Posts filed under ‘Former Guest Bloggers’
Palgrave Entry on Oliver Williamson
| Scott Masten |
If you have access to The New Palgrave Dictionary of Economics, Online Edition, my entry on Oliver Williamson is now available: Oliver E. Williamson.
My Brush with Obamacare
| Scott Masten |
I had my first personal encounter with America’s new health care legislation last week. The University of Michigan’s current (i.e, pre-Obamacare) faculty-and-staff health care benefits provide health care coverage for faculty children up to age 25. As a result, my daughter, who turns 24 this next month, was eligible for an additional year of coverage under my benefits. Last week, the UM Benefits Office sent employees an email announcing the Patient Protection and Affordable Care Act’s much-touted requirement that health care policies hereafter provide coverage of dependents up to age 26. The announcement added, “The health care reform law removes all previous and current eligibility requirements for coverage.” But then a little further down was the following: “In order to be eligible for coverage under your benefits, a dependent child must … not [be] eligible for health benefits through his or her own employer.” So my daughter, who was eligible to remain on my UM plan for another year before Obamacare, becomes ineligible January 1 because she works for a small company that offers a health plan. It’s not the end of the world, of course. My daughter (who lives at home) will be a bit poorer because she will have to pay for her own health care a year sooner than expected, and the coverage probably won’t be as comprehensive as the UM plan is. If that were the only issue, I wouldn’t have bothered with this post. (more…)
Does Research Productivity Decline with Age?
| Scott Masten |
I haven’t had a chance to read the article that Nicolai linked to below yet, but it reminded me of a not-unrelated article in last month’s American Psychologist, “The Graying of Academia: Will It Reduce Scientific Productivity?” Here’s the abstract:
The belief that science is a young person’s game and that only young scientists can be productive and publish high-quality research is still widely shared by university administrators and members of the scientific community. Since the average age of university faculties is increasing not only in the United States but also in Europe, the question arises as to whether this belief is correct. If it were valid, the abolition of compulsory retirement in the United States and some parts of Canada would lower the productivity of these university systems. To address this question, this article reviews research on the association of age and scientific productivity conducted during the last four decades in North America and Europe. Whereas early research typically showed a decline in productivity after the ages of 40 to 45 years, this decline has been absent in more recent studies. Explanations for this change are discussed.
Man Bites Dog …
| Scott Masten |
. . . and government swears it acts politically and is incompetent.
This might just be worth the cost to the U.S. taxpayer of bailing out GM. From GM’s prospectus for its upcoming IPO (via NPR):
…to the extent the UST [United States Treasury] elects to exert such control in the future, its interests (as a government entity) may differ from those of our other stockholders. In particular, the UST may have a greater interest in promoting U.S. economic growth and jobs than our other stockholders. For example, while we have repaid in full our indebtedness under our credit agreement with the UST that we entered into on the closing of the 363 Sale, a continuing covenant requires that we use our commercially reasonable best efforts to ensure, subject to exceptions, that our manufacturing volume in the United States is consistent with specified benchmarks. (p. 6)
We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan. (p.29)
Now, the next time anyone says otherwise, you have can point to this.
Influences
| Scott Masten |
Oliver Williamson has obviously had an enormous influence on my research and career, but I encountered Olly only fairly late in my education; in fact, I didn’t take Olly’s Industrial Organization course until my last semester of course work, in the fall of my third year in graduate school. Prior to that, my primary field had been comparative economic systems or, as it was called at Penn, comparative economic planning. My interest in the latter field and, indeed, my decision to go to graduate school in the first place I owe to Edwin Dolan. I had entered college intending to go to law school and enrolled in Dolan’s Economic Analysis of Law seminar in the winter of my sophomore year. That course was eye-opening for me in two respects. First, after spending long days in the library stacks reading law cases (when the next best alternative activity was skiing), I decided that that was not what I wanted to do for the rest of my life. Second, I learned that I could engage the “fun” (that is, the analytical) part of law by continuing in economics, which I already found appealing. (more…)
Cui Bono Blues
| Scott Masten |
No, not some long lost Robert Johnson classic. I’m referring to the Justice Department’s suit filed earlier this week against Blue Cross Blue Shield of Michigan, with “hints” from the Justice Department that more health industry suits are in the pipeline. The allegation is that BCBCM used most-favored nation agreements with hospitals to reduce “competition in the sale of health insurance in markets throughout Michigan by inhibiting hospitals from negotiating competitive contracts with Blue Cross’ competitors.”
