ELO Ratings

Baseball Prospectus today devotes a column to ELO ratings for baseball teams ($ reg.), after one of its writers stumbled upon ELO ratings for national soccer clubs. Since I had never stumbled on ELO ratings either for baseball or soccer, I found this very interesting.

The ELO rating system was developed as an alternative rating system for ranking chess players and has since been adapted as a method for ranking competitors in all sorts of situations. The system assigns a ranking to each player, which together produce the probability of a win by each player. Given ratings of Ra and Rb for competitors a and b, the probability of a win by player a is 1/(1+10^((Rb-Ra)/400)) and the probability of a win by player b is 1/(1+10^((Ra-Rb)/400)). Thus, if the two competitors have the same ratings, the probability of a win is 50% for each side.

The ratings are updated after each match, so that player a's new rating, Ra', is based on the outcome of the match and the expected outcome of the match:

Ra' = Ra + K(Actual Outcome - Expected Outcome)

For the soccer ratings referenced above, Actual Outcome = 1 for a win, .5 for a draw, and 0 for a loss and the expected outcome is the probability of winning based on the ex ante ratings. The "updating factor" K is varied based on the importance of the match in question and the margin of victory in the match (follow the link for details). The system also adjusts the win probability for home-field advantage. Nate Silver's baseball ELO system recalibrates the system for baseball teams.

The advantage of such a system is that it is easy to use to compare teams and accounts for strengths of schedule and more heavily weights recent performance, so it should give an accurate measure of the team/player's current abilities. This is especially useful for team sports, where the make-up of teams changes over time.

So, with all the background out of the way, what do the ELO ratings reveal? First, the baseball ratings, updated through Monday 6/26:

• The White Sox are baseball's best team (1573), closely followed by the Red Sox (1552), Mets (1549), and Tigers (1548).
• The Royals (1419) and Pirates (1437) bring up the rear.
• The Marlins are totally average (1500). [By convention, a ranking of 1500 is taken to be exactly average.]
• The best team at any point in the 2000s: the October 11, 2001 Oakland A's (1624)
• The worst team at any point in the 2000s: the September 23, 2003 Detroit Tigers (1335)
  
• The best "year-end" team in the 2000s: the 2004 Red Sox (1609), surely helped out by winning 8 straight to end the post-season.

What about soccer? Well, the quarterfinals are set, so here's what the odds should be, based on current ELO rankings:

• Argentina (1975) v. Germany (1946): Argentina 54.16% (giving Germany the 100 point home field advantage boost gives the edge to Germany at a 60.08% win probabilitity)
  
• Italy (1974) v. Ukraine (1788): Italy 74.47%
  
• England (1970) v. Portugal (1980): Portugal 51.44%
  
• Brasil (2075) v. France (1973): Brasil 64.27%

For comparison's sake, here's the current tradesports.com win probabilities, based on the assumption that the share price equals the expected win probabilities:

• Argentina (1975) v. Germany (1946): Germany 52.6%
  
• Italy (1974) v. Ukraine (1788): Italy 78.5%
  
• England (1970) v. Portugal (1980): England 59.5%
  
• Brasil (2075) v. France (1973): Brasil 69.7%

The tradesports difference is largest for England and Portugal, likely because tradesports knows that Portugal is down 2 players due to red cards received against Holland, while the ELO rankings does not know this.

Obvious Patents

The Supreme Court agreed to consider a case that hinges on the "obviousness" standard of patent law. The "obviousness" standard holds that an innovation that would be obvious to someone skilled in the relevent art is not patentable. The specific case, Teleflex v. KSR, focuses on the alleged infringement of a gas-pedal patent that Teleflex holds for cars and light trucks. KSR had originally had the case dismissed due to obviousness, but the U.S. Court of Appeals for the Federal Circuit overturned that ruling.

The thought is that the Supreme Court will likely downgrade the standard for obviousness, and hopefully provide a new metric by which to judge obviousness. Microsoft and Cisco have filed a brief in support of KSR (that is, in support of lowering the obviousness standard). My experiences would suggest that the large pharmacutical companies would be on Teleflex's side in this case, as they often extend patent coverage on drugs by using what one might reasonably consider "obvious" patents.

Now, a patenting a technology that is truly obvious is certainly not in the public good, but that doesn't mean that moving towards making it easier to invalidate a patent on obviousness grounds is a good thing. The question is whether the current standard allows too much leeway for obviousness already. I think it does, and hopefully the SC will come down with a better metric for judging obviousness.

This still doesn't solve the real problem in patent litigation, which is that the Markman standard leaves it to the judge to decide exactly what a patent covers (claim construction). The problem is that claim construction will often times essentially decide a case, and appeals on claim construction are not allowed until after the case has finished. This means that months/years of litigation expenses can be wasted when a Markman appeal succeeds. Because the claim construction is so vital to the case, everthing that followed the Markman ruling is a complete waste of time, effort, and money if the judge improperly reads the patent. (Actually, it now occurs to me that: Judge::Markman as Official::World Cup Match)

John Edwards on Poverty

Bob Hebert's op-ed (paid sub. req.) in today's NY Times focuses on former Senator (and VP candidate) John Edward's speech at the national press club. The speech is today, but Hebert obtained a copy of Edward's draft, which he apparently wrote himself.

Edwards (as he did in the 2002 campaign) is focusing his unofficial presidential campaign on a new war on poverty. He currently works as the director of the Center on Poverty, Work and Opportunity at the UNC-Chapel Hill. He is arguing for new measures meant to cut the number of Americans in poverty by 1/3 over the next ten years, focusing on increasing the minimum wage and making it easier for workers to unionize. These are classic Democratic ideals and policies. However, Edwards is also advocating revamping the nation's housing programs by introducing voucher programs, calling on Republicans to join him:

"If conservatives really believed in markets," he says, "they'd join us in a more radical and more sensible solution: creating one million more housing vouchers for working families over the next five years. Done right, vouchers can enable people to vote with their feet to demand safe communities with good schools."

