Incentives matter: fire fighting file 2

Previous I posted on one way to deal with the free rider problem associated with firefighting. Now Scott Masten over at the Organizations and Markets blog has extended the discussion. He writes,

My guess is that the reason governments rather than private companies generally provide fire services has a lot to do with the difficulty of pricing fire services. (The Tennessee case involved a quasi-market transaction in that residents outside of South Fulton paid the city of South Fulton for fire protection.) It is certainly conceivable that private fire companies could offer homeowners and businesses a choice between (i) prepaid fire service for an annual fee and (ii) on-demand fire service. But how would you determine the price of the latter? I’m pretty sure you wouldn’t want to negotiate the price while your house is burning down. (Talk about temporal specificity!) And you wouldn’t want to negotiate the price after the fact either: Gee, guys, thanks for saving my house; can I buy you all a beer?

Another problem with on-demand fire services is would the courts enforce any agreement made while the house is burning down? So the obvious alternative is to set the price for on-demand fire protection ex ante.

But this poses problems, too. Either you need a price list (kitchen fire, $X; smoldering electrical fire, $Y; whole-house conflagration, single family ranch-style house, $ZZZZ; and so on) or you set a single price reflecting the cost of the average fire. But even then, you have questions like, what if the fire department were slow to arrive, or sent the wrong equipment or inadequate personnel, or whatever? Even if the department did everything it should, the house might burn down anyway (maybe because, like the first little pig, I’d built my house of straw). You can imagine the law suits over whether or not a homeowner should have to pay the on-demand fire suppression fee if the fire department’s efforts were unsuccessful. Government-supplied fire protection avoids all of these pricing issues. Sure, government supply has its own inefficiencies, but everything’s comparative, and the problems of pricing fire services seem pretty severe to me.

So public provision could be the least bad of two imperfect alternatives.

Econ Nobel at iPredict 2

Richard Thaler now leads with a 31% chance of winning, Robert Schiller in on 30%, Martin Weitzman is on 24% and Oliver Hart has a 20% chance of winning.

Does Robert Barro really have only a 1% chance of winning? There could be some money to be made there.

Eric Crampton has the economics department picks for the prize here. Not that I would trust any of them!

Canada’s budget triumph

David Henderson has a new paper out on the federal deficit in Canada:

A federal government runs a large deficit. Deficits are so large that the ratio of federal debt to Gross Domestic Product (GDP) approaches 70 percent. A constituency of voters have gotten used to large federal spending programs. Does that sound like the United States? Well, yes. But it also describes Canada in 1993. Yet, just 16 years later, Canada’s federal debt had fallen from 67 percent to only 29 percent of GDP. Moreover, in every year between 1997 and 2008, Canada’s federal government had a budget surplus. In one fiscal year, 2000–2001, its surplus was a whopping 1.8 percent of GDP. If the U.S. government had such a surplus today, that would amount to a cool $263 billion rather than the current deficit of more than $1.5 trillion.

So Canada seems to be doing something right. We should ask what they are doing to see if we can do it to.

The main policy actions that the Canadian government took to shrink its budget deficit and turn deficits into surpluses were cuts in government spending. Moreover, the Canadian government didn’t just cut the growth rate of spending, a favorite trick of U.S. politicians who want to claim the mantle of fiscal conservatism. It also cut absolute spending on many programs in dollar terms. And because the inflation rate in Canada, though low, was greater than zero over the whole time period, these cuts in dollar terms were even larger in inflation-adjusted dollars.

Henderson argues that there are two morals from the story:

First, the Canadian experience shows us that a large budget deficit can be turned into a budget surplus with ten years of fiscal discipline, mainly with spending cuts. [...] We do not have to accept the idea that we have only two grim choices: living with huge budget deficits and a federal debt that both increase as a percent of GDP, or accepting our current spending but reducing the budget deficit with major tax increases.