I don’t know enough about the case to say anything about its merits at this point. But I do find curious the DOJ’s choice of a nonprofit for its demonstration project on controlling healthcare costs through the antitrust laws. It reminds me of [uh-oh, here it comes — Ed.] (more…)
“The Meanest and Most Contemptible Persons in Society”*
| Scott Masten |
*That would be Peter, Dick, Lasse (I think), and me, but not Nicolai. (See below.)
I haven’t posted anything on higher education governance in a couple of weeks, so I guess it is about time. My excuse will be an Instapundit link to an opinion column titled “End Our ‘Multiuniversities’.”
The author, David Warren, complains that the “great majority of the universities — founded since the Second World War to bureaucratically process and credentialize a large part of the general population, as a matter of ‘right’ and regardless of their intellectual capacities — are in effect ‘community colleges’ or trade schools,” a condition that he attributes in the main to public funding. (Warren is writing from Canada but a related piece makes clear his reprobation is catholic.) I am broadly sympathetic with his lament, though I am less confident that public funding is the ultimate culprit. What I want to comment on, however, is his (possibly facetious) solution: (more…)
Fire Footnote
| Scott Masten |
Apropos our earlier discussion, today is the anniversary of the Great Chicago Fire of 1871.
Hail to the Hackers
| Scott Masten |
You may have read recently that District of Columbia election officials put out an invitation to computer scientists to hack an experimental Internet voting system. Apparently a team from the University of Michigan successfully took over the system within 36 hours. The part I found amusing, however, is that they programmed the system to play “Hail to the Victors” (official name “The Victors”) after each vote was cast.
Burning Down the House
| Scott Masten |
Peter posted a Facebook link to a Jeff Tucker post on the Mises Economics Blog commenting on the news report about the Tennessee man who didn’t pay his annual $75 fire protection services fee, and the fire department from the neighboring town let his house burn down. Peter, Jeff, and Clifford Grammich (who commented on Peter’s post) cover the issues pretty well. My guess is that the reason governments rather than private companies generally provide fire services has a lot to do with the difficulty of pricing fire services. (The Tennessee case involved a quasi-market transaction in that residents outside of South Fulton paid the city of South Fulton for fire protection.) It is certainly conceivable that private fire companies could offer homeowners and businesses a choice between (i) prepaid fire service for an annual fee and (ii) on-demand fire service. But how would you determine the price of the latter? I’m pretty sure you wouldn’t want to negotiate the price while your house is burning down. (Talk about temporal specificity!) And you wouldn’t want to negotiate the price after the fact either: Gee, guys, thanks for saving my house; can I buy you all a beer? (more…)
Tilburg Conference on Private Ordering
| Scott Masten |
O&M readers might be interested in a conference held this week (Sept. 30 – Oct. 1) at the Tilburg Law and Economics Center on the topic “Economic Governance and Competition: The Pros and Cons of Private Ordering in the Shadow of the Law.” The conference was organized by Jens Prüfer and featured keynote presentations by Lisa Bernstein, Avinash Dixit, Robert Gibbons, and Bentley MacLeod. Many interesting papers, several of the authors of which will be familiar to the O&M/ISNIE crowd. The full program, including downloadable papers, can be found here. (Would have liked to attended but classes interfered.)
Oliver Williamson to Win Physics Nobel
| Scott Masten |
At least that’s what the writers of The Simpsons are predicting. (See upper left-hand corner.) Their Economics Prize predictions: Jagdish Bhagwati, Avinash Dixit, Bengt Holmstrom, and Elhanan Helpman. (via Marginal Revolution)
Secure Abjure Tenure
| Scott Masten |
Thanks to Peter, Nicolai, Dick, and Lasse for the invitation to guest blog and for the opportunity to sound off on current issues to a broader audience than just my LCD screen. [Thank you! — LCD Screen.]
