enterprises financed by government-sponsored venture capitalists underperform on a variety of criteria, including value-creation, as measured by the likelihood and size of IPOs and M&As, and innovation, as measured by patents.
Thursday, May 29, 2008
The only channel I get in English is CNN so I have been hearing a lot of news. Last night, they were mentioning that Exxon-Mobil shareholders fought off a number of resolutions that appear to have originated with the Rockefeller descendants (NY Times article). One was to "invest more profits in alternative sources of energy." I think this is going to become a classroom teaching tool.
Suppose that it would be less profitable to invest in alternative energy. It may or may not be socially beneficial to do so (it is possible that not all extenalities are internalized). However, some shareholders have a preference for "doing good" while this does not enter into the utility functions of other shareholders. One alternative is for the company to invest more in alternative energy and lower overall profits. Another is for them to maximize profits and distribute the earnings to shareholders who can then invest in alternative energy if they so choose. Which maximizes social welfare? Suppose instead of alternative energy, some have a preference for funding art (which supply may or may not be socially optimal). Does this change the analysis?
Wednesday, May 28, 2008
Using data for New York City schools from 2000-2005, we find that first-year teachers whom we identify as less effective at improving student test scores have higher attrition rates than do more effective teachers in both low-achieving and high-achieving schools.This sounds pretty good. But now for the rest of the story...
For teachers leaving low-performing schools, the more effective transfers tend to move to higher achieving schools, while less effective transfers stay in lower-performing schools, likely exacerbating the differences across students in the opportunities they have to learn.
Shockingly, the bill's authors tied some future subsidy payments to today's record commodity prices, therefore guaranteeing already well-off farmers high incomes. Commercial farm households, which get most of the largesse, will have an average income of $229,920 in 2008, says the Agriculture Department. And it means, as the department points out, that the government could owe billions in subsidy payments to these big farmers if and when prices dip again.John McCain and my "blue dog" Congressman, Jim Cooper, voted against this embarrassment.
A recent study conducted by Vivek Wadhwa, Richard Freeman, and Ben Rissing on behalf of the Ewing Marion Kauffman Foundation indicates that this myth is false even for high-tech startups. The researchers surveyed 652 US-born technology entrepreneurs who started tech companies from 1995 to 2005. They found that the average age was 39 and that twice as many U.S.-born tech entrepreneurs start ventures in their 50s as do those in their early 20s.
Tuesday, May 27, 2008
We all know that the consumer would never see the benefit of this reduction. The oil companies would move the price of gasoline up to capture this revenue along the supply and demand curve. The consumer would actually suffer due to the lasting effects of under funding our aging infrastructure.... [But] some states are seriously considering this proposal.The question of whether consumers will see a price reduction from a gas tax holiday can be answered theoretically or empirically. Theoretically, you have to choose between two models, perfect competition vs. oligopoly, and then compute the pass-through rates. The advantage of perfect competition is that it gives you a definite answer (less than 50% pass-through); the disadvantage is that it is not very realistic. Oligopoly models are much more realistic, but the pass-through rates depend on the "curvature" of demand, something that is very difficult to estimate.
My preference is to go with the empirical estimates, like the Illinois gas tax holiday. There we saw a pass through somewhere between 60-80%.
On the policy side, Governments are caught between inconsistent consumer preferences for both a government policy to slow global warming and against higher gas prices.
And for the most part, the politicians favor cap and trade because it is an indirect tax. A direct tax – say, on gasoline – would be far more transparent, but it would also be unpopular. Cap and trade is a tax imposed on business, disguising the true costs and thus making it more politically palatable. In reality, firms will merely pass on these costs to customers, and ultimately down the energy chain to all Americans. Higher prices are what are supposed to motivate the investments and behavioral changes required to use less carbon.
Monday, May 26, 2008
Time magazine reports:
Stanford economists have demonstrated that the average value of a year of quality human life is actually closer to about $129,000. To get to that number, Stefanos Zenios and his colleagues at Stanford Graduate School of Business used kidney dialysis as a benchmark.
To tally the cost-effectiveness of such innovations Zenios and his colleagues ran a computer analysis of more than half a million patients who underwent dialysis, adding up costs and comparing that data to treatment outcomes. Considering both inflation and new technologies in dialysis, they arrived at $129,000.
"That means that if Medicare paid an additional $129,000 to treat a group of patients, on average, group members would get one more quality-adjusted life year," Zenios says. Based on patient surveys, one "quality of life" year is defined as about two years of life on dialysis.
