Re: income and substitution effect
I do agree that one of the few applications of i. and s. effects is to labor supply (this was mentioned in my first post). (This is because labor is one of the few goods where the income effect is likely to be large.) Hence that is the context in which I teach the material. It is appalling, therefore, that most textbooks teach i. and s. effects early on and leave labor supply to an entirely different part of the text. Bill, do you really mean to say that you think that Giffen goods are a real phenomena???! Even the classic, Irish potato famine has much better explanations (e.g. Rosen recent JPE) than in terms of Giffen goods. As to what to teach instead there are many choices e.g. most intermediate classes don't cover the Coase theorem or any law and economics, finance is another topic that could be taught more at the i. level. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Median Voter, Welfare State and World Power
Note that the U.S. has lower welfare spending, higher military spending *and* lower government spending over all than Europe. Thus if the U.S. government spent as much as the Europeans we could have just as large a welfare and a warfare state. The fact that we don't indicates that at a minimum the theory needs a few more variables. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: income and substitution effect
So far we have that i. and s. effects are useful to a) teach Marshallian demand b) teach difference between nominal and real income c) students going on to graduate school d) useful but for reasons that can't be remembered! :) e) useful as a hurdle/signal f) not useful at the intermediate/mba level Regarding Marshallian demand this is true but just raises the question what is the use of Marshallian demand at an intermediate level? (Note almost all textbooks discuss i. and s. effects but most do not teach M. demand.) As I said in my post, for welfare analysis, income and substitution effects become important but this is not taught at the I. level. I don't see how i. and s. effects teach nominal and real income but am willing to be enlightened. c) is possible but it means that teaching i. and s. effects is a waste for most students. Surely there are enough useful things to teach that are also difficult? thus i. and s. effects is not needed for the hurdle. Thus the bulk of the posts, and a number I have received offlist, increase in my mind the hypothesis that this material is a waste of time (relative to other things that could be taught). Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
income and substitution effect
Almost every intermediate micro text spends a great deal of time on income versus substitution effects. This is a somewhat tricky concept for students to understand so one would hope that the payoff to learning the idea is high. But what is the payoff? One of the few applications is to labor supply which most textbooks put much later in the text and don't connect to the income and substitution effect anyway. Most textbooks don't do any sophisticated welfare analysis either. So is it really worthwhile to learn this material? Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Lott
Yes, Bill's points about surveys are technically correct but Kleck was aware of these issues and tried to design a survey to handle them as best as is possible. See Kleck's papers for details. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Lott
What doesn't come through in the Lott material on Slate is that the 98% figure is one sentence in a big book. The vast bulk of Lott's work on shall-issue laws is based on publicly available data. The best figure on defensive gun use involving brandishment only is from a survey by Kleck and it is 75% - this sounds quite different from 98% but given the size of the samples of involved the difference is not significant. Indeed, the main finding from the surveys is not the brandishment result but the fact that guns are used defensively several million times a year (according to Kleck's survey and several others.) Alex Tabarrok -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: SUVs
the best piece I have seen on these issues is in Regulation. Here http://www.cato.org/pubs/regulation/regv24n1/coate.pdf Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Bubblemania
Bryan D Caplan wrote: Another annoying thing about the "I told you there was a bubble" people is that a good chunk of the stock market crash can be attributed to the 9/11 attacks (more specifically, indirect effects via policy changes). If ever there were a random shock, it was 9/11. Shame on Bryan for asserting such a falsehood. Here is a graph of the Nasdaq market. It is very clear that the crash happened well before 9/11. Indeed if one compares the fall that occured around 9/11 with what happened previously the argument for bubbles appears even stronger because whatever "shock" occured prior to 9/11 must have been much bigger than 9/11 to generate the large crash. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366 <>
Re: Accountancy vs Entrepreneurship
Accounting costs is the correct term. Most micro textbooks contain a discussion of the difference between accounting and economic costs. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: [Fwd: a non-profit oddity]
Fabio wrote "Movie studios owners only care about profits, while opera owners consume both money and art." Quite right. You can find a general model of this sort of behaviour with implications in: Cowen, Tyler and Alexander Tabarrok. 2000. A Economic Theory of Avant-Garde and Popular Art, or High and Low Culture. Southern Economic Journal 67(2): 232-253. ABSTRACT: Artists face choices between the pecuniary benefits of selling to the market and the non-pecuniary benefits of creating to please their own tastes. We examine how changes in wages, lump sum income, and capital-labor ratios affect the artist's pursuit of self-satisfaction versus market sales. Using our model of labor supply as a guide, we consider the economic forces behind the high/low culture split, why some artistic media offer greater scope for the avant-garde than others, why so many artists dislike the market, and how economic growth and taxation affect the quantity and form of different kinds of art. -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Zimbabwe
