Mar

11

MIT Entrepreneurship Review

Joshua Gans | 1 Comment

A group of Sloan School of Management students have launched the MIT Entrepreneurship Review. It is a slick site (although not really iPhone friendly) but the content looks very interesting. I enjoyed this article on paper.

Mar

11

Willingness to pay for High Speed Broadband

Joshua Gans | 6 Comments

One of the biggest outstanding questions for both the private profitability and social value of the National Broadband Network is how much consumers value high speed. Telstra have found out recently that few people want to pay alot for very fast (100 Mbps) broadband service. Only 200 people signed on to pay $269 per month for that service even when it included local and long-distance calls and Foxtel Premium as well. I wasn’t sure if download limits (100GB) were crimping that.

A new study by Gregory Rosston, Scott Savage and Donald Waldman uses a comprehensive survey to extract consumers’ willingness-to-pay for various aspects of broadband. They demonstrate that households may pay US$98 a month for premium service although this is contingent upon them having experienced poorer service. The good news is that experiencing poorer service actually boosts willingness to pay for better service — that wasn’t a given.

But worrying from a commercial and social point of view was the willingness to pay for speed. Coming from a slow broadband service, consumers would pay $48 per month for a move to something like 100Mbps. But if they already had 2Mbps, they would only pay an extra $3 a month for the extra speed. They would pay more for reliability. (The good news is that experience boosted values on those margins too).

If that is the case, the value of the NBN is somewhat diminished. That said, I always figured that the big benefits were competitive (at least upfront) while the fact that it will take the better part of a decade to build the network is just as well as it may take that time for demand values to improve.

Mar

10

Iceland shows the way

Mark Crosby | 2 Comments

For those interested in following Iceland’s battles with the UK and the Netherlands the following two pieces are very good. Firstly, Martin Wolf, on why the Icelanders should not have to pay the UK and Netherlands so that those governments can repay their citizens depositors in Icelandic banks. Most Icelanders (what is the correct terminology) were irate at being lumped with a debt equivalent to 45% of last years GDP to bail out private banks and their depositors – and so the President gave them a referendum on whether they should pay. Unsurprisingly, 93% of voters thought they shouldn’t pay – see the Business Week piece on the referendum for more detail on that! With Iceland’s voters opting not to bail out “greedy bankers” one wonders how long before the Greek government comes up with a similarly cunning plan.

Mar

10

Emerging Markets

Mark Crosby | Leave a Comment

One of the interesting factoids around in the past year or two was the fact that the emerging markets finally accounted for more than 50 percent of global GDP. However, it turned out that it depended which measure of GDP was used, with this being true only for the PPP based measure. Then more recently, the latest revisions to the price series on which the PPP measures were based led to the emerging markets share being revised down to only about 45 percent in 2008. Still up from 36 percent since 1980, but yet to account for half of global GDP (the data is from the World Bank World Tables, with the latest data I have to 2008).

It is reasonable to think that the emerging economies share of GDP should trend upwards, given that these economies house by far the majority of the worlds population. In 1950 North America and Europe hosted 28 percent of the world’s population and the US alone produced more than half of global GDP. But UN population projections have North America and Europe with only 12 percent of the global population in 2050. Asia, on the other hand, currently has 60 percent of the worlds population, and that share drops only slightly by 2050. It is notable that all of the increase in the emerging markets share of global GDP since 1980 can be explained by the rise in the share of global GDP of the emerging East Asian economies. With these economies currently about the only source of economic growth in the global economy, it isn’t likely to be too long before the emerging markets finally do cross the 50% threshhold.

Mar

9

Leaders as Readers (sequel)

Andrew Leigh | Leave a Comment

In a slight departure, my ABC Radio National Wryside Economics segment today had almost nothing to do with economics. Instead, I spent the time talking about the piece that Macgregor Duncan and I wrote on reading and political leadership. You can download it here.

Mar

9

Of lists and (competition) laws.