The second moral of the story is that the Canadian experience does not support the Keynesian view that policymakers should not cut government spending during an economic slowdown. The Canadian experience, just like the U.S. experience during the 1920–21 recession and in the first two years following World War II, shows that cutting government spending even during low-growth years can be good for long-term economic results.

Properly not a view many politicians will think agreeable.

Information technology and economic change: the impact of the printing press

In this audio from VoxEU.org it is noted that the movable type printing press was the great innovation in early modern information technology, but until now, little evidence has been found of an impact on growth. Jeremiah Dittmar of American University in Washington, DC, talks to Romesh Vaitilingam about his research, which seems to resolve this precursor of the Solow paradox.

Dittmar's research is “Information Technology and Economic Change: The Impact of the Printing Press”. The abstract reads:

The movable type printing press was the great innovation in early modern information technology, but economists have found no evidence of its impact in measures of aggregate productivity or income per person. This paper examines the technology from a new perspective by exploiting city-level data on the establishment of printing presses in 15th century Europe. I find that between 1500 and 1600, cities where printing presses were established in the late 1400s grew at least 60 percent faster than similar cities which were not early adopters. I show that cities that adopted printing in the late 1400s had no prior growth advantage and that the association between adoption and subsequent growth was not due to printers anticipating city growth or choosing auspicious locations. These findings imply that the diff usion of printing accounted for between 20 and 80 percent of city growth 1500-1600. They are supported by historical evidence and instrumental variable regressions that exploit distance from Mainz, Germany — the birth place of printing — as an instrument for early adoption. The printing press reduced the costs of transmitting information between cities, but fostered new face-to-face interactions and localized spillovers. Print media notably fostered the development of skills, knowledge, and innovations valuable in commerce.

Econ Nobel at iPredict

iPredict is running contracts on who will win this year's Nobel Prize in Economics. As I write Oliver Hart heads the field with a 25% chance, Robert Schiller, Richard Thaler, Martin Weitzman come next, all with an 18% chance of winning.

Also listed are William Nordhaus, Jean Tirole, Angus Deaton, Ricahrd Posner, Gene Grossman, Ernst Fehr, Gordon Tullock, Avinash Dixit, Sam Peltzman, Eugen Fama and Robert Barro.

The Economic Sciences prize is due to be announced on Monday 11 October, 11:00 a.m. GMT, at the earliest.

So put your money where your mouth is!

The ownership of the firm under a property rights approach

This is the title of an interesting looking new working paper by Leshui He. The abstract reads,

The boundaries of the firm and the ownership of the firm have been two of the main themes of the economics of organization over the past several decades. In this paper, I develop a general multi-party framework that integrates the ownership of the firm into the property-rights approach to the firm. I consider the ownership of the firm as the ownership of the rights to terminate cooperation with any party while maintaining a contractual or employment relation with all the other related parties of the firm. The model in this paper allows for the separation of the ownership of the firm from the ownership of the alienable assets that partly constitute it. Such a general multi-party setup may provide new tools for the study of the problem of the firm's boundaries as well as inspiration for further applications of the theory of property rights.

The referral to property rights here means the Grossman-Hart-Moore approach.

Incentives matter: fire fighting file

This news report shows one of way getting people's incentive to pay and avoid free riding right:

OBION COUNTY, Tenn. - Imagine your home catches fire but the local fire department won't respond, then watches it burn. That's exactly what happened to a local family tonight.

A local neighborhood is furious after firefighters watched as an Obion County, Tennessee, home burned to the ground.

The homeowner, Gene Cranick, said he offered to pay whatever it would take for firefighters to put out the flames, but was told it was too late. They wouldn't do anything to stop his house from burning.

Each year, Obion County residents must pay $75 if they want fire protection from the city of South Fulton. But the Cranicks did not pay

Basically the county let a guy's house burn down to give everyone else the right incentives to pay the $75.00 fire protection fee. You would assume that the home owner would have willingly paid more than $75 to have his house saved, but the county understood that if they accepted his late payment, it would have caused other residents not to pay their annual fire protection fee. That is one way to deal with free riding!

