Wednesday, May 31, 2006


Greg Mankiw posts about internships, linking to Andrew Samwick on the same topic. Samwick's focus is on a recent NY Times op-ed on unpaid internships from Anya Kamenetz. Although the author's conclusions in the op-ed are based more on opinion than on fact, some interesting questions are raised that I had never though about.



I'm not sure that unpaid interns are really like illegal immigrants, for a number of reasons. But the willingness of students to take (sometimes skilled and sometimes non-skilled) work for little or no pay is bound to have effects on the labor market.

Another interesting point:

In an information economy, productivity is based on the best people finding the jobs best suited for their talents, and interns interfere with this cultural capitalism. They fly in the face of meritocracy — you must be rich enough to work without pay to get your foot in the door. And they enhance the power of social connections over ability to match people with desirable careers. A 2004 study of business graduates at a large mid-Atlantic university found that the completion of an internship helped people find jobs faster but didn't increase their confidence that those jobs were a good fit.

There are lots of possible problems here, especially since we are now finding out that initial market conditions/initial jobs can have a big impact on your long-term financial health. And there are distributional issues here. Samwick kind of brushes the inequality issue aside:


He does point out that at Dartmouth, stipends are available for students who take unpaid internships. I doubt, however, that they come close to fully correcting for the financial issues involved in the choice between an unpaid internship and, say, waiting tables for the summer. And, again speculation, I think Dartmouth is likely the exception, rather than the rule. If unpaid internships are largely creating more advantages for the advantaged, that's a real problem. It seems like a real issue to me.

The inequality issue is highlighted in a NY Times piece from 2004 (pdf), which I tracked down while trying to get a quick sense of how widespread stipend programs like Dartmouth's are. It seems that they are not as widespread as Samwick imagines. (On the bright side, my favorite university appears to have one in place.)

Tuesday, May 30, 2006

Movie Critics and Signaling

The NY Times has an article on the declining practice of films being screened for critics before being released to the public. According to the article (and the AP), there have been 12 major releases in the first three months of the year that bypassed critics before being released in theaters, and three of them went on to be the #1 film at the box office in the first week of release. (The three are "When a Stranger Calls," "Underworld: Evolution" and Tyler Perry's "Madea's Family Reunion.") And since that time, "Silent Hill" has reached #1 in its first week, agian without the benefit (cost?) of being reviewed by critics beforehand.

There is an interesting relationship here. Generally, economic signaling models would tell us that consumers should infer that a movie that opts out of a (standard) reviewing process is doing so to escape bad reviews, because the filmmakers know that it is going to get negative reviews (i.e. it is a "bad" film). If it was a "good" film and was thus going to get good reviews, they would let it be reviewed and get the benefits of that. Thus, only bad films would avoid reviews. As a parallel to the standard economic signalling example, what would you think about a used car you were thinking of purchasing if the seller wouldn't let someone examine the engine? That's what's going on here.

However, despite this, some of these films are going on to be very successful at the box office (at least in the first week, which is increasingly the only thing that matters to the studios). So what's going on? Looking at the films that have been successful despite signaling that they are "bad" films, my instinct is that this is precisely the move they are looking for. The audiences for these films are likely to be made up largely of consumers whose tastes are negatively correlated with the tastes of film critics, so by bypassing the NY Times review (and others like it), the film makers are precisely signalling that critics won't like this (but you will) and instead are focusing on using word-of-mouth and TV advertising to reach out to their intending audience. And they do this without the cost of screening films for critics, and by postponing the negative reviews until after the opening weekend returns are in.

Since studio executives greenlighting their projects are likely to base their opinions of the film makers both on reviews and performance (although ultimately caring only about performance), there's a clear benefit to getting good performances to them before the negative reviews do. That way, you avoid a week where your studio head thinks you've created a bomb, before having performance data to demonstrate that that is not the case. Instead, you have the #1 box office ranking in hand, and the negative reviews are never considered.

New Treasury Secretary

The speculation has finally been realized, and John Snow is stepping down as Treasury Secretary, according to the NY Times.

Henry M. Paulson Jr., chairman and CEO of Goldman Sachs will take his place. Paulson is not a Ph.D. economist, for what that's worth. He does have a MBA from Harvard Business School.