Stephen King | 1 Comment

Craig Emerson, the Minister for Competition Policy and Consumer Affairs  recently spoke about proposed reforms to franchising. See here. Most of the reforms are common sense and follow the recommendations of an expert panel. But one bit in particular struck me as incredibly sensible. When considering unconscionable conduct under the Trade Practices Act, and earlier recommendations of a Senate inquiry, Minister Emerson noted that:

The Senate Select Committee on Economics recommended that the Government consider whether a list of clear examples of behaviour which constitutes unconscionable conduct could be included in the Trade Practices Act.

The expert panel looked carefully at this recommendation but concluded that a list of examples would not help the understanding or implementation of the unconscionable conduct provisions.

Instead, the panel recommended that a set of principles be added to the Trade Practices Act.

The Minister has accepted this recommendation.

Fantastic! Lists are a crude tool that inevitably misses important exceptions. It is good to see that they will not be included in the Franchising Code of Conduct. However, last time I looked, there was still a ‘list’ approach in the Proposed Unfair Constracts Law. I have previously commented on the problems this creates.

So how about some consistency. Let’s avoid misleading ‘lists’ in both the Franchise laws and the unfair contract laws. Over to you Minister.

Mar

8

Parental leave: The Abbott thought

Joshua Gans | 7 Comments

With the parental leave policy slowed in implementation due to the non-recession, Tony Abbott decides to lob a thought bomb into that sphere. He wants to potentially move to full salary parental leave. In my opinion, unless the policy really gives both parents equal rights there are some dangers in this, but in reality his speech identifies several things that are true. First, the Federal government’s proposed approach (while a step forward) is piecemeal relative to what we see elsewhere. Second, his plan which is to levy big business rather than require businesses to foot the parental leave bill themselves is a better way to do this. Third, he seemed careful to avoid favouring one parent or another although the speech did make International Women’s Day so there is some ambiguity there.

That said, this is far from an actual policy commitment but it does move Abbott to the left of the government and not necessarily in a way that brings with it stupid economics (unlike other areas we could mention). Nonetheless, let me remind all that, if we are happy to use public funds, then parental leave tax credits may be a funding route with far better incentives and something that will improve outcomes for women in the labour market.

Mar

7

Is Apple being dumb or dangerous?

Joshua Gans | 8 Comments

Maybe, but not likely in the way Farhad Manjoo thinks. Apple has filed a suit against HTC for 20 or so patent infringements making good on a threat it made when the iPhone was announced in January 2007. Manjoo argues that software patents like this shouldn’t be granted although there seems a mix of software and hardware in the claim. He argues that the patents shouldn’t have been granted anyway because they are too far-reaching. Although if you look at the 20 patents, they are pretty specific and isn’t it the USPTOs job to make sure the claims are just that. Then he argues that the patents are not covering new technology as others had demonstrated similar things at the same time or earlier. Well, that one is easy for the Court to sort out and unless Apple is blind surely it would see that. The more likely thing is that those other technologies were not what was covered by the patent.

All of these are legal issues that both Apple and HTC’s legal advisors can easily evaluate. What is more, HTC could have looked at the patent applications and assessed the risks before launching their new phones. This is not something that has been kept secret. So everything about this suggests that this is the sort of dispute that won’t be that hard to sort out and unlikely requires a full re-writing of patent law in order to come to a decision. Everything points to settlement and little points to Apple stupid or something that will harm them.

Manjoo has one final claim: that this suit will distract Apple engineers away from making good products and towards legal stuff. There is at least one study that predicts that this might occur but that is a long way from a specific recommendation about Apple.

I think the broader issue — and it is far from clear that this case is about that — is that things that harm open flow of ideas in industries like this can impede the industry’s evolution in ways that harm consumers. The big concern is that this might set back HTC and more broadly, Google, in the development of Android. To react, they will have to recast their technologies to work around Apple’s patents and that this will take time. In the meantime, Google will notice that, we iPhone (and soon iPad) users rely on Google for all manner of stuff and it would be a big pain to switch to Microsoft or something like that. Google may choose to throw its hands up and start favouring Android more explicitly. That friction might also be a road to exclusivity in functions and content forcing consumers to choose not on which features are best but different groups that are available on different platforms. What a big pain that would be. The blogosphere reaction is akin to Rodney King, “can’t we all just get along.”