Voucher systems for schools have been the subject of a lot of debate, but most economists would likely agree that giving people the ability to "vote with their feet" in the private market is likely to be more effective that government-run housing projects.

It's not that clear-cut, since subsidizing housing with vouchers is going to (a) raise housing prices even for those without vouchers and (b) distort spending/savings incentives, but this seems to be something to think about. And certainly, moving the political debate in the country away from arguing about who's more patriotic and to something that may actual mean something is something we should all be behind.

More Problems with Chinese Universities

In the New York Times. There doesn't seem to be the best university system in China, no? Here's an excerpt:

Shengda College in central China has a diverse curriculum, foreign faculty members to teach English and a manicured campus, where weeping willows shade a recreational lake.

But many students paid the college's rich tuition — at $2,500 a year one of the highest in China — primarily because Shengda promised that their diplomas would bear the name of its parent, Zhengzhou University, a more prestigious national-level institution, and not mention Shengda at all.

So when the graduating class of 2006 received diplomas that read "Zhengzhou University Shengda Economic, Trade and Management College," students erupted last Friday, ransacking classrooms and administrative offices, shattering car windows, scuffling with the police and staging one of the most prolonged student protests since the 1989 pro-democracy uprising that filled Tiananmen Square in central Beijing.

A popular sentence

I use all of the top 25 nouns in one (non-sensical) sentence:

This time, I'd like to point out to the world that it's a fact that a major problem with the way things are done these days (either by a man, woman, or child) is that at work, or any place that involves a company or the government, a person is likely to work on a number of different cases in a week, a month, or a year and a person in one of these groups is likely to spend a large part of her life using her hands and eyes to simply follow what is going on, rather than actually acomplish something.

Try it yourself. Here's the list:

time, person, year, way, day, thing, man, world, life, hand, part, child, eye, woman, place, work, week, case, point, government, company, number, group, problem, fact.

[Hat tip to Marginal Revolution.]

Media Ownership in the FCC sights

Yesterday the FCC launched a review into the ownership regulations for media, specifically the ban on cross-ownership of print and television media in the same market. (That is, currently the FCC does not allow a company to own both a television station and a newspaper in the same market.) The Republicans on the commission are seen to be in favor of lifting these restrictions, and chairman Kevin Martin has stated that this is a priority of his. The two Democrats on the commission, on the other hand, are opposed to it. From the wire report:

"Even under the old rules, consolidation grows, localism suffers and diversity dwindles," said FCC Commissioner Michael Copps, a Democrat. "If we make the wrong decision, our communities will suffer and our country will suffer."

Note that these concerns are very similar to the concerns/findings in the Oberholzer-Gee/Waldfogel paper I discussed in my last post.

I'm not sure where I stand; there's clearly going to be some efficiencies gained by cross-ownserhip, but at the same time, you're stiffling competition and promoting broad-ranging media conglomorates. And as Oberholzer-Gee and Waldfogel have shown, local ownership can have valuable social effects. I'm not sure how these trade off against each other, and I don't think anyone has taken a look at the whole picture and gotten precise estimates of what the actual trade-offs are.

Local Spanish News and Voter Turnout

A neat new working paper from Felix Oberholzer-Gee and Rob Waldfogel entitled Media Markets and Localism: Does Local News en Español Boost Hispanic Voter Turnout? has just been released. They point out that as regulators struggle with the decisions to allow national (and international) "control" of local media outlets, it is important to understand the different effects that local media have versus distant media. Using variation in the introduction of Hispanic news broadcasts in cities to test how local media affects people's civic engagement, they find that local media plays an important role in engaging voters. From the abstract:

In this paper, we exploit the rapid growth of Hispanic communities in the United States to test whether the presence of local television news affects local civic behavior. We find that Hispanic voter turnout increased by 5 to 10 percentage points, relative to non-Hispanic voter turnout, in markets where local Spanish-language television news became available. Thus, the tradeoff between integrated media markets and civic engagement is real, and our results provide a basis for the continued pursuit of regulatory policies that promote localism.

[A note: Oberholzer-Gee and Waldfogel have separately (with co-authors) analyzed music piracy's effect on sales and come to very different conclusions. But they agree here.]

More on Cheating

Slashdot links to a Reuters story on cheating in Chinese university entry exams:

With 9.5 million students competing for only 2.6 million vacancies, some universities installed cameras and mobile-phone blocking technology at exam halls to foil the cheats.
But students "racked their brains" and in some cases injured themselves with "low-quality devices" to come up with new ways to cheat, state media reported Tuesday, underlining the highly competitive nature of education in China.

What's surprising about this is not that students are willing to go to extreme measures to get into a college in China. (We've discussed this trend in the US recently.) Rather, it's surprising (shocking?) that there are 9.5 million students wanting to get into university and only 2.6 million spots. Wouldn't opening more universities solve this problem, while also providing education to those that want it?

Perhaps there is some reason why the Chinese government does not want their younger generation to be more college-educated. I can imagine that even in China universities would generally be allied with liberalism, and the government certainly might not want that. But with the boom in the Chinese economy and the technological shift that has accompanied it, don't they need a more and more educated workforce as their economy moves into the future?

More on Celebrity Baby Photos

I found this chart in US Weekly this week: (Who knew US Weekly actually had facts in it?)

