Market Power

Musings by an academic economist on the power of markets and the power over markets.

Saturday, February 26, 2005

Vikings Training Camp

Each August, the Minnesota Vikings hold their training camp on my campus. Last year, the Vikings ownership shopped training camp around in an attempt to get public funds to help cover the costs of training camp. Several cities from around the region set bids, but it came down to Sioux Falls, SD and Mankato. For awhile, it seemed Mankato would lose the camp to Sioux Falls. What happened? From an October 16th St. Paul Pioneer Press article:

The Vikings were strongly considering a more favorable bid from Sioux Falls, S.D., but they heeded the warning of Minnesota Gov. Tim Pawlenty, who told owner Red McCombs last October that the team's chances of securing a new stadium would be hurt if they took training camp out of the state.
Fast forward to October, 2004. The Vikings higher-ups were pleased enough with what they got out of Mankato that they committed to 3 more years. Mankato officials are also pleased. From the same article:

Mankato stepped up and covered the Vikings' estimated expense of $500,000, and Mankato agreed to help the team generate other revenue streams. That decision paid off, said Paul Wilke, president of the Greater Mankato Training Camp LLC.

He said a study showed that the economic impact in Mankato jumped from $3.2 million last year to about $5 million this year, and attendance increased from 30,000 to 71,000. Wilke added that the response from his community has been overwhelmingly positive.

"This is the best training camp we've ever had," said Wilke, general manager of the River Hills Mall in Mankato. "We've built a strong relationship with the Vikings. We're very excited about having three more years, and hopefully longer."

But yesterday's Mankato Free Press had this to say (paid subscription req'd):
Officials with the Greater Mankato Training Camp LLC, which owes Minnesota State University $50,000 in rent payments for last year's training camp, met privately with Gov. Tim Pawlenty Thursday to discuss some of the financial challenges the group is facing in hosting the Vikings each summer.
and this:
But the local organization still owes $50,500 of the $103,500 in rent it had agreed to pay MSU for the use of its facilities for the 2004 training camp. The contract between the LLC and MSU called for the full rent to be paid within 60 days after camp closed Aug. 19. The group said this is the last bill to be paid.
First off, why do the Mankato Training Camp folks have to ask the state for the cash? Attendance at last year's camp was higher than the previous summer. One of the reasons attendance at the camp increased was that the Chiefs and the Vikes scrimmaged at the Vikes' camp last summer. The summer before, the Vikes scrimmaged at the Chiefs training camp. I made several trips to my office during training camp and walked through some of the parking lots used by fans. Other than the Vikes-Chiefs scrimmage, I didn't see many out-of state license plates at the camp. Why, then, would the state want to buck up and help out if the training camp simply redistributes spending within the state.

Secondly, if this is such a boon to the local economy, why can't the Mankato Training Camp folks generate the private revenue to cover their costs? If this is the best training camp they've ever had and if the "economic impact" was truly $5 million, why couldn't they cover their rental payments with MSU on time?

Perhaps the training camp is not lucrative enough. A sponsorship for the training camp cost $25,000 last year. If a business did not think it would receive at least $25,000 additional profits as a result of the camp, then it would have no incentive to buy a sponsorship.

There is a potential free rider problem. The owners and employees of local bars, restaurants, and hotels are the primary beneficiaries of this local "economic impact". If Jake's Pizza (on the Minnesota State campus) thinks that (for example) the downtown bars and restaurants will kick in the requisite funds, then its owner doesn't need to. If all local businesses think like this, then it will be tough to come up with the cash. In such a case, if public funds are to be sought, the proper government to see for help is the local government.

So why do the training camp officials need government help? Probably because the public benefits of training camp aren't as lucrative as they are hyped up to be.


Friday, February 25, 2005

To Use or not To Use Day Care. That is the Question

My better 3/4ths went into work early this morning, so I took my durables to "school" (i.e. daycare). My 4 year-old durable went into his classroom first and then I walked my now 3 year-old durable to his classroom. On the way back, my eldest was the leader in the "potty train", a line of 4 year-olds getting ready to go to the can. They left in a big hurrah... lots of noise and activity. One "teacher" was left in the room after the rest had left. She was exasperated. I asked "Is it always like this?"

