Final review session!

There has been a change in the time and the location of the final review session for Economic Foundations. The session will now be held from 6pm-8pm on Thursday, December 10 in Room 225. Please let your fellow classmates know about this change.

Also, remember to comment here or e-mail me with specific concepts or questions that you would like to go over (submitting questions from the book is perfectly fine). Priority will be given to requests made in advance.

Jayme

Signaling theory

I'll also cover signaling in more detail, read this short piece.

Next class

Yes we are having class next week. One problem I will cover in more detail is the motives for horizontal and vertical integration. Here is a thought problem to work through in the meantime. Let's say you own a set of apartment buildings. You can either call a plumber each time a problem arises, or have a plumber on permanent payroll (let's assume you have enough buildings so that this is a feasible option).

Under what conditions should you call a plumber each time and under what conditions should you put a plumber on payroll?

That's a problem with a plumber. You can make progress by switching the job description, and the associated capital goods, and then see what happens to your answer.

Why frontage?

Right now I'm in Texas and they have a highway system involving "frontage" roads; google to it if you don't already know the concept. Under what assumptions does a frontage system make sense?

The economics of broadcast TV

Read about it here.

Review Session

Please comment with questions or concepts for Thursday 11/19's 8pm review session, same room we have class. We'll go over the topics you all post on here first (with preference given to multiple requests for the same concept, so don't be afraid to repeat each other) and then open for additional questions if time permits.

Comcast and NBC

This is vague and doesn't offer much economics, but if you're curious on the background of the pending deal, here is one article. I would in any case stress that I try to make such questions independent of your knowledge of particular details.

The crisis of imprisonment

Read here.

Inventing a better patent system

Read here.

What economists don't understand about cell phone pricing

Here is an interesting article.

Article about for-profit prisons and messed-up incentives

Read it here.

Read this

From Felix Salmon.

Up-and-out schemes

As you probably know, a lot of law firms have "up-and-out" schemes. If you don't make partner by a certain number of years, you don't just hang around at a lower level of compensation. They expect you to leave and if need be they'll fire you.

Why is this? Is it just the factor of morale? Can you think of other possible explanations?

This is a good example of what I would consider to be a good exam question.

Markets in everything

Human cadavers.

Possible answers to the service charge problem

You'll find a few (of many) here, read the comments section too.

Super-simple questions

Let's say you want to get something fixed, say a car. One company will give you a free estimate of what the repair will cost. Another company charges for the estimate, meaning that you pay for the estimate whether or not you end up using their service.

Under what conditions should you go with the first company? The second company?

Like I said, a super-simple problem, like most of economics!

Again optional

Here is a new paper on the WTO.

Strictly optional

Here is my 18-minute TED talk, as I said strictly optional.

A new antitrust clearance to be required?

Comcast and NBC.

A new piece on the book price wars

Here.

Economists make *Jeopardy!*

Here.

Game theory, in 3:53

On YouTube, judge humanity when you are done with the clip.

Can you analyze the economics here?

In Fairfax County, Va., officials had planned to have swine flu clinics at 10 different locations on Saturday. But the county did not receive the number of doses it requested, and was forced to offer the vaccinations only at the government building. People began lining up with camping gear the night before to get vaccinations.

The story is here.

Why are there sales?

And why do things go on sale at Christmas time (sometimes)?

For whatever hypothesis you come up, can you think of a way to test it against other facts?

On the surface this is a simple question but it's not actually that easy.

A new predatory pricing charge

Read about it here. I believe it is unlikely to succeed.

Global warming

Here's a good post on geo-engineering.

U.S. complains about the Chinese currency

Again, the article is here.

Two new Nobel Laureates

Here is one summary. From the text you may recall the idea that a monopoly or merger may lower costs (although increasing deadweight loss). In part this idea comes from this year's winner Oliver Williamson.

