Market Power

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

Saturday, April 02, 2005

Nice Game

This game might do something for the confidence level of the Missouri Tiger baseball program:

Sophomores Max Scherzer and Michael Cole combined for the first no-hitter at Missouri since 1981 as the Tigers defeated Texas Tech 25-0 on Friday night at Taylor Stadium.

Dang, that's impressive. The two Tiger pitchers also recorded 18 K's. Tech is usually a solid program, but they struggled against the Tigers in all facets last night. From the Lubbock Avalanche-Journal:

The Red Raiders set new league marks for most walks, runs and hit batters allowed in an inning as Missouri plated nine runs without ever putting the ball in play during a 17-run second-inning. That led to a 25-0 laugher by the Tigers at Taylor Stadium, tying the mark for the worst loss in the 56-year history of the Tech baseball program. Along the way, the Red Raiders were no-hit for the first time in 26 years as the Tigers captured their fifth win over Tech in the last six meetings between the schools.


Beer Geek

I'm a geek. Not just any kind of geek. I'm a beer geek.

When I was a little boy, my long-since departed father, Dr. James Merle Miller Jr***. former professor of History at Morningside College, used to give me small sips of his beer - usually a Falstaff or a Grain Belt.

April 1st's Wall Street Journal has an article entitled "Dear Beer" (paid subscription required) on expensive beer - $15 - $20 a bottle, sometimes even higher. Such beer is often aged.

The concept of "aged" beer itself flies in the face of conventional wisdom that beer is meant to be drunk within a few weeks of its production (and almost all beer is). But aged beers -- many of them brewed with lots of hops and high-alcohol levels, both acting as preservatives -- have become a staple of what might be called the high-end beer market.
Even though I'm a beer geek, I have nothing against the mass-produced lagers such as Budweiser, MGD, etc. Their mass production allows them to produce beers at a low cost that competition allows to be passed onto consumers. Besides, after a game of softball, an oatmeal stout is not my beer of choice. A pale ale is good, but a Bud Light will do in a pinch. But Anheuser-Busch's use of the "born-on date" on their bottles is a little bit deceiving.

Beer is a food product and it will deteriorate as it ages. But the combination of alcohol and hops are natural preservatives that allow beer to keep over a period of time. Indeed, the India Pale Ale style, a beer known for its hoppy character, was a beer style originally brewed in England for the British troops stationed in India a long time ago. The brewers added extra hops to the brewing process so that the beer would keep in the long boat ride from England to India.

I've still got some beers in my basement that I had my sister bring me from Colorado last April (regular readers of this blog know I have an affinity for beers from the Flat Branch Pub and Brewery in Columbia, Mo. and from the various breweries in and around Boulder, Co.). The only one I've had trouble with is this one that, when I pour it, is almost all head in the glass. I'm not sure what causes this to happen with this particular beer, but I have had problems like this with beer that I have brewed.

After I my beers had fermented, I add corn sugar to the fermented brew before bottling. The yeast consumes the corn sugar, making the carbonation. Overtime, needless to say, a lot of carbonation would build up. I've heard of some people who have experienced the "bottle bomb", where so much carbonation would build up that the bottle caps would pop off. I've never had that happen, but I have gotten too much carbonation. But other than that, I had some beers that sat around for two years and tasted fine upon drinking.

*** Yes, nearly 30 years after his death, Morningside College honored my dad by naming their Blackboard system "Miller Hall." I guess that makes up for cutting down the tree that was supposedly planted in his honor after his death.


Friday, April 01, 2005

FLASH! Water on Mars!

The crazy folks at APOD had this on April Fools Day:

Those wacky astronomers!


Attention, New Economics PhD's

Here is a link to the entire set of Surveys of the Labor Market for New Economics PhD's put out by Jeff Collins' shop at the University of Arkansas.


