Saturday, July 31, 2010

Fat New World

by Tomas J. Philipson and Richard A. Posner

Wall Street Journal
July 31, 2010

Whether you're in Manhattan or Montana, a visit to the local shopping mall reveals one painfully obvious fact: Americans are fatter than ever. Obesity-related illnesses and complications are now responsible for nearly one-tenth of the nation's annual health-care costs. It's therefore vital to understand what's behind our country's "obesity plague" and how best to solve this major public-health problem. Health economics can help on both fronts.

The rise in obesity is attributable primarily to changes in the price of consuming, and the cost of expending, calories—changes that are byproducts of otherwise beneficial technological advances. The price of food and thus of calories has long been trending downward because of agricultural innovations that have greatly reduced the time and resources required to go from hungry to full.

The effect on weight has been reinforced by a simultaneous trend, also technology driven, toward reducing the physical exertion involved in work. Productivity gains at work, brought about by automation, have raised incomes and increased the cost of burning calories. When labor is sedentary because of automation, weight can increase even though calorie intake falls, a pattern observed in the post-World War II period.


How Gangsters Are Saving Euro Zone

by Stephen Findler

Wall Street Journal
July 30, 2010

Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone.

That's thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills. The European Central Bank issues these notes for a hefty profit that is welcome at a time when its response to the financial crisis has called its financial strength into question.

The high-value bills are increasingly "making the euro the currency of choice for underground and black economies, and for all those who value anonymity in their financial transactions and investments," wrote Willem Buiter, chief economist at Citigroup, in a recent research report. The business of issuing euro notes, produced at almost zero cost, is "wildly profitable" for the ECB, Mr. Buiter wrote.


Thursday, July 29, 2010

That Illegal Immigrant Ban in Nebraska? Oh, Nevermind.

Wall Street Journal
July 27, 2010

The little town of Fremont, Neb., stirred up quite a bit of dust in June when its 25,000 person town voted in favor of banning illegal immigrants from renting property or getting a job. It followed on the heels of a similar move in Arizona.

The ACLU sued, politicians howled and more suits alleging the law violates the Constitution’s equal protection clauses followed.

Now, the City Council, which had rejected the ban two years ago, is saying it might suspend the ban. The reason? Money.


Wednesday, July 28, 2010

Becker builds on a career of original thinking

The University of Chicago
June 1, 2010

Fifty-five years after earning his doctorate in economics from the University of Chicago, Gary Becker still works in his office seven days a week, constantly seeking out new discussions on the subject that is his life’s passion.

He also writes a popular weekly blog with federal judge Richard Posner in addition to researching, writing on scholarly topics, and teaching graduate students. His influential work has earned the 79-year-old world-renowned economist the Nobel Prize in Economics, the National Medal of Science, the John Bates Clark Medal, and the Presidential Medal of Freedom, to name a few.

And the thin, fit man with a wisp of gray hair and a warm, attentive demeanor has no plans to retire any time soon.

“He’s remarkably immune to the aging process,” says Posner, a longtime friend and senior lecturer at the Law School. “He just doesn’t show any signs of slowing down.”

In recognition of the contributions to his field and to the University of Chicago, Becker, AM’53, PhD’55, will receive the University’s Alumni Medal, the highest award the Alumni Association bestows. The award ceremony will take place during Alumni Weekend on Saturday, June 5 at Rockefeller Memorial Chapel.

Becker says his life might have been dramatically different had he not accidentally taken a course in economics in his freshman year at Princeton University. Without that exposure, he might never have discovered his passion.

“I really do love this, and I feel I’m lucky,” Becker says. “I could have gotten into science or math, but I was lucky enough to find the field that best suits the talents I have.”


Credit Cards Take From Poor, Give to the Rich

Wall Street Journal
July 27, 2010

Credit cards appear to be the reverse Robin Hoods of the financial world.

A new paper from the Federal Reserve Bank of Boston says merchant fees and reward programs offered by many credit-card issuers essentially take money from those who have the least and give it to those who have the most. The imbalance may have to be remedied via government intervention, the authors, Scott Schuh, Oz Shy and Joana Stavins, argued. The paper was published as part of the bank’s Public Policy Discussion Papers on Monday.

