Archive for November, 2009

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Apparently “light-handed regulation” is actually a form of regulation

November 20, 2009

Michael Giberson

Tom Fowler, at NewsWatch: Energy, takes note of commentary by Tudor Pickering concerning a FERC investigation into whether three natural gas pipeline companies were over-recovering on their regulated rates. (See FERC press release here; a Reuters article.)

Tudor Pickering, an energy industry advisory and investment company, notes that since 1992 FERC hasn’t required periodic rate cases by natural gas pipelines, but rather has predominantly relied upon pipeline co. initiative or customer complaints to motivate changes in rates.  Rate cases are expensive for pipelines, customers, and regulators, so minimizing the number of rates cases can cut costs.  Even when customers complain, rates are typically settled by agreement rather than through new rate cases.  The 1992 policy switch was part of a “light-handed” approach to regulation that accompanied deregulation or restructuring of many other industries in the 1980s and 1990s.

Apparently now, however, disclosure regulations issued in 2008 resulted in FERC noticing that a few companies appeared to be over-recovering costs.  Not only did FERC notice, they’ve decided to do something about it.  Investigations will be launched, hearings held, etc.  Tudor Pickering finds this turn of events “disturbing.”  The “pipes probably assumed the FERC would continue to let market forces work,” but instead, Tudor Pickering observes in chilling tones: “So much for that. Big Brother is watching!”

Hmmm, who would have thought that, if you disclose information to the government entity regulating your rates, that the agency would use that information in rate regulation?  Apparently “light-handed rate regulation” is actually a form of rate regulation.

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Tres Amigas project discussed on public radio show

November 20, 2009

Michael Giberson

My most recent 15 seconds of fame*: The Environment Report: The ‘Tres Amigas’ Project. (Or, if you prefer, you can listen to today’s full 4:00 minute news segment.)

In the segment I make the outrageous claim** that the project is located in an area where many renewable power resources will be built.  The Environment Report is public radio news service focused on environment issues, they were interested in Tres Amigas transmission project because it is promoted as a “renewable energy hub.”***

 

*Actually, my part is slightly less than 15 seconds, closer to 12, but fame is generally parceled out in 15-unit intervals and I want it all.  The Tres Amigas segment is about a minute long.

**Actually, I make the relatively obvious observation described, but I’m trying to develop a reputation for outrageous claims in case, later, I want a job hosting a cable news program.

***For more substance on the Tres Amigas project, read the USA Today story, try my guest post at Alt Energy Stocks or see the earlier posts here at KP on the topic.

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Research mounts showing Vitamin D’s health benefits

November 19, 2009

Lynne Kiesling

Over the past year or so I’ve been following the debate and research on Vitamin D intake. Initially Vitamin D supplementation was recommended simply to reduce the incidence of rickets in children, but increasingly Vitamin D is associated with a wide range of health benefits, from reducing fatigue to improving metabolism to improving heart health. Vitamin D has become a particular challenge in the past 30 years, because we’ve gotten out of the stereotypical “spoonful of cod liver oil” that was popular in the early 20th century (fish oils are rich in Vitamin D and in omega-3 and omega-6 fatty acids that are good for metabolism and for the heart). At the same time, we’ve increased our use of sunscreen, and since almost no foods are rich in Vitamin D, the primary way to get it is to expose your skin to sunlight for 10-60 minutes per day, depending on time of year (less in summer, more in winter). Sunscreen blocks Vitamin D absorption while protecting us from skin cancer.

This week a new study was released and presented at the American Heart Association meetings, as reported in this Yahoo/AP story and this longer New York Times story. As the NYT summarized the results:

In the study, researchers looked at tens of thousands of healthy adults 50 and older whose vitamin D levels had been measured during routine checkups. A majority, they found, were deficient in the vitamin. About two-thirds had less vitamin D in their bloodstreams than the authors considered healthy, and many were extremely deficient.

Less than two years later, the researchers found, those who had extremely low levels of the vitamin were almost twice as likely to have died or suffered a stroke than those with adequate amounts. They also had more coronary artery disease and were twice as likely to have developed heart failure.

The findings, which are being presented today at an American Heart Association conference in Orlando, don’t prove that lack of vitamin D causes heart disease; they only suggest a link between the two. But cardiologists are starting to pay increasing attention because of what they’re learning about vitamin D’s roles in regulating blood pressure, inflammation and glucose control — all critical body processes in cardiovascular health.

The article goes into much more detail about the study, and is a very worthy read.

