Sunday, November 21, 2010

Take a Closer Look

New York Times
November 20, 2010

Starting in 2012, cigarette packages and advertisements will have to carry new warning labels that pound home the message that smoking sickens and kills. The message isn’t new, but it will be presented in a bigger, starker format — including images of tobacco’s devastating effects — that should be harder to ignore than the tiny, text-only warning labels that have lost their punch.

The current labels, tucked away on the side of packages or the corner of advertisements, have not been changed in a quarter-century. And smoking rates, which had been dropping for decades, have flattened out in recent years. One in five adults and high school students are smokers.

A 2009 law gave the Food and Drug Administration the power to regulate tobacco. It requires that the new warnings must cover the top half of both the front and the back of cigarette packs and 20 percent of cigarette advertisements. Manufacturers will also be required to use F.D.A.-approved images.


Saturday, November 20, 2010

Preventable medical mistakes take an intolerable toll

USA Today
November 19, 2010

If a 747 jetliner crashed every day, killing all 500 people aboard, there would be a national uproar over aviation safety and an all-out mobilization to fix the problem. In the nation's hospitals, though, about the same number of people die on average every day from medical "adverse events," many of them preventable errors such as infections or incorrect medications. Where's the outrage?

Obviously, patients who die one-by-one don't attract attention the way a fiery air crash does, and the problem isn't new. A 1999 report by the Institute of Medicine estimated that as many as 98,000 people a year died in hospitals from medical errors. Now, 11 years later, a new survey from the inspector general of the Department of Health and Human Services finds that about 1 in every 7 Medicare patients in hospitals suffers a serious medical mishap.

The report says these adverse events contribute to the deaths of an estimated 180,000 patients a year. Of those, roughly 80,000 are caused by errors that could be caught and prevented, such as letting infections develop, giving the patient the wrong medication or administering an excess dose of the right drug. Aside from the human toll, the extra medical care required to correct for these mistakes costs taxpayers more than $4 billion a year.


Over 95 Percent of 9/11 Workers Approve Settlement

New York Times
November 19, 2010

After a wrenching seven-year battle, more than 10,000 workers who sued New York City over health damages they claimed after the 9/11 recovery efforts have approved a settlement, clearing the way for payouts totaling at least $625 million, lawyers said Friday.

Their responses, delivered to a federal judge in Manhattan, ended months of wrangling over whether the city and its contractors were shortchanging the workers for the respiratory and other illnesses they developed after toiling in the smoldering ruins of the World Trade Center.

The judge, Alvin K. Hellerstein of United States District Court, threw out a smaller settlement in March, arguing that the plaintiffs deserved more and lawyers were getting too big a cut.

A 95 percent approval rate was required for the latest accord to take effect. The plaintiffs barely cleared the threshold by the Tuesday night deadline they were given: 95.1 percent of the 10,563 workers accepted the settlement’s terms, according to documents filed on Friday.


Know-It-All Toll Roads

by Tom Vanderbilt

Scientific American
December 2010

The road of the future will look much like the road of the present, but it most certainly won't be free. “You can have your driveway,” says Bern Grush, founder of Skymeter, a Toronto-based company that creates GPS-enabled devices to measure road use. “But if you're going to come over to visit me, you need to pay to get to my place from your place.”

With the emergence of wireless, location-based technologies such as GPS, it is now possible to gauge the true costs of driving and the true value of the roads. The umbrella term is dynamic road-use charging, which means essentially that drivers will pay for roads they use by the mile, rather than through other mechanisms such as registration fees or a gas tax. Only a few pilot programs are up and running at the moment, but urban planners think the idea could change our experience of driving from white-knuckled frustration to something closer to a joyride. Researchers at the Massachusetts Institute of Technology and General Motors laid out such a vision earlier this year in “Reinventing the Automobile,” a study that argued that transparent trip pricing would optimize road use, reducing traffic congestion and highway deaths.

Shifting the true cost of driving onto the driver would be a radical departure from what goes on now. Drivers pay no more to use crowded roads than empty roads, a person who drives once a month pays as much in insurance as someone who drives every day, and parking meters cost the same during the busiest times as during the most quiet. The federal gas tax, which for a century has financed U.S. highways, has effectively dropped from a peak of 3.9 cents per mile (2007 dollars) to 0.9 cents today, writes Cato Institute analyst Randal O'Toole in his book Gridlock: Why We're Stuck in Traffic and What to Do about It. As a result, congestion levels have risen steadily in the cities and suburbs. As Harvard University economist Edward Glaeser notes, you can ration scarce goods—like urban roads—by price or by queue (also known as sitting in traffic). So far the de facto choice has been traffic.

Results from the first pilot studies have been encouraging. The Dutch government plans to enact countrywide GPS-based “per kilometer” pricing on all roads in the Netherlands by 2016. A six-month pilot trial in Eindhoven last year showed that 70 percent of users changed their behavior as a result of pricing, by traveling either at off-peak hours or on less crowded roadways. Once the program is expanded to the rest of the country, the Dutch government expects a 58 percent reduction in traffic delays.


This ain't no banana republic

by Will Wilkinson

November 19, 2010

Nicolas Kristof's latest column on income inequality is an excellent example of the sort of confusion and laziness that moved me to write a very long and widely ignored paper promoting greater clarity and rigour on the subject.

Mr Kristof begins by assuming what ought to be argued. He refers to America's "rapacious income inequality", by which I take him to mean that our level of inequality has been caused by rapacity. Was it? Mr Kristof should show his work.

He writes that "the wealthiest plutocrats now actually control a greater share of the pie in the United States" than in many Latin American countries, where income inequality has recently declined. Are America's wealthiest people really "plutocrats"? Can you tell whether a country is a plutocracy or a "banana republic" just by looking at the Gini coefficient? The answer is: No, you cannot. Despite all our inevitable complaints, America is a relatively healthy and functional democracy. Perhaps Mr Kristof noticed that Meg Whitman, a billionaire, failed to take the governor's mansion in California, despite spending more of her personal fortune on a political campaign than anyone in history. In a plutocratic California, the state's fourth wealthiest person wouldn't have to win an election to rule.

