADA appear larger in medium-size firms, possibly because small firms were exempt from the ADA. The effects are also larger in states with more ADA-related discrimination charges."

Economists argue that "good intentions" are not sufficient --- we need the smart Obama economists to foresee the consequences of their policy actions before they take them and judge the costs of the policy factoring these medium term costs in as well. I view this new Obama regulation as a transfer from the unemployed and the firms' shareholders to the employed --- and I'm not convinced that this is a "pro-growth" strategy.

Sunday, June 13, 2010

UCLA Graduation 2010

On Saturday June 12th 2010, I attended the UCLA Econ Department's graduation ceremony. Here is a photo of me and Jason Barbato. For those of you with a strange taste for photos of economists, you will note that Kathleen McGarry can be seen to the right of the photo.



I meant to smile in the photo but I can't tell if I delivered. I greatly enjoyed this graduation. Before we marched out the attending Economics faculty had the opportunity to eat some cheese and crackers. I spoke to Connan Snider about a research project I'm working on for California's Department of Toxic Substances Control. We then marched out and saw the graduating seniors lined up. Since I teach large undergraduate classes, I recognized many of my students and walked over to talk to them. My faculty colleagues seemed to be impressed that I am a "man of the people". Up on stage in our formal academic gowns, we sat up there. I sat next to Bill Zame and we talked about many topics as graduation unfolded. We also worked together at the end of the ceremony when it was our job to read out the student names and to hand out diplomas.

At the end of graduation, I posed with my students for photos and congratulated their parents. It was a good day. As a loyal member of the UCLA faculty, I enjoyed being part of a routine that I hope to participate in for years to come.

Risk and the Life of the Modern Teenager

Each of us has to pick our poison. There's many bad choices for teens to choose from and now the dimensionality of the set has increased as we now have the option to take a solo boat ride around the world like this risk loving 16 year old from Sherman Oaks. Since that community is 6 miles north of UCLA, UCLA faculty have felt qualified to comment on this case study.

Since my UCLA colleagues have commented, I have the right to also comment. People are blaming her parents. I'm slightly sympathetic. Will they compensate the search and rescue squads who tracked her down near the Pacific Ocean? Will she now be famous for not succeeding? Was this her plan all along?
UPDATE: I was correct about the father's motive as he sought a "Disney Movie" about his daughter.

If we focus attention on daredevils, does this create bad incentives as more people will try to attend Presidential Dinners that they were not invited to or give birth to 93 children at once after visiting a Beverly Hills Fertility clinic?

More generally, do each of us really have the right to "pursue our dreams" even when our specific dream is risky and a pinch strange? Over the last 2 days, I have attended 2 UCLA graduations. Yesterday, I took party in the Economics graduation and today the Institute of the Environment held its graduation.

I smiled, shook graduates hands and posed for numerous photos with my students. I told parents how much I enjoyed teaching their children and I spoke earnestly about my job and the future for the new graduates. I even meant what I was saying (I think).

Our students are diverse and have diverse goals and concerns as they launch their careers. While they are optimistic, they know this recession is nasty and the competition to get into graduate school is fierce. This wouldn't be a bad time to sail around the world!

When I was 16, I was a fool. I went to my junior year High School classes and played basketball and hung out with my friends. I wasted a lot of time that I wish that I could have back. The young lady sailor must have engaged in a lot of planning, logistics and studying to prepare for her trip. When she is back on land, I would encourage her to talk about this --- the skills she developed to make her journey. In the long run, and putting aside the People Magazine aspect of this case study, this experience may actually be meaningful for her.

I have a 9 year old son. He will be 16 soon enough -- now I'm thinking about what risks I hope he will take when he is 16.

Saturday, June 12, 2010

Differentiated Products, the Global Supply Chain and Enriching Bad Guys in the Developing World

Can "sunshine laws" that expose the true supply chain for a product set off a virtuous wave that helps to mitigate global inequality and unfairness? I hope so. Stanford offers us a case study. As detailed in this article , there is a discussion of the Stanford Student's plan; "On Thursday, a committee of Stanford’s trustees considered a resolution to create a new proxy voting guideline for the university’s investments. The guideline would support shareholders’ efforts to make companies trace the supply chain of the minerals used in their products."

The students are worried about cases such as this one; "In the Democratic Republic of Congo, armed groups force villagers to mine minerals like wolframite and cassiterite. Metals processed from such minerals are used in consumer electronics products, including laptop computers, MP3 players, cellphones and digital cameras.