(HT: Division of Labour)

EconTalk this week

The (in)famous Bryan Caplan of George Mason University and EconLog blogger talks with EconTalk host Russ Roberts about immigration. Caplan takes on the common arguments against open borders and argues that they are either exaggerated or can be overcome while still allowing more immigration than is currently allowed in the United States.

Whither the EMH?

The following comes from the BNZ Annual Lecture given by Professor Glenn Boyle, Department of Economics and Finance, University of Canterbury, under the title "Whither Economics?", delivered in Christchurch on 1 July 2010. EMH means "efficient market hypothesis".

But what specifically are the failings of the EMH that lead to such damning criticism?

Four appear to be central:

• Financial economists didn’t predict the crisis, thereby ‘proving’ that markets can’t be efficient in the way that economists believe.
• The collapse occurred too quickly for markets to be efficient.
• There was an obvious asset price bubble, which is incompatible with an efficient market.
• Belief in the EMH by traders and regulators created a false sense of security thatallowed the crisis to occur.

Those who argue that a failure to predict the crisis disproves the EMH are simply confused, since a central insight of the EMH is that such events should be unpredictable. In a market where prices already reflect all existing information, only new information can change prices. But new information, by definition, is unpredictable, both in content and in timing. Ergo, price changes must also occur unpredictably – implying that no investor can consistently earn above-average returns, net of the costs of acquiring information. If financial economists as a group had announced in December 2007 that financial markets would collapse in nine months time, and that they had sold all their securities and taken on as many short positions as possible, and then the collapse had occurred just as predicted in September 2008, that would have constituted strong evidence against the EMH. But what actually happened was entirely consistent with the EMH.

Similarly, prices should respond quickly in a market that processes information efficiently – when a fire breaks out in the theatre, it’s perfectly rational for everybody to head for the exits at once. A slow and gradual downturn – which is what the critics seem to think should happen in an efficient market – would in fact have been a strong indicator of market inefficiency.

The EMH does not imply that security prices are always ‘right’ in some fundamental sense, only that it’s impossible to tell whether prices are right or wrong. If all available information is incorporated in prices, there cannot be any information left to determine whether prices are ‘right’ or ‘wrong’. Any new information could confirm that prices are ‘right’ or indicate that they are ‘wrong’, but because this information is unpredictable it’s impossible to tell which is the case ex ante. Consequently, the formation of so-called asset price ‘bubbles’ is inconsistent with the EMH only to the extent that these are identifiable at the time they occur. While there were a number of commentators who regularly ‘cried wolf’ over many years prior to the 2008 crisis, few, if any, seem to have withdrawn from securities markets altogether – which, as Ray Ball points out, is the only reliable test of predictability. As Robert Lucas (Economist, 8 August 2009) notes, a central lesson of the crisis is the futility of attempting to find central bankers and regulators who can identify bubbles – since such people are unlikely to exist in the first place, and would be unaffordable if they did.

The most serious charge against the EMH is that it helped cause the crisis. Did financial market traders load up on risk and debt in the belief that an efficient market would give them early warning if they went too far? Did regulators sit on their hands secure in the knowledge that they could rely on an efficient market to do their job for them?

The answer to both questions is surely ‘no’ – if anything, the behaviour of both traders and regulators exhibited a lack of belief in the EMH. Traders have never subscribed to the EMH – after all, their principal raison d’etre is to out-perform the market. And in the years leading up to the 2008 crisis, some loaded up on risk and leverage in a selfdefeating attempt to attain this objective. Nor did regulators behave as if they had even the remotest belief in the EMH. If they had, they would have looked very closely at the suspiciously good performance of Freddie Mac and Fannie Mae and at the leverage of Lehman and Bear Sterns. They would certainly have been crawling all over Bernie Madoff. But instead they behaved as though they believed consistently high, above market returns were nothing at all to be sceptical about.