There are many possible causes of a high level of income inequality. The historically most typical cause is the concentration of political power in the hands of a predatory elite. This is the main explanation for the typically high levels of Latin American income inequality. This is not the main explanation for the high levels of income inequality in the United States and Great Britain. The main explanation for widening income gaps in wealthy, advanced liberal democracies is a complicated combination of (1) increasing economic returns to the acquisition of high levels of skill; (2) low supply of highly-skilled workers relative to demand; (3) changes in the way executives are paid, and in the norms governing executive pay; (4) technology-driven magnification of top rewards in "winner-take-all" or "superstar" markets; and (5) relatively low political demand for higher levels of progressive redistribution. Unlike expropriation and monopolisation by ruling elites, none of these causes of rising inequality are particularly objectionable in their own right. In a plutocratic California, it bears pointing out, the state's fourth wealthiest person wouldn't have become such by running a company that creates immense consumer surplus by dramatically lowering the transaction costs of selling goods to a large market.


Read the Paper

Friday, November 19, 2010

Marriage: What's It Good For?

by Belinda Luscombe

November 18, 2010

The wedding of the 20th century, in 1981, celebrated a marriage that turned out to be a huge bust. It ended as badly as a relationship can: scandal, divorce and, ultimately, death and worldwide weeping.

So when the firstborn son of that union, Britain's Prince William, set in motion the wedding of this century by getting engaged to Catherine Middleton, he did things a little differently. He picked someone older than he is (by six months), who went to the same university he did and whom he'd dated for a long time. Although she is not of royal blood, she stands to become the first English Queen with a university degree, so in one fundamental way, theirs is a union of equals. In that regard, the new couple reflect the changes in the shape and nature of marriage that have been rippling throughout the Western world for the past few decades.

In fact, statistically speaking, a young man of William's age — if not his royal English heritage — might be just as likely not to get married, yet. In 1960, the year before Princess Diana, William's mother, was born, nearly 70% of American adults were married; now only about half are. Eight times as many children are born out of wedlock. Back then, two-thirds of 20-somethings were married; in 2008 just 26% were. And college graduates are now far more likely to marry (64%) than those with no higher education (48%).

When an institution so central to human experience suddenly changes shape in the space of a generation or two, it's worth trying to figure out why. This fall the Pew Research Center, in association with TIME, conducted a nationwide poll exploring the contours of modern marriage and the new American family, posing questions about what people want and expect out of marriage and family life, why they enter into committed relationships and what they gain from them. What we found is that marriage, whatever its social, spiritual or symbolic appeal, is in purely practical terms just not as necessary as it used to be. Neither men nor women need to be married to have sex or companionship or professional success or respect or even children — yet marriage remains revered and desired.


See the Pew Research Center's full report The Decline of Marriage And Rise of New Families.

Wednesday, November 17, 2010

Cost-effective ways to address climate change

by Bjorn Lomborg

Washington Post
November 17, 2010

One of the scarier predictions about global warming is the suggestion that melting glaciers and ice caps could cause sea levels to rise as much as 15 to 20 feet over the next century. Set aside the fact that the best research we have - from the United Nations climate panel - says that global sea levels are not likely to rise more than about 20 inches by 2100. Rather, let's imagine that over the next 80 or 90 years, a giant port city - say, Tokyo - found itself engulfed by a sea-level rise of about 15 feet. Millions of inhabitants would be imperiled, along with trillions of dollars' worth of infrastructure. Without a vast global effort, could we cope with such a terrifying catastrophe?

Well, we already have. In fact, we're doing it right now.

Since 1930, excessive groundwater withdrawal has caused Tokyo to subside by as much as 15 feet. Similar subsidence has occurred over the past century in numerous cities, including Tianjin, Shanghai, Osaka, Bangkok and Jakarta. And in each case, the city has managed to protect itself from such large relative sea-level rises without much difficulty.


Moms Who Smoke During Pregnancy Might Have Criminal Kids

November 16, 2010

Betty Drapers of the world, listen up. While research has already shown a link between maternal smoking in pregnancy and attention and behavioral problems in kids and teens, a new study from the Journal of Epidemiology and Community Health finds a longer-term correlation: between smoking during pregnancy and eventual criminality in adult children.

"The prevalence of behavior problems is quite high during adolescence," explained the study's lead author, Angela Paradis of the Harvard School of Public Health. "But there are groups who are more life-course, persisting [criminal] groups versus those who are just experimenting, asserting independence, or emulating anti-social peers. Looking at outcomes in adolescents you might be mixing two groups. So we wanted to look at only adult outcomes."

Researchers found not only a correlation between maternal smoking and the likelihood of criminal activity in grown children, they also found a dose-dependent relationship: women who smoked heavily during pregnancy (more than 20 cigarettes per day) were more likely than moderate smokers to have adult children with an arrest record.

In fact, adults whose mothers were heavy smokers during pregnancy were 30% more likely to have been arrested than those whose mothers were light or nonsmokers. Further, they were more likely to be repeat offenders.


Read the Paper

See also

A Streak is Broken: Plaintiff Wins $80 Million Tobacco Verdict in Florida

Wall Street Journal
November 16, 2010

In an age when big-ticket trials are a rarity, plaintiffs lawyers and Big Tobacco continue to battle ferociously in courts across the Sunshine State.

More than 7,000 lawsuits claiming injuries and death due to smoking are pending in state and federal courts in Florida, the legacy of the state Supreme Court’s 2006 “Engle” ruling, which required jurors in future smoking cases to be bound by certain factual findings, including that tobacco companies sold cigarettes that were “defective” and “unreasonably dangerous.” (Here’s a previous LB post on the litigation.)

The supreme court ruling has given smoking plaintiffs in Florida a huge leg up; they have so far amassed more than $250 million in damages in so-called Engle progeny cases.

The latest news comes out of Bronson, Florida (pop. 1,049), where a jury yesterday awarded $80 million — $72M of which was in punitive damages — to the daughter of James Cayce Horner, a two-pack a day smoker who died in 1996 of lung cancer.


Washington's Equal Pay Obsession

by June E. O'Neill

Wall Street Journal
November 16, 2010

Women in the workplace don't face rampant pay discrimination, and yet the Senate may soon pass a bill—already passed in the House—premised on the erroneous charge that they do. The Paycheck Fairness Act (PFA) would be a harmful addition to the many federal laws that already protect women and men from labor-market discrimination.

The original Equal Pay Act of 1963 made it illegal for firms to pay different wages to women and men who performed equal work on jobs in the same establishment. Title VII of the 1964 Civil Rights Act outlawed discrimination against women and minorities in all aspects of employment, including hiring, promotion and compensation. Additional protections came with the 1978 Pregnancy Discrimination Act; the 1991 amendments to Title VII, which boosted penalties for discrimination; and the 2009 Lilly Ledbetter Act, which essentially eliminated the time limit for filing discrimination claims.

In addition, for more than 40 years two major federal agencies have been dedicated to fighting labor-market discrimination: the Equal Employment Opportunity Commission and the Office of Federal Contract Compliance.