UPDATE (I have rewritten part of this blog post to correct mistakes in my original post)

So, the students want the Stanford endowment to use its muscle to nudge high tech firms to reveal their global supply chains. This "full information" would be a good thing! Does the CEO of some of these firms not know where the raw ingredients for her product come from? Is ignorance bliss?

Now, my question here is the following; once the CEO is made aware that a key part of her company's product is produced by "bad guys" (and the CEO knows that everyone else knows this); what happens next? The corporate social responsibility school would say that consumers will boycott this product. But will they? Is this boycott credible? What will they substitute to? If there is a perfect substitute product that doesn't use such nasty supply chains then maybe.

Ideally, the firm will seek out "nicer" input suppliers --(those who can provide the input in a socially responsible way) --- but will they? These input providers are likely to charge more.

If the company is a public company, will shareholders start selling the stock? Maybe? will the company's share price fall? There are plenty of international investors willing to hold "sin companies".

So, while I respect the Stanford effort at information disclosure ---- I am a practical person --- I want the Stanford Students to explain how this information discovery will help them achieve their worthy goal of improving the quality of life poor people in these developing nations.

While the Stanford students aren't currently advocating a full fledged disinvestment from the endowment portfolio of "blood diamond" firms, this may be their next step. Again, if all the rich universities boycotted such firms would that be sufficient portfolio shift to lead the CEOs of the cellphone makers to shift their global supply chains and substitute to "nicer" mineral suppliers or to designs that require less of these minerals?

This is the old question of whether boycotts can work? The problem for the Stanford students is that there is always someone at the margin who doesn't feel as strongly about punishing the Congo's armed groups as much as they do; this "marginal stock buyer" will get a "good deal" if Stanford and Harvard boycott certain stocks and this will make the marginal buyer more likely to buy. Now, if all the world's investors refused to buy the shares of companies that purchased inputs that would be a different story.

As I blogged about in my last post about supply chains in the case of the Shrek glasses --- it is interesting in this age of globalization what do consumers know or care about in the supply chain. Most consumers would frankly say; "I want a cheap product and I don't care how this was made." If more consumers wanted products that were genuinely "corporately socially responsible" then the boycott would be more likely to work; so the key issue here is taste heterogeneity and what % of consumers are of each type? A boycott won't work if most consumers simply want the cheapest product (holding quality constant).

So, how can major universities change the world? I would say through comparative advantage; through training the next generation of leaders and conducting basic research that leads to discoveries that can be transferred to developing countries to improve health care, the environment and day to day quality of life.

Friday, June 11, 2010

Shrek as a Symbol of Information Asymmetries in Global Supply Chains

Are all products lemons? When I taught intro econ, I'd give the example of the hot dog seller. If she sells you a "bad dog", you know it two hours later and you are sick the next day. In this case, quality is immediately verifiable and the seller knows this. Since she hopes to sell you one hot dog each day, she has the right incentives to provide quality. But, does this logic always hold?

In the case of shrek glasses there could be a long latency period and this means that establishing "cause and effect" will be tricky at best. If we can't figure out who shot you --- how can we hold the bad guy accountable?

The lawyers will hope that ex-post remedies such as liability will provide ex-ante incentives for quality -- I have mixed feelings about this. Smart firms know how to configure their operations to protect themselves, lawsuits drag on forever.

As this LA Times piece highlights, in the case of the Shrek glasses --- nobody can explain why cadmium is in the glasses. But somebody in the production process introduced this. Given Europe's aggressive REACH regulation to reduce the chemicals embodied in consumer products, it appears unlikely that their producers would have introduced this stuff. Our toys are not allowed to have cadmium in them but kid's drinking glasses are not toys so the ban did not cover the glasses. This distinction sounds silly to me but it appears that some developing country must have introduced this stuff into the supply chain but the LA Times article hints that a cone of silence is covering up this information.

Now, I agree that a product produced in 9 different nations could have a very long and complicated "label" if each product was required to tell its autobiography listing its life journey from birth and creation into the final consumer's hands but such information would be useful. My wife won't buy fruit imported from certain countries. Consumers can be trusted to make better decisions with more information. Maybe products need to have hypertext on them so that we can click it to read more about the details of the product if we seek this information?

Wednesday, June 09, 2010

The Right Tail of the Home Price Distribution Near UCLA

You want to see some expensive West Los Angeles homes? Take a look at this webpage . UCLA is the "heart shaped" object east of the 405 highway, south of Sunset Blvd, and north of wilshire blvd and west of Beverly Hills. We live just east of campus but not in one of these homes.

