Author: lkiesling

Lynne Kiesling

On Friday at Environmental Economics, Tim Haab wrote about the implications of New Source Review for innovation in a regulated industry, and how to represent it in the standard Pigouvian model (do go read the whole post, it’s very useful). The basic question is this: does the stifling of innovation that results from New Source Review regulations change the fundamental analysis of the question of pollution?

I have some quibbles with how Tim frames the “externality” question — in particular, I prefer the “markets don’t fail, they fail to exist” formulation of the fact that some uncompensated cost is present, rather than “market failure” — but his post makes a really important point with respect to New Source Review and the Pigouvian model:

The technological improvements resulting from removal of New Source Review may shift the private supply curve to the right, and may reduce the emissions per unit of output, but that doesn’t solve the fundamental externality problem.   So even though the technological improvements may reduce per unit emissions, emissions may actually increase from the decreased costs of producing electricity (decrease per unit emissions, but increased units). Regardless, with or without the NSR regulation, there will still be emissions and those emissions will remain unpriced (inefficiently) by the market. ‘

While I agree that existing regulations may have reduced the incentive for innovation, their existence doesn’t change the fundamental market failure–emissions are not rationed through prices.  For a market to work efficiently, ALL costs and benefits of production and consumption must be internalized.  In such cases, emissions will be efficiently rationed.

I take issue with a couple of these points. First, if the Pigouvian model is the correct way to model the pollution question, it is incorrect that “ALL costs and benefits of production and consumption must be internalized”. For an illustration of why this claim is not correct, ask yourself this question: how much do you pay your neighbors for the lovely flowers they plant in their front gardens, and if you did pay them, would that induce them to plant more flowers? Of course you don’t pay your neighbors for the external benefit you derive from their lovely gardens, and I think it’s a safe generalization that your neighbor-gardeners have more intense preferences over their gardening decisions than you do over their decisions. What does that imply? It implies that even if you did pay them as compensation to internalize your benefit, if your marginal benefit is small relative to theirs, your payment is unlikely to change their decision at the margin of how much gardening to do. In other words, the only uncompensated costs and benefits that are important for achieving the optimal level of abatement (of a cost) or increase (of a benefit) are the costs and benefits that are Pareto relevant, that would at the margin change the behavior of the relevant party.

This must be a pet issue for me because I’ve written about it before, with respect to inefficient energy efficiency consumer subsidies, with respect to externality accounting, and with respect to the fact that Alex Tabarrok got a flu shot because he wanted to get kissed.

As a coda: I do not think that the Pigouvian model is the correct model, because it ignores the reciprocal nature of costs; in other words, it ignores the fact that the pollution problem is a problem of conflicting uses of a scarce common-pool resources, and the people with those different uses are imposing costs on each other. The polluter is not the only one creating a cost.

Second, I think Tim’s right about his interpretation of NSR and the Pigouvian model, but I also think that the Pigou model of a per-unit tax on output from a polluting firm is not the best model to use to see the effects of NSR, unless the policy you are analyzing is a per-unit output tax. I think a fuller answer to his astute student also includes the following:

If the policy is an emissions tax (e.g., a per-ton tax on sulfur dioxide or greenhouse gases), then NSR regulation artificially keeps abatement costs higher than they would be in the presence of the technological innovation. Thus at the margin, the NSR regulation does affect the firm’s choice, and the amount of abatement/emissions, because if the tax rate is higher than the abatement cost, then the firm will choose to abate. Thus NSR means that less abatement takes place under an emissions tax, by keeping abatement costs higher.

If the policy is a tradeable permit system, then NSR regulation artificially keeps abatement costs higher than they would be in the presence of the technological innovation. A firm’s abatement costs determine its demand for permits in the permit market. Thus at the margin, the NSR regulation increases the firm’s willingness to pay for permits, and leads to higher costs of achieving the abatement/emissions target.