Trading Spaces

Peter Drucker has these interesting thoughts in his article "Trading Spaces":

Information as a concept and a distinct category is an invention of the 18th century--of the newspaper in England and the encyclopedia in France. Within a century, information became global with the development of the modern postal system in the 1830s, followed almost immediately by the electric telegraph and the first computer language, the Morse Code. But unlike the newspaper and the encyclopedia, neither the postal service nor the telegraph made information public. On the contrary, they made it "privileged communication." "Public information" by contrast--newspapers, radio, television--ran one way only, from the publisher to the recipient. The editor rather than the reader decided what was "fit to print."
Farm subsidies are now the only net income of French farmers, as their crops produce nothing but net losses and are grown only as the entitlement for the subsidies.
But mercantilism is increasingly becoming the policy of "blocs" rather than of individual nation-states. These blocs--with the European Union the most structured one, and the U.S.-dominated NAFTA trying to embrace the entire Western Hemisphere (or at least North and Central America)--are becoming the integrating units of the new world economy. Each bloc is trying to establish free trade internally and to abolish within the bloc all hurdles, restrictions and impediments, first to the movement of goods and money and ultimately to the movement of people.
At the same time, each bloc is becoming more protectionist against the outside.
A mercantilist world economy, however, faces the same problems that led to the ultimate collapse of mercantilist national policies: It is impossible to export unless someone imports.
China may similarly attain leadership through its world-class competence in manufacturing management--the legacy of the communist emphasis on output and production.

HT t0 Marginal Revolution for the link.


This is Your Brain on Children

I've got two sons. I know what it's like to be a dad. Here's something from the mother's perspective. Good stuff.


How Do Employers React to Minimum Wage Increases?

King at SCSU scholars has this post on the minimum wage. Craig Newmark at Newmark's door posted this excellent column by Steve Chapman on the effects of the minimum wage. For the employer's point of view, here is a beautiful piece on Coyote Blog from a fella who runs campgrounds. The theory espoused by economists and the evidence provided by the campground owner line up very well.

Many of the campground owner's employees are over 60 years old and are paid the minimum wage. Some snippets:

To run our campgrounds, we mainly employ retired people. Of my
500 workers, well over half are over 60 years old, more than 150 are over 70,
some 25 or so are over 80 and a few are even over 90! Most are on social
security and medicaire, and many have pensions and retirement health
plans. A good number are disabled and have some sort of disability
support. While they work slower, they make up for their low productivity
in part by their friendliness with customers and their life experience.

I love hiring older workers at $5.15 an hour, and they love the job
and line up for it. But what happens when I have to pay these less
productive workers $6.00 an hour? What about $7.50? What about at
$12.00 an hour?

We run a number of campgrounds in Washington under concession contract from
the US Forest Service. Most of these campgrounds are both small and very
isolated, and are therefore labor intensive. Given local market
conditions, it is increasingly difficult to raise fees fast enough to keep up
with rising labor rates (as well as labor-linked costs such as workers comp and
unemployment) since we are competing against larger private campgrounds that are designed more efficiently and may be closer to local labor. We have
effectively given up trying to make money in this area, and will very likely not
rebid the contract when it expires.

In a number of locations, we have been forced by rising minimum wages
and associated costs (particulalry workers comp.) to switch some of our cleaning
and landscaping duties from our live on-site employees to local

Anyway, on this particular concession we have to pay our
living-on-site workers based on the SCA. This means, for example, that
someone who sits in a parking lot booth collecting parking fees must be paid
something like $12.50 an hour, which translates to a bit over $15.60 when you
factor in FICA, SUI and workers comp. Over 2000 hours a year that is
$31,200 a year.

A fully automated fee collection machine (which actually does more than
the attendent, since it takes credit and debit cards as well as makes change for
cash) costs $23,000. Plus, the machine never will sue over wrongful
termination, never will discriminate against or sexually harass a customer,
never will steal, and never will fail to show up for work.

Last election, Floridians voted themselves a minimum wage increase of
$1.00, and worse, voted that the wage will increase each year by a cost of
living factor. As a result, on the May 2 effective date, our costs will go
up by about 15% in managing the swim areas and campgrounds in that area.
Since this is well over our profit margin, prices will also go up by the same
amount on the same day.

What does that lost comment say about the elasticity of demand faced by this fella in Florida?

To my principles of micro students: we just finished talking about the perfectly competitive firm. What happens to this firm's marginal cost curve when it employs minimum wage workers and the minimum wage is increased? How does the firm's output decision change? What happens to the supply curve in the market? What happens to the product's price? To my principles students and my collective bargaining students: how does the firm substitute between resources when faced with a higher minimum wage?

Oh, and one other thing... what is the average family income of people in Minnesota who would be helped by an increase in the minimum wage? $15,000? $25,000? See here and look halfway down the tabl(thanks to John Palmer for the link).

Hat tip to Russ Roberts at Cafe Hayek for the Coyote Blog piece.


Thursday, March 31, 2005

Are Kids More Violent These Days?

