Wednesday, December 31, 2008

College admissions: deadlines and congestion

One modern convenience for high school seniors applying to college in 2008 is the Common Application, which lets them cut down on the number of times that they have to type in their social security numbers and middle names. But, as the end-of-2008 application deadline approaches, the fact that many people wait for the deadline combines with the fact that many now use the Common Application to create some congestion, the NY Times reports: Applications for Colleges Clog System

"On Tuesday, from 6:30 to 6:50 p.m., and on Wednesday from 9:45 to 10:45 a.m., there was a slowdown at the Common Application Web site, which handles online applications for some 350 colleges and universities. With the clock ticking toward a Jan. 1 deadline, the briefest delay can feel like a full-blown crisis to panicky high school seniors. ...

"More than a million high school seniors use the Common Application. Last year, the organization said that more than 171,000 applications were filed in the 72 hours from Dec. 30 through Jan. 1., 75,000 of them on Dec. 31.
Seth Allen, dean of admission at Grinnell College and president of the Common Application, said many students worked on their applications for weeks but waited until the deadline to submit them.
“I think having an online application has exacerbated waiting till the last minute,” Mr. Allen said, “and if they’re getting timed out on the site, on New Year’s Eve day, that’s certainly going to make them nervous.” "

Marriage Market among a slice of the wealthy

The NY Times reports on the International Debutante Ball at the Waldorf-Astoria: Glamour Still Rules, but With Fewer Debutantes .

"...shortly before midnight, the young debutantes, each flanked by a civilian and military escort, ascended the stage for a deep curtsy."

The "introduction" or "coming out" of young women as debutantes at 18 used to be the announcement in a certain part of high society that they (the young women) were old enough for first marriage.

Tuesday, December 30, 2008

Market for honey: "honey laundering"

'Honey laundering' beats US tariffs on Chinese food products (I couldn't resist a new criminal activity with such a great name...)

"As the name suggests, honey laundering involves disguising drums of the sticky stuff from China by selling it to a third party—usually a distributor in another part of the world—then re-packaging it and re-exporting it, so that its source remains unknown. ...
As harmless as honey laundering might sound, health officials say that unless something is done, the problem could result in a repeat of the tainted baby milk and pet food scandals that dominated headlines this year—this time with honey. The reason dates back to 1997 when Chinese bee hives were almost wiped out by a bacterial epidemic. Instead of destroying the hives, beekeepers treated them with chloramphenicol, a toxic antibiotic... The practice has since been outlawed by China’s Ministry of Agriculture, but even today, some Chinese honey remains tainted—hence the fact that random checks on shipments are carried out at US ports. "

Marriage market in Iran

The marriage market in Iran is not proceeding as planned, the Guardian reports: Premarital sex on rise as Iranians delay marriage, survey finds

"The survey also revealed that the average marrying age had risen to 40 for men and 35 for women, a blow to the government's goal of promoting marriage to shore up society's Islamic foundations."

The rise in age of marriage might be a result of religious barriers being raised to courtship between unmarried men and women. But there are other hypotheses to consider:

"Many blame economic circumstances for their failure to marry, citing high inflation, unemployment and a housing shortage along with cultural traditions that expect brides' families to provide dowries and husbands to commit themselves to mehrieh, an agreed cash gift."

"However, Hojatoleslam Ghasem Ebrahimipour, a sociologist, told Shabestan news agency that the trend was due to the availability of premarital sex, and feminism among educated women. "When a woman is educated and has an income, she does not want to accept masculine domination through marriage," he said."

Pawn shops attracting wealthier customers

The WSJ has a story whose title and subtitle sum it up: People Pulling Up to Pawnshops Today Are Driving Cadillacs and BMWs : Well-to-Do Turn to Last-Resort Lenders; Putting Up Diamonds, Dumpsters as Collateral

Not only are the number of customers for loans increasing, so are the number of defaults:
"This year, the number of first-time pawnshop users is up 10%, according to Mr. Adelman of the pawnbroker trade group. Owners say the rate at which people are coming back to retrieve property and pay off loans has fallen about 10%. That leaves the store on the hook to sell the goods."

So pawn shops may be a place where a larger variety of goods than in the past will be recycled in the continuing credit crisis.

Sunday, December 28, 2008

Eminent domain

A story in the NY Times has a striking photo of a private home in Seattle located in a niche in a large commercial building. The large building had to be built around the small one after developers were unable to convince the owner to sell them the last piece of land they needed to build a conventional, rectangular building.

Governments, unlike private developers, have the right of eminent domain, which allows them to compel landowners to sell their land for public purposes. The idea is that some public projects, like highways, would be difficult or impossible to complete if each plot of land on the proposed route would have to be acquired on the private market before a road could be built. Eminent domain is meant to solve the coordination problem involved in assembling a large landholding (since there are seldom large, road-shaped plots of land vacant where new roads would be useful in populated places). It is also meant in part to solve the "holdup problem" associated with the fact that, once a large tract of property has been assembled, the missing pieces have very high marginal value, so that the last properties needed for a large project would become especially difficult or costly to acquire.

Governments can use eminent domain for private projects that they take to be in the public interest, e.g. not just highways, but privately owned railroads also. Recently the State of New York agreed to use eminent domain to acquire the last plots of land for Columbia University to expand its campus north of its current Manhattan location, on land that Columbia had mostly assembled over years of private acquisition.

Harvard acquired land in the Allston neighborhood of Boston in the 1990's, without eminent domain, by buying lots secretly, through a third party, as they became available. The thought was that the last lots would have become very expensive if it became known that Harvard was purchasing land for a large project.

