The Vice President makes some hard headed arguments about the risks that companies such as Exxon and mutual funds who invest in such fossil fuel companies are likely to face in the future. While I like his piece, it is a convenient piece for an activist to write and he misses some basic economics. First, suppose that he is correct that in the near future that carbon assets (such as billion dollar oil fields owned by Exxon) will become worthless as significant carbon pricing arises and as the world's economy turns to zero emissions technology. If Exxon anticipates this, then it will accelerate its depletion of this resource now and flood the market with oil. This will lower the price of oil and natural gas and discourage investors from demanding low carbon technologies such as the Toyota Prius. The timing of the GHG emissions release will be front loaded and the atmosphere will face even greater challenges because Exxon's bosses anticipated the low carbon future. Second, Vice President Gore ignores the rising demand for energy in China and India. Developing countries will seek their energy using cheap sources. Third, he over-states the power of boycotts. I wish he was right but there is some serious wishful thinking embodied in this paragraph;
"Third, sociopolitical pressures (e.g., fossil-fuel divestment campaigns, environmental advocacy, grass-roots protests and changing public opinion) could create an environment in which carbon-intensive businesses could lose their "license to operate," thereby stranding assets."
The economics of boycotts is simple. If there is a large buyer who does not join the boycott (think of China) then the boycott doesn't work. The green boycott will simply allow China to buy these resources at a lower price. There will be no impact on the environment instead there is just a transfer of wealth to China who buys at a lower price.
Where the Vice President is correct is that the energy companies do have a strong incentive to think about diversifying their energy supply that they sell over the next 30 years. Is Exxon investing today in serious R&D to become a natural gas company and an energy company rather than being an oil company? Is Exxon investing in futures for oil to hedge price risk in the future?
Where I have thought about Vice President Gore's point is in the case of West Virginia coal miners. If these guys only know how to drill for coal and carbon pricing takes coal out of the equation as President Obama bans coal fired power plants and cheap natural gas leads to substitution away from coal to natural gas power plants, what happens to these high carbon workers? Gore focuses on high carbon firms but they are more nimble to adapt than these workers. What will Al Gore do for them? This is why these workers have such a distaste for low carbon policy. They know that their jobs are on the line. Read my paper with Cragg et. al.
Apartment September Numbers And HML #28 Pay Off Delay
September saw a continuation of the good performance of the Houston apartment complex. Rental income (which excludes utility chargeback amounts) reached its highest level to date - $170,000. Total income was just $1,000 lower than last month at $198,000. Net income (cash flow) for the month was $19,000, a bit lower than last month's record setting $25,000. I don't really have anything else to report on this other than rent concessions dropped by $1,500 and bad debit write-offs dropped by $5,000. Both of these are good things.
I reported last time that HML #28 was paid off. I was a bit premature on that one. It was supposed to be paid off on Oct. 18, but escrow did not close then. In fact, escrow still hasn't closed and we are now looking at this Friday to be the new closing date. No word on the reason for the delay, but given the unusual demands by the title company (like requiring a signature from me, a mortgage holder), I would not be surprised if they were the reason for the delay.
Update: Turns out, the delay was because the buyer had a scheduled vacation and was out of town. Escrow is closing today, although not without some additional drama. The title company was saying they would not release the funds to my partner and needed wiring instructions from me so they could wire the funds directly to my account. I was off getting that info when I got another call from my partner saying the title company changed their mind and was ok with simply cutting a check to me and letting my partner mail it to me. So that's what we are going to do.
I reported last time that HML #28 was paid off. I was a bit premature on that one. It was supposed to be paid off on Oct. 18, but escrow did not close then. In fact, escrow still hasn't closed and we are now looking at this Friday to be the new closing date. No word on the reason for the delay, but given the unusual demands by the title company (like requiring a signature from me, a mortgage holder), I would not be surprised if they were the reason for the delay.
Update: Turns out, the delay was because the buyer had a scheduled vacation and was out of town. Escrow is closing today, although not without some additional drama. The title company was saying they would not release the funds to my partner and needed wiring instructions from me so they could wire the funds directly to my account. I was off getting that info when I got another call from my partner saying the title company changed their mind and was ok with simply cutting a check to me and letting my partner mail it to me. So that's what we are going to do.
Which Cities Can Take a Punch?
The New York Times has published a very good piece on urban adaptation to natural disasters. Note its implicit optimism that New York City is making investments to make it more resilient against the next shock. In this sense, the marginal damage of a given shock declines over time due to small ball investments made by households, firms and local governments. While the NY Times wants more Federal Aid to pay for this defense, this makes no sense. Urban defense is a local public good while national defense is a national public good. Make individual neighborhoods and cities pay for their own defense and the investors will make better choices. Other people's money is too easy to spend and leads to waste. The point the article doesn't make is the counter-factual. If NYC doesn't make these investments and if it develops a reputation for being risky and unsafe then firms and the skilled will leave and NYC would become Detroit. This competition between cities for the mobile tax base incentivizes them to step up to address new risks such as climate change. This was a key theme in my Climatopolis that folks have been slow to appreciate. Competition and innovation will protect your urban family from the blows that climate change is now unleashing.
Behavioral Economics and Climate Change
Cass Sunstein suggests that we aren't scared enough of climate change. He should consider distinguishing public action (i.e carbon pricing) versus private action (i.e individuals and companies moving away from flood plains). This recent WSJ article suggests that private climate adaptation is taking place just as I predicted it would in Climatopolis! An empirical issue arises, can the wealthy who are building big houses on stilts in these risky (but beautiful) coastal areas withstand a punch in their new housing? I believe the answer is yes.
United Airlines and No WiFi Access
I was shocked that I didn't have Internet access last night on my 4 hour flight from Chicago to Los Angeles. Now that I have read this article I see that United is lagging far behind other airlines including Southwest. I was ready to buy the $8 Internet access but they wouldn't sell me this product. What happened to complete markets? Can I contact Arrow or Debreu?