Put simply, no one wants to choose sides between two innovative companies. The worry is that this is all leading us down a path where we might have to do just that. In that world, our battles will be fought in the antitrust rather than intellectual property courts. Not a happy prospect.

Mar

4

Economics in one picture

Joshua Gans | 8 Comments

[From Gizmodo]

Mar

4

App Contest in Victoria

Joshua Gans | 1 Comment

It is quite gratifying to see the change in governmental attitudes in recent times over the prevision and freeing up of public data. The latest to make moves in this area is Victoria. The data available isn’t overwhelming but the change in attitude is worth applauding.

But even more fun they have launched an App My State contest to develop mobile and web apps for Victorians. You can submit ideas or apps for some weekly prizes.

Mar

3

Leaders as Readers

Andrew Leigh | 2 Comments

Macgregor Duncan and I have a piece out today in the Australian Literary Review, looking at what Australian politicians should and do read. Full text here, and results from our survey of federal politicians here. We had a lot of fun writing the piece (which ranges afield from my usual economics research), so I hope you’ll enjoy it.

We didn’t do as much as one could with the full dataset of pollies’ responses, so part of the reason for posting all our survey responses is the hope that others might analyse them a little further.

Mar

2

Mind the Gap?

Andrew Leigh | 3 Comments

My Tuesday AFR op-ed was on the economics of inequality. Full text here.

Mar

1

The spectrum opportunity and the NBN

Joshua Gans | 3 Comments

Richard Thaler discusses a proposal by Thomas Hazlett to have the US government earn $100b from spectrum reallocation and created 10 times that in economic value by discontinuing free to air spectrum use. It is the best spectrum and in the use appears to be completely inefficiently allocated given cable and internet proliferation.

The same message applies for Australia and will certainly be true post-NBN. Think of it, you build the NBN and then discontinue the free-to-air television spectrum and use the proceeds to ensure that everyone has basic broadband service so they can access television by that means. This would at least work for spectrum were 90% of the population who will have fibre passing their homes.

Of course, your reaction would be to tell me I’m dreaming. After all, the Government appears to be throwing money towards free-to-air TV to encourage its continuation rather than saying goodbye to it.

Feb

28

Sovereign debt contagion

Sam Wylie | 7 Comments

Comparisons between the contagion effects of  a default by Greece on its sovereign debt and the collapse of Lehman brothers are, in my opinion, not well informed.  Historically, contagion – where one collapse triggers another, has been a massive problem in banking crises, but has not been much associated with sovereign debt.  Try to think of an example where the default on one country’s debt has triggered the default of another country.  I can’t think of a single example. 

There isn’t any direct mechanism that links the debt of countries and makes one default cause another.  The current European situation is sometwhat unique in that the PIIGS share the same currency.  Nonetheless, what is the mechanism by which a Greek default would cause a Spanish default? Read more

Feb

28

Antitrust complaint as business strategy

Stephen King | 3 Comments

In the technology area, a worrying development is the increasing  (and increasingly blatant) use of antitrust laws as part of business strategy. If you can’t beat a competitor then just set the competition watchdog on them. One recent recipient of these attacks is Google. The instigator is Microsoft. An article is here.

Now, maybe Microsoft has legitimate competitive concerns – I do not have the details of their complaints so I cannot comment. But I am always suspicious when large and powerful firms make competition complaints against their (possibly just as large) competitors. After all, if you can distract your competitors with a nice legal inquiry or court case then that makes life just a bit easier for you in the market place – without having to do the hard things like innovating or  improving customer service. Antitrust authorities need to be cautious of such complaints and avoid being played as a competitive tool rather than a competition watchdog.

