Posted by Marc Hodak on February 12, 2008 under Unintended consequences | 
In the forthcoming Journal of Public Economics, a pair of researchers conclude that smoking bans in certain areas increase the number of deaths due to drunk driving.
A rigorous statistical examination has found that smoking bans increase drunken-driving fatalities. One might expect that a ban on smoking in bars would deter some people from showing up, thereby reducing the number of people driving home drunk. But jurisdictions with smoking bans often border jurisdictions without bans, and some bars may skirt the ban, so that smokers can bypass the ban with extra driving. There is also a large overlap between the smoker and alcoholic populations, which would exacerbate the danger from extra driving. The authors estimate that smoking bans increase fatal drunken-driving accidents by about 13 percent, or about 2.5 such accidents per year for a typical county.
The ban on smoking in bars has had several unintended consequences. But this research is among the first to demonstrate that one of those consequences may be a higher death toll. And getting involved in an accident with a drunk person is far more damaging than second-hand smoke.
HT: Tyler Cowen at MR
Posted by Marc Hodak on December 20, 2007 under Unintended consequences |
The Coast Guard gives a helpful update of their success this past year. They celebrate a record year for cocaine seizures “with 355,755 pounds seized, worth more than $4.7 billion.” They trumpet these high-profile achievements:
* In September, the Coast Guard and its partners interdicted a vessel loaded with 3,600 gallons of cocaine dissolved in diesel fuel, a technique used by smugglers to avoid detection. The liquid cocaine could be converted into 15,800 pounds of pure cocaine.
* In August, Coast Guard, Navy and Customs and Border Protection crews interdicted and boarded a self-propelled, semi-submersible vessel loaded with an estimated $352 million of cocaine.
* The Coast Guard made its largest maritime cocaine seizure when it intercepted the Panamanian vessel Gatun carrying more than 33,500 pounds of the narcotic — or approximately 20 tons — in March 2007.
Cmdr. Robert Watts, chief of Coast Guard drug and migrant interdiction, said, “The more we push them to adopt extreme measures, the more difficult we make it for them to succeed.” The drug warriors have been making these statements for over 30 years. So, what is the end result of all these achievements?
Read more of this article »
Posted by Marc Hodak on December 6, 2007 under Unintended consequences |
Let’s say one wanted to create a set of incentives for our best and brightest who want to go into medicine to strongly prefer medically superfluous areas like penile inserts, nose jobs, and hair removal while shunning areas like oncology, cardiology, and neurosurgery. How would one approach such a task? Apparently by doing what Europe and Japan do, and what most American politicians advocate doing here–socialized medicine.
In a study of doctors in Japan, Harvard’s Mark Ramsmeyer studied the effects of Japanese health care policy on how prospective doctors choose to invest in their talents.
The Japanese national health insurance provides universal coverage. Necessarily, this entails a subsidy that dramatically raises the demand for medical services. In the face of the increased demand, the government suppresses costs by suppressing prices.
Ramsmeyer figures that this policy will lead to certain economic consequences on investment decisions by doctors in their training and specilization.
Crucially, the national health insurance does not cover services – like elective cosmetic surgery – deemed medically superfluous. Facing price caps in the covered sector but competitive prices in these superfluous sectors, the most talented doctors should tend to shift into the superfluous sectors and there to invest heavily in their expertise.
So, he looked at all the cosmetic surgeons and an equal number from a random sample of other types of medical specialties to see if he could identify where the greatest investment in skills was taking place.
Cosmetic surgeons earn higher incomes than other doctors; are more likely to have attended a national (generally more selective) medical school; are more likely to have served on the faculty of a medical school; and are more likely to be board-certified.
His conclusions are sobering, if not surprising:
The point is not that Japanese cosmetic surgeons earn a premium not available here. The point is that by operating beyond the scope of the universal health insurance, they can profitably do what few other Japanese physicians can cost-effectively do: invest in field-specific training. In most medical fields, the price controls preclude a physician from earning a large enough return to his training to make any serious specialization worthwhile. In cosmetic surgery, however, those controls do not apply. Like their peers here, Japanese physicians respond to the price signals by specializing, training, and certifying their expertise.
Is that the kind of society we want for us? As the author notes, we’ve already moved part way in that direction. Our cosmetic surgeons already earn a premium here. They’re working in a field that politicians ignore. Other areas, unfortunately, appear to be too important to be left to the market.
HT: Larry Ribstein
Posted by Marc Hodak on November 20, 2007 under Unintended consequences |
Derek Jeter says he lives in Florida, just because he’s there, oh, most of the time. New York says he is “domiciled” there because his Manhattan apartment, in which he spends about 30 days a year, contains “certain personal items near and dear.” You can’t make this stuff up. This matters because New York wants Jeter’s money. (Actually, they want more of his money than they’re already getting, but let’s stay on point.)