It comes amid big changes for the financial industry, as the nation’s bank regulators look to implement newly passed oversight overhaul legislation, some of which is aimed at protecting consumers from unfair credit-card practices.

The paper said that on average, households that use cash for purchases give $151 to those households that use credit cards annually. Meanwhile, card-using households get $1,482 from those who pay cash. The paper calls this a “regressive transfer” of wealth. At the heart of the issue is a lack of knowledge.


You can find the paper here

$7 Million Payout in Sean Bell Case

Wall Street Journal
July 28, 2010

The city reached a settlement Tuesday that will pay more than $7 million to the family of Sean Bell, who was shot and killed by police in 2006 in a hail of 50 bullets, and to two men with him who were also shot.

The settlement, approved by a federal magistrate judge in Brooklyn, will pay $3.25 million to the estate of Mr. Bell, who was killed outside a Queens strip club on the eve of his planned wedding. Joseph Guzman and Trent Benefield, who were with Mr. Bell and suffered serious injuries in the shooting, will receive $3 million and $900,000 respectively, the New York City Law Department said.

"The Sean Bell shooting highlighted the complexities our dedicated officers must face each day. The City regrets the loss of life in this tragic case, and we share our deepest condolences with the Bell family," Corporation Counsel Michael A. Cardozo said in a statement. A condition of the settlement precludes the city from admitting any wrongdoing, officials said.

Sanford Rubenstein, a lawyer who represented the Bell family as well as Messrs. Guzman and Benefield in the civil suit, called it "a fair and reasonable settlement." He said the money will go to Mr. Bell's two young children and will be administered by his fiancée Nicole Paultre-Bell. The settlement was hammered out over two days of intensive negotiations in federal court in Brooklyn, Mr. Rubenstein said.


Friday, July 23, 2010

Just Friends

by Richard A. Posner

New Republic
July 21, 2010

Facebook is a phenomenon. Its founder and principal owner and chief executive officer, Mark Zuckerberg, is another phenomenon. The rise of these linked phenomena is well narrated in The Facebook Effect, written by an experienced technology journalist who seems to have been given total access to everyone connected with the company, including Zuckerberg. The book is not entirely uncritical, but it is apparent that Kirkpatrick is awed by the twin phenomena. There is a hint of this in his subtitle, and when he says such things as “Facebook is bringing the world together.”

He should be awed. Facebook was created in 2004 by a nineteen-year-old Harvard sophomore and a few of his classmates, as an online social network for Harvard students. It quickly spread beyond Harvard and within ten months it had a million subscribers (or “Facebook users,” as they are called). Today it has nearly 500 million users. About 40 percent of the population of the United States now uses Facebook, but the use of it is even greater in some foreign countries, such as Canada (42 percent) and, more surprisingly perhaps, Norway (45 percent). The company is worth about $15 billion—or maybe twice that; since its stock is not publicly traded, its value is hard to estimate. Zuckerberg, who dropped out of Harvard after his sophomore year, owns one-quarter of the company’s stock. He has just turned twenty-six.


Monday, July 19, 2010

O Θανατηφόρος Συνδυασμός (όταν το Δίκαιο συνάντησε τα Οικονομικά)

του Αριστείδη Χατζή

Μάιος 2008

Judges move slower than markets
but faster than the economics profession,
a deadly combination.
Δικαστής Frank Easterbrook (1987)

Το δίκαιο και τα οικονομικά είναι δύο επιστήμες με μεγάλες διαφορές μεταξύ τους. Η σημαντικότερη από αυτές τις διαφορές είναι το αντικείμενό τους. Τα οικονομικά είναι μια εμπειρική επιστήμη. Μελετά ατομικές συμπεριφορές αλλά και κοινωνικά φαινόμενα. Η νομική είναι μια δεοντολογική επιστήμη. Το αντικείμενό της είναι οι κανόνες δικαίου, μια σειρά από «πρέπει». Στόχος του δικαίου είναι η ρύθμιση της κοινωνικής ζωής, ενώ των οικονομικών η περιγραφή της.

