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O’Brien, Leno and Letterman starring in the late night wars

January 29th, 2010

While driving to and from Monroe, listening to National Public Radio about the Conan-Leno war, someone in an interview mentioned that Letterman may end up the loser if Conan moves to Fox to compete in a three-way war with Leno and Letterman straight up.  Letterman may end up the real loser because while Letterman may beat Leno and Conan in head-to-head contests, he may get squeezed out, in a three-way fight.  This is an application of Harold Hotelling’s median-voter work (‘Stability in Competition,’ Economic Journal, 1929).

Conan may be preferred to Letterman, who in turn is preferred to Leno by the young viewers of late night talk television.  At the same time, we see Leno (J)  preferred to Letterman (D), who in turn, is preferred to Conan (C) among older viewers.  Instead of the left to right competition in the spatial competition among candidates, think of viewers, arrayed young to old, and viewers with four types of preference profiles: 1) C>D>J viewers; 2) D>C>J viewers; 3) D>J>C;  4) J>D>C, where “>” means “preferred to.”  If there are more type 1s than 2+3s and more type 4s than 2 +3s but still more 1 + 2 +3s than 4s and more 2+3+4s than 1s, then Dave may dominate each in a head to head but be the loser in a 3 way race.  This is straight from a Hotelling’s spatial competition (along a single dimension), though I do not think Hotelling did the 3 competitor case.

Here is a numerical example with made-up numbers.

Customer types

& market shares

1) C>D>J; 42%                               D v J                  D v C               C v D v J

2) D>C>J; 10%                            62% v 38%           58% v 42%         42% v 20% v 38%

3) D>J>C; 10%

4) J>D>C; 38%

With the distribution of customer types that we have in the example above, Dave Letterman dominates both Leno and O’Brien in head-to-head matchups, with 62-32% with Leno and 58-42%.  However, in a three-way battle for late night talk show viewers, it would be quite possible for Dave to go from first to last if Conan on Fox and Leno on NBC compete in the exact same time slot as Dave.

If these were candidates, then things become very unstable, as the left- and right- wing candidates maneuver toward the middle, making the moderate candidate’s position unsustainable, and she gets driven from the campaign.  Late night comics, though, have a more difficult time shifting positions, changing their appeal to different audiences.

I should mention that it would also be possible for Letterman to continue to dominate the other two, if there were more of the middle two types than the two extremes.

-MC

Could Robertson be right about a curse on Haiti?

January 19th, 2010

If you have not heard it yet, Pat Robertson said something that was almost surprising about Haiti’s horrible disaster, that Haiti’s founding fathers made a pact with the devil to help them throw off the bonds of slavery with the French, and so God cursed the Haitian people. I say “almost surprising” because Robertson has said some pretty crazy things in the past, such as calling for the assassination of Venezuela’s President Hugo ChavezHere is a more reasoned discussion of the myth by the Haitian theologian, Jean Gelin.

While thinking about Robertson’s remarks on a drive to north Louisiana, I came to the conclusion that on Haiti, Pat Robertson is correct, figuratively, though not literally. On a disaster that has claimed the lives of thousands upon thousands of mostly good and innocent people of Haiti, that sounds about as outrageous as Robertson’s remarks.

While a Haitian pact with Satan himself is absurd, people often support or at least abide and enable corruption among their public officials. Haiti has long had very corrupt leadership, and corruption in Haiti is widespread. The Haitians may, from time to time, get rid of corrupt leaders, but they have always seemed to replace corrupt leaders with other corrupt leaders. (There is an excellent discussion of this phenomenon in a memorable chapter in Hayek’s The Road to Serfdom, “Why the worst get on top.”) While many Haitians are sure to be good, moral people, their feelings of helplessness and fatalism have left them very apathetic, allowing corruption to be pervasive in their society.

In surveys of perceptions of corruption, Haiti ranks near the bottom of all countries as shown by the rankings from Transparency International “Corruption Perceptions Index”, where Haiti ranks 168th out of 180 countries ranked by TI, tying with 5 others. It is also the lowest of the Americas, ranking ahead of only Uzbekistan, Chad, Sudan, Iraq, Afghanistan, Myanmar and Somalia, meaning that Haiti is perceived to be more corrupt than the notoriously corrupt Nigeria.