Lynne Kiesling

I’ve seen two interesting things today in the ongoing debate between Apple and Adobe over Apple’s refusal to allow developers for the iPod Touch, iPhone, and iPad to develop Flash-based applications. First is an open letter from Steve Jobs with an extensive discussion of Apple’s long relationship with Adobe (including an ownership share at one point). His remarks emphasize the primary reasons that I have heard offered for Apple’s decision: Flash is a proprietary application that would require Apple and developers to rely on its third-party plugins, which can be very problematic in development; Flash’s security problems (the ability to exploit those plugins) and the closed/open issue have led to development of a more flexible, updated HTML5 video open standard; and empirically, Flash is a contributing factor in a majority of operating system crashes.

Jobs’ comments on open architecture particularly caught my attention:

Adobe’s Flash products are 100% proprietary. They are only available from Adobe, and Adobe has sole authority as to their future enhancement, pricing, etc. While Adobe’s Flash products are widely available, this does not mean they are open, since they are controlled entirely by Adobe and available only from Adobe. By almost any definition, Flash is a closed system.

Apple has many proprietary products too. Though the operating system for the iPhone, iPod and iPad is proprietary, we strongly believe that all standards pertaining to the web should be open. Rather than use Flash, Apple has adopted HTML5, CSS and JavaScript – all open standards. Apple’s mobile devices all ship with high performance, low power implementations of these open standards. HTML5, the new web standard that has been adopted by Apple, Google and many others, lets web developers create advanced graphics, typography, animations and transitions without relying on third party browser plug-ins (like Flash). HTML5 is completely open and controlled by a standards committee, of which Apple is a member.

Makes sense to me, particularly in light of all of the smart grid interoperability standard work I did and how I think such interoperability at shared interfaces is crucial to the development of competitive retail markets, in electricity service as well as in other markets. However, when Steve Jobs talks about open architecture it doesn’t entirely ring true to me, and an article from Daniel Lyons in Newsweek discusses why I sense that cognitive dissonance:

Now along comes Apple with a walled garden. Not only does it produce the iPad’s processor, its operating system, and the device itself, but Apple sells its content, via iTunes, and keeps 30 percent of the money. It also operates the App Store, the only place selling applications to run on the iPad, and it keeps a 30 percent slice there, too. This summer it will start selling ads that run inside the apps and will keep a 40 percent slice of that revenue. …

Part of me is glad Apple is doing this, because someone needs to buck the “everything is free” trend and see what happens. But I think the company is taking things to an extreme, exerting a degree of control that may ultimately undermine its own success. If you own an iPad or an iPhone, you’re aware (and no doubt frustrated) that it won’t run videos created in Adobe’s Flash software, which accounts for half or more of all the videos on the Web. An Apple spokesman says Flash is “closed and proprietary” and that Apple supports other development tools that are “open and standard.” But banning Flash also pushes customers to buy movies and TV shows from iTunes rather than watch them on a free Web site. It pushes developers to write apps that get distributed through Apple’s App Store, rather than through a Web browser.

Lyons then goes on to recall how Apple lost market share to Microsoft in the 1980s by following a very similar strategy. Will repeating this strategy in this dramatically different market and context lead to Apple walling itself off and limiting its market potential?

I am more interested in, and worried about, Apple’s walled garden creating application-based walls within the Internet, while at the same time Jobs is talking about open standards in all web interfaces. In fact, this is one big reason why I don’t own an iPhone and won’t own an iPhone (the other is that I will never give AT&T my voluntary business), despite my Mac computer use and my iPod ownership.

Lynne Kiesling

I was intrigued last week to read Bruce Yandle’s short piece in Regulation discussing Pigou and his ideas about taxation in the context of modern “Pigouvian” policy proposals. I recommend his essay highly; it communicates eloquently how Pigou’s ideas are currently being used as a justification for a variety of forms of taxation. Many of these tax proposals (bank taxes, gasoline taxes, salt taxes, sugary soda taxes) may be motivated by some political elite’s notion of what is “good for society”, but Yandle also makes clear that such proposals may instead be motivated by raising revenue.

Even more interestingly, Yandle does something that few current economists do — he reads Pigou’s original arguments. In them he finds something that I find intriguing (and although I have read large portions of Pigou’s original works, I was not aware of this):

As strange as it may seem, Pigou did not believe that government could improve human well being by fine-tuning behavior with taxes, subsidies, and regulation. His concern was grounded in what we today call Public Choice. He did not accept the notion that politicians, given constitutional constraints, would be capable of implementing an efficient and effective set of taxes and subsidies. Put simply, he did not believe the politicians could get the calculations right. Instead of making things better, the chances were just as good that things would be made worse. Instead of keeping faith with implementing a well-designed tax, the politicians’ interest would be deflected to writing loopholes for favored interest groups and finding ways to generate ever more revenue.

