Archive for November, 2009

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Those leaked emails, and the politicization of climate science

November 30, 2009

Lynne Kiesling

If you have not been following the story of leaked emails and documents from the University of East Anglia’s Climate Research Unit after their computers were hacked, Maggie Koerth-Baker’s Boing Boing post provides an overview with lots of supporting links. A couple of good overview stories are from the Economist’s most recent issue and from the New York Times on Friday, which summarizes the issues:

The most serious criticisms leveled at the authors of the e-mail messages revolve around three issues.

One is whether the correspondence reveals efforts by scientists to shield raw data, gleaned from tree rings and other indirect indicators of climate conditions, preventing it from being examined by independent researchers. Among those who say it does is Stephen McIntyre, a retired Canadian mining consultant who has a popular skeptics’ blog, climateaudit.org. A second issue is whether disclosed documents, said to be from the stolen cache, prove that the data underlying climate scientists’ conclusions about warming are murkier than the scientists have said. The documents include files of raw computer code and a computer programmer’s years-long log documenting his frustrations over data gathered from countries in the Northern Hemisphere.

Finally, questions have been raised about whether the e-mail messages indicated that climate scientists tried to prevent the publication of papers written by climate skeptics, which were described by the scientists in the e-mail messages as “garbage” and “fraud.”

On the first issue, the availability of the raw data to enable replicability of the analysis, the Times of London reminds us that the CRU’s raw data were thrown out back in the 1980s. There are other historical temperature series available, and the disposal of the data in the 1980s has been known for some time, but the reason I wanted to mention this controversy really hinges more on the practice of science, the scientific method, and the intersection of science and politics that is unavoidable but should be minimized. One reason why this intersection becomes problematic is the confirmation bias of scientists, politicians, and voters — even when we believe we are being dispassionate and objective, we make analyses and take actions that tend to confirm our ex ante beliefs. The best way to ameliorate such biases is by insisting on open data availability.

The three issues highlighted above show areas where the politicization of science can occur and, clearly, has occurred in this case. I agree with Jonathan Adler’s remarks in his excellent post on the documents and their implications; with respect to the IPCC process he observes that

The effort to compile an “official” scientific “consensus” into a single document, approved by governments, has exacerbated the pressures to politicize policy-relevant science.  So too has been the tendency to pretend as if resolving the scientific questions will resolve policy disputes.  This is a dangerous pretense.  Science can — indeed must — inform policy judgments, but it does not determine such judgments. It can tell us what is, and perhaps what will be, but it cannot tell us what should be.  A more honest climate policy debate would acknowledge that there are uncertainties, acknowledge that there are risks of action and inaction alike, and focus on the relative merits of different ways to address the real, albeit necessarily uncerain, risks of climate change.

This messy, complex web of climate science and policy is indeed complicated. Scientists first and foremost perform analyses and test hypotheses, but they are also human, and bring their own biases and beliefs to their analyses (I am also aware of my own biases and beliefs and how they affect my own analyses). These biases and beliefs make us prone to confirmation bias, to paying more attention to results that conform to our beliefs. Add to that the drive to create new knowledge and to frame our research proposals in contexts that will get grant funding (what some have prosaically referred to as the “they have to scare the bejeebus out of us to get funding”). At the margin those incentives combine to amplify the apocalyptic form of the climate change narrative among scientists.

Then layer in the political process, both in (private and government) funding of research and in the thorny questions of what policies should be implemented given the results of scientific research. That political process involves individuals who are elected representatives working from the premise that the way they deliver results to their constituents is by “doing something”, which takes the form of passing legislation. Typically, though, the political process cannot tolerate the nuance, the uncertainty, and the falsification methodology associated with scientific research — political processes demand certainty and proof, and politicians often try to persuade themselves that more certainty and proof exist than actually do, another form of confirmation bias.