In a paper that came out in July of 2007 in the interdisciplinary social science journal, Public Choice, Monica Escaleras, Nejat Anbarci and Charles Register examine the interaction of natural phenomenon, earthquakes, with the social phenomenon of public sector corruption and show how when these two occur together, the death tolls are higher. They develop a theoretical model and then examine 344 quakes between 1975 and 2003 and find more deaths from earthquakes that occur in more corrupt countries. Their result holds even after the researchers account for other factors related to deaths from earthquakes, such as the magnitude of the quake, its proximity to population centers, the country’s level of development or how poor people are in the country, and several other factors.  Their main explanation is that inspectors of buildings and other infrastructure are more likely to take bribes in such societies and look the other way with some cash in an envelope. Poorer building code enforcement (for buildings, roads, bridges, port facilities and airports) results in more deaths from a given quake.

So, due to apathy, people allow venality to survive and spread, especially among those in the public sector, Haiti’s pact with or surrender to the devil. The corruption leads to more deaths from earthquakes, just as if there had been some sort of curse. I am not suggesting that Pat Robertson is literally correct, just that venality is to allowed to survive, people curse themselves, their loved ones and their fellow citizens.

Hmmm. I seem to recall voter acceptance and support for corrupt public officials leading to more deaths from a natural disaster somewhere. Could that have been here in Louisiana?

-MC

Opinions expressed here are the author’s alone and do not necessarily represent the views of Nicholls State University.

Take a Break

December 3rd, 2009

Ricky Williams has been resurgent in the 2009 NFL season. Amidst an era of short-lived and disposable running backs, the 32 year old Miami Dolphins has averaged an astounding 5.1 yards per carry over the first 11 games of the season. Meanwhile, time, injury, and wear have reduced recent greats such as Ladainian Tomlinson (30 years old, 3.4 yards per carry) and Edgerrin James (31 years old, 2.7 yards per carry) to marginal starting backs. Williams is an exception to the rule that NFL running backs age more like bananas than wine. In fact, Williams’ nearly unprecedented renaissance at the running back position may suggest a lesson somewhere in his meandering, controversial, and ambivalent football career. Most running backs who make a career in the NFL get hit, frequently and with large amounts of force, season after season. Such players often develop injuries that heal only partially during the off-season such that they are less than 100 percent at the beginning of the next season. The partial healing of an original injury only reinforces the player’s exposure to wear and tear, as he becomes slower, less powerful, and easier to hit. Thus the washed up, 30 year old running back as a rule.
Why, then, has Ricky Williams shown an ability to defy the rule? Essentially, he followed his own path. Williams removed himself, more or less, from professional football on two occasions and for a total of almost three seasons. His chief objective in doing so was to smoke copious amounts of marijuana. However, Williams’ path had the unintended consequence of allowing him not one but two separate recuperative periods during his professional career. This outcome may have broken the reinforcing cycle of wear that so many backs experience. Will Ricky Williams get more from his career by having taken breaks from the action? It is impossible to know the answer to such a question. However, we can be reasonably confident, by comparing him to similar players, that he is a better 32 year old running back for having done so. It is at least interesting to consider that Williams’ model—at least the legal parts of it— may be beneficial to a young NFL running back in need of longer-term healing. 

-SS

The Trade Deficit is an Overrated Measure

November 4th, 2009

A country runs a trade deficit when the value of its imports exceeds the value of its exports.  A trade deficit is also referred to as a negative balance of trade.  There is a common misunderstanding as to the interpretation of a trade deficit.  The Progressive Policy Institute, for example, describes the U.S. trade deficit as a necessary indication that, “The United States is currently consuming more than it is producing.”  This line of reasoning suggests that consistent trade deficits lead a country into aggregate debt with other countries.  However, a country’s gains from productive activities are not fully captured by a location-based measure of production, such as GDP.  Many U.S. companies produce abroad and import a substantial proportion of their final product to U.S. markets (e.g., Nike).  Such production logistics contribute dollar-for-dollar to our trade deficit.  However, they are in no way an indication that we are consuming more than we are producing.  Rather, the trade deficit fails to account for U.S. gains from U.S.-owned production overseas.