A fairly recent example of such an issue was the discussion — anew — of proposals — anew — to abolish professorial tenure. Earlier this month, the New York Times Sunday Book Review ran an essay titled “The End of Tenure?” This was preceded by a July NYT “Room for Debate” forum on the question “What if College Tenure Dies?” and a proposal a week or so later by the American Bar Association to eliminate the term “tenure” from the ABA standards covering job security and academic freedom. A flurry of blog posts on the merits of tenure — many by law professors — ensued.
Leaving aside the details of the debate, an interesting pattern emerged in the “sides,” with more market-oriented (libertarian- or conservative-leaning) writers tending to be more critical, or at least skeptical of the merits, of tenure (see, for example, here and here; here; and here, compared, for instance, with this. The rule-proving exception is here). (more…)
Introducing Guest Blogger Scott Masten
| Peter Klein |
It’s a real pleasure to introduce Scott Masten as our newest guest blogger. Scott is Professor of Business Economics and Public Policy at the University of Michigan’s Ross School of Business and a leading figure in the transaction cost approach. Trained by Oliver Williamson at Penn, Scott was one of the first (along with David Teece and a few others) to do systematic empirical work on alternative institutions of governance. Scott’s 1984 paper on procurement in aerospace, his 1985 paper (with Keith Crocker) on characteristics of natural gas contracts, and his 1991 paper (with James Meehan and Ted Snyder) on the costs of internal organization are classics in the transaction cost literature. Scott has also made important contributions to law and economics, antitrust, contract theory, and many other areas. He’s a past president of ISNIE, co-editor of JEMS, and, as I learned a few years ago at a conference for Williamson’s 70th birthday, a wickedly funny after-dinner speaker.
We’re delighted to have Scott on the team and look forward to his insights. Welcome, Scott!
24 September 2010 at 11:40 pm Peter G. Klein Leave a comment
Thanks to Craig!
| Peter Klein |
I’ve been remiss in thanking Craig Pirrong for his excellent guest posts this past Spring — really great stuff! Remember that you can follow Craig at his personal site, Streetwise Professor. Thanks, Craig, for your contributions!
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Goldman in the Dock
| Craig Pirrong |
I have several reactions to the SEC’s fraud complaint against Goldman.
First, some of the more sensationalist reporting emphasizes that Goldman was short the RMBS structures that it was selling to its customers. (Yeah, it’s the NYT, basing its opinion on reporting by Wretched Gretchen Morgenson, so take it for what it’s worth–meaning not much.) Well, that’s true, but Goldman was also long. After all, it was the counterparty, the protection seller, to Paulson’s CDS. It then entered into offsetting transactions. Goldman was essentially a conduit of risk between other financial firms and Paulson. Note paragraph 66 of the complaint, which indicates that Goldman paid most of the $840 million it received on short positions in the Abacus deals to Paulson. Goldman claimed in its response to the government’s Wells Notice that it was actually long because it retained a slice of the risk; the protection it sold to Paulson was for a larger portion of the potential losses than covered by the protection it bought from ACA Capital. (more…)
Why the Movie Industry Doesn’t Like “Trading Places” as a Reality Show
| Craig Pirrong |
The most recent derivatives/speculation kerfuffle involves something novel — futures contracts on movie box office receipts. Two entities, Cantor Fitzgerald and Movie Derivatives, Inc. have announced plans to introduce such contracts. The film industry is in a tizzy at the prospect, and has enlisted the help of the usual anti-speculation suspects on Capitol Hill.