Παρά τις διαφορές αυτές, μεγάλοι οικονομολόγοι, φιλόσοφοι και κοινωνικοί επιστήμονες ασχολήθηκαν στο έργο τους με τον οικονομικό ρόλο των θεσμών και ιδιαίτερα του δικαίου αλλά και με την επιρροή της οικονομίας στην εξέλιξη των θεσμών. Από τον Adam Smith μέχρι τον Karl Marx και τον Max Weber, η διαπλοκή δικαίου και οικονομίας ήταν προφανής.

Όμως παρά τις ενδιαφέρουσες και πάντα επίκαιρες ιδέες τους κανείς από αυτούς δεν μπόρεσε να προσφέρει μια πειστική θεωρία που να συνδέει τις δύο επιστήμες. Αντιμετώπιζαν την οικονομία αλλά και το δίκαιο ως κοινωνικά φαινόμενα που αλληλεπιδρούν μεταξύ τους, χωρίς όμως να μπορέσουν να προχωρήσουν πέραν μιας (όχι πάντα τόσο πειστικής) περιγραφής.

Ταυτόχρονα η περιχαράκωση των δύο επιστημών σε θετικιστικές και φορμαλιστικές κατασκευές εμπόδισε ακόμα περισσότερο τη συνεργασία τους: για τους νεοκλασικούς οικονομολόγους οι θεσμοί αποτελούσαν μία ακόμα κατηγορία περιορισμών, εμποδίων στην οικονομική δραστηριότητα. Όσο για τους αιχμάλωτους μίας ακραίας εννοιοκρατίας νομικούς η οικονομική πραγματικότητα ήταν απλώς αδιάφορη.

Όλα άλλαξαν με την εμφάνιση της οικονομικής ανάλυσης των θεσμών ή, όπως αλλιώς ονομάζονται, με τα θεσμικά οικονομικά.

Περισσότερα εδώ (ή καλύτερα εδώ)

Thursday, July 15, 2010

Economics Behaving Badly

by George Loewenstein and Peter Ubel

New York Times
July 14, 2010

It seems that every week a new book or major newspaper article appears showing that irrational decision-making helped cause the housing bubble or the rise in health care costs.

Such insights draw on behavioral economics, an increasingly popular field that incorporates elements from psychology to explain why people make seemingly irrational decisions, at least according to traditional economic theory and its emphasis on rational choice. Behavioral economics helps to explain why, for example, people under-save for retirement, why they eat too much and exercise too little and why they buy energy-inefficient light bulbs and appliances. And, by understanding the causes of these problems, behavioral economics has spawned a number of creative interventions to deal with them.

But the field has its limits. As policymakers use it to devise programs, it’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address. Indeed, it seems in some cases that behavioral economics is being used as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics.


Saturday, July 10, 2010

A Coasean Sign

by Ian Ayres

New York Times
March 18, 2009

Last fall, I spoke at an SPSS conference in Las Vegas. As I was heading home, I saw a sign on a convenience store (right next to Bally’s) that made me do a double-take. I got so interested that after a couple of blocks, I convinced my driver to turn around and let me go back to take these pictures:

In case it is difficult for you to read, the convenience store seems to have renamed itself “We Have 22 Years Left On Our Lease.”

When I asked the driver, he told me that more than a year ago, the landowner and the tenant had a big legal dispute. The landowner had tried to sell the property “out from under the lease” for another use. The tenant who runs the convenience store had taken the landlord to court and had succeeded in getting an injunction blocking the sale and enforcing the 22-year lease. (Mini bleg: Is this true? Do readers have any details on the dispute?)

From the street, there is strong visual evidence that a quickie mart is not the “highest and best use” for this property. It is surrounded by high-rise hotels and is just off the Vegas main drag.


The Coase Theorem Rules at NYU Law

by Steven D. Levitt

New York Times
August 11, 2008

The most fundamental principle in the field of law and economics is the Coase Theorem, initially put forth by my friend and former colleague Ronald Coase, who is still intellectually active in his nineties.

The Coase Theorem says that — absent large transaction costs — resources will end up being efficiently allocated, regardless of who holds the initial property rights.

NYU Law School is providing its students valuable real world experience with the Coase Theorem, according to this ABA Journal article.