So the critics have got it the wrong way round. To the extent that there was indeed a link between the emergence of the crisis and belief in the EMH, the problem was too little belief, not too much. If traders had believed more in the EMH, they would have given up trying to beat the market and reduced their risk. If regulators had believed more in the EMH, they would have spotted, and taken action against, the high-risk and fraudulent strategies staring them in the face.

A nice brief readable summary of the issues to do with the EMH and the recent financial crisis.

The overriding lesson to take from this may well be,

Ultimately, economists must take a large share of the blame for the demise of sensible commentary on economics. Too many seem all too happy to offer up regular forecasts of financial market variables such as exchange rates and short-term interest rates, despite a huge research literature indicating that changes in such variables are not predictable. Such economists need to learn some humility. Too many others seem all too happy to advocate significant government intervention in financial markets on the slightest pretence, despite a huge research literature indicating that such action inevitably has unintended consequences. Such economists need to learn some economics.

Canada and fractional reserve banking

Steve Horwitz over at the Coordination Problem blog wants to say something nice aboot Canada (no, I can't see the point either).

If you ventured over to the Land of the Tinfoil Hat also known as my Daily Bell interview, you'll have seen many folks there (and elsewhere in the wacky world of libertarianism) arguing that fractional reserve banking is reponsible for everything from bad breath to why the Detroit Lions suck. Okay, those were exaggerations, but they do think, for example, it was responsible for the pre-Fed panics among other things.

The problem with that argument (aside from the fact that it was existing government interventions that caused those panics) is that it ignores the Great White North. During the same period of the late 19th and early 20th century, Canada had no central bank and fractional reserve banking, yet it had none of the panics the US suffered and it got through the 20s and 30s with no bank failures, compared to the 9000 or so that failed in the US.

If fractional reserve banking is the problem, how does one explain the success of the Canadian system? I have asked the question over in the Land of the Tin Foil Hat and will be curious to see what they have to say. Or if I can understand it. Til then.... take off, eh.

Fractional reserve banking working? Oh dear, what would Murray Rothbard say?!

Regulating knowledge monopolies: the case of the IPCC

This paper, Regulating Knowledge Monopolies: The Case of the IPCC by Richard S.J. Tol, calls for regulation of the IPCC. The abstract reads,

The Intergovernmental Panel on Climate Change has a monopoly on the provision of climate policy advice at the international level and a strong market position in national policy advice. This may have been the intention of the founders of the IPCC. I argue that the IPCC has a natural monopoly, as a new entrant would have to invest time and effort over a longer period to perhaps match the reputation, trust, goodwill, and network of the IPCC. The IPCC is a not-for-profit organization, and it is run by nominal volunteers; it therefore cannot engage in the price-gouging that is typical of monopolies. However, the IPCC has certainly taken up tasks outside its mandate; the IPCC has been accused of haughtiness; innovation is slow; quality may have declined; and the IPCC may have used its power to hinder competitors. There are all things that monopolies tend to do, against the public interest. The IPCC would perform better if it were regulated by an independent body which audits the IPCC procedures and assesses its performance; if outside organizations would be allowed to bid for the production of reports and the provision of services under the IPCC brand; and if policy makers would encourage potential competitors to the IPCC.

Competition is the answer to monopoly. I'm not sure that the IPCC is a natural monpoly, its power comes from the fact that the World Meteorological Organization and the UN Environment Programme back it. Its power is therefore basically the product of "government" actions. The IPCC is the sole advisor to the international negotiations on climate policy under the UN Framework Convention on Climate Change. Remove such backing and the IPCC would have to stand on its own merits - such as they are.

Tol's call for increased competition is a positive move. But he could go further and call for an end to the IPCC itself and then let other bodies, national and international, provide what ever advise they wish. Why should a free market not work in the intellectual sector in the same way its works in other sectors of the economy?