Update: Steve Leider urges me to include the recent expansion of eminent domain authority to include more strictly private projects. He writes:

"You probably ought to mention the Kelo decision ( ) which substantially expanded what counts as "for a public purpose" in terms of using eminent domain for a private project - basically increased tax revenue counts. The decision is very controversial, since it basically allows ED for just about anything, and many are worried that developers will try to wield influence with lawmakers to get ED invoked. There was lots of discussion at the time on law blogs like (here are some of their recent posts on the subject )"

Market for used books

The easy availability of internet shopping for used books hasn't just affected used book stores, it is having an effect on the sale of new books as well, much like internet downloading of music affects sales of recorded music. Here's a story from the NY Times: Bargain Hunting for Books, and Feeling Sheepish About It . It makes the point that people can (and do) now sell relatively new books once they have read them, and that this impacts stores that sell new books, and of course authors, since neither get a share of resales. Increasing the thickness of the used book market increases the 'velocity' of a book, i.e. the rate at which new books change hands. Each copy of a book gets more readers, but each title sells fewer new copies.

"A book search engine like can knit together 20,000 booksellers around the world offering tens of millions of nearly new, used or rare books."

"Andy Ross, the former owner of Cody’s, told me that buying books online “was not morally dubious, but it is tragic. It has a lot of unintended consequences for communities.”
Mr. Ross said he realized that Cody’s was doomed when he noticed that in the last year he hadn’t sold a single copy of that old-reliable for undergraduates, Kant’s “Critique of Pure Reason.” Students presumably were buying it online. Sales of classics and other backlist titles used to be the financial engine of publishers and bookstores as well, allowing them to take chances on new authors. Clearly that model is breaking. Simon & Schuster, which laid off staffers this month, cited backlist sales as a particularly troubled area. "

Thursday, December 25, 2008

New York City Middle School Choice

New York City has a centralized school choice process for high schools, but middle schools are another story. The New York Times reports: New York’s New Choices Raise Stakes for Middle School

"Over the past two years, the city has taken steps to standardize middle-school admissions, organizing fairs in each district, printing directories to clarify options and creating a uniform timeline. Applications preprinted with each fifth grader’s test scores and attendance record were distributed this month and are due, with choices ranked, on Jan. 9. For the first time, the applications will be processed using a $9.7 million system being developed by Vanguard Direct for prekindergarten through high school admissions.
But these changes have also highlighted how wildly admissions policies vary between schools and districts.
For example, of the 16 middle schools in District 2, which covers the Upper East Side and much of Lower Manhattan, one, Greenwich Village Middle, considers grades, interviews, writing samples, teacher recommendations and “group problem-solving tasks,” while another, Middle School 131, weighs attendance and punctuality, among other factors.
In District 12 in the Bronx, 14 middle schools select students randomly or with preference for certain addresses, while five others are open only to students in certain neighborhoods. Two Queens districts do not use the city’s applications, simply placing students by geography (though some schools within them have their own applications).
In fact, there remain middle schools scattered throughout the city that have been allowed to keep their own separate processes, including seven in Manhattan that accept children from across the city."

Charity at a price

Nicholas Kristof's NY Times column on Christmas day, The Sin In Doing Good Deeds, begins with the question about repugnant transactions:

"If a businessman rakes in a hefty profit while doing good works, is that charity or greed? Do we applaud or hiss? "

He writes, of a book by Dan Palotta on the subject:
"Mr. Pallotta’s frustration is intertwined with his own history as the inventor of fund-raisers like AIDSRides and Breast Cancer 3-Days — events that, he says, netted $305 million over nine years for unrestricted use by charities. In the aid world, that’s a breathtaking sum.
But Mr. Pallotta’s company wasn’t a charity, but rather a for-profit company that created charitable events. Critics railed at his $394,500 salary — low for a corporate chief executive, but stratospheric in the aid world — and at the millions of dollars spent on advertising and marketing and other expenses.
“Shame on Pallotta,” declared one critic at the time, accusing him of “greed and unabashed profiteering.” In the aftermath of a wave of criticism, his company collapsed.

Kristof later touches tangentially on a lively debate among development economists:
"There are lots of saintly aid workers in Rwanda, including the heroic Dr. Paul Farmer of Partners in Health, and they do extraordinary work. But sometimes, so do the suits. Isaac Durojaiye, a Nigerian businessman, is an example of the way the line is beginning to blur between businesses and charities. He runs a for-profit franchise business that provides fee-for-use public toilets in Nigeria. When he started, there was one public toilet in Nigeria for every 200,000 people, but by charging, he has been able to provide basic sanitation to far more people than any aid group. "

Aside from debating the merits of non-profit versus profit making organizations in fostering development, development economists have become interested in the question of whether it might further the goals of charity to charge a small price for some goods (water purifiers, or mosquito nets), rather than giving them away for free. Aside from the issue of how such supplies are financed, the question has been raised about whether charging for such goods might better put them in the hands of those who would actually use them, or even might make people more likely to use them.

Two randomized trial field experiments have reached different conclusions on this subject, in two countries, for two different goods.

The first of these, by my colleague Nava Ashraf, and James Berry, and Jesse M. Shapiro is "Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia."
They find that, for a home water purification product, in Zambia "...higher prices screen out those who use the product less," i.e. that when a price is charged, more of the product ends up being actually used.