The thing that I find the most disturbing about this whole episode is what it indicates about the attitudes of researchers toward sharing their data; these documents indicate that researchers have destroyed data (as mentioned above) and do not make data available as a default when they publish papers. In some cases there are property rights issues — not all researchers have the rights to make all of their inputs publicly available — and I think resolving some of these rights to increase transparency should be a top priority. One way to do that is for funding sources to mandate data availability as a condition for funding, which the National Science Foundation does and others should follow.

Two British publications had pointed editorials on this point with respect to the CRU controversy. This Financial Times commentary from MIT’s Michael Schrage is very explicit on the data point:

Science may be objective; scientists emphatically are not. This episode illustrates what too many universities, professional societies, and research funders have irresponsibly allowed their scientists to become. Shame on them all.

The source of that shame is a toxic mix of institutional laziness and complacency. Too many scientists in academia, industry and government are allowed to get away with concealing or withholding vital information about their data, research methodologies and results. That is unacceptable and must change. …

The issue here is not about good or bad science, it is about insisting that scientists and their work be open and transparent enough so that research can be effectively reviewed by broader communities of interest. Open science minimises the likelihood and consequences of bad science.

Schrage’s whole argument is eloquent and, to my mind, quite accurate, and I encourage you to click through and read it. The other editorial that caught my eye was from the Economist, which sounded a cautionary note about the effects of politics on the toleration of dissent in science:

There is no doubt that politics and science make uncomfortable bedfellows. Politicians sell certainty. Science lives off doubt. The creation of the Intergovernmental Panel on Climate Change to establish a consensus on the science was an excellent idea for policymakers, who needed a strong scientific foundation for their deliberations, but it sits uncomfortably with a discipline that advances by disproving accepted theories and overturning orthodoxies.

I hope that this CRU document controversy turns out to be a salutary inflection point, leading to greater transparency in both data availability and peer review. We need those in order to have better science and better policy.

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Is Florida agency price gouging or just charging what the market will bear?

November 30, 2009

Michael Giberson

Last year thousands of Florida consumers called the state to complain about price gouging on gasoline after Hurricane Ike.  This year, hoteliers, gas stations, and other business owners are saying they are being price gouged by the Florida Department of Transportation.  The issue: the fee the state charges business owners who wish to appear on the blue gas, food, and lodging signs near interstate highway exits.  The state plans to increase the charges from $1,000 to a maximum of $2,500 in rural areas and $5,000 in urban areas.

“When you increase 300 and 400 percent, that’s a form of price gouging. We consider this economy to be a hurricane, truly the worst disaster that we’ve seen in the economy since our lifetime,” said Hemant Patel, Treasurer with the Asian American Hotel Association. “We understand a level of fair playing, we understand a 10 percent increase, 15 percent increase, which is fair to business and we understand the economy, but to have it 300 and 400 percent, that’s no different than me charging my hotel rates by 300 percent when we have a disaster in our area.”

According to the story:

Officials from Florida’s Department of Transportation said state lawmakers adjusted the program earlier this year so they could generate more revenue for the state’s Transportation Trust Fund. Moving forward, DOT officials will review each interchange, each year, and adjust the prices accordingly based on traffic, population, market conditions, demand, and the cost of the program.

The director of “Right of Way” for the Transportation department said, “If you think of these as advertising value, these are still the best advertising value.”

Some policy activists argue that government should be run “more like a business.” With the focus on boosting revenue, this policy change appears to be an example of what that slogan entails. But revenue maximization probably ought not be the sole goal of state policy.

  • Note, for example, the government is a business that has the capability to regulate the competition.  The more restricted the ability to install private billboards (or present other forms of information for travelers), the higher the value of appearing on the state’s blue roadside signs.  We wouldn’t want the state to maximize its revenue by excessive clamping down on other advertising.
  • More generally, policy changes by the state acting as a vendor should consider more than just private costs and benefits to the state and business owners.  The factors to be considered in adjusting rates mentions the “cost of the program,”  which probably just refers to the state’s program expenses.  But, in the ideal, the state should encompass consideration of the net costs (or benefits) to travelers and other “third parties” from constraining advertising in the way the blue highway signs do.
  • And, realizing that it is fallible in its assessments, the state may want to err on the side of permissiveness in its restrictions on alternative sources of roadside information.