Celebrity Couple	Baby/ies	Photo Sale Price	Date of Birth
Brad Pitt & Angelina Jolie	Shiloh	$4.1 million	May 27, 2006
Catherine Zeta-Jones & Michael Douglas	Dylan	$875,000	August 8, 2000
Britney Spears & Kevin Federline	Sean Preston	$500,000	September 14, 2005
Julia Robert & Danny Moder	Hazel & Phinnaeus	$100,000-$150,000	November 28, 2004
Gweyneth Paltrow & Chris Martin	Apple	$125,000	May 14, 2004

There are two outliers here, as Dylan Douglas is an outlier in time (August of 2000) which is really early on and seems to be above their relative celebirty/paparazzi interest level. Though it is apparently not, since their wedding photos sold for $1.6 million. This list is obviously not complete, so I wonder if their relationship more or less coincided with the start of this excess. (I know picture of Princess Di and Dodi Fayed were going for huge amounts before their deaths in 1997, but I don't remember anything about high priced photos of Paula Abdul and Emilo Estevez...) The other outlier, of course, is the "Brangelina" baby, whose sale price is unprecedented.

My good friend Bryce has posted about the absurdity of the celebrity photo market in the past, and the actions taken by Brad Pitt & Angelina Jolie essentially follow his recommendations. They stayed secluded to ensure no access by paparazzi, took their own pictures, and sold them to the highest bidder. As a result, they raised millions of dollars (for charity) and greatly damaged the market for pictures of them and their baby. Of course, pictures of them are still valuable, but far less so than they would be if they hadn't released the pictures of Shiloh, and probably not much more so than the level to which they are accustomed.

A Unique Candidate for Fed Chair

Greg Mankiw makes an inspired choice.

Uniform Pricing

Slashdot links to a Variety article discussing iTunes' desire to use a flat-rate pricing scheme, like the ones for digital music, for sales of movies ($9.99 each). It seems the industry is looking for tiered pricing, like the one for DVD pricing claiming that they "can't be put in a position where we lose the ability to price our most popular content higher than less popular stuff."

There's been a bunch of debate as to whether iTunes' uniform-pricing scheme makes sense for music, and basically the same arguments would fit here. I've discussed this before. It seems to make sense only as a marketing ploy; other reasons that might be used to support uniform-pricing don't seem to hold water. The other point worth noting is that the argument between the MPAA and Apple is not about $9.99/each versus $5-$15/each, but rather $9.99/each versus $10-$20/each. So it's not just a disagreement about the tiering of pricing, but also the level of pricing.

Of course, another form of movie sales uses uniform pricing: theater-going. This is also a peculiar instiution; Barak Orbach and Liran Einav take a stab at explaining that pricing scheme as a result of the "peculiar veritical integration" that exists in film distribution.

A Lesson in Sunk Costs

The Arizona Diamondbacks seem to be one of the only baseball teams to understand what a sunk cost is. Major league teams routinely keep players on their active rosters not because they are the best available players, but rather because they are paying them lots of money. This usually happens when a player is signed to a long-term deal, with lots of money at the end of contract coinciding with the player's decline. But teams are loathe to cut these players loose, usually giving some sort of reason that they are "paying them too much not to play them" or some nonsense like that. This is nonsense, of course, because due to the guaranteed nature of baseball contracts, the team must pay the player no matter if he plays or not. Thus the money owed to the player is a sunk cost, and if there is a better option available, the money owed to the old, aging, bad player should not enter the decision.

However, yesterday the Diamondbacks (run by former Red Sox assistant GM Josh Byrnes) realized that Russ Ortiz's contract was a sunk cost, that he was not performing anywhere near an acceptable level, and that they had better internal options. So they took the (obvious but rare) step of dumping Ortiz and the more than $20 million still owed to him through 2008.

Ortiz had put up the following line since signing a four-year, $33 million contract with Arizona in the 2004-2005 off-season. (Note that Byrnes was not the general manager who signed Ortiz.) Since signing with Arizona, he won 5 games in 2005 (with 11 losses) and a 6.89 ERA, and followed that up with an 0-5 record in six starts this season, along with a 7.54 ERA. The Ortiz signing was widely criticized when it happened, and it's good to see the Diamondbacks cut the mistake loose. With Arizona tied for first place in a wide-open NL West division, every start they would have wasted on Ortiz would have had the potential to cause them to miss the play-offs. Realizing that the money was sunk and that they had a better chance to make the play-offs with another starter was a positive move for the D-Backs, and a rare display of marginal thinking by a baseball front office.

Photo Piracy

Everyone knows how big an issue piracy has become for music and movies. But it seems now that the same sort of cheap, easy reproduction of files is causing problems for high-revenue photographs.

What kind of photographs are high-revenue? Well, these ones, obviously, for which People magazine paid $4.1 million. The New York Times details how pirated copies of the Jolie-Pitt baby photos were appearing online before the magazine hit the stands, thus upsetting People Magazine's planned marketing strategy. Several websites carried the scanned photos, obtained from various sources, days before the magazine hit the stands.

Of course, just as with music and movies, there are people who are arguing that the appearance of the photos online may actually spur sales of the issue (whose price was 50 cents higher than normal on newsstands). The Times quotes one magazine analyst (how does one get that job?) as saying "(i)t just creates more buzz, more noise, so more people will buy the magazine." Not everyone feels that way, and not just at People. The editor of one of the online sites that posted the pictures disagrees, saying "a few less people are going to buy it if they can see it online."

There's no way to test out who's right, of course, but there are elements to truth in both statements. Seeing the pictures online will certainly stop some people from searching them out online (though they may largely be the same people who would have flipped through the magazine to see them, and not bought it) but it will also create a lot of buzz, which may bring in new customers who (somehow) might have missed on all the hype.