The second paper, which uses the Ashraf et al. experimental design to study the distribution of insecticide-treated mosquito nets in Kenya, is
"Free Distribution Or Cost-Sharing? Evidence From A Randomized Malaria Prevention Experiment" by Jessica Cohen and Pascaline Dupas. They conclude
"... our results suggest that in some settings free distribution might be as
cost-effective as cost-sharing, if not more."

Wednesday, December 24, 2008

Markets and fraud

You can't read the news these days without thinking about fraud, and how market designers should think about it. I don't just mean headline grabbing Ponzi schemes of unprecedented proportions either, but run of the mill misbehavior. Part of the answer involves regulation, legislation, law enforcement, and the profession of accountancy. There's even an Association of Certified Fraud Examiners.

Scott Kominers (an aspiring market designer who is applying to grad schools this year, and looks like a hot prospect) draws my attention to a case that might fall under the heading of environmental activism: Bidder said it was easy to rig government auction.

Scott writes:
"Apparently, "Tim DeChristopher, 27, a University of Utah economics student and environmental activist," infiltrated the government oil and gas parcel auction. 'He snapped up 22,500 acres of parcels between Arches and Canyonlands national parks that he doesn't plan to develop or even pay for. He also drove up prices on other bids by hundreds of thousands of dollars.' Proof that those who do not practice safe market design are doomed to be beaten by economics students."

Tuesday, December 23, 2008

Lifesharers: organ donation as a club good rather than a public good

My earlier post today drew a comment from the executive director of an organization, LifeSharers, with an interesting approach to promoting deceased organ donation. In economist-speak, they want to increase organ donation by changing it from a public good to a club good.

Deceased organ donation is a public good in the sense that everyone is better off in expectation if everyone else is willing to donate their organs when they die, but no one receives any direct benefit from donating his organs after death (and there must be perceived costs to donation, since not everyone is a donor).

Economists often worry about how to provide public goods (which is one reason for the invention of taxes: the fellow who mows the lawn in a public park is likely a city employee, but there's no problem in getting people to maintain their own, private lawns...)

In between public and private goods are "club goods," like a park or country club that is funded by members, and is only open to members and their guests. The idea of LifeSharers is that organ donation can be a club good: members indicate that they are willing to donate their organs, giving first preference to other members.

The LifeSharers site has references to some of the many articles that discuss this or similar ideas favorably in the context of organ donation. (I can't put my finger offhand on an unfavorable reference, but I recall seeing some arguments in the medical ethics literature that question whether you should always be happy giving preference to a club member in favor of a non club member, when there might also be many other features that distinguish them...)

As a practical matter, there are obviously obstacles to making a voluntary club good out of a public good that only benefits a member with very low probability. The LifeSharers FAQ includes the following:
Q. How many LifeSharers members have died and donated organs?
A. We have not yet had a member die in circumstances that would have permitted recovery of his or her organs.

Whatever your views on the market design issues, the holidays are a good time (when families are gathered) to let yours know that you would like to be an organ donor, so that they will be able to act on your wishes if it comes to that.

Incentives for organ donors, continued

Two eminent transplant docs, Drs. Frank Delmonico and William Harmon, have sent me an open letter expressing their concerns about proposed legislation described in a recent WSJ editorial (which I blogged about here). Dr. Delmonico, a transplant surgeon, is a man of many parts, including being past president of UNOS, and a founder of the New England Program for Kidney Exchange, and one of the most active speakers on the "against" side of the debate about compensating organ donors. Dr. Harmon, a transplant nephrologist, is the Chief of the division of Nephrology and a Professor of Pediatrics at Children's Hospital in Boston. Here is their letter:

The recent Wall Street Journal (WSJ) editorial “Wait Listed to Death” portrays an unrealistic picture of organ transplantation in the United States and proposes a change in our national policy that the rest of the world considers unethical and repugnant. The WSJ is recommending a market for organs which is the basis of legislation now proposed by Senator Specter of Pennsylvania.

Senator Specter’s legislation would lift NOTA’s restrictions on the payment of “valuable consideration” for organs from any “actions” by any level of government (from federal to tribal) that aim to increase the number of organs for transplantation. These “actions” could include authorizations for organizations—whether for-profit or nonprofit—to run incentive programs, different from one state to another, with no federal regulatory oversight.

Thus, the Specter legislation introduces a radical change after more than 50 years of transplantation that has always considered donated organs to be a gift. Benefits such cash equivalents would be permitted that could include stocks, bonds, housing, motor vehicles, tuition, funeral costs, tax incentives, etc. These “benefits” are no different than cash in soliciting individuals to be organ donors.

We commend Senator Specter’s concern about the imbalance of organ donors and candidates awaiting transplantation; but the WSJ editorial exaggerates that imbalance by citing statistics that are not true: a large proportion of those who die “while waiting” are not really active candidates and would not be helped by a system of financial incentives for organ donation. Moreover, approximately 40% of those that are dying on the list are in need of hearts, livers and lungs that will not be affected by markets for living unrelated donors. An eBay offer for lung donors, as the WSJ misrepresents, is not the issue; but a market for kidneys is an international concern.

These markets have been tested in many parts of the world. The single consistent result of those experiments has been the abuse of human rights. For that reason, the international transplant community was recently convened in Istanbul to combat organ trafficking and transplant tourism. The result was the Declaration of Istanbul that condemns transplant commercialism, because it targets the indigent and impoverished and inevitably leads to inequity and social injustice.

The Istanbul Declaration is now having success by regulatory authorities closing rogue transplant centers and prosecuting unethical doctors.