Let's do some economics here. Suppose that a typical United Airplane flies 3 times a day and has 200 seats. If everyone bought the internet package, this would yield $8*3*200 = 4800 worth of revenue a day per plane. If the plane flies every day and the plane lives for 10 years, then assuming an interest rate of 0% this yields a present discounted value of revenue = 4800*365*10 = $17.5 million dollars. Are you going to tell me that this investment doesn't have a positive PDV?
I realize that not everyone on board will use this product. I realize that there are fixed costs to install wifi and maybe some marginal costs but do you see my point? You can incorporate your assumptions into my spreadsheet but the revenue stream will still be huge. United has been concerned about its low revenue. Read this article in the Chicago Trib.
Let's do some economics here. Suppose that a typical United Airplane flies 3 times a day and has 200 seats. If everyone bought the internet package, this would yield $8*3*200 = 4800 worth of revenue a day per plane. If the plane flies every day and the plane lives for 10 years, then assuming an interest rate of 0% this yields a present discounted value of revenue = 4800*365*10 = $17.5 million dollars. Are you going to tell me that this investment doesn't have a positive PDV?
I realize that not everyone on board will use this product. I realize that there are fixed costs to install wifi and maybe some marginal costs but do you see my point? You can incorporate your assumptions into my spreadsheet but the revenue stream will still be huge. United has been concerned about its low revenue. Read this article in the Chicago Trib.
Urban Economists on the Off Diagonal
At the University of Chicago, photos of the entering class are taken and put up on the wall. Here is a photo taken in early October 1988. Economists will recognize the guy in the upper right corner but does anyone else look familiar? Alberto Bisin, Phil Strahan, Erzo Luttmer, Ethan Ligon, Bernadette Minton , and Rick Flyer were also my classmates and I'm not even naming the other 70 who entered with me. Not a bad talent pool.
Unintended Consequences Caused by Women who Work in the Market Sector
Katie Couric says that her ratings are down because of this. Rick Flyer and Sherwin Rosen investigated the long term consequences for public school teacher quality as women chose to leave the the public education sector to enter the private sector. Dora Costa and I studied the intended consequences of this trend in our work on power couples.
Krugman and Climate Change Adaptation
Paul Krugman has written an excellent review of his first mentor's new book. Dr. Krugman is a consistent thinker. He devotes merely two paragraphs in his long review to climate change adaptation. Below I supply it.
In an urbanized world with multiple sources of food supply due to international trade in agriculture, I would like to see Dr. Nordhaus and Dr. Krugman explain which of these outcomes listed above is a "knockout blow" and how does this "knockout" occur? I would like to see these "macro economists" walk me through the micro economics of why optimizing households, firms and governments cannot adapt to these new challenges. Physical places will suffer (i.e if we evacuate Miami) but how do different households suffer? If households are expected to suffer, doesn't that create profit opportunities for those who can solve these problems? How far does human ingenuity go in offsetting Mother Nature? Are these Yale economists so pessimistic about human ingenuity? What is the point of Yale if its focus isn't to solve problems? (In this age of disclosure, I will reveal that Yale rejected my undergraduate application)."How much harm will this do? Nordhaus draws a contrast between what he calls “managed systems”—things like agriculture and public health, which are basically human activities affected by climate—and “unmanageable systems,” like sea level, ocean acidification, and species loss. Compared with some climate writers, Nordhaus is relatively sanguine about the impact of rising temperatures on the managed systems. In fact, he summarizes studies suggesting that agricultural yields will probably rise a bit thanks to one or two degrees of warming, and declares, “It is striking how this summary of the scientific evidence contrasts with the popular rhetoric.” (You see what I mean about his role as debunker—although he concedes that the costs become serious once temperatures reach levels that on current trends they are likely to hit late this century, and much more so at temperatures likely next century.) Health impacts, too, he views as modest, at least for the warming likely this century, declaring his overall assessment “similar to that for agriculture.”The bigger costs, Nordhaus argues, come from the unmanageable systems: rising seas, more powerful hurricanes, loss of species diversity, increasingly acidic oceans. The trouble is how to put a number on these costs—something he needs to do because, as I already suggested, his goal is to do cost-benefit analysis."
Some Press Coverage from Forbes about my University of Chicago China Lecture
On Thursday October 24th, I gave a lecture at the Harris School at the University of Chicago co-sponsored by the Energy Policy Institute at Chicago and the Confucius Institute. My talk was titled; "Blue Skies in China?" You can download the relevant material here. Today, a Forbes blogger wrote a nice piece about my remarks. Sudden impact! Today, I gave a talk for 180 graduates of the University of Chicago's Booth School. This was a real estate crowd and my talk was titled; "The Future of Chicago". I had a great time and my remarks were well received. Somehow, I feel more appreciated in the Midwest and the Far East rather than in the West. Can you explain that?
The Quality of Southwest Airlines Flights that Last More than One Hour
Yesterday I took my longest trip on Southwest Airlines as I flew 3.5 hours from Phoenix to Chicago. I give the airline an A-. On the plus side, we did land after a 1 hour delay and there was free TV on the flight so I caught up on my Law & Order watching as I watched the cops part of 4 different episodes (I skipped the law stuff -- given that I am Professor at UCLA Law --- I don't need to watch that stuff). On the plus side, the cranapple juice they serve is good. On the "bad side", the flight was packed. This was a flying bus with fares that are almost too cheap. I've been thinking of buying two tickets but with open seating --- someone would still sit down next to me. I was sitting next to a young teenager who was doing her homework and chatting with her boyfriend. The space is so tight that I couldn't lean down to pull out my computer bag. My knees touch the seat in front of me and I live in fear of the guy in front of me reclining his seat. For flights from LA to Oakland or Sacramento this is okay but on a longer flight this becomes tough. I will fly back to LA on United in Economy Plus and I'm thinking of upgrading to first class.