Two other things of note from the article:

1. Apparently Hello! magazine purchased the British rights for $3.5 million. People paid $4.1 million for North American rights. The U.S. has a population of nearly 300 million, while Britain has a population of about 60 million. So People paid 1.4 cents per potential customer, while Hello! paid 5.8 cents per potential customer. The Brits really do love their gossip...
2. The article suggests that the magazine may sell as many as five million copies, and reports the circulation over last year as 3.7 million. So that's 1.3 extra million magazines at $4 a pop. Let's guess that it costs $2 to print and ship an extra copy of the magazine. (That cost would include all the paper, ink, and facilities, and should probably also include some guess at the fraction of printings that don't sell and they must buy back from vendors- I have no idea, so this is a complete guess, but it seems reasonable to me.) That's a profit increase of $2.6 million in extra sales, plus assume (again, wild guess) that half to two-thirds of the regular sales base is newsstand based, so there's an extra 50 cents for each of those copies. That's close to another $1 million. So, given that these guesses are wild guess meant to be conservative, it looks like they are close to making their money back in the short run; there is clearly a long-run strategy here as well, as evidenced by this section from the article quoting People's managing editor:

   But in the long term, People wants to reaffirm that it is the place where these kinds of high-profile photos will appear. "I would not want to give Us Weekly or any other magazine the kind of traction in this arena," Mr. Hackett said.

Last Gas(p)

Bryce finishes his argument.

I'll let it lie. We disagree. I don't see the market failure, and reasonable people can agree to disagree. But I'll leave it with one final thought:

People in Oregon have rejected changing the law, as have the people of New Jersey. They clearly think the law is good, even though they surely haven't thought about it as much as we have over the past couple of days. In the other 48 states you can pump your gas yourself. I don't think voters in any of those states would vote for a measure banning self-serve gas. I also don't think there is anything special about people in Oregon (sorry Bryce) or New Jersey.

I'm not sure what that means, but someone is wrong. Either people in OR and NJ, people outside of OR and NJ, or me (for thinking there's nothing different about people in OR and NJ). Take your pick.

iPods are (Weakly) Better than Beer

According to college students.

UPDATE: It's been pointed out that the difference is not statistically significant. So, I've adjusted the title of the post.

More on Self-Serve Gas

Here we go again. The Social Econ blog continues our discussion of laws that restrict gas stations to be full-serve. To recap:

1. Social Econ Blog (+ comments)
2. Here
3. Social Econ Blog

From the most recent reply:

They essentially assume that because producers are better off, the market (and society) are better off.

This is silly. One of the first things we teach undergraduates in economics is that producers following their self-interest do not always produce the efficient market outcome.

That's not really the argument, but no argument here on the second point. The single biggest principle in economics is that what the market delivers is the best possible, in the absense of any market failures. We see that most gas stations in states that allow self-service are self-service. (Again, the only numbers I could find was that outside of NJ and OR, 93% of people use self-service.) So, if we think that this is not socially optimal, then what is the relevant market failure here?

Personally, I see no candidate market failure in this case. To the extent that self-control with respect to what you buy at convenience stores is the market failure, I've already said that I think that restricted gas-pumping choice is a sub-optimal way to deal with that problem. Reading the most recent post at the Social Econ blog, these are the candidates I see there:

1. An agency problem (i.e. "b" is small in his model). This doesn't seem plausible to me, because those who pump gas are unlikely to have enough market power to demand a large share of the pie. This is basically a minimum-wage job and even the two to five cents a gallon premium for full-service gas adds up very quickly over a lot of gas sold.
2. The gains to gas station owners from self-serve customers buying at a convenience store is just a transfer away from some other convenience store owner who doesn't sell gas. I disagree. It's not just a transfer; if people decide to buy at the gas station, it means either that (a) the gas station charges lower prices or (b) they don't, but consumers save time by shopping at one location only. Nothing is forcing them to do so.

Of course, it isn't truly a competitive marketplace, so there are some failures (fixed costs of entry, exclusive supply contracts, etc) in the market for gasoline. But, I really don't see any for how gas is supplied once stations have it. I won't go so far as to say that it is impossible that Oregon's and New Jersey's laws aren't socially optimal; anything is possible. However, I still fail to see any compelling argument that there is some significant and real market failure here that legislation needs to correct.

One other thing: to the extent that convenience stores were once a good idea because self-service stations make people go inside to pay so they buy other stuff implusively, that is less and less the case. There's no data I can get on it, but I'm sure that a very significant fraction of gas purchases now take place through electronic means at the pump, and therefore, there is less and less difference in the appeal of a convenience store at self- and full-service stations. If you pay electronically, you needn't go inside in either case. Of course, you do need to get out of your car to pump gas, so there's still some extra appeal, even if you pay electronically.

It's likely the case that neither of us will convince the other. But if anyone can convince me that either of those two possible market failures above are real and stronger than I think, or there's something else I'm missing, I'm happy to hear it.

Another Reason for High Concert Ticket Prices

A class-action lawsuit filed last week in Denver federal court accuses Clear Channel Communications, the nation's largest radio broadcaster, with violations of US anti-trust laws that lead to reduced competition and increased concert ticket prices. According to Reuters:

According to court papers, the suit accuses the defendants of breaking the law by limiting radio airtime for musicians who used competing concert promoters and inflating musicians' fees, "in some cases more than 100 percent of gross sales, in order to exclude competitors from the market."

The AP adds thats the suit also alleges that Clear Channel denied advertising opportunities from other concert promoters and/or charged extremely high prices for poor ad slots. Clear Channel's former promotional subsidiary, Live Nation, is also named in the suit.

Personally, I don't think this could have had much of an effect on concert prices (even if CCC engaged in anti-competitive practices) because concerts from different bands are not really very good substitutes for each other, and competition among concerts from different bands therefore doesn't seem like a good reason for ticket prices to have been so low. (That is, when there is excess demand for your tickets, you don't face any effective competition anyway, so this can't really explain recent trends.)

Self-Service Gas Stations

Over at the Social Econ blog, my good friend Bryce brings up the issue of full-service gas station laws, which was raised in a typically hilarious piece from Ed Helms last night on The Daily Show. (Here's a link to Ed Helms' bits. The gas-law one is entitled "Pump My Ride.") The piece focused on pending legislation in New Jersey to allow self-service stations; currently New Jersey and Oregon are the only states in the nation that mandate full-service stations (i.e. you can not pump your own gas, even if you want to do so).