Friday, May 23, 2008
The top 10 jobs for introverts (correcting for earnings, growth, and number of openings):
- Computer software engineer (applications)
- Computer software engineer (systems software)
- Computer systems analyst
- Network systems and data communications analyst
- Accountant and auditor
- Financial analyst
- Personal financial adviser
- Medical scientist (except epidemiologist)
- Market research analyst
- $193K Anesthesiologist
- $191K Surgeon
- $185K Orthodontist
- $183K Obstetrician
- $178K Oral and maxillofacial surgeon
- $169K Prothodontists
- $167K Internists
- $155K Physician and Surgeon, all other
- $153K Family and General Practitioner
- $151K CEO
- $148K Airline Pilot
- $147K Shrink
- $147K Dentist
- $145K Pediatrician
- $120K Dentist, all other specialties
- $119K Podiatrist
- $118K Attorney
- $115K Engineering Manager
- $113K Petroleum Engineer
- $113K Computer and IS manager
- $113K Marketing Manager
- $113K Natural science manager
- $107K Air traffic Controller
Thursday, May 22, 2008
After an intensive four-week training period that compensates new employees with their full salary, the company presents the freshly trained group with something called The Offer: “If you quit today, we will pay you for the amount of time you’ve worked, plus we will offer you a $1,000 bonus.” Zappos tests the commitment of its employees from the get-go, because it realizes the importance of a strong call-center team when that's the only customer service experience an online customer will get.
...as a couple ages, a lifetime of closeness rubs up a rash of irritations. Participants in the study, which was presented at the Gerontological Society of America, were asked who in their lives – spouse, children or friends – "gets on my nerves" or "makes too many demands on me." The older the couple, the more likely the answer was "spouse."
Strangely enough, rubbing each other the wrong way might be the right way to conduct a marriage. One of the reasons couples quarrel is that they are closer and more comfortable with each other. As we age, the researchers concluded, "It could be that we're more able to express ourselves to each other."
Wednesday, May 21, 2008
--from the Economist
- Companies don’t react to competitive threats in the way management theory says they should, according to a McKinsey Global Survey.
- Instead of undertaking extensive, sophisticated analyses when faced with a competitive threat, most companies assess just a few responses, and they often choose the most obvious one.
- These practices give companies an opportunity to seize a competitive advantage by understanding how their competitors are likely to react to their moves.
Our valuaton model for stocks is dependent on a historical relationship between the Earnings price ratio (what you "earn" by holding stocks) and the 10 year treasury bond (what you earn by holding bonds).
Historical Model: 10 yr bond - Earnings/Price ratio = 1.75%
Current relationship: 3.77% - 4.23% = -0.46%.
The last time that this relationship was negative for this long was before Reagan.
The $307 billion farm bill rolling through Congress with overwhelming support is both "disgraceful" (NY Times) and a "scam" (WSJ) of the worst sort. It turns "environmental concern into subsidies for corn growers" and "energy concerns into subsidies for oil companies."
Barack Obama talks about taking on the special interests. This farm bill would have been a perfect opportunity to do so. But Obama supported the bill, just as he supported the 2005 energy bill that was a Christmas tree for the oil and gas industries. Obama’s support may help him win Iowa, but it will lead to higher global food prices and more hunger in Africa. Moreover, it raises questions about how exactly he expects to bring about the change that he promises.
Here is my guy:
John McCain opposed the farm bill. In an impassioned speech on Monday, he declared: “It would be hard to find any single bill that better sums up why so many Americans in both parties are so disappointed in the conduct of their government, and at times so disgusted by it.”
As our prior post noted, much of the media coverage on this issue focuses on the sad stories of those losing their homes and ignores the happy stories of those gaining new homes through foreclosure opportunities. The Habitat case is a nice counterexample.
Habitat's work makes a difference in the lives of people like Yenenes Tezgera and her family, who will move into a new home in St. Paul soon after putting in an estimated 400 hours of work on Habitat projects in the area. She and her husband have a 17-month-old boy and another child on the way.
Tuesday, May 20, 2008
The model implies that equities are historically undervalued relative to bonds.
DISCLAIMER: If I really knew how to make money, I wouldn't tell you.
Nice article by two economists from the Boston Fed shows that when Midway Air (green dots) and later Southwest Air (chartreuse dots) entered the Philly<-->Chicago route, United Airlines price dispersion collapsed. This is consistent with the theory that price discrimination cannot survive in a competitive market. Curiously, ATA entry (blue dots) had a much smaller effect on United prices.
Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity ... .
Monday, May 19, 2008
- Half of all new college graduates now believe that self-employment is more secure than a full-time job.
- 60% of Gen Y business owners consider themselves to be serial entrepreneurs
- 18 to 24-year-olds are starting companies at a faster rate than 35 to 44-year-olds.