Mark Thoma posts here that the answer looks to be "no."


Minimum Prices Combat Predatory Pricing?

I posted this piece and this piece on Minnesota’s minimum gas price law. Walter Williams has some comments on predatory pricing as it pertains to this sort of price regulation. In theory, a price predator is a business with a cost advantage that can price other firms out of business. Once the competition is gone, the predator takes advantage of its new-found market power and jacks its price back up. The key here is that the firm drives out competition and that there is no incentive for anyone to enter the market in the future. This will not happen in the gas price market.

Gasoline sold at Sam’s Club is virtually the same as gas sold at Casey’s, Texaco, Holiday, or Hy-Vee. There is very little (if any) product differentiation. Economists talk about a Bertrand duopoly. In this market structure, two firms producing perfect substitutes compete in price and they will price their product at marginal cost. They have no incentive to lower the price any further and incur marginal losses and they have no incentive to raise the price and thereby lose all their customers to the competitor. In a Bertrand market, all that is needed to have marginal cost-pricing is two firms. Do we really think Wal Mart is going to corner the market in gas and become the only seller?

Alex Tabarrok had this post last May about minimum gas price law law (which is where I found the link to the Walter Williams piece). Apparently, this isn't the only time that a gas station attached to a Wal Mart has been attacked under this law.


The Pie-ing of William Kristol

On March 29th, conservative commentator William Kristol was giving a speech at Earlham College. About thirty minutes in, somebody served him dessert (from the Chronicle of Higher Education - subscription required):

That's because a student climbed onto the stage in Goddard Auditorium at the college, in Richmond, Ind., and threw an ice-cream pie, topped with a cherry, into the pundit's face.
Nice (he says sarcastically). Chris Hardie, a graduate of Earlham, reflects nicely on this event.


Nice Shot, Man

You play golf like a blind man!


Blogspot's Problems

John Chilton has the answer for why Blogspot has been so temperamental lately.


From the Ground Up

One of the first things I did when I got to Minnesota State was develop my Sports Economics course. My younger colleagues and I are also going to be instrumental in building the future of our department. These sorts of things are common at most institutions, but most of us will not be involved in building a university from scratch. From the Chronicle of Higher Education (subscription req'd):

The faculty members who have already arrived on the new Merced campus of the University of California have not only had to balance research with teaching, but also had to concentrate on curriculum development, community outreach, job searches, and heavy administrative duties. "Everyone is doing multiple tasks and working very long hours," says Maria Pallavicini, dean of the School of Natural Sciences.
Someday Merced will boast a faculty of more than 1,200. For now, the university employs fewer than 50 professors; 60 should be in place by the time the campus officially opens, in September.

Recruiting for those positions has proceeded smoothly, by and large, despite the many challenges the new faculty members face, the remoteness of the campus in central California, and Merced's lack of name recognition.
But Merced has seen an outpouring of interest in faculty jobs. Carol Tomlinson-Keasey, the chancellor, says the university received 7,000 applications for the first 30 faculty openings. "Many were drawn to the UC name," she says. "Thank God for that."

Indeed, many faculty members mention the university system as a prime reason for their interest in their new jobs. "Being within the UC system guarantees a certain level of support from the state and a certain level of quality," says Kevin A. Mitchell, a physicist who is an assistant professor in the natural-sciences school.

It also means a certain salary level. Merced pays faculty members salaries in the same range as that of professors on the system's other campuses. The lowest-paid assistant professor makes nearly $49,000, and the highest-paid full professor brings home more than $151,000. According to the Greater Merced Chamber of Commerce, the median price of a house in the city in 2004 was $279,000, a far cry from the sky-high prices elsewhere in the state. (The median price in San Francisco was $647,000.)

Minnesota State has about 1300 faculty jobs. If Merced gets up to a similar student-teacher ratio, I suppose it will end up with about 14,000-15,000 students. I wonder how successful the following sort of collaborative stuff will be in the long run, once the bureaucracy gets in place and starts festering:

That freedom has allowed faculty members to be creative. For instance, Mr. Mitchell and a mathematician will team teach a double-credit course in calculus and physics. "These are two very closely related subjects," says the physicist, "so it makes sense to teach them together."

The introductory-biology course will also make more use of mathematics and computer science than traditional biology courses do, says Mr. Colvin, who will teach it. That shift in priorities will lead to less emphasis on memorization, he says. It will also have a practical side benefit: Since teaching-laboratory facilities will not be completed by the time the fall term starts, computer-lab sessions will help make up for lost time.

