Lynne Kiesling

Tyler beat me to mentioning today’s WSJ article on cane-based ethanol in Brazil, so I simply refer you to him and his commenters.

Lynne Kiesling

Mike Madison responds to my earlier post on wireless in Pittsburgh’s Market Square. I argue that the businesses would benefit from the wireless, and thus have an incentive to pay for it. Mike responds:

The answer is pretty obvious, at least to me: The city, or some public authority, is the right entity to be involved precisely because it’s far from clear that the businesses in and around the square and PPG Place either would, in fact, benefit from this, or would recognize those benefits, to such an extent that they would be willing to underwrite the cost of the network. It’s an empirical question, right? Figure out who the relevant businesses are (do we count street-level only, or do we count tenants of PPG Place?), and ask them: If everyone chipped in, would you be willing to fund some share of a wireless network for that space? My guess is that the answer would be no. But I’m happy to be proved wrong.

Wireless connectivity in public spaces is, I think, what economists would call a public good, and that means that we shouldn’t be so quick to write off government involvement in setting it up in the first place. Or, if the private sector does get this off the ground, then some government entity should be closely involved in regulating both services and prices, so that the public truly gets what the public needs.

I don’t think the answer is as easy as Mike does, because I don’t think that wireless connectivity is a public good, at least not a pure public good. A public good is something that is nonexcludable (I can’t prevent you from consuming it) and nonrival (your consumption does not reduce my consumption). Wireless connectivity is nonrival up to a point, but it is congestible. Furthermore, we know that we can password protect and/or charge for access, which means that it is excludable. Thus on a purely technical level, wireless connectivity is not a public good.

As a congestible club good, though, it presents a challenge: how do you coordinate the group of businesses to get the thing provided? I think this coordination requires leadership from the party/ies that would have the highest expected benefit. This is where the Buchanan and Stubblebine distinction between relevant and irrelevant externalities becomes important: if these businesses have hetergeneous preferences over installing a wireless network, some of them will value it more, and will therefore be more willing to pay for it than others. Yes, other businesses will benefit from it, but their marginal benefit is small, and if it’s small enough, their free riding on the other businesses won’t keep the wireless network from being built.

The challenge here is figuring out which businesses would benefit the most, and presenting them with the opportunity to increase their profits by doing this. Here’s where I’d start: The Market Square Association:

The Market Square Association is a Pennsylvania non-profit corporation formed in 1970. The primary purpose of the Market Square Association is promoting social welfare by improving, beautifying, and furthering the redevelopment of the Market Square area in the City of Pittsburgh including, but not limited to, the physical and commercial environment.

Some of the Market Square member merchants are cafés, bakeries, and restaurants; for them I think the value proposition is pretty straightforward. Other members include Web Spinners web application design and web hosting, and Cricket Wireless Communications. The organization exists, the technology providers are located there and are members of the organization. I would encourage them to take the bull by the horns and do it! They could collaborate with PPG and the shops and restaurants of PPG Place to enlarge the value proposition.

I also suggest not asking local businesses if they would benefit, and if so, how much, because these businesses have every incentive to behave strategically and misrepresent their true values. If you think the city is going to pony up regardless of your answer, you have an incentive to overstate your value. If you think the city will charge you for your share of the cost based on the benefits you estimate, you have an incentive to understate your value.

Wireless connectivity is not a public good, even though the benefits it generates are difficult for the providers to capture in their entirety. But the providers don’t have to capture all of the benefits, they just have to capture enough of the benefits to make it worth their while. In this case, they have a merchant association that reduces the transaction costs of capturing enough of those benefits.

Lynne Kiesling

I am on the most recent “Glenn and Helen” Instapundit podcast, discussing oil prices with Glenn, Helen, and Roger Stern from Johns Hopkins.

One of the several things I didn’t mention that I wanted to was the effect of exploiting the Canadian oil sands. Oil prices above $30-35/barrel make it economical to extract oil from the oil sands in Alberta. That fact tempers some of the “OPEC market power” that Stern’s paper analyzes.

In any case, it was a fun discussion.

Lynne Kiesling

Marcus Cole, a law professor at Stanford, is one of the smartest and nicest people I know. Happily, he is guest-blogging at blackprof.com. Sadly, the legal change to which he applies his considerable analytical skills is disturbing:

On Tuesday, in addition to Mrs. King’s passing and Justice Alito’s elevation, the State of Illinois enacted a law that requires all mortgage applications within nine Chicago zip codes to undergo a process of review by the state’s Department of Financial and Professional Regulation. The department’s review process determines whether mortgage applicants in these neighborhoods must undergo compulsory credit counseling. If they must, then the mortgage lender must pay the cost of the counseling.