Why do we need still more legislation? The reason, say the bill's sponsors, is that women earn 77% as much as men, according to the Bureau of Labor Statistics. But this figure refers to the annual earnings of full-time, year-round workers. It doesn't compare comparable men and women, and it doesn't reflect that full-time men work 8%-10% more hours per week than full-time women.


Tuesday, November 16, 2010

The faces behind tobacco's deadly addiction

Washington Post
November 16, 2010

With apologies to Jonathan Swift, I have a modest proposal of my own. Instead of the government requiring cigarette packs and cartons to feature large warning labels designed to shock, sicken and otherwise make the point that smoking can kill - a toe tag on a corpse, for instance - a photo of Louis C. Camilleri would do quite nicely. He is the chairman and chief executive of Philip Morris International. Louis, stand up and take a bow.

You, too, Richard Burrows, chairman of British American Tobacco, and Daniel M. Delen, chief executive of R.J. Reynolds. You gentlemen should also be known and celebrated for your genius at selling a product that sickens and kills. It is not anyone who can do that - indomitably selling and marketing when your customer base is huddled in doorways or too young to realize that a puff here and a puff there, and inevitably you are sharing a smoke with the grim reaper. These men do not get half the attention they deserve.


Freaks, Geeks, and Economists: A study confirms every suspicion you ever had about high-school dating

by Annie Lowrey

November 15, 2010

In the Darwinian world of high-school dating, freshman girls and senior boys have the highest chances of successfully partnering up. Senior girls (too picky!) and freshman boys (pond scum!) have the least.

These are truisms known to anyone who has watched 10 minutes of a teen movie or spent 10 minutes in a high school cafeteria. Now, however, social scientists have examined them exhaustively and empirically. And they have found that for the most part, they're accurate. So are some other old prom-era chestnuts: Teen boys are primarily—obsessively?—interested in sex, whereas girls, no matter how boy-crazy, tend to focus on relationships. Young men frequently fib about their sexual experience, whereas young women tend to be more truthful. Once a student has sex, it becomes less of an issue in future relationships.

A recently released paper—called "Terms of Endearment," but don't hold its too-cute title against it—looked at how and when high-school students choose mates and their preferences when searching for a partner. Economists Peter Arcidiacono and Marjorie McElroy of Duke and Andrew Beauchamp of Boston College examined an enormous trove of data from the National Longitudinal Study of Adolescent Health, more commonly known as Add Health. The survey first queried adolescents, from seventh graders to high-school seniors, during the 1994-1995 school year and has followed up with them periodically.


Read the Paper

Monday, November 15, 2010

Richard Posner on the receipt of the Ronald H. Coase Medal: "Uncertainty, the Economic Crisis, and the Future of Law and Economics"

The board of the American Law and Economics Association decided 2 years ago to establish the Ronald H. Coase medal to be awarded bi-annually in recognition of major contributions to the field of law and economics. The American Law and Economics Review will publish each medal recipient’s lecture. The first medal recipient is Richard A. Posner, to whom the medal was presented by Lucian Bebchuk at the May 2010 meeting of the Association in Princeton, NJ.

Presentation by Lucian Bebchuk, Chairman, ALEA Committee to Select the Recipient of The 2010 Ronald H. Coase Medal.

I had the honor of serving as chair of the committee appointed to select the first recipient of the Coase medal. The other members of the committee were Orley Ashenfelter, the current President, former President Shelly White, President-elect Louis Kaplow, and Dean Robert Rasmussen. Our committee unanimously selected Judge Richard Posner to be the first recipient of the Coase medal. We are here today to celebrate the contributions for which this medal is awarded.

According to the official citation, the medal is awarded to Judge Posner for “pioneering work that demonstrated the value of applying economic analysis to a very wide spectrum of legal questions and paved the way for much subsequent work in law and economics.”

Let me elaborate a bit on this official citation. Prior to Judge Posner’s pioneering contributions, the use of economic tools had to a large extent been confined to several legal areas, such as antitrust, tax, and torts. Then came Judge Posner’s work. In his classic book, Economic Analysis of Law, the first edition of which was published in 1973, and in a large body of accompanying articles, Judge Posner demonstrated that economic tools can be deployed effectively in a very broad range of legal areas. Many of us subsequently traveled on the trails that he blazed.

To give a personal example, I count myself as one of those deeply influenced by Judge Posner’s work and example. When I came to do my LLM at Harvard three decades ago, I knew I wanted to combine economics and law but I thought that this was primarily possible in tax and antitrust and focused on these courses in my first semester. During my first year, however, I read and was fascinated by Judge Posner’s Economic Analysis of Law. It made me realize how broadly and fruitfully economics can be used, and this realization had a deep impact on me. I am sure that many in our field had a similar experience when reading Judge Posner’s work and were influenced by it in a similar way.

Beyond shaping the field in this way, Judge Posner has made numerous valuable contributions to the economic analysis of many legal fields. Over the past four decades, he has been an unending fountain of original, creative insights. The author of more than forty books, three hundred articles, and two thousand judicial opinions, he has produced a body of work that has unparalleled breadth, scope, and richness in our field.

Although not part of the basis of the award, I should express on this occasion the ALEA’s appreciation for Judge Posner’s contribution to the institutional development of the law and economics field. He founded and provided intellectual leadership to the Journal of Legal Studies that published many of the early significant contributions to the field. He later co-founded the ALER, which will be publishing the prize lecture we are about to hear. I should also note his service as President of our beloved association in 1995–1996.

In closing, let me thank Judge Posner on behalf of all of us for his pioneering contributions. We in law and economics are all indebted to him.


Read Richard Posner's Paper

Religious people are 'better neighbors'

by David Campbell and Robert Putnam

USA Today
November 15, 2010

Is religion toxic or a tonic for our nation's civic life? The question often inspires passion, and vitriol, on both sides. Professional atheists like Christopher Hitchens argue that "religion poisons everything," while advocates for religion, like Glenn Beck, see faith in God as the antidote to all that ails America.

To understand religion's role in America today, we have spent the last five years exhaustively examining the many ways that religion affects American society — from our families to our politics to our communities. We have done so with what we believe to be the most comprehensive survey of religion in America ever done, supplemented by every other source of relevant data we could find. The result is our new book, American Grace: How Religion Divides and Unites Us. Our objective is not to take sides on religion, but only to report what the data say.