Yandle quotes Pigou from his seminal 1932 work The Economics of Welfare, Chapter XX, “Intervention By Public Authorities” (1932). Pigou’s discussion in this chapter is striking in how it presages modern public choice arguments, as Yandle indicates. Pigou is also making a clear argument for analyzing the performance of different institutions and what are the correct comparisons to make. Take, for example, this quote from p. 332, which immediately precedes the quote Yandle used in his essay:

[The case for government intervention] cannot become more than a prima facie one, until we have considered the qualifications, which governmental agencies may be expected to possess for intervening advantageously. It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustment that economists in their studies can imagine.

Not only is Pigou making a public choice argument in this chapter; in this quote he is also making a point that Harold Demsetz would later term the “Nirvana fallacy” in “Information and Efficiency: Another Viewpoint” (1969). In the remainder of the chapter Pigou goes on to argue that early-20th-century improvements in voting access, in bureaucratic administration, and in communications technology made government interventions more appropriate in more situations than had been the case previously, with less voter engagement and a less productive bureaucracy. To do a true Demsetz-style non-Nirvana comparison, though, Pigou would have had to compare the effects of those changes on the productivity of markets and other institutions for private ordering, relative to their effects in public administration.

Still, I find this chapter of Pigou incredibly striking. It indicates Pigou’s willingness to admit, and to analyze, the effects of institutions on economic outcomes. Here he’s essentially saying that institutions matter, a position that his colleague John Maynard Keynes did not hold. Pigou’s argument is even more striking to me in light of my recent reading of Buchanan and Wagner’s Democracy in Deficit, which I mentioned a couple of weeks ago. Pigou’s analysis of government intervention seems to me to have more in common with Buchanan and Wagner’s argument, and their criticism of Keynes’ approach as institutionally sterile.

Pigou, Buchanan and Wagner, and the Yandle essay all give some substantial food for thought as we think through the range of very interventionist policy proposals being put forward right now. I also recommend Thom Lambert’s post at Truth on the Market about the Yandle essay, which is what prompted my musings here; he goes into more detail in discussing the Pigou-Coase comparisons.

Lynne Kiesling

I’m overly eager for the new album from The National, so much so that when I looked at the release date I paid attention to the day and not the month. Doh! So now I have to wait until MAY 11, grrrr. Two other great bands, LCD Soundsystem and Band of Horses, have albums coming out on May 18. Mid-May will be a deluge of great new music! But can I make the two new National tracks I’ve got quell my anticipation?

Lynne Kiesling

I’ve been meaning to write about the libertarian paternalism series at Cato Unbound for a week or so, but have been too busy to pull it off. Happily, Ilya Somin has a good post that touches on a couple of the themes I wanted to raise (and I second his recommendation to read the series, and the Whitman posts specifically). In particular, he points out that the libertarian paternalism arguments do have a double standard because they focus on the cognitive biases of individuals in making consumption and investment decisions, but they fail to apply the same behavioral analysis to policymakers and regulators.

It may well be that private citizens acting in markets and civil society often make decisions that they later regret because of cognitive errors. However, regulators and voters are people too. They also might make bad decisions because of cognitive errors. Libertarian paternalist scholars generally ignore this possibility by implicitly comparing perfectly rational regulators with often irrational consumers. But there is no a priori reason to believe that the former are more rational than the latter.

He then goes on to discuss the cognitive biases of regulators, and voters, and their implications for these policy “nudges”. I know that there are several electricity regulators and policymakers who, being naturally attuned to the top-down control culture and history of the industry but also wanting some expansion of individual choice, see the concept of “nudge” as a way to overcome the biases and transaction costs associated with individual consumers paying attention to their electricity consumption. These policymakers should also pay attention to their own biases, though, and the ways that their inclinations to control and manage economic outcomes lead them to focus on outcomes that actually may not be in the best interest of individuals, and may therefore lead to either a decline in economic welfare or a set of unintended consequences as people innovate around the nudges. Or both.