We Are the Champions, My Friend

UCLA's Women's Softball have won again ; National Title #106 for UCLA. While I have never won a sports trophy, my students have. I'm proud to say Megan Langenfeld (one of the stars of the game) is one of my students this quarter. She told me that she would miss our final exam because she would be playing in the championship game and I arranged for her to take it off campus. She is pitcher and I asked her whether she throws spitballs. She said "no".

Recall that in Shakespeare's Macbeth that Banquo was the father of kings but never king himself. This is what the witches predicted. I am like Banquo. My "UCLA children (my students)" are achieving things that I have not been able to.

Is China's Military Getting Antsy? The Chain of Command Question in Non-Democracies

This article scared me. My read of this piece is that the Chinese military leaders are talking tough and feeling cocky. In terms of labor and capital, they run an impressive army. With 1.3 billion people to choose from, the quantity and quality of the labor should be high and with trillions of dollars of government surplus the capital (tanks, planes) should all be impressive as well. When you build a great military machine, there are some Generals who are eager to use it.

You don't have to be a great theorist about organizations to know that the greatest opportunity for military leaders is during war time. Add in a little bit of nationalism over Taiwan and a few Asian islands in the South China Sea and the Smart Obama team could face years of headaches when it hoped that it would have an equal "partner" in China.

My big question: in a nation without a Constitution (and I'm assuming that China doesn't have a constitution), does the Chinese military actually believe in civilian rule? In the United States, our military appears to believe that President Obama is the commander in chief. Does the Chinese military look to Beijing for orders? If there is a conflict between the military and the Chinese central government, how is this mediated and resolved?

Tuesday, June 08, 2010

Genetic Distance and the Search for the Next Supermodel

Genetic Distance helps to explain why pairs of countries experience common economic outcomes. Talent scouts have rediscovered the geography of DNA as they search for the next supermodel. I was struck by the "freakonomics style" detective work discussed in this piece about searching for the next supermodel .

In Brazil;

"Clóvis Pessoa studies facial traits that are successful on international runways and looks for towns in the south that mirror those genes.

“If a famous top model looks German with a Russian nose, I will do a scientific study and look for cities that were colonized by Germans and Russians in the south of Brazil in order to get a similar face down here," Mr. Pessoa said.

Dilson Stein, who discovered Ms. Bündchen when she was 13, called Rio Grande do Sul a treasure trove of model-worthy girls. A year before discovering Ms. Bündchen, whose parents are of German ancestry, he found 12-year-old Alessandra Ambrosio, now famous for her Victoria’s Secret shoots.

Today, younger scouts like Mr. Chornak have taken up the mantle. With catlike quickness, he jumped from his chair and strode up behind a tall girl with a hooded sweatshirt. “Have you ever thought of being a model?” he asked a 13-year-old with light blue eyes and pimples."

Monday, June 07, 2010

Links for Today Gone Wild

Apparently, bloggers are supposed to act as intermediaries connecting readers to useful stuff to read. So, I guess I'm like a banker. Permit me to do my job.

Is the NY Times Politically Correct? A new look at the extreme right tail of the math aptitude distribution .

The New York Post identifies a successful investment banker .

California gets used to a life without plastic bags .

Cher's troubles in Las Vegas .

Saturday, June 05, 2010

How Do Superstars Meet and Fall in Love?

The Model Iman and David Bowie are married. How did they meet? This article explains: "Iman was living in Los Angeles when she and Mr. Bowie were fixed up by their mutual hairdresser." Now, we know.

UCLA is mourning the death of coach John Wooden . He lived a long life and achieved great things. This quote from the Christian Science Monitor article is quite funny;

"It's what he said during a final timeout each time UCLA was on the verge of winning another championship.

"During these timeouts, " he explained, "I reaffirmed to everyone that when the game was over we shouldn't act like fools. I told them it was a basketball game, and nothing more."

Now, I respect those priorities. UCLA takes great pride in its 105 NCAA Sports Championships and I've wondered whether our sports reputation has de-emphasized our academic accomplishments. The University of Chicago took great pride that it stunk at sports.