We've had many debates about this. I can not understand how restricting choice on this issue can possibly be to the social good; Bryce disagrees. As a native Oregonian, he's pro-full-service law, and he lays out his argument in his post. (Interestingly, in Oregon it is legal to pump your own diesel gas.)

Some points:

1. According to a recent FTC report on gasoline pricing and a letter from the GAO to Oregon Senator Gordon Smith, the ban on self-service stations adds two to five cents per gallon to the cost of gasoline. (See page 113.)
2. Strangely, the same FTC report seems to indicate that motorcycle operators can pump gas in Oregon. (See footnote 28.)
3. Oregon consumed 4.2 million gallons of gasoline per day in 2002, and New Jersey consumed 11.1 million gallons per day in 2002. If we assume no elasticity, then a 2.5 cent per gallon effect of the full-service laws would mean $38 million/year in Oregon and $101 million/year in New Jersey. That's a lot of money.
   

Now, what about bundled goods? Bryce argues that even if people prefer to pay a little extra for full service, they can't get it because gas stations instead offer self-service plus a convenience store. And they do this because it is more profitable to get people to come into the store and buy chips, sodas, candy, etc. This strikes me as just an end-around that ends up back at the "if people wanted it, the market would provide it" argument it is meant to defeat.

Let's say that what Bryce says is true; we see very few full-service stations because of this bundling effect. Doesn't this just reveal that people prefer self-service + candy & soda to full-service at slightly higher prices? The only way it doesn't is if we think that people are systematically making mistakes. [This may be. Maybe Oregonians know that they won't be able to resist buying soda and candy so they vote to ban self-serve stations. We should be able to see if they are thinner than average or something like that as evidence of their ability to legislate around such problems. Of course, this is certainly not true of New Jersey, so maybe not...]

Unfortunately, I can not find any data on the relative abundance of self-serve versus full-serve gas stations across the country. So it's hard to argue about how many full-serve stations there would be in the absence of Oregon's or New Jersey's law. The closest I could get was this article that says that 93% of people use self-service in the other 48 states. Of course, it doesn't say what fraction of the 93% would like to use full-service.

But I still just don't see the real market imperfection that requires government intervention like this. Bryce seems to imply that the sales at gas-station convenience stores are something we should legislate around in order to maintain full-serve stations ("it only takes a small fraction of people succumbing to the allure of convenient sugar, fat, nicotine, and gambling to make it worthwhile to force everyone to get out of their cars"), but I disagree. If we think that people buy too much of this stuff, fine, let's give it the ole' Pigouvian tax, but let me pump my own gas.

More on SIRA

Well, I'm not a lawyer, so maybe I've misread some of what is exactly in the proposed SIRA bill. Here's the take of the Electronic Freedom Foundation (EFF):

This license specifically includes and treats as license-able "incidental reproductions...including cached, network, and RAM buffer reproductions." By smuggling this language into the Copyright Act, the copyright industries are stacking the deck for future fights against other digital technologies that depend on making incidental copies

My understanding was that it was doing so, but granting them a blanket, royalty-free license. That doesn't seem to be the case, rather the license on these incidental (intermediate) copies would be set by the Copyright Royalty Board, which may or may not decide to set a rate of zero. So what's the deal with the royalty-free license? Again, from the EFF:

What's more, the act creates a second, royalty-free compulsory license that applies to incidental copies for noninteractive streaming, subject to an important condition: the music service may not take "affirmative steps to authorize, enable, cause, or induce the making of reproductions of music works by or for end-users." Like the PERFORM Act, this would erode lawful home recording.

The EFF also thinks that some of the wording in the act is likely to bolster the RIAA's case against XM radio. So it seems like I need to adjust my thinking a little. Still, it seems like the danger of SIRA is not in its effects on current technologies, but that it would create the precendent to make future technologies license-able in bizarre ways.

Section 115 Reform Act (SIRA) of 2006

Congress is currently ready to consider the Section 115 Reform Act of 2006 (SIRA), as a way to ammend the current copyright code to adapt to the realities of the current marketplace, which as we all know has been dramatically transformed by the dominance of digital transmission of audio recordings. The U.S. Copyright office has recently filed a statement with the House Subcommittee on Courts, the Internet, and Intellectual Property.

They are generally in favor of the bill:

First, by simply filing one license application—or in the case of multiple designated agents or a change in digital uses, a limited number of applications—a legitimate music service can obtain a license to utilize all musical works⁽⁴⁾ in the digital environment, rather than having to locate the various copyright owners of those works and clear the rights with each of them. Requiring the license to be available to all comers and deeming it to be automatically granted upon the filing of a proper application makes this licensing processing as instantaneous as possible.

...

Second, the proposed blanket license covers all intermediate copies (e.g., server, cache and buffer copies) necessary to facilitate the digital delivery of music and applies to streaming and limited downloads.⁽⁵⁾ Presently, there exists much confusion and controversy as to whether these copies and uses must be separately licensed, which the Office understands can result in protracted negotiations and delays. By resolving these issues, the SIRA clears the way for the legitimate music services to focus on rapidly delivering music to the consuming public and developing new technologies to make delivery even faster, regardless of whether such technologies involve additional intermediate copies or not.

This is good. Any debates about the need to licence "cache and buffer copies" is absurd, as these copies do nothing more than facilitate transmission of the work. For those who don't know, cached and buffered copies are the files/datastreams that you receive when listening to a "live" recording over the internet. That is, they are the files that are used to listen to something that you can't save, duplicate, or play later. Without such adjustments to the code, a conclusion could be reached by music industry groups or courts that would mandate multiple royalty payments for a single "listen." Payment would be required for the initial transmission from the source, another from your local server/cache, and another for the temporary internet file stored on your machine while you listen.