Lynne Kiesling

I love this story; it’s like Knowledge Problem + Aguanomics = individual choice, efficiency, conservation, and elegance. Water conservation is a large and growing concern, in large part because our public policy does such an abominable job of creating a framework/market design to send good scarcity signals to diverse individual users, and to enable them to trade rights among those uses. But in many places, water use also means electricity use, because of the large pumping demand associated with it.

That combination of water use and electricity use provided the impetus for a recent pilot study in California:

A pilot study conducted last summer in Palm Desert, Calif., suggests that they can.

The study, financed by the California Energy Commission, asked participants — who were paid $25 a month — to reduce their water use at “peak” times. A peak time refers to the hours when electricity use is at or near its daily high, and therefore especially expensive.

For Palm Desert, those hours are noon to 6 p.m.

The participants were given so-called “smart water meters” that recorded their water use at 15-minute intervals. Crucially, the meters also enabled participants to see how much water they were using — information that is unavailable to most households.

The results were striking: at peak times, participating homeowners used less than half the amount of water as those in the control group. The homeowners’ total use also ended up being 17 percent lower than the control group’s.

There are a few interesting aspects of this study. Note first that the payment to the homeowner was a lump sum. There is not a dynamic price per unit of water consumed, nor is there even a time-of-use peak-off-peak price structure, so the main driver of the observed conservation is the improvement in information visibility to the homeowner. The $25 lump sum payment probably contributed to raising their awareness too. A dynamic price or a TOU price is also likely to reinforce this result.

Second, note that the peak time denoted here was the peak electricity price time. The article indicates that the 50% reduction in peak water use did not lead to a commensurate reduction in electricity demand, although there was some reduction. So the relationship between water use and electricity use is quite nonlinear. One thing to consider is that in the desert a lot of people use evaporative cooling, so there is some margin of substitution between cooling using water and cooling using air conditioning.

Finally, the article points out that by making homeowners more informed and aware of their water consumption, the smart water meters helped them and the water authority to identify unknown leaks. This result was an unanticipated outcome, and identifying those unanticipated relationships is something that decentralized, individual incentive systems do best.

Lynne Kiesling

It’s been too long since we’ve done any decent music recs here at KP, and last Sunday’s release of The National’s new album High Violet is a good reason to do one now. I’ve heard a couple of songs from it, including “Bloodbuzz Ohio” that they are offering as a free download, and they are great. Lush, layered, sophisticated, interesting. I think I will frequent my local indie record shop tomorrow and get the deluxe CD …

Lynne Kiesling

… he just doesn’t realize it, or doesn’t know that it’s an established regulatory concept. Recently in his Undercover Economist blog, Tim Harford picked up on an idea floated by another FT columnist:

… we need tariff schemes that encourage conservation.

One option is “reverse pricing”, a simple framework that would increase the marginal cost of energy without introducing new taxes or raising average prices. This is important because marginal prices affect our behaviour, but total expenditure affects our wealth. So if we can increase one but not the other, we will create incentives to consume less without leaving households worse off overall.

Actually, what we need is retail competition, retail choice, and the removal of sclerotic and obsolete entry barriers that prevent motivated suppliers from providing innovative electricity-related products and services to residential retail customers. But I digress.

The pricing structure to which Tim alludes in his post is called “inclining block” pricing. When it emanates from a regulatory procedure, it is an inclining block rate. Inclining block pricing means that you price intervals of consumption, and the price per unit for each interval increases. For example:

1. Block 1: 0-1000 kilowatt hours  $0.06/kwh
2. Block 2: 1001-1750 kilowatt hours  $0.10/kwh
3. Block 3: 1751-  kilowatt hours  $0.15/kwh

A few things to note. First, this logic is similar to that underlying David Zetland’s “some water for free, pay for more” proposals for water pricing. Second, the devil’s in the details when these rates are set by regulatory fiat; where do you draw the dividing lines, and what price per unit do you charge?

One of the best electricity economists, Ahmad Faruqui at the Brattle Group, has written extensively about the economic efficiency and conservation effects of inclining block pricing. In that list of resources I’d also recommend this NRRI report for regulators on how and why to consider “economic rates”, including inclining block pricing.