Psycho-pharmaceuticals and crime

You don't need to read this paper, I just thought you might find the abstract interesting:

In this paper we consider possible links between the advent and diffusion of a number of new psychiatric pharmaceutical therapies and crime rates. We describe recent trends in crime and review the evidence showing mental illness as a clear risk factor both for criminal behavior and victimization. We then briefly summarize the development of a number of new pharmaceutical therapies for the treatment of mental illness which diffused during the “great American crime decline.” We examine limited international data, as well as more detailed American data to assess the relationship between crime rates and rates of prescriptions of the main categories of psychotropic drugs, while controlling for other factors which may explain trends in crime rates. We find that increases in prescriptions for psychiatric drugs in general are associated with decreases in violent crime, with the largest impacts associated with new generation antidepressants and stimulants used to treat ADHD. Our estimates imply that about 12 percent of the recent crime drop was due to expanded mental health treatment.

Random topic

Was lead reduction a big factor behind the fall in the crime rate?

Missing your textbook?

There was a book left in the classroom on Tuesday, please email me at jlemke at gmu.edu if it belongs to you.

Jayme

A blog post by a movie director

Read the comments especially.

The Armchair Economist

Those of you looking for some good examples of the creative application of economic theory may wish to check out Steven Landsburg's The Armchair Economist. The book is full of the type of economic thinking problems discussed in class last night and as a bonus is a pretty quick read.

Also, please remember that I am available for questions at jlemke at gmu.edu and in room 120 (the same room we have class) at 8pm on Thursday nights.

Jayme

The end of fish

Some background on what we discussed two weeks ago.

Simple exam problem

Analyze this using the elasticity concept.

David Brooks

Here is a good general piece which covers many issues.

A simple question about monopoly

Should I throw out my used books or give them to a friend to resell on eBay? Which action will better improve social welfare? Can you tell a story about how it might matter which kind of book one has in mind?

More on the cupcake bubble

This time it's a lawyer behind it.

Go back to InTrade and check on some probabilities

Here.

The latest on the trade front with China

Not great news.

Waxman-Markey

Pro and con.

Me on the carbon tax

Here and here and here, among others.

If you want to read a skeptic, try this.

Carbon tax vs. cap and trade

Here is one short piece.

The Bush analysis of cap-and-trade

You'll find it here. This is no longer the position of the Republican Party, of course.

Uncertainty and climate change

There are some interesting points here.

The cupcake bubble

It is spreading worldwide.

A contrarian defense of current malpractice law

By David Leonhardt.

This morning's WTO news

China, the U.S., and media products.

The deadweight loss of tariffs

Read more here.

Here is another piece on the tire dispute

From The Financial Times, a great newspaper.

The Airbus summary

Here is a brief summary, this is the biggest trade case of late.

Short bit on China tire dispute

Read it here.

Debate on outsourcing

Tyler Cowen vs. John Irons.

The Candlemaker's Petition

By Fredric Bastiat, from the 19th century. This is one of the classic writings on international trade.

Eliot Spitzer (of all people) on financial regulation

It's short but one of the better pieces. Last week I debated him on the radio and I can vouch that he does genuinely understand economic concepts.

What's the incidence of this tax?

Read about it here.

Drugs in Singapore

Here is follow-up:

Singapore's drug laws are among the world's harshest. Anyone aged 18 or over convicted of carrying more than 15 grams of heroin faces mandatory execution by hanging.

But drug addiction was still a problem, Amnesty said, adding that there was "no convincing evidence" high execution rates had curbed drug use in Singapore.

It cited Singapore Central Narcotics Bureau statistics showing 3,393 people arrested for drug offences in 2002 and the number of new drug abusers up 16 percent from 2001. Use of methamphetamines, or "ice," also showed a significant increase.

Dynamic pricing for hockey games

Why doesn't everyone do this?

What's a day in jail worth?

This is more from the Kleiman book:

In 1974 the average burglary resulted in about four days behind bars (that's the average sentence adjusted by the chance of getting caught). The average 1974 burglary yielded about $320 (in today's dollars), which amounts to about $80 a day payment for time behind bars. Even forgetting about the fixed costs of getting a criminal record, or a longer criminal record, that screams out to me: "It isn't worth it!"