The Copyright office is aware of this:

Additionally, we note that the SIRA resolves complaints by online music services about what they characterize as “double-dipping” in one context, providing for a royalty-free license for intermediate copies in the context of noninteractive streaming, but does not resolve other situations involving arguably duplicative payments demanded by copyright holders’ representatives for both the performance as well as the reproduction and distribution rights when a musical work is delivered by a mechanism which is not clearly solely a distribution or a performance. Although these other situations involve important issues, it is not necessary to resolve them at this time to make the SIRA an effective piece of legislation. Its absence from the SIRA may even prompt the interested parties to resolve it on their own.

It's clear that paying for these rights is simply charging twice for the same thing. These intermediate copies do nothing but facilitate transfer, and attaching a second fee to them would only create perverse incentives for transmission methods; it's better to change only a single fee for the use. However, applying a blanket, royalty-free license creates an unnecessary administrative layer, which ultimately provides no service and just creates costs for everyone involved. A much better solution would be to provide a blanket exemption for these copies, which would make them legally available at the same cost (zero), but without a completely unnecessary layer of costs to all involved.

The Copyright Office agrees:

However, we believe that a less burdensome and equally effective approach would be to grant a statutory exemption for this activity. Establishing an administrative apparatus and charging an administrative fee for the issuance of a royalty-free license would offer little or no benefit over an exemption, while creating costs and burdens for both licensees and the designated agent.

We'll see if Congress does too.

Competition is Good

This is a good start:

Google Inc. will introduce a spreadsheet program Tuesday, continuing the Internet search leader's expansion into territory long dominated by Microsoft Corp.

Although it's still considered a work in progress, Google's online spreadsheet will offer consumers and businesses a free alternative to Microsoft's Excel application - a product typically sold as part of the Office software suite that has been a steady moneymaker for years.

The Google spreadsheet will be focused on making it easy to share the spreadsheet's output among multiple users, and at least now is not aimed as a serious competitor to Excel. Still, a little competition can't hurt, even if it comes from another 800-lb. gorilla.

The Sports Economist

A nice blog that is new to me.

Here's an interesting post regarding soccer statistics, which suggests that increased tracking of player's locations on the field may have resulted in player's spending more time running than in the past.

Captain Copyright

This is interesting. A Canadian copyright agency, access copyright, has developed a superhero to help teach kids about the importance of copyrights. Their creation: Captain Copyright, a green and white superhero. Captain Copyright teaches kids all about Canadian copyright law in a series of comic books and teaching materials. The website has a section for kids and one for teachers.

Captain Copyright has been the ire of some internet talk (slashdot, boing boing), due to opinions that he looks a lot like other superheros and that the site seems to have "borrowed" some text from Wikipedia.

A perusal of the site's IP notice goes to show that Captain Copyright is serious about his IP protection: (just to be clear, both of these are quoted from the Captain Copyright site)

Permission is expressly granted to any person who wishes to place a link in his or her own website to www.accesscopyright.ca or any of its pages with the following exception: permission to link is explicitly withheld from any website the contents of which may, in the opinion of the Access Copyright, be damaging or cause harm to the reputation of Access Copyright.

and

iv. You are not permitted to copy or cut from any page or its HTML source code to the Windows™ clipboard (or equivalent on other platforms) onto any other website.

Is it actually legal in Canada to deny permission to link to a website? It seems like the legal ground for that claim is probably pretty shaky.

(h/t to this link)

ETA: Thanks to a commentor, we have our answer. This is not surprising. I wonder how long Captain Copyright will be around....

The Estate Tax Debate

The estate tax debate is back, with the Senate ready to consider a repeal again, and I find myself agreeing with both Greg Mankiw and Paul Krugman, despite their opposing views.

Here's Krugman's bottom line:

In the interest of stiffening those spines, let me remind senators that this isn't just a fiscal issue, it's also a moral issue. Congress has already declared that the budget deficit is serious enough to warrant depriving children of health care; how can it now say that it's worth enlarging the deficit to give Paris Hilton a tax break?

Here's Mankiw's:

In the past, I have made the case for estate tax repeal on the grounds of (believe it or not) fairness. Here is the argument:

Consider the story of twin brothers – Spendthrift Sam and Frugal Frank. Each starts a dot-com after college and sells the business a few years later, accumulating a $10 million nest egg. Sam then lives the high life, enjoying expensive vacations and throwing lavish parties. Frank, meanwhile, lives more modestly. He keeps his fortune invested in the economy, where it finances capital accumulation, new technologies, and economic growth. He wants to leave most of his money to his children, grandchildren, nephews, and nieces.

Now ask yourself: Which millionaire should pay higher taxes?... What principle of social justice says that Frank should be penalized for his frugality? None that I know of.

What's missing here is that they are not talking the same language. Mankiw is discussing an estate tax in the abstract, absent any budget considerations. Krugman is addressing the repeal of the estate tax in light of rising deficits.

I find myself agreeing with both of them. An estate tax punishes those who save and invest; I don't like that. In a vacuum, I'd rather have consumption taxes. However, it's not that way. We cut benefits to the poor and elderly in order to "defeat" the deficit, but also want to repeal a highly progressive tax? That's not ok. I'll take a repeal of the estate tax if we counter it with a tax increase that also falls on the rich. Otherwise, we're just continuing to "starve the beast."

Where's the Beef?

In March, Argentina's president Nestor Kirchner imposed a ban on beef exports from Argentina, which was $1.4 billion business in 2005. (Argentina's GDP in 2005 was $182 billion based on exchange rates, and $518.1 billion in PPP, so this is big business.) Kirchner's fear had been that rising international beef prices was going to push domestic prices so high that beef would become unaffordable to average Argentines.

This is not an unreasonable fear, as beef makes up 4.5% of the Argentina CPI, making it the single most important component of the index, even more important than housing costs. (In the US, beef makes up 0.64% of the CPI.) Rising beef prices have been cited as a primary reason for the jump in inflation in Argentina from 6.1% in 2004 to 12.3% in 2005, as beef prices rose by 29% in 2005.