Nice piece from the Economist, posted by Brad DeLong, on the insanity of economic policies in Zimbabwe. It's like something out of the dark ages, i.e. the 1960s and 70s. Alex http://www.j-bradford-delong.net/movable_type/archives/001179.html -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
fat tax
Jonathan Rauch has a very clever piece on the recent idea to tax fat foods. Only Rauch has a much "better" idea. Now why didn't I think of that? Alex http://www.theatlantic.com/issues/2002/12/rauch.htm -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: The Cigarette Standard
The classic paper on this issue: The Economic Organization of a P.O.W. Camp, R.A. Radford, Economica, November, 1945 http://academic.bellevue.edu/~jpatton/micro/pow.html Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: EU
Basically you are talking about expected utility theory without the independence axiom. See Mark Machina Choice Under Uncertainty: Problems Solved and Unsolved, Journal of Economic Perspectives 1 (Summer 1987) 121-154. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Self-assesment vs. Rationality
The best way to think about RE is that it is a consistency stricture that says that the agents in your model of the economy should not be less informed than you are. If you know the model then they should too and the equilibrium defined accordingly. Note that this perspective leaves it open as to whether you do know the model! If you write down a system whereby there is more than one possible model of the economy then it is actually easy to get repeated "errors" - this raises issue of learning etc. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: SV: Economists job market/search costs
In my view, there are costs to going out early and few benefits. First, there is the nightmare scenario in which you get a job that requires you to teach while still trying to finish your dissertation - beware, these rocks have sunk many a ship. You should not go out unless you are confident that your dissertation can be finished (meaning signed off by all parties not just finished in your head) *well* before your job begins (i.e. give yourself a summer to move and develop course notes). Second, I think that initial placement is quite important. The quality of your colleagues will greatly aid you in your future work and you will be much better off if you begin with a 3/3 or less teaching load rather than a 4/4 which might happen if you go out in a weak position - so it's better to begin with a strong start. Third, one or two years in another instituion won't help you at all unless you have published a quick string of papers that indicates that you were low-placed low to begin with. The advantage of getting a job early is the money. Individual circumstances vary but you should think of life-cycle smoothing etc. Of course delay is not worthwhile unless you make the most of it. In my view, the ideal situation is to arrange to teach 1 class at your own or nearby institution to get you some money and experience and to use your free time to finish your dissertation, hone your working papers, and gather more skills - then go out onto the market confident that you have the skills, experience and qualifications necessary to do as well as possible. My comments are aimed at those interested in the academic market. Chresten is right that the situation is different if you are less interested in pursuing this course. If you don't expect to compete in the publishing market, for example, then quality of colleagues is less important and actual experience in whatever industry you find a job in is more important thus going out earlier is less costly (but still beware of having to finish your dissertation and start a new job at the same time). Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: insuring against changes in home prices
Cyril Morong wrote: > Alexander Tabarrok wrote: > >now being offered on a limited basis. This is an interesting product in > that the idea is in large part driven by academics like Robert Shiller. > > http://www.forbes.com/2002/08/28/0829whynot.html > > see also the chapter on macro markets in Entrepreneurial > Economics > www.EntrepreneurialEconomics.org> > > I wonder if this will cause moral hazard, that people will not take care of > their houses as well as they used to, lowering the value. > > Cyril Morong Moral hazard is not a problem because you don't insure against a change in the price of your home but rather against changes in the price of homes in your geographic area. In other words, in essence you insure against changes in that portion of the price of your house that is not under your control which is exactly what you want. Note that developing these markets has therefore required advances in the theory and application of price indices. In the introduction to EE I suggest that similar markets could be used to create private unemployment insurance. A dentist, for example, could insure against the possibility of a scientific discovery that eliminated cavities by insuring against downward changes in the price of a wage index for dentists. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Return to Education and IV
The focus of the discussion has been on whether college students do the math of attending college. Perhaps a better question is whether those young people not in college have done the math. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
insuring against changes in home prices
Insurance against changes in home prices is for the first time now being offered on a limited basis. This is an interesting product in that the idea is in large part driven by academics like Robert Shiller. http://www.forbes.com/2002/08/28/0829whynot.html see also the chapter on macro markets in Entrepreneurial Economics www.EntrepreneurialEconomics.org Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Return to Education and IV