This is an important consideration, as the United States usually runs a substantial Foreign Direct Investment (FDI) surplus, whereby more U.S. owned production occurs overseas than non-U.S. owned production occurs within the United States.  The current account provides a more complete measure as to whether our country is living within its current means.  A country’s current account in a given time period is equal to its balance of trade plus its net factor income from abroad (i.e., income inflows from assets located abroad net of income outflows from foreign-owned assets located domestically) plus its net income from international transfer payments.  Unfortunately, we have also run a consistent current account deficit in recent years.  This is a much tighter indication that our purchases exceed our income and that we are borrowing to buy some of the current production of other countries.  The resulting debt will have to be repaid through future current account surpluses.  Though the current account is presently telling us the same thing about our spending levels as is the balance of trade, this may not always be the case.  Given a sufficient amount of income from foreign assets, trade deficits are sustainable for a country.  However, current account deficits must be repaid.

Judging the sustainability of a country’s spending levels by its balance of trade is like judging a basketball team’s success in a game by the number of points that the team scores.  Though points scored is an argument in determining whether a team wins, it is not the final story.

-SS

The New Homeowner Tax Credit

October 29th, 2009

The L.A. Times reports some of the problems with the new homeowner $8000 tax credit in this story.  Besides fresh ground for tax cheats to exploit, this tax credit may not be worth getting.

In my introductory economics class, we just finished looking at how taxes get passed forward to buyers in higher prices or back to the sellers in reduced prices received.  What we saw in class was that if the buyers faced few alternatives, while the sellers had many, most of the tax gets paid for by the buyer in the form of a higher price.  If the sellers have few alternatives, but the buyers have many, the sellers pay most of the tax in terms of a lower received price, while the buyers pay only a little more than the original price. 

Of course, if the government subsidizes buyers in a market instead of taxing them, the same thing happens, but in reverse.  Subsidies are only negative taxes, so a subsidy to buyers in a market just raises the amount the buyers are willing to pay to the sellers.  Consider the $8000 tax credit to home buyers.  This tax credit merely raises the amount buyers will pay to sellers.  And since the buyers have many alternatives while the sellers, often facing foreclosures, have few alternatives but to sell, have few alternatives but to sell, the price the buyers pay ends up rising almost by the amount of the tax credit.  Few new homes are being built in response to the tax credits.  So mostly, the tax credit for buyers boosts the prices received by those facing losing their homes in a foreclosure, where only the bank receives the money. 

So those considering buying a home before the December 1st deadline because of the tax credit should probably think twice.  Most of the tax credit will go to the sellers. 

But even if some of it goes to the buyers, shouldn’t it be worth the buyer’s effort?  The answer is maybe, but  maybe not.  One provision of the tax credit is that the buyer has to live in the home at least three years, or the buyer must repay half of the tax credit, or $4000.  If the buyer faces the possibility of losing her home, facing repayment of $4000, while having to pay $7000 more for a house and getting an $8000 tax credit may not be that good of a deal.   

-MC

Captain Clutch – Again?

October 27th, 2009

Was it Yogi Berra that said “I’m having deja-vu all over again”?

Back in October of 2006, I was rather peeved at listening to the morons on TV talk about how “clutch” Derek Jeter was. Later, they maligned Alex Rodriguez, and how “un-clutch” he was. I objected at the time, and wrote a post, which you you can read here. Take a look before you continue.

The point there is the same point here – it is difficult to make inferences based on small samples. A few post season games and a couple dozen at bats are indeed a small sample. If you flip a coin 12 times, sometimes it comes up 8 heads, even if the coin is “fair”. Sometimes heads comes up 4 times in a row.

Part of my motivation then (and now) is that I rather dislike Jeter — he gets a bit too much love from the media in my opinion. And part of my motivation then (and now) is that I think A-Rod gets too little love from the media. But so that you know that “fair is fair”, I’d like to revisit the issue again. After the recent “clutch” performance, I am equally peeved that the same morons are now calling Alex Rodriguez a “clutch” player!

The announcers on Fox clearly missed my original post. Might they suggest that whomever is “hot” now is “clutch” and forget that this same person was not “clutch” before? Is A-Rod a better player now in the post-season? Or is it simply random variation? I’ll go with the latter.

