The Economics of Panhandling

how economists see the world, article here

HT:  MarginalRevolution.com

Models are tools

Slideshow on the use of macroeconomic models that reminds me why I study micro.

Swearing as a signal

Signals are convey information only if they are costly to use.  Otherwise, it too difficult to interpret what they mean.

To see this, consider what you learn when you hear someone use the F-word.  Some of my friends use it almost as punctuation, so it means very little.  However, when someone who abhors swearing uses it, I know to pay attention because it is costly for the sender to convey information in this manner.

Analytically, think of the sender as having two potential kinds of information:  crucial information or moderately important information.  Only the sender knows the type of information, and it can be communicated with or without swearing.  It doesn't pay for the sender to incur the costs of swearing to communicate moderately important information.  Rather, swearing is reserved for communicating crucial information.

Why does it cost more to insure a Tesla?

The AAA is raising rates to insure Tesla's, and Tesla is angry:

The rear-wheel-drive Tesla Model S is involved in 46 percent more claims than average, and those claims cost more than twice the average, it said.

it wasn't clear whether this was due to Adverse Selection (people who buy Tesla's are worse drivers, or more prone to file claims, and the Tesla is expensive to repair) or Moral Hazard (those who buy Tesla's drive more recklessly after they buy).

Remember Adverse selection is caused by hidden information about a person's type, moral hazard is caused hidden information about actions.

Like Growing Wheat on Wall Street

The FCC recently concluded an historical auction. Spectrum licenses have been auctioned off for mobile phone service in the past and licenses to use spectrum within a specific assignment have been exchanged in the past. But this represents one of the few times (only?) that an auction was implemented to move spectrum from one assigned use (TV Broadcast) to another (Mobile Broadband). Broadcasters have a huge chunk of spectrum (most of the light blue in lines 2, 4 & 5 in the chart) but few people still receive TV signals over-the-air. Thus, it is in a low-valued use.

At the same time, users have been demanding ever more bandwidth from broadband mobile providers. Some 145 TV broadcasters (mostly fringe or duplicative channels in large markets) volunteered to go off the air for $10 billion. The mobile broadband providers will pay $19 billion with the difference going to the US Treasury. Just imagine what sort of fancy gizmos this will make available. Just imagine how many more if the US government did not impose such a hefty tax.

The whole episode reminds me of a comment Tom Hazlett made once. "Our Spectrum allocation is less efficient than using Wall Street for wheat farming."

Hat tip: Lisa George

Why are productive people leaving Puerto Rico?

The economy is contracting and productive people can earn two to three times more on the US mainland than in Puerto Rico.

“I had to choose for my family,’’ said Aledie Amariah Navas Nazario, 39, a pediatric pulmonologist who left behind young asthma patients when she, her husband and two small daughters moved to Orlando, Florida.

Puerto Rico should serve as a canary in the coal mine for US states and municipalities with unsustainable levels of spending, pensions, and debt.  

Taxes and income, facts on inequality

Wall St Journal short video.

Portland taxes excessive CEO pay: what could go wrong?

Portland placed an extra 10% tax on excessive CEO pay:

"When I first read about the idea of applying a higher tax rate to companies with extreme ratios of CEO pay to typical worker pay, I thought it was a fascinating idea," said Commissioner Steve Novick, who championed the bill after seeing similar efforts in Arizona and California. "[It was] the closest thing I'd seen to a tax on inequality itself."

Price Discrimination in Internet Usage

Former Chief Economist at the US DOJ has estimated demand for Internet usage by looking at how much consumers cut back when they are near their monthly limits. Here are the intuitive findings:

• We find that subscribers’ willingness-to-pay for speed is heterogeneous, which is intuitive given the different ways in which people use the internet.  

• marginal content has relatively low value. 

• On the other hand, the infra-marginal value of content is high.  ["inframarginal" is econ speak for other uses]

These conditions suggest that price discrimination would be a good way for providers (like Google Fiber) to make sure that low value uses do not crowd out higher valued uses, and to earn enough to build capacity where demand is high:

• We find that usage-based pricing is effective at lowering usage without reducing subscriber welfare significantly, relative to a world with just unlimited plans. This is driven directly by our finding that marginal content is not very valuable and that subscriber welfare is mainly driven by infra-marginal usage.

Do Taxes deter innovation?

Superstar inventors, those in the top 1% of patent production (weighted by patent citations), leave higher-tax countries in favor of lower-tax countries.

For instance, if the average country decreased the top tax rates by 10 percentage points, it would be able to keep 1 percent more of its domestic superstar inventors and attract 26 percent more foreign superstar inventors.