Faculty members from all three schools constituting the university are working on shaping a yearlong core course that will be required of all freshmen. The class will pay particular attention to noteworthy concerns of California's Central Valley, such as the use of natural resources, particularly water, from the perspective of scientists, engineers, politicians, historians, and anthropologists.

"Departments often create silos and barriers for faculty with different expertise," says Ms. Pallavicini, the natural-sciences dean. "It's often difficult to get a computer scientist and a biologist together if there's different space and different rules in their departments."

Such problems do not exist at Merced, where the faculty members know each other well because of their constant administrative work in the race toward opening day. But other issues have cropped up because of that very lack of departments.

I reiterate... I wonder how long it will be before the bureaucracy festers and the various departments start calling their credit hours home in a game of "that's mine, this is yours?"


Wednesday, March 30, 2005

Gambling on College Basketball

I posted thoughts on this subject over at The Sports Economist, but I wanted to go into more detail. From the Washington Post:

Betting on college sports threatens the integrity of the games, in the view of Bill Saum, the NCAA's director of agent, gambling and amateurism activities. At worst, it exposes college athletes to pressure from criminal elements conspiring to fix the outcome of games. At its most benign, it sends mixed signals about the propriety of gambling, whether on sports, slots, poker or pool.

What drives this fear is the lack of salaries paid to players commensurate with the revenues generated by their games. To see how football programs recruit players when they can't compensate them with income, see this post below. Nice digs.

Every player is a candidate to be a point shaver and there are some penalties that hit all players in the same manner (jail time, expulsion from school). The star players on the big-name programs are the least-likely to fix games. These players have relatively good opportunities to play professionally and to earn lucrative salaries. If they get caught fixing games, their professional careers will likely be ruined. So they have to get at least as much to shave points as they expect to lose in their basketball career.

The good players on the not-so-big-name programs and the guys off the bench on both types of programs are more likely to fix games. They don't have professional opportunities and therefore have less to lose. They are also the ones that point shavers are going to go after because they will be the ones who have lowest reservation price of price shaving.


Why is Blogspot Running So Slow?

It's because of stuff like this.

When you don't charge for your service, people will use it up until the marginal benefits are very nearly equal to zero. Collectively, that puts a huge strain on the infrastructure. Eventually, without improvements to it, the infrastructure collapses. See Tragedy of the Commons.


Teach In

Where did the term "teach in" come from? Did this come from the same sort of source that the term "sanitation engineer" come from - i.e. some person trying to disguise the true value of stuff. How much teaching actually goes on at these things?

Some faculty and students at Minnesota State had a teach in regarding the "Social Security Myth." Here is the opening paragraph from the local paper's story (subscription required):

It was admittedly one-sided. But for the people who put on Monday's Social
Security teach-in at Minnesota State University, it was seen as a chance to have
their say in a debate they think already has been a one-sided affair.

Translation: we didn't invite an opposite viewpoint because we didn't want to.


Remember AOL?

It looks like Blogger is running into problems similar to what AOL ran into several years ago. The marginal cost of posting on blogger is very small, so rational people will blog up until their marginal benefits equal zero. Collectively, since the bloggers aren't bearing the costs imposed on the servers, this causes overuse and causes the system to crash.

I don't know for sure, but that's what seems to be going on.


Tuesday, March 29, 2005

Married Women's Labor Supply

From an NBER working paper by Francine Blau and Lawrence Kahn:

Using March Current Population Survey (CPS) data, we investigate married women's labor supply behavior from 1980 to 2000. We find that their labor supply function for annual hours shifted sharply to the right in the 1980s, with little shift in the 1990s. In an accounting sense, this is the major reason for the more rapid growth of female labor supply observed in the 1980s, with an additional factor being that husbands' real wages fell slightly in the 1980s but rose in the 1990s. Moreover, a major new development was that, during both decades, there was a dramatic reduction in women's own wage elasticity. And, continuing past trends, women's labor supply also became less responsive to their husbands' wages. Between 1980 and 2000, women's own wage elasticity fell by 50 to 56 percent, while their cross wage elasticity fell by 38 to 47 percent in absolute value. These patterns hold up under virtually all alternative specifications correcting for: selectivity bias in observing wage offers; selection into marriage; income taxes and the earned income tax credit; measurement error in wages and work hours; and omitted variables that affect both wage offers and the propensity to work; as well as when education groups and mothers of small children are analyzed separately.