As I wrote before:

We could all disagree about exactly what is meant by “clutch”. Perhaps late in close games? Bottom of the ninth? Or simply in the playoffs? But even if we settle this disagreement, it is still very difficult to tell who is a clutch player, because by the nature of these situations, there are very few “clutch” situations during a season (or even a career).

Dr. Jahn Hakes and Dr. Skip Sauer (both economists at Clemson while I was in graduate school) have done some work on identifying clutch hitting in major league baseball. For an example of their work, click here. What do they find? They cannot find statistical evidence of persistently clutch hitters.

Why is that a couple of sports nuts economists, armed with PhDs from top schools, years of play by play data, and tons of computing power can’t find evidence of consistent clutch hitting, but the talking heads on Fox know it? Hmmmn.

I suggested in that old post, that if you like this type of stuff, read a book called Moneyball by Michael Lewis. It’s about how the GM of the Oakland A’s (Billy Beane) listened to scouts (announcers?) less and started doing more statistical analysis in drafting baseball players. The A’s have been quite successful despite their relatively low payroll. It’s an awesome book for someone interested in baseball, statistics, economics, or even business in general.

And for you amusement, I provide you two more tidbits.

Tidbit #1:

For those of you who don’t like baseball statistics, OPS is a measure that is pretty much the gold standard for measuring the productivity of hitters. OPS = On base % + Slugging %. The bigger the number, the better the player.

Jeter’s career regular season OPS = 0.847
Jeter’s career post-season OPS = 0.858

A Rod’s career regular season OPS = 0.965
A Rod’s career post-season OPS = 0.977

Uncanny, isn’t it? That difference (about 0.012 in both cases) is roughly one additional single per every 100 at bats! Quite a difference, eh?

Tidbit #2:

I have taken the worst 15 game stretch of Jeter’s post-season career and the worst 15 game stretch of A-Rod’s career and added up the stats. Can you tell which is which?

A: 15 games, 0.167 BA, 0.470 OPS, 0 SB, 5 R, 1 HR, 4 RBI
B: 15 games, 0.119 BA, 0.445 OPS, 1 SB, 3 R, 0 HR, 0 RBI

Neither one is pretty — which is the point! Prediction: A-Rod has a ho-hum World Series.

–CT

Player A is Jeter, Player B is A-Rod. But nobody ever told you about the ugly stretch for Jeter, eh? It started in the ALDS in 2001 and ends after game 7 of the 2001 World Series. Are they really so far apart?

Putting Your Best Genes Forward

October 7th, 2009

With the mapping of the human genome, it isn’t difficult to conceive of the day when we might diagnose mere embryos with congenital diseases or unhealthy predispositions.  Such power creates a dilemma: Would it be a better world if couples were to simultaneously create multiple embryos (through in vitro fertilization of stored eggs and sperm) and allow for the genome of each embryo to be mapped for selection purposes.  Coupled with a better understanding of the genetic sources of congenital disease, such a system of embryonic sampling would allow couples to put their better genes forward in virtually every pregnancy.  The result would be a healthier lot of babies and parents.  Diseases such as autism often place an irrevocable strain upon affected families, as evidenced by the exceptionally high divorce rate among parents of autistic children.  If it became a medical possibility, many parents would likely value the ability to identify and unselect “pre-autistic” embryos among a larger set of embryos. 

Of course, embryonic sampling based on DNA mapping would, by design, lead to large-scale abortion.  However, large-scale abortion already occurs in the case of in vitro fertilization.  In the current procedure, doctors select the best embryo or set of embryos based on such factors as cell count and symmetry of growth and discard the others.  Embryonic sampling based on DNA mapping, should it become viable, would not be any sort of modern eugenics project.  Couples would still choose with whom they wish to combine their DNA.  Embryonic sampling would merely allow them the option of a better expected expression of that combination.

-SS

Baucus Medical Device Tax a Perpetual Finance Device

October 5th, 2009

Some months ago I was asked to find someone who could determine the feasibility of a device reinvented by a local fisherman.   The machine was an alternator driven by a bicycle that charged a car battery bicycle.  An electric motor hooked up to the battery turned the wheel of the bicycle.