Importantly, in the United States, volunteer efforts such as the “Collaborative for Organ Donation” initiated by Secretary Thompson, have resulted in a major increase in deceased organ donors by appropriately educating both professionals and donor families. The expansion of these voluntary efforts has not yet reached its maximum potential.

Legislation can also support live donors by programs that do not currently exist. Federal protections for live donors to have job security, assured donor leave, and health and life insurance for donation-related events, would provide donor care and remove obstacles for those who wish to be organ donors.

Legislation must also consider provisions for organ failure prevention. The National Kidney Disease Education Program is an initiative of the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), National Institutes of Health (NIH), and the Department of Health & Human Services (DHHS) that can perform blood pressure screening and an inexpensive urine analysis to detect patients with hypertension and kidney dysfunction and treat them before the necessity of dialysis or transplantation.

Please join us in supporting legislation that will be a model testimony for the rest of the world. Otherwise, the legacy of transplantation is at risk if the United States endorses market programs that permit payments for organs; it will immediately and irreversibly open the door to a resumption of human rights abuses in many parts of the world.

NB: here is the 2008 Istanbul Declaration to which the letter refers.

Sunday, December 21, 2008

The market for economics: what should economists study?

The Boston Globe has a story in today's Ideas section about whether academic economists will and should redirect their energies to focus more on events like the current crisis (and less on the "luxury goods" of more academic or more microeconomic topics): Paradigm lost--Economists missed the brewing crisis. Now many are asking: How can we do better?

It's always good for individual economists to think about how they want to direct their efforts. A big crisis like the current one will surely cause some people to redirect their work to the new (and old) questions that it raises, and the new opportunities it presents for studying them.

But I am reminded, at times like these, that science is an incremental business with its own internal agenda. We don't always make the most progress by studying the most important problems directly. We often choose problems to study by some combination of their importance and their tractability. That is, sometimes we choose subjects to study because the tools (or the data) have gotten to the point where we can make progress on them, not because they have grown in importance.

I recall reading similar articles during previous crises. One that sticks with me was by an author who had looked at a recent issue of the American Economic Review, and complained that none of the articles were relevant to the stagflation we were then experiencing. Economists ignored important questions, he complained, and concentrated on small beer. I remember casually thinking of writing a reply along the lines of "I just looked at a recent issue of the Journal of the American Medical Association and noticed that all the articles are about relatively small scale problems, none of them directly addresses how to cure the major problem of medicine, which is Death."

My advice to young economic researchers is to keep your eye on the important questions you would like economics to be able to solve, but don't feel you have to take the steepest path up the mountain, feel free to look for ways to make the ascent step by step.

Saturday, December 20, 2008

Marriage market: dowries

The previous post got me thinking about dowries and their role in marriage markets: the paper I like best is "Why Dowries?" American Economic Review 93, no. 4 (September 2003): 1385-98, by Maristella Botticini and Aloysius Siow.

They argue that dowries make the most sense in agrarian societies in which daughters move to their husband's family upon marriage, while sons stay and invest in the family business. Thus parents who wish to support both sons and daughters give dowries to daughters and bequests (inheritances) to sons (instead of bequests to both, which would give sons less incentive to invest in running the family business...). As societies become less agrarian, and sons become less likely to remain in the family business, it becomes more efficient to treat sons and daughters more similarly and e.g. invest more in human capital by sending them both to college, etc...

Friday, December 19, 2008

Marriage market: Middle East

Head of Palestinian clan offers Iraqi shoe-throwing journalist a bride

"The head of a large West Bank family wants to reward the Iraqi journalist who lobbed his shoes at President George W. Bush by sending him a bride. 75-year-old Ahmad Salim Judeh says if journalist Muntadhar al-Zeidi is interested the family is willing to take one of its eligible daughters to Iraq along with her dowry. ... Al-Zeidi has become something of a folk hero since throwing his shoes at President Bush at a Sunday press conference."

Repugnant gambles

Justin Wolfers has a blog post at Freakonomics in which he observes that the Australian Federal Treasurer regards bets about the recession repugnant if placed on a book making site, although fine if placed in options markets. (This even though the bettors on the bookmaking site apparently are of the opinion that Australia will avoid a recession...)

Wednesday, December 17, 2008

Competition among airports

London's Heathrow, Gatwick, and Stansted airports are presently run by BAA Ltd, which also runs the Edinburgh and Glasgow airports in Scotland. The Telegraph reports on the decision of the British Competition Comission to dismantle this monopoly by requiring BAA to sell two of the three London airports and one of the Scottish ones: Delays could be cut by BAA sell-off of Gatwick, Stansted and Edinburgh airports

The Competition Commission reports, together with BAA's replies and other comments are here.

Incentives for Organ Donors

Apologies for this unusually long post: to make sense of this you have to look at bits of Federal legislation. The one sentence summary is that Senator Arlen Specter is preparing to propose an amendment to the National Organ Transplant Act to allow States to offer some (limited) incentives for organ donation...

The Wall Street Journal has an editorial today on incentives for organ donors: Wait-Listed to Death: Improving incentives for organ donations.
It is written in support of an amendment to the National Organ Transplant Act of 1984 being proposed by Senator Arlen Specter, part of which famously stated:

SEC. 301. (a) It shall be unlawful for any person to knowingly acquire, receive, or otherwise transfer any human organ for valuable consideration for use in human transplantation if the transfer affects interstate commerce."

The WSJ editorial observes that under current interpretation of the Act,
"Kidney transplant recipient Sally Satel has noted that burial and cremation expenses can be provided when a body is donated to science -- as long as it isn't used to save the life of a current patient."