"Yes," she replied. "My friends ask me 'Why don't you get paid $20 an hour to work here?' "

"Because," I thought to myself, "if you and the rest of your coworkers were paid that much and gave the same sort of care, your 'students' parents wouldn't use the service." The reason we use daycare is because it is our lowest-cost form of caring for our kids. My wife is a pharmacist and I am an assistant professor, and the opportunity cost of one of us staying home and caring for our kids during the day is very high. But if our daycare costs tripled or quadrupled, then one of us (probably me) would stay home with the kids.

A second reason why day care workers are low paid is because many people have the requisite skills to work in daycare - the supply of potential workers is high.


The Helmet Project

Here is a site that contains a whole bunch of illustrations of American football helmets from various professional and collegiate teams. I got a big kick out of what I saw.


Thursday, February 24, 2005

Labor Disputes in Sports

I posted this over at The Sports Economist, but students in my Collective Bargaing course and former students from my Sports Economics course may find it interesting as well.

As I mentioned in a previous post, strikes are weapons wielded by unions that are designed to impose costs on firms and lockouts are weapons yielded by firms designed to impost costs on unions. In theory, when times are good and demand is high, the strike imposes high costs on the firm. When times are bad, the lockout can impost high costs on the union because alternative sources of income are not as readily found during such times, all else equal.

The March 2004 issue of the American Economic Review had an article by Martin Schmidt (Portland State) and David Berri (Cal State Bakersfield) (it's a recent paper, so you either have to visit your local college library or you have to buy the paper) that examined the impact of labor strikes on the demand for sports in the NHL, NFL, and Major League Baseball. In the paper, Schmidt and Berri cite papers that show that strikes do impose costs on firms. For example, they cite a 1991 Industrial and Labor Relations Review paper by Richard De Fusco and Scott Fuess (which I have not read) that finds that, in the airline industry, strikes tend to redistribute wealth from shareholders of struck firms to shareholders of firms that are not having a labor dispute. What about sports? How do fans react when a labor dispute ensues?

Here is the conclusion to their article:

Our analysis offers historic evidence that suggests the consumers' threat has not been credible. In general, none of the events we examined had a permanent impact upon attendance in these sports. In fact, in almost all instances attendance immediately rebounded in the year following the labor conflict. This explains why strikes and lockouts are happening with increasing frequency in professional sports. If the levels of attendance in the postconflict era are equivalent to the preconflict time period, only short-run costs are imposed upon the conflict partcipants. Given the millions at stake in each dispute, our analysis would indicate that labor conflicts that disrupt the regular season of these sports are likely to occur again in the future.
If this is the belief of the NHL, this helps explain why they are taking a hard stance.


Happy Birthday, Jared Miller

My youngest son, Jared Miller, was born three years ago today. Happy birthday, big guy!


Wednesday, February 23, 2005

Economist Earnings

Last night, I wrote this post about economist wages and linked to this Wall Street Journal article. The article had some surprising figures in it regarding the pay of economists. The one that surprised me the most, as well as some commenters to my original post, was the following passage quoted below:

According to the Bureau of Labor Statistics, salaries for economics teachers, a category that includes professors, averaged nearly $140,000 a year -- based on a 52-week year -- in 2003, making it one of the highest-paid professions that the government tracks.
I'm not sure where this $140,000 comes from. According to this page at the Bureau of Labor Statistics web page, the average post secondary economics teacher earned, on average, $72,300 (based on 2,080 hours worked for a full year [52*40]). According to the Occupational Outlook Quarterly from Winter 2002-2003, the average post-secondary economist earned $62,820 in 2001 (page 10 of the pdf document, bottom right-hand corner).


Slavery and Capitalism

Is today's US wealth attributable to slavery in the early history of our country? No. Indeed, Don Boudreaux argues here that not only is this wealth due to capitalism, capitalism led to slavery's ultimate demise.

Thanks' to Newmark's Door for the link.


World Gas Prices

Here's a CNN page that shows the price of a gallon of gas (I believe that's the unit of measurement) in various countries in May, 2004. Gas cost over $5 a gallon in the UK but in Venezuela it only cost $0.14. Um, that ain't marginal cost pricing. In Russia, a gallon of gas cost $1.45.