Of course, if the weighting on beef prices is 4.5% and beef prices rose by 29%, that can account for 1.3% of the 6.2 percentage-point increase in inflation, or 21% of the increase. That's a big number, but hardly the driving force behind rising inflation in Argentina. And since the beef ban, the price index in Argentina has risen from 172.8 in Feb '06 to 176.58 in April '06, a 2.2% increase in 2 months, which equals an annualized rate of 13.9%. So the beef ban doesn't seem to have done much to reduce inflation, although beef prices have apparently stabilized (livestock prices seem to have fallen by around 20%, according to various sources).

So, what has the ban accomplished?

OK, domestic beef prices have stabalized, and if you are an Argentine consumer, that's good. But one of the first things you learn in Econ 101 is that if closing off trade helps consumers, it's going to hurt producers and by a lot more than it help consumers. (Probably, you remember that opening trade leads to winners and losers, and that "the gain to the winners outweighs the loss to the losers.") So what about the beef industry in Argentina, which we've already shown is a huge sector of the Argentine economy?

Well, again going back to Econ 101, we should expect that (a) output falls (even if domestic production goes up somewhat) and (b) profits fall. I couldn't get my hands on any good monthly production #s, but here's what the beef producers had to say when the ban was implemented: (from Bloomberg)

Beef exports may tumble by about $1 billion this year because of the ban, or two-thirds of last year's total, and 30,000 people may lose their jobs, said Mario Ravettino, executive director of the Argentine Beef Consortium, which includes 17 slaughterhouses that handle 80 percent of the country's total beef exports.

"This is like telling a baker he cannot sell more bread,'' Ravettino said. ``Each one of our companies is expected to be forced to shut down.''

and

"The measure is a monumental mistake,'' said de Leon Bellocq, 57. ``In the long term this means less supply of beef. We may not have enough to supply the domestic market.''

And here is a more recent quote:

"This is a good step that hopefully will lead to the recovery of markets lost during the ban," said Javier Martinez del Valle, director of the Argentine Beef Consortium. "The ban was leading to a drop in output as it had become unprofitable."

And wht about the long-run effects? There's a problem here, not unlike that of deciding whether or not to default on debt. If you demonstrate that when things get a little messy, you'll abandon free-market principles, the world is not going to line up to invest themselves with you economically. And Argentine beef producers know this. This is from shortly after the ban was instituted:

"It's a totally disproportionate response to the problem of price increases,'' Javier Martinez del Valle, 44, director of the Argentine Association of Producers and Exporters, said in an interview. "Even if exports reopen at some point, it will be very difficult for Argentina to recover the confidence of markets.''

This is a disasterous plan, and while it has served to ease the increase in beef prices in Argentina in the short run, it is clearly not going to achieve its goals in the long run. Rather, it will lead to major contraction in beef production in Argentina and will severely hurt the producers in one of Argentina's most important economic sectors. Kirchner and his economic team simply decided that they didn't like the international price, so they closed it off, hoping that they'd like the domestic price better, without considering the basic economics of the situation (or hoping that basic economics was wrong). Generally, that does not work out too well.

Fortunately, Kirchner has recently moved to ease the ban, in light of growing protests from industry leaders and the threat of a more general strike. Argentina will now allow exports between June 1 and Nov 30 at 40% of the level of exports during the same period last year. My hope is that this plan is a way to ease away from the move without admitting that it was a big mistake and that before long the 40% restriction will be removed and the Nov 30 end date will simply disappear.

More on Internships

In my previous post on unpaid internships, I highlighted a couple of points raised in a NY Times op-ed that has taken a bit of a beating in the blogosphere.

I just want to be sure to clarify that I am not on the side of eliminating unpaid internships. But as someone who has never had an internship, paid or unpaid, (or an intern for that matter), the issues of how low paid or unpaid internships (a) affect the market for "real" jobs and (b) affect the distribution of opportunities for students had never really occurred to me.

The costs associated with the points are real and I don't think any economist would argue that. But how big are they? That, I think, we don't know. My gut is that they are not that large (since there are not that many internships out there). But it seems like a labor economist could get a good line of research out of investigate the costs (and benefits) here.

One thing I think is clear: if we decide that internships are on net a good thing, then it would be a good thing to get programs together (like Dartmouth's and Brown's) to provide financial assistence to those students who could otherwise not afford to take them. If there really is an advantage there, let's not feed them (disproportionately, at least) to those that are already advantaged.

No Longer a "One Disk Country"

China has long been considered a "one disk country," a country where only one legal copy of a software program had to appear in order for it to spread to users everywhere. Software companies had always tended to put up with this, as the Chinese technology market was relatively small for a long time, and it was seen as too costly to fight (especially since there may well be some benefits to having people use your software, even if they don't pay for it).

But not anymore. The New York Times highlights China's increasing push to curb piracy at legitamize its technology based industries. Apparently, China has recently pushed legislation that requires all computers sold to ship with a licensed operating system. According to the article, in the past it was common for Chinese manufacturers to ship systems with DOS or Linux that users would then immediately replace with pirated versions of Windows bought for little more than a dollar (60 yuan). Microsoft sells legitimate copies of Windows for 600 yuan, or about $75.

Software piracy in China has never much impacted the US market, if for no other reason than because lots of pirated software in China is in Chinese. (I'm all for a cheaper version of Windows, but if it's in Mandarin, it's not going to help me very much.) But now the Chinese market is growing so fast, and is already so large, that the lack of property rights there may eventually start to stiffle innovation.

As it stands now, most software we use has been developed for US users and then brought over to China and other markets, but at the rate China is growing, the point where incentives in the Chinese market start to drive software innovation may not be far off. And if that's the case, then getting stronger property rights over there may benefit all of us, not just those of us lucky enough to be Microsoft stock holders.