The opportunity cost for New York in this tax case is so high precisely because it’s income taxes are so high. That’s why New York is unusually aggressive in pursuing people who try to claim out-of-state residency. I guess this has worked for New York so far because wealthy people still flock there, don’t they? Well, Jeter, it turns out, has some well-off neighbors down there. Those famous New Yorkers George Steinbrenner, A-Rod, Joe Torre, and many other Yankees live in Florida. Much of the major league, and a good part of the rest of the entertainment world lives in Florida or Texas or Nevada or other states that have no income tax. That’s because rich people have an unusually high number of options about where they can live and spend their time.
The tax authorities are basically counting on “the people” regarding Jeter as greedy because he’s behaving exactly as any of us would if we were in his position. He’s legally choosing to decide for himself where to spend his money rather than voluntarily give up that decision to one of the most venal and corrupt legislatures in the country. But because headline writers can’t resist a rhyme, they have taken to calling Jeter a tax cheater, which a normal person would consider libelous under the circumstances, but public figures are expected to simply take it with a grin.
Let’s strip away the b.s. and look at the economics.
Read more of this article »
Posted by Marc Hodak on November 5, 2007 under Unintended consequences |
Black representation among major company CEOs has taken quite a hit in the last week with the departure of Stan O’Neal at Merrill Lynch and the announced departure of Dick Parsons at Time Warner. It’s not as if blacks aren’t already “underrepresented” among major company CEOs. An obvious reason is the legacy of discrimination. But stories about black underrepresentation seem to invariably go the next, unhelpful step.
“When African-Americans enter the corporate arena, they enter with a trust deficit,” said Jessica Faye Carter, author of “Double Outsiders: How Women of Color can Succeed in Corporate America.”
“There’s a perception they have to overcome, even if they have a law degree from Harvard or an MBA from Harvard,” she said. “The indicia of power in corporate America is still white and male.”
This seems to me a nice way of saying racism. But racism, although it certainly exists in corporate America (as everywhere else), is a weak explanation for black underrepresentation in business, especially big businesses, which bend over backward to achieve diversity.
I think a more likely source for a “trust deficit” is the perception, right or wrong, that blacks coming out of Yale aren’t as qualified as whites coming out of Yale because they weren’t as qualified going in.
The null hypothesis is that blacks will continue to grow in the ranks of business, all the way up to the top. Nothing will stop that. But nothing will slow it down like the institutionalized perception that blacks “need the help” of lower standards at certain points along the way. Not even racism. And there is only one way to eliminate that perception–stop official discrimination on the basis of color.
Posted by Marc Hodak on November 4, 2007 under Unintended consequences |
Dale Carnegie once noted that no sound is as sweet to a person as their own name. Imagine having a building or road named after you. Very rich people have things named after them because they created them, as in a business or institute, or because they gave money that enabled their creation. Having something big named after you is a huge status prize, arguably one of the more expensive consumption goods in any society. It’s a great motivator to achieving the wealth to build such things.
It’s also a great motivator to building such things with other people’s money. Political leaders have been using taxes to build monuments to themselves for as long as civilization has existed. This tendency was, presumably, one of the more distasteful aspects of tyranny. It offended the sensibilities of our democratic forebears.
The edifice complex is a powerful one. Politicians have found ways to get their names on all sorts of public projects in their own lifetime. This is one of the rewards to being on a powerful Senate committee, for instance. The committee chairmen hold the purse strings for allocating billions of dollars of taxes, and few have resisted the opportunity to play Santa Claus with these funds, and to use the draw of tribute to wield this power or benefit from it.
Nobody has played this game as well as Senator Byrd of West Virginia. Byrd is the apotheosis of pork–a master of tax-funded narcissism. He even got around West Virginia state law by having a statue of himself erected in the state capitol. Even wealthy people who become Senators leverage their committee power into this personal benefit.
I know that all that pork doesn’t add up to much of a fraction of total government spending, especially at the federal level. But pork is the grease that enables the rest of the government spending machinery to operate so profligately. So, why not a constitutional amendment that prohibits any public project from being named after a politician, living or dead? That would take a away a huge incentive to tax us for things we may not really need, but for which some politician gets a largely private benefit. One might ask: Don’t certain politicians deserve recognition? Sure. But monuments can be, and often are, privately funded. That’s the difference between people choosing to show their respect for politician, and people being forced to pay tribute to a politician.
Tribute has always been an incentive to conquest, taxation, and enslavement. A free people is not forced to provide tribute.
Posted by Marc Hodak on October 31, 2007 under Unintended consequences |
Yep, it was a boy playing with matches that led to 38,000 acres going up in flames. Because, you see, when something horrific happens, it’s great to find someone to blame.
In the case of the California fires, most of them were started by similarly random events, or what conservationist call human ignition. Human ignition is, basically, people being around nature for enough time.
So, if an adult places a Ming vase on a wobbly stand in the middle of the entranceway of a crowded Manhattan hotel, does the kid who knocks it over get the blame for breaking it? If conservationists prevent people from managing their environment the way they think best, e.g., by clearing the combustible underbrush that is tinder for these fires, is a boy playing with matches near this tinder to blame?
