Tuesday, April 18, 2017

A Video Primer on Public Choice

by Levi Russell

The video below is a great introduction to Public Choice economics. It's about an hour long and is delivered by Ivan Pongracic, a professor at Hillsdale College who studied under Jim Buchanan.
Here are some of the topics covered:

The Public Interest View
Precursors to Public Choice
Voting and Group Rationality
Rent Seeking
Constitutional Political Economy

At certain points, Pongracic gets a bit too ideological for my taste, but the video is still good if you ignore those bits.

Monday, April 17, 2017

Sam Peltzman on Antitrust and Humility

by Levi Russell

Over at the ProMarket blog, there's a great interview of Sam Peltzman on industry concentration. The whole thing is worth reading, but I thought I'd reproduce what I think are probably the most controversial of Peltzman's responses.

Q: Which industries should we be concerned with when we look at questions of concentration?

The traditional answer, embedded in the merger guidelines, is “be concerned if concentration increases in an already concentrated industry.” The evidentiary basis for this is thin. A much older literature struggled vainly for years to find a broad pattern whereby adverse effects of concentration could be localized to highly concentrated industries. I am unaware that the state of knowledge on where we should be concerned—or indeed if we should be concerned—has improved much. Basically, antitrust policy relies more heavily on beliefs rather than a strong consensus about facts.

Q: The five largest internet and tech companies—Apple, Google, Amazon, Facebook, and Microsoft—have outstanding market share in their markets. Are current antitrust policies and theories able to deal with the potential problems that arise from the dominant positions of these companies and the vast data they collect on users?

See my answer to [the question above]. It is hubris to believe that economists and antitrust officials can predict the future, which is what you need to do in this sector. Who remembers that free web browsers were once thought to be a dangerous threat to competition?

Q: President Trump has signaled before and after the election that he may block mergers and go after certain dominant companies. What kind of antitrust policies should we expect from him? Pro-business, pro-competition, or political antitrust?

See [the questions above]. I prefer humility to hubris.

Wednesday, April 12, 2017

Blue Apron Blues

by Levi Russell

Blue Apron released a very nice-looking ad back in January that I'm certain appeals to their audience. Unfortunately, it perpetuates some wrongheaded ideas about food systems. Yes, I know this is an ad and that it's sort of silly to criticize an ad, but I think there's some value in explaining what is wrong with the sort of thinking put forth in ads like this. Now that I've "poisoned the well," here's the ad:

After mischaracterizing the US food system as a grayed-out assembly line factory, the narrator describes an ideal food system in which "chefs and farmers would plan crops and recipes together to make farm land healthier and grow ingredients that taste better." He then complains about the current system's supermarkets, food transit, and waste. Instead, in the ideal food system, food would be delivered fresh, straight to your door!

All of this sounds great, but what does it cost? Certainly Blue Apron isn't suggesting that literally the entire food system of the US could be replaced by their model. How much does Blue Apron cost? About the same as a meal at a fast-casual restaurant.

Yes, there are problems with food waste, lack of freshness, etc in the current food system. However, specialized production and large supermarkets feed the poorest among us quite well. At its current prices, there's simply no way Blue Apron could do that.

Sunday, April 9, 2017

A Discussion of Cost-Benefit Analysis

by Levi Russell

One of my favorite economics blogs is Cafe Hayek. Don Boudreaux, professor of economics at George Mason University, does a great job of using the economic thought of Alchian, Buchanan, Coase, Demsetz, and others to criticize popular fallacies and the perspectives of other professional economists.

Recently Boudreaux posted a couple of discussions on cost-benefit analysis. Below I reproduce key segments of these posts.

Boudreaux is clearly a fan of cost-benefit analysis, but he has a unique take on precisely who is best positioned to conduct such an analysis:
In this light, the benefit of moving consistently in the libertarian direction is that, to the extent that this movement is successful, one result is that both the number and the reliability of cost-benefit analyses increases. In the absence of the FDA and its prohibitions, each individual – with or without the consultation of his or her physician (as he or she chooses) – would make a series of personal cost-benefit analysis, throughout time, regarding various medical options.

This decentralized process of cost-benefit analyses would be on-going. Every hour of every day, each of many individuals would be doing his or her own cost-benefit analysis. And because each of these cost-benefit analysts would, unlike those who conduct cost-benefit analysis on government programs, (1) have more of his or her own money on the line, and, more significantly, (2) have his or her own health at stake, the results of these countless cost-benefit analyses would be much more reliable than are the results of unavoidably only occasional and information-thin cost-benefit analyses conducted on the overall effects of FDA policies and other government actions.

So, yes, by all means let’s have more – and more trustworthy – cost-benefit analysis. One of best means of achieving this happy result in matters of Americans’ health care is to abolish the FDA. To support the retention of the FDA – to support the retention of this agency’s current ability to prevent Americans from using whichever medical products they individually choose – is to oppose maximum possible cost-benefit analyses.
He follows that post up with another example:
Let me put this last point somewhat differently: if the income gains, from a minimum wage, captured by some people are to be counted as ‘benefits’ to be weighed against the losses of other people – and if these gains can in principle be so high relative to the losses that the minimum wage passes a cost-benefit test that then is used to support the minimum wage – then there is flung open a Pandora’s box of utilitarian horrors.

For example, someone (call him CB) might propose that the state prohibit the employment of all blacks under the age of 20. CB would correctly point out that, while his policy would obviously have some losers, it would also produce winners – namely, the wages of non-black, mostly young workers will increase as a result. And he’d be correct. I can also imagine that, in reality, the measured increase in the aggregate pay of this policy’s winners would be larger than the measured decrease in the aggregate pay of its losers (especially if we confine “losers” only to the black teenagers who lose jobs). Yet who would counsel that we should, therefore, withhold judgment on CB’s proposed policy until a cost-benefit analysis is conducted? Who would think it to be “libertarian” or “one-sided” or “unscientific” to prejudge as unacceptable a policy of prohibiting the employment of blacks under the age of 20?
Here are a couple of related short posts:

This one, by Jon Murphy, one of Boudreaux's PhD students, tackles the issue of aggregation in cost-benefit analysis. Another by Roger Meiners at the Property and Environment Research Center examines the use of cost-benefit analysis by the Environmental Protection Agency.

Wednesday, April 5, 2017

Big Ag Antitrust Blog Symposium

by Levi Russell

Recently I was part of a blog symposium put together by the International Center for Law and Economics at the Truth on the Market blog. The posts were quite diverse in terms of subject matter and perspective, so I think they're worth a read if you want to get a better understanding of what is going on with the Bayer/Monsanto, Dow/DuPont, and ChemChina/Syngenta mergers and acquisitions. There were some great contributions from the lawyers and economists on the panel and I was humbled to be invited to be a part of it. Below are links to the posts in order of the authors' last names.

Shubha Ghosh - Patents and mergers

Allen Gibby - Conglomerate effects and the incentive to deal reasonably with other providers of complementary products

Ioannis Lianos - Finding your way in the seeds/agro-chem mergers labyrinth

Geoffrey Manne - Innovation-driven market structure in the ag-biotech industry

Diana Moss - Mergers, innovation, and agricultural biotechnology: Putting the squeeze on growers and consumers?

Nicolas Petit - Antitrust review of ag-biotech mergers: Appropriability versus cannibalization

Levi Russell - Contestability theory in the real world
                        Effects of gene editing on ag-biotech antitrust

Joanna Shepherd - Understanding innovation markets in antitrust analysis

Michael Sykuta - Innovation trends in agriculture and their implications for M & A analysis