With the rise of location-aware smart phones and internet-aware navigation systems, the state’s little blue signs will slowly diminish in value — useful to consumers lacking smart phones (a smaller and smaller group), consumers in cell phone “dead zones,” and to all consumers during emergencies which disrupt communications services.

Perhaps the state is just trying to grab some extra revenue from the program while it can, before technology renders it mostly meaningless.

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Appliance sales to get ‘cash for clunkers’ boost? (2)

November 30, 2009

Michael Giberson

In August we took note of stories indicating that appliance sales were going to get a “cash for clunkers”-like boost.  James Hamilton at Econbrowser offers updated discussion, links, and commentary:

Here is the description of the program from the Energy Department (hat tip: King Banaian):

In late 2009 or early 2010, you may be eligible to receive rebates from your state or territory for the purchase of new ENERGY STAR-qualified appliances.

These rebates are being funded with $300 million from the American Recovery and Reinvestment Act of 2009. Under this program, eligible consumers can receive rebates to purchase new energy-efficient appliances when they replace used appliances.

Programs will differ in every state, and DOE anticipates that rebates will be available to consumers in most parts of the country by early 2010.

Hamilton comments:

Even if the programs succeed in their mission of persuading Americans to abandon their old cars and appliances sooner than they otherwise would, I remain deeply skeptical that junking working capital in this fashion is the best way to grow Americans’ wealth.

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Two views on electric utility restructuring in Pennsylvania

November 27, 2009

Michael Giberson

From the Central Penn Business Journal, two views on electric utility industry restructuring in Pennsylvania:

First from Matt Brouillette:

Pennsylvania’s electricity rate caps have kept prices artificially low, preventing competitors from entering the marketplace and consumers from having choices. Now, when rate caps expire in 2010 in PPL territory, most of central Pennsylvania will see an increase in electricity prices.

… Rate caps expired in western Pennsylvania years ago, and today 20 percent of Duquesne Light customers have switched to other suppliers. The competition has forced Duquesne Light to offer more competitive prices and better services. The result: Electricity consumers are benefiting.

… Competition forces companies to serve their customers with the best prices and service, giving consumers more control. While it’s true that electricity prices in both monopoly structures and competitive markets have escalated over recent years, that is due to rising costs for generating fuels, not deregulation. Moreover, prices already have begun to drop in competitive markets — an effect not seen in monopoly delivery systems.

Case in point is PPL’s recent announcement of a 30 percent rate hike this January. … A number of companies already have announced their intention to compete for PPL customers, with one, Dominion Retail, guaranteeing a savings of 10 percent on PPL’s rates for the first 5,000 customers.

Rejoinder from Eric Epstein:

Gov. Tom Ridge predicted that electric competition would lead to job growth, economic expansion and decreased rates.

According to Ridge, “Pennsylvania’s national leadership in electric competition continues to bring dramatic savings and economic benefits to Pennsylvanians” (Aug. 4, 2000). The success of electric competition would shave business costs and give employers more money to invest, thereby creating multiplier effects on the state economy. “Competition” also would produce savings that would give consumers more money to spend.

… Could the deregulators have gotten it more wrong?

The reality is not so dreamy. Electric utilities are collecting $11.4 billion in stranded costs, increased taxes on ratepayers and dumped customers at record rates.

… Deregulation was a great bargain for PPL. Last year the company reported a profit of more than $1 billion on $6.5 billion in revenue and set records in consumer cruelty.

… A study published by Carnegie Mellon University’s Electricity Industry Center in 2008 found, “On average, power users in restructured states pay 2 to 3 cents per kilowatt hour more than customers in states that didn’t restructure.”

… Decide for yourself if electric deregulation has delivered on its bold promises or served as yet another corporate failure. But don’t take too long. PPL is set to jack up residential rates by 35 percent in 2010.

Brouillette is president and CEO of the Commonwealth Foundation; Epstein is chairman of Three Mile Island Alert Inc.