- 70% of today's high schoolers intend to start their own companies,
What's encouraging is that these parents have managed to convey their pro-choice sentiments to their representatives, who are responding even though voucher programs infuriate powerful ... special interest groups like the teachers unions.
A recent article in The Washington Post describes how the IRS has outsourced the collection of unpaid tax accounts to three private agencies. The program has been far from successful with the private companies collecting amounts rougly half of what it has cost to implement the program.
Sunday, May 18, 2008
In 2003 and in 2005, Texas enacted a series of reforms to the state's civil justice system. They are stunning in their success. Texas Medical Liability Trust, one of the largest malpractice insurance companies in the state, has slashed its premiums by 35%, saving doctors some $217 million over four years. There is also a competitive malpractice insurance industry in Texas, with over 30 companies competing for business. This is driving rates down.
Friday, May 16, 2008
- Bubbles emerge at times when investors profoundly disagree about the significance of a big economic development, such as the birth of the Internet. Because it's so much harder to bet on prices going down than up, the bullish investors dominate.
- Once they get going, financial bubbles are marked by huge increases in trading, making them easier to identify.
- Manias can persist even though many smart people suspect a bubble, because no one of them has the firepower to successfully attack it. Only when skeptical investors act simultaneously -- a moment impossible to predict -- does the bubble pop.
Thursday, May 15, 2008
Malthus got his demographic as well as his economic predictions wrong. His assumption that populations would carry on growing in times of plenty turned out to be false. Starting in Europe, one country after another underwent a “demographic transformation” as economic development brought greater prosperity. Both birth and death rates dropped and population growth eventually started to slow. ... If the world's population growth was a false concern four decades ago, when it peaked at 2% a year, it is even less so now that it has slowed to 1.2%.
Dell Inc. is taking a surprising step to reinvigorate its business in specialty gaming personal computers: abandoning several of its most popular models to focus on what it sees as its premium line.
The new strategy is part of Dell's broader turnaround effort. Last year, it slipped behind bigger rival Hewlett-Packard Co. in overall PC sales and is struggling to achieve profits in consumer PCs. Gaming PCs -- high-priced machines made specifically for playing games -- are a niche market, but tend to shape PC design trends and influence mainstream buyers.
In 2005, Blockbuster abandoned its proposed acquisition of Hollywood Video during an FTC antitrust investigation. The target, Hollywood Video, resisted the acquisition, and was acquired by Movie Gallery which entered bankruptcy in late 2007. Now, BBI is looking to acquire Circuit City:
Rationale for deal: Synergy w/real estate, buying power, "cross-merchandising" opporutunities. Preloading devices with movies, subscriptions, etc.BBI just reported Q1 2008 results:
...We are particularly pleased that domestic same-store revenues showed an improvement for the first time in five years primarily as a result of several initiatives we have put in place, including an increased availability of top new movies, improved store merchandising and more effective pricing.Some commentators think that the FTC should have quickly approved the merger.
anti-trust regulators often miss important shifts in rapidly changing markets such as video and entertainment.DISCLAIMER: I was Chief economist at the FTC during the investigation.
Wednesday, May 14, 2008
WellPoint, Cigna, and a number of other major health insurance companies announced last month that they will no longer bear the extra costs of caring for patients harmed by any of nearly a dozen types of preventable medical errors. In other words, the doctors and hospitals that harm these patients will have to foot the bill themselves.
A UN official in Rangoon says the military has erected more checkpoints to make sure foreigners cannot get to the worst-affected areas.Try this analogy: Hurricane Katrina is to the teachers' unions as Cyclone Nargis is to the Burmese Junta.
Program participants pay $2.99 per gallon for a maximum number of gallons (which varies depending on model) of unleaded gas or diesel fuel in each of the next 3 years. So no matter what the price at the pump says, you'll never have to pay more than $2.99/gallon.This looks like a clever way to take advantage of the apparent hysteria of the average American consumer about gas prices. For some reason, gas prices seem to have some talismanic importance beyond their economic impact. Take a minute to think about how much you really spend on gas every year. Say I drive 15,000 miles a year at an average MPG of 25; that translates to 600 gallons per year. Even if gas prices increase by $2 per gallon, we're only talking $1,200. Yes, I'd rather have that $1,200 in my pocket but it's not a catastrophe, is it?