Of course, maybe that will never happen and US market demands will continue to be what drives the software options we have. In that case, this is all much ado about nothing. Whether Microsoft collects profits from China or not, we're going to see the same software options at the same price; it's just the Chinese will be paying more for it and Microsoft shareholders will have a little more pocket change. [Keep in mind that once developed, producing another copy of a program is virtually zero cost, so unless enforcing anti-piracy laws in China helps to spur innovation in software, the losses to Chinese consumers will be larger than the gains to the software makers.]

Wow

Steve Levitt posts about some amazing happenings at the sociology journal, Sociological Methodology, where apparently an editor has been harassed by a scholar opposed to some of his editorial decisions. In particular, it seems that this scholar is upset at the publication of an article (articles?) that are opposed to his own research.

Definately go and read the Freakonomics post and the excerpt Levitt includes. It's really just incredible. Though I guess we shouldn't really be surprised; academics have cheated and forged data to get ahead (there are big returns to doing so), so it's not much of a logical leap to get to some levels of physical intimidation and lawsuits. Of course, it's likely harder to get caught forging results than physically intimidating a referee.

UPDATE: For convenience, here's the report:

Sociological Methodology

Your editor reports a year of drama and success in preparation of his final volume of Sociological Methodology. This year will see the publication a wide variety of articles in Sociological Methodology, on topics ranging from cohort analysis to the safety of interviewers and field researchers. I have tried to broaden the scope of articles published in Sociological Methodology, and to improve the appearance of the book. I hope that my efforts have been successful. Editing Sociological Methodology has been a satisfying experience, and sometimes a pleasure. I am grateful to have had the opportunity to do so. I offer my thanks and praise to managing editor Ray Weathers, the editorial board of Sociological Methodology, the ASA for its support, the Publications Committee of the ASA for its extraordinary and generous support, and Craig Coelen, president of NORC, for providing resources that were essential to my work as editor.

This has been a year punctuated by drama. Your editor seems to have encountered once again a small, previously unrecognized, nascent social movement that he calls the Thin-Skinned Scholar Movement (TSSM). TSSM serves the needs of scholars who object to publication of opinions that contradict their own. Your editor believes that the goals of TSSM are misguided, as his own professional fortunes have been advanced by the publication of debates about his own research. More important, disagreement is fundamental to scholarship, making the suppression of disagreements a fundamental violation of the purpose for which Sociological Methodology is published. Indeed; every paper published in Sociological Methodology includes clear statements of dissatisfaction with previous studies; it is this dissatisfaction with previous work that motivates and justifies the production and publication of new contributions.

Your editor is deeply distressed by the style of the TSSM. In particular, consider the following incident: Several weeks ago, I encountered a thin-skinned scholar, who was driving in his car as I walked to my own car in a parking lot. Apparently unimpressed by the writings of Miss Manners, this scholar opened his car window, loudly and repeatedly declared strong views about the composition of my head and the phylum in which I should be classified, and rapidly drove his car so close to me that it did, on the third such maneuver, brush against my pants. I wonder still, is this thin-skinned scholar just a talented and kind-hearted stunt-driver with unusual ideas about parking? Or does he reveal true malice, a will to evoke fear and a willingness to use his car to damage a pedestrian? These are questions that I cannot answer. But answers are suggested by his emailed statement (with copies to others) that he would be pleased to see my body lifeless and in pieces. More to the point, these are questions that no editor should have to consider. This thinskinned scholar has wasted great volumes of an editor’s time and effort, reviled the editor in numerous hostile email letters (with copies sent to a variety of others), delayed publication of Sociological Methodology, wasted hours of time by talented and highly-paid lawyers, and badly strained relations between an editor who sought to uphold the principles under which scholarly journals are published, and the ASA executive officer, who sought to save the ASA the expense and trouble of a lawsuit by an enraged scholar.

With all due respect, it is your editor’s humble opinion that the most effective and efficient way to avoid future law suits by thin-skinned scholars is to use the full force of the law to guard the integrity of the editorial process in refereed journals. American courts have a tradition of protecting free speech, and a longstanding distaste for frivolous litigation by selfappointed censors who seek to suppress publication of views they dislike. And it is your editor’s humble opinion that the ASA and similar organizations need to protect their editors from those who would use fear and intimidation to manipulate the editorial process.

Ross M. Stolzenberg, Editor

Greg Mankiw, Esq.

Greg Mankiw posts about how to have a career in economics without a math background.

This is admittedly hard, as economics has become more and more of a mathematical discipline in the past 20 years, to the point now where good schools won't accept students into the PhD program without strong math skills. Steve Levitt dealt with this question previously, deciding that he might get into Harvard or MIT, but not Chicago. (I think that's crazy, beause my understanding is that he had worked with top Harvard professors as an undergrad and would have had top-notch recommendations from them. And as much as math counts, fantastic recommendations from top economists are pretty valuable too.)

Mankiw suggests getting a Masters first (at somewhere like LSE) or following a closely related career track (such as law). These are both good ideas. Another idea is to spend some time working in policy (as a Fed/CEA/BLS/whatever researcher) or in the private sector as a researcher with an economic consulting firm. Either of these paths require smarts and economic intuition more than already honed math skills. (And, ok, an ability to learn Excel won't hurt....)

This can be a career, but most people do this only for a couple of years. The real benefit to this, though, is that it would allow you to:

1. Get a sense of what an economist can do, other than teach/research;
2. Develop analytical skills (and economic intuition) at work without explicitly doing math; and
3. Take some math classes on the side to hone your skills.

Oh, and back to Mankiw... Make sure you keep buying his book, or he may decide to head back to law school:

I spent 1 1/2 years in the early 1980s as a student at Harvard Law School, and I think I could have forged a happy career with a law degree instead of a PhD. In the end, I decided that my comparative advantage was in economics rather than law, so I suspended my law studies. But I can always go back and finish the law degree if this economics thing doesn't work out for me.