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Ed Glaeser on why some cities are more entrepreneurial

November 25, 2009

Lynne Kiesling

Ed Glaeser has a very interesting post and an accompanying working paper on differences in entrepreneurship across cities. His post covers some history of entrepreneurship in economics (he mentions Smith, Marshall, Schumpeter, Knight, and Chinitz, but not Cantillon), how to measure entrepreneurship, and some preliminary results from their working paper:

The big fact about entrepreneurship and cities is that average firm size strongly predicts urban success.

The chart below shows that a 10 percent increase in the number of firms per worker in 1977 is associated with a 9 percent increase in employment growth between 1977 and 2000. An abundance of small, independent firms is, along with January temperature and share of the population with college degrees, one of the best predictors of urban growth. [chart omitted] …

Is this relationship largely spurious, the result of some omitted variable — or set of variables — that increases both the number of firms and city growth? If the relationship is real and an abundance of smaller firms actually causes urban success, then why are some places more entrepreneurial than others?

The analysis looks across industries within cities and finds what seems like largely a life cycle result — smaller firms are associated with faster growth rates in new firms than in established firms. But by doing it across industries and controlling for industry and for firm age, the faster growth rates for new firms are arising from some other process than the traditional industry life cycle. Very interesting.

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Have we failed regulation?

November 24, 2009

Michael Giberson

One paper presented at the recent Second Annual Conference on Competition and Regulation in Network Industries in Brussels addressed the topic of regulation as an imperfect institution.

The abstract seemed a bit of a mess, but I’m interested in views of utility regulation as an economic institution (particularly from a new institutional economics approach, but also more broadly) so I thought I’d take a look at the paper.  The abstract suggested I’d see how “regulation may not fail in theory or practice as much as it is failed by us.”  Do we have a duty to the institution? I was intrigued.

Unfortunately, I could only make it to page three before the following paragraph-and-a-half finally stopped me:

Markets emerge from a brew of economic want and political will. Free markets are not free by desire or design. Markets are an artifact of nonmarkets, owing to the political economy because they are allowed to exist under the legitimacy of the state. Market structures (eggs) may call for regulation (chickens) and regulation in turn will shape market structures. Rather ironically, structure and regulation are essential for “liberalized” markets.

Economic exchange begets market structures and rules, which beget markets, which beget market failure, which begets regulation, which begets regulatory failure. Regulatory failure can beget regulatory reform or market reforms leading to changes in the rules that may result in failures of restructuring.

If I’m following the above, because chickens and eggs are allowed to exist under the legitimacy of the state, they are non-market artifacts of political economy.  The eggs call for chickens, but chickens in turn shape the eggs. Then a lot of begetting happens, which seems like the sort of thing that should be involved in the chicken-and-egg relationship, but the connection is a little hazy.

Let’s get to the point: am I getting an omelet or not?

(Maybe it gets better after page three – scanning ahead the rest of the text looks somewhat better – but I think my time is better spent elsewhere.  By the way, other papers presented at the conference appear much more useful.)

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Energy information devices start to go mass market

November 24, 2009

Lynne Kiesling

Tim Haab helpfully points out an article from Time about EnergyHub, a device for consumers to see more, and more timely, information about their energy consumption. I’ve written about EnergyHub here before, and honestly, they have not been among the most forward-looking or impressive of the products I’ve seen for providing consumers with both the information about their energy consumption and the ability to take action and automate changes in energy consumption behavior. Perhaps EnergyHub’s product has advanced since I last looked at them, but I do think Time christening EnergyHub’s smart thermostat one of the best inventions of 2009 is a bit of hyperbole, as well as being incorrect, since companies like Tendril have been working on more informative and communicative “smart thermostat” technology since 2007.

Still, having a publication like Time draw attention to the ability of homeowners to see better energy information and to respond to dynamic price signals autonomously is a positive step toward a more competitive and efficient retail electricity industry.

However, I have one nit to pick with Tim’s post. He states

Typical consumers get a bill at the end of the month reporting total consumption and the total bill.  But efficient energy pricing requires the consumer to know the marginal cost of the next unit consumed–how much will it cost me to toast this frozen waffle?