The data provide fodder for both sides. On the one hand, religious Americans are somewhat less tolerant of free speech and dissent. As just one example, in our survey we asked Americans whether someone should be allowed to give a speech defending Osama bin Laden or al-Qaeda. While most Americans said yes — we are indeed a tolerant people — religious Americans were slightly less likely to say so. The same pattern is true for many other measures of tolerance: While, in general, Americans are quite tolerant, religious Americans are less tolerant than their secular neighbors. Furthermore, the "tolerance edge" among secular Americans cannot be explained away by some other attribute that they share. Statistically, we have accounted for every imaginable way that religious and secular Americans differ from one another. When we do so, the story stays the same.


Truth and cigarettes

Washington Post
November 15, 2010

Imagine that someone is in danger, but for whatever reason is heedless to warning. It would be wrong to walk away; you'd look for better ways to get the message across. That simple but sound principle is behind the federal government's commendable decision to require new, bigger - and more graphic - warning labels on cigarette packs.

Last week, armed with new power to regulate tobacco products, federal officials unveiled proposed warning labels for cigarette packs marketed in the United States. Many of the images are disturbing. Instead of the modest and by now familiar surgeon general's warning, the new labels use coffins, diseased lungs and rotting teeth to drive home the health effects of tobacco. The language makes clear that cigarettes are addictive; cause cancer, heart disease and strokes; harm children; and "can kill you."

The Food and Drug Administration will survey smokers, hear public comment and listen to experts in winnowing the 36 proposals to the nine deemed to have the best chance of deterring smoking.


A Culture of Carelessness

New York Times
November 14, 2010

Though its final report is two months away, the presidential commission investigating the gulf oil spill is beginning to confirm what we already suspected and feared. The April blowout on the Deepwater Horizon was not some unfortunate occurrence. It was the result of a series of bad decisions by companies less concerned about safety than about finishing a project that was over budget and 38 days behind schedule.

The commission’s preliminary findings, presented last week, were inevitably sketchy. It has been operating without subpoena powers that could more quickly clear up conflicting accounts given by the three big players — BP, Hallibuton and Transocean. The House has granted these powers; the Senate has not. Harry Reid, the Senate majority leader, must correct that.

The findings did not single out individual workers or executives for blame. The panel’s chief counsel, Fred Bartlit Jr., said that so far his staff had not found “a single instance where a human being made a conscious decision to favor dollars over safety.”


Putting Money on Lawsuits, Investors Share in the Payouts

New York Times
November 14, 2010

Large banks, hedge funds and private investors hungry for new and lucrative opportunities are bankrolling other people’s lawsuits, pumping hundreds of millions of dollars into medical malpractice claims, divorce battles and class actions against corporations — all in the hope of sharing in the potential winnings.

The loans are propelling large and prominent cases. Lenders including Counsel Financial, a Buffalo company financed by Citigroup, provided $35 million for the lawsuits brought by ground zero workers that were settled tentatively in June for $712.5 million. The lenders earned about $11 million.

Most investments are in the smaller cases that fill court dockets. Ardec Funding, a New York lender backed by a hedge fund, lent $45,000 in June to a Manhattan lawyer hired by the parents of a baby brain-damaged at birth. The lawyer hired two doctors, a physical therapist and an economist to testify at a July trial. The jury ordered the delivering doctor and hospital to pay the baby $510,000. Ardec is collecting interest at an annual rate of 24 percent, or $900 a month, until the award is paid.

Total investments in lawsuits at any given time now exceed $1 billion, several industry participants estimated. Although no figures are available on the number of lawsuits supported by lenders, public records from one state, New York, show that over the last decade, more than 250 law firms borrowed on pending cases, often repeatedly.


THE LAWYER Jared Woodfill has borrowed more than $3.5 million from a New York hedge fund to pay for the Somerville lawsuits.

Sunday, November 14, 2010

We need more decisions like Judge Posner's

The Record
November 13, 2010

For years we've advocated for legal reform to curb tort abuse, but we've never lost sight of the fact that legislative remedies would not be necessary if judges simply acted judiciously.

A good model to follow is Judge Richard Posner of the U.S. Seventh Circuit of Appeals in Chicago. Judge Posner has frequently deplored tort abuse during the course of his career and nipped it in the bud more than once with his decisions.

A case in point is the ruling he and his colleagues handed down last week in a class action suit against Sears.


Making Ads That Whisper to the Brain

New York Times
November 13, 2010

What happens in our brains when we watch a compelling TV commercial?

For one thing, certain brain waves that correlate with heightened attention become more active, according to researchers who have used EEGs, or electroencephalographs, to study the brain’s electrical frequencies. Brain waves that signal less-focused attention, meanwhile, tend to subside.

In other words, this is your brain on ads.

Or so say neuromarketers, a nascent group of researchers who use techniques from neuroscience to analyze people’s responses to products and promotions.


Cigarette Giants in a Global Fight on Tighter Rules

New York Times
November 13, 2010

As sales to developing nations become ever more important to giant tobacco companies, they are stepping up efforts around the world to fight tough restrictions on the marketing of cigarettes.

Companies like Philip Morris International and British American Tobacco are contesting limits on ads in Britain, bigger health warnings in South America and higher cigarette taxes in the Philippines and Mexico. They are also spending billions on lobbying and marketing campaigns in Africa and Asia, and in one case provided undisclosed financing for TV commercials in Australia.

The industry has ramped up its efforts in advance of a gathering in Uruguay this week of public health officials from 171 nations, who plan to shape guidelines to enforce a global anti-smoking treaty.

This year, Philip Morris International sued the government of Uruguay, saying its tobacco regulations were excessive. World Health Organization officials say the suit represents an effort by the industry to intimidate the country, as well as other nations attending the conference, that are considering strict marketing requirements for tobacco.

Uruguay’s groundbreaking law mandates that health warnings cover 80 percent of cigarette packages. It also limits each brand, like Marlboro, to one package design, so that alternate designs don’t mislead smokers into believing the products inside are less harmful.

The lawsuit against Uruguay, filed at a World Bank affiliate in Washington, seeks unspecified damages for lost profits.


Saturday, November 13, 2010

The Price 20-Somethings Pay to Live in the City

New York Times
November 12, 2010

Abe Cavin Quezada, a 22-year-old aspiring music producer, lives with two roommates in a three-bedroom apartment in Bedford-Stuyvesant, Brooklyn. Mr. Cavin Quezada, who works as an unpaid intern at Electric Lady Studios in Greenwich Village, has kind words for his building, a renovated tenement near Marcus Garvey Boulevard, and for his apartment, for which he pays $500 a month and has a 10-by-6-foot bedroom. But as for the neighborhood, he is less enthusiastic.