Because the phrase "valuable consideration" could include much more than cash payments, the NOTA has already been amended to make clear that it does not preclude kidney exchange. The Charlie W. Norwood Living Organ Donation Act [Public Law 110-144] signed into law in December, 2007, amends the sentence of the NOTA quoted above by saying
"Section 301 of the National Organ Transplant Act (42 U.S.C.274e) is amended—(1) in subsection (a), by adding at the end the following:‘‘The preceding sentence does not apply with respect to human organ paired donation.’’"
(Note: the phrase "paired donation" is used in official circles to avoid the use of the word "exchange" in kidney exchange, to further separate it from any involvement with "valuable consideration.)

The amendment to be proposed by Senator Specter includes a further amendment of that sentence. (I don't think the proposed bill is on the web yet, this is a quote from a preliminary version that crossed my desk.)
"Section 301 of the National Organ Transplant Act4 (42 U.S.C. 274e) is amended—5 (1) in subsection (a), by striking the last sentence and inserting ‘‘The preceding sentence does not apply with respect to human organ paired donation or a government incentive to increase the supply of donated human organs.’’" (emphasis added). The proposed amendment also increases penalties for non-governmental buying and selling of organs for use in transplantation.

The WSJ notes that the amendment is motivated in part by the fact that
"After Pennsylvania passed a pilot program in 1994 to pay burial expenses for organ donors, state employees refused to implement the law for fear of federal prosecution."

However the italicized portion of the amended sentence is arousing some opposition because it seems to open the door to other sorts of government incentives, of a kind recently opposed by Pope Benedict and by the National Kidney Foundation.

Debate over the proposed bill looks likely to be a public forum in which issues of repugnant transactions will play a visible role.

Partly in anticipation of this (and after I posted the above), Sally Satel informs me that I've been working from an early draft of the proposed amendment. The new draft includes a summary stating
To prohibit human organ trafficking, to prohibit the misuse of immigration and government identification documents in furtherance of organ trafficking, to prohibit attempted organ trafficking, to mandate restitution for victims of organ trafficking, to create a civil remedy for victims of organ trafficking, and to clarify that laws that honor and reward organ donation are not preempted by Federal criminal law and acceptance of such government benefits is not criminal." (emphasis added)

The relevant parts of the bill (see para 3 below) now appear to rule out cash transfers even from government programs (although I'm not a lawyer...)"

"‘‘(2) GOVERNMENTS ENCOURAGING ORGAN DONATION.—This section and section 301 of the National Organ Transplant Act (42 U.S.C. 274e) shall
‘‘(A) apply to actions taken by the Government of the United States or any State, territory, tribe, or local government of the United States to encourage organ donation; or
‘‘(B) prohibit acceptance of such a government benefit.
‘‘(3) CERTAIN STATE LAWS.—This section shall be construed to preempt any State law that authorizes the payment of cash to induce organ donation or otherwise authorizes the sale or purchase of a human organ for use in human transplantation.’’"

Academic marketplace: Recession at Yale

Yale's president, economist Richard Levin, has written a sensible letter to the Yale community about dealing with the sharp drop in Yale's endowment, in which he takes a long term view of faculty hiring:

"Second, we will continue to recruit faculty. Authorized searches in the Faculty of Arts and Sciences will proceed, and the deans in each of the professional schools will work with the Provost to strengthen their faculties. We do not want to lose the momentum of recent years, and we believe that it will be to Yale’s long-run advantage to continue to recruit outstanding and diverse faculty. This said, we will need to be judicious in authorizing new positions and filling vacancies, and departments will have to make a strong case for searches that are not yet authorized."

Tuesday, December 16, 2008


Contracts are shaped in part by the legal framework that determines what happens when contracts break down. The long time scholar of bankruptcy Michelle White has a timely new NBER working paper "Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis." (It is a revised version of her 2008 Presidential Address to the American Law and Economics Association.)

One arresting sentence:
"By the early 2000’s, more people were filing for bankruptcy each year than were graduating from college, getting divorced or being diagnosed with cancer."

Monday, December 15, 2008

Some transactions become repugnant again in Holland

Holland scrapping liberal policies on drugs and brothels to clean up image
"The Dutch are rethinking their famously liberal polices on legalised brothels, prostitution and soft drugs, such as magic mushrooms and cannabis, amid fears of growing crime and social decline.
New restrictions on marijuana selling cafés, a ban on the sale of magic mushrooms and plans to clean up Amsterdam's red light district have been announced across Holland."

But it looks like they are contemplating gradual change:

"Last week, Amsterdam announced that it planned to halve the number of its shop window brothels and cannabis cafés in an attempt to drive pimps, money launderers and criminals out of the city.
Now the Dutch government has announced new plans to strictly regulate the sex industry, massage parlours and brothels more by imposing a tough licensing system to drive out organised crime. "

Sunday, December 14, 2008

Surrogate motherhood, continued.

Last month I blogged about a NY Times Sunday magazine story written by a woman who hired a surrogate mother to bear her child, in connection with the stream of posts I've made about repugnant transactions, i.e. transactions that some people think other people shouldn't do. Today, the Magazine section has letters commenting on that article, some supportive of the author mom, some not. Some of those latter are full of a sense of repugnance: these two caught my eye.

"If prostitution is unethical, immoral and illegal, why is it O.K. for one woman to pay for the use of another woman’s body? If it’s unethical, immoral and illegal to buy and sell body parts for transplantation, why is it O.K. to rent a uterus? Our morality seems so malleable in the hands of those who feel entitled."