Predatory Pricing and Small Town Gas Stations

I blogged here and here about Minnesota's price floor on retail gasoline. A local Sam's Club gas station is being investigated for charging a price below the price floor. Sam's Club competition blew the whistle. I took a closer look at the article that got me thinking about this issue. Here is the article (subscription required). Here is a quote from the article that shows the predatory pricing argument is at work here:

But Cornish said the survival of small stations is at stake if major corporate sellers offer gas at below cost.

"It will be a way of closing down these stations - the little ones," Cornish said.

That could be devastating for smaller towns where there might be just a single option for purchasing gas, Cornish said. And if most competitors are eliminated, the big sellers would ultimately be able to sell at a higher price than they could if nearby rivals still existed.

First, if consumers in the small town have an option to buy low-price gasoline at a "corporate" gas station, why should the government restrict their options and how would this be devastating to the community? It would have just the opposite effect. Sure, the owner of the gas station would feel a negative effect, but the consumers of gas in the small town would gain. Not only could they get gas cheaper, but they can put the savings towards the purchase of other things.

Second, those who use the predatory pricing argument say they fear monopolization. Never mind that the evidence suggests that predatory pricing exists in models but not in practice. If there really is only one gas station in a small town, doesn't that station have market power which it can use to jack up its prices? Won't legislation designed to keep compeitors out enhance its market power and allow it to maintain its high prices? The answer to both questions is yes.

Third, do we really think that the small town gas station would actually go out of business? What if the nearest "corporate" gas station is 30 miles away? How often are residents of the little town going to drive 60 miles (30 miles there and back) just to get a full tank of gas?


The Invisible Hand Fights Back

From The Eclectic Econoclast:

Over the past couple of weeks, Jack has sent me copies of
several advertisements that have appeared in The National Post in Canada. Here
is the introductory text of one of the ads:

You don't have to wait to have your CT Scan. If you or someone
you know is on a long waiting list for a CT Scan (also known as a CAT
Scan) you have another option. Just across the border in Southfield, Michigan, you can be scheduled immediately on our state-of-the-art GE/Imatron CT scanner.

If a physician in Canada prescribed a CT Scan for a
member of my family, but we were told that there was a 4-month waiting list, you
can bet we'd be traveling to Michigan.

This is a beautiful example of the invisible hand fighting back. Who are going to be the ones who benefit from the massive controls on Canadian medical services? For CAT scan services, it will be those most willing and able to wait (or those most willing and able to get someone to put their names on waiting lists for them) and those most willing and able to travel to other countries to get their health care. Are these the poor? Not necessarily.


House Prices

What can $479,500 buy in Mankato, Mn? This lovely 5 bed 4 bath house:

What can $329,000 get you in Mankato, Mn? This 5 bedroom, 2 bath acreage with a river view:

What can $329,000 get you in Sioux City, Ia? This nice new home:

What can $309,000 buy in Fresno, Ca? This 3 bed 2 bath house on a really small piece of land:

What can $439,000 buy in Carpinteria, Ca? This trailer home:

Is there a housing bubble in California? To what extent does the price differential between trailer homes in Carpinteria and trailer homes in, say, Missouri reflect the benefits people get from living by the Pacific Ocean in a temperate climate?


Monday, March 28, 2005

Minimum Gas Price Law

I posted this piece on Minnesota’s minimum gas price law. Who could possibly benefit from such a law? Walter Williams has the answer in a piece on the Maryland gas price law:

... whose interest is served by, and just who lobbied for, Maryland’s gasoline minimum-price law? If you answered that it was probably Maryland’s independent gas-station owners, go to the head of the class.

Williams argues that the legislation basically boils down to helping a well-defined and concentrated special interest (independent gas station owners) while imposing costs on a diffuse interest (consumers). The concentrated interest is more likely to pay lobbyists and give campaign contributions to legislators who vote for this legislation while there is almost no incentive for an individual consumer to organize other consumers, even if the aggregate costs imposed on consumers exceeds the aggregate benefits.