Friday, May 26, 2006

Addicted to Jack Bauer

An interesting article in today's NY Times (paid reg. req.) about "24 withdrawl." Not surprisingly (to me, anyway) many fans of 24 are already bemoaning the 7+ month wait for season six, and preparing to spend their time away rewatching old seasons and probably feeling not much better than Jack is on that Chinese tanker. But the interesting part comes from an email exchange between Judith Warner (the author) and Dr. William Stixrud, a neuropsychologist:

In his talk, Dr. Stixrud had described how TV super-stimulates the brain by continually setting off its “orienting response” — a primitive neurobiological process that keeps people alert. This orienting response is hard-wired; it’s a survival thing, and, with a quickly changing screen, it kicks on again and again — kind of like my dog, who barks every time a truck goes by, or someone parks a car down the street, or a squirrel breathes, or someone opens a mailbox in Kansas.

The experience of having your orienting response incessantly stimulated is draining. When it ends, you are exhausted, but also left with the memory of how much better you felt when it was happening.

But here's the kicker:

Now I asked him by e-mail, “Given all the violence, the jump cuts, the surprises and the multi-screen, multi-socket, emotional roller-coaster ride of each action-packed episode, could ‘24’ itself actually be addictive?” (“If you want to give me a quote saying that this is a ridiculous line of inquiry, that’s fine,” I signed off. )

“It’s a reasonable thing to assume,” he responded. “Anything that’s intensely stimulating has an addictive quality.”

Neuroeconomics has already been growing in popularity and importance (see Tyler Cowen over at MR), but if we really do get addicted to TV, then it seems to me like this is a line of research that is going to be extremely influential going forward.

When it really comes down to it, economics is not best described as the study of how human beings allocate "scarce resources," but is more accurately described as the study of decision-making. True, the ultimate goal of understanding the decision-making process is often to understand how "scarce recources" get allocated, but the fundamentals of it is understanding incentives and how they affect decision-making. So if Jack Bauer, the Desperate Housewives, the Lostaways, and other TV characters can cause "irrational" addictive responses in us, then we've really got to start to understand how neurological response are affecting how we view the incentives we face and the decisions that result from them.

More on XM Radio Recorders

David Pogue has a review of XM radio recorders in today's NY Times (free reg. req.). He makes mention of the lawsuits in his review:



Now, that you can't get it off is incidental to the suit. As I posted before, the suit focuses on whether the appropriate license that XM pays is a "streaming" license or a "download" license. But the next paragraphs of Pogue's review is telling:

The clever part is that this musical lockdown doesn't affect you much. After all, in most cases, isn't the primary benefit of song portability to move your collection to a portable player? Dudes — these songs are already on your portable player.

If you do want to burn an XM song to a CD, you'll have to buy it online. That's what the Helix's Bookmark function is all about. When you hear a good song, you bookmark it on the player. Later, you can connect it to a Windows PC, fire up the Napster online music store, and buy the bookmarked songs for $1 each. Navigating Napster's service plans and software options is only slightly more fun than filling out a 1040 form, but the dedicated music aficionado will muddle through.

So, this is telling me (and someone correct me if I'm reading this wrong) that the XM recording devices serves as a souped up cassette tape recorder. (Better quality recordings, but non-transferable.) BUT, if you hook it up to your PC, you'll be brought to a link where you can purchase a download copy of songs that you marked.

Given this, the RIAA lawsuits seems truly absurd to me. By linking the Napster service to these devices, and making consumers pay more to get these songs in a more usable, downloaded format, the RIAA is making it clear that recording it onto the XM player (as it currently works) is *not* the same as a downloaded MP3. If it was, then you wouldn't need to link to Napster and pay an extra $1 to purchase a copy of the song.

You can't have it both ways.