Lynne Kiesling

I noticed recently that Steve Levitt opined briefly on the health care bill in ways that are consistent with my earlier argument that unless Congress tackled the third-party payer problem head on they would be wasting our time and money. In his Freakonomics post, Levitt recommends Gary Becker’s analysis to us:

In Becker’s opinion, the health care bill that passed recently is a disaster for at least two reasons.  First, it seems to do little or nothing to deal with the single most important shortcoming of our current system: the fact that people pay very little on the margin for the medical care that they receive.  Imagine that you could show up at a car dealership and have any car you wanted, and as many cars as you wanted, for no marginal cost.  The market for cars would be in complete chaos, and people would have too many cars, and the ones they had would be too nice.

That is more or less the situation we now have with health care.

I second Levitt’s recommendation; Becker’s post provides a thoughtful and careful analysis of the likely unintended consequences of the health care bill, most of them reducing economic welfare. Becker also focuses on the third-party payer problem:

For the most part, however, the bill increases our dependence on employer-based health care by imposing sizable penalties on companies that do not provide their employees with sufficient health insurance. Many companies are already beginning to add to their projected future costs the anticipated increase in the cost to them of insuring their employees. These changes will particularly affect the costs of smaller companies since they are the main ones that do not provide health insurance for their employees. Since smaller companies are responsible for a disproportionate share of additions to employment during recent years, this provision of the bill will tend to reduce the demand for workers and hourly wages.

The US health care market is over-regulated rather than under-regulated. One example is that families in one state are generally not allowed to buy their health insurance from companies located in other states. Another example is the mandates that states impose on insurance companies, such as coverage of the costs of normal birth deliveries. Such coverage has little to do with insurance against unexpected health costs, whereas coverage of extraordinary delivery costs is a desirable protection against unexpected health care risks. The bill generally pushes in the direct of greater regulation, such as the limitations imposed on how much health insurance companies can spend on administrative costs relative to their other costs, the mandated reviews of the premiums charged by health insurance companies, and the mandated provision of health insurance by small companies.

My conclusion matches Levitt’s too: “Ultimately, it is hard to believe that this bill will be a net positive.  It remains to be seen whether it will be a wash, or far worse.”

Lynne Kiesling

Last week I was honored to spend a couple of days at St. Lawrence University with Steve Horwitz and his students and colleagues. In addition to giving a talk on regulation and technological change in the electricity industry, I gave a guest lecture in an environmental economics class and participated in a reading group that Steve and Jeremy Horpedahl have organized this semester.

In that reading group we discussed Part I of Democracy in Deficit by James Buchanan and Richard Wagner (note if you go to that link you can read the book online, although the hardcover version is quite lovely and high quality). As a non-macroeconomist I have always struggled with the underlying logic of macroeconomics at an aggregate level, and in particular with the logic of Keynesian macroeconomics. I have always had an intuitive sense of my interpretation of macroeconomic models and policy implications, but have never worked through them deeply enough to feel comfortable having a conversation with a macroeconomist (for example, debating Keynesian macroeconomics with my colleague Bob Gordon). The arguments that Buchanan and Wagner develop in Democracy in Deficit give logic and voice to my inchoate ideas.

Steve wrote a concise summary of the Buchanan and Wagner argument in his column in the Freeman today; here’s the nub of the gist:

What Buchanan and Wagner argue is that the legacy of Keynes, whether intended or not, has been to disrupt the old tacitly accepted “fiscal constitution,” by which politicians treated the federal budget largely like a household budget.  Debt was justified for only two basic reasons:  war or similar emergencies and long-term capital expenditures that required large upfront costs.  Such debts were expected to be repaid as soon as possible because long-term indebtedness was considered both economically imprudent and immoral. Why immoral? Because the cost was a burden on future generations that had no say in the matter.

Keynesian economics changed all this by constructing an intellectual justification for viewing the federal budget as a tool for managing the economy rather than a constraint under which politicians operate.  Keynesianism argued that in recessions budget deficits could stimulate aggregate demand and lead to recovery, while in good times surpluses would both prevent excessive growth and pay back the debt.

