Re: Cost-plus financing
Cost plus is not obviously cost increasing. It passes on cost uncertainty to the buyer, who may be the lower cost risk bearer. This may particularly be true if there is uncertainty about the final product, that is to say, if the buyer wants changes during the course of the contract. Cost plus is a very simple contract to renegotiate. On the other hand, it carries substantial enforcement costs, because production costs have to be verified. Bill Sjostrom + William Sjostrom Senior Lecturer in Economics Centre for Policy Studies National University of Ireland, Cork 5 Bloomfield Terrace, Western Road Cork, Ireland +353-21-490-2091 (work) www.ucc.ie/~sjostrom/ - Original Message - From: Technotranscendence [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Saturday, October 02, 2004 3:10 PM Subject: Cost-plus financing Do you know of any studies of cost-plus financing, especially as used by the US government in funding aerospace projects? I know this is one of the main ways NASA funds its projects and it would seem to increase the cost of any project. Regards, Dan http://uweb.superlink.net/neptune/MyWorksBySubject.html
The Levitt article
Title: The Probability That a Real-Estate Agent Is Cheating You (and Other Riddles of Modern Life) August 3, 2003 The Probability That a Real-Estate Agent Is Cheating You (and Other Riddles of Modern Life)By STEPHEN J. DUBNER he most brilliant young economist in America -- the one so deemed, at least, by a jury of his elders -- brakes to a stop at a traffic light on Chicago's south side. It is a sunny day in mid-June. He drives an aging green Chevy Cavalier with a dusty dashboard and a window that doesn't quite shut, producing a dull roar at highway speeds. But the car is quiet for now, as are the noontime streets: gas stations, boundless concrete, brick buildings with plywood windows. An elderly homeless man approaches. It says he is homeless right on his sign, which also asks for money. He wears a torn jacket, too heavy for the warm day, and a grimy red baseball cap. The economist doesn't lock his doors or inch the car forward. Nor does he go scrounging for spare change. He just watches, as if through one-way glass. After a while, the homeless man moves along. ''He had nice headphones,'' says the economist, still watching in the rearview mirror. ''Well, nicer than the ones I have. Otherwise, it doesn't look like he has many assets.'' Steven Levitt tends to see things differently than the average person. Differently, too, than the average economist. This is either a wonderful trait or a troubling one, depending on how you feel about economists. The average economist is known to wax oracularly about any and all monetary issues. But if you were to ask Levitt his opinion of some standard economic matter, he would probably swipe the hair from his eyes and plead ignorance. ''I gave up a long time ago pretending that I knew stuff I didn't know,'' he says. ''I mean, I just -- I just don't know very much about the field of economics. I'm not good at math, I don't know a lot of econometrics, and I also don't know how to do theory. If you ask me about whether the stock market's going to go up or down, if you ask me whether the economy's going to grow or shrink, if you ask me whether deflation's good or bad, if you ask me about taxes -- I mean, it would be total fakery if I said I knew anything about any of those things.'' In Levitt's view, economics is a science with excellent tools for gaining answers but a serious shortage of interesting questions. His particular gift is the ability to ask such questions. For instance: If drug dealers make so much money, why do they still live with their mothers? Which is more dangerous, a gun or a swimming pool? What really caused crime rates to plunge during the past decade? Do real-estate agents have their clients' best interests at heart? Why do black parents give their children names that may hurt their career prospects? Do schoolteachers cheat to meet high-stakes testing standards? Is sumo wrestling corrupt? And how does a homeless man afford $50 headphones? Many people -- including a fair number of his peers -- might not recognize Levitt's work as economics at all. But he has merely distilled the so-called dismal science down to its most primal aim: explaining how people get what they want, or need. Unlike most academics, he is unafraid of using personal observations and curiosities (though he does fear calculus). He is an intuitionist. He sifts through a pile of data to find a story that no one else had found. He devises a way to measure an effect that veteran economists had declared unmeasurable. His abiding interests -- though he says he has never trafficked in them himself -- are cheating, corruption and crime. His interest in the homeless man's headphones, meanwhile, didn't last long. ''Maybe,'' he said later, ''it was just testimony to the fact I'm too disorganized to buy a set of headphones that I myself covet.'' Levitt is the first to say that some of his topics border on the trivial. But he has proved to be such an ingenious researcher and clear-eyed thinker that instead of being consigned to the fringe of his field, the opposite has happened: he has shown other economists just how well their tools can make sense of the real world. ''Levitt is considered a demigod, one of the most creative people in economics and maybe in all social science,'' says Colin Camerer, an economist at the California Institute of Technology. ''He represents something that everyone thinks they will be when they go to grad school in econ, but usually they have the