“Before this I was living in a loft in Bushwick,” said Mr. Cavin Quezada, who grew up outside Washington. “This apartment is nicer, and has more amenities, but the neighborhood is noticeably fishier. In Bushwick, I never really felt threatened. Now, the sounds around are more aggressive. I’ll see 20 guys ride by on motorcycles, or hear gunshots outside my window.

“And one day,” he said, “in the middle of a Sunday afternoon, I saw a guy on a motorcycle with a handgun. It was not a reassuring sight.”

Mr. Cavin Quezada often works until 2 a.m. or later, and the first few nights after moving here, he considered asking one of his roommates to meet him at the subway after work and walk him back to the apartment.

Does his mother, who’s paying his rent, worry about him? “I don’t think I’ve given her enough details for her to worry,” Mr. Cavin Quezada said.

New York City was home to nearly 1.28 million people in their 20s last year, up from 1.21 million in 1980. In many respects, Mr. Cavin Quezada’s situation mirrors the way large numbers in that age group are living, three years after the Great Recession began.


Friday, November 12, 2010

The Great Cyberheist

by James Verini

New York Times Magazine
November 10, 2010

One night in July 2003, a little before midnight, a plainclothes N.Y.P.D. detective, investigating a series of car thefts in upper Manhattan, followed a suspicious-looking young man with long, stringy hair and a nose ring into the A.T.M. lobby of a bank. Pretending to use one of the machines, the detective watched as the man pulled a debit card from his pocket and withdrew hundreds of dollars in cash. Then he pulled out another card and did the same thing. Then another, and another. The guy wasn’t stealing cars, but the detective figured he was stealing something.

Indeed, the young man was in the act of “cashing out,” as he would later admit. He had programmed a stack of blank debit cards with stolen card numbers and was withdrawing as much cash as he could from each account. He was doing this just before 12 a.m., because that’s when daily withdrawal limits end, and a “casher” can double his take with another withdrawal a few minutes later. To throw off anyone who might later look at surveillance footage, the young man was wearing a woman’s wig and a costume-jewelry nose ring. The detective asked his name, and though the man went by many aliases on the Internet — sometimes he was cumbajohny, sometimes segvec, but his favorite was soupnazi — he politely told the truth. “Albert Gonzalez,” he said.

After Gonzalez was arrested, word quickly made its way to the New Jersey U.S. attorney’s office in Newark, which, along with agents from the Secret Service’s Electronic Crimes Task Force, had been investigating credit- and debit-card fraud involving cashers in the area, without much luck. Gonzalez was debriefed and soon found to be a rare catch. Not only did he have data on millions of card accounts stored on the computer back in his New Jersey apartment, but he also had a knack for patiently explaining his expertise in online card fraud. As one former Secret Service agent told me, Gonzalez was extremely intelligent. “He knew computers. He knew fraud. He was good.”


What, No Dead Babies?

by Jacob Sullum

November 11, 2010

Yesterday the Food and Drug Administration proposed new, bigger, colorized, and illustrated cigarette warning labels. The theory behind the labels, required by the Family Smoking Prevention and Tobacco Control Act, is that people already know that smoking is bad for them, but they need to be reminded good and hard. The FDA is suggesting a few possible illustrations for each of nine rotating warnings. Below are a few of my favorites.

By contrast, comic-book-style warnings like the one showing a premature infant in an incubator have an air of unreality that undermines the FDA's point, as do the secondhand smoke warnings that show smokers breathing directly into the faces of babies and old ladies. The illustrations showing what you can do when you quit smoking (blow bubbles, wear a T-shirt bragging about your feat, clog your toilet with cigarettes) can be charitably described as uninspired. And I am not buying the second strokes-and-heart-disease guy. Is he having a heart attack or a stroke? The hand to his head suggests a stroke, while the hand to his chest suggests a heart attack (although it's on the wrong side of his chest). Maybe he's having both—or it could be indigestion combined with a migraine. He's got to go.


Thursday, November 11, 2010

Wal-Mart Says ‘Try This On’: Free Shipping

New York Times
November 11, 2010

For years, Wal-Mart has used its clout as the nation’s largest retailer to squeeze competitors with rock-bottom prices in its stores. Now it is trying to throw a holiday knockout punch online.

Starting Thursday, Wal-Mart Stores plans to offer free shipping on its Web site, with no minimum purchase, on almost 60,000 gift items, including many toys and electronics. The offer will run through Dec. 20, when Wal-Mart said it might consider other free-shipping deals.

“Everyone’s trying to figure out how we can serve a customer that’s trying to save every penny they can,” said Steve Nave, senior vice president and general manager of “It’s the most competitive offer out there, and we’re pretty excited about it.”


Can't Buy You Love

by Jacob Sullum

November 10, 2010

Two months ago, The New York Times reported that "Democratic officials" believed "corporate interests, newly emboldened by regulatory changes," were trying to "buy the election." But it turned out the election was not for sale—at least, not to the highest bidder.

According to data collected by the Center for Responsive Politics, Democrats and Republicans each shelled out $1.6 billion during this election cycle, including spending by candidates, parties, party committees, and independent groups. In terms of spending, the two parties were evenly matched. But that is not how it looked on election night.

A closer look provides further evidence that Republicans did not win by outspending their opponents. They got substantially more votes in House races, where they spent less than Democrats yet picked up more than 60 seats (and control of the chamber), than they did in Senate races, where they spent more than Democrats and added half a dozen seats.


Wednesday, November 10, 2010

Even a filthy habit deserves a fair hearing

by John Kay

Financial Times

November 9, 2010

Like me, you probably disapprove of drinking and driving and dislike it when people smoke. So, like me, you may have been impressed by reports that reducing Britain’s limit on blood alcohol content for drivers would save several hundred lives a year and that the ban on smoking in public places has significantly reduced the incidence of heart attacks among non-smokers. But then I looked at the evidence for these claims.

Most analysis of the association between drinking and road accidents is based on investigation of blood alcohol levels in victims of fatal road accidents. One conclusion jumps out from these data. Most people who have been drinking and are killed on the road are not close to the limit. They are drunk. Two-thirds of victims of fatal road accidents who were over the legal limit had blood alcohol levels more than twice the legal limit. Many of them had consumed much more.

The claim that reducing the legal limit would save many lives is entirely based on the belief that such a measure would have a big effect on the behaviour of people who are already well above the legal limit. The principal evidence for this claim is a study undertaken in South Australia. But the incidence of drunk driving in South Australia was then 10 times the current figure in the UK. Australia used to have a culture of the drive-in bottle shop, which would fill your car boot with cans of beer. A raft of policies have sensibly addressed the issue. The social context is so different that Australian experience is almost irrelevant.