HML #28 Paid Off And Looking Towards 2014
HML #28 was paid off on Friday. This loan was started just a few months ago in August and, at the time, we knew it was going to be a short loan. Out biggest borrower is not buying much these days because he feels people are paying too much at the foreclosure auctions. As a result, my partner has $1.2 million sitting around waiting to be re-invested and where I normally have four loans outstanding at any one time, I currently only have one.
This payoff was also strange in that this was the first time in the 7 or 8 years I have been doing this that I was required to go to the title agency and sign documents. As a mortgage holder that is being paid off, there isn't anything I normally have to sign and for those few things that do require a signature, my partner and I have a loan servicing agreement that gives him permission to act on my behalf. However, this particular title company was very picky and didn't want to accept that document, so I had to rush around a bit last week to locate a local branch of the title company, sign some documents and have them overnighted to the closing title company in California.
I've been thinking about the Houston apartment lately. The property is performing nicely now and I think management will look at putting the property up for sale near the end of the year or beginning of next year. Investors were guaranteed at least a 9% annualized return and the last time we received a profit distribution was October of 2009, so a sale would give us 4 years of accrued interest plus our share of whatever profit we make from the sale over our purchase price.
I'm trying to plan how to reinvest my money once this investment is over. (I know, I'm counting my chickens before they hatch.) I'm not sure I want to reinvest in an apartment complex right now. I do like the idea of apartment investing and plan to do it again in the future, but I'm not sure it's the next investment I want to make. For one, it's become clear that the performance of apartments is closely tied to the economic situation of the area. That's obvious and holds true for any real estate investment, but what this investment has shown me is that, because apartments have many tenants, a widespread economic downturn can result in the loss of many tenants. That can cause a cascade effect where property income drops and operating expenses don't get paid and investors can't get scheduled distributions.
Which brings me to my second point: apartments really are a business. They have operating expenses that have to be paid and maintenance and other activities to manage. As an investor, I didn't really have to deal with the day to day administration of such things because we have a management team that handles that. However, as was the case with this property, if things go downhill for a while, investors may be asked to contribute more money to help keep the business afloat. This is in contrast to investing money in a mortgage, where someone just sends you a check every month and a call for more money would be very rare. True, you may have to foreclose and then the mortgage investment can become like a business in that you'll have expenses like fix up and repair costs to sell the property. But on the whole, I think mortgage investing is a lot more hands-off than apartment investing. It also seems the cash flow is more stable, although that may just be due to the quality of the borrowers my partner deals with.
Overall, I think apartments tend to be more of an investment for those looking to get capital gains rather than monthly cashflow. I'm reasonably sure that, had I made this investment in a strong economy and did not have to suffer through 4 years of no cash flow, I would have a different opinion. In a strong economy, apartments probably do provide a robust cash flow. However, at this point in my investing career, I'm more interested in dependable cash flow than capital gains, so I'm leaning towards reinvesting these funds into hard money loans.
This payoff was also strange in that this was the first time in the 7 or 8 years I have been doing this that I was required to go to the title agency and sign documents. As a mortgage holder that is being paid off, there isn't anything I normally have to sign and for those few things that do require a signature, my partner and I have a loan servicing agreement that gives him permission to act on my behalf. However, this particular title company was very picky and didn't want to accept that document, so I had to rush around a bit last week to locate a local branch of the title company, sign some documents and have them overnighted to the closing title company in California.
I've been thinking about the Houston apartment lately. The property is performing nicely now and I think management will look at putting the property up for sale near the end of the year or beginning of next year. Investors were guaranteed at least a 9% annualized return and the last time we received a profit distribution was October of 2009, so a sale would give us 4 years of accrued interest plus our share of whatever profit we make from the sale over our purchase price.
I'm trying to plan how to reinvest my money once this investment is over. (I know, I'm counting my chickens before they hatch.) I'm not sure I want to reinvest in an apartment complex right now. I do like the idea of apartment investing and plan to do it again in the future, but I'm not sure it's the next investment I want to make. For one, it's become clear that the performance of apartments is closely tied to the economic situation of the area. That's obvious and holds true for any real estate investment, but what this investment has shown me is that, because apartments have many tenants, a widespread economic downturn can result in the loss of many tenants. That can cause a cascade effect where property income drops and operating expenses don't get paid and investors can't get scheduled distributions.
Which brings me to my second point: apartments really are a business. They have operating expenses that have to be paid and maintenance and other activities to manage. As an investor, I didn't really have to deal with the day to day administration of such things because we have a management team that handles that. However, as was the case with this property, if things go downhill for a while, investors may be asked to contribute more money to help keep the business afloat. This is in contrast to investing money in a mortgage, where someone just sends you a check every month and a call for more money would be very rare. True, you may have to foreclose and then the mortgage investment can become like a business in that you'll have expenses like fix up and repair costs to sell the property. But on the whole, I think mortgage investing is a lot more hands-off than apartment investing. It also seems the cash flow is more stable, although that may just be due to the quality of the borrowers my partner deals with.
Overall, I think apartments tend to be more of an investment for those looking to get capital gains rather than monthly cashflow. I'm reasonably sure that, had I made this investment in a strong economy and did not have to suffer through 4 years of no cash flow, I would have a different opinion. In a strong economy, apartments probably do provide a robust cash flow. However, at this point in my investing career, I'm more interested in dependable cash flow than capital gains, so I'm leaning towards reinvesting these funds into hard money loans.
Financing New York City's Defense Against Climate Change Risk
Hurricane Sandy threw quite a punch at NYC. This article makes a number of reasonable points but then it ends on a funny and revealing note.