Feb

28

Philosophy and income inequality

Joshua Gans | 8 Comments

In a paper that is worthy of some blogosphere discussion, Greg Mankiw writes about “Spreading the Wealth Around: Reflections Inspired by Joe the Plumber.” The title initially gave me an “uh oh” feeling but the paper is a serious attempt to frame the political debate on taxation.

For starters, the title is a little inaccurate. The reflection is actually about Barack Obama who was responding the ‘Joe the Plumber’s’ question about Obama’s desire to tax the wealthy:

It’s not that I want to punish your success. I just want to make sure that everybody who is behind you, that they’ve got a chance at success, too…. I think when you spread the wealth around, it’s good for everybody.

This led to the question asked by Mankiw: “when is spreading the wealth around” a proper function of government? Put simply, if you need to raises taxes to meet government expenditure or debt, whose taxes should go up? Read more

Feb

27

Wayne’s amazing dream

Sam Wylie | 8 Comments

“Kev, Kev”  shouts Wayne as he bursts into Kev’s office.  ”Kev, I had the dream again last night.”

“Is that the dream where Paul says that you are greatest treasurer of all time?”  asks Kev without looking up.

“No, Kev, its the dream with all the cows — the thin ones and fat ones”  remembers Wayne.

“Oh yeah” says Kev “run that past me again.” Read more

Feb

27

Ruining Mike Siwek’s 15 minutes

Joshua Gans | 4 Comments

Mike Siwek is the poster-child of search engines. Why? Because, up until a few days ago, if you Googled, “mike siwek lawyer mi” it produced Mike Siwek’s web page as the first choice whereas if you Binged the same thing, you get a page about the NFL draft featuring lawyer Milloy. This was why Google was so far ahead of Bing according to this Wired article.

The problem is that the article itself put itself out of date. The Google result is now this page writing about the Wired article and the Bing result is a different one doing the same thing. The relevant result is now way down the page. So it’s all over for Mike. He is no longer the Google exemplar of quality.

Feb

25

What’s gone wrong with Washington?

Sam Wylie | 16 Comments

This week’s Economist poses the question “What’s gone wrong with Washington?” and also expresses puzzlement at President Obama’s inability to make progress on America’s most pressing problems.  The Economist’s view is that things are not really that bad — the constitution envisages a legislative branch in which super-majorities are required; but it would be good if there was less partisanship from all players including the President.

Mostly I agree, but I am less sanguine about the lack of progress on the biggest problems, which from my perspective are:  global warming; the broken banking system; out of control spending; and ineffective foreign policy.  This is a pivotal time and without high quality leadership the US will be in big trouble on all these fronts.  The blame for the problems in Washington lies with the American public.  In a democracy the people get the politicians that they deserve.  American voters have not punished partisan politicians, and they have not chosen effective leaders in recent presidential elections. Read more

Feb

24

Hot tip: bet one Aussie dollar each way.

Chris Lloyd | 22 Comments

At the one extreme we have exotic financial derivatives that no-one knows how to value as well as opaque bundles of high risk loans and low risk bonds that no-one knew how to value either. At the other extreme, we have the simplistic nonsense known as technical analysis that anyone can understand, but happens to be bollocks. No wonder the world financial system is such a ferrel beast.

Age write Lucy Battersby has produce this gem of an article, that spruiks the sage thoughts of Paul Ash, president of the Victorian chapter of the Australian Technical Analysts Association. It is all about the much-buffeted AUD.

It turns out that the Aussie went down for a while, then up, then down, then up a little bit, then down a tiny bit. This is clearly big news. But not one to take things at face value, Ms. Battersby notes that the Aussie is

at a moment of indecision that could see it continue downwards or climb and break though resistance.

Let’s rush straight out and put some money on it to……go up?… go down..? Hell, let’s just buy a Tatts ticket.