What does gas cost in Minnesota? See here. It was $1.82 a gallon this morning at the Casey's down the road from my house. Are you not from Minnesota, try .

Thanks to Tyler Cowen at Marginal Revolution for the link to the CNN page.


Cats and Slot Car Tracks

Rob Rybarczyk has this piece from the St. Louis Post-Dispatch about cats and slot car tracks. Rob has a fat cat named Frisco who isn't the most active cat, but he likes slot cars:

From seemingly out of nowhere, as I gleefully watched my little car fly through the turns, Frisco leaped directly onto the first turn. He didn’t flinch as the two cars whunked into his considerable girth and flew off the track. He zeroed in on the purple car, pawed at it once, then leaned down and began gnawing on it.
My cat enjoys knocking over the Ho scale train my durables and I run under the Christmas tree every year. Maybe I should give Sam some extra exercise by getting a slot car track. But my better 3/4ths wouldn't agree - I'm sure.


Tuesday, February 22, 2005

The Market for Academic Economists

This morning's Wall Street Journal has a nice article on the market for big-time academic economists. Some quotes:

The tug-of-war over star academic economists is heating up, as U.S. universities continue to expand economics departments and revamp the way they teach the subject.

Harvard University is wooing Matthew Rabin of the University of California at Berkeley, a "behavioral economist" who seeks to explain why people don't always act in the rational ways that economists often expect.


The growing quest for economic talent is largely a response to market forces. Economics is the leading major at many top schools, including Harvard, where 15% of undergraduates major in the subject. Universities figure top-name professors will help recruit the brightest students.

"When you recruit top people, it also makes it easier to recruit top junior faculty," says Jose Scheinkman, an economist at Princeton.

The scramble for talent has driven up salaries. According to the Bureau of Labor Statistics, salaries for economics teachers, a category that includes professors, averaged nearly $140,000 a year -- based on a 52-week year -- in 2003, making it one of the highest-paid professions that the government tracks. But at the elite colleges, economics professors can earn substantially more, with some senior faculty commanding $150,000 to $250,000 for nine months' work. Other forms of compensation such as housing subsidies and signing bonuses can be used to bolster pay packages. Superstars, such as Nobel Prize winners, can earn in excess of $300,000.

According to this study published annually by folks at the University of Arkansas for the American Economic Association, new PhD's going to top research schools received starting salaries right around $80,000. At non-PhD granting institutions, such as mine, starting salaries for new PhD's average around $60,000. Here's more:

The sheer growth of the field also is playing a role, as schools rush to expand their programs. Among the most ambitious is New York's Columbia University, which is enlarging its department from 28 to the equivalent of 41 full-time professors, plus an additional five visiting professors each year. Such growth has helped create a hiring rush at all levels.

But while demand for academic economists has grown, supply hasn't. According to the National Science Foundation, U.S. universities churned out 1,051 Ph.D. economists in 2003, the last year for which figures are available. The number has held roughly steady for a decade.

Timothy Bresnahan, chairman of the economics department at Stanford University in California, says there is strong interest in the relatively young crop of economists who received Ph.D.s in the 1990s and are focusing on using economic theory to address issues such as crime and school reform. "These people are using economic principles to study things which are wrong and are looking for ways to fix it," Mr. Bresnahan says, noting that this new branch of the discipline is helping to make economics more academically vibrant and attractive to students.

The marriage of economics with other disciplines is also helping fuel the market:

Many universities want star professors who can help reshape how they teach economics. David Cutler, an economist and dean of social sciences at Harvard, notes that it has become more important to integrate economics with other specialties such as medicine and psychology. That is one reason Harvard is recruiting Jonathan Cohen, a Princeton psychologist who specializes in "neuroeconomics," the study of what happens in the brain when people make economic decisions. Mr. Cohen declined to comment.
That's what makes economics so cool - it's wide applicability to so many other fields other than itself and business: medicine, education, public policy, psychology, sports (and not just the business side either). Heck, I remember reading about a paper a few years back where researchers used economic principles (knowingly or unknowingly, I can't remember) to understand why female birds of a particular type were more likely to leave the nest than male birds. I'm going on memory here, but as I recall, the argument was that a female bird was more likely to find another mate if she left the nest. That's decision-making under uncertainty - Chapter 5 in your Intermediate Micro text!