Interesting paper: Inside Organizations

An interesting new paper from Robert Gibbons: Inside Organizations: Pricing, Politics, and Path Dependence. Annual Review of Economics, Vol. 2: 337-365, September 2010. The standard theory of the firm asks questions, mainly, about the boundaries of the firm. Less interest has been shown in the internal organisation of firms. This is beginning to change, as this survey from Gibbons shows. The abstract reads:

When economists have considered organizations, much attention has focused on the boundary of the firm, rather than its internal structures and processes. In contrast, this review sketches three approaches to the economic theory of internal organization—one substantially developed, another rapidly emerging, and a third on the horizon. The first approach (pricing) applies Pigou's prescription: If markets get prices wrong, then the economist's job is to fix the prices. The second approach (politics) considers environments where important actions inside organizations simply cannot be priced, so power and control become central. Finally, the third approach (path dependence) complements the first two by shifting attention from the between variance to the within. That is, rather than asking how organizations confronting different circumstances should choose different structures and processes, the focus here is on how path dependence can cause persistent performance differences among seemingly similar enterprises.

Gibbons explains,

The first approach (pricing) may feel familiar to economists because it can be seen as applying Pigou's (1932) prescription: If markets get the prices wrong, then the economist's job is to fix the prices. The resulting models ask not only what prices should be attached to various actions inside organizations, but also what direct and indirect methods are available to set these prices. Because of its focus on pricing, this approach naturally addresses incentive contracts. Because it also considers indirect methods for setting prices, however, this approach also addresses many structures and processes within and between organizations, including job design, transfer pricing, and outsourcing.

The second approach (politics) considers environments where important actions inside organizations simply cannot be priced, directly or indirectly. As a result, power and control become central, as in models of battles for control, lobbying those in control, and so on. More generally, this approach views the organization as a decision process, so issues of gathering and communicating information naturally arise, in addition to issues of control and decision making. The politics approach has received less attention from economists than has the pricing approach, but it has grown rapidly over the past decade, and it has interesting connections to earlier work outside economics.

Finally, the third approach (path dependence) is not an alternative to either of the first two, but rather a complement to both. This approach shifts attention from the between variance to the within. That is, rather than ask how organizations confronting different circumstances should choose different structures and processes, the focus here is on how path dependence can cause seemingly similar organizations to perform at persistently different levels. One important source of path dependence connects to an important issue in both the pricing and politics approaches: relational contracts (i.e., agreements so rooted in the particulars of the parties' circumstances that they cannot be written down and hence must be self-enforced rather than adjudicated by outsiders such as courts). Whereas both the pricing and politics approaches include work emphasizing the importance of relational contracts in steady-state outcomes, the path-dependence approach enriches the others by focusing on how the dynamics of building and changing relational contracts can affect which steady-state outcomes are reached.

An interesting and important expansion of the standard approach to the theory of the firm into organisational economics, where the internal structure of firms, as well as their boundaries, are looked at.

Speed cameras: only for the money

From the Express.co.uk website we learn:

THE first town to switch off its speed cameras is celebrating the decision after accident rates and fines plummeted.

There have been no deaths on Swindon’s roads since the fixed cameras were turned off in August last year.

In the past 12 months, the town has had just two serious accidents and 14 slight accidents.

This is compared to one death, five serious and 15 minor crashes the year before. The council raked in £80,000 less than the previous year, issuing 1,341 fewer speeding tickets.

So speed cameras don't improve road safety but do bring in money. Well this explains why councils love them so much.

It could all be just part of normal statistical variation, of course, but still an interesting result which would be good to see tested in other areas.

If a new economy, what about a new economics?

Random thought for the day. We are often told that we live in a "new economy", that changes in computing and information technology, financial innovation, more globalised trade etc have changed in economy and society in which we live. If this is true then why have we not seen a similar change in economic thinking? Or do we not need a new economics for the new economy?

One idea that has found favour with who argue for the new economy comes from the world of old economics. Back in 1937 Ronald Coase argue that firms exist because for some transaction it is more effective to carry out those transactions within firms than it is via markets. That is, in some circumstances firms minimise transaction costs.