Wednesday, May 24, 2006

Concert Ticket Pricing

It seems that Ticketmaster is going to change their ticket pricing strategy and start auctioning off prime seats to select concerts, according to USA Today. Tip of the cap to Freakonomics, where Steve Levitt argues:
But the economics of the music industry are changing. There is less money to be made in selling CDs, so bands are no longer willing to underprice live shows to support record sales. Rather, the concerts themselves have become the cash cow. Consequently, the artists want to squeeze as much money as possible out of them. Combine that with technological advances that make it possible to carry out online auctions, and you now have a much more efficient market. More efficient in the sense that the people willing to pay the most end up in the expensive seats, and those extra revenues go to the artists (and the promoters and Ticketmaster), rather than scalpers.
However, as I've posted about before, playing around with the numbers don't support the argument that "under-pricing" was an effective tool to subsidize CD sales. Rather, I think this quote from the end of the USA Today article sums it up about right:
Auctions "move the concert market even further from its roots: music for the people," says Gary Bongiovanni, editor of trade magazine Pollstar. "Concerts are supply and demand, and the person with the most coconuts gets the prize."
The internet, and sites like StubHub and RazorGator have made it really easy for fans to become ticket brokers, and those fans that might have previously been in the front rows have shown that they'd rather cash out. (While I don't think there's an argument that a link between under-pricing and CD sales makes sense, I do think you could argue that "under-pricing" was about creating a long-run bond between the band and its fans... i.e. "music for the people"). If you are no longer able to provide "music for the people" because the people have decided to sell their tickets to the highest bidder, better for you to do it yourself. That seems to me to be a more likely reason we're seeing this response.

Tuesday, May 23, 2006

It's been really busy

But here's some interesting stuff from the past few days:

  1. Price Gouging - no surprises here. What the heck is price gouging really supposed to be anyway?
  2. Al Gore as President - just hilarious.
  3. A nice post on the result of Harvard undergrad's research on officiating in the NBA.
  4. Good times.

Friday, May 19, 2006

Non-Story Story

I was watching CNN this morning, which had a featured story and discussion (involivng Miles O'Brien, Paul Begala, and a Republican political strategist) that focused on President Bush's increased approval ratings based on CNN's most recent poll vs. their 5/7/2006 poll. Here's the improvement:

CNN/Gallop Polls: "Do you approve or disapprove of the way George W. Bush is handling his job as president?"
Margin of Error: +/ 3%

So, Bush's ratings move (in a 10-day span) by less than the margin of error, and that is reason enough for 5 minute segment discussion how he is "gaining traction" (actual quote from Miles O'Brien") on his immigration plan, or whatever. Are we really that stretched for actual things to report on? And it's not like it takes a PhD in economics or statistics to figure out that this is not news. It said right there on the screen: "Margin of Error +/- 3%."


While I didn't tune in for the entire segment, I'm pretty certain that no one offered the explanation that just by chance this time they sampled a few more people who approve of President Bush's job performance, but that overall opinions haven't changed. (Well, certainly the Republican strategist didn't. But I doubt Paul Begala did either.)

Thursday, May 18, 2006


The New York Times (free registration required) writes today about cheating at universities.

Two things from the article:
  1. "`Some people put a premium on where they're going to go in the future, and all they're thinking about is graduate school and the next step,' said Lindsay Nicholas, a third-year student at U.C.L.A. She added that pressure to succeed `sometimes clouds everything and makes people do things that they shouldn't do.'"
  2. "With their arsenal of electronic gadgets, students these days find it easier to cheat."
So, the benefit to cheating is increasing, and the cost is decreasing. (OK, so #1 only says that the benefit to cheating is high, not increasing. But I can tell you from my experiences at the universities I've spent time at over the past 12 years, I have witnessed students being more and more concerned about maintaining grades and obsessing over resumes, job prospects, and future plans. So I'd certainly argue that the perceived benefit to cheating has increased.)

I guess we shouldn't really be surprised, then, to learn that cheating is on the upswing, and that schools are being forced to take more and more extreme measures to prevent it. I wonder, though, if this is heading towards a shift away from Honor Codes and towards active enforcement. And while some might mock Honor Codes as ineffective, remember the research described in Freakonomics about the effects of imposing a monetary fine on parents who were late to pick-up their children from daycare-- there were more late parents with the fine than with just the social pressure.

Wednesday, May 17, 2006

The IP of Baseball Statistics

I missed this yesterday, but the 5/16 issue of the New York Times has an article by Alan Schwarz about the legal battle between Major League Baseball and CBC Distribution and Marketing Inc., a small St. Louis company that offers fantasy baseball services. The dispute centers on whether or not CBC has the right to use players' names and statistics as a part of their services without paying a license to Major League Baseball Advanced Media, which purchased the player's internet and wireless rights in January 2005.