Today, for burglary, the average return per day in jail is $22. That is one reason why crime has gone down but the real question is why crime has not fallen even more.

How much would you have to be paid to spend a day in jail? I know, it depends on which jail. The median jail.

I believe that many burglars, especially repeat burglars, are deluded about their chances of eventually getting caught.

The elasticity of crime with respect to incarceration

It is estimated at about -0.2, which means that a ten percent increase in incarceration results in about a two percent reduction in crime.

That is from p.113 of the new (and excellent) Mark Kleiman book When Brute Force Fails: How to Have Less Crime and Less Punishment.

On p.114 we learn that the elasticity of crime with respect to policing is somewhere between -0.3 and -1.0, depending on the estimate you favor.

Does this have policy implications?

Are malpractice suits responsible for high health care costs?

Probably not so much:

But are “frivolous lawsuits” the real cause of high health care costs? The short answer is no. Malpractice costs represent less than half of 1% (0.46 percent of total health care expenditures) and malpractice settlements have grown modestly with inflation. In fact, in states that have adopted caps on jury awards, doctors are prescribing too many aggressive and intensive treatments that increase costs, but don’t improve outcomes.

When Texas capped non economic medical malpractice damages to $250,000 in 2003, most conservatives argued that the reform would free doctors from having to prescribe unnecessary treatment. It didn’t happen. According to the Dartmouth research on disparities in health care spending, many Texan doctors are still prescribing aggressive treatments that don’t improve outcomes. In fact, as of 2006, Texas was still at the top of the list of high-spending states.

Here is the article, note that I don't agree with everything in there. That all said, most health care economists do agree that malpractice reform is probably a good idea, even if it is an overrated idea.

Another good piece on health care economics

It's a somewhat different perspective than offered in class but to be taken seriously. Read it here.

This is an article to read

Yikes!

Obama partially endorses soda tax

Read about it here. You can find here the Jonathan Klick paper on obesity; there is no need to read it but the abstract notes:

Americans have been getting fatter since at least the mid 1980s. To better understand this public health problem, much attention has been devoted to determining the underlying cause of increasing body weights in the U.S. We examine the role of relative food prices in determining an individual's body mass index, arguing that as healthful foods become more expensive relative to unhealthful foods, individuals substitute to a less healthful diet. Using data from the National Health Interview Survey (NHIS) for the period 1982-1996, we find that individual BMI measures, as well as the likelihood of being overweight or obese, exhibit a statistically significant positive correlation with the prices of healthful relative to unhealthful foods. These results are robust to endogenizing the relative price measure. While the magnitudes of our estimates suggest that relative price changes can only explain about 1 percent of the growth in BMI and the incidence of being overweight or obese over this period, they do provide some measure of how effective fat taxes would be in controlling the obesity epidemic. Our estimates imply, for example, that a 100 percent tax on unhealthful foods could reduce average BMI by about 1 percent, and the same tax could reduce the incidence of being overweight and the incidence of obesity by 2 percent and 1 percent respectively.

The number of foreign-born among the uninsured

You'll find the exact numbers here.

Tax incidence and health care benefits

Read more here.

My favorite article on the economics of American health care

You'll find it here.

The Rand health care study and other bits on health and health care

Here is a link from Wikipedia.

Here is the Atul Gawande piece on different levels of Medicare expenditures but similar health outcomes. Someone mentioned this piece in class. Obama has indicated he is very influenced by it and he passed it around the White House for others to read.

Here is a good graph on higher U.S. health care expenditures.

Current health care proposals

Here is some basic information.

Exploding offers for clerkships

Here is a short blog post on how judges make "exploding offers." How should we think about this practice in economic terms? Is it a good or bad idea for a) the potential clerks, b) the judges, and c) society overall? Can you conceptualize these answers in terms of supply and demand and other basic economic concepts?

