Archive for January, 2009

New Leoni Collection: Law, Liberty, and the Competitive Market

| Peter Klein |

Transaction Publishers and the Instituto Bruno Leoni have just published a new collection of essays by Bruno Leoni, Law, Liberty, and the Competitive Market, edited by Carlo Lottieri. The essays elaborate on Leoni’s distinction between law and legislation, and the analogy between the latter and centralized economic planning, themes introduced in his best-known book, Freedom and the Law. Richard Epstein provides an informative introduction.

28 January 2009 at 9:43 am Leave a comment

Disaster Socialism

| Peter Klein |

As I noted elsewhere yesterday, the “stimulus” bill making its way through Congress is a fine illustration of the Higgs effect, the tendency of government to expand massively in response to “crises,” real or imagined. Naomi Klein’s “Disaster Capitalism” thesis is exactly backward: “disasters” are inevitably followed by huge increases in the public sector at the expense of the private. Anyway, if you have any doubt that the current legislation has precious little to do with economic stimulus, consider the details of the House’s proposed $825 billion package, which includes:

  • $1 billion for Amtrak
  • $2 billion for child-care subsidies
  • $50 million for the National Endowment for the Arts
  • $400 million for global-warming research
  • $2.4 billion for carbon-capture demonstration projects
  • $650 million for digital TV conversion coupons
  • $8 billion for renewable energy funding
  • $6 billion for mass transit
  • $600 million for the federal government to buy new cars
  • $7 billion for modernizing federal buildings and facilities (including $150 million for the Smithsonian)
  • $252 billion is for income-transfer payments ($81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don’t pay income tax)
  • $66 billion for education

Now I should state, for the record, that unlike other critics of this particular stimulus package, I don’t favor government “stimulus” packages of any kind. I’m not a Keynesian, after all.

28 January 2009 at 7:40 am 1 comment

Department of Irony, Cass Sunstein Edition

| Peter Klein |

Harvard’s Cass Sunstein has been tapped by Obama to head the Federal Office of Information and Regulatory Affairs (to be “regulation czar,” in the vernacular). One of his main tasks, presumably, will be to sell the new financial-market and related regulations accompanying the “stimulus” bill. I hope Sunstein will re-read his recent working paper with Richard Zeckhauser, “Overreaction to Fearsome Risks”:

Fearsome risks are those that stimulate strong emotional responses. Such risks, which usually involve high consequences, tend to have low probabilities, since life today is no longer nasty, brutish and short. In the face of a low-probability fearsome risk, people often exaggerate the benefits of preventive, risk-reducing, or ameliorative measures. In both personal life and politics, the result is damaging overreactions to risks. We offer evidence for the phenomenon of probability neglect, failing to distinguish between high and low-probability risks. Action bias is a likely result.

Cass, will you please explain “action bias” to the President and Congresssional leaders before they completely restructure the US economy in response to the current economic downturn?

27 January 2009 at 2:07 pm 1 comment

Incentives Burlesque

| Lasse Lien |

Speaking of incentives, here is an anecdote you probably don’t need to know. In Norway prostitution is illegal, but the ban has until recently been only on the seller side. Now, new legislation has also made buying illegal. Since this most likely will destroy much of the market, one political party (actually a member of the government coalition) suggested that the government pay severance packages to prostitutes that are forced out of business. My question is why only prostitutes? Shouldn’t all criminals that are forced to change careers because of government action be duly compensated?

27 January 2009 at 4:22 am 3 comments

The Heath Brothers on Incentives

| Peter Klein |

Dan and Chip Heath worry that incentive plans backfire because of focusing illusion — managers place too much weight on a single variable in the incentive contract, ignoring the likely side effects. I don’t disagree that this is possible but Chip and Dan seem to be knocking down a pretty feeble straw man. The drawbacks of single-variable, quantitative incentive schemes are well known in the organizational design literature, spawning oodles of studies of multi-tasking, the use of multiple performance measures, the benefits and costs of subjective evaluation criteria, and the like. (There’s a nice overview in BSZ chapter 16.)

26 January 2009 at 4:41 pm Leave a comment

What Drives Traffic Fatality Risks?

| David Gerard |

Does the inclement weather have you worried about sliding off the road to an icy death? If so, I’ve got some good news for you. On a per-mile driven basis (or per-trip or per-minute traveled), winter is actually the least likely time to get killed behind the wheel. Summer drivers have a risk of 1.24 fatalities per 100 million miles driven compared with 1.01 during the winter. For males behind the wheel of an SUV, those summer and winter numbers are 1.39 and 0.87, respectively.

That’s what we discovered when we teamed with the AAA Foundation for Traffic Safety to develop TrafficSTATS — an interactive website that merges traffic fatality and personal travel information to generate risk estimates. The site generates risk estimates for combinations of age, day of week, month of the year, gender, hour of the day, drivers, passengers, and vehicle types. Did you know that a man behind the wheel is 80% more likely to get killed than a woman? Or that 16-20 year-old drivers have about the same fatality risk as 75-84 year-olds?

Although our estimates are a simple ratio generated by merging federal fatalities and personal travel behavior databases, we believe that our risk estimates frame risk in a far superior fashion than using fatalities or other risk proxies. For example, one common metric is deaths per registered vehicle. By this measure it looks like SUVs are more dangerous than cars. Adjusting for the fact that SUVs are driven more miles and carry more passengers than cars do provides a much different picture — SUVs are a lot safer (0.85 SUV and 1.02 passenger car fatalities per 100 million passenger miles traveled). Not only that, we also found that even the rollover risk for SUVs and cars are virtually the same for 25-50 year old drivers, and the divergence in rollover risks stems predominantly from high fatality risks for young and old drivers (PowerPoint and paper).

One caveat, the site was developed with MS tools and works best in Internet Explorer. What was that post about path dependence? Aaack.

26 January 2009 at 1:50 pm 2 comments

The Economics and Sociology of Stonehenge

| Peter Klein |

200812111617127052-2009-01brevwhittlefbRecent research on Stonehenge recognizes that its construction was not just a massive technological undertaking, but a huge organizational challenge as well. Here’s a recent item from American Scientist (via 3quarks):

Although many people might straightforwardly conclude that an undertaking on the scale of Stonehenge must have been an expression of concentrated power within Neolithic society, the claim cannot be conceded without thinking about the long processes of inspiration, discussion, mobilization of labor and periodic reenergizing of all those involved that must have accompanied such enterprises and indeed made them possible. The challenge for archaeologists can slide from simple detection of the presence of power to analysis of the ways in which social preeminence could be asserted and maintained for what was all too often just a brief interval.

So research into the ways in which monuments “worked” is crucial. How did people approach and move around these great assemblies of earth, timber and stone? Did they do so freely, or were they directed? What did interventions in nature on this scale signify, and what meanings could be projected by the materials used in their construction? How were tradition and innovation respectively regarded? Leaders or would-be leaders must have had tricky paths to negotiate.

I’m waiting for the pop-management book, Leadership Lessons from the Stonehenge Builders.

24 January 2009 at 8:27 am 6 comments

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
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