Re: Levitt article
It is an annoying piece, even if it shows the public what Levitt is up to, because it strongly indicates that Levitt is an outlier in the profession in his interests. Forty years ago, he would have been a rarity in the profession. Today, he is pretty standard. Bill Sjostrom - Original Message - From: Alex Tabarrok [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Monday, August 04, 2003 2:34 PM Subject: Re: Levitt article Here it is. Fabio, we expect better work from you next time! :-) Alex http://www.nytimes.com/2003/08/03/magazine/03LEVITT.html?pagewanted=printposition= -- 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: Levitt article
In an earlier message, William Sjostrom suggested that Levitt's research is typical of the economics field. I am very curious about this statement, because it is at odds with my casual empiricism, and I would like to see it backed by some concrete evidence. Perhaps this reflects my own ignorance of the literature, but I would like to know who does such clever, but careful empirical work. If this is true, I'd like to read it. Are there people out there that collect interesting data to approach previously intractable questions from a new direction? I did not quite mean that most economists were as clever as Levitt. I meant only that the kinds of problems Levitt works on are now pretty standard. Crime has been a common topic among economists for decades. The reference to Levitt's work on real estate agents is basically just agency theory, again a topic for empirical work for some years. I do not mean to denigrate Levitt's creativity, which is simply huge. My complaint was about the way the Times told the story. They made it sound as if economists sit around all day making vague philosophical observations about capitalism and socialism, or something like that, rather than working on the small problems that most of us spend most of our time working on. Bill Sjostrom + William Sjostrom Senior Lecturer Centre for Policy Studies National University of Ireland, Cork 5 Bloomfield Terrace, Western Road Cork, Ireland +353-21-490-2091 (work) +353-21-490-3658 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
Re: Lott
Two last comments on the Lott business. First, there is a reasonably good summary by Tim Noah in Slate, http://slate.msn.com/id/2078084/ Second, a private email pointed out that in my deeply cynical post on Lott, my reference to the Lott discussion was about the whole dispute, much of it on web logs, not just the Armchair discussion. So my post very misleadingly sounded like an attack on Bill Dickens, the only critic of Lott on the list. It was not intended as such, because the criticisms Bill makes of Lott are fair, although I think overstated. My apologies. Bill Sjostrom + William Sjostrom Senior Lecturer Centre for Policy Studies National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
Re: Lott
He represented himself as someone who had taken courses from himself and presented testimonials about his character from that persona. That isn't lying? I confess I find the whole discussion of John Lott a bit bizarre, although it may be that after nearly two decades of working as a full time academic, I am willing to settle for academics who do not commit battery on their colleagues (I have seen it more than once, and it has been unpunished). I am not pleased by Lott's presenting false testimonials, although given the massive personal assault he has endured since his book, it does not surprise me a lot. It is unusual academic behavior. In my experience, academics are more inclined to stick to anonymity when they start libelous rumors about other academics. But if we are going to talk about firing people, then it seems to me that a little consistency is in order. Remember the JMCB replication project, that ended with piles of irreproducible papers? I do not recall that leading to dismissals. Lott has his data sets available, online. I had no economist, now at Harvard, tell me he would not publish in the AER once they started demanding that data sets be revealed. I do not think he was hiding fraud, just acknowledging that the profession offers zero rewards for putting together a good data set, and he did not want anyone to beat him to publications. Nevertheless, if replication is the hallmark of science, then Lott is among the least of the profession's sinners. I have rarely had an economist refuse to share a data set; they just ignore the request. So let us start with the serious offenses. Should every failure to share data be a firing offense? What if you share the data and your published results are reproducible? Those of not at think tanks have to teach. A former colleague walked into a seminar one day, completely unprepared, with his coffee cup, and spent two hours telling grad students they should think of questions to ask about the coffee cup. He called this cupology. Will every case of unprepared teaching gets the same scrutiny, or is it just the politically unfashionable Lott who gets scrutiny.. Lott's offense strikes me as trivial by academic standards. I am willing to cooperate with pillorying Lott if every academic gets the same degree of scrutiny. William Sjostrom + William Sjostrom Senior Lecturer Centre for Policy Studies National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