While plausible in theory, the Keynesian model is institutionally sterile; in other  words, Keynesian models and policy recommendations do not take into account how such models and policies are likely to be implemented in a democratic republic like the U.S. In other words, Democracy in Deficit provides a public choice macroeconomic analysis of Keynesian models and policies. A public choice analysis of Keynesian macroeconomics incorporates (dare I say endogenizes) the objective functions of policymakers, in particular the “vote-seeking” objectives of politicians. That vote seeking means that fiscal constraints are not in the interests of politicians, so they enact deficit-inducing policies to a degree beyond what an institutionally sterile Keynesian model would suggest.

If you combine that incentive with the change in the federal budget from a constraint on politicians to an administrative management tool, you end up with a pretty good model of our current political economy — perpetual deficits instead of counter-cyclical deficits, increasing indebtedness, and an apparent unwillingness among politicians to engage in fiscal responsibility that would reduce our burdens “on future generations that have no say in the matter”.

If you are interested in an accessible analysis of our macro policies, I recommend Democracy in Deficit, as did Will Wilkinson late last week; I echo Will’s conclusion that “Even if you disagree with Buchanan and Wagner about particulars, this book will leave you with a much-improved ability to think through the political economics of fiscal policy.”

Lynne Kiesling

If you are currently working as a state regulator or a member of regulatory staff, then I cannot encourage you strongly enough to apply to attend this May’s Institute for Regulatory Law & Economics:

The IRLE is sponsored by the University of Colorado’s Silicon Flatirons Center to sharpen the tools required for principled and thoughtful regulatory decision making.

The May Seminar is geared toward state regulators and staff, and distills the critical law and economics issues that arise in closely-regulated network industries and presents them in a coherent fashion.

The IRLE draws on the expertise of leading academics, practitioners, and scholars. In particular, it highlights the important tools provided by neoclassical economics, new institutional economics, “code as law,” Schumpeter, and public choice theory. The curriculum also includes a discussion of corporate finance principles and risk valuation as applied to regulation.  This four day intensive seminar will foster discussion and cohesion, so attendance is limited to approximately fifteen to twenty attendees.

This year’s IRLE will take place 15-19 May, at Aspen Meadows Resort, Aspen, Colorado. As one of the founding faculty members of the IRLE, I find the interaction with core ideas of regulatory law and economics among the attending academics and applied regulatory professionals to be incredibly intellectually engaging and stimulating. If you attend I can promise that you will be richly intellectually rewarded.

The application deadline is this Friday, 19 March, so don’t procrastinate!

Lynne Kiesling

Hey students! If you are a KP reader and you are looking for an experience this summer with good brain candy that’s a lot of fun, then check out the week-long summer seminars offered by the Institute for Humane Studies. There are a range of topics and focus areas, but most seminars involve economics, philosophy, law, and history, and getting to read and think about and argue about fundamental social science ideas relating to our living together in civil society.

IHS seminars are seriously some of the most intellectually valuable and fun experiences I have ever had, and I can’t recommend them highly enough. If you do one you will be richly rewarded intellectually and personally.

The application deadline is March 31, so don’t procrastinate!

Lynne Kiesling

If you are in Washington, DC and interested in electricity policy, then I hope I will see you at this upcoming event at the American Enterprise Institute on Thursday afternoon.

Why is the process of restructuring and institutional change so different in electricity than in other infrastructure industries? What is the current status of state and federal electricity policy? How can electricity policy objectives at the federal and state level evolve to match innovation and technological change? Discussing these and other questions will be economist Lynne Kiesling, whose work at Northwestern University focuses on electricity regulation and restructuring; John A. Anderson, president of the Electricity Consumers of America; and Peter Fox-Penner, a principal at the Brattle Group who is an expert on energy and electric power industry issues. AEI resident scholar Kenneth P. Green, acting director of the AEI Center for Regulatory Studies, will moderate the discussion.

If you’re there, please make sure to stop me and say hi!

Lynne Kiesling

Hi folks! I am getting ready to crawl out from under my winter quarter rock; I have been teaching three classes this quarter, and it’s been frenetically busy. I’m also working on some stuff that I’m not quite ready to talk about in public, so I’ve been indulging in some self censoring.