The supply curve shifts out

Redbox. Do any of you use it?

Is there a cupcake bubble?

David sends me this article to read, it is interesting.

One more query about prices (but not the last)

In the old days (it still may be true), the fancy restaurant Inn at Little Washington *did* charge a higher price for Saturday nights. Why would they do this?

Are there reasons why an especially fancy restaurant would be more likely to do this?

What other predictions can you come up with?

In general these are not always easy problems.

When prices don't clear the market

Let's consider a few cases:

1. People wait in line 24 hours for concert tickets.

2. People wait in line 24 hours for the new iPhone on its first day.

3. Movie theaters are more crowded on Saturday night than Monday night, yet the price is the same each evening.

4. Movie theaters do lower the price for early shows.

5. Restaurants have waiting times for Saturday night but not always Monday night.

6. Super Bowl tickets are allocated by lottery rather than by raising the price.

7. When there is a storm, 7-11 doesn't simply raise the price of shovels and that is true even in states with no anti-gouging laws.

How many of these phenomena can you explain?

Price controls on Iraqi brides

Analyze the economics of this price control.

Another blog on our textbook

Someone else is teaching a similar class, with the same book, his blog will be here. This is strictly optional and I have no idea what he will do with the blog.

Supply and Demand

Here is a short post on common confusions about supply and demand. It requires careful reading and I would say it is likely to confuse you a bit as well. It's a kind of test to see if you have a final, 100 pct. understanding of the difference between shifts in a curve and movements along that same curve.

Remember, under our procedures, you're not responsible for reading this for class tonight, it's for next week.

Economics and morals, continued

From Will Wilkinson, here is a good response to Bryan Caplan's claim that many economic judgments don't require corresponding moral judgments. My view is closer to Will's but many people do agree with Bryan.

The text is in for sure

They tell me they have held them in their hands.

The Viagra effect

Incentives really matter.

Again

They promise me the book will be in tomorrow.

How many of you eat cupcakes in DC?

The line outside tiny Georgetown Cupcake sometimes stretches 100 people or more, all queuing up for one of the shop's distinctive $2.75 treats. Regulars have been known to pay people to hold their place. Others multitask or use their cellphones to check whether their favorites are still available. Passersby wonder what all the commotion is about.

Here is more. Why don't they raise the price?

TA Office Hours

From Jayme: The new and improved location for office hours will be Room 120 in Hazel Hall, the same room where class is held. Time is still 8-10pm every Thursday that class is in session. I'm looking forward to many excellent questions on supply and demand!

Is economics value-free?

Here is one interesting and provocative point of view on the topic, I should stress that probably most economists would not agree.

Text now on reserve at the Law Library

Jayme was putting it on reserve after class; I am not sure if there is a lag time before it shows up as available.

Which topics interest you?

Tell me in the comments. I will try to incorporate them into the material and the lectures. Anonymous responses are fine and don't be afraid to sound weird or non-serious. While in general commenting is optional, everyone in the class should answer this question.

Power corrupts

How do these facts reflect, or not reflect, the power of incentives?

History of Law and Economics

Here is a 53-page history of the movement. This is an optional reading, and not part of the testable material, but if you want background on what we are doing you might find it interesting, the link is here.

By the way

For obscure reasons, which would take too long to explain, my name on this blog pops up as "Sam." But "Sam" is "Tyler."

Introductory post

I'll be posting readings here for the class and most of them will be short, such as newspaper and magazine articles. I would encourage you to leave comments on the entries, for the benefit of your classmates (and perhaps for organizing your own thoughts) but I should note this will not contribute to your grade and it is a strictly optional activity. It is also fine to leave comments anonymously, if you wish.

Postings can appear any time during the week but you will not be responsible for postings appearing on the very day of class. Thus, if you check the blog the morning before class you will have seen all of the relevant entries for that week. That said, I would encourage you to check more regularly than that, in the interests of what economists call "consumption smoothing."