West Virginia coal mines and Minnesota iron mines

So, combine an aside in Oliver Williamson's "The Economic Institutions of Capitalism" (Chapter 1, section 5: Economic Organization of the Company Town) with the ubiquitous Minnesota Public Television documentaries on the Iron Range, and I got to thinking. The Minnesota iron towns didn't seem to shake out as exploitave company towns the way so many coal towns did down south. There were plenty of towns founded by the owners of the mines up here, but not the company stores charging high prices, or rented housing costing miners their entire wage (that I'm aware of.) Why is that? Did it have something to do with the history of the timber industry in the area? Or was that actually the cases in some places, and I'm just not hearing about it?

Williamson argues that company owned housing and a company controlled monopoly on the local general store could improve efficiency in some circumstances: For housing, if the society isn't highly mobile (few cars) and the market is thin (remote area) workers buying their own housing is equivalent to making a firm-specific investment and they will therefore require either guarantees (of employment or housing buyback) or wage premia. Company owned housing avoids these deadweight losses.

For the company store, his options are a company owned monopoly, a franchise (auctioned either by the firm or the workers) or a worker owned co-op. The former obtained in many coal mining company towns, Williamson favors the latter two, and I'm not sure what Minnesota towns ended up with. (Most of the PBS programs focused on the bars, not the general stored. =)  )

The Minnesota iron range fits his criteria perfectly:

Assume the following: (1) A remote mineral resource has been located, the mining of which is deemed to be economical; (2) the mineral can be mined only upon making significant investments in durable physical assets that are thereafter nonredeployable; (3) requisite labor skills are not firm specific to any significant degree, but there are set up costs associated with labor relocation; (4) the weather in the region is severe, which necessitates the provision of durable housing for protection from the elements; (5) the community of miner is too small to support more than one general store; and (6) the nearest city is 40 miles away.

I have to check, but this Minnesota seems to fit these criteria as closely as anywhere in coal country.
Mobility and remoteness play a big role in Williamson's reading of the phenomenon. Perhaps Minnesota was less remote due to railway access? On the other hand, I can't imagine West Virginia coal mines _not_ having rail access. Maybe the concentration of multiple mines in one area created a large enough community of miners to not be "small?"

I suppose it's as good an excuse as any to go check out the Hennepin County Historical Society's library a block away from home. Probably not the best starting point for Iron range research, but hey, when they're only open 1-5pm I need a little extra incentive to get up and around in time. Seriously, getting up and functional before 5? That's a stretch.

Betting on Superbowl viewers

So, I just found out that the Wiki articles on each superbowl list the cost of a 30 second commercial and the number of viewers.

Since advertising prices are set beforehand, they could be interpreted as marketers' estimates of the number (and hence value to sellers) of viewers watching the game. I wonder how well correlated prices are to viewership.

I'm thinking change in the real cost of a 30 second add from one year to the next should correlate to the change in number of viewers from one year to the next (or perhaps the change in the percentage of the population that is viewing the game.) There could be an argument for change in viewership of the preceding superbowls would be the driving factor, but I think the popularity of the teams in the current championship and the success of the current season has more impact on viewership than the previous superbowl.

So, some time in the near future, I think I'll try to throw some math at that data and see if there's much correlation.

(And yeah, I need to finish up the gaming analysis post, too. Not to mention health care that I got started on.)

Why I love reading econ papers

There are so many fun tidbits in the proceedings of the dismal science, like in this excerpt of the abstract from Genes, Legitimacy and Hypergamy: Another Look at the Economics of Marriage

As a consequence, it is shown that the equilibrium can only be of two types. In the "Victorian" type, all agents marry somebody of the same rank in the distribution of income. In the "Sex and the City" (SATC) type, women marry men who are better ranked than themselves. There is a mass of unmarried men at the bottom of the distribution of human capital, and a mass of single women at the top of that distribution. It is shown that the economy switches from a Victorian to an SATC equilibrium as inequality goes up.

 I don't follow physics or biological or other hard science literature, but can you think of any objective, serious paper from a field outside economics that would name equilibria "Victorian" and "Sex and the City?"

MMO Economics

Today we demonstrate te law of demand through gaming.

All fantasy MMOs (massively multiplayer online games, think World of Warcraft) use a leveling system to keep a demographic of players coming back. Players kill monsters to accrue experience points on their character. At certain benchmarks, the character gains a level, giving them more powerful abilities, stats, skills, whatever.

The game of Ragnarok Online follows this model, giving players the opportunity to progress their characters from level from 1 to 99. (Then you can transcend and do it again. And there are job levels that rise in parallel to character level. I'm sure game designers would have a field day.)

This takes time, and leveling is only part of the experience in an MMO. PvP allows players to pit their characters against other players' characters, and endgame content allows characters of maximum level to continue fighting challenging monsters. So leveling fast can be a benefit.

Enter, in Ragnarok Online's case, the Battle Manual. Players can purchase this item using real world money (through the intermediary of "Kafra Credit Points") and increase the experience points their character gains from killing monsters by 50% for 30 minutes.

Finally, the point. Ragnarok Online's website has surveys, one of which being:

There are enhancements to leveling available for Ragnarok Online that increase Experience gain. How often do you use the Battle Manuals? If you don't use them much what would inspire you to use them more? Please be honest with the poll else it can't be considered appropriately.

The responses:

• "I always use them!"  --  94
• "I never use them." -- 70
• "I would use more if they were 80 points."  -- 25
• "I would use more if they were 50 points."  -- 134
• "I would use more if they were 30 points."  -- 400
• "I would not use more."  -- 35

Battle manuals currently cost 40 or 50 points, depending on whether you play on a free server (50 points) or a server with a monthly subscription fee (40).