But it gets more specific (and consequently more wrong) as the article progresses. Mr. Ash claims that for the next day “it is critical if the AUD can spend 24 hours above 90 cents.” Like Uri Geller and John Edwards though, he never actually completes the prediction of what might happen after that. But he is clearly saying that Tuesday Feb 23 is critical. Forget any notion of EMH or martingales. The claim is that the value Vt of the aussie dollar satisfies the condition

 if inf{Vt:t ε Feb 23} > 0.90

then ∂EVt/∂t>0 ….. or perhaps ∂EVt/∂t<0. Take your pick.

Ms. Battersby then chimes in to describe technical analysis as

a search for patterns which not only “provides a theoretical basis” for traders but “removes sentiment and gut feeling” from trading.

The straw man strikes again. The only possible trading strategies apparently are pattern searching or gut feeling. Forget any research on the company you want to own. Someone tell Warren Buffet and his acolytes.

But I have been a little unfair to Mr. Ash in claiming that he never makes a prediction. He does actually come out with one towards the end. He says that if the AUD gets above the “non-confirmed resistance line” of 91.7 cents “then we would say with confidence that the AUD is on an upward trend.”

Anyone heard of a tautology? Since it is below 91.7 now, if it gets to 91.7 it will be on an upward trend. Gentlemen. Place your bets!

Hat tip to Mike Smith for slipping this article under my door.

Feb

22

Wryside on Gender and Competition

Andrew Leigh | Leave a Comment

My ABC Radio National ‘Wryside Economics’ segment tomorrow (Tue 23rd) will be on gender and competition, riffing off my AFR op-ed on this topic. Jane Caro is standing in for Richard Aedy (who has the flu this week), so you’ll be spared the spectacle of two blokes discussing gender.

If you miss it, the podcast should be up on the Life Matters website around lunchtime.

Feb

22

If you read one book this year …

Joshua Gans | 3 Comments

… make it The Checklist Manifesto by Atul Gawande. Gawande is the most celebrated medical writer in the US and somehow finds time to actually practice medicine. This book suggests that, in many professions, most notably the operating theatre, great things can come from developing and using checklists so that errors are minimised. The reaction should be: oh, come on. A checklist? Really?

But the book is convincing. Gawande was sceptical but study after study counted up lives saved and so he ended up pushing a wider adoption and then could identify actual instances where his own checklist had saved lives. You read the book and you start wondering whether you should use more checklists. I have actually started doing it and you really can avoid mistakes. I should probably do it for blog posts published here (but let’s not get crazy).

In any case, all I could think of while reading this book was that the Checklist is going to be the killer iPad App. You can download a checklist, check it and upload the record for all relevant people to see. It could impose quite some discipline especially if it could be tied with other performance data.

Feb

22

Publishing referee reports

Joshua Gans | 1 Comment

So stem cell researchers are calling for referee reports of published papers to themselves be published.

Stem celli biology is highly topical and is attracting great interest not only within the research community but also from politicians, patient groups and the general public. However, the standard of publications in the field is very variable. Papers that are scientifically flawed or comprise only modest technical increments often attract undue profile. At the same time publication of truly original findings may be delayed or rejected. At the recent EuroSyStem/EMBO Conference on Advances in Stem Cell Research there was much discussion about the peer review process. Peer review is the guardian of scientific legitimacy and should be both rigorous and constructive. Indeed most scientists spend considerable time and thought reviewing manuscripts. As authors we have all benefited from insightful referee reports that have improved our papers. We have also on occasion experienced unreasonable or obstructive reviews.

We suggest a simple step that would greatly improve transparency, fairness and accountability; when a paper is published, the reviews, response to reviews and associated editorial correspondence could be provided as Supplementary Information, while preserving anonymity of the referees. We note that this procedure has recently been adopted by The EMBO Journal. We wish to encourage other journals to follow suit and would like to hear your considered opinions.

This strikes me as a broadly sensible idea as it will put pressure on editors but also on referees. Even under the veil of anonymity, having your written word published does impose some discipline.