Meanwhile, Con Edison says it’s made more than $400 million in improvements to substations and other technology to ensure that Sandy-level flooding would never again cut power for days to half of Manhattan. A spokesman said the company has built a concrete flood wall around equipment and has proposed $1 billion in further improvements over a 40-year time span.
The public utility is asking for hundreds of millions in rate hikes to fund these improvements, which New York Gov. Andrew Cuomo is contesting.
Why would a Governor oppose productive investments in defending a key piece of his local economy? The NY Times piece suggests that Cuomo views Con Ed to be an inefficient organization that is using the threat of crisis to increase its budget and engage in empire building. While I can't find any material to substantiate this, I also believe that there is an element of spatial redistribution here. Con Ed serves a wide service area that includes Manhattan's suburbs. Should those rate payers be subsidizing service delivery in Manhattan? My mom would say "yes" because their jobs are there and would be threatened if Manhattan is at risk but if we look at the data I bet that more and more people who live in Westchester work there. Manhattan is rich and should pay for its own defense. After all, the land owners there are the residual claimants on any "new news" related to climate change. Fama won the nobel prize in part for his work on asset price dynamics and event studies. As I argue in Climatopolis, climate change is an "event" that will affect asset prices! The folks in Manhattan who own land know what the impact will be and they are looking for others to pay for their defense.
A Quick Return to Chicago
I was born in Chicago. I met my wife there and I will be there on Thursday and Friday. On Thursday, I will given this talk at the University of Chicago. My remarks will provide some "big think" on two recent academic papers of mine including this one and this one. The UC Energy Policy Institute didn't exist when I was a graduate student. On Friday, I will speak at a UC Booth School of Business Real Estate Conference. My talk's title is "The Future of Chicago". If you want to see my slides click here. As I get older, I have learned how to give a good talk. People tend not to sleep or text when I'm up there. I make my points and crack my jokes and then I sit down.
Amazon and the Economic Theory of Predation
The New York Times reports that Amazon's business model is to take over every retail market by offering low prices and high quality service and that some time in the future after it has vanquished its competition that it will then act as a monopolist and price gouge and make some profit. Is this Amazon's plan? Is this plan feasible for Amazon? What implications would this plan have for U.S consumers?
Since blog posts are not a good use of my time, let me briefly focus on the last question. Economists have noted that Walmart has effectively reduced consumer prices in the U.S and raises our purchasing power. Has Amazon played a similar role for educated people? If Amazon is pricing low to achieve "global dominance" and then like a Bond villain will exploit this market power later, then U.S consumers will become poorer in the future when the days of Amazon price gouging begin. But, an optimist might ask --- under what theory of networks and distribution could Amazon face no threat of entry by a future upstart? Recall the Microsoft haters in the 1990s who said that this company had achieved such scale that due to "lock in" that no company could compete with it and hence Windows software prices would rise in the future. Google challenged that notion. Will Amazon face a future Google or has it it effectively pre-empted such a challenge because Amazon ships physical goods? Do physical goods raise logistical issues that favor mass scale? Will a future Democrat as President nationalize Amazon because it becomes a natural monopoly like the old ATT? Perhaps industrial organization is an interesting field? Many of its leading scholars are doing a lot of consulting these days but it appears that there is much academic research that needs to get done.
Since blog posts are not a good use of my time, let me briefly focus on the last question. Economists have noted that Walmart has effectively reduced consumer prices in the U.S and raises our purchasing power. Has Amazon played a similar role for educated people? If Amazon is pricing low to achieve "global dominance" and then like a Bond villain will exploit this market power later, then U.S consumers will become poorer in the future when the days of Amazon price gouging begin. But, an optimist might ask --- under what theory of networks and distribution could Amazon face no threat of entry by a future upstart? Recall the Microsoft haters in the 1990s who said that this company had achieved such scale that due to "lock in" that no company could compete with it and hence Windows software prices would rise in the future. Google challenged that notion. Will Amazon face a future Google or has it it effectively pre-empted such a challenge because Amazon ships physical goods? Do physical goods raise logistical issues that favor mass scale? Will a future Democrat as President nationalize Amazon because it becomes a natural monopoly like the old ATT? Perhaps industrial organization is an interesting field? Many of its leading scholars are doing a lot of consulting these days but it appears that there is much academic research that needs to get done.
A Global Economics Rank of #257 in REPEC's "Recent Publications" Category
Based on a ranking of all of the world's economists based on one's publications over the last 10 years, I rank #257. Based on this ranking, you can take a look at my peers. Some of these folks are pretty good. Based on this criteria, I'm ranked #2 among all UCLA economists. Sounds right to me.
Publication Lags
Here is a piece that I swear I wrote two years ago on climate change adaptation. It has now appeared in the prestigious European Financial Review.
Research Fields in Modern Economics
I received my Ph.D in 1993. I went back to my university's webpage to learn about their current Ph.D program. I found this webpage and was slightly surprised to see the following fields are not listed; public finance, labor economics, urban economics, economic history, environmental economics, and micro international trade. As someone who has published in all of these fields, I have "voted with my feet" that I believe that these are fascinating areas but my past teachers clearly disagree with me.
What fields are offered?
What fields are offered?