Auroras - not just for earthlings. Here's today's APOD:

According to the text, these things last for days on Saturn.


Faculty Bonus Plan

Officials at the University of Missouri are working towards advancing a plan to award bonuses to its faculty. From the Columbia Daily Tribune:

University of Missouri-Columbia Chancellor Brady Deaton said yesterday that bonuses are vital in compensating productive faculty but that the campus must ensure a bonus system isn’t detrimental to its "sense of community."

Deaton said bonuses can help provide money to MU at a time when the state is not increasing its funding share. But bonus plans must provide money to the campus as a whole in addition to faculty enrolled in the plan, he said.

"So we want incentives where we can generate funds from outside the university, and that’s what we’re looking at here," Deaton told reporters. "We feel we ought to be able to use those to help reward those people who are contributing so much to that part of our mission."


Monday, February 21, 2005

New Toys

It's been awhile since I bought my last guitar - a jet-black Les Paul Standard with gold hardware... a real nice piece of wood with a great sound. I've been itching to acquire a 12 string and a Martin for sometime, so this past week, I did both. I picked up a Martin DX1 and a Seagull S12+. Both of them sound real nice and play real well. I love the new guitar smell of the Martin - very sprucey. The shop owner from whom I bought mynew wooden toys threw in a ukulele for my durables (ya suppose I didn't get a great deal on my guitars?). Now my durables and I can jam. What would Adrian Smith of Iron Maiden and a young Don Ho sound like if they jammed together?


Slide Projectors

From Ben Muse:

Kodak's slide projector falls victim to technological change. In among the obituaries, in the March issue of Sky & Telescope, Edwin Aguirre writes:
    "There has been another death in the Eastman Kodak family. Only months after announcing that the company...would cease production of its popular black-and-white astrophotography film...Kodak rolled the last of its 35-millimeter slide projectors off the assembly line on October 22nd. The end had been expected since September 2003, when the company announced that it would stop making and selling projectors due to declining sales.

    During its heyday from the 1960s to the 1980s, it was the principal means for amateurs to share their astrophotos and give lectures at club meetings, conventions, public star parties, and planetarium shows. This was before digital imaging, personal Web sites, and Microsoft's PowerPoint software gained widespread popularity. The venerable projector just couldn't keep up with the rapidly evolving, computer-driven multimedia technology. However, Kodak says that it will "continue to provide service and support for slide projectors through June 2011. It has no plans to "discontinue any color slide films at this time.

    Kodak debuted its slide projectors in the mid-1930s, and its innovative carousel-tray loading system introduced in the early 1960s made possible complex, multiprojector audiovisual presentations. The company estimates that is has sold around 15 million units worldwide during the projector's nearly seven-decade-long production run..."
When my dad took pictures of me and my family in the early years of my early life, back in the 60's, he used slides, by and large. I think the next time my better 3/4ths, the durables, and I go to see grandma, we may have to break out the old slides.


The Cost of Illegal Downloading of Music

The Big Picture says it ain't that much. But if it ain't that much, why are so many resources being put forth to limit it?


I Guess my Coffee Sucks

At least I grind my beans right before brewing. But, according to this, it must still suck.


Moving to Canada?

Here's what you'll find. The Econoclast generally concurs.

Link via Newmark's Door.


Sunday, February 20, 2005

Flying While Intoxicated...

is not good for birds.


League and Union make Concilliatory Gestures

No, not the NHL - the NBA and its union are in negotiations over a new contract, the old one of which expires at the end of this season. According to the Houston Chronicle:

With NBA Players Association executive director Billy Hunter saying an NBA lockout would be "a catastrophe," NBA commissioner David Stern predicted a new collective bargaining agreement will be in place by the end of this season.

Just months after Hunter suggested there would be "blood on the water," he and Stern offered optimistic comments about the negotiations. Both said they expect to avoid an off-season shutdown of business when the current agreement expires July 1.

"It may be combining sort of reality with hope," Stern said, "but I think there will be a deal by the end of the season."