"I am filled with revulsion by Alex Kuczynski’s cover story. I find it unconscionable that in an era with so many children who cannot find homes there are rich, white, educated couples who can pay $25,000 so that another woman, living in far less well-off circumstances, can go through the physical ordeal and emotional pain of having and giving up her baby. ..."

Saturday, December 13, 2008

Illegal cartels and the prisoner's dilemma

Paraffin wax is a humble byproduct of oil refining, and the EU's competition commission recently fined a passel of big oil refiners for having maintained a paraffin cartel that illegally coordinated prices. Here's the story: Inside Europe’s High-Living Wax Cartel.

The cartel seems to date from the 1970's, so it was quite long lived. But when it collapsed, it collapsed quickly, because of the prisoner's-dilemma way the anti-cartel laws are written and enforced.

"In the paraffin case, as in others, some of the biggest offenders walked off with no, or relatively small, fines because they were first in the door with information implicating less-involved conspirators."
"By late February 2005, the cartel started to fracture. It gathered for what would be its last meeting in the brightly colored four-star Hotel Madison Residenz in Hamburg but was unable to come to an agreement on prices.
Three weeks after the Hamburg meeting, the cartel was shattered.
Shell, facing $360 million in fines for its participation in other cartels — involving synthetic rubber and bitumen, a thick form of petroleum — revealed the paraffin scheme to European Union authorities on March 17, 2005. Under European Union regulations, Shell won complete forgiveness for what would have been a nearly $130 million fine, as calculated by the commission. Other companies — some far less implicated — faced fines eventually totaling nearly $900 million."

Friday, December 12, 2008

School choice in Belgium

Estelle Cantillon, a leading market designer working in Belgium, writes in LeSoir about the current school choice situation, following the withdrawal on Wednesday of the current system of school-specific lotteries and waiting lists: Mixité : le tirage au sort n'est pas le problème, il pourrait même faire partie de la solution ('the lottery isn't the problem, it could be part of the solution'). She notes that this system was heavily gamed; because you couldn't be sure your child would be admitted to a given school, you had to apply to many schools, so the waiting list system was congested and the allocations were random.

She has organized a conference on the subject in Brussels in January, at which the new, strategy-proof designs in Boston and New York will be described. As she puts it in her column "Parents shouldn't have to break their heads" to try to get their kids into a school.

Thursday, December 11, 2008

Market for Senate seats

Auction theorist, designer, and entrepreneur Peter Cramton sends me the following email about the recent arrest of the Governor of Illinois on charges of seeking to sell the Senate seat vacated by the President-elect. Under the subject line "auctions vs. matching" he writes:

As you know, I am a big fan of auctions, but below would appear to be an example of where using an auction (price-based matching) causes some discomfort among market participants and matching without prices may be preferred. :)

He attaches this BBC story, asking When will the Illinois prison authorities finally grasp the nettle and open a governors' wing in Chicago's premier jail?

Wednesday, December 10, 2008

Should assisted suicide be a legal transaction? The debate continues.

The debate in England about whether the laws criminalizing assisted suicide should be changed has grown agonizing to follow, with a televised account of one man's suicide at the Swiss clinic that has been the subject of so much earlier discussion. The Times reports: Suicide on TV Condemned in Britain.
"Public opinion polls suggest that 80 percent of Britons believe the law should be changed to allow a doctor to end a patient's life in a case like Ewert's, but opposition from influential religious groups remains strong and the anti-suicide law remains in place."

The Other Times reports: Gordon Brown refuses to back law allowing assisted suicides
"Campaigners seeking to lift the ban on assisted suicide were dealt a blow yesterday when Gordon Brown repeated his opposition to a change in the law.
The Prime Minister said that he would never support legislation to permit assisted suicide that might put sick or elderly people under pressure to end their life. Privately, some politicians criticised him, claiming that he had breached a convention of government neutrality by expressing a view on an issue recognised as one of conscience rather than party policy.
His comments came as a television documentary last night showed the death of Craig Ewert, a motor neuron disease sufferer, the first time that footage of an assisted suicide including the moment of death had been broadcast in Britain.

In related stories, British prosecutors have decided not to prosecute the parents of the former rugby player for accompanying him to Switzerland: No charge for parents who took son, Daniel James, to suicide clinic

In the U.S., physician assisted suicide is legal only in Washington State and Oregon--here's a discussion in the New England Journal of Medicine: Physician-Assisted Death — From Oregon to Washington State

The debate about whether a patient with a terminal disease who wishes to hasten his death may legally do so, and may receive medical assistance, echoes in many ways similar debates about other repugnant transactions, i.e. transactions that some people don't want others to make. (My earlier posts on the debate over assisted suicide are here, here, here, here, and, tangentially, here.)

Tuesday, December 9, 2008

School choice in NYC

Last month I blogged about the New York City high school choice mechanism that Atila Abdulkadiroglu, Parag Pathak and I helped design. The NY Times reports on this year's version: even a well designed system doesn't remove the stress from choosing sensibly among hundreds of high school programs. Among the many ways the new system is an improvement on the old, pre 2003 system, is that families can state their preferences among schools without revealing them to the schools (so that schools can no longer adopt strategies like "only admit students who rank us first").

As the Times reports,
"Last week, more than 80,000 eighth graders submitted a ranked list of up to 12 of the city’s 400 high schools to their middle-school guidance counselors. Separately, students submit essays and other materials to individual schools, which do not know where they rank on the students’ lists. (Allison and her mother asked that their top choice not be revealed for fear it could hurt her chances elsewhere.)"