At the moment, our scientific dialogue in economics is kind of silly. We have a non-transparent set of negotiations over publication of the ‘finished work’ when the conversation is potentially equally important. We then have appendices confined to separate web repositories or links to working papers when surely space should not be the issue. Finally, we end the whole process on publication. What about allowing non-anonymous post-publication review? Given the now central role of Google Scholar in our lives, surely adding appendices, addenda, previous reviews and new reviews would all be a good idea. Let’s let the publication look more like a blog post with comments than some sort of ‘on the shelf’ book.

Alex Tabarrok worries that while pressure on editors is a good thing, it is hard to get people to take these jobs and this might discourage them. That seems weak. If something is good for performance, it is good for performance and we should consider it. In any case, I agree with him, that an experiment or to in economics might be a good idea.

Feb

20

Deficit Fetish

Mark Crosby | 11 Comments

For those who are worried about sovereign debt levels in Europe and the UK, there is a nice piece in the Economist magazine this week, titled “Domino Theory.” A view attributed to Krugman really is a worry…

Pessimists also fret about the sheer scale of America’s public borrowing and, especially, China’s role in funding it. … Nonsense, says the sanguine camp, whose members include Paul Krugman, a prominent New York Times columnist. In their view, those who fear a sudden rise in sovereign risk, particularly for America, misunderstand the reasons for the build-up of sovereign debt and underestimate the role of Treasuries as a safe haven. … On this view, America and Britain are better compared to Japan than to Greece. Japan’s public debt—almost 200% of GDP on a gross basis—has risen steadily in the two decades since its asset bubble burst. It is far higher than in any Anglo-Saxon economies. Despite several downgrades, Japan has not had a debt crisis.

Is anyone comforted by the comparison of Britain and the US with Japan? And do we really think that US households will happily stick their cash in near zero return government bonds as Japanese savers have done?

Feb

19

Budget Honesty

Mark Crosby | 7 Comments

When I get a chance I’ll write on the disastrous budgetary situations in Europe and the US. Raises the question of how Australia was able to avoid getting into such difficulty with high public debt levels. The economics literature on the politics of debt doesn’t seem that helpful, though some factors such as the extent to which voters are polarised do seem to play a role. A big part of the story is the quality of our leaders, who have (at least sometimes) been willing to introduce unpopular policies. Leaders who are willing to say “life wasn’t meant to be easy,” or “this is the recession we had to have” have been willing to make tough economic choices. Peter Costello inherited an economy in reasonable shape, and then got lucky to have the resources boom help him pay off our public debt. But to be fair to Costello, lots of Treasurers in other countries did not pay off debts when the opportunity was there. Another interesting issue is whether the Budget Honesty Act has been responsible for keeping governments honest? At the minimum the Act is not a bad thing, but I wonder if the Act could be tightened to be more specific about acceptable debt limits for the public sector so as to avoid the disasters that countries like the PIGS, the US, the UK, and others face. Here is the relevant part of the Charter of Budget Honesty Act, 1998, 

The principles of sound fiscal management

 (1)  The principles of sound fiscal management are that the Government is to:

         (a)  manage financial risks faced by the Commonwealth prudently, having regard to economic circumstances, including by maintaining Commonwealth general government debt at prudent levels; and

         (b)  ensure that its fiscal policy contributes:

                  (i)  to achieving adequate national saving; and

                 (ii)  to moderating cyclical fluctuations in economic activity, as appropriate, taking account of the economic risks facing the nation and the impact of those risks on the Government’s fiscal position; and

         (c)  pursue spending and taxing policies that are consistent with a reasonable degree of stability and predictability in the level of the tax burden; and

         (d)  maintain the integrity of the tax system; and

         (e)  ensure that its policy decisions have regard to their financial effects on future generations.

 (2)  The financial risks referred to in paragraph (1)(a) include risks such as:

         (a)  risks arising from excessive net debt; and

         (b)  commercial risks arising from ownership of public trading enterprises and public financial enterprises; and

         (c)  risks arising from erosion of the tax base; and

         (d)  risks arising from the management of assets and liabilities.