Most significant economic research of 2018

Good article summarizing results from 10 papers. Here is the one that speaks to Chapter 19, Adverse Selection:

Ban the Box, Criminal Records, and Racial Discrimination: A Field Experiment by Amanda Agan and Sonja Starr

Main finding: Restricting employers from asking about their criminal history can lead to more discrimination based on race.

Bitcoin Bubble

For a few years now, economists have been debating whether we are in a Bitcoin bubble. That its value has fallen to one-sixth its peak value about a year ago suggests the bubble has burst. However, that it still trades at five times its value two years ago indicates that it is not completely worthless.

My monetary theory friends remind us that all fiat currencies are bubbles. They will become worthless eventually, it is just a matter of speed. Bitcoin, and other crytocurrencies, have the advantage of blockchain technology for secure, anonymous transactions and so some form of cryptocurrencies are likely to survive for the long haul. This feature makes it a favorite of libertarians who are now bristling at Bitcoin being called "Beanie Babies for Libertarians."

HT: Tim Wunder

Is giving inefficient?

Vertical Integration in Hollywood

The WSJ reports that the US DOJ is "mulling over" repealing many rules governing how movies are distributed. The so-called Paramount decision of 1948 severely restricted movie studios' ability contract over how movies would be displayed. In the intervening 70 years, this decision has been the subject of much scrutiny by economists. As related in Hanssen's (2010) examination of how vertical integration facilitated consumer benefit enhancing length-of-run decisions:

The passage of time has not been kind to the economic arguments underlying the Paramount decision. Kenney and Klein (1983) and Hanssen (2000) provide efficiency rationales for block booking. De Vany and Eckert (1991) and Orbach and Einav (2007) discuss how minimum ticket prices reduced monitoring costs. De Vany and Eckert (1991) argue that the system of runs, clearances, and zoning served to provide low-cost access to large numbers of filmgoers.

Granted, these and other studies resulting from the decision greatly enhanced our understanding of when vertical foreclosure might harm consumers. However, I am not sure this somewhat esoteric knowledge has been worth 70 years of inefficiency, lost consumer surplus, and diminished producer profit.

Meeting in the Middle

Non-strategic bargaining for pre-schoolers.

Book recommendations (add your own in the comments)

Everybody Lies
Randomistas
Algorithms to Live By
Streaming, Stealing, Sharing
Amazon, the Everything Store
Machine, Platform, Crowd
The Platform Revolution

Markets in Information

Why are millennials leaving Illinois?

Because they can:

And as millennials come to appreciate the debt load they’re expected to burden over the next two to three decades – the average Chicago household is on the hook for at least $125,000 in state and local pension debt – expect more of them to head for the border.

Unfunded pension liabilities are mounting with no relief in sight. Cities like Central Falls have used the threat of bankruptcy to fix funding before they lost all their residents.  Unfortunately for the people of Illinois, there is no provision for bankruptcy of a state.

A low priced entrant upsets Orlando airport incumbents

Eight generations of Vanderbilt MBA students have heard the story of the Orlando airport gas stations who refuse to post prices.  When travelers fill up their gas tanks before they return their rental cars they are outraged at prices that are $2/gallon higher than in the rest of Orlando.

It has taken only eight years, but entry is providing some competition to the two incumbents:

Thursday morning, Wawa opened its doors — and its gas pumps — just a block from the two gas stations closest to Orlando International Airport that charge much higher than market prices: $5.99 a gallon. Those prices leave a bad taste in the mouths of unsuspecting vacationers in a hurry to top off their rental cars before flying home.

Wawa, the convenience store with a cultlike following, will feature a bright electronic sign advertising its normal market-rate gasoline. To promote its opening, Wawa was charging $2.99 a gallon this morning, well below the Orlando average of $3.45 per gallon of regular.

That's good news to consumers stuck paying the inflated rates.

"This is ridiculous," businessman Joseph Kutka said this week after paying $70.40 to gas up his rental at Suncoast Energys before catching a flight back to Wisconsin. Like most customers at Suncoast and across the street at Sun Gas, Kutka didn't notice the price until the fuel was flowing. "They're scamming their customers. I would have stopped somewhere else if I'd known."

After years of complaints, will Wawa and the free market force prices lower? It's possible.

"At this point, we haven't made a decision," Sun Gas co-owner Larry Nieves said Wednesday. "We haven't decided what we're going to do."

I hope Mr. Nieves was using the royal "We" and not referring to potential joint decision making with his Suncoast rival.  Agreeing to not compete [by refusing to advertise] can be a violation of the antitrust laws.   

Managerial Econ: Top 5 problem-solving mistakes by MBA's

Managerial Econ: Top 5 problem-solving mistakes by MBA's: School has started, and I just finished grading the first assignment (group HW from the end of chapter questions). The most common comments...