The new system also solves the congestion problem that plagued the old system; multiple applications by 80,000+ students overwhelmed the old system, but the present system uses a computerized, student proposing deferred acceptance algorithm.

HT to Parag Pathak

Academic marketplace: Recession at Harvard

Harvard's endowment has (like most assets) taken a huge hit in the market meltdown. However, it is likely that, when the storm is over, Harvard will remain the most richly endowed university in the world. Hence you might think the present recession would be an opportunity for Harvard to seek to build, e.g. in areas in which it is not yet the best university in the world (such as some of those that the engineering institute down the river excels at, for example). This would be challenging (because a vast but presently declining endowment faces very severe liquidity constraints), but Harvard is well positioned to borrow in the bond market.

It appears that this is not the plan, however. A story in today's Crimson (FAS Freezes All Faculty Salaries, Cuts Searches) leaks an email to department chairs that is to be discussed more fully at a faculty meeting today. The story suggests that
"[other measures and] a hold on the bulk of current searches for tenure-track and tenured faculty were among the cost-cutting measures announced in a letter circulated to department chairs in the Faculty of Arts and Sciences yesterday afternoon. ... The new policy marks a considerable departure from the stance outlined by FAS Dean Michael D. Smith at a Faculty meeting in November, when he told department leaders to go ahead with all current searches if applicant pools remained as strong as anticipated."

Applicant pools will of course be unusually strong in a year when many universities are cutting back their hiring. I can already see that more daring universities may have unusual opportunities. (Economics departments should be looking particularly to hire some of the best new market designers, experimenters, and theorists....)

Auctions of airport takeoff and landing slots--maybe not so soon after all

Auctions of slots at NYC airports delayed yet again: Court Order Delays Auction of Landing Slots at Airports

"A court order on Monday delayed a Bush administration plan to auction landing slots at the three major airports in the New York region, pushing the proposal into the Obama administration, where it may die.
The Court of Appeals for the District of Columbia granted a stay on Monday, in a case brought by the Port Authority of New York and New Jersey, pending arguments on whether the Federal Aviation Administration has the legal authority to auction the slots. The first auction was scheduled for Jan. 12, eight days before the Bush administration ends. "

Who would have thought that such a good idea would run into so much trouble...

HT to Scott Kominer

Sunday, December 7, 2008

Markets for durables when credit is tight

Two stories in the NY Times reflect changes in markets for durable goods and for real estate in the context of tight credit: layaway plans and rent with option to buy, respectively.

The Last Temptation of Plastic reports on the revival of layaway plans, which used to be popular before credit cards. In a layaway purchase, you make installment payments before taking possession of your purchase (e.g. a big furniture purchase); it's a form of enforced savings that locks in a price and helps supply self control and commitment (to save for the purchase) where it might be lacking.

Rent Now, Buy Later reports on the growing number of offerings in the NYC real estate market. These transactions allow potential purchasers to delay purchase until they have a bigger downpayment (and until they see which way the market is going), and they give sellers some rental income in the meantime.

These are both signs of tough times...

Auctions of airport takeoff and landing slots--maybe coming soon

U.S. to Auction Slots Soon at New York City Airports reports the Times.

"The auction is scheduled for next Friday, with results announced soon afterward; the changes are to take effect at La Guardia in March and at Kennedy and Newark in October.
If the auction is not overturned by the courts or Congress — and either seems possible — it could be the last significant transportation action of the Bush administration, which leaves on Jan. 20.
What is being auctioned is the right to land, or take off, within a half-hour period for 10 years. The reserve price — below which the slot will not be sold — is $10,000 for peak hours and $100 for off-peak, but the president of the auction company, Lawrence M. Ausubel of Power Auctions, said that those numbers were likely to be “well exceeded.”
Mr. Ausubel said he did not know of any prior auction of airport slots."

HT to Scott Kominer

Export controls are hard to enforce

The Boston Globe reports on the export to Iran of an oil exploration tool developed at Schlumberger's labs near MIT: Oil firm sidesteps sanctions on Iran. American law prohibits Americans or American based firms from exporting such equipment, but a multi-national firm incorporated outside of the U.S. can manage to do so if it is careful. It appears that, while oil-field technology isn't as fungible as oil itself, it is difficult to control its international movement with national laws.

"Since 1995, federal regulations have barred Americans from exporting goods, technology, or services to Iran, and also prohibited non-Americans from directly exporting US-made equipment there."

"Citing concerns that Iran was using its oil revenues to fund terrorism and to finance a nuclear weapon, Clinton issued an order in March of 1995 that prohibited any US citizen or company operating on US soil from assisting Iran's oil industry. At the time, many policymakers believed that the United States had a monopoly on cutting-edge oil technology, and that the sanctions would prevent Iran from developing its oil fields"
"Minette, who had developed the similar tool for a Schlumberger rival and who now owns his own consulting company, said he, too, was not surprised that Schlumberger has brought the device to Iran.
"These folks have got lots of lawyers," he said.
Even if Congress were to find a way to close the loophole in the sanctions law, he said, Schlumberger could simply shift the manufacturing of the tool to its production centers overseas, beyond the reach of US laws. And, indeed, Schlumberger already has shifted some of its oil-service manufacturing to a production center in France, where US sanctions do not apply.
"Would it be possible to stop Iran from getting that particular tool?" Minette pondered. "If the world wanted to, yes, but the world doesn't want to. The United States does not have control.""