The claim was that the device produced electricity.  Of course, it produced a charge, but used more energy than it produced—a perpetual motion machine.  Such machines have been invented and reinvented for hundreds of years.  And well-meaning garage inventors reinvent perpetual motion devices with every up-tick in energy prices.   But physics triumphs and we know that the law of conservation of energy and matter still rules.  Only part of the energy from the battery gets converted to work, with the rest being converted into friction and heat.  Energy is not created out of nothing.

In trying to reinvent the health care delivery system, Senator Baucus seems to have invented a perpetual financing device , but one that will only push up prices and inhibit real innovation.  What Senator Baucus wants to do is to tax the very providers of health devices, such as heart stents, artificial hips, and diagnostic machines in order to help pay for the new health care system that the federal government is reinventing.

There is a slight problem with all of this.  Taxes collected from businesses are only partly paid by the producers, with the rest of the tax paid by the buyers in the form of higher prices.  The easier sellers can move to something not taxed to sell, the more the tax gets passed along to buyers.  The more these taxed items are covered by insurance, by other people paying the bill, the more the tax gets passed along to the buyers.  If buyers have many non-taxed alternatives and find it easier to switch to them than the sellers can switch to non-taxed goods to sell, then less of the tax gets passed to buyers and the sellers will have to pay more of the tax.  Of course, if sellers find switching easier than buyers, the taxed gets passed on to the buyers.  In other words, the side of the market that can avoid the tax the easiest by switching what they have been doing will be the side that contributes less to paying the tax.

With medical devices, it is very likely that the sellers find it easier to go from making wheel chairs to making non-taxed items than wheel chair users can switch to some non-taxed item.  Still, to the extent that the tax is borne by sellers, it reduces profits in these industries and reduces innovation as well.

What looks like will happen with this financing plan is that the tax will be passed along to buyers including Medicaire and insurance, who will raise taxes and raise premiums to pay for the higher priced devices which will lead to higher prices for the medical devices, higher premiums and higher taxes.  Of course, after a while, the increasing out-of-pocket expenses reduce purchases along the way.

This financing scheme looks as if it were designed by the same guy who hooked up a car battery to an electric motor, a bicycle and an alternator.  The problem is that both of these end up coming to halt and are unsustainable schemes.  Genius at work?  Not!

-MC

The Seasons Change, and So Do I

September 11th, 2009

With most school districts in the country having resumed operations by this last week, someone asked me about the effect of people going back to school on the country’s economy.  Well, this is actually very simple.  Every year when school vacations begin, unemployment goes up and when school starts back up, the nation’s unemployment rate goes back down.  Total employment usually goes up in the summer as well, as many outside jobs open up, especially for teens. 

Definitions are important here, as how we define things affects how we measure them.  The unemployment rate is not how many people do not have jobs, as not everyone is looking for a job.  School children in high school often do not seek jobs in the summer, but even fewer look for jobs during the school year.  Should we count as unemployed those who aren’t even in the market?  The answer is no.  Think of someone calling people up in a survey.  They first ask the person’s age, then whether the person has a job.  Then they ask if the person looked for a job in the past month.  Those who neither have a job nor have looked for a job are counted as not being in the labor force.  The rest, those with jobs or have actively looked for a job in the last month, are counted as being in the labor force.  Of those in the labor force, those who do not have a job, are counted as unemployed.  So, to be counted among the unemployed, a person has to be without a job now and has to have been actively looking for work.

A bureau within the U.S. Department of Labor, the Bureau of Labor Statistics (BLS), surveys a rather large group of households across the country to find out what percent of the labor force is without a job, the unemployment rate.  Below are some historical unemployment figures from the BLS website

Labor Force Statistics from the Current Population Survey

Series Id:           LNU04000000
Not Seasonally Adjusted
Series title:        (Unadj) Unemployment Rate
Labor force status:  Unemployment rate
Type of data:        Percent
Age:                 16 years and over