THE SPECIALIZED FIELDS
Advanced Financial Economics**39100* Asset Pricing [=BUSF 35904] -- Cochrane (F)
39600* Topics in Asset Pricing [=BUSF 35907] -- Panageas (W)
39701* Advanced Theory of Corporate Finance & Capital Markets [BUSF 35913] -- He (Sp)
39600* Topics in Asset Pricing [=BUSF 35907] -- Panageas (W)
39701* Advanced Theory of Corporate Finance & Capital Markets [BUSF 35913] -- He (Sp)
Applied Macroeconomics**38001* Applied Macroeconomics: Micro Data for Macro Models [=BUSF 33942] -- Davis / Hurst (F)
38102* Applied Macroeconomics: Heterogeneity and Macro [=BUSF 33949] -- Vavra (W)
43400* Topics in Labor Markets and Macroeconomics -- Lopes de Melo (Sp)
38102* Applied Macroeconomics: Heterogeneity and Macro [=BUSF 33949] -- Vavra (W)
43400* Topics in Labor Markets and Macroeconomics -- Lopes de Melo (Sp)
Behavioral Economics41001* Behavioral Economics [=BUSF 38912] -- Thaler / Kamenica / Pope (Sp)
41100* Experimental Economics [=ECON 21800] — TBA (W)
41100* Experimental Economics [=ECON 21800] — TBA (W)
Econometrics and Statistics37200* Analysis of Microeconomic Data I [=PPHA 48200] -- Black (F)
31700* Topics in Econometrics -- Shaikh (W)
31801* Random Coefficients Models and High-Dimensional Econometrics -- Gautier (Sp)
31700* Topics in Econometrics -- Shaikh (W)
31801* Random Coefficients Models and High-Dimensional Econometrics -- Gautier (Sp)
Economic Growth / International Trade**35101* International Macroeconomics & Trade [BUSF 33946] – Cosar / Ossa (F)
35301* International Trade & Growth -- Lucas (Sp)
35501* International Macroeconomics and Finance [BUSF 35915] -- Hassan (W)
35301* International Trade & Growth -- Lucas (Sp)
35501* International Macroeconomics and Finance [BUSF 35915] -- Hassan (W)
Economics of the Family**34300* Human Capital [= SOCI 30306] -- Becker (Sp)
34601* Economics of the Family in Developing Countries -- Voena (W)
35002* The Origins And Consequences Of Inequality In Capabilities -- Heckman (W)
34601* Economics of the Family in Developing Countries -- Voena (W)
35002* The Origins And Consequences Of Inequality In Capabilities -- Heckman (W)
Financial Economics**38900* Theory of Financial Decisions I [=BUSF 35901] – Fama (F)
39001* Theory of Financial Decisions II [=BUSF 35902] -- Diamond / Sufi (W)
39400* Theory of Financial Decisions III [=BUSF 35903] -- Diamond / Zingales (Sp)
**There will not be a Specialized Field examination for Financial Economics in 2013-2014.
39001* Theory of Financial Decisions II [=BUSF 35902] -- Diamond / Sufi (W)
39400* Theory of Financial Decisions III [=BUSF 35903] -- Diamond / Zingales (Sp)
**There will not be a Specialized Field examination for Financial Economics in 2013-2014.
Industrial Organization40101* Advanced Industrial Organization I [=BUSF 33921] -- Syverson (F)
40201* Advanced Industrial Organization II [=BUSF 33922] -- Hortaçsu (W)
40301* Advanced Industrial Organization III [=BUSF 33923 =LAWS 99304] -- Carlton (Sp)
40201* Advanced Industrial Organization II [=BUSF 33922] -- Hortaçsu (W)
40301* Advanced Industrial Organization III [=BUSF 33923 =LAWS 99304] -- Carlton (Sp)
Law & Economics39802* Advanced Law and Economics [=LAWS 55401] -- Malani (Sp)
42100* An Introduction to Doing Empirical Microeconomic Research [=LAWS 99303] -- Levitt (W)
40301* Advanced Industrial Organization III [=BUSF 33923 =LAWS 99304] -- Carlton (Sp)
42100* An Introduction to Doing Empirical Microeconomic Research [=LAWS 99303] -- Levitt (W)
40301* Advanced Industrial Organization III [=BUSF 33923 =LAWS 99304] -- Carlton (Sp)
Macroeconomic Theory33502* Monetary Economics I -- Alvarez (F)
33603* Macroeconomics and Financial Frictions – Uhlig (W)
33703* Financial Markets in the Macroeconomy [BUSF 33948] – Guerrieri (Sp)
33603* Macroeconomics and Financial Frictions – Uhlig (W)
33703* Financial Markets in the Macroeconomy [BUSF 33948] – Guerrieri (Sp)
Market Design40501* Price Theory and Market Design [= ECON 24210] – Weyl (F)
40603* Market Design [=BUSF 33915] -- Budish (Sp)
40801* Introduction to Theory-Based Empirical Methods with Applications to Market Design -- Hickman (W)
40603* Market Design [=BUSF 33915] -- Budish (Sp)
40801* Introduction to Theory-Based Empirical Methods with Applications to Market Design -- Hickman (W)
Mathematical Economics30501* Topics in Theoretical Economics – Reny (W)
30600* The Economics of Information [=BUSF 33911] -- Harris (F)
30701* Evolutionary Game Theory -- Szentes (Sp)
36101* Economic Models of Politics -- Myerson / Van Weelden (W)
Quantitative Study of Inequality30600* The Economics of Information [=BUSF 33911] -- Harris (F)
30701* Evolutionary Game Theory -- Szentes (Sp)
36101* Economic Models of Politics -- Myerson / Van Weelden (W)
34901* Social Interactions and Inequality -- Durlauf (Sp)
35002* The Origins And Consequences Of Inequality In Capabilities -- Heckman (W)
35002* The Origins And Consequences Of Inequality In Capabilities -- Heckman (W)
OTHER COURSES
32000 Topics in American Economic History [=ECON 22200] -- Galenson (W)
41800 Numerical Methods in Economics -- Judd (F)
42800 Creativity [=ECON 22650] -- Galenson (W)
42900 Innovators [=ECON 22600] -- Galenson (F)
41800 Numerical Methods in Economics -- Judd (F)
42800 Creativity [=ECON 22650] -- Galenson (W)
42900 Innovators [=ECON 22600] -- Galenson (F)
Endogenous Property Rights
If I want your sneakers, I can either pay for them or I can steal them. How I achieve my goals depends on whether I take property rights as "given". If I acknowledge your ownership of the sneakers and I respect private property, then I must compensate you. This preamble is meant to set up a discussion of two New York Times articles today related to property rights and who owns what that are both worth reading;
1. UC Berkeley Professor David Kirp has written an interesting sociology piece claiming that requiring affordable housing in Mount Laurel, New Jersey was a winning social project. He claims that the suburban incumbent wealthy suffered no empirical impacts (for example home prices didn't fall) while the 140 households who moved into affordable housing there benefited in many ways. Note that the legal ruling shifts property rights giving the town the responsibility of providing that housing rather than allowing the owners of housing to sell to those who are willing to pay the most for it (i.e free market transactions). Professor Kirp then goes on to extrapolate that this case study "shows" that this policy should be expanded in other jurisdictions. Whether this inference follows from this nice case study merits some investigation.