Bill is quite correct that variation in "discount rates," (which could also be something like how much you enjoy schooling for its own sake) can explain the fact that IV estimates are higher than OLS estimates. Bryan's question, however, can be rephrased as not how do you explain the data (low ability bias and high discount rate bias) but why is it that ability bias appears low? In other words aren't there good grounds for thinking that ability bias is large? And if so how is it that this doesn't show up in the data? Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
patent paper and bepress
Warning: Some shameless self-promotion as well as promotion of bepress.com My most recent paper, Patent Theory versus Patent Law, has just been published by the B.E. journal, Contributions to Economic Analysis & Policy. You can find the article and abstract here (abstract is also below) http://www.bepress.com/bejeap/contributions/vol1/iss1/art9/ Contributions is a BE press electronic journal. Here is a report on my experience publishing with them. Like many people I think it is an outrage that referee reports typically take 6 months or even longer. It also drives me nuts when I have to make revisions to a paper that I haven't worked on for a year and need to waste my time refreshing my memory about where the data and code are kept. So I gave the B.E. journals in Economic Analysis and Policy a try and was very impressed. I submitted this paper to them and had two referee reports within 6 weeks and after my revisions were complete had the paper published within a day. Amazingly, *most* of the time from submission to publication was on my clock not on theirs. I also got excellent editorial comments and was able to use their refereeing technology to good advantage. The way the journals work is that with one submission you get simultaneous consideration at four journals ranging in quality and interest. The referee reports come electronically. A very useful feature is that you can anonymously email the referees to clarify any points. I couldn't understand one of my referee's comments, for example, and with a brief email was able to establish that the referee had not realized that a footnote was continued on the next page (either that or it had not printed correctly). I was thus able to solve the problem and easily reassure the editor that I knew what I was talking about - almost impossible to do otherwise. Submitting to the journal can be expensive (when submitting to the journal you agree to write some referee reports for them - also you pay when submitting a revision) on the order of $150 as I recall but was well worth it in my judgment. Key remaining question is whether the journals will be cited by others. The quality of the articles published to date is high and the editors in my experience are very good. Also, they are working hard to promote the journals. My one nagging doubt is whether people may really want a hardcopy. My hope, however, is that these journals take off as they are offering a superior product. Alex AUTHOR: Alexander Tabarrok TITLE: Patent Theory versus Patent Law SUGGESTED CITATION: Tabarrok, Alexander (2002) "Patent Theory versus Patent Law", Contributions to Economic Analysis & Policy: Vol. 1: No. 1, Article 9. http://www.bepress.com/bejeap/contributions/vol1/iss1/art9 ABSTRACT: According to the economic theory of patents, patents are needed so that pioneer firm have time to recoup their sunk costs of research and development. The key element in the economic theory is that pioneer firms have large, hard to recoup, sunk costs. Yet patents are not awarded on the basis of a firm's sunk costs. Patent law, in fact, ignores costs. The disconnect between patent law and patent theory suggests either that modifying patent law so that it better fits with patent theory would reduce the costs and inefficiencies associated with current patent practice or that the standard economic theory of patents is wrong. -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Krugman on productivity
Krugman finally gets back to economics and says something pretty smart about productivity, unemployment and growth. http://www.wws.princeton.edu/~pkrugman/jobs.html Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
recommended paper
Sherwin Rosen's paper "Potato Paradoxes" in the December 1999 JPE is well worth reading. I believe this was his last paper. Nominally, the paper is about a new explanation for Giffen like behavior but more generally it is about the interesting dynamics that can occur when a good has a dual role as a consumption and production good. Potatoes, for example, are both a consumption and a production good because you must plant potatoes in order to get potatoes (they are not grown from seed). Consider what happens when the demand for potatoes increases. If the increase in demand is expected be temporary then the usual situation occurs but suppose the increase in demand is expected to be permanent then farmers will want to hold more crop back for future production (i.e. current supply will fall). It's possible that current supply falls so much that an increase in demand leads to a fall in current consumption! Now consider supply changes. Suppose there is a temporary supply shock, that is, current supply is reduced but future productivity is expected not to change. In order to maintain next year's output, farmers will increase their demand for current supply - thus a temporary supply shock leads to a rise in price and an increase in demand! If the shock is expected to be permanent, however, then farmers will want to shift to other crops and thus reduce their potato savings. Rosen argues that part of the tragedy of the potato famine was caused because farmers mistakenly thought the blight was temporary (it lasted for decades). Thus, in the face of the first supply shock farmers increased their demand for potatoes which sadly instead of eating they planted in the ground. Had the farmers realized the shock was permanent they could have consumed more and switched earlier on to other crops. Best Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
textbook marginal cost examples
A few years ago I cribbed some nice examples of marginal versus average cost from a microeconomics textbook. The examples involved case studies of Franklin National Bank and Continental Airlines. Now I can't locate the original discussion. Does anyone know the source? Thanks Alex Tabarrok Department of Economics George Mason University