Re: trend grading policies
This is a good point. But it can be handled by giving the midterm less weight to begin with. You have an argument for giving a midterm a lower weight, but not a variable weight. And I do give the midterm lower weight. A long standing tradition in Britain (and the derivative Irish system) was for all weight to be on end of year exams (classes typically ran for the whole academic year). When I arrived in Ireland in 1992, there were only two exams that counted for arts students in standard three year degree programs: at the end of the first year, and at the end of the third year. The first year exams determined whether you went into the pass or honours stream of classes; the third year exams determined your graduating grade. Exams at the end of second year did not count; they were only a guide to the student's progress. This is patterned after the Oxford-Cambridge system. There, it appears to work. At my university, like most universities in Ireland and the UK, it was not working. When I arrived here in '92, I immediately caused a ruckus by telling students in the MA class that their grade in my course depended on weekly homework assignments and a midyear exam as well as the end of year exam. They were unhappy because it upset their traditional study method. Classes began in October and ran through the beginning of April. There was then a month long study break, and then exams. The library was virtually empty until the break, when the students actually started studying. Because no one studied until the break, it made it very difficult to build on material over the course of the year. The problem is that 18 and 19 year olds are not mature to understand the importance of regular studying. Oxford and Cambridge solved this problem by weekly tutorials with regular academic staff. They could get away with this because of heavy taxpayer subsidies. Like most places, my university could not, so we got students who did almost no work until the last minute. Not surprisingly, as the number of students has grown (from 1000 twenty years ago to 15,000 now), the system has shifted to increased use of half-year classes, and a lot more examining during the year. I might also add that third year economics options were a mess, because almost no one took intermediate theory classes in second year seriously, because the exams did not count. William Sjostrom + William Sjostrom Senior Lecturer Centre for Policy Studies National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
fashion
I had recently had a visitor, my wife's 19 year old nephew, who came from the States to stay for a couple of weeks. Winter weather in the UK and Ireland is always damp and cold, generally conducive to bad colds. His dress was teenage fashion, at least where he comes from: a t-shirt and a short sleeve shirt, unbuttoned. In a dry climate, this might be tolerable; in a damp climate it is deadly. He adamantly refused to wear a sweater, and came down with a chest infection. My puzzle is this. I am familiar with only two rational choice explanation for fashions: information cascades and signaling. Information cascades may explain why doctors use the same medicine, but I do not see how they explain odd clothing fashions, from bell bottoms to platform shoes. Signaling may explain weird clothes among teenagers, but I do not see how it can explain costly attachment to fashion where there is no one to signal. Is there a better rational choice explanation of fashion? Bill Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
Re: reaganomics--elementary question
Did Reaganomics essentially hinge on the Laffer Curve (i.e. the elasticity of tax receipts w/ respect to tax rate [?]), and its implications regarding tax revenue? Or was there alot more to it than that? Paul Craig Roberts has a fascinating book about economic policy in the early years of the Reagan administration, titled Supply-Side Revolution (Harvard, 1984). A few years ago, Roberts and Blinder were involved in an acrimonious and rather nasty exchange about whether the Laffer curve was part of official policy. Essentially, as a I recall it, Blinder claimed administration policy was based on the Laffer curve, Roberts said it was not and dared Blinder to offer some evidence. Blinder's response was to say something like it was well known at the time but not offer any actual evidence, and the exchange went downhill from there. Bill Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
Re: A Short Review of *Hard Heads, Soft Hearts*