Spock vs. Homer Simpson

Dan Ariely has written a new book and the New York Times gives it a favorable review review here . For details about this book click here . The reviewer hints that Dr. Ariely has bundled in too much autobiographical material about himself. It would interest me whether the inclusion of such "personal stuff" was his idea or the publisher's idea? In the original Freakonomics book, Dr. Dubner weaved in a great personal narrative about Dr. Levitt's life that made the reader root harder for the protagonist. It is an interesting question whether the reading public now demands such "personal details" from academic authors of popular books?

In some popular books such as Jeff Sachs' or Joe Stigliz's, I recall very little autobiographical material except for hinting at what fancy consulting jobs they had for various governments. But, does the public want more? The public gets what it wants! A long run effect of Freakonomics may be that book writers will be less pompous in how we discuss our work with the public. I could be wrong --- somehow I don't think that the recent hit "13 Bankers" had much fun bundled in. But, would it have sold better if it had? I view this as the "Mary Poppins model" of education --- recall that a spoonful of sugar makes the medicine go down.

I'm pondering these shallow issues because in my forthcoming book, I do tell stories about myself but mostly in the form of jokes. We will see if anyone finds them amusing. My 8 year old son has read half of my new book and he likes it. This is a bad sign.

I do see that Dan Ariely and I share a common interest in using the "Spock and Homer Simpson" as a nice contrast set for making points about how economists view the world. In my Climatopolis, you will see these two discussed at length in the context of how we will cope with climate change.

Friday, June 04, 2010

A Glimpse of my Childhood House

I was born in Chicago and at age 2 moved to New York City. From age 7 to age 18, I lived in Scarsdale, New York at 159 Brite Avenue and now that house is up for sale and the sales price is not low. According to Zillow, the sellers are being quite aggressive in how they have priced their home. I suspect that Mayer and Genesove could explain this sales behavior.

If you'd like to see our old house click here . The house has been completely renovated since I moved out 26 years ago and my parents moved out roughly 15 years ago. I recognized just a few interior features and had some trouble pinpointing my bedroom in the photos. But, the exterior and backyard don't change.

Its interesting that you can live in a home for 11 years but barely recognize it once someone else has invested and transformed it into their own paradise.

I have fond memories of Scarsdale but I believe that the entire town is over-rated. It was a boring suburban town that was too far from New York City and too safe. It is true that New York City was an ugly strange place from 1973 to 1984 (my Scarsdale years) so I can't claim that this big city would have been a better place to grow up. so, where should a kid grow up? The answer is West Los Angeles.

Shrek as the Poster Dude for California's Department of Toxic Substance Control's New Regulations

Is Shrek really dangerous? The Christian Science Monitor says "yes". This case study is an excellent example of what California's Green Chemistry Initiative is attempting to protect us from. How do we create rules of the game to create a learning process so that both product consumers and product suppliers learn over time and change their behavior as new risks are discovered about existing products? For more technical details click here .

Paul Krugman, Movie Star?

I know that Dr. Krugman is a very talented man but I never thought of him as the new Brad Pitt. The NY Times reports that he has a cameo in the new hip movie about a rock star traveling across the country to arrive in Los Angeles' sunset strip. This could set quite a precedent for economists. As we expand our brand into fields far from what we were trained in, I think we could enjoy this "expansion of powers". Forget advising Presidents or Software Companies, or conducting research, we could soon be judging American Idol.

Returning to things I know something about, there is an interesting solar battle brewing in rural Colorado . Colorado has an aggressive 30% Renewable Portfolio Standard for its electric utilities and large scale solar would help to achieve this goal. Now, I don't understand what the penalty is for missing the target. But, putting this to the side --- a large chunk of the rural area where the solar farm will be built is owned by a very rich guy named "Louis Moore Bacon, bought the 172,000-acre Trinchera Ranch in 2007. He opposes the part of the line that will cross his property."

We all know that once the power is generated in the middle of nowhere --- you need transmission lines to get the power to the people in the cities and those NIMBY powerlines must go somewhere. Mr. Bacon is using his lawyers to block them touching his property as he must view them as nasty and lowering the value of his land.

As the nation starts to want to build more renewable power (wind and solar) in rural areas, these NIMBY issues will keep arising. Will the states try to use eminent domain to take property from people such as Mr. Bacon? Or how much must he be compensated for pulling back his lawyers and permitting the power lines on his land?

Now, such compensation for Mr. Bacon would become part of the cost of generating "green power". How much would this raise the price per kWh?

The Article also has an interesting discussion of the debate within the rural community of whether the "home grown" power should be used to help the community grow or should it be "exported" to the city slicker? An economist would say that resources should be sent to those who value them the most but not everyone here appears to agree with the economists! Maybe we should stick to our comparative advantage (making movie cameo appearances).