The sports nutrition community have also been paying attention to Vitamin D for a while, and these new results reinforce the idea that Vitamin D levels are an important factor in athletic performance, in addition to overall health. This article from Competitor discusses the role of Vitamin D in fatigue in endurance athletes, something that we frequently attribute to iron deficiency instead (especially in women), but it may be that Vitamin D is a culprit too. The author, a dietitian, summarizes some sports research on Vitamin D levels:

This was my very first experience with vitamin D deficiency and I have since learned that vitamin D deficiency is becoming an epidemic worldwide, not only in geographic regions where sun exposure is limited.  And my discussions with fellow dietitians working with college runners and professional athletes in generally sunny states (Texas and Florida) confirmed the alarming prevalence of vitamin D deficiency across ethnicity and gender.

Athletes who live in northern latitudes (north of 35 degrees), or use sunscreen consistently, perform their sport indoors, or keep their skin covered are at the greatest risk.  Melanin affects the production of vitamin D.  So those with more melanin or darker skin produce less vitamin D.  Since vitamin D is a fat-soluble vitamin, athletes with fat malabsorption problems such as cystic fibrosis, Crohn’s disease, and celiac disease are at risk for deficiency.  Those who have normal levels typically (around 50 ng/ml) live in sub-equatorial Africa and work outdoors for most of the summer.

Once thought of as being primarily involved in bone development, activated vitamin D (calcitriol), a steroid hormone, is responsible for regulating more than 1000 human genes.  Almost every cell in the human body has receptors for vitamin D.  Recent research shows that vitamin D deficiency increases the risk of different types of cancer (such as breast cancer and prostate cancer), as well as heart disease, diabetes, depression, autoimmune diseases, hypertension, obesity, gum disease, chronic pain, muscle wasting, inflammation, birth defects, osteoporosis, influenza and colds, etc.

So here’s my public service announcement for the day: at your next annual checkup when you order your blood work, ask to have your Vitamin D levels tested. And think about the sunscreen-Vitamin D tradeoff; getting 30 minutes of unobstructed sun is unlikely to increase skin cancer risk enough to outweigh the Vitamin D benefits from the sun absorption. Vitamin D supplementation is also low-risk; I figure between my multi and my fish oil and my Vitamin D I get about 800 IU, and I have noticed decreases in my fatigue levels.

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Jonah Lehrer channels his inner economist

November 19, 2009

Lynne Kiesling

I’ve recommended Jonah Lehrer’s The Frontal Cortex blog before, and if you haven’t checked it out, here are two more reasons to do so. His most recent post discusses Bill Belichick’s decision to go for the first down from 4th and 2 in Sunday night’s Patriots game, and ties it to David Gordon’s research on whether or not NFL coaches follow the optimal 4th down strategy:

… it illustrates the difficulty of making rational decisions, even when the evidence supports the call.

I’ve blogged about the research of UC Berkeley economist David Romer before, but his basic thesis, based on an exhaustive statistical analysis of 4th down scenarios, is that NFL coaches are irrationally risk-averse. They punt the ball way too frequently and kick far too many field goals.

Belichick was an econ major, and has expressed a familiarity with Romer’s research.

Lehrer then goes on to discuss this risk-aversion research, with links to other analyses of Belichick’s decision. One of the fascinating aspects of the 4th down decision that Lehrer highlights is that Belichick was statistically correct to go for it, but it’s emotionally difficult for coaches to make that call (and for fans to endure it). The probability part is also interesting — even with a higher probability of making a field goal, this research shows that going for the 1st down on 4th down increases the probability of winning.

On Tuesday Lehrer also remarked on the research of my Kellogg colleague Jennifer Brown, who does some of the most interesting work I’ve seen in a long time. In her new working paper, “Quitters Never Win: The (Adverse) Incentive Effects of Competing with Superstars“, Jen finds that golfers in PGA tournaments perform more poorly when competing against Tiger Woods, especially when Woods is playing well. She and Lehrer have different hypotheses for this result, as Lehrer notes:

Brown argues that this phenomenon is caused when “competitors scale back their effort in events where they believe Woods will surely win.” After all, why waste energy and angst on an impossible contest?

That hypothesis is certainly possible, but I’d argue that the superstar effect has more to do with “paralysis by analysis” than with decreased motivation. I’d bet that playing with Tiger Woods makes golfers extra self-conscious, and that such self-consciousness leads to choking and decreased performance. The problem, then, isn’t that golfers aren’t trying hard enough when playing against Tiger – it’s that they’re trying too hard.

I wonder if there’s a way to test these two hypotheses? I think given her data that it might be difficult; testing such a hypothesis may require biometric data like heart rate, sweating, etc. I frankly am more inclined toward Lehrer’s hypothesis, based on my reading of neuropsychology and my non-Tiger-Woods-like experience of athletic competition; the “trying too hard” fits with my experience of athlete psychology. But I’d really like to see if there’s a way to discriminate between the two.