2. The more fundamental reason to be hard-hearted is that the Principle of Equity fails to recognize differences in MERIT. If there were no efficiency consequences, why not equalize incomes? The answer, I maintain, is that more able and hard-working people deserve more. They earned it. It is insolent for the less successful to gripe about it (or for the more successful to gripe on their behalf!). I think of this as Graham Nash economics. Remember his 1968 protest song Chicago (full lyrics appended below)? [Any and all comments about not even being born then are *not* welcome.] Won't you please come to Chicago For the help that we can bring We can change the world Re-arrange the world Graham Nash economics is my overly cute way of complaining about normative economics. Economists offer *opinions* on who should get this or that: the poor, the talented, the hard-working, maybe some combination of the above. I still am not persuaded that economists opinions on these issues are any more important than anyone else's opinion. Does it change the way the world behaves? I am less successful, you are more successful. I say that I am going to take part of your income, you tell me I am insolent. I say So what? I'm still taking part of your income. Now what do you do? William Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork + CHICAGO Graham Nash Though your brother's bound and gagged And they've chained him to a chair Won't you please come to Chicago Just to sing In a land that's known as freedom How can such a thing be fair Won't you please come to Chicago For the help that we can bring We can change the world Re-arrange the world It's dying ... to get better Politicians sit yourself down There's nothing for you here Won't you please come to Chicago For a ride Don't ask Jack to help you 'Cause he'll turn the other ear Won't you please come to Chicago Or else join the other side We can change the world Re-arrange the world It's dying ... if you believe in justice It's dying ... and if you believe in freedom It's dying ... let a man live his own life It's dying ... rules and regulations, who needs them Open up the door Somehow people must be free I hope the day comes soon Won't you please come to Chicago Show your face From the bottom of the ocean To the mountains on the moon Won't you please come to Chicago No one else can take your place
Re: EU
I don't know the evidence on the point, but you are proposing the expected utility model with risk neutrality. The variance of gamble 1 is p(1-p)X^2, which means that the variance is low for low and high values of p, and high for middle values of p. So if p is low, as p is increased, both the mean and variance rise. From my brief foray into the finance literature (I sat on a Ph.D. committee in finance a few years back), my recollection is that risk neutrality works badly. Bill Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/ - Original Message - From: Bryan Caplan [EMAIL PROTECTED] To: [EMAIL PROTECTED]; [EMAIL PROTECTED] Sent: Monday, November 11, 2002 8:35 PM Subject: EU It's well-known that expected utility theory has a lot of problems. A number of alternative theories of choice under uncertainty haven't worked out too well either. Has anyone ever proposed a bare-bones theory of choice under uncertainty, basically saying only that all else equal, you become more likely to choose an option as it's expected value increases (without saying how much)? Suppose, for example, that you get to choose between two gambles: Gamble 1: $X with probability p. Gamble 2: $Y with probability q. Indicate preference with or , and probability as P(.). My bare bones theory says: 1. P(12) increases in p. 2. P(12) decreases in q. 3. P(12) increases in X. 4. P(12) decreases in Y. and nothing more specific. Is this inconsistent with any experimental evidence? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Journal response times
I haven't had a chance to actually look at Ellison's paper, but a quick observation. A few years ago, the AER raised the submission fee substantially because, it said, the old fee of $10 was so low that people were sending papers in way too early just because AER refereeing was a cheap source of advice. Bill Sjostrom - Original Message - From: Robson, Alex [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Monday, October 14, 2002 2:07 AM Subject: RE: Journal response times Fabio Rojas wrote: I'd say economics has a pretty decent turn around time. The following are data from a recent paper by Glenn Ellison of MIT (JPE, October 2002). The data are average times (measured in months) between initial submission and acceptance at various economics journals in the year 1999. (The full paper is available for viewing at http://web.mit.edu/gellison/www/jrnem2.pdf ): American Economic Review 21.1 Econometrica 26.3 Journal of Political Economy 20.3 Quarterly Journal of Economics 13.0 Review of Economic Studies 28.8 Canadian Journal of Economics 16.6 Economic Inquiry 13.0 Economic Journal 18.2 International Economic Review 16.8 Review of Economics and Statistics 18.8 Journal of Applied Econometrics 21.5 Journal of Comparative Economics 10.1 Journal of Development Economics 17.3 Journal of Econometrics 25.5 Journal of Economic Theory 16.4 Journal of Environmental Ec. Man. 13.1 Journal of International Economics 16.2 Journal of Law and Economics 14.8 Journal of Mathematical Economics 8.5 Journal of Monetary Economics 16.0 