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Annual

1999

4.8

4.7

4.4

4.1

4.0

4.5

4.5

4.2

4.1

3.8

3.8

3.7

4.2

2000

4.5

4.4

4.3

3.7

3.8

4.1

4.2

4.1

3.8

3.6

3.7

3.7

4.0

2001

4.7

4.6

4.5

4.2

4.1

4.7

4.7

4.9

4.7

5.0

5.3

5.4

4.7

2002

6.3

6.1

6.1

5.7

5.5

6.0

5.9

5.7

5.4

5.3

5.6

5.7

5.8

2003

6.5

6.4

6.2

5.8

5.8

6.5

6.3

6.0

5.8

5.6

5.6

5.4

6.0

2004

6.3

6.0

6.0

5.4

5.3

5.8

5.7

5.4

5.1

5.1

5.2

5.1

5.5

2005

5.7

5.8

5.4

4.9

4.9

5.2

5.2

4.9

4.8

4.6

4.8

4.6

5.1

2006

5.1

5.1

4.8

4.5

4.4

4.8

5.0

4.6

4.4

4.1

4.3

4.3

4.6

2007

5.0

4.9

4.5

4.3

4.3

4.7

4.9

4.6

4.5

4.4

4.5

4.8

4.6

2008

5.4

5.2

5.2

4.8

5.2

5.7

6.0

6.1

6.0

6.1

6.5

7.1

5.8

2009

8.5

8.9

9.0

8.6

9.1

9.7

9.7

9.6

 

 

 

 

 

 A bureau within the U.S. Department of Labor, the Bureau of Labor Statistics (BLS), surveys a rather large group of households across the country to find out what percent of the labor force is without a job, the unemployment rate.  Below are some historical unemployment figures from the BLS website. 

 Note that every June this number seems to go up from the month before and every September the number drops back down by about the same amount.  Every December, the figure drops off and rises in January.  All of these amount to predictable patterns, that economists and statisticians call “seasonality.” 

By the way, here are the unemployment rates for the same time period, but with adjustments made for seasonality.

 Labor Force Statistics from the Current Population Survey 

Series Id:           LNS14000000
Seasonal Adjusted
Series title:        (Seas) Unemployment Rate
Labor force status:  Unemployment rate
Type of data:        Percent
Age:                 16 years and over

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Annual

1999

4.3

4.4

4.2

4.3

4.2

4.3

4.3

4.2

4.2

4.1

4.1

4.0

 

2000

4.0

4.1

4.0

3.8

4.0

4.0

4.0

4.1

3.9

3.9

3.9

3.9

 

2001

4.2

4.2

4.3

4.4

4.3

4.5

4.6

4.9

5.0

5.3

5.5

5.7

 

2002

5.7

5.7

5.7

5.9

5.8

5.8

5.8

5.7

5.7

5.7

5.9

6.0

 

2003

5.8

5.9

5.9

6.0

6.1

6.3

6.2

6.1

6.1

6.0

5.8

5.7

 

2004

5.7

5.6

5.8

5.6

5.6

5.6

5.5

5.4

5.4

5.5

5.4

5.4

 

2005

5.2

5.4

5.2

5.2

5.1

5.1

5.0

4.9

5.0

5.0

5.0

4.8

 

2006

4.7

4.8

4.7

4.7

4.7

4.6

4.7

4.7

4.5

4.4

4.5

4.4

 

2007

4.6

4.5

4.4

4.5

4.5

4.6

4.7

4.7

4.7

4.8

4.7

4.9

 

2008

4.9

4.8

5.1

5.0

5.5

5.6

5.8

6.2

6.2

6.6

6.8

7.2

 

2009

7.6

8.1

8.5

8.9

9.4

9.5

9.4

9.7

 

 

 

 

 

The rise in summer unemployment is mostly in teenage unemployment as teens enter the labor market looking for summer jobs.  Summer employment actually expands, but so does unemployment as not all of the job seekers find what they are looking for.  With the start of school, this pattern reverses itself.  Not that with increased retail activity in the Christmas shopping season, the same thing happens.  To keep from confusing monthly rises and falls in employment or unemployment rates with more serious changes beyond these mere seasonal patterns, economists and statisticians adjust the raw figures by the seasonal pattern.  If December unemployment rates run 0.2 percentage points lower than average and January’s rates run 0.3 percentage points, then these months’ rates are adjusted by 0.2 upward in December and 0.3 percentage points downward in January.

Not only do statisticians make adjustments of this sort, but so do retailers and so do families.  For instance, my job is a nine-month position, and I get paid in those nine months.  I stash money aside the months I work so that I can maintain a similar spending pattern every month.  I can predict it, so I do not get caught by surprise.

 So, when you read about monthly changes in employment and unemployment figures or even gasoline pump prices, before being alarmed, check to see if the figures you are viewing are seasonally adjusted or not.   While our trees in the deep south may not change that much, our economic seasons change much the way the rest of the country changes.