Plus, honestly, all of my spare mental bandwidth outside of the classroom has been going to my training, and in particular my indoor winter bike training using a CompuTrainer to get data on my power output and to work on increasing it and my cycling efficiency. Doing as much training as I have been has been good for increasing my focus and decreasing my distractability, but it has not left me much time for writing here. Hopefully my lighter spring quarter course load will change that!

I’m also a bit mystified as to why our header banner has disappeared … I’ve tried it in Firefox and Safari on the Mac, and Mike’s tried it in Chrome, Firefox, and IE on Windows, and only in Chrome does the banner appear. If you have any other data to contribute, please do so; in the interim I am going to inquire with WordPress.

Lynne Kiesling

This weekend the KP Spouse and I headed six hours north into northwest Wisconsin and joined a cabin-full of friends in the American Birkebeiner cross-country ski race, although my pace was not so racelike! We did the half distance (the Kortelopet), which is 23km (14.26 miles), classic style (i.e., not the skate style that you’ve been seeing on the Olympics). I was slow, even slower than my running pace, but it was a gorgeous course and the weather was beautiful. In terms of fitness I was in good cardiovascular shape for it (and from a cardio perspective could have done the full 54km Birkie), but my x-c skiing technique is poor, and it sure did challenge my muscles! My natural tendency is fast-twitch muscle activity and things like downhill skiing, so long-distance cross-country slow-twitch endurance is not my thing. But it was fun, especially the big party in Hayward afterward and then pizza that night with our party … although I am sure having some trouble moving today!

Lynne Kiesling

I continue to be thoroughly disgusted by the disingenuousness of the health care policy debate in Washington. From a public choice perspective I understand why the debate continues to focus on what I think are the tangential and ancillary questions, and the attempts to tweak and improvise around the edges … but my opinion long has been, and continues to be,

Unless and until we change the differential tax treatment of employer-funded health insurance and remove the third-party payer incentive problems embedded in it, we will have no meaningful change in health care costs or affordability.

Therefore, all of the time and resources that Congress and the administration are pouring into forcing a health care bill are just wasting my tax money and the time and effort of my elected representatives. What they are doing right now is expensive and wasteful wheel-spinning, well deserving of the name “political theater”.

Arnold Kling made a related point on Thursday:

There are two ways to approach reducing the use of high-cost, low-benefit procedures. You can have the government tell people what they can and cannot have. Or you can have individuals pay for a larger fraction of the medical procedures that they consume. It really comes down to those choices.

Advocating either one of those is political suicide, and talking about anything else is a waste of time. The Democrats will not advocate government rationing, and the Republicans will not advocate scrapping most of our current system of third-party payment in medicine. Instead, the summit, like the entire “health reform debate” this year, will be a waste of time.

I do, though, think that Arnold is being too generous when he gives the health care summit participants grades ranging from D+ to F-. They are wasting our time and money by refusing to confront and address the core incentive problem, which is the staggeringly distortionary and inefficient coupling of employment and health insurance.

Lynne Kiesling

I’ve been reading, thinking about, and watching lots of Jane Austen lately, and I’ve found two funny renditions of my favorite book, Pride and Prejudice: Austenbook, a Facebook-style retelling of the story, and Pride and Prejudice in emoticons. I guffawed out loud in an unseemly manner ill befitting a lady, but I suspect that Ms. Austen would be highly amused if she were a part of our culture.

I haven’t read Pride and Prejudice and Zombies yet, but the KP Spouse has, and he allows that he was excessively diverted by reading its rollicking, light juxtaposition of zombies into the story. He says that the author, Seth Grahame-Smith, does a very good job of using the essence of Austen’s language, and that it’s pretty obvious that Grahame-Smith used the 1995 BBC video version with Colin Firth (yum!) as the skeleton upon which he told the zombie story. I have, though, been enjoying A Truth Universally Acknowledged:
33 Great Writers on Why We Read Jane Austen, a collection of essays on Austen. All of these are excellent diversions for a winter weekend.

