Economics of Organ Donation (and Trade)

"many trades as you can possibly make because that's what a market's for"

Economics of the Flu Vaccine

This is the first year I've ever gotten a flu shot. This is the first year I've ever gotten something like the flu (that eventually or was always pneumonia). I have been convinced, perhaps expectantly to get a flu shot every year for now on. How you might ask?

The classic explanation for government subsidy and distribution of vaccines is externalities. We often hear the word associated with negative externalities like pollution, unemployment, or even panhandling. However there can also be things that have positive spillovers, like vaccines. But externalities is only part of the story. There are two other issues two information and temporal. Here's the information needed:

1) Cost: Most people can get it for free
2) Pain: Be a wimp like me and try the new needle so small you can't even see it and it literally cannot hurt you
3) Hassle: Bring your phone and do something useful on it (even if calling your mom is all you can)
4) Likelihood of making a difference: What I take away from this experience is that if I get 50 more flu shots and it only makes a difference for 1 person 1 time it's worth it. I've felt like crap for 7 days, I'll do a lot to keep that from happening again.

And that brings us to the other issue, the temporal. All the "hard" work of getting a flu shot doesn't benefit you immediately if at all. It benefits some future version of you. The key is to get that present you to help the future you. How do you do it? Write a blog post about how much you want a flu shot when your sick, that way when you get better you'll remember this YOU'RE ONLY GETTING OLDER AND SICKER.

Economics of Speeding MPG

I've done the economics of speeding tickets. Now here's what speeding costs (more than I thought), from a new blog I've been following The Simple Dollar:

if you’re tooling along on the interstate at the speed limit of 65 miles per hour and drop that back to 64 miles per hour, you’re actually improving your gas mileage by about 1.5%, according to fueleconomy.gov.

Here's how it plays out:

In short, driving one mile per hour slower will add six minutes to the trip and save you $1.04 in gas. Your savings simply by driving one mile per hour slower is $10.40 per hour.

I highly recommend the practical advice regularly posted at The Simple Dollar.

Culture of Economics Today

This has been my experience as well:

Economists don’t have to be free-marketers. But that ends up being the canonical model, and then everything else ends up being a departure from the canonical model, which you’ve then got to explain why you’re departing from. It’s not because the canonical model is right, it’s because you ask most economists and they’ll say, “At least we understand how that economy works very, very well. So you want to tell me that we’re going to move away from this one and move to something else, that’s fine, but you have to explain why you’re putting in all of these imperfections.” So it’s not that you can’t write those things down, it’s just that there is less of a standard way of doing it. 

Economists essentially have a sophisticated lack of understanding of economics, especially macroeconomics. I know it sounds ridiculous. But the reason why I tell people they should study economics is not so they’ll know something at the end—because I don’t think we know much—but because we’re good at thinking. Economics teaches you to think things through. What you see a lot of times in economics is disdain for other's lack of thinking. You have to think about the ramifications of policies in the short run, the medium run, and the long run. Economists think they’re good at doing that, but they’re good at doing that in the sense that they can write down a model that will help them think about it—not in terms of empirically knowing what the answers are. And we have gotten so enamored of thinking things through that the fact that we don’t know anything needs to bother us more.

Frank Deford on the Economics of Minor College Sports

Even though I'm not the biggest sports fan, I must confess I've been listening to sport commentary. But before you get surprised, it's from NPR. For the past few months Frank Deford has been enlightening me to the drama that is organized sports. This week is no exception. Listen here as he takes on the complicated relationship of college academics and college sports.

Economics of Skirts

Good times equal small skirts:

Urban legend has it that the hemline is correlated with the economy. In times of decline, the hemline moves towards the floor (decreases), and when the economy is booming, skirts get shorter and the hemline increases. We collected monthly data on the hemline, for 1921-2009, and evaluate these against the NBER chronology of the economic cycle. The main finding is that the urban legend holds true but with a time lag of about three years. Hence, the current economic crisis predicts ankle length shirts around 2011 and 2012.