Yes … and no. Think about the other products you consume — do you necessarily pay precisely the marginal cost for every single unit of every single product you consume? No. Electricity is no different from, say, your cell phone — do you know the marginal cost to Verizon of the next minute of mobile communication you consume? No, you don’t, and you don’t pay a price that directly reflects that cost. Why not? Because pricing also reflects preferences, not just costs, and there are differentiated products/service contracts.

However, what all other products you consume have that electricity does not is choice and product differentiation. In a competitive retail market, retailers would offer time-differentiated and quality-differentiated products, or bundled services, but these products and services do not necessarily all have to include real-time retail pricing to lead to efficient retail markets. Here’s an example: suppose I am risk-averse, so I do not want real-time prices, but I am willing to pay a peak-off peak time of use price. Suppose I contract with a retailer for a TOU contract. That retailer is essentially engaging in risk management, so the retailer will either buy from the wholesale market on long-term contracts or from the wholesale spot market (probably some combination of the two). In this case I do not observe the marginal cost of the last unit I consume, but I am choosing between peak and off peak. My retailer sees its marginal cost of the last unit I consume, though, in its engagement with the wholesale market. But the contract that I chose voluntarily reflects my willingness to bear price risk.

Put more simply: an efficient retail electricity market does not require that the retail price for all consumers precisely reflects the marginal cost to the supplier of the last unit consumed, but it does require that consumers have choices that enable them to express their diverse preferences over price risk, generation source, etc. It is also enabled by technology that allows consumers to see how much it’s going to cost them to toast that frozen waffle, and to make more sense of what a price per kilowatt-hour means in terms of actual consumption.

Tim is correct that electricity regulation has led to a world in which consumers pay a fixed, averaged price and only know how much they have consumed when they receive their bills at the end of the month. Given how much communication technology is prevalent in our lives, and how inexpensive it has become, that lack of information is appalling.

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U.S. Biodiesel continues to need taxpayer support, or else…

November 24, 2009

Michael Giberson

I am mildly amazed that it is possible to take something as simple as, say, palm oil or soybean oil, and – with a few relatively simple chemical tricks – turn it into motor vehicle fuel.  [See it on YouTube.] However, I’m not so amazed that I’m willing to pay you or anyone else a $1 for every gallon of the fuel produced.

The biodiesel business in the United States is hoping that enough people remain amazed at the simple techno-wizardry that they can continue to claim a $1 per gallon federal tax break.  The tax break, which has been around since 2004, will expire at the end of this year unless Congress approves another year of subsidies for the companies.

The Houston Chronicle suggests that several biodiesel companies are having a hard time making money even with the $1 per gallon subsidy.  The story does, briefly, hint that there could be some sort of public benefit involved in the production and consumption of biodiesel (“help reduce greenhouse gas emissions and oil consumption”), but nowhere else in the article does anyone express concern over anything other than how the loss of the subsidy will hurt the economic fortunes of the subsidized companies.  Instead, the concern is mostly for protecting investors in the biodiesel business (Comments: “[Loss of tax support] would be devastating,” “The tax extension is critical to an industry that is on life support,” “Every day that policy doesn’t get passed hurts us”).

I admit, biodiesel is a neat trick, just not so neat that I want to pay to keep these guys in business.

[As of today, the most current information on biodiesel that I could find on the EIA website only covers through the end of 2008, so it doesn't reveal if U.S. producers have been hard hit by the loss of the European "splash and dash" market.]

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Market design at Harvard

November 23, 2009

Michael Giberson

Al Roth surveys development of the market design course and field of study in economics at Harvard:

[M]arket design is an eclectic field, drawing on game theory, experiments, computation, and field observation of all sorts (rules are data!).”

… When Paul Milgrom and I began the class (when he spent a year at Harvard in 2001), he had the FCC spectrum auction experience under his belt, and I had the redesign of the National Resident Matching Program under mine, and we had plenty of ideas.