2. There is an obituary for Roger Richman . Richman represented the interests of dead celebrities whose images are used for crazy fun permutations of boring products such as T-shirts. So if some young entrepreneur wants to put this Albert Einstein's photo on a t-shirt, who gets the profits? Who has the property rights to the memory of the dead celebrity? In this Wild West, Richman was a leader in establishing these property rights.
1. UC Berkeley Professor David Kirp has written an interesting sociology piece claiming that requiring affordable housing in Mount Laurel, New Jersey was a winning social project. He claims that the suburban incumbent wealthy suffered no empirical impacts (for example home prices didn't fall) while the 140 households who moved into affordable housing there benefited in many ways. Note that the legal ruling shifts property rights giving the town the responsibility of providing that housing rather than allowing the owners of housing to sell to those who are willing to pay the most for it (i.e free market transactions). Professor Kirp then goes on to extrapolate that this case study "shows" that this policy should be expanded in other jurisdictions. Whether this inference follows from this nice case study merits some investigation.
2. There is an obituary for Roger Richman . Richman represented the interests of dead celebrities whose images are used for crazy fun permutations of boring products such as T-shirts. So if some young entrepreneur wants to put this Albert Einstein's photo on a t-shirt, who gets the profits? Who has the property rights to the memory of the dead celebrity? In this Wild West, Richman was a leader in establishing these property rights.
My UCLA Field Trip to the Aquarium of the Pacific
On early Saturday morning, while other academic economists are sleeping, consulting and/or thinking, I will be taking 34 UCLA Freshmen to the Aquarium of the Pacific. Why am I doing this? This is actually part of my teaching responsibilities. Do I enjoy doing this? We will see. There better be a Starbucks there. Is this why I got a Ph.D? Perhaps. At this late stage of my career, maybe this is the best use of my ample time. Why am I sharing this information with you? To convey that there is a cost of spending one's life in the sunshine. For adults who want to speak to me about economics issues, please look for me. I will be the tall guy wearing the orange National University of Singapore hat and walking slowly with my cane.
Gary Becker's Recent World Bank Talk on Inequality and Upward Mobility
In September 2013, Gary Becker gave a great talk at the World Bank. You can watch it here.
Building a Better New York City
In the Arts Section of today's NY Times, Michael Kimmelman gets to have a lot of fun as he traces his "free lunches" for New York City. These are new policies he would adopt that would improve NYC's quality of life and make it a more equitable city. While I agree with several of his points about streamlining regulation and reducing red tape, note that he never mentions public finance of how he would pay for the new expenditures he advocates. Lurking in the background (and unstated) is "tax the rich".
It appears that the New York Times want to move to Europe and remold U.S cities and institutions in a similar spirit as our Western European counterparts. While there would be benefits of such a transition, would there be costs? The Times might be wise to begin to discuss the relationship between marginal tax rates and the accumulation and location of human and physical capital. Do incentives matter?
It appears that the New York Times want to move to Europe and remold U.S cities and institutions in a similar spirit as our Western European counterparts. While there would be benefits of such a transition, would there be costs? The Times might be wise to begin to discuss the relationship between marginal tax rates and the accumulation and location of human and physical capital. Do incentives matter?
The "Make vs. Buy" Decision for Pumpkin Spice Lattes
You don't have to be Williamson, Coase or Demsetz, to ponder whether households should make their own Pumpkin Spice Lattes or buy one from Starbucks for $5. This article says that the raw ingredients cost 40 cents. Assuming that the homemade and the Starbucks Pumpkin Lattes taste the same, then the key input is the person's time to buy the latte ingredients and make the latte versus going to the Starbucks to wait and order it.
Define t1 = average minutes to buy ingredients at a store and make a homemade Latte.
Define t2 = average minutes to travel to Starbucks and order and wait for your Latte.
Define w = your wage per minute (i.e your value of time).
Becker's Value of time model predicts that you will go to Starbucks if:
w*t1 + .4 is greater than w*t2 + 5
This would be a pretty good Ph.D topic on household production versus the market.
To be serious, note that in a diverse population -- people differ with respect to their w, t1 and t2. A statistician could collect data on the joint distribution of these 3 continuous variables. For example, my wage is over $10 per hour, it would take me about 90 minutes to make my own Latte and I'm a 12 minute walk from the closest Starbucks.
Using micro data, a researcher who observes the distribution of f(w,t1,t2) could look at the joint distribution of these variables for 47 year old PhDs and see if the simple model listed about predicts actual choices over whether this subset of people do engage in cost minimization in deciding whether to buy or make their own Latte. That's how we test theories!!
I am assuming that you can learn how to make the Pumpkin Latte at zero cost. If there is a human capital investment to figuring this out, then this would become a dynamic model where you pay upfront fixed costs in Pumpkin Latte "tuition" and this allows you to make low cost Lattes at home in the future. We would need an estimate of how many Lattes you will drink over your lifetime and calculate the present discounted value of these saved "operating costs".
Define t1 = average minutes to buy ingredients at a store and make a homemade Latte.