Via Barking up the wrong tree.

Economic History of Gas Prices

Here's some much needed context:

But in constant 2010 dollars, that 1919 price of gas was $3.14. True, at the moment we’re paying a bit more—about $3.96. However, keep in mind that in 1919 there were 7.58 million motor vehicles on America’s roads. Today, Americans own about 254 million vehicles. That means that gas prices have risen 26 percent since 1919, while US vehicle ownership has risen 3,250 percent. And those vehicles are being driven more intensively than their 1919 counterparts. We now drive 6,800 percent more miles per year than in 1919, while gas prices have stayed pretty much stable.

Economics Of The Jetsons

From blogger Matt Yglesias:

Earlier today, Annie Lowrey drew our attention to the fact that George Jetson enjoyed a nine-hour workweek—thee hours a day, three days a week. Mike Konczal rightly connected this to JM Keynes’ essay on “The Economic Possibilities For Our Grandchildren” (PDF) highlighting the consequences of a super-abundance of material prosperity.

Here's the economic reality:

Essentially imagine a world in which productivity grows by an average of 2.5 percent per year for the next fifty years and Mr and Mrs Jetson have chosen to take the cumulative 418 percent increase in income by reducing hours worked to one quarter of present-day standards rather than vastly increased consumption.

Here's the most fascinating conclusion:

You can imagine two different equilibria here. One is that maybe with so many people able to comfortable support themselves on nine-hour workweeks, that entertainment is done entirely on an amateur basis. Maybe Jet Screamer earns $0 from his music, and instead works three days a week at a nursing home to earn a living. He performs music because it’s fun and because he enjoys the groupies.

This would work great for someone (like me) with more hobbies than they know what to do with.

Economics of Weight Gain

From research on American teenagers:

I found statistically significant estimates, indicating that females gain weight in weaker economic periods and males gain weight in stronger economic periods.

Perhaps male wieght gain is something to be earned and female weight gain is a stress response. Anyone got any other possible explanations?

Economics of Polygamy

Polygamy acted as husbandly insurance against an individual wife’s barrenness, as well as high child mortality rates, and made ill or aging wives less burdensome. If it was taboo to have sex with pregnant and lactating women (which increased a nursing child’s chances of survival), new fathers suffered neither sexual privation nor a waiting period to produce another child. And with so many children, polygamists had plenty of sons to work the land or contribute to their commercial ventures; in militaristic societies, these sons were prized as military recruits. Daughters, less valued, were still useful for domestic work, or to be advantageously married off to polygamous men.

That's from a wonderful article on the possibility of legalizing polygamy in Canada. A concern this article raised, but didn't answer, is how the culture of polygamy, like illegal drugs, might change if it was raised out of the legal shadows.

Economics of Education

From Freakonomics Radio:

So of all the topics that economists have studied, I would say one we are most certain about are the returns to education. And the numbers that people have come up with over and over are that every extra year of education that you get will translate into an 8% increase in earnings over your lifetime. So someone who graduated from college will earn about 30% more on average than someone who only graduated from high school. And if anything, the returns to education have gotten larger over time. They’re as big as they have ever been. And I think it makes sense that the returns to education now are higher than they’ve ever been because of how the economy has changed. It used to be that with a low education, you could get a good manufacturing job, lifetime employment. But now with the Chinese competition for instance, almost all the manufacturing jobs are gone, because there are Chinese workers willing to work, who are able to do these jobs at wages that are one-fifth or one-tenth of what an American worker would demand to do it.

Nothing overly surprising. But it does show why education is and will continue to be very important.

Economics of Charity

I have my share of skepticism about altruism, like in my earlier post on not giving money to panhandlers. But perhaps some selflessness results in less work and more production:

The researchers videotaped people approaching and passing through the door of a university building. The tapes were analyzed for the relationships among several behaviors: Did the first person hold the door for a follower or followers and for how long? How did the likelihood of holding the door depend on the distance between the first person at the door and whomever followed? 