While this seems a little crazy at first (I mean, can MLB copyright the fact that Babe Ruth hit 714 home runs, or that Johnny Damon is 1 for 16 against the Red Sox so far this year?-- no, as a 1997 ruling involving the NBA has decided), there is a real issue here. From the article:

Rather, the central issue concerns celebrities' ability to control use of their names in commercial ventures, and how this "right of publicity," which has developed under state common law and statute over the last half-century, may commingle with Constitutional press protections under the First Amendment.

The term "right of publicity" was coined in 1953 when, in a case involving baseball, a court ruled that Topps Chewing Gum company could not print trading cards that featured baseball players' names and likenesses without their permission.

In 1970, in a case starkly similar to the CBC case, a Minnesota state court found that two baseball board games, each of which used only names and statistics, misappropriated the players' marketable identities and was subject to license.

But other subsequent cases have favored First Amendment concerns over the celebrities' right of publicity. Several courts have maintained that the dissemination of information, even for profit or for entertainment, cannot be curtailed by any state's right-of-publicity laws. In its court filings, CBC argued that it relied on baseball players' names and statistics "as their lifeblood in much the same way that the sports sections of newspapers do."

It's pretty clear to me that CBC is not misrepresenting their use of David Ortiz's name in their service as an endorsement by David Ortiz, but simply using the facts of his performances to provide a service. And the crux of the case is whether or not that is ok. Eugene Volokh, a professor of law at U.C.L.A., is quoted in the article as suggesting that if MLB wins this case, where is the line drawn? Would the use of someone's name in Trivial Pursuit or Jeopardy also be a violation of the right of publicity?

As a matter of economics, I can't see any basis for not allowing the use of baseball statistics in these services. It is not misrepresenting any facet of the service, and doesn't reduce the incentives to produce the "infringed" product, or any other future innovation derived from it. ("It" being baseball statistics, games, or players.) What it does do, though, is allow MLB to restrict the number of (and suppliers of) fantasy games that use baseball statistics. As the article points out, while 3 years ago there were dozens of options for fantasy baseball services, there are now only 7 licensed services. And that doesn't seem good at all.

XM Radio Lawsuit

It seems that the major recording labels have filed suit against XM Radio, claiming "massive wholesale infringement" of recordings as a result of the new line of XM Radio products which combine XM radio receivers, MP3 players, and recording software.

According to Billboard:
XM has taken the position in the past that it pays for the public performance of the sound recordings under its license with SoundExchange, which negotiates and collects royalties with non-interactive digital services. Equipment manufacturers pay royalties on all recording devices.
Obviously, the record companies disagree, and feel that seamlessly combining the ability to receive and record songs digitally effectly turns these systems into a download service, not unlike iTunes or Napster. Of course, the licenses for download services are negotiated individually (which is why you can hear the Beatles on XM radio, but can't buy them at iTunes).

Now, the recording companies are generally seen as being willing to sue anyone for anything, but there is something to this. If XM just provides a digital streaming service (radio), and others devise ways to copy this and create MP3s from it, then they are clearly in the right. But if XM is shown to be taking "affirmative steps to foster infringement" by pushing these devices as a way to circumvent the copyrights on the songs they play, then they are in the same legal ground that Grokster was (and simply in the wrong). Should be an interesting case. Certainly, if the recording companies prevail, that will be the end of these devices, as XM is not going to negotiate separate licenses for all the songs it plays and thus limit the catalog of songs it can play for its largely radio-only customers.

Monday, May 15, 2006

A Football Post?

For this, yes.

I was 8 years old when Doug Flutie threw the pass, and it's one of my earliest sports memories; it's a big loss that the sports world is not going to see Doug Flutie take the field again. He's had a charmed, if crazy, sports career, including being named the MVP of the Canadien Football League 6 times, and catching multiple foul balls from the box seats at Fenway Park. (See here where Fulite explains why he doesn't bring a glove anymore and here, from a year later, where he apparently used a glove to catch the foul ball.)