Posted by Marc Hodak on October 29, 2007 under Unintended consequences |
At least when it comes to their prospects for finding work. Ohio’s state’s Civil Rights Commission now requires companies with four or more employees to grant women up to 12 weeks of paid or unpaid maternity leave.
Well, shouldn’t women get some time off when they have a baby? Sure. And women get it, including in Ohio. In fact, Federal law already requires that employers with more than 50 workers provide 12 weeks of unpaid maternity leave for women who have worked more than a year. The Ohio law simply extends that to very small companies, and regardless of the amount of time those employees have worked. And it’s not as if Ohio law had previously ignored even this group of women; it currently requires that all employers give women a “reasonable period of time” off to care for their new babies.
So, if you own, say, a small bakery in one of those Ohio strip malls, and you’re no longer allowed to decide for yourself what is “reasonable,” and a pregnant woman comes looking for a job, how are you going to defend yourself? Let’s say she’s just a little obese (you’re not allowed to ask if she’s pregnant)? What if you own one of those little gift shops in a quaint Ohio town, and you have a choice between a fertile young woman, or someone more matronly, or a young man? Folks, these policies have real world consequences.
It would be a difficult study to conduct, but I would bet that unemployment among young women is about to go up in Ohio faster than the overall average, including at those employment law firms that will, no doubt, be the only beneficiaries of this law.
Posted by Marc Hodak on September 4, 2007 under Unintended consequences |
Today, a writer for the WSJ inked a piece about the rise in premiums for wind coverage. The author discusses how much the premiums have gone up and what people are doing in response to the increase in premiums, etc. In 1300 words, the author never mentions a major contributor, if not the most likely cause, of the dramatic increase in premiums. He simply takes it for granted, as most of his readers presumably do, that a company dropping clients and foregoing business via significant price increases requires no explanation. At least that’s a step better than most journalism that would assume that the explanation is some sort of conspiracy by the insurance companies to make more money.
The basic problem is that this article is all about the property the author could see–the real estate that had been damaged, or might be damaged, and was going uninsured. What is missing is the notional property that is a contract. Insurance companies contract with homeowners to insure their property for possible future damage. In this case, the source of that damage would be wind; insurers aren’t supposed to be on the hook for water damage. When a hurricane comes along, the wind comes with water, and it’s sometimes difficult to distinguish the source of damage. When enough citizens plead with enough politicians to insist that the insurers err heavily on the side of assuming wind damage, the insurers pay out the nose for damage they did not insure. Ever heard of this happening? Oh, after every hurricane.
So, insurance companies, in an rabid attempt to protect their profits, now have to assume that “wind” means “wind or water,” and must, if they have a shred of concern for their shareholders, charge accordingly . Why else would they raise their premiums? Well, the newspapers often get this wrong. They say companies must raise their premiums after a bad storm to help pay for those (past) damages. That, of course, makes zero economic sense. Insurance is a prospective game. If I were to enter the market and offer to insure you for wind damage, basing your premiums on the actuarially correct amount needed to cover your expected losses with a profit for my risk, then I would kill off all my competitors overcharging you based on past, unrecovered damages, i.e., their sunk costs.
Of course, the state won’t let me just start up a competing insurance company. The regulatory hurdle is simply too great. And the insurers would rather feed you the story about having to pay for past damages because, unlike my readers, that is all the average reader understands. They simply wouldn’t have the patience to learn the economics of insurance markets from scratch. I don’t blame the insurance companies. I blame the boards and trustees of schools that refuse to include basic econ in the curriculum. Like the school this article‘s author no doubt attended.
Posted by Marc Hodak on August 27, 2007 under Unintended consequences |
Actually, the quote was this:
As long as I am allowed to redistribute wealth from out-of-state companies to in-state plaintiffs, I shall continue to do so.
– Chief Justice Richard Neely, West Virginia Supreme Court
I wonder what percentage of people in or out of WV would characterize Justice Neely’s statement as being friendly to WV’s interests? Probably a majority.
On the other hand, it would be difficult for someone with economic sense to not connect the dots between:
– hostility to outside capital
– outside investment in the state
– job and wealth creation in the state
So, it would not be surprising to someone with economic sense that WV’s notable absence of the rule of law may somehow contribute to that state’s ranking 49th in median household income.
One of the things I teach in my class is how corporate behavior is naturally and significantly regulated by repeat transactions. If you want to keep your customers, employees, vendors, and shareholders, you better take reasonable care of them–at least as good as the next guy. It’s amazing to me how many elected officials ignore this fact of competition, as if the competition for capital weren’t real. It’s amazing until you see the incentives of the election process. Justice Neely, for instance, was elected by the citizens to whom he redistributed that wealth, and his campaigns were funded with the money from settlements that he delivered by the local lawyers who appeared in his court. Whether or not Neely believed in redistributive “justice,” it’s unlikely that the system would support someone in his position who didn’t.