Saturday, December 6, 2008

Illegal markets: Dogfighting

Dogfighting Subculture, Illegal and Secretive, Is Taking Hold in Texas

Not only is dogfighting itself a felony in Texas, many of the participants seem to be involved in other kinds of crime. Running an illegal competition among criminal participants presents some special problems:

"After the weigh-in, the owners washed each others’ dogs in water, baking soda, warm milk and vinegar to make sure their coats were not poisoned."

Friday, December 5, 2008

New Zealand traffic rules

Traffic rules are designed to avoid coordination failures. In much of the world, driving is on the right. New Zealand is one of the island nations in which driving is on the left, the next most popular choice. Uniquely, they have a rule that says drivers taking left turns (which, remember is the turn that doesn't cross traffic) must yield to drivers taking right turns. (Here's a site with a picture. If we had this rule in the U.S. it would mean drivers taking a right must yield to those taking a left.) Apparently this is an inferior coordination rule. On the one hand, a driver planning to take a right turn (across traffic) might appear to be planning not to turn. On the other, a driver planning a right turn who has precedence over a driver taking a left must still yield to a driver going straight, and so errors in signaling in either direction are a problem. So from time to time New Zealanders debate changing the rule: Quirky intersection rule set to face review - again

"AA motoring affairs manager Mike Noon said New Zealand's version was "most probably the most confusing and poorly understood rule that we have".
Although it was designed to reduce the risk of rear-end collisions for vehicles waiting to turn right, he believed that was outweighed by the hazards of side or head-on crashes.
One major hazard was when a vehicle swung right into the path of an opposing driver who might have inadvertently signalled a left-hand turn, but was continuing straight ahead."

Of course, switching from one equilibrium to another (even if superior) presents coordination problems of its own. Maybe September 3 should be Coordination Day, in memory of the day in 1967 when Sweden switched from driving on the left to driving on the right.

Thursday, December 4, 2008

Auctions as tourist attractions

If you never visited the Tokyo morning fish auctions, it may be too late: Tourists banned from famous Tokyo tuna auctions at world's biggest fish market

"Today, Tokyo Metropolitan Government announced a ban on tourists attending the tuna auction, initially for the festive period from December 15 for a month, with a view to extending it in the New Year.
Guards will be deployed at the entrance of the tuna auction inside the market in order to enforce the ban, while hotels, embassies and travel agencies will also be informed in a bid to deter visitors from trying to gain entry.
"We have decided on a total ban as visitors are taking pictures with flash and touching tuna, which gets in the way of bidding," said Akiko Ueyama, a spokeswoman for the Tokyo Metropolitan Government."

Fortunately you can still visit the Dutch flower auction in Aalsmeer.

Wednesday, December 3, 2008

Assisted suicide and monarchy

I have blogged before about assisted suicide as a repugnant transaction that (along with some others) is undergoing changes in perception in some places. The latest news is from Luxembourg: Grand Duke Henri of Luxembourg opposes euthanasia and loses power

"Grand Duke Henri of Luxembourg is to be stripped of his executive power to veto laws passed by parliament after threatening to block a Bill to allow euthanasia in the tiny state.
The hereditary sovereign, 53, who is the last Grand Duke in the world, caused a constitutional crisis when he gave notice that he objected to Luxembourg following its neighbours Belgium and the Netherlands in permitting euthanasia before a second-reading vote in the Chamber of Deputies next week.
Jean-Claude Juncker, the Prime Minister, also opposed the Bill but decided that the Grand Duke had overstepped the mark in threatening to deny the will of parliament. "

Medical residents

The Institute of Medicine has issued a report on the training of new doctors: Expert Panel Seeks Changes in Training of Medical Residents (the link is to the NY Times story, the report is at
Resident Duty Hours: Enhancing Sleep, Supervision, and Safety)

The medical residency is the first step on a medical career, and is shaped by competing forces: the desire of the medical profession to limit new entry, the training needs of new docs, and the needs of patients. The latest report focuses on the latter by suggesting that residents should have some scheduled sleep time...

"...the worry is that the huge workload imposed on residents poses a risk to patient safety. The long hours of often unsupervised residents were found to have contributed to the 1984 death of 18-year-old Libby Zion in New York City, a finding that eventually led to a series of changes, including limiting residents to an 80-hour workweek and 30-hour shifts.
But the expert panel said those reforms were not enough. Caps on work hours are often not enforced, and many residents still do not get enough sleep, putting doctors and patients at risk for fatigue-related mistakes. While the new recommendations do not reduce overall working hours for residents, the report says no resident should work longer than a 16-hour shift, which should be followed by a mandatory five-hour nap period.
The committee also called for better supervision of the doctors-in-training; prohibitions against moonlighting, or working extra jobs; mandatory days off each month; and assigning chores like drawing blood to other hospital workers so residents have more time for patient care."

Tuesday, December 2, 2008

Elder care: household production

Jane Gross at the NY Times blogs on a recent AARP report, which points out that eldercare is mostly provided by families: Love’s Labor. (There's a reason why families are our most ancient unit of production.)

The report, Valuing the Invaluable: The Economic Value of Family Caregiving, 2008 Update, by Ari Houser and Mary Jo Gibson begins by noting that
"In 2007, about 34 million family caregivers provided care at any given point in time, and about 52 million provided care at some time during the year. The estimated economic value of their unpaid contributions was approximately $375 billion in 2007, up from an estimated $350 billion in 2006."
"The economic value of caregiving exceeded total Medicaid long-term care (LTC) spending in all states, and was more than three times as high in 36 states. Compared with Medicaid home- and community-based service spending, the economic value of family caregiving was at least three times as high in all states, and more than 10 times as high in 19 states."