Let's suppose that the gas price law is known to provide $1,000,000 in benefits to a group of 500 people but imposes costs of $2,000,000 to a group of 4,000,000 people. Those who are helped would be willing to pay no more than $2,000 each (on average) to get the law enacted. Those who are hurt would be willing to pay no more than 50 cents each (on average) to get the law repealed. Where will the intense lobbying likely come from? It will probably not come from those who are hurt even though the total losses felt by them exceed the gains to the other group (we call this a deadweight loss). Why? Because their opportunity costs are likely too high while the opposite is true for the group that is helped. Time spent lobbying is time not spent in other activities - working, spending time with family, etc. – and people must be compensated in order to give them incentive to give up these other activities. Those who are helped are well-compensated. Those who are hurt are not.

Even if we believe that legislators are making decisions in the public interest, we cannot assume that they have perfect information. Instead, they gather information from the interested parties - i.e. from lobbyists. If information only comes from one side, we can expect the legislation to be one-sided as well.


A Victory for the NCAA

My co-blogger over at The Sports Economist, Skip Sauer, posts his thoughts on the conviction of Logan Young, a University of Alabama booster who paid $150,000 to Lynn Lang, a Memphis high school football coach, to steer one of Lang's players, Albert Means, to Alabama. It is well worth reading.

In his post, Skip links to a picture of the University of Texas football locker room. Here's the picture.

Here is another link to other football facilities at UT. You get a feel for just how much money is spent trying to lure recruits to this school or that school, but it shouldn't surprise you. D1 college football teams, especially the Texases and Nebraskas and Michigans of the world, generate tens of millions of dollars in revenue every year, but the players receive next to nothing in compensation. In order to generate those tens of millions of dollars, teams need to recruit the best players and to recruit the best players, they need to give something of value to the players. Since the players can't legally be paid their marginal worth, those things have to take the form of non-price rationing mechanisms. Palatial locker rooms are one of those things, and it is one of things that rent-seeking athletic departments will "employ" to recruit big-time players..


Article About My Talk Last Thursday Night

Here is the text of the article in the local paper about my talk on sports stadium last night. For the most part, the author of the article got stuff right. But there were a couple of discrepancies.

Public subsidies of professional sports stadiums provide no tangible public good, a fact being recognized by more cities around the country, says an economist who's studied the issue.

"You see a lot more resistance (to taxpayer-funded stadiums) than you did in the past. I think people are seeing the evidence that the benefit isn't there," said Phillip Miller, an economist at Minnesota State University.

Miller said team owners will not invest in privately funded stadiums because the added value it brings to their franchise is negated by the debt. Owners who get stadiums built by taxpayers see their franchise's value jump about $100 million immediately. That, said Miller, easily explains why owners fight so hard for public subsidies. And they are able to apply great pressure to state and local officials because professional teams are in demand and can move to other cities and states.

First, I said that any public benefits from sports teams are going to be very small.

Second, the conclusion about why teams seek public financing is not quite right. Based on a regression model, the average baseball team (playing in a 40 year old public stadium) realizes an estimated increase of about $95 million when it moves into a new stadium. My research suggests that owning the stadium in which it plays enhances the franchise value of the team (relative to playing in a public stadium). But the marginal franchise value - the differenece between the franchise value in a private stadium and that in a public stadium - does not warrant a team privately funding most of the construction of its own stadium. Indeed, depending on the discount rate of team owners, the present value of the marginal franchise value never exceeds $125 million (approximately) and is more likely quite a bit smaller.

But he said his and others' research shows that the public gets no benefit from spending tax dollars on a sports team. That's because the teams do not pull new money into a state.

"Most of the money spent on sports and sports teams (by fans) would have been spent somewhere else," Miller said during a research lecture on campus Thursday night.

He said some new money may be pulled into a city or state by the presence of pro sports, but there is a much larger amount of money that leaves the state in the form of salaries to players and owners. "Most of the owners and most of the players do not maintain long-term homes in the cities they play in."

Some in the audience questioned whether the idea of being a "major league state" and the sense of pride and enjoyment of having pro teams is a pubic benefit worthy of taxpayer funding of stadiums. Miller said that for sports fans like himself, there is some joy in having hometown pro teams, but he sees little true public good. He argued that many other things - such as museums, quality housing and a good economy - are are more important in creating a "major league" city or state.
I didn't claim that these other things were "more important", just that these other things can also be thought of as contributing to a "major league" city.

He noted that even when fans are the happiest over their team winning, they show their happiness by buying more team merchandise - something that further enriches the owners who often are taking their profits out of state.

My point here was that much of what seems to be a public good does get captured by teams. In other words, happiness over a well-performing team is often a private good.