“The most important result,” Rosenbaum said, “was that when someone reached the door and two people followed, the first person at the door held the door longer than if only one person followed. The internal calculation on the part of the first arriver was, ‘My altruism will benefit more people, so I’ll hold the door longer.’” 

Another finding: the followers who noticed the door-holder hastened their steps, helping to “fulfill the implicit pact” between themselves and the opener “to keep their joint effort below the sum of their individual door-opening efforts,” the authors write.

This is a very simple example, but perhaps it could be a measure of whether a charity is worth it.

Economics of Monopoly

There has been a lot of complaining about the new improved, Monopoly Live. No dice, no paper money, and all-knowing infrared tower. But NPR's Planet Money recently did a story on problems with the classic version game. And who better to ruin a childhood game than an economist. Here's Russ Roberts in an earlier commentary:

But if I play Monopoly now, it's only to teach my kids how badly its lessons prepare you for the real world. In Monopoly, whoever has the most toys wins, and winning means taking everything belonging to everyone else. In Monopoly, landlords are parasites that eventually drive everyone into bankruptcy. And bankruptcy is like death, game over.

Monopoly is the ultimate zero sum game. You profit only by taking from others. The assets of its world are fixed in number. Yes, you can build houses or hotels, but somehow the greater the supply of places to live, the higher the price, an absurd contradiction to real-world economic life. In Monopoly, hotels never get a makeover and railroads, unlike Amtrak, are always profitable. In Monopoly, getting rich and succeeding in business only comes from exploiting unlucky suckers who randomly enter your life. There's no role for hard work or creativity, figuring out what customers might want to buy that isn't being offered by a competitor. There's no competition. I know, that's why it's called Monopoly, but only Marxists look at the world of capitalism the way the game of Monopoly does, as an unrelentingly gloomy system of exploitation where the rich eventually wear everyone else down.

Surprisingly enough, Russ suggests playing my favorite game, Settlers of Catan.

Economics of the Printing Press

It's likely that the printing press played a part in the Industrial Revolution. Here's estimate of it's impact on population:

Historians observe that printing diffused from Mainz in “concentric circles” (Barbier 2006). Distance from Mainz was significantly associated with early adoption of the printing press, but neither with city growth before the diffusion of printing nor with other observable determinants of subsequent growth. The geographic pattern of diffusion thus arguably allows us to identify exogenous variation in adoption. Exploiting distance from Mainz as an instrument for adoption, I find large and significant estimates of the relationship between the adoption of the printing press and city growth. I find a 60 percentage point growth advantage between 1500-1600.

Here's an example of how:

Cities that adopted print media benefitted from positive spillovers in human capital accumulation and technological change broadly defined. These spillovers exerted an upward pressure on the returns to labour, made cities culturally dynamic, and attracted migrants.

Economics of the Egyptian Military

Compared to similar protests for democracy like Tiananmen Square in China twenty years ago, the Egyptian military has been surprisingly supportive of the people. There are several reasons for this, but the most interesting is the fact that the military actual run many of the Egyptian industries and has a vested interest in economic stability:

...car assembly, we're talking of clothing, we're talking of construction of roads, highways, bridges. We're talking of pots and pans, we're talking of kitchen appliances. You know, if you buy an appliance there's a good chance that it's manufactured by the military. If you ... don't have natural gas piped into your house and you have to have a gas bottle, the gas bottle will have been manufactured by the military. Some of the foodstuffs that you will be eating will have been grown and/or processed by the military.

Or to put it another way:

These billions would be threatened if the protests devolved into full-on civil conflict. People in the middle of violent political chaos don't buy dishwashers.

They run somewhere between five to forty percent of the Egypt's several hundred billion dollar economy. How do we know all of this? One of the good things to come from WikiLeaks.