The virulence of the reaction is interesting, and deserves explanation. Here’s my initial stab at the problem. (more…)
The Chris Dodd Strangle Entrepreneurship Act, or, Where’s Creative Destruction When You Need It?
| Craig Pirrong |
Back in January, Tool Time star Tom Friedman lamented that Mr. Cool had turned his back on the “amazing, young, Internet-enabled, grass-roots movement he mobilized to get elected.” Friedman all but begged Obama to spur entrepreneurship and innovation:
Obama should launch his own moon shot. What the country needs most now is not more government stimulus, but more stimulation. We need to get millions of American kids, not just the geniuses, excited about innovation and entrepreneurship again. We need to make 2010 what Obama should have made 2009: the year of innovation, the year of making our pie bigger, the year of “Start-Up America.”
How’s that working out for you, Tom? With all the taxes on capital in the health care law, and the implicit tax on business expansion in the law (e.g., insurance mandates on companies with more than 50 employees), and all the taxes to come (there are murmurs of a VAT), it is becoming the year of Shut-Down America. The whole Obama program is poison to entrepreneurship.
And that’s just the start. Dodd’s banking bill explicitly targets startups:
Dodd’s bill would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the S.E.C. to review their filing. A second provision raises the wealth requirements for an “accredited investor” who can invest in startups — if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000). The third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.
And just what are the apparatchiks in the SEC going to do in that 120 days? Just what knowledge and expertise can they bring to bear in evaluating the funding plans? The question answers itself; this adds costs and delay, for no perceivable benefit. And what reason is there to restrict the free flow of capital from consenting adults with over $1mm to startups? (more…)
Price Level Shocks, uhm, Screwed Up Relative Prices, and Organization
| Craig Pirrong |
Peter’s post on the relation between inflation, vertical integration, and markets brings a couple of other thoughts to mind.
First, and most importantly, the number and characteristics of markets are endogenous too, and respond to changes in the amount of uncertainty in the environment, including the amount of uncertainty resulting from monetary shocks that (in Sherwin Rosen’s unforgettable in-class phrase) “f*ck up relative prices.” In particular, the number and variety of futures markets depends on the amount of uncertainty. The big boom in the creation of futures markets in the 1970s corresponds with, and was arguably caused by, the coincident inflation of that period, and the associated volatility in relative prices.
Second, although Peter’s point, and previous research, focuses on the implications of inflation on organizational choices and market vs. firm choices, in the current environment it is worthwhile pondering the implications of deflation. Certainly we have more research on the effect of inflation on the variability of relative prices due to our more recent inflationary experiences, and this was a major source of concern about inflation among Austrians, but the current situation makes it worthwhile to consider the effects of deflation on the pricing system, and firms’ responses to that.
Perhaps an examination of Japanese experience since 1990 would be worth some in-depth analysis.
Personally I am torn as to whether inflation or deflation is the greater risk in the near to medium term. The huge monetary overhang in the US and around the world (resulting from quantitative easing and other extraordinary monetary policies), and the inability of the Fed to commit credibly to drain reserves from the system when money demand picks up make me believe that it will be hard to avoid a burst of inflation. But all current indicators point to flat or declining prices.
It is hard to see things ending in a Goldilocks moment — just right. Thus, it is likely that that there will be a shock to prices generally, arguably a large one, and that this will disrupt relative prices for a variety of reasons. (Including, notably, the very likely case where these price level shocks lead to government policy interventions that distort relative prices.)
Thus, Peter’s research program may be rejuvenated, courtesy of the Fed, ECB, the Chinese Central Bank, etc. It is indeed an ill wind that blows nobody any good.
Measure for Measure
| Craig Pirrong |
The FT has an interesting article about the difficulties and uncertainties facing cap & trade schemes, even in Europe where they’ve been implemented. A good part of the article focuses on the loss of intellectual coherence in climate policy in Europe, as regulations and taxes are being mooted to reduce CO2 emissions. Such command and control bolt-ons are inconsistent with the basic concept of cap & trade, which is that by determining a price of carbon the market will induce efficient responses to reduce emissions on all relevant dimensions:
And the more the carbon market shrinks in its ambitions, the more it faces a broader threat: that of losing touch with its original objective. Credits could continue being traded in the old way. But if the main thrust of carbon reduction is tackled by other means, the market could face questions about its social utility.
But to me, the most interesting part of the article relates to the arcane area of offsets: (more…)
Organizations and Markets 
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