Miller received his Ph.D. in Economics from the University of Missouri - Columbia where he taught and began researching the economics of sports. He came to MSU in 2002 and has done more in-depth study on sports and public subsidies. He was chosen to give this year's Economics Department research lecture.

There is little optimism that this year's legislative session will produce any significant stadium legislation for either the Vikings football team or Twins baseball team, both of whom play in the Metrodome.

There is momentum for a new on-campus stadium for the Minnesota Gophers football stadium. On Thursday, the University of Minnesota announced it had reached a deal with TCF Bank to name a new stadium after the financial institution. TCF would pay $35 million over 25 years for the naming rights.

The university is seeking $94 million in state aid and hopes to raise $141 million privately for a new stadium. Gov. Tim Pawlenty has been generally supportive of the idea. The Gophers currently play in the Metrodome.


Sunday, March 27, 2005

Compensating Differentials in Action

What are the annual incomes of people who build water towers? According to this article in the Columbia Daily Tribune, they average over $79,000 per year in Missouri (not including benefits and overtime pay). This is a very dangerous job:

Any man on the crew will tell you he earns every penny of his paycheck. The job takes them away from their families more than 300 days a year, and it holds undeniable hazards despite regulated safety precautions. Working some 200 feet above ground, crewmembers straddle beams and stand atop scaffolding, guiding each piece of crane-lifted metal into place and meticulously welding together the 500,000-pound structure.

They must rely on harnesses, hardhats and sheer nerve for their sense of security.

Economists talk about "compensating differentials" in labor markets. Consider two jobs, a dangerous one and a safe one. Other than that, the jobs are exactly the same to workers. Workers in the dangerous job will earn a wage differential that compensates them for the risks on the job. This is a compensating differential.


Unions and Discriminatory Practices

African-Americans have the highest rates of unionization. Part of the reason is because this demographic group is highly-represented in the public sector, the industry with the highest rate of unionization.

Another plausible reason is that unions help fight discriminatory practices by employers. Evidence from New Zealand provides some evidence for this. Here is the link to the paper. Here is the abstract:

This study examines the effects of unions on employer compliance with antidiscrimination legislation in New Zealand, using a sample of 227 employers. The results do indicate that unions do reduce discriminatory practices. More specifically, higher levels of unionization do increase the level of employer compliance. However, other union characteristics, such as union size and strike propensity, appeared to have no influence on employer practice.


Pre Kindergarten

Tyler Cowen at Marginal Revolution links to a summary of this NBER article on the effect of prekindergarten schooling on youngsters. From the summary:

Further, for most children the positive effects of pre-kindergarten on skills largely dissipate by the spring of first grade, although the negative behavioral effects continue.
The fact that the gains made by prekindergarten kids are dissipated by first grade doesn't surprise me. When I was a child, my mother read books to me and I also spent a lot of time watching Sesame Street. I learned to read before I reached first grade. The officials at my elementary school considered moving me up a grade, but since my math skills were too weak for the second grade, they didn't. Instead, my teacher sent me to the school library until all the other kids could catch up with me. The opportunity cost of trying to work with a kid that was advanced in one area was too high.

Might an advanced child feel frustrated that he is not being intellectually-stimulated enough, thus enhancing the negative behavior?


You Learn Something New Everyday

I didn't realize this: the state of Minnesota has a price floor on retail gasoline prices. From this story (subscription required) in the local paper:

The Mankato Sam's Club is under investigation by state regulators for allegedly selling gasoline at slightly below the minimum price allowed by law, according to a state lawmaker, but a company spokeswoman predicted the company will be cleared.
How does the law in Minnesota work?
The alleged violation involves a 2001 law that prohibits gas retailers from selling at below cost or below an adjusted wholesale price level as determined by the Commerce Department. Cornish said he has figures for Wednesday that suggest Sam's was selling gas about 2 cents below the minimum allowed by law.
Who complained about it? It wasn't consumers:
Cornish's actions followed complaints by officials with two gas stations in his legislative district, which covers rural Blue Earth County and parts of Waseca and Faribault counties. Cornish didn't identify the stations but said the owners have been watching the posted price at the Mankato Sam's Club, which began selling gas this winter.
This is ridiculous. I don't fault the other gas stations for choosing to turn in Sam's Club rather than competing and lowering their prices (in this particular instance). They know their cost structure and would probably have been in violation of the law if they had done so. But I do fault the law for not allowing the competition to take place, and in that case, I bet these other gas stations (in general if not in particular) had a lot to do with getting the law enacted.