Kafra Credit Points are sold on a sliding scale, 500 points for 5 dollars, 1050 for $10, 1650 for $15, 2300 for $20, 5200 for $40 or 10,400 for $75.

The questions aren't exactly what I would have asked, there is no "I would use them if they cost 0 points" question, and how do we differentiate between "I would not use more" and "I always use them?" Do one or both represent usage at the current price in the same frame of reference as the responses at specific price points?

For a start, let's take "I would use more if they were n points." responses to mean "I don't currently use Battle manuals but would if they were available for n points. That gives us consumption of 400 at p=30, 134 at p=50 and 25 at p=80. This gives us a price elasticity of demand of -0.9975 when going from a price of 30 Kafra points to 50 Kafra points, -1.356 going from 50 to 80 points and -0.5625 from 30 to 80 points.

So, elasticity increases at higher price ranges, but is never highly elastic and it's close to -1 at the lower price ranges. I'm not sure what my intuition on this might be. I would probably expect a fairly low elasticity, possibly with an area of higher elasticity around some point of inflection. (Think an arc tan graph.) The absolute price ranges are very small, ranging from a low of forty three cents an hour at the minimum to one dollar 60 cents an hour at the high end.

There is much more to look at here, I think. It looks like the discounts on buying Kafra points cause greater price differences than the change in points, and I haven't even looked at the other options in the survey.

But I'm out of time for now. more tomorrow.

Healthcare data

This chart was getting bandied around on a forum and it got me thinking about US healthcare spending. Luckily it mentioned its data source, leading me to http://www.oecdilibrary.org/content/book/health_glance-2009-en and a statistics package from BPI consulting. It's going to be time to think about relationships and throw some math at some data to see if I can reject a null hypothesis or two.

Question:  Why is the US healthcare system so expensive (relative basically everybody else)?*

 Possible contributers:
     -Lack of monopsony  power by purchasers.
          -Insurance companies do have some monopsony power in re doctors and hospitals.
          -Drug price ceilings?
     -Inefficient competition in the market.
          -AMA licensing and accreditation limits participants.
          -Lack of the ability to advertise. Compare Lasik to other outpatient procedures
          -Limited numbers of hospitals, does this compare to other limited suppliers?
          -How do these factors make the American market different than other healthcare markets? 
     -3rd party payments
          -Moral hazard and adverse selection
          -Creates a subsidy or price floor. (Which is a better model?)
     -Technology
          -Do we use more medical technology than other countries?
     -General American trends
          -Do we pay doctors, nurses and medical people more than others?
          -Do we pay doctors etc more relative similar Americans?
     -Income effects
          -Do we consume more healthcare because it's a superior good and we can afford it?
          -Can this be related to the income differences between Americans and Europeans?
          -Test: What kind of things do we spend out money on? What percentage goes to "extra" healthcare?
      -All the stuff I haven't thought of yet

OK, so the data that I found don't look like they address most of the things that cause high US health costs. This will take some thinking.

*Let's leave results out for this, those may be for other reasons than economics and I don't know enough medicine to tell the difference between a good theory and data mining.** 

**I probably don't know enough about the healthcare system to tell good results from data mining either, but hey, there might be some chance on that one!

Robin Hoodlums

My new title for redistributionists. Either it's kinda catchy or it's 5:00 am and I'm sleep deprived. Google only shows one non-flash-game reference in the top few and that's from 2005 (talking about Bush, I savor the irony.)

I shall persevere to spread this across the Web.

Dynamics of the fur trade

I just finished watching a PBS program on the early fur trade in Minnesota (is it just me or is MN's PBS obsessed with the iron range?)

A few interesting facts stand out: While the French dominated the area, trade was conducted at posts but the traders mostly interacted with tribal leaders. The leaders would bring in furs and pick out what goods they wanted in trade, then they would go and distribute those goods to their people. Also, early in the period the French seem to have stayed near Lake Superior and the Ojibway tribe specialized as middlemen, bringing furs from other, more western tribes and sending goods back. That let the Ojibway keep a monopoly on guns, apparently.

As the french moved further west they began trading directly with the indians doing the hunting and trading guns with them. This led to the Ojibway making war on the Cree and others in the area in order to claim the more fertile hunting grounds since their monopoly on brokering trade had been broken.

After the French and Indian War two English companies moved in. The Hudson Bay company had been active since the late 17th century but they were primarily a ship based group who would make landfall and let the Indians come to them. The Northwest Company moved into the old French trading posts and went to the Indians' villages to trade. This let the Northwest Company gain a huge advantage over the Hudson Bay company, at one point handling something like 78% of all furs.

Both English companies behaved differently than the French in that they traded directly with individuals, cutting the chiefs out of the goods distribution business. Unfortunately there was no mention of how this impacted tribal culture.

Traders established a point system where certain types of pelts were assigned a point value as well as trade goods. It's not entirely clear, but it sounds like the traders sold on credit, allowing the Indian to pick out what supplies he wanted for the winter then coming back with pelts in the spring to pay for it. If this was the case, the fact that the white traders would shoulder the economic risk of something bad happening to an Indian over the winter by granting him credit kicks some of my preconceptions in the pants. I would have thought every transaction between whites and Indians would have been cash over the barrel head.

Finally, the Hudson Bay company wised up and moved their operations to where the Indians were and established trading posts near the Northwest Companies posts, starting a trade war which included shooting as well as (probable) price competition. Unfortunately, the program didn't delve into that aspect before it ended.