Tuesday, May 13, 2008
After Hurricane Katrina, the Orleans Parish School Board
... fired all 7,500 of its teachers and support staff, effectively breaking the teachers’ union. And the Bush administration stepped in with millions of dollars for the expansion of charter schools—publicly financed but independently run schools that answer to their own boards.Early returns are good:
The number of fourth graders who passed a state promotional exam increased by 12 percentage points over the previous year, and eighth graders improved by four percentage points.--via marginalrevolution.com
- Balance the budget without raising taxes;
- Reduce domestic discretionary spending by more than $350 billion, (from 7.9 percent of GDP to 5 percent)
- Reform Social Security by moving toward a system of individual savings accounts;
- Reform Medicare to cut costs, and freeze Medicaid spending at current levels and distribute the funds to states as unrestricted block grants;
- Establish a ‘‘sunset’’ commission to automatically review all federal programs
- Change the rules of the budget process to make it easier to keep spending under control; and
- Institute a strong spending growth cap equal to population growth plus inflation.
... investment of any kind is uncertain. If housing, equity or art purchases offered only rising returns, those seeking to enter any of those markets would frequently be shut out. It is because investment is uncertain that markets have traditionally been allowed to clear at lower prices such that the distant object of home, equity and yes, art ownership, has become a reality for Americans to varying degrees.
Efforts to insulate the property markets from what some deem their sharper edges will enervate the economy first for encouraging all manner of speculation on what would become a “protected” industry and sector. ... If housing is turned into a certain bet, a great deal of capital will be reoriented toward the ground rather than to entrepreneurs ...
Democrats are committed to ending years of irresponsible budget policies that have produced historic deficits. Instead of piling trillions of dollars of debt onto our children and grandchildren, we will restore "Pay As You Go" budget discipline.
Jim Cooper and his fellow Blue Dogs stand up to hypocrisy on spending
--Representative Nancy Pelosi (D-CA), Incoming House
“We’re completely overacting,” said Rep. Jim Cooper, a Blue Dog from Tennessee and a senior Democrat on the Budget Committee. “Everything’s an emergency. And an emergency’s a perfect lobbying excuse to get your bill passed that you couldn’t get through in regular order.
Cooper, who was one of 10 Democrats who in January voted against the $168 billion economic stimulus package that was financed through deficit spending, said he sees similar writing on the wall now.“If you add up all the bills, there are probably 100 that are pay-go-compliant and four or five that aren’t,” said Cooper. “But with every exception it reduces its force. Pretty soon pay-go will have so many loopholes that there won’t be any pay-go left.”
Monday, May 12, 2008
- The profits of private insurers are so big that cutting them out would meaningfully lower costs.
- Private insurance clearly costs more than a government-run system such as Medicare.
When you eliminate co-payments and lower deductibles, people go to the doctor a lot more often. According to the Government Accountability Office, seniors with Medigap coverage may cost the government as much as 25 percent more than those without.
- Mergers that have created a small number of huge and powerful insurers increase health care costs. In fact, these insurers reduce costs:
reimbursement rates from major insurers in Pennsylvania for some procedures have fallen to just 85 percent of the already low Medicare rates.
MDA decided to sell the space division because it said the business could not compete for the lucrative U.S. defence contracts necessary to survive unless owned by a U.S. company.Protectionism begets protectionism.
Saturday, May 10, 2008
Friday, May 9, 2008
- '75% of their hotel product is 'moderately priced' or 'value priced'. In contrast, during the 1991 downturn, over 55% of the rooms were considered 'premium priced'.
- the U.S. vacation industry is benefiting from a weak dollar. At Disney, the number of international visitors was up 25% from a year ago.
Thursday, May 8, 2008
...the rent/price yield in America ranged between 5% and 5.5% from 1960 to 1995, but fell rapidly thereafter to reach a historic low of 3.5% at the height of the boom. Given the typical pace of rental growth, Mr Feroli reckons house prices (as measured by the Case-Shiller index) need to fall by 10-15% over the next year and a half for the rent/price yield to return to its historical average. Again, that suggests the national housing bust is only halfway through.
Wednesday, May 7, 2008
We ran a similar experiment later that year, when 350 random people predicted our holiday sales. Once again, the nonexperts, off by just one-tenth of 1 percent, were more accurate than the experts, who were off by 7 percent. The participants were surprised by the outcome when we shared it with them well after the actual results were in and reported. These early experiments encouraged us to get into prediction contracts, and we have to date seen over 2,000 traders make a total of 70,000 trades on 147 contracts.Google uses them as well:
We launched our prediction markets in April 2005, and since then we’ve asked about 275 different questions, and there’ve been some 80,000 trades. Around one-quarter of our markets have to do with demand forecasting—for instance, “How many people will use Gmail in the next three months?” Almost all Google products have had, or still have, a prediction market about their usage. Another 30 percent concern the company’s performance—for example, will project deadlines be met? A smaller category concerns things that could happen in our industry, such as mergers and acquisitions that might impact Google significantly.
