Introduce real time electricity pricing?

Prices are a wonderful mechanism to allocate scarse resources, especially as it is a really cheap mechanism compared to command and control. But there are times where the price mechanism is not good enough. Take for example congestion pricing. In principle, charging higher tolls when many people are on the road, or raising public transportation prices during peak times, should entice those who have other options to travel at other times or in other ways, thus reduceing the need to accomodate peek demad with oversized infrastructure. But this is only going to work if consumers are sufficiently price elastic and congestion pricing is not too expensive to implement.

The same reasoning would apply to residential electricity supply. Hunt Allcott studies this and comes to the conclusions that consumers are not sufficently price elastic to justify the additional metering costs. While households react to higher prices in peak periods, they do not adapt during more inexpensive off-peak periods. Thus, their welfare decreased. But seeing how large parts of the world have differentiated pricing for electricity and have remarkably adapted to this, for example with heating systems that accumulate heat in off-peak periods, one has to wonder whether there are multiple equilibria. Uniform pricing with no incentive to start an industry that takes advantage of off-peak periods, and congestion pricing where such an industry is in place. Maybe with some initial costs, a switch to congestion pricing could be worth it in the long run.

The debt that would not disappear

There are sometimes papers you just cannot put down only because they are so well crafted, even though your are not really interested in their topic. I just read one of those, by François Velde.

The French government is still honoring an annuity dating back from 1738, yielding annually €1.20 to be distributed to 58 people. That seems to be a very inconsequential amount, but this particular debt, which survived several kings and political regimes, just does not die. I do not want to reveal too much about the story here, as Velde does a remarkable job at trying to understand where this annuity comes from, how it survived various challenges and how its current amount was established. Along the way, we learn a lot about politics and economics through almost three centuries of French history. A true page turner.

Currency denomination does not matter for exports

Does it matter in which currency goods are denominated in international trade? If prices are fully flexible, it should not matter. If nominal prices are rigid, it could matter. Models typically assume either producer currency pricing or local currency pricing, with the truth lying somewhere in between.

Michael Dotsey and Margarida Duarte build a model of international trade that allows to move between the two pricing regimes. They find that the economies are essentially equivalent, save for the behavior of the terms of trade. But empirically, that is not helpful either, seeing that real exchange rates are random walks. This implies that one should not bother with complex pricing mechanisms and focus on the real side of the economy, at least when studying the United States. Outcomes may be different in economies that are more involved in international trade.

The proliferation of journals and desk rejects

Notice how journals seem to proliferate like bunnies? And that more and more journals implement a desk reject policy? Why would editors not even bother sending a paper to referees? Probably because the paper is an obvious misfit, for example because of a topic mismatch. It makes you really wonder why authors would that ill-informed about the topic of the journals they are submitting to. But the rise of desk rejection policies and the increasing number of journals be linked?

Damien Besancenot, Kim Huynh and Radu Vranceanu address this with tools from the labor search literature. The key variable in the matching function is the ratio of editors (journals) to authors. In particular, as the cost of publishing has dramatically decreased, the number of editors increases, thus making publishing easier for authors. However, a consequence of this is that submission fees must increase to maintain surplus sharing, as the authors put it but I fail to understand. I would have expected the reduction in costs and the increased competition to result in lower submission fees. It can only be because authors value more publication than before, and there is evidence for that as more and more universities reward published research.

Obviously, the model is a simplification of the true editorial process. But the fact that an editor can be handling only one paper at a time is a serious drawback. A rejection or a revise/resubmit becomes then very costly, while high rejection rates are generally regarded as contributing to the value of a journal. The observed crowding of some journals seems to me to be a more important determinant of the adoption of a desk rejection policy. But in the end, the model does not have an endogenous desk reject, and thus fails to answer the question initially posed.

Advertising and GDP

How does advertising contribute to social welfare? It raises the awareness about products, and thus should increase utility of people. But there is also some waste of resources when competitors outdo each other with advertising. Think for example of all the resources devoted by Coca-Cola and Pepsi to sway user between two essentially identical products. So, in the end, is advertising good or bad?

Benedetto Molinari and Francesco Turino point to a positive correlation between GDP and advertising in the OECD and try to rationalize this within the Neoclassical growth model. They find that the impact of advertising is rather through the labor supply. As individuals want to consume more, they need to work more to generate the necessary income. This increases GDP (8% for the US) and utility. And as advertising itself amounts to about 2% of GDP in the US, the net contribution to GDP remains strongly positive, at least at current levels.

On the democracy of science

Should science obey to democratic principles? This is a question that I recently saw discussed on Scienceblogs, and that is also mentioned in the latest strip of PHD Comics.

Democracy is about letting people decide on their fate by choosing between objectives. Concretely, this has translated to choosing between policies, but that is another question. There is, however, a disturbing trend in the media to let people vote ("reader polls") on things they have no business deciding on and then present this as evidence. "Is this person guilty?" Leave that to the courts who have the full information and know the laws. "Is the theory of evolution true"? Leave that to scientist to figure out. "Is climate change real?" Idem. "Should the Feds bail out banks?" Leave that to economists. Etc.

While science is built on consensus, it does not mean consensus among people who do not know what they are talking about. The wisdom of crowds is often wrong. Even among economists, conventional intuition is sometimes wrong, this is what makes great papers in top journals. Instead of turning to the opinion of the people in the street to fill airtime, why not actually ask experts. And by experts, I do not mean political pundits.

Willingness to pay for bird conservation

There is a large literature on the willingness to pay for non-market goods, such as security, bio-diversity or pollution. The typical way to elicit these amounts is by survey, asking people what they would be willing to pay, as opposed to what the community should be paying.

Pamela Kaval and Matthew Roskruge do such a study for the preservation of birdlife in the Waikato region of New Zealand. A few striking results: everyone is willing to pay, older people want to pay more, and native Maoris less. Kaval and Roskruge conclude that there is willingness to tax more for bird preservation.

Why would everyone be willing to pay? I suspect there is a selection boas in that only those who care about birdlife accept to participate in the phone interview. I certainly only pursue phone interviews I care about. Why would older people want to pay more? They would have fewer expected years to benefit from it. Is it because birds were more numerous in their childhood and nostalgia matters more? And the Maori? Aren't they supposed to care more about nature?