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More on natural gas from shale and its critic

November 19, 2009

Michael Giberson

The Fort Worth Star-Telegram has a story on shale gas production critic Art Berman:

Arthur Berman runs a one-man energy consulting firm out of his home near Houston, producing research that says forecasts for natural gas production in the U.S. are flawed. He’s won the industry’s attention and its anger.

Since last month, Chesapeake Energy and Devon Energy, two of the five largest gas producers in the U.S., attacked Berman’s claims. Berman, 59, had his monthly column pulled from the November issue of World Oil after gas companies complained, prompting him to quit the trade journal.

Berman, an oil geologist who worked two decades for Amoco, says company production projections for shale gas in the U.S. are at least double what drill results justify. At issue is the rate of production decline in shale wells, where water, sand and other materials are injected to fracture rock and make gas flow.

“I think that the wells decline at a much higher rate than the operators think they do,” Berman said in an interview in Houston. “They’re being overly optimistic.”

More on the dispute at the linked article.

[HT to NewsWatch: Energy]

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Long-distance transmission complements “local self reliance”

November 18, 2009

Michael Giberson

A few weeks ago we mentioned commentary by John Harrell of the Institute for Local Self Reliance asserting that the “last thing renewable energy needs right now are new transmission lines.”  The ILSR has a recent study suggesting the almost every state could be energy self sufficient relying only on in-state renewable power sources.  I remarked, “While I agree that ‘local self-reliance’ in energy may be possible, I don’t think most people are willing to pay the price of such extreme energy independence.”

Comes now Tom Konrad at the Clean Energy Wonk blog who takes a long hard look at the price of local renewable energy self-reliance as conceived of by the ILSR.  The short version of Konrad’s assessment is that (1) the high levels of renewable power proposed will require support from substantial quantities of relatively expensive energy storage, and (2) that transmission can reduce the amount of storage needed.  Those two points, combined with reasonable estimates of the costs of transmission and storage,  reveals that the energy storage + long-distance transmission approach dramatically reduces the cost of pursuing widespread renewable power deployment. (The full version of Konrad’s assessment provides a more complete takedown of the ILSR’s “Heresy on Transmission.”)

In other words, a little extra long-distance transmission investment would go a long way toward making the ILSR’s vision of widespread renewable power an attainable system.

Don’t get me wrong, I still think either vision is way-out-of-the-ballpark crazy for the foreseeable future.  Still, there is a difference between “astronauts landing on Mars” crazy, and “astronauts landing on Pluto” crazy.  Both are way, way out of the ballpark at present, but one will always be way more economical than the other.

[Konrad also blogs at clean energy investing site Alt Energy Stocks.]

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Football helmets and head injuries

November 18, 2009

Michael Giberson

Paul Walker at Anti-Dismal sees the economic content in the recent Wall Street Journal article on football, helmets, and head injuries.  Here’s a piece of the story:

Why do football players wear helmets in the first place? And more important, could the helmets be part of the problem?

“Some people have advocated for years to take the helmet off, take the face mask off. That’ll change the game dramatically,” says Fred Mueller, a University of North Carolina professor who studies head injuries. “Maybe that’s better than brain damage.”

The first hard-shell helmets, which became popular in the 1940s, weren’t designed to prevent concussions but to prevent players in that rough-and-tumble era from suffering catastrophic injuries like fractured skulls.

But while these helmets reduced the chances of death on the field, they also created a sense of invulnerability that encouraged players to collide more forcefully and more often. “Almost every single play, you’re going to get hit in the head,” says Miami Dolphins offensive tackle Jake Long.

So there is talk about giving up on helmets.

One of the strongest arguments for banning helmets comes from the Australian Football League. While it’s a similarly rough game, the AFL never added any of the body armor Americans wear. When comparing AFL research studies and official NFL injury reports, AFL players appear to get hurt more often on the whole with things like shoulder injuries and tweaked knees. But when it comes to head injuries, the helmeted NFL players are about 25% more likely to sustain one.

Andrew McIntosh, a researcher at Australia’s University of New South Wales who analyzed videotape, says there may be a greater prevalence of head injuries in the American game because the players hit each other with forces up to 100% greater. “If they didn’t have helmets on, they wouldn’t do that,” he says. “They know they’d injure themselves.”

The economics at issue is variously referred to as the Peltzman effect and the Tullock effect, namely, strategic adaptation to safety regulations or devices in ways in which offset some of the intended outcomes.  The safer the vehicle, the bigger the risks that drivers are willing to take.  Note that there may be negative externalities, as for pedestrians walking in the neighborhood of safer drivers taking bigger risks.