Thursday, June 03, 2010

Green Housing Development in the San Francisco Bay Area

This article celebrates a new local land use policy in the SF Bay Area requiring new housing to be low carbon in terms of transportation use , residential energy efficiency, and generating solar power. The article does not tell us how many new homes are actually built each year in this area or how much the cost of a new home will increase by due to these new regulations. I do support this new law but it will take quite a while for it to affect the "average local housing stock's greenness". Add 1 drop of hot water to a cold bath and the water is still cold!

In this paper , Ed Glaeser and I argued that we want more people to move from Houston and Las Vegas to San Francisco. This would shrink our overall carbon footprint because they would be exiting "brown cities" (due to sprawl, dirty power plants, and air conditioning demand and cheap housing) and moving to a "green city". Does this new regulation encourage more households to move to the Bay Area?

I am interested here in whether developers fight back against this regulation. If their permits are fast tracked when they go "green" and if they think that there are customers who are willing to pay for these homes, then they will support this regulation. Both of these questions remain open research questions. I'm trying to work on the 2nd one.

Wednesday, June 02, 2010

A Silver Lining of the BP Oil Spill?

Keynesian stimulus is in vogue. The Obama Team is quite smart. I wonder if the BP Oil Spill was an intentional action taken to increase the demand for environmental economists to help raise our salary (and thus our aggregate Consumption "C") during these tough recession days. Huh? This is all about increasing aggregate demand and an oil spill can achieve this goal!

Recall that the 1989 Exxon Valdez Oil Spill created great consulting opportunities and research opportunities for environmental economists and skilled micro economists. If you don't believe me, take a look at paper #1 or paper #2 or paper #3 .

There are many environmental lawyers hungry for work these days. They will have a productive time teaming with economists to launch lawsuits focused on "existence value" damage caused by the spill, damage suffered by coastal property owners close to the spill, lost earnings by fishermen, and coastal governments suing over lost tourism.

Who will be the economists who work for BP in arguing that the spill has caused little damage? This brave economist will have to argue that there are close substitutes for the water that has been damaged; that little pollution made it to shore; that the beaches and birds on shore actually like an oil bath, that tourists enjoy seeing environmental damage because they have a taste for diversity and you don't often see this on the beach. Since home owners spend all their time inside watching their plasma tv, they suffer little from outdoor aromas and an ugly beach.

I await your phone call.

The Gores Case Study Offer Demographers the Opportunity to Shine

Demography is an under-appreciated social science research field. UCLA is quite good at it. When I was a graduate student, we were forced to study it because Gary Becker, Yoram Weiss, Bob Willis, Bob Michaels, Jim Heckman, Joe Hotz and a cast of others at my school were in deep thought about issues of family size, marriage decisions, women's labor force participation, divorce, fertility, and living arrangements in old age.

The surprising Gore announcement has allowed demographers to have their day in the sun. From this one data point, there is a lot to say. This Time Magazine piece is interesting.

The bloggers are asking the right questions. Has he become too fat? Has she told him the truth concerning what she really thinks of climate change? Is she joining the Tea Party?

Switching subjects: Scanning the Internet --- I'm not seeing enough analysis of the Lakers vs. Celtics NBA series. Now, I must say that I have a stake in a Los Angeles /Boston showdown. I've lived the last 10 years of my life in these cities.

The local newspapers are setting up the issue here by asking; Is Pau Gasol a man? If he has some inner Ron Artest then the Lakers win. If he plays like the European -- Vlade Divac and gets pushed around as he flops and whines --- then the Lakers lose.
Why all the attention on him? Bynum is injured and won't excel.

I'm hoping that these games will stream on ABC over the Internet --- we still cannot afford a television --- so I don't know how I can watch. TNT's games were on the Internet but ESPN's games were not.

Tuesday, June 01, 2010

Do Owls Scare Crows? They Better

Do you remember in Caddyshack when Bill Murray battled the gopher? We face a similar challenge with some noisy crows. So, my brilliant wife has devised a plan to fight back. Recall that the owl is no friend of the crow. So, we are blowing up owl balloons and getting ready to launch them. Here is one of these fierce "creatures".



We recently had a baby crow walking around our gutters and it wasn't cute. It won't be in a future pampers commercial with Rod Stewart singing forever young.

I realize that this blog is supposed to be about environmental and urban econ issues but crows straddle both subjects.