Define t2 = average minutes to travel to Starbucks and order and wait for your Latte.
Define w = your wage per minute (i.e your value of time).
Becker's Value of time model predicts that you will go to Starbucks if:
w*t1 + .4 is greater than w*t2 + 5
This would be a pretty good Ph.D topic on household production versus the market.
To be serious, note that in a diverse population -- people differ with respect to their w, t1 and t2. A statistician could collect data on the joint distribution of these 3 continuous variables. For example, my wage is over $10 per hour, it would take me about 90 minutes to make my own Latte and I'm a 12 minute walk from the closest Starbucks.
Using micro data, a researcher who observes the distribution of f(w,t1,t2) could look at the joint distribution of these variables for 47 year old PhDs and see if the simple model listed about predicts actual choices over whether this subset of people do engage in cost minimization in deciding whether to buy or make their own Latte. That's how we test theories!!
I am assuming that you can learn how to make the Pumpkin Latte at zero cost. If there is a human capital investment to figuring this out, then this would become a dynamic model where you pay upfront fixed costs in Pumpkin Latte "tuition" and this allows you to make low cost Lattes at home in the future. We would need an estimate of how many Lattes you will drink over your lifetime and calculate the present discounted value of these saved "operating costs".
Should UCLA's Leaders Blog?
The wise new leader of the University of Wisconsin Madison's Campus is a prominent economist named Becky Blank. Here is her blog and it is a good read. While I could be mistaken, I believe that the University of California has appointed very few economists to be campus leaders. Is that due to supply or demand?
No Free Lunch?
A counter-example. Note the rational response to zero prices. Perhaps demand curves do slope down!
A Trivia Question About the University of Chicago's Economics Department
How many current University of Chicago Economics faculty are over the age of 55 and have neither won a Clark Medal nor a Nobel Prize nor been named a Distinguished Fellow of the American Economic Association? Treatment or selection?
An Impressive Real Estate Economics Blog from the Federal Reserve Bank of Atlanta
I did not know about this real estate blog until now. This blog contains serious content that is presented in a user-friendly way that undergraduates will benefit from.
Ed Glaeser Celebrates Manhattan's Success at Attracting the 1%
Ed provides Bill de Blasio with some free advice for how to lead a great city. The de Blasio Era will offer a great natural experiment to test for cross-elasticities. Manhattan is a superstar city. If the "superstars" face sharp increases in taxes there, will they leave and where will they go? Is the answer "Boston" or is it "London"? Or will they stay because there are no close substitutes for Manhattan? NYC in the 1970s wasn't cool. The next mayor should read up about local Laffer curves and urban taxation..
$2,770 Per Square Foot for Palo Alto Housing!
Palo Alto has some expensive housing. At $2,770 per square foot, how large a house do you want? Here is one available property for you to consider. It is a very nice 5,800 square foot house. But, you have alternatives. You could buy this 9,380 square foot house in Houston for $423 per square foot. How is that for a law of one price? That's more than a 80% price per square foot differential.
My Submission to the New York Cartoon Caption Contest
The New Yorker has rejected my cartoon caption several times but I think I have a funny one.
Read more: http://www.newyorker.com#ixzz2hCAvSY4D
Do you get my Bob Seger reference? Here is the song on YouTube. When I was a graduate student at the University of Chicago, I used to play chess against some physicists. Whenever somebody made a good knight move, we would sing "night moves". Get it?
UPDATE: I lost the competition. Here are the winners. Only the last one is funny.
Read more: http://www.newyorker.com#ixzz2iMUsnGhf
Contest #399, October 14, 2013
Your Caption:
I'm working on my knight moves. Trying' to make some front page drive-in news.
Read more: http://www.newyorker.com#ixzz2hCAvSY4D
Do you get my Bob Seger reference? Here is the song on YouTube. When I was a graduate student at the University of Chicago, I used to play chess against some physicists. Whenever somebody made a good knight move, we would sing "night moves". Get it?
UPDATE: I lost the competition. Here are the winners. Only the last one is funny.
| "This can only end in a draw." Submitted by Samuel Kaplan, Vienna, Va. | |
| "Did you hear the one about the bishop and the queen?" Submitted by Clyde E. Smith, Napa, Calif. | |
| "I suggest that you back up slowly two paces and take one step to the side." Submitted by Matt Schneider, Hilton Head Island, S.C. |
Read more: http://www.newyorker.com#ixzz2iMUsnGhf
California's Jerry Brown Subsidizes Living in the Desert and thus Inhibits Climate Adaptation
Jerry Brown has ordered the California PUCs to redesign electricity prices to subsidize inland hot California places at the expense of cool coastal places. Of course, he did this because this is hidden redistribution from the rich to the poor but the unintended consequence of this is to impede climate change adaptation by encouraging more inland development. In Climatopolis, I argue that we need the exact opposite policy to encourage more development along the coast at higher density (think of Hong Kong). Well done Governor!
Public Transit "Speeds Up" Thanks to Information Technology
Back in 1986, I was a student at the London School of Economics. When I would ride the Tube, I would marvel that the brilliant Brits had figured out how to have displays indicating how many minutes until the next train would appear. Given that I grew up in New York City with its 1912 Subway system and antiquated 1912 technology, I was not used to actually being able to predict when a train would appear. Waiting for buses and subways represents a significant fixed time cost that raises the time required for commuting and thus the full cost (which reflects time and out of pocket $ for the fare) of taking public transit. This encourages using cars with the resulting congestion and pollution externalities.
New information technology has solved this problem. The NY Times reports that public transit users with smart phones will have real time information about what bus routes go where and how long they will have to wait for a bus to show up to their closest bus stop. When I was in Singapore this summer, I saw this process at work and it was a perfect substitute for a taxi ride (we couldn't find a taxi). In this sense, information technology will help low carbon buses to compete for urban ridership with taxis and private cars and this will improve the finances for buses (which will be closer to 100% capacity) and will save people time and reduce GHG and local emissions.
