It's Not Easy Being Green

My favorite magazine has the wonderful title of "The Economist". The website is www.economist.com Actually it is a British news magazine something like Time or Newsweek. (With one exception, unlike Time or Newsweek you are unlikely to read about where is Anna Nicole Smith's body in The Economist.) The reporters for The Economist are anonymous, only when they retire do they get a byline. The Economist now has a blog, Free Exchange which like the magazine has some interesting articles.

Recently there has been controversy over Al Gore's house. It seems that Mr. Gore uses more electricity in a month than the average family in a year, which is a tad inconsistent with reducing global warming. Free exchange weighs in on the controversy pointing out unintended consequences of trying to be "carbon neutral". Here is the post.

Economics of Speed Traps

Perhaps you know of places or town that have a reputation of being "speed traps". There is one town in Texas that would save everybody time if the cops would just take VISA on the spot. Well economists are fond of determining if something causes towns to rigidly enforce traffic laws. The following is an except from a paper (HT Tyler Cowen)

Speeding tickets are not only determined by the speed of the offender, but by incentives faced by police officers and their vote maximizing principals. Our model predicts that police officers issue higher fines when drivers have a higher opportunity cost of contesting a ticket, and when drivers do not reside in the community where they are stopped. The model also predicts that local officers are more likely to issue a ticket when legal limits prevent the local government from increasing revenues though other instruments such as property taxes. We find support for the hypotheses. The farther the residence of a driver from the municipality where the ticket could be contested, the higher is the likelihood of a speeding fine, and the larger the amount of the fine. The probability of a fine issued by a local officer is higher in towns when constraints on increasing property taxes are binding, the property tax base is lower, and the town is more dependent on revenues from tourism. For state troopers, who are not employed by the local, but the state government, we do not find evidence that the likelihood traffic fines varies with town characteristics. Finally, personal characteristics, such as gender and race are among the determinants of traffic fines.

That is from Thomas Stratmann and Michael Makowsky, both at George Mason. Here is
the paper.

Labratories of Democracy

It has been said that states are "Laboratories of Democracy", places were ideas can be tested. If the idea is worthy, other states can copy it or it can be implemented nationally. On the other hand, if the idea is a loser, at least only a relatively few people are harmed.

Well this idea comes from the state of Wisconsin. Put this in the "free lunch" category. It seems the Governor of Wisconsin wants to tax oil companies but not have any of the tax passed on to consumers. Specifically,

The tax would be 2.5% - or currently $1.50 - per barrel of oil meant for sale in Wisconsin.

Usually, a tax of this magnitude would raise gasoline prices 3-4 cents per gallon. Should those nasty oil companies try to raise prices then,

If oil companies passed the tax on to consumers, the firms could be fined for the gains from the price increase or company officials could face the jail time.

My Mother used to say if you are going to criticize something offer at least one suggestion for improvement. So here goes. If the Governor of Wisconsin wants to raise money from oil companies without those companies passing on part of the tax to consumers he should propose a law that says for this time and this time only we will tax you say 10 cents a gallon for every gallon of gasoline you sold last year. Now I won't guarantee that prices will not rise, but it would not be profit maximizing if they do, assuming firms are maximizing profits now. (It is a fixed cost, unrelated to current output.) Of course, when people do this they get sent to prison for robbing convenience stores.

A Blogger I Read

One of my favorite bloggers isMarginal Revolution. Take a look around. Here is an article the MR pointed to about trees and incentives.

Price Controls Strike Again

I mourn for the people of Venezuela. Their government is embarked on a course to completely trash their economy. Still, as a teacher, I am grateful to President Hugo Chavez for providing yet another example of the effects of price controls.

Regrettably, we don't know a whole lot that a government can do to make an economy grow faster. Surely an efficient government, one that provides a high level of service for the tax revenue it receives, helps. But that is true for any industry, an efficient industry is good for everyone. But, we know from far too many examples the actions government can take to destroy an economy. Price controls are one of the worst.

Externalities in Space

An externality or spillover is a cost or benefit imposed on someone else though the production or consumption of a good. Most goods do not create spillovers, at least in substantive amounts. But some goods or actions do. A recent test by China of an anti-satellite weapon created a large amount of space junk. Space junk is stuff left in space by launching space craft. Space is a big place but the area where people are interested is not. There are orbits that are particularly useful for certain applications. So when a piece of junk is left in space, it becomes a hazard to latter satellites. Should two objects collide, it could not only destroy a valuable piece of equipment but the collision will create even more junk. This link discusses the possibility of a chain reaction occurring creating so much junk that space becomes too dangerous to utilize.

The Simple is So Complex

There are not many things around that are as simple or as cheap as the ordinary pencil. But as this article demonstates simple things are quite complex.

What to do about the Penny

Austan Goolsbee has a suggestion.