I'm not a big football guy, but I think an interesting case could be made for Doug Flutie's inclusion into the Hall of Fame. His NFL career is clearly not even close to enough, but his accomplishments in Canada are spectacular, and should count for a lot. Either way, it's sad news. But evidence suggests that whatever he does next, he'll be a success.


Tyler Cowen links to a story about "team buying" in China. According to this article, the newest trend in China is for groups of consumers to meet online and agree to a place and time to go shopping for a common good they all want to buy. Upon arriving at the store in a group, they bargain jointly for a reduction in price.

It's an interesting idea... I believe that when firms do this, we call it... oh, what's the word... ah, that's it!

Seriously, though, I imagine that the increase in market power with isolated groups of individual consumers banding together to get price discounts is negligable, and unlikely to cause any problems. If it were to catch on, though, in large numbers, we'd have to start thinking about social surplus issues a little bit. No one like a monopoly (except the monopolist), but I wonder what popular sentiment would be if supplies dried up and surplus disappeared because of the low prices demanded by monopsonist/oligopsonist consumer groups?

Furthermore, while oligopoly and monopoly may cause static (short-run) losses to society, at least they preserve the incentive for innovation (this is why we allow patents). Market imperfections like this would, if they existed on a large scale, dry up firms' R&D incentives, causing not only static losses, but also persistent ones.

Sunday, May 14, 2006

Good advice

Others can be found here: Office PSAs

Wednesday, May 10, 2006















So what is it?

Tuesday, May 09, 2006

Interesting Marketing Stuff

Some interesting marketing research is discussed here, brought to you by Marginal Revolution. This is also discussed at the Social Econ Blog.

While there is some truly interesting stuff in there, when it comes to marketing, the best stuff is always the ridiculous. Here is my favorite part:
Underhill has found that the time shoppers spend in a store is the most important factor in determining how much they will buy. In an electronics store, for example, non-buyers spent five minutes and six seconds, while buyers spent nine minutes and 29 seconds. Much of his advice to retailers is how to get customers to shop longer.
Marketing is a fascinating "science." On the one hand, they do discover fascinating stuff about how people behave. On the other hand, they find that buyers spend more time in a store than non-buyers, and conclude that getting people to spend more time in the store will result in more buyers. Reverse causality, anyone?

The truly great thing about marketing is that everyone agrees that marketing is important- that is, every non-trivial firm has a significant marketing department, but these firms really don't investigate whether or not they increase sales enough to justify their cost. Of course, the question answers itself if their conclusion is that sales will go up if we can just keep non-buyers in the store for an extra four minutes and 23 seconds.

Movie and TV downloads on Bit Torrent

It seems that Warner Brothers has reached an agreement to make TV shows and movies available for download through Bit Torrent, according to the BBC, with costs being similar to DVD costs and availability beginning with the DVD release.

The system will apparently only allow the file to play on the computer which originally downloaded it, though it isn't stated how that will be consistent with peer-to-peer downloading, which downloads the file simultaneously from multiple users. Certianly, then, the security that prevents the file from being played on different computers will not be built into the file.

The economics of this is a little odd, though. If the cost is to be the same as that of the DVD, and the file will only be available to use on one computer, what is the corresponding value-added to make up for this usage restriction and the (presumably) reduced image quality? Why not just buy the DVD instead, which could be played on the computer (and any other computer with a DVD drive, as well as in a regular DVD player) at a higher picture quality for the same price? I'm at a loss to come up with any model of consumer behavior that would deliver actual purchases of these files.

Actually, come to think of it, if the monetary price is the same as a DVD, the actual cost will be higher, because the peer-to-peer nature implies that your internet bandwidth will be used to deliver the content to other buyers. (Assuming, of course, that there are buyers...)

Very strange indeed...

Friday, May 05, 2006

Make "tomorrow you" pay....

Over at the Social Economics Blog, there was a discussion on "Starving the Beast" by cutting taxes and creating deficits that would require either (a) cutting future spending or (b) making future generations pay for it.

It was suggested that one possible motivation for such a time-inconsistent policy is that due to economic growth, future generations would be better suited to handle paying the tax burden (i.e. they would be richer and thus able to handle it). The graph above plots the list 15 years of data of GDP growth rates and the annual average of monthly 5- and 30-Year Treasuty Bill rates (i.e. one measure of the interest rate paid on government debt). As you can see, only recently has the growth of GDP been higher than interest rate paid on debt, so it doesn't seem like that rationale holds any water.