For some new economy advocates this is a compelling idea. One consequence of the information revolution is surely that it is now cheaper to communicate. This should affect firms and their boundaries since it will lower transaction costs and thus make market transaction more likely. More market transaction mean fewer within firm transactions and thus firms should downsize and rely on outsourcing to a greater degree.

However, if it is cheaper to communicate via the market is it not also true that it would be cheaper to communicate within the firm as well? In fact anything that reduces internal communication costs will lead to an increase in the size of firms.

Thus firm size could go either way. The nature of the reduction in transaction costs is all important. There are three groupings of transaction costs: information and search costs, haggling and decision costs, and policing and enforcing costs. Hal Varian has considered each of these groups:

The Internet certainly reduces search and information costs, but, as we have seen, this cuts both ways. Bargaining and decisions still require a team of managers and lawyers sitting around a table. What makes contracts easier is codification and standardization, trends that are important, but are not greatly affected by the Internet, at least so far.

Policing and enforcing costs are the most relevant category. The reason the assembly-line worker doesn't negotiate with the person next to him is that it's too easy for him to say, ''Give me a good deal or I'll stop the line.'' Putting all the assembly-line workers under command-and-control reduces this sort of opportunistic behavior, at least as long as it can be easily observed.

Two important addition factors need to be considered. One is the more general application of opportunistic behaviour. People can act opportunistically in many settings and ways. The incentive for such behaviour hasn’t been much affected, at least not yet, by the Internet and computers. The second factor is the increased importance of human capital to the production process. What we see is that human capital is now a bigger part of the value added of firms. This gives people more power within the firm and it has been argued that firms boundaries are changing because of this. Many firms are now developing structures that are looking more like partnerships than the more traditional command-and-control organisations.

But none of this however requires a new economics. In fact, as noted above, it is all based on old economics. No only in terms of years, but also in terms of method. Coase set out to apply the marginal analysis of Marshall to his theory of the firm. So the new economy seems to work just fine within an old economics framework.

The Latest from the "Standup Economist"

(HT: Greg Mankiw)

Collusion between administrators and students unions?

This press report tells us,

Lincoln University says student associations are vital to campus life and it is condemning an ACT bill to make their membership voluntary.

and

Lincoln University and its student association issued a joint statement today, condemning the bill.

You do have to ask why this collusion between the university administrators and the students union? It can't be for the good of the students, if the uni administrators cared about that they would just let the students vote on what they really wanted and go along with the students wishes. No it's more likely that administrators find it easier to ignore what students really want while maintaining the fiction that students have been consulted on issues, when all they have really done is talk to the student president.

As Sir John Hicks put it, the best form of monopoly is a quit life, and student unions give uni administrators that.

Arnold Kling on eduaction

Over at the EconLog blog Anrnold Kling writes,

In my final comments, I took aim at the university administrators. I said that "Education is no longer a public good." I said that education is dominated by special interests, such as teachers' unions. I did not add "and rent-seeking university administrators." Before you give me kudos for courtesy and discretion, you should know that I think what actually happened is that I was working on my next train of thought and dropped the thread. I then did a 30-second rant about credentials cartels, during which I suggested that some of the college wage premium was due to artificial requirements to enter various professions. I said that government should remove the subsidies, regulations, and accreditation barriers that stifle competition in health care and education.

Only wish I had been there to hear that. One could indeed argue that universities no longer seem to exist to teach and so research, the primary function for them these days is protecting the rents of administrators, to hell with the academic and students. The idea of that the "government should remove the subsidies, regulations, and accreditation barriers that stifle competition" will not go down well with the aforementioned administrators. Actually if Kling thinks there is a lack of competition among universities in the US he should take a look at New Zealand!

Also you do see barriers to entry in many academic based areas and it would be interesting to know just how much of the "wage premium" in these areas has to do with these barriers. An increase in demand for training in such jobs may not explain the increase in wages as many people claim.

