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."

Bankruptcy

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."

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. "

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. ..."

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."

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.

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:

"Al,
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. :)
Peter"

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?

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.)

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

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.""

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."

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.

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.

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."

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."