Lynne Kiesling

Several years ago Jamie Oliver set out to improve school food for a group of British children. In part he was motivated by wanting to impart a love of good, healthy food in children by sharing his own joy in food, and in part he believed that healthier school meals would lead to less obesity and better academic performance. As Tim Harford noted in his Undercover Economist column in November:

Oliver’s mission to persuade schools to serve healthier lunches – and get children to eat them, and stubborn mothers not to stuff chips through the school railings – became a national phenomenon in 2005. Tony Blair and David Cameron fell over themselves to jump on the Naked Chef’s bandwagon, and soon everyone in the country had an opinion on the campaign.

Harford then discusses a working paper by Michèle Belot and Jonathan James that uses Jamie Oliver’s school lunch work as a field experiment; from Belot’s web site:

“Healthy School meals and Educational Achievements”, with Jonathan James

Children’s diet is a major source of preoccupation in many developed countries. The concerns have mainly been focused on the implications for obesity and health outcomes. However, the effects of children’s poor diet may extend beyond health; food is an obvious input in the “learning production function” and deficiencies in diet may result in important deficiencies in nutrients playing an essential role in cognitive development. This study exploits a unique experiment in the UK, the “Feed Me Better Campaign” where the meals served in the 81 schools of one area (Greenwich) were changed drastically by the British Chef Jamie Oliver. Because the campaign was literally designed as a large-scale experiment, it offers a unique opportunity to assess the causal effects of healthier food on educational outcomes. We find that educational outcomes did improve in Englsih [sic] and Science, although we cannot rule out small effects. We also find that the campaign reduced absenteeism by 15% .

A well-designed field experiment in economic policy is hard to achieve, particularly because to get a representative distribution among treatments you have to randomize who participates in what treatment, which is politically difficult (I can tell you stories about this in electricity, but it will require a cocktail). This experiment does not randomize, but it does provide a large-scale test with comparative demographics that minimize the selection bias problem. As Harford notes,

The chef had convinced Greenwich’s council and schools to change menus to fit his scheme; he mobilised resources, provided equipment and trained dinner ladies. Other London boroughs with similar demographics received none of these advantages – and indeed, because the programme wasn’t broadcast until after the project was well under way, probably knew little about it. The result was a credible pilot project. It wasn’t quite up to the gold standard of a randomised trial, but it wasn’t far off. …

… Surely what counts is that a new idea was tried out on a respectable scale, and now we have a chance to figure out whether it worked. What astonishes me is that it took a television company and a celebrity chef to carry out a proper policy experiment.

Oliver’s work has led to his receiving a TED Prize for 2010, drawing attention to his work to improve diet, food knowledge and understanding, and cooking for children, focusing on the UK and US. His TED address from a couple of weeks ago is well worth a listen; he does go a bit histrionic for my taste in some parts of it, but his passion for incorporating knowledge about food into education is obvious. And, he knows how to design a policy experiment.

Lynne Kiesling

Here’s a paper that befits the snowy month we’ve had in the U.S. … Jonathan Zinman and Eric Zitzewitz at Dartmouth find that ski resorts over-report snowfall, and that the proliferation of iPhones has led to more consumer information on accurate snowfall and ski conditions. The paper abstract:

Casual empiricism suggests that deceptive advertising is prevalent, and several classes of theories explore its causes and consequences. We provide some unusually sharp empirical evidence on the extent, mechanics, and dynamics of deceptive advertising. Ski resorts self-report 23 percent more snowfall on weekends; there is no such weekend effect in government precipitation data. Resorts that plausibly reap greater benefits from exaggerating do it more. We find little evidence that competition restrains or encourages exaggeration. Near the end of our sample period, we observe a shock to the information environment: a new iPhone application feature makes it easier for skiers to comment on resort ski conditions in real time. Exaggeration falls sharply, especially at resorts where iPhones can get reception.

This kind of empirical economic research is particularly valuable, because it highlights the role that technology can play in enabling the aggregation of dispersed information, which better enables reputation mechanisms to discipline otherwise deceptive behavior. In many contexts this combination of technology and diffuse information feeding into a reputation mechanism provides more effective regulation than some form of centralized, government regulation. Imagine, for example, a law requiring ski resorts to report accurate conditions, with an entire agency established to monitor and enforce their compliance. Likely to be much more expensive, and less effective, than the simple threat of losing weekend business!

Hat tip to Salon article on the research.