Journal of Public Economics 9.9 Journal of Urban Economics 8.8 RAND Journal of Economics 20.9 Journal of Accounting and Economics 11.5 Journal of Finance 18.6 Journal of Financial Economics 14.8 Alex Dr Alex Robson School of Economics Faculty of Economics and Commerce Australian National University Canberra ACT 0200. AUSTRALIA Ph +61-2-6125-4909 -Original Message- From: fabio guillermo rojas [mailto:[EMAIL PROTECTED]] Sent: Monday, 14 October 2002 8:47 AM To: [EMAIL PROTECTED] Subject: Journal response times Anyone have any idea why the norm in economics allows referees so much time to do a report? Why its so different from other fields? Is this one of those soft vs. hard field things? Its my impression that the physical science journals all want fast turn around on their referee reports. Anybody know what its like with Anthropology, Sociology, or Political Science? I'd say economics has a pretty decent turn around time. I currently work at the American Journal of Sociology and we usually get papers back to authors in less than 90 days, often 60 days. My experience is that top tier journals do better than second or third tier because they often have prestige and staff, which encourage quick reviewer response. Most sociology journals do much worse than AJS. As far as discipline goes, economics and political science is best because their is consensus on what constitutes decent research and you don't have to master every detail of a paper to assess its quality. The worst is mathematics because you really have to understand every symbol in every equation. Humanities are also bad - you don't have to understand every word, but humanities professors are very unresponsive. On another list-serv, I saw one math professor complain that a 5 page research note had spent *years* at one journal. You can get similar complaints from humanities professors. In the middle are engineering, sociolgy, education and other fields. Most journals get stuff back from 3 months to a year and these fields are in-between fast fields like economics and slow pokes like math. Fabio
Re: Quantity/Bulk discounts
The industrial organization textbook by Carlton and Perloff is good on issues of price discrimination, quantity discounts etc. Alex Sadly, I find Advanced Industrial Economics, by Stephen Martin (Blackwell 1993) a much better book in many ways. Although Carlton is a hugely talented economist (also hugely successful consultant; he recently endowed a chair at MIT), Carlton and Perloff is a talk-talk book. Too much it can be shown that with a citation, rather than actually showing, plus lots of summaries. Useful, but not a very good text. Martin is much better at showing how the models actually work. Lest I find myself in the middle of an antitrust dispute, I will happily stipulate for the libertarians on the list that Martin's antitrust views seem to assume that the government is different from everyone else by being benevolent and all-wise. His text is still better than Carlton and Perloff. The literature on bundling is huge. One place to start is by looking at John Lott and Russell Roberts, A Guide to the Pitfalls of Identifying Price Discrimination Economic Inquiry (January 1991) 29, 14-23, an important critique of empirical work on price discrimination. They point to the difficulties of separating cost explanations from price discrimination explanations. Since then, empirical papers have to confront the Lott-Roberts critique, so a citation search on Lott and Roberts is a good way to begin. Because the literature is so large, it is worth asking what sort of applications you are looking for. For example, Carl Shapiro and Hal Varian's Information Rules (the book's website is www.inforules.com) has a lot of interesting non-technical material on bundling in information goods. The references (mostly in the website, not the book) go back to the technical material. Bill Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
Re: undisplayable prices
Carl Shapiro and Hal Varian's Information Rules has a good discussion on this point. If price comparisons are easy, then every seller's output is an excellent substitute for every other seller's output. Bill Sjostrom - Original Message - From: Wei Dai [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Thursday, June 27, 2002 9:06 PM Subject: undisplayable prices Why do some Internet merchants refuse to display prices on some items until you put the affected items in your online shopping cart? I first noticed this at BestBuy.com, but now Amazon.com and CircuitCity.com have also picked up this practice. Here's Amazon.com's explanation, which doesn't explain anything at all: Price Too Low to Display Explained The too low to display message indicates an additional discount is in effect, and this discount is calculated in the Shopping Cart. You can see this price by clicking the product name and then selecting the Add to Cart button on the product information page. Please be assured that simply adding an item to your cart does not obligate you to buy it--you can always delete the item from your cart if you decide not to purchase it. So what's the real explanation? How do these stores benefit by making it slightly harder for shoppers to compare prices?