Economics of Marriage, Part II

Last month I mentioned a new blog I was following, Spousonomics. Not only do the authors have regular interesting insights, they've begun a very popular series of Economists in Love. In it they interview married economists about how those two parts of their lives interact. Previous entries include Jeff Ely, Shelly Lundberg and Dick Startz, Daniel Hamermesh, Seth Gitter. Their most recent entry is a behavioral economist I've had the pleasure of meeting, Dan Ariely. He offers his marital wisdom in video form:

Economics of Leno vs. Conan

Or, why Leno's 10 o'clock show didn't stand a chance:

In 2009 key demographic group ratings for network 10 P.M. shows were just half of what they had been five years earlier. And a reason for that was that some 40 percent of households now had the technology of digital video recorders, allowing people to easily program their own TV schedules.

And a habit many people had apparently gotten into was to use the 10 P.M. hour to catch up on programs they had recorded either earlier that night or even earlier in the week. So Leno at 10 wasn’t just up against alternative network programming. Thanks to consumer technology, he was up against millions of people’s personal programming options, too. 

Economics of Bail

We mostly think about prisons and courts as the few things the private sector can't private. But bail bondsman are a unique American solution to a universal problem:

Bounty hunters and bail bondsmen play an important but unsung role in a legal system whose court dockets are too crowded to provide swift justice. When a suspect is arrested, a judge must make a decision: set the suspect free on his own recognizance until the court is ready to proceed, hold the suspect in jail, or release the accused on the condition that he post a bail bond. A bond is a promise backed by incentive. If the suspect shows up on the trial date, he gets his money back; but if he fails to show, the money is forfeited. We don’t want to deprive the innocent of their liberty, but we also don’t want to give the guilty too much of a head start on their escape. Bail bonds don’t solve this problem completely, but they do give judges an additional tool to help them navigate the dilemma.

Bail might be a rich man’s privilege were it not for the bail bondsman. (Many bondsmen are women, but “bondsperson” doesn’t have quite the same ring, so I’ll use the standard terminology.) In return for a non-refundable fee, usually around 10 percent of the bond, a bondsman will put up his own money with the court. A typical bond might run $6,000. If the defendant shows up, the bondsman earns $600. But if the defendant flees, the bondsman potentially can forfeit $6,000. Potentially, because when a fugitive fails to appear, the court gives the bondsman a notice that essentially says, “Bring your charge to justice soon or your money is mine.” A bondsman typically has 90 to 180 days to bring a fugitive back to justice, so when a defendant jumps bail, the bondsman lets the dogs loose.

So what does it take to be a successful bounty hunnter? Not what you'd expect:

What it takes to be a successful bounty hunter is mostly persistence and politeness. On most days your leads don’t pay off, so you need to visit and revisit the fugitive’s home, work, and favorite hangouts. Waiting is a big part of the game. Why politeness? Well, where do the leads come from? From people like Chrissy’s aunt—relatives and friends who might not talk to the police but who will respond to a kind word. Bounty hunters are polite even to the fugitives who, after all, are also their customers, and sadly, bounty hunters rely a lot on repeat business. One customer of a firm owned by the same family that runs the one Dennis works for told him proudly, “My family and I have been coming to Frank’s Bail Bonds for three generations.”

Most fugitives don’t fight, and Dennis is eager to avoid confrontation. Cowboys don’t last long in this business.

What about the skechtiest clients, what are they afraid of?:
If at all possible, bail bondsmen get a friend or family member to cosign the bond. The reason is simple. A defendant whose bond is cosigned is less likely to flee. As Dennis told me, “In my line of work, I deal with some mean people, people who aren’t afraid of me or the police. But even the mean ones are afraid of their mom, so if I can get Mom to list her house as collateral, I know the defendant is much more likely to show up when he is supposed to.” A defendant whose bond is cosigned is also more likely to be caught if he does flee, because the bondsman will remind the cosigner that if the fugitive can’t be found, it’s not just the bondsman who will be left holding the bag.