How Donald Shoup Will Find You a Parking Spot

Reason TV
November 9, 2010

Can't find curb-side parking? UCLA economist Donald Shoup can find you a space.

Professor Shoup is the author of The High Cost of Free Parking, and points out that, "just because the driver doesn't pay for parking doesn't mean the cost goes away."

In addition to making it harder to find a spot when you need one, "free" parking exacerbates other problems, from pollution to traffic congestion. Using the power of market pricing, Shoup explains how to fix the parking mess in three steps.

Cities from San Fransisco to Washington, DC are already adopting Shoup's reforms.


Some judges chastise banks over foreclosure paperwork

Washington Post
November 9, 2010

A year ago, Long Island Judge Jeffrey Spinner concluded that a mortgage company's paperwork in a foreclosure case was so flawed and its behavior in negotiations with the borrower so "repugnant" that he erased the family's $292,500 debt and gave the house back for free.

The judgment in favor of the homeowner, Diane Yano-Horoski, which is being appealed, has alarmed the nation's biggest lenders, who say it could establish a dramatic new legal precedent and roil the nation's foreclosure system.

It is not the only case that has big banks worried. Spinner and some of colleagues in the New York City area estimate they are dismissing 20 to 50 percent of foreclosure cases on the basis of sloppy or fraudulent paperwork filed by lenders.

Their decisions illustrate the central role lower court judges will have in resolving the country's foreclosure debacle. The mess came to light after lawsuits and media reports showed lenders were routinely filing shoddy or fraudulent papers to seize the homes of borrowers who had missed payments.


Tuesday, November 9, 2010

Why is America so rich?

November 9, 2010

Economic gloom and doom aside, America remains the world's richest large country. It's generally estimated to have a per capita GDP level around $45,000, while the richest European nations manage only a $40,000 or so per capita GDP (setting aside low population, oil-rich states like Norway). Wealth underlies America's sense of itself as a special country, and it's also cited as evidence that America is better than other economies on a range of variables, from economic freedom to optimism to business savvy to work ethic.

But why exactly is America so rich? Karl Smith ventures an explanation:

I am going to go pretty conventional on this one and say a combination of three big factors

1. The Common Law
2. Massive Immigration
3. The Great Scientific Exodus during WWII

You’ll notice that four of the top five countries in the Human Development Index have the Common Law and the top, Norway, is a awash in oil. Without the petro-kronors they probably wouldn’t be so hot.

You’ll also notice that 3 of the top 4, again with Norway the odd man out, are immigrant nations. The founder effect here should be clear.

The bonus from the great exodus is definitely waning. Most of our hey-day German and Jewish scientists are dying off, but its still given us a boost that lingers to this day. There is no fundamental reason why the US should be the center of the scientific world but for a time it was the only place in the world safe for many scientists.


Anti-Smoking Programs Are Slashed

Wall Street Journal
November 9, 2010

Many cash-strapped U.S. states are slashing budgets for tobacco-prevention programs, raising alarms among public-health groups as the nation's progress toward getting adult smokers to quit has stalled.

The adult smoking rate was 20.6% in 2009, the same as a year earlier and largely unchanged since 2004, according to the Centers for Disease Control and Prevention. That amounted to 46.6 million adult smokers in 2009.

States have cut their combined funding for smoking prevention in the current fiscal year to the lowest level since 1999, according to data gathered by a coalition of antismoking groups for a report that will be released later this month.


How to Fix a Broken Marketplace

Harvard Business School Working Knowledge
November 8, 2010

An economic handyman of sorts, Alvin E. Roth fixes broken markets.

As a pioneer in the field of market design, the Harvard Business School professor cofounded a kidney donation matching system for New England, corrected public school choice programs in New York and Boston, and tackled the market for new medical residents, economists, and lawyers. (Last week, Forbes magazine named him one of the world's "seven most powerful new economists.")

"Market design is the engineering part of game theory," Roth explains. "It's the underlying science of how the details work and how the parts fit together. We deal with much more complicated games than the game theory usually deals with."

In short, Roth has determined that successful marketplaces require three key elements. "They must be thick, uncongested, and safe," he says.


Read the Paper

Corruption as a barrier to entry

by Nauro F. Campos, Saul Estrin and Eugenio Proto

November 8, 2010

Conventional wisdom says that corruption hurts the economy because it taxes investment and weakens public services. This column presents evidence from interviews with CEOs in Brazil. It argues that corruption acts as a barrier to entry, with potential entrants put off by the uncertainty over what bribes to pay and when to pay them.

Corruption is often viewed as having a negative effect on economic performance. Mauro (1995) considers it as a tax on investment while Goulder, Parry and Burtraw (1997) suggest bribes may reduce public service provision because they substitute for taxation.

While some argue that corruption can “grease the wheels of growth” by addressing inefficiencies created by government intervention (Méon and Sekkat 2005), the econometric evidence supporting a negative effect is overwhelming (see Bardham, 1997, and Pande, 2008, for authoritative surveys). Despite this body of evidence, the exact mechanisms through which the harmful effect of corruption operates onto enterprise and national economic performance are still not fully understood. This column summarises recent research presenting a different mechanism and econometric evidence of its importance.


Sunday, November 7, 2010

Marek Kaminski. "Games Prisoners Play: The Tragicomic Worlds of Polish Prison"

On March 11, 1985, a van was pulled over in Warsaw for a routine traffic check that turned out to be anything but routine. Inside was Marek Kaminski, a Warsaw University student who also ran an underground press for Solidarity. The police discovered illegal books in the vehicle, and in a matter of hours five secret police escorted Kaminski to jail. A sociology and mathematics major one day, Kaminski was the next a political prisoner trying to adjust to a bizarre and dangerous new world. This remarkable book represents his attempts to understand that world.

As a coping strategy until he won his freedom half a year later by faking serious illness, Kaminski took clandestine notes on prison subculture. Much later, he discovered the key to unlocking that culture--game theory. Prison first appeared an irrational world of unpredictable violence and arbitrary codes of conduct. But as Kaminski shows in riveting detail, prisoners, to survive and prosper, have to master strategic decision-making. A clever move can shorten a sentence; a bad decision can lead to rape, beating, or social isolation. Much of the confusion in interpreting prison behavior, he argues, arises from a failure to understand that inmates are driven not by pathological emotion but by predictable and rational calculations.

Kaminski presents unsparing accounts of initiation rituals, secret codes, caste structures, prison sex, self-injuries, and of the humor that makes this brutal world more bearable. This is a work of unusual power, originality, and eloquence, with implications for understanding human behavior far beyond the walls of one Polish prison.