Or, to return to the football example provided above, the better the helmet, the harder the hits delivered.

Gordon Tullock’s proposal, illustrated in the title banner at the economics blog Offsetting Behavior, is placement of a large spike on each car’s steering wheel with the point aimed directly at the driver.  Sure, riskier for the driver, but much safer for everyone else.

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Cooperation and cheating among bacteria

November 18, 2009

Michael Giberson

Ed Yong, at Not exactly rocket science, describes recent research into, uh, I guess you could describe it as the socioeconomic life of bacteria:

Bacteria may not strike you as expert co-operators but at high concentrations, they pull together to build microscopic ‘cities’ called biofilms, where millions of individuals live among a slimy framework that they themselves secrete. These communities provide protection from antibiotics, among other benefits, and they require cooperation to build.

… One individual can’t build a biofilm on its own so it pays for a colony to be able to measure its own size. To do this, they use a method ‘quorum sensing’, where individuals send out signalling molecules in the presence of their own kind.

When another bacterium receives this signal, it sends out some of its own, so that once a population reaches a certain density, it sets off a chain reaction of communication that floods the area with chemical messages.

These messages provide orders that tell the bacteria to secrete a wide range of proteins and chemicals. Some are necessary for building biofilms, others allow them to infect hosts, others make their movements easier and yet others break down potential sources of food. They tell bacteria to start behaving cooperatively and also when it’s worth doing so.

Yong mentions research which inserted “signal-negative” and “signal-blind” variants of a bacteria – mutants that can’t pass along signals or that can’t sense them at all – into a population of normal bacteria.  It turns out that all that signaling behavior needed for social coordination is costly; abstaining from social activities allows the mutant bacterium to devote more time and energy to the more self-interested pursuits of eating and reproducing.  The research found that, as summed up by Yong, “cheaters can indeed prosper and then some – they outgrew their cooperating cousins by 60 to 80 times.”

Another researcher working with the same species of bacteria found that non-cooperators occur naturally.

But if cheaters prosper, why does anyone not cheat?  Yong said, “Both studies found that as the proportion of cheaters increased, their growth rate dropped because the value of cheating diminished.”

The second study also discovered that when faced with a population crash, cheaters developed further mutations that restored cooperative abilities.

But, to me, this last finding draws into question the characterization of non-signaling bacteria as non-cooperators and cheaters.  Perhaps the non-signalers emerge naturally in a population to regulate investment in the social infrastructure.  Perhaps “they also serve who only sit and wait (and eat and reproduce).”  This reserve army of slacker bacteria is getting ready for the hard times ahead, and when hard times come they have the energy stored up to leap into action, developing mutations necessary to restore cooperative abilities.

[HT to Economics and Mechanisms, which titles its post "Bacteria that channel Elinor Ostrom," and CogiDDo ergo sum.]

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Yergin: Oil prices not driven by supply and demand…

November 17, 2009

Michael Giberson

Reuter’s reports remarks of Daniel Yergin made in Singapore:

“Oil prices today do not reflect the world’s supply and demand fundamentals. Instead, prices are reflective of the weak dollar and expectations of a strong economic recovery,” Yergin told reporters on the sidelines of a conference.

Changing value of the dollar aside, isn’t all that Yergin is saying is “it isn’t supply and demand, it is expectations about supply and demand”?  And don’t the twin concepts of supply and demand already embed expectations, so isn’t all that Yergin is saying is “it isn’t supply and demand, but really, it is supply and demand”?

Maybe, slightly more charitably, Yergin might be taken as emphasizing that recent oil price movements have been driven by expectations of future supplies and demands rather than simply based on immediate production and consumption plans.

Or maybe what Yergin is saying is, “it isn’t supply and demand fundamentals, so don’t go hiring some cheapy, low-class energy economics consulting firm, instead you need a prize-winning energy consultant who can dress up ordinary supply and demand factors in words worthy of our world-class fees.”

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If wishes were horses, then what should venture capitalists do?

November 17, 2009

Michael Giberson

Thinking about wishful thinking (see previous post), I am reminded of a minor error in George Stigler and Claire Friedland’s classic article, “What Can Regulators Regulate? The Case of Electricity.”

As part of their introduction, they write:

And if wishes were horses, one would buy stock in a harness factory.

I believe they have misapplied the unstated underlying comparative statics analysis.  If one were to learn sooner than competing investors that wishes were about to become horses, only then should one buy stock in a harness factory.  If wishes were horses already, there would be no particular reason to believe harness factory stock was under priced.

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