So what's the difference between a bounty hunter and a police officer?:

Bounty hunters have robust rights to arrest fugitives. They can, for example, lawfully break into a suspect’s home without a warrant, pursue and recover fugitives across state lines without necessity of extradition proceedings, and search and seize without the constraint of the Fourth Amendment’s “reasonableness” requirement. Just like everyone else, however, bounty hunters must obey the criminal statutes. A bounty hunter who uses unreasonable force or mistakenly enters the home of someone who is not a bail jumper is subject to criminal prosecution.

How did we get this uniquely American system?:

The prerogatives of bounty hunters flow from the historical evolution of bail. Bail began in medieval England as a progressive measure to help defendants get out of jail while they waited, sometimes for many months, for a roving judge to show up to conduct a trial. If the local sheriff knew the accused, he might release him on the defendant’s promise to return for the hearing. More often, however, the sheriff would release the accused to the custody of a surety, usually a brother or friend, who guaranteed that the defendant would present himself when the time came. So, in the common law, custody of the accused was never relinquished but instead was transferred to the surety—the brother became the keeper—which explains the origin of the strong rights bail bondsmen have to pursue and capture escaped defendants. Initially, the surety’s guarantee to the sheriff was simple: If the accused failed to show, the surety would take his place and be judged as if he were the offender.

The English system provided lots of incentives for sureties to make certain that the accused showed up for trial, but not a lot of incentive to be a surety. The risk to sureties was lessened when courts began to accept pledges of cash rather than of one’s person, but the system was not perfected until personal surety was slowly replaced by a commercial surety system in the United States. That system put incentives on both sides of the equation. Bondsmen had an incentive both to bail defendants out of jail and to chase them down should they flee. By the end of the 19th century, commercial sureties were the norm in the United States. (The Philippines is the only other country with a similar system.)

So is this private system better than a public bail-bond system? If I'm asking the answer's probably yes:

Our research backs up what I found on the street: Bail bondsmen and bounty hunters get their charges to show up for trial, and they recapture them quickly when they do flee. Nationally, the failure-to-appear rate for defendants released on commercial bail is 28 percent lower than the rate for defendants released on their own recognizance, and 18 percent lower than the rate for those released on government bond.

Even more important, when a defendant does skip town, the bounty hunters are the ones who pursue justice with the greatest determination and energy. Defendants sought by bounty hunters are a whopping 50 percent less likely to be on the loose after one year than other bail jumpers.

In addition to being effective, bail bondsmen and bounty hunters work at no cost to the taxpayers. The public reaps a double benefit, because when a bounty hunter fails to find his man, the bond is forfeit to the government. Because billions of dollars of bail are written every year and not every fugitive is caught, bond forfeits are a small but welcome source of revenue.

Economics of Ego Surplus, An Economics Novel

Last month I got an email from economist and freelance writer Paul McDonnold. He was contacting "leading economics bloggers" (his words, not mine) to see if they would read and review his new book, The Economics of Ego Surplus: A Novel of Economic Terrorism. I happily agreed.

The sub-genre of economics fiction is small to say the least. This novel takes a couple of its sections (it doesn't really have chapters) and devotes them to a little economic history. Intermixed with meeting the main character, grad student Kyle Linwood, is a short history of Adam Smith (and later Keynes and Marx). Instead of teaching the economic way of thinking, instead this book shows what it's like to be a person who thinks like that. Everything from debates about free trade at dinner parties to the idea that teaching is on a reverse farming schedule, which means during the best weather you have the time off. Rarely do I meant a person, or especially a character, who's economic presuppositions are similar to mine.

