Tickets into the olympics

Michael Giberson

Ticket scalping, like price gouging, is a usually pro-social market activity that is stuck with a pejorative name.  At Swifter, Higher, sportswriter Kyle Whelliston writes about his experience picking up a cheap ticket into the first hockey game of the Vancouver Olympics.  It wasn’t as easy as he hoped, but at a cost of missing the first few minutes of action he was able to get a price he liked.

What surprised me in the article was how well organized the gray-market activity was. I wonder whether the Olympics would increase or decrease overall ticket revenue by facilitating an active secondary market (assuming a secondary market was legal in the host country).

(Via Freakonomics blog.)

Information costs and snowfall data

Lynne Kiesling

Here’s a paper that befits the snowy month we’ve had in the U.S. … Jonathan Zinman and Eric Zitzewitz at Dartmouth find that ski resorts over-report snowfall, and that the proliferation of iPhones has led to more consumer information on accurate snowfall and ski conditions. The paper abstract:

Casual empiricism suggests that deceptive advertising is prevalent, and several classes of theories explore its causes and consequences. We provide some unusually sharp empirical evidence on the extent, mechanics, and dynamics of deceptive advertising. Ski resorts self-report 23 percent more snowfall on weekends; there is no such weekend effect in government precipitation data. Resorts that plausibly reap greater benefits from exaggerating do it more. We find little evidence that competition restrains or encourages exaggeration. Near the end of our sample period, we observe a shock to the information environment: a new iPhone application feature makes it easier for skiers to comment on resort ski conditions in real time. Exaggeration falls sharply, especially at resorts where iPhones can get reception.

This kind of empirical economic research is particularly valuable, because it highlights the role that technology can play in enabling the aggregation of dispersed information, which better enables reputation mechanisms to discipline otherwise deceptive behavior. In many contexts this combination of technology and diffuse information feeding into a reputation mechanism provides more effective regulation than some form of centralized, government regulation. Imagine, for example, a law requiring ski resorts to report accurate conditions, with an entire agency established to monitor and enforce their compliance. Likely to be much more expensive, and less effective, than the simple threat of losing weekend business!

Hat tip to Salon article on the research.

Vehicle-to-grid income and analysis

Michael Giberson

If you are already a rock star and can’t imagine doing anything else, then “money for nothing and your chicks for free” may be a reasonable characterization of your situation.  On the other hand, if you’re a teenage boy picking up a guitar and hoping to attain wealth and women, you should consider the start-up costs involved.  Some discussions of “vehicle-to-grid” (V2G) revenue potential seem a bit like the “money for nothing and your chicks for free” kind of analysis.

Consider the Financial Times article, “Grids to Harness Power of Electric Cars,” a story that builds on recent V2G presentations at the American Association for the Advancement of Science meetings in San Diego.

The first experimental V2G system has just gone live at the University of Delaware, where three electric cars are connected to the grid whenever they are not being driven. “They are making five to ten dollars a day just by being plugged in,” said Kenneth Huber, technology manager for the PJM grid, which covers the mid-Atlantic states.

The two-way connection not only pulls in power to recharge the battery but also sends electricity back to the grid. V2G vehicles work like an electrical sponge, absorbing excess energy when demand for power is low, and returning some to the grid when demand is high, said Willett Kempton, project leader at the University of Delaware.

…  Prof Kempton says his project suggests that an investment in V2G technology could pay off very fast for an electric car owner. Once the technology is commercialised, the additional costs of fitting a V2G-enabled battery and charging system would be about $1,500 – and the owner could make $3,000 a year through a load-balancing contract with the grid.

V2G is economically viable because electric car owners are buying batteries anyway, so it makes sense to use them for communal energy storage. It would be much more costly for electric grids to install stationary battery banks or other storage systems dedicated to load balancing.

It is dangerous to leap to conclusions based on a newspaper summary of research, but the characterization above suggests that a few assumptions may be key.  The assumption that “electric car owners are buying batteries anyway” may mean that the V2G analysis treats the battery as a free resource, and so compares V2G revenue estimates just to the incremental costs of V2G capability and operations.

I suppose it is a perfectly reasonable assumption for anyone who is going to buy an electric car anyway, and then is considering adding V2G capability. If, on the other hand, the intention is to advocate V2G revenue possibilities as an inducement to buy the electric car in the first place, a more inclusive analysis seems reasonable.

(For more on Dire Straits, “Money for nothing”: YouTube, Songfacts.)

Local politician threatens to file price gouging claims against gasoline retailers opposing tax

Michael Giberson

From the Fredericksburg, VA, Free Lance-Star, “GAS-TAX PINCH OR GOUGING?“:

Spotsylvania County Supervisor Hap Connors threatened yesterday to file price-gouging complaints because of a lobbying association’s campaign that blames a Virginia Railway Express tax for increased gas prices.

The county became a member of the commuter rail service Monday and enacted a 2.1 percent tax on wholesale gasoline required for VRE membership. The tax is expected to generate more than $3 million annually.

… The Virginia Petroleum, Convenience and Grocery Association represents 650 retail members operating more than 4,500 convenience and grocery stores with gas pumps across Virginia.

Association spokesman Michael O’Connor said the group made laminated signs for Spotsylvania members that warn county residents they will pay 5 cents more a gallon because of the tax.

“Either the gasoline retailer will have to eat that 5 cents or it is going to be passed on to the consumer,” O’Connor said.

Supervisor Connors sent O’Connor an e-mail yesterday warning that he would file price-gouging complaints if O’Connor did not remove the signs.