George Stigler on what makes a teacher

The following quotation is from George Stigler's collection of essays on academia and society, "The Intellectual and the Marketplace".

The good teacher is a mysterious person, and yet we must know his character before we can prescribe his training. In my view, the good teacher is not distinguished by the breadth of his knowledge, by the lucidity of his exposition, or by the immediate reactions of his students. His fundamental task is not to dispense information, for in this role he is incomparably inferior to the written word. His task is to fan the spark of genuine intellectual curiosity and to instill the conscience of a scholar--to communicate the enormous adventure and the knightly conduct in the quest for knowledge

[...]

To this end, the fundamental requirements of the good teacher are competence (How can the incompetent be other than slovenly?) and intellectual vitality (How can the sedentary excite us to bold adventure?).

These traits may be acquired by wide reading and deep reflection, without engaging in research and becoming a specialist. But it is an improbable event. It is improbable psychologically: it asks a man to have the energy to read widely and the intellectual power to think freshly, and yet to do no research. He is to acquire knowledge and construct ideas--and keep them a secret. It is improbable scientifically: it asks a man to be competent in his understanding of work that he has had no part in constructing. At lease in economics, this is almost impossible. There is no book that states the consensus of the profession on the ideas that are changing--and these are naturally the most interesting ideas. Only the man who has tried to improve the ideas will know their strengths and weaknesses. Scholarship is not a spectator sport.

In other words, research and teaching are linked. One wonders what powers that be in our universities would make of this.

(HT: Division of Labour)

Who gains from minimum prices for alcohol?

An article in the Guardian in the UK notes,

Large supermarket chains would benefit from a £700m windfall if minimum pricing for alcohol was introduced across the UK, new research indicated today.

Tesco, the UK's biggest supermarket, stands to reap the most rewards, according to the Institute for Fiscal Studies (IFS).

The thinktank researched the likely impact of a 45p minimum unit price for alcohol – the controversial measure which had been proposed by the Scottish government but was recently rejected by opposition parties.

The IFS said such a policy would benefit retailers rather than the public purse, echoing an argument that critics of minimum pricing have used against the measure.

The stores which sell the most alcohol – Tesco, Asda and Sainsbury's – stand to gain the most from the measure.

And yes the article also reports that Tesco (who would gain an estimated £230 million) is backing the plan for minimum pricing. And why not? Currently some supermarkets, and I'm guessing Tesco would be one, use low booze prices as loss leaders. If some nice government was to come along and ban them -and their competitors- from doing so they will not, of course, have to make such losses on these items. And as every firm has to act in the same way there is no competitive pressure to undercut each other. Basically what is happening is that retailers would be given the legal right to set up an oligopoly and thus reap the profits from such. The biggest relative gains would be made by low-price and discount supermarkets, which sell the largest proportion of their alcohol below the 45p threshold.

So producers win, consumers lose. Don't supports of minimum prices see this?

Texting bans may add risk to roads

In a previous post I commented on some Interesting research being carried out by Jeffrey Miron into the effects of banning the use of cell phones while driving. Now I see from the Not PC blog that there are reports already out on this issue. In fact Texting bans may add risk to roads. The USA Today article says,

KANSAS CITY, Mo. — Laws banning texting while driving actually may prompt a slight increase in road crashes, research out today shows..

and

"Texting bans haven't reduced crashes at all," says Adrian Lund, president of the Insurance Institute for Highway Safety, whose research arm studied the effectiveness of the laws.

and

Researchers at the Highway Loss Data Institute compared rates of collision insurance claims in four states — California, Louisiana, Minnesota and Washington — before and after they enacted texting bans. Crash rates rose in three of the states after bans were enacted.

The Highway Loss group theorizes that drivers try to evade police by lowering their phones when texting, increasing the risk by taking their eyes even further from the road and for a longer time.

So, again, a law seems not be archiving what it set out to achieve. When will law makers learn?