It tells a story of financial manipulation, with short economic summaries along the way. Mention the Federal Reserve? Well you also get a little bit of history about it. Rationality? Behavior economics? Same thing. I even learned about a type of financial fraud called spamming. It's where a spammers buy a lot of cheap stock, driving the price up. Then email people telling them the stock will continue doing well, and as the price rises, the spammers sell. The plot moves fast. One minute he's simply a college instructor, next he's recalling his own kidnapping by terrorists, then not to much longer he's stealing a car in Dubai and setting himself up for another terrorist kidnapping. The book really takes off when the plot (that is the terrorist plot) is revealed. The idea of economic terrorism is fascinating. Why blow up a building or a bus when you can shut down the gears of the economy? Hopefully I'm not spoiling anything, but here's the ingenious terrorist plot:

Raise a huge amount of capital. Enough to influence a $60 trillion global market. The main villain is a terrorist who runs a hugely profitable bank, in part, by bank rolling and investing for the world's huge black market (another reason to legalize drugs). The plan is to use an advanced computer system and wait for an economic bubble to rise. Put your own money in, furthering the problem. Then, right before the bubble pops, you sell all of your assets making it crash faster and farther. Finally, begin rumor that trillions of counterfeit US dollars are about to be released into the world market, causing a worldwide fear of inflation and abandonment of the dollar. US banks are abandoned and fail. While the more stable Islamic banks, that is, loans without interest, survive. All with the goal of bringing the Middle East back to the prestige it once had while Europe was in the Dark Ages. The appreciatively not-that-evil bad guy interestingly claims that "the West's problems aren't policy, their culture".

At some level the market economy is based on faith. Faith that I can specialize on one thing and get everything else through trade. If that faith is shattered, it can have huge implications. The&historical skepticism surrounding capitalism is also it's greatest weakness. The reason an attack like this could work, is because people have such a hard time understanding economics in the first place. That's one of the main things economists are trying to do, increase faith in the market.

Full of nice snippet of wisdom, like "you can't study something without changing it" or "the stock market is a rational reflection of all publicly available information". The villain even describes the fallacy of voting in American culture, something I've done myself. If you want to understand how economists talk to each other, this is a great book. This quote, from one economist to another, is just like something you might hear in a Econ101 class: "economists want to understand the economic universe like physics wants to understand the physical universe." In fact, I may add that to my first day lecture.

Interestingly, the main character has a similar ideological change that I have experienced over the last couple of years. Though I am certainly still a "hard-core libertarian", I've grown to understand the many irrationalities we all have. Though I came to that conclusion with a lot less trauma than the main character of the novel. Perhaps there are two ways to change our worldview, slowly over time through deliberate thought or quickly through traumatic experience. In many ways that seems to be the lesson of the book. Beware of the confidence to which you hold your beliefs, large egos can be dangerous. It's doesn't really have a happy ending, just an introspective one.

Not sure if I would recommend it, because I don't really recommend any books. Though I believe there is a place for fiction in convincing people of truths. It's just been so long since I've read fiction, so the dialogue felt a little awkward. Just seemed unnatural. All these adjectives describing things that didn't really happen. Perhaps it's my own lack of attention to detail that makes me weary of descriptive novels. Or perhaps my weariness of the power of fiction has my brain pulling some Inception security to ensure I'm not unduly influenced. However, the extensive details have convinced me that if I ever have to write a novel I will visit the places in the story and just describe what I see.

Though with the main character as an economics instructor and short little chapterettes, I couldn't ask for much more. In end it didn't really raise my concern for economic terrorism, though I don't think it was trying to. After all, with the estimated assets of $4 trillion the terrorists had, I wonder if they could have done more damage by setting off nuclear bombs in major American industrial cities. I guess I'm not setting myself up very well for another chance at a complimentary book.

Economics of the Last 200 Years

Although wealth isn't everything, it is very important. Here's a flashier, shorter, still awesome version of Hans Rosling's famous TED Talk:



I was right when I said if you're reading this, you're rich, but I guess I forgot that historically you're also rich if you're not reading this (and you'll get richer).