Re: Not such a fantastically entertaining paper
I agree that academia wastes vast resources relative to the goal of seeking truth, but I disagree that this implies a market failure, mainly because I don't think the ultimate customers fundamentally want truth. In fact, I think customers in part want faddism and cults of personality. Posner, I think, pointed out that there are species of fish that lay thousands of eggs merely to produce one or two offspring that make it to adulthood. Even if we grant that the great bulk of academic publishing is useless dreck, it does not follow that it is wasteful. It may well be that the same net output may be producible with lots of low quality or with a little high quality. How readily high and low quality can be substituted for one another depends on the product. I offer an example from the only industry I know anything about. Grain is usually shipped on large ships, and is dumped into the holds through large chutes. A non-trivial amount is lost in the process, because it isn't worth the cost to save it all (although there have been improvements over the years reducing the loss). The loss is compounded as the grain is transferred, between ships and terminals, and between trains and terminals, many times. A very good way to eliminate the waste is to package the grain into containers and seal them for the duration of the trip. Very little grain is shipped that way (usually expensive seeds), because the lost grain is usually less valuable than the cost of containerizing. Milgrom and Roberts' text mentions the same problem in car production, comparing Toyota and GM. They note that back in the fifties when Toyota was small, inventories were expensive for it relative to the cost of inventories for GM, because GM was so much larger and therefore bore proportionally smaller inventory costs (by the law of large numbers). Hence the use of just-in-time production. Just-in-time requires tight quality controls, because defective parts are a problem if your inputs arrive just as you are using them. If you maintain large parts inventories, you replace defective parts out of inventory. For GM, lower average quality of purchased inventory could produce the same average quality of used inventory, so long as GM bore inventory costs. Toyota's higher inventory costs made that an unprofitable production decision. So, I think the question of whether the production of dreck (or alternatively clever theorizing of no use to anyone) is wasteful requires that we have some idea of how best to produce good research. Clearly, there are journals that exist solely as outlets for economists at little teaching colleges to get in the one or two papers they need for tenure, for no obvious reason. Beyond that, though, it is not at all obvious to me how you get The Problem of Social Cost or The Fable of the Bees while avoiding uninteresting or pointless work. Bill Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
Re: What is a market?
I am trying to think about cultures that don't have the economic institutions that Western countries have. For example, if the people of one nation voluntarily adopted Islamic law and did not charge interest, voluntarily, would that be a market? Basically, I want to get beyond voluntary interaction and try to think about the institutions you need in order to have Western style markets. So if people abolish interest rates, they're abolishing one of the key market mechanisms. Although it's voluntary, it's certainly missing something important. The question is getting more difficult. Clearly, economic institutions in Germany, France, and the U.S. are all different. I think the question being asked is what essential features do they have in common that distinguishes them from, say, Russia or China. I don't know how to answer it, but one way to begin would be to ask why you focus on Western markets. Are you picking them because they are wealthier? If so, then you are asking what features of markets make people wealthier. Reuven Brenner has argued that active capital markets make an enormous difference. There is work out there on the importance of corporate governance and legal regulation of stock exchanges. The important point, at least it seems to me, is that a whole list could be drawn up of things that are different, but whether they are key is a difficult empirical question. Each one is a counter-factual: how wealthy would people be in the absence of the mechanism. Bill Sjostrom + William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