Marek M. Kaminski is Assistant Professor of Political Science and Mathematical Behavioral Science at the University of California, Irvine. Between 1982 and 1989 he managed Solidarity's underground publishing house STOP.

Written with refreshing directness--funny and horrible by turns--and complemented by delightful illustrations, Games Prisoners Play . . . makes a highly original contribution to the literature on prisons. The book will also prove valuable for introducing game theory. . . . There could be no better advertisement for rational choice.
Michael Biggs, American Journal of Sociology

Games Prisoners Play is not just a superb description of prison life but also a provocative analysis of why the choices prisoners make under difficult circumstances are rational. The lens through which Kaminski views these choices is elementary game theory, which he uses to elucidate the subtleties of different strategic situations in a highly imaginative way. This book ranks with only a handful of works I know of that apply game theory, in depth, to unusual subjects and end up enriching both the subject and the theory.
Steven J. Brams, New York University, author of Theory of Moves
and coauthor of Fair Division: From Cake-Cutting to Dispute Resolution

An exceptionally interesting book, and a very engaging read, Games Prisoners Play is bound to make a major impact on scholarship in the field. I would be very surprised if it did not become a staple reference for any study of prison life for years to come.
Diego Gambetta, author of The Sicilian Mafia

A terrific achievement. Marek Kaminski combines a unique 'fieldwork' in Polish prisons with insightful models of prisoners' behavior. This is an exceptional contribution to the ethnography of prison life and an imaginative application of game theory. It is also a memoir in its own right.
Federico Varese, author of The Russian Mafia

Economic Freedom of the World: 2010 Annual Report

The foundations of economic freedom are personal choice, voluntary exchange, and open markets. As Adam Smith, Milton Friedman, and Friedrich Hayek have stressed, freedom of exchange and market coordination provide the fuel for economic progress. Without exchange and entrepreneurial activity coordinated through markets, modern living standards would be impossible.

Potentially advantageous exchanges do not always occur. Their realization is dependent on the presence of sound money, rule of law, and security of property rights, among other factors. Economic Freedom of the World seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom. The report is copublished by the Cato Institute, the Fraser Institute in Canada and more than 70 think tanks around the world.

View an interactive map of economic freedom

This year's report notes that economic freedom suffered its first setback in decades. The average economic freedom score rose from 5.55 (out of 10) in 1980 to 6.70 in 2007, but fell back to 6.67 in 2008, the most recent year for which data are available. Of the 123 countries with chain-linked ratings in 2007 and 2008, 88 exhibited rating decreases and only 35 recorded rating increases. In this year’s index, Hong Kong retains the highest rating for economic freedom, 9.05 out of 10, followed by Singapore, New Zealand, Switzerland, Chile, the United States, Canada, Australia, Mauritius, and the United Kingdom.

This year's report also contains new research showing the impact of economic freedom on unemployment rates and homicides. According to Horst Feldmann, more economic freedom appears to reduce joblessness, and the magnitude of the effect seems to be substantial, especially among young people. Edward Peter Stringham and John Levendis examine the effect of economic freedom on rates of homicide in Venezuela, Colombia, South Africa, Latvia, and Lithuania. The results suggest that increases in economic freedom lead to decreases in homicides.

The first Economic Freedom of the World Report, published in 1996, was the result of a decade of research by a team which included several Nobel Laureates and over 60 other leading scholars in a broad range of fields, from economics to political science, and from law to philosophy. This is the 14th edition of Economic Freedom of the World and this year's publication ranks 141 nations for 2008, the most recent year for which data are available.


The Cost of a Vote Goes Up

by Eduardo Porter

New York Times
November 6, 2010

The votes are in; the money has been counted. We can start assessing the damage to American democracy caused by the Supreme Court’s decision to allow corporations, unions and their lobby groups a free hand to deploy their money to elect the candidates of their choice. Already one thing seems certain: Votes are getting more expensive.

In the midterm elections four years ago, candidates and their friends spent a little over $2.8 billion, according to the Center for Responsive Politics, to garner some 86 million votes. The cost was about $33 per voter. Data from this week’s election is still coming in. But it seems that total spending will hit $4 billion, which would make this year’s voters about $10 more expensive.


Saturday, November 6, 2010

The Pitfalls of Calculating Bad Behavior's True Cost

by Carl Bialik

Wall Street Journal
November 6, 2010

Warning: You might get sticker shock from reading several recent health studies.

A murder costs society $17.25 million, or about 50 times an armed robbery, according to a research team from Iowa State University. A paper from Spain put the average "price" of a pack of cigarettes for men at about $150. And a group of U.K. health experts considered a range of social, economic and health costs when trying to determine which recreational drug was most harmful. Alcohol won.

Sticker shock is the point of these studies, which attempt to classify societal ills in terms anyone can understand. By assigning a price tag that sums up medical, economic and other burdens, researchers are hoping to influence policy makers who weigh spending on these concerns against other priorities. And if a high dollar figure captures the public's attention, as all the recent studies did, so much the better.

"Sometimes for these studies, their main purpose is shock value," says Kenneth Warner, dean of the University of Michigan's school of public health.

That doesn't mean the studies lack merit. Crime and drugs that shorten lifespans or diminish quality of life impose real costs in productivity and medical spending, say economists. But measuring these costs can be tricky, especially when it comes to assigning value to a year of human life. The recent studies had varying levels of success grappling with these issues.

Looking at five major crimes—murder; rape; armed robbery; aggravated assault; burglary—Iowa State researchers estimated the costs to victims, to the judicial system, and to the economy from loss of productivity from the perpetrator. Then they tacked on a more-subjective measure, willingness to pay, which attempts to quantify how much an average American would spend to avoid experiencing these crimes. Derived from surveys on spending on personal security, the measure was meant to capture the negative experience of the crime itself. For all five crimes, it represented the bulk of the cost.

Willingness-to-pay estimates trouble some researchers because people might overestimate how much they would actually spend.


Cabby Capitalism

by Anne Kadet

Wall Street Journal
November 6, 2010

I remember the first time I heard a cabby brag about his genius medallion investment. In just five years, the value of his city-issued taxi operator's license had tripled, to $300,000. "Boy," I thought. "I really should look into that."

Yes, I really should have. Since 2001, the value of a corporate medallion (the kind you can own without personally driving a cab) quadrupled, to $825,000. Values have risen so steeply that the combined value of the city's 13,237 medallions now tops $10 billion. That's bigger than J.C. Penney, bigger than Whole Foods, bigger than ConAgra. If New York medallions traded on the NYSE, they'd qualify as a large-cap stock.