Class assignments are made by lottery. There are no waiting lists for classes. This gives students an incentive to sign up for the most popular classes, even if they don’t want to take them. If they win a seat in one of the most sought-after classes, they can work out a deal to sell their seat to another student. (The way this is done is by the person holding the winning lottery ticket withdrawing from the class and the other person signing up for it a few seconds later; since there isn’t a waiting list, this scheme will work as long as no one else happens to sign up for the class in that few-second gap.)

In the end, the students willing to pay the most for classes are the ones taking them, which is efficient.


Use Gmail, Buy a Car?

by Stephen J. Dubner

New York Times
December 18, 2007

Remember our contest on the Coase Theorem? It asked for good examples of the Coase Theorem failing in regard to URLs — i.e., instances in which a company that is most motivated to own a URL for some reason doesn’t. The winner of the contest proposed, which belongs not to the car company, but to a far lesser-known computer company of the same name.

A reader named Simon Weaver, the Web editor of the N.Y.-based real estate outfit Barbara Corcoran, Inc., wrote in with a question that is a first cousin of the Coase Theorem question:

I am forever accidentally going to the General Motors Web site when I mean to go to Gmail. The URL is simply, which is what I always type to bring up; then I forget to cursor down. My wife is always doing it, too. Has anybody ever tried to figure out how many cars GM has sold to people trying to read their email?

I love the question. But my guess is … not very many. Does anyone disagree? Or, better yet, does anyone know?


The Internet’s Greatest Coase Theorem Violation:

by Steven Levitt

New York Times
November 27, 2007

I recently blogged about how well the Coase Theorem does online. It predicts that, regardless of who is assigned property rights, the interested parties will strike a bargain to put the asset in the hands of the party that values it the most. Thus, despite the fact that more or less anyone can purchase a URL for a small amount of money, in practice, these URLs almost always lead to a site that we would expect them to, because this is presumably the most efficient outcome.

There are, of course, always interesting exceptions. As such, I challenged our readers to find Web addresses that do not lead to a place you might expect. As always, with a little bit of Freakonomics memorabilia as enticement, the collective knowledge of the readers proved immense. Still, there just weren’t that many good examples to be had.

Here is the best of what you found: leads you to a site that mocks George Bush. won’t lead you to the magazine, but it will help you find a Russian bride. (There is likely more demand for the latter than the former anyway.)

Like (the example I gave in my original post, when I noted that it doesn’t lead to the airline), is similarly not owned by Northwest Airlines.

A different sort of breakdown of the Coase Theorem is when a site you might expect to be associated with a person or product leads you nowhere. For instance, you might guess that Warren Sapp would want his web address to be, but instead it is A Time magazine article describes how Sapp was unwilling to pay the cybersquatter $5,000 for the rights to the Web address bearing Sapp’s name. We now know how much Sapp values having that address: less than $5,000. Similarly, won’t take you to the professional wrestling or the wildlife preservation home pages; instead, it essentially leads you nowhere.

The prize-winning violation of the Coase Theorem, however, goes to Don’t expect to find cars there, only computers. An Israeli-born man named Uzi Nissan owns the site and describes his legal battle with Nissan Motors on the page. I love the fact that one of the arguments he makes against Nissan Motors is that 44 percent of the automaker is owned by Renault, a French company that is, in turn, partly owned by the French government. If it is French, it must be bad, apparently.


A Freakonomics Contest: The Coase Theorem Online

by Steven D. Levitt

New York Times
November 13, 2007

The Coase Theorem is a somewhat rare species of beast: an economic theory that is both completely counterintuitive and yet often right in practice. The idea is named after Ronald Coase, one of the University of Chicago’s many Nobel Laureate economists. Nearing the age of 100, he may not hear quite as well as he used to, but otherwise he is still going strong, sitting on the Board of Directors of the Becker Center, giving lectures, writing academic articles, and attending the occasional seminar.

The basic idea of the Coase Theorem is that no matter who is assigned property rights, as long as transaction costs are not too high, the efficient outcome will be achieved. In his original article nearly fifty years ago, Coase motivated this idea by writing about the problem of sparks from railroad trains setting wheat fields on fire. We will assume that these fires are very costly, and as such it is best to take action to prevent them from occurring.