Edited to add: Greg Mankiw makes the argument that future generations would be better suited to handle paying the burden:
Because of technological progress, the income and consumption of a typical individual in the economy rises over time. Because budget deficits shift taxes forward in time, they benefit relatively poor current taxpayers at the expense of relatively rich future taxpayers. If reducing inequality is a goal of policy, shouldn’t budget deficits be applauded?

One way to answer this question is to go beyond neoclassical economic theory. Although standard models assume that people desire to smooth consumption evenly over time, popular discussions of economic policy presume that consumption should rise over time. Politicians often assume a moral imperative that the current generation sacrifice to ensure that future generations enjoy a substantially higher standard of living. This view suggests that it is undesirable to shift a tax burden onto our children, even though our children will be better able to shoulder that burden than we are.
(Emphasis added.)

I don't see how this argument holds water. That said, the rest of Mankiw's post seems much more reasonable to me.

(Note: Data is from St. Louis Fed and NIPA. T-Bill Rates are *not* inflation indexed rates. Data does not exist for 30-Year T-Bills between 3/2002 and 1/2006.)

Tuesday, May 02, 2006

Another BlackBerry lawsuit

It seems that fresh off the settlement of the NTP lawsuit, Research In Motion (RIM), the maker of the ubiquitous BlackBerry, is facing a new patent-infringment lawsuit from a software company named Visto. According to Visto executives, the decision to sue RIM was spurred by their victory in another patent suit (against another wireless email company) last week.

This shouldn't be too surprising, given that RIM forked over more than half a billion dollars to NTP. Anyone with even a small chance of succeeding in suit against RIM is likely to follow suit if the potential gains are that large. To be fair to Visto though, unlike NTP, Visto is a functioning, consumer-oriented company that is providing a service to the market, and they claim that their goal is an injunction against RIM to take BlackBerries off the market and thus protect their good.

It'll be interesting to see where this goes. According to the NY Times article, RIM is again stating that they (a) don't feel that they are infringing, (b) feels the patents are invalid, and (c) have a workaround ready anyway. But I'm sure we're looking forward to another protracted legal battle here.

The market, though, doesn't seem to have an initial strong opinion of the impact of this lawsuit. RIM stock started the week at 76.80 and closed yesterday at 73.03 for a drop of only 0.5%. (As of 11:30am on Tuesday, it had dropped another .4 points.)

David Ortiz's HR last night

David Ortiz somehow managed to hit a home run to one of the deepest parts of Fenway Park last night against the Yankees, despite very strong winds blowing straight in. From today's Boston Globe:

Monday, May 01, 2006

No batting gloves, no pine tar, no problem

Rumor has it that the Red Sox have re-acquired Doug Mirabelli from the Padres (this is according to the Sons of Sam Horn site, based on Buster Olney on ESPN2). He will apparently start tonight in Boston with Wakefield pitching against the Yankees.

Josh Bard had allowed 10 passed balls in 5 Wakefield starts, and it will be a tight race for a play-off spot this year. Dropping any more games because your catcher allows 2 extra bases a game is really not an option, I guess. Bard's hit OK, but he has only 5 hits (1 double) and 3 walks so far. That's 9 bases he's accounted for with the bat, while giving up 10 bases with the glove. Actually, more than 10 since there were certainly multiple guys on base for some of those passed balls.

Hopefully, the Sox didn't give up much. [(Seanez? He had had success in SD and is off to a slow start in Boston, and couldn't handle Boston the first time through either.) We'll see when/if we get confirmation on this.]

ETA: confirms. Says SD's package is unclear, but reports it as Josh Bard, Cla Meredith and cash. Seems like a strange package. Why would the Sox be sending cash? Mirabelli makes $2 million/year, so that's a huge saving right there for SD. Well, until there's an official announcement, these reports might be off.

Finally: So, it looks like it's Bard, Cla Meredith and either cash or a PTBNL. Looks like a good deal to me. I wonder if this makes the top story tonight that Doug Mirabelli is returning as a Red Sox or that Johnny Damon is returning as a Yankee?