Not surprisingly, with all that money driving around, there's a whole cottage industry in place to support medallion investors. New York boasts 26 licensed medallion brokers and 69 medallion-leasing agents. We've even got a slew of lenders and a midsize bank dedicated to—you guessed it—medallion loans.

Medallion Financial (Nasdaq: TAXI) has a tagline: "In niches there are riches," and President Andrew Murstein says business is booming. Since his father, Alvin, a former fleet operator, founded the bank back in the 1950s, it's made $5 billion in medallion-backed loans, with zero losses. It's hard to repossess a house, but it's easy to repossess a medallion: You just hire a repo man to pluck it off the taxi's hood.


Estate Tax Issue Offers Quick Test for Congress

by Richard Thaler

New York Times
November 6, 2010

After their election victory on Tuesday, Republican leaders in the House promised progress on many fronts, including a turn toward more fiscal discipline and less economic uncertainty.

They have a chance to start work on these goals almost immediately, because the lame-duck Congress soon will face a pressing issue that directly concerns both themes: the estate tax.

The uncertainty imbedded in this tax was actually written into the law in 2001 by a Republican-controlled Congress.

In what some wags have called the “throw momma from the train” provision, the law stipulated that the estate tax would disappear in 2010, only to reappear in 2011 at the lower exemption level and higher rates that were in place in 2001. (To give proper credit, this provision should really be called the “planned Bush tax increase.”) The law has made 2010 the best time for tax-conscious rich people to die


A sense of fair play does pay

by Tim Harford

Financial Times

November 5, 2010

I recently had the dubious pleasure of having to deal with someone who is successful and indeed popular, and yet a stubborn, selfish bully when he thinks nobody is looking. It moved me to speculate on an old question: do nice guys finish first, or last?

No doubt whole libraries are filled with psychological and historical research on the topic. To an economist, the natural way to understand such questions is to turn to game theory, which is a way of turning decisions into a simplified mathematical format. Specifically, game-theoretic decisions are those with more than one player, where each player’s choices alter the other players’ incentives.

In one of the simplest games, “Ultimatum”, one player (Abby) receives an envelope containing 100 one-dollar bills. She has to decide how much to offer to the second player (Zach). Zach either accepts this ultimatum, or both players lose everything. If Zach is motivated only by cash, then a single dollar will be enough to get him to agree. Real people have other concerns, and when the game is played in the laboratory, the first player usually offers a more even split, and tends to regret it if her offer is too miserly.

Ultimatum is a fascinating game: Molly Crockett of the University of Cambridge is part of a team examining whether people play Ultimatum differently when drugs are used to lower their serotonin levels. (They do, rejecting more unfair offers.) John List of the University of Chicago has shown that what people offer and accept is highly sensitive to the experimental context – for instance, whether the initial money was perceived as having been earned.


Thursday, November 4, 2010

Money doesn't buy many wins for self-funded candidates

Washington Post
November 4, 2010

Wealthy future candidates, take note: It turns out that most of the time, money really can't buy you political happiness.

Tuesday's midterms featured an unusually large crop of moguls who sought to ease their way into power by pouring millions of their own dollars into their campaigns. In most cases, they failed spectacularly.

The most obvious - and jaw-dropping - example came in the California gubernatorial race, where Republican Meg Whitman spent $175 million of her eBay fortune to lose badly to former Democratic governor Jerry Brown. That works out to about $57 for each of the roughly 3 million votes she won.

As GOP consultant Alex Castellanos quipped on CNN: "I could have lost that race for only $80 million."


Tuesday, November 2, 2010

Richard Thaler on Behavioral Economics

University of California at Berkeley
Institute of International Studies

October 19, 2010

Conversations with History
Conversations host Harry Kreisler welcomes Professor Richard H. Thaler for a discussion of behavioral economics. Professor Thaler discusses theory in economics, how observed human behavior points to anomalies that contradict what theory predicts will happen, and the implications of behavioral economics for public policy including its contribution to understanding the 2008 economic collapse and to shaping future regulation.

Monday, November 1, 2010

Truth in Media: Competition and Truth in the Market for News

Capital Ideas
October 2010

Research by Matthew Gentzkow and Jesse M. Shapiro

Matthew Gentzkow is Professor of Economics and Neubauer Family Faculty Fellow at the University of Chicago Booth School of Business.

Jesse M. Shapiro is Professor of Economics and Robert King Steel Faculty Fellow at the University of Chicago Booth School of Business.

Competition between news outlets can bring their audience closer to the truth, but consumers' own preference for news that is more entertaining than informative may push them further away.

If news outlets fail to report the truth, can more competition in news markets help? The more points of view that are heard and defended, the more likely that people's beliefs will converge to the truth. However, many have questioned whether press competition is truly beneficial. Some cite Britain's BBC as an example of a high-quality public news network that is insulated from traditional product market competition. Others have argued that increased market pressure can sometimes lead to cutbacks in reporting and editorial quality and that falsehoods can persist for a long time despite intense competition among news outlets.

To evaluate to what extent competition leads to more accurate reporting, a study titled "Competition and Truth in the Market for News" by Chicago Booth professors Matthew Gentzkow and Jesse M. Shapiro brings together evidence from the authors' own work as well as other research on how increasing the number of independently owned media firms can affect various distortions that keep news outlets from reporting the truth. These distortions can come from either the supply side or the demand side of the media market.

Without competition, governments can manipulate the news and news providers can manipulate their audience by promoting their own agendas. Moreover, a media outlet with few or no competitors will have little incentive to invest in providing timely and accurate coverage. As a result, competition can help promote press independence, diversity of views, and investment in quality reporting by providing incentives that remove such supply-side distortions.

On the other hand, the power of competition to discipline biases that originate from the demand side of the news market is more ambiguous. If consumers actually prefer biased news because it confirms their prior beliefs or if they demand less socially relevant news—such as car chases and celebrity scandals—then competition may actually exacerbate these preferences by providing only the kind of news coverage that people want.

This is especially true if consumers read or listen to news that "slants" to their beliefs partly out of a desire to be entertained. On the other hand, if consumers choose like-minded sources because they truly believe that these are more accurate, then competition can still keep media outlets somewhat honest if they know that a rival firm can expose them for reporting something that is too far from the truth.

The idea that giving consumers what they want may lead to an abundance of less socially relevant news may be a powerful argument against competition in the media. While this cost must be weighed against the benefits of preserving independence and diversity of views in the press, it is unclear that a regulatory agency would be successful at making people consume the type of news that the government deems important. "That would rely on government doing a better job of figuring out what news people should hear and then forcing them to hear that news," says Gentzkow. "It is not obvious that the government is going to be very good at that."


Read the Paper