New information technology has solved this problem. The NY Times reports that public transit users with smart phones will have real time information about what bus routes go where and how long they will have to wait for a bus to show up to their closest bus stop. When I was in Singapore this summer, I saw this process at work and it was a perfect substitute for a taxi ride (we couldn't find a taxi). In this sense, information technology will help low carbon buses to compete for urban ridership with taxis and private cars and this will improve the finances for buses (which will be closer to 100% capacity) and will save people time and reduce GHG and local emissions.
Behavioral Economics and Tesla's Stock Price Dynamics After the Fire
A Tesla car caught on fire and this event "caused" a huge drop in Tesla's stock price. Under the efficient markets hypothesis, how much should the stock price move when this "new news" arrives? While event studies are now "old hat", permit me to blog about this and its implications for testing neo-classical versus behavioral views on how the economy works.
Suppose that stock investors believed that car buyers viewed this fire as a fluke and just as bad luck. In this case, there would be no Tesla stock price decline when the fire occurs because aggregate demand for Tesla EV vehicles does not change.
For the shock "to cause" an effect on stock prices suggests that investors believe that potential car buyers will be spooked by the shock. But, how do the investors know this? Did they use Twitter searches for "Tesla and Fire" to create a fear index? How would we know whether pessimistic investors have sold too much Tesla?
We celebrate diversity and in our diverse society people differ with respect to their desires to purchase electric vehicles and with respect to how they process news information such as the recent fire. In Behavioral Economics, people like Matt Rabin say that there is a "Law of Small Numbers" such that people over-react to new news. The Tesla stock price dynamics suggests that some investors embrace this logic. Will Chicago EMH adherents now purchase the Tesla stock?
Has a paper been written on whether investors who purchase shocked companies after nasty events earn abnormally high profits?
I recognize that another random variable here is whether Tesla must have a large recall for the cars it has sold but keep in mind that it hasn't sold many! This issue is all about heterogeneous beliefs about this young company's future and the razor's edge that bad publicity is believed to potentially sink such a company.
I have recorded a video about this and posted it here on YouTube.
Suppose that stock investors believed that car buyers viewed this fire as a fluke and just as bad luck. In this case, there would be no Tesla stock price decline when the fire occurs because aggregate demand for Tesla EV vehicles does not change.
For the shock "to cause" an effect on stock prices suggests that investors believe that potential car buyers will be spooked by the shock. But, how do the investors know this? Did they use Twitter searches for "Tesla and Fire" to create a fear index? How would we know whether pessimistic investors have sold too much Tesla?
We celebrate diversity and in our diverse society people differ with respect to their desires to purchase electric vehicles and with respect to how they process news information such as the recent fire. In Behavioral Economics, people like Matt Rabin say that there is a "Law of Small Numbers" such that people over-react to new news. The Tesla stock price dynamics suggests that some investors embrace this logic. Will Chicago EMH adherents now purchase the Tesla stock?
Has a paper been written on whether investors who purchase shocked companies after nasty events earn abnormally high profits?
I recognize that another random variable here is whether Tesla must have a large recall for the cars it has sold but keep in mind that it hasn't sold many! This issue is all about heterogeneous beliefs about this young company's future and the razor's edge that bad publicity is believed to potentially sink such a company.
I have recorded a video about this and posted it here on YouTube.
Casey Mulligan's Thought Provoking WSJ Piece
President Obama's health care reform certainly offers progressive benefits as it extends access to health insurance. An economist might ask what it will cost. In today's WSJ, Casey Mulligan has written a pessimistic piece arguing that its costs will be very high. He argues that marginal tax rates will be rising due to this legislation and this will have medium term effects on slowing economic growth. Here is a graph from his paper. Do incentives matter? We may soon have a sharp test. Here is a quote from Casey and his graph.
"Regardless of whether redistribution is achieved by collecting more taxes from families with high incomes, levying employment taxes on businesses, providing more subsidies to families with low incomes, or all of the above, an essential consequence is the same: a reduction in the reward for working."
A Great Day for UCLA's Institute of the Environment
Anthony and Jeanne Pritzker have made a wonderful investment in UCLA. All of the details are available here.
August 2013 Apartment Numbers
The results for August for the Houston apartment complex have just come in from the management company and things continue to go well. Occupancy stayed at 94%, the same as July, but total revenue increased to $199,600. Net operating income hit almost $94,000, which was almost $4,000 higher than July. Cash flow for August also increased just a bit over $25,000, also an increase over July. This is the highest monthly cash flow number this year.
Expenses were normal with the exception of a one time $4,000 expense for tree trimming that was required by our lender. Our losses due to bad debt, which had ballooned to over $22,000 last month, dropped back down to just under $10,000, which is still higher than average, but at least it's moving in the right direction. Rent concessions almost doubled from last month. Since occupancy stayed the same, it looks like my predictions of a stronger rental market last month might have been a bit off.
Nevertheless, the property is performing nicely now and our net income figure is about $14,000 higher than budgeted for the year. Management hasn't made any mention of it yet, but I think the property is beginning to look like it might be in shape to be put on the market towards the end of the year.
Expenses were normal with the exception of a one time $4,000 expense for tree trimming that was required by our lender. Our losses due to bad debt, which had ballooned to over $22,000 last month, dropped back down to just under $10,000, which is still higher than average, but at least it's moving in the right direction. Rent concessions almost doubled from last month. Since occupancy stayed the same, it looks like my predictions of a stronger rental market last month might have been a bit off.
Nevertheless, the property is performing nicely now and our net income figure is about $14,000 higher than budgeted for the year. Management hasn't made any mention of it yet, but I think the property is beginning to look like it might be in shape to be put on the market towards the end of the year.
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