I entertained a faint worry that, at the end of the decade, those might still be the only major applications we had to talk about. But, as things turned out, we can no longer fit all the newly implemented market designs into one course (and Susan Athey will again teach a second semester of Market Design, focused on many recent auction applications, in the Spring). Among the designs we talked about this semester are other health care labor markets, Kidney Exchange, School choice mechanisms, signaling for new economists, internet ad auctions, and more.

I’ve also been gratified by developments in market design as a field of study. Not only have there been successful applications, there’s starting to be an academic literature focused on practical market design, and the theoretical and empirical questions it raises.  [Links in source.]

And speaking of “rules as data,” in the prior post Roth notes that rules governing assignment of kidneys from deceased donors may be changing. (See related story from the Arizona Republic.)  In the comments I asked, “Why not favor patients with an unmatched donor, and so use deceased donor kidneys to trigger a exchange chain?” — seemed to make a lot of sense to me — and Roth explained both why it is complicated and a few cases in which something like it has already been done.

 

 

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Britain’s digital economy bill is a dud

November 20, 2009

Lynne Kiesling

Britain’s legal institutions may be about to get even more Orwellian than they already are (which is pretty Orwellian, given their widespread use of government CCTV surveillance cameras and their penchant for euphemism). The Digital Economy Bill, introduced in the Queen’s speech to Parliament earlier this week, is downright craven and very likely to violate scores of economic and social liberties. As summarized at TechDirt:

[It] includes massive changes to copyright law, including the power of the government to effectively change the law at will with little to no oversight. Basically, it would let the Business Secretary, Lord Mandelson, change copyright law through secondary legislation, which requires no Parliamentary approval. As people are noting, Mandelson has had to resign from elected positions twice in the past in disgrace, and is now in an unelected position. And he’s the guy who gets to change copyright law at will? That does not seem right. On top of that, the bill doesn’t even specify “three” strikes for users. Instead, it requires ISPs to notify users with warnings — and to notify copyright holders that they did notify users — and if file sharing is not reduced by 70% in a year (with no indication of how this is measured), then the government will tell ISPs to start kicking people off the internet.

This CNet.uk article characterizes it as

… confirming tortuously complicated proposals to combat copyright infringement by to-ing and fro-ing between ISPs, rights holders, Ofcom and the courts. It also paved the way for business secretary Lord Mandelson to rewrite copyright law …

The bill sets out a proposal for the business secretary to amend the 1988 Copyright, Designs and Patents Act as he sees fit. Should Parliament okay this proposal, twice-sacked unelected official Mandelson will be able to rewrite the law through secondary legislation — which doesn’t need to be approved by Parliament. It’s nothing short of a political land grab, and we’d hope MPs see sense and if nothing else kick this part of the bill into touch.

This proposal sounds like a seriously disturbing contravention of the political representation that characterizes a democratic republic, and what makes it even more disgusting is that it’s so clearly special-interest motivated by the entrenched recording industry, which is hoping that such heavy-handed government intervention can save them having to actually innovate and think about how their business model should evolve. It also ignores all of the studies that show that activities like file sharing don’t actually decrease music purchases, so if the recording industry bothered to think more broadly, they might actually come up with a sustainable business model.

As Cory Doctorow observed at Boing Boing,

This is as bad as I’ve ever seen, folks. It’s a declaration of war by the entertainment industry and their captured regulators against the principles of free speech, privacy, freedom of assembly, the presumption of innocence, and competition.

This proposal creates the office of Pirate-Finder General, with unlimited power to appoint militias who are above the law, who can pry into every corner of your life, who can disconnect you from your family, job, education and government, who can fine you or put you in jail.

That’s why I’m so deeply disturbed by this proposed legislation, even though I don’t live in Britain. I worry that it’s a harbinger of how our elected so-called representatives and the political institutions grounded in coercion and prone to special interest lobbying will continue to erode our economic and social rights. This authoritarian attitude, the money behind harnessing that attitude to serve specific entrenched interests, and the likely outcomes of such legislation are well worthy of the Orwellian epithet.

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