According to this short article in Business Week, a number of companies have turned to hypnosis to pump up their brainstorming sessions (doesn't this seem like something you would see in a Dilbert cartoon?). According to one corporate hypnotist quoted in the article, hypnotized subjects are less inhibited and may offer their "craziest" ideas; he also claims that hypnotized individuals are better at recalling past experiences.
The cost to hire a corporate hypnotist? $10,000 - $20,000 for six hours of sessions with six to eight employees.
Tuesday, May 6, 2008
..retail gas prices are found to drop by 3% following the suspension, and increase by 4% following the reinstatement...This would imply a pass-through rate of about 70%. Ironically, a certain junior senator from Illinois thought that this was a good idea at the time.
Monday, May 5, 2008
There is ``a potential crisis in the student-loan market'' requiring ``similar bold action,'' Chairman Christopher Dodd of Connecticut and six other Democrats wrote Bernanke. They want the Fed to swap Treasury notes for bonds backed by student loans. In a separate letter, Pennsylvania Democratic Representative Paul Kanjorski and 31 House members said they want Bernanke to channel money directly to education-finance firms.
Australia has one of the lowest rates of organ donation in the developed world, about 10 donors per 1 million people, according to a federal health task force. ... In comparison, Germany has 15 donors per 1 million people, the Netherlands has 25, the United States 27, and Spain 35...
"We've tried everything to drum up support for organ donation and the rates have not risen in 10 years," Carney was quoted as saying in Fairfax newspapers. "People just don't seem to be willing to give their organs away for free. ... Let's pay people some money for a new car or a house deposit and those waiting lists will be halved within about five years."
So, what's going on? First, Blu-Ray prices have increased from around $300 in December to around $400 in mid-March. Apparently, Blu-Ray vendors have elected to take the spoils of war in the form of higher prices rather than greater quantity. Second, the Cnet.com article argues that the relative advantage of high-def DVDs relative to standard DVDs is not substantial enough in the mind of the average consumer to justify the price premium. They predict that "Blu-ray player prices are going to have to drop dramatically, to around $200 probably, to make themselves more attractive to consumers outside of the early adopter/home theater enthusiast crowd."
However, groceries are an unlikely industry for price fixing. How would a cartel monitor prices, detect cheating, and punish cheaters? Unlike recent cartel actions in industries like vitamins, paper, petrol, glass, bulk chemicals, groceries sell differentiated products, and the industry is undergoing rapid change (see the change in shares above).
In addition, the OFT's investigation appears to be on the buying, not the selling side of the industry. This kind of "monopsony" (or buying) power, is much less likely to harm consumers, unless it is also accompanied by a output or monopoly (selling) cartel.
Saturday, May 3, 2008
Friday, May 2, 2008
- Bring your own toys
- Heat up your car
- Ask nurses and doctors to wash their hands before they touch you.
- Ask where that syringe has been
- Having surgery? Speak up, ask questions!
- Beware urinary catheters
Since they started last summer, they have given more than 100 tours, averaging more than 35 people per outing and collecting about $150 from each group. A family of four is often happy to fork over a $20 tip rather than the $15 per person -- or much more -- they might have to pay for a traditional tour.Predictably, there are lots of barriers to entry, erected by the "professional guides" to keep out competition:
Tour Guide license issued by the Dept. of Consumer Regulatory Affairs in
: Washington DC
- - Category License Fee: $73
- - Application fee: $35
- - Endorsement fee $10
Some of the more interesting requirements of licensure include filling out a “Tour Guide Class-B Physician’s Certificate” to be filled out by a physician stating “the applicant is of sound physique, with good eyesight (at least 20/40 with or without correction), and hearing in both ears, not subject to epilepsy, vertigo, or heart trouble; free from any contagious or infectious disease and not a drunkard…”
Also, the “Tour Guide A Basic Business License Fact Sheet” requires that “each applicant shall submit separate personal reference letters from six residents of the D.C. Metropolitan Area …”
Thursday, May 1, 2008
They are dogs chasing the cat of freedom. They are cats tormenting the mouse of responsibility. They are mice gnawing on the insulated wiring of individualism. They are going to hell in a hand basket, and they stole that basket from you. They are the ditch carp in the great river of democracy. And this is what one of their friends says.Note: PJ wrote a blurb on the back of our textbook:
"With no experiece in business and no exposure to math since a D in high school trig, I found economics utterly incomprehensible. Then [the text] spoke one sentence to me, ... It all became clear."