 -MC

Lob STER WARS

September 11th, 2009

Lob STER WARS

On a small island off of the coast of Maine, lobstermen are shooting at each other (Lobster wars rock remote Maine island, Clarke Canfield, Associated Press Writer).  Much like urban gangbangers, they are fighting over profitable territory.  And just like their urban counterparts, the territory under dispute is “un-ownable” or for the lobstermen, un-ownable under current state laws.  But, just as with the gangbangers, they are enforcing their property rights themselves.  With both street territory and fishing territory, agreement as to ownership or property rights reduces conflict and violence. 

When property rights are under dispute, conflicts arise.  When property rights are not enforced by a more powerful authority, such as the state, these conflicts are not settled in courts with lawyers and judges, but in the streets or the seas with AK-47s or 12-guage shotguns.  This is especially costly in human lives.  It also causes people to invest in weapons and armor and shooting skills rather than in boats and fishing skills. 

The violence in the Maine lobster fisheries is nothing new.  J.M. Acheson (Capturing the Commons: Devising Institutions to Manage the Maine Lobster Fishery, 2003) discusses how gangs of Maine lobster fishermen restrict access to what they consider their territory by cutting lobster trap lines, so that they cannot be retrieved.  Ahceson notes that in areas where gangs defend their territory, the lobsters were bigger and more pounds of lobsters were caught per trap.

Property rights are the rules of the game, telling us who gets to make what decisions in what circumstances.  Different property rights result in different outcomes.  Certain property rights regimes allow who ever gets there first to rule.  For instance, open access fisheries where the fish are considered private property only after being caught, can have disastrous results.  Think for a moment about a population of fish where anyone can take whatever fish they can catch.  As long as the fish can be sold for more than it costs to catch the fish, a profit is available to fishermen, more people become fishermen, prices of fish drop and costs to fishing rise.  As more people turn to fishing and total fishing effort intensifies, the population of fish drops.  This continues until the prices drop far enough and the costs to the fishermen rise enough, that it is no longer more profitable than other ventures for these fishermen and the number of fishermen levels off. 

There is just one problem with all of this.  The fishermen, as individuals, do not bear all of the costs of their actions.  There are two distinct cost categories that we should recognize. 

One of these costs is the cost of catching or harvesting the fish.  These costs are born completely by the individual fishermen.  This includes not only their fuel, boat, and fishing gear, but also the cost of their time spent fishing.

Another cost of catching or harvesting fish is the cost of reduced populations in the future.  When the future populations of the fish drop, it becomes more costly to catch the same amount of fish.  This cost from increased future scarcity is sometimes called “scarcity costs.”  In the case of open access fisheries, this scarcity cost from of a reduced future population is borne by all of the fishermen, as a group–it is shared, so that each fisherman only faces a small part of their own costs.  This also means that all of them face costs imposed on them by the rest.

What happens when costs are borne individually is that the action is only undertaken when the benefits of the action exceed the costs.  But when someone bears only a portion of the costs of their actions, they do more of that action than they would if they bore the entire costs.   So, when fishermen harvest so much that the fish population decreases, no fisherman connects their fishing activity this year with the falling fish population and the rising difficulty of catching fish next year.  Also, each fisherman recognizes that even if he reduces his fishing this year to make fishing more sustainable, other fishermen will just catch what he did not, nullifying his individual efforts toward sustainability.  Under these circumstances, no fisherman has an incentive to cut back on fishing, and the population of fish dwindles.

While the defense of territory by these lobster gangs increases the incomes of lobstermen and moves lobster fishing toward sustainability, it could be pushed even further toward sustainability and the level of violence and destruction of traps could be brought down if Maine would follow something that we do in Louisiana with oyster production.  Louisiana leases areas to oystermen, establishing state recognized property rights.  While the state cannot always be there to enforce leases rights against encroachment (and theft), the oystermen are backed up by the state.  Anyone caught tampering with oysters on a leased bed face state-enforced penalties.  While oystermen do often have to protect their own property, they clearly have an advantage by being backed up by game wardens, sheriffs, and the courts.  They do not have to point guns as much as they would if they had no recognized claim. 

-MC