Anyone familiar with Chicago geography and demography knows these nine zip codes. They are all neighborhoods on the South and Southwest side of Chicago. They are predominantly African-American neighborhoods. These neighborhoods are some of the most impoverished in the City of Chicago, and indeed, the nation. On Tuesday, they suddenly became much poorer.

Although the legislators responsible for the new law were motivated by good intentions, they failed to consider the inevitable consequences of their bill. They wanted to protect poor homeowners in certain neighborhoods from high interest rates and predatory lending practices. The new law, however, necessarily increases the costs, time and uncertainty associated with mortgage applications in these black neighborhoods. The cost of credit counseling will be born by and charged to mortgage applicants. This, in turn, will necessarily decrease the price that new home-buyers can afford to pay for homes in these neighborhoods. If they can choose to buy in other neighborhoods, where housing money is more affordable, they, on the margin, will. Furthermore, recent studies of credit counseling programs suggest that these programs have little effect on borrower behavior. The end result is that homeowners in these poor black neighborhoods suddenly have less equity in their homes than they had on Monday.

Thanks to Jim Lindgren at Volokh for the link.

Lynne Kiesling

Londonist has a fascinating little post on coal-hole covers in London. Ornate cast-iron plates to cover holes in the pavement for delivering coal into basements; now obsolete, but still there and subtly ornamental.

I love pieces of urban history like this. Another example of such a thing is the fire insurance plaque, from “the good old days” when fire companies were privately operated, and were paid by your insurance company when they showed up for your fire. If the fire brigade that showed up at your fire didn’t have a contract with your insurance company, the insurance companies had contracts to arrange for transfer payments.

They also provide a useful reference to the Coal Hole pub, near Charing Cross.

Lynne Kiesling

Mike Madison finds a great quote about Pittsburgh that invokes thoughts of Jane Jacobs, complete with a book picture and link. He quotes from some reader letters to the Post-Gazette’s architecture critic:

Responding to New York architect and developer Stan Eckstut’s observation that Downtown Pittsburgh has too much public open space for a healthy retail environment, electrical engineer Alan R. Huffman of Pine writes: “The greatest damage to the retail environment in Downtown Pittsburgh has been done, in my opinion, by continuing to construct large office buildings with no first-floor retail space. I worked Downtown for many years and watched this take place along Liberty Avenue and around the PPG building as well as many other locations. Many street-front retail and hospitality locations were wiped out by this construction. It’s a trend that probably dates at least back to the Gateway redevelopment.” [NB: The Gateway Center "redevelopment" is the crowning achievement of Pittsburgh's abysmal use of eminent domain in the 1960s.]

These letters are in response to Patricia Lowry’s column from January 23, in which she analyzes Pittsburgh Mayor O’Connor’s proposal to make Market Square into a pedestrian square, green it up, and reroute buses so they no longer proceed through the square. Lowry’s column provides a nice synopsis of the history of Market Square, which used to house a marketplace building and has always been a forum for public expression.

The discussion in these articles also hearkens back to some pedestrianization that occurred in the 1960s in other areas around Pittsburgh, with terrible consequences of desolation and retail failure due to lack of foot traffic. Chicago had this happen too; when I first moved here in 1987, State Street had been pedestrianized (except for a couple of bus routes), and other than Field’s and Carson’s it was pretty grim. Since State Street was reopened to vehicular traffic (I want to say in 1991, but I’m not sure), it’s a vibrant retail attraction again, with new shops, beautifully renovated buildings, and other signs of economic dynamism.

One of the reasons why Mayor O’Connor wants to eliminate vehicle traffic through Market Square is to make it more pedestrian-friendly and improve air quality. But these pedestrianization lessons from the 1960s are important to remember, because they remind us that the relationship between thriving pedestrian traffic and vehicle traffic is a complex one. It’s entirely likely that eliminating vehicle traffic will just make people avoid Market Square entirely, leading its businesses to suffer even more. Think about all of those little side streets in French towns that have cafes; most have traffic around the perimeter, or on one street through the center or along one side. It’s about balance, not isolation.

Lowry makes what I think is a very trenchant observation:

If the mayor wants to update Market Square, he could, as a friend said last week, make it wireless, along with PPG Plaza and that congenial connecting space between them. Marrying historic form with high-tech capability, after all, is a large part of what 21st-century Pittsburgh should be about.

Now there’s an idea! A wireless public space is a great idea, given the history of the space. But here’s my question: why should it be the city’s doing? The businesses in Market Square and around PPG Plaza would be the largest beneficiaries of a wireless Market Square. They should have an incentive to provide it. Perhaps the Mayor could encourage, suggest, facilitate, but let private initiative make it happen.

It is, after all, Market Square.