Many views on the Haynesville shale resource

Michael Giberson

The documentary film Haynesville offers a view of the shale gas boom from the point of view of several landowners in northeastern Louisiana. One of the landowners is a sort of good-ol’-boy type who hung onto family land and added to it even as family members moved away. His 300 or so acres of backwoods land made him a multi-millionaire when the gas developers came to town. Another part of the story shows the impact of the gas money on a growing church congregation; the preacher wants to build a new Christian school with the money. The film also follows the activities of a mother who gathers small landowners into a large block to negotiate with the gas companies for both higher payments and contractual protection for water quality and other environmental values.

Haynesville movie thumbnail imageIntertwined in these stories are some talking-head interviews with energy, environmental, and policy experts. I found these parts of the film mildly intrusive – but that’s probably because I already spend too much of my life reading about energy resource policy issues; likely most viewers will find the contextual information helpful. The film should be required viewing for landowners sitting over shale gas resources, especially in areas not used to oil and gas development.

The documentary is making the rounds. A showing is coming up in Houston on March 4, and the film will be part of the SXSW festival in Austin in a few weeks. If you’re interested in more information on the film, check out the website or become a fan of Haynesville on Facebook.

One of the natural gas companies doing a lot of the development of the Haynesville shale resource is Chesapeake. See, for example, their “February 2010 Investor
Presentation
,” which details their interests and optimism about their work in Haynesville and elsewhere. This three-page document explains Chesapeake’s hydraulic fracturing process, including a description of the (very small amount of) chemical additives that get injected along with a lot of water and sand as part of the fracing. The summary is produced by Chesapeake, so maybe it minimized the possible risks, but the environmental risks do appear to be small. Some information on the topic is included in the Wikipedia article on hydraulic fracturing.

Meanwhile, the new conventional view that shale gas will ensure plenty of domestic natural gas for the United States for the next 100 years remains under criticism from skeptics who believe the resources are significantly over-estimated. Allen Brooks, at Musings from the Oil Patch, provides a review of some recent analysis from skeptics. As I’ve said before, it seems obvious to me that the people in the best position to know – the folks doing the drilling and producing from shale formations – have clearly signaled what they think is true by spending huge amounts of money to secure leases and develop additional properties. Nonetheless, production of vast quantities of gas from shale remains a relatively new commercial activity, so a certain amount of unavoidable uncertainty remains.

Simon v. Ehrlich, again

Michael Giberson

Paul Kedrosky gave a short talk at TED 2010 on the Simon/Ehrlich bet on commodities prices, and posts a summary of the content as “Re-litigating the Simon/Ehrlich Bet.” If the Simon-Ehrlich bet is to be re-litigated, and Kedrosky comment is taken as offering a brief in favor of Ehrlich’s position, what can be said in defense of the Simon position?  Alex Tabarrok responds that Kedrosky’s argument misses the whole point.

Here is Kedrosky in excerpt:

By way of refresher, the situation was this: After a decade of soaring commodity prices, plus related worries about resource scarcity, in 1980, Paul Ehrlich, a dour population ecologist, took up Julian Simon, a cornucopian economist, on a bet. Ehrlich (on paper) put equal mounts of money into five commodities (he selected chromium, copper, nickel, tin and tungsten) whose prices would, he thought, be higher a decade later. Higher prices meant Ehrlich won; lower prices meant Simon won. The loser paid the winner the difference.

Ehrlich lost. A decade later, in 1990, all five commodities’ prices were lower than they were in 1980.

Kedrosky reexamines the data to see how frequently a 10-year bet on the selected commodities prices would have produced a win for either Simon or Ehrlich.  From 1980 to 1993, Simon would have won but for two years, then beginning in 1994, largely due to the run up in commodities prices that lasted from 2004 to 2009, Ehrlich would have won subsequent bets.  Kedrosky sums up:

So, what does all this mean? A few things. First, and most importantly, it means Simon was right but fairly lucky. There is nothing wrong with being lucky, of course, but compulsive Simon/Ehrlich-citers need to be reminded that it is no law of nature (let alone of rickety old economics) that commodity prices (inflation-adjusted or otherwise) trend inexorably downward, even over a decade.

Kedrosky then offers a discussion of short term price gyrations in oil markets and effects on the United States, suggesting  that “the market” will “break the largest and most elastic buyer’s back”, either “smoothly or through ugly societal and economic disruption.”  The metaphor got a little twisted there – is it possible to smoothly break someone’s back? Is it possible to break an elastic buyer’s back? – and so I get a little lost.

Essentially Kedrosky suggests that as oil becomes more scarce, prices will become higher and more volatile for a while, and then there will be a transition to lower priced oil (after substitutes emerge), and that transition will be either smooth or ugly.  This is hardly revolutionary analysis.  In fact, except for slight differences in tone, the message here is fairly consistent with the claims made in CERA’s “undulating plateau” analysis.  CERA seems to expect a smooth transition, a conclusion based on how markets usually respond to increasing resource scarcity.

Alex Tabarrok points out, however, the Kedrosky seems to be missing the key point of the Simon-Ehrlich dispute, which was fundamentally about scarcity, not prices:

The bet was never fundamentally about prices, the bet was about scarcity, living standards and whether we were running out of natural resources–remember that at the time Ehrlich was predicting hundreds of millions would die of starvation and even that England would not exist in the year 2000!  Prices were just a convenient but imperfect way to mark the bet to market.The reason prices have risen in the 1990s is not that things are getting worse but that things are getting better–especially in China and India where things have been getting much better.  As China and India have become richer demand has increased tremendously in these countries putting upward pressure on prices.  In other words, prices have risen because the value of resources has risen.  That’s quite different–indeed the opposite–of what Ehrlich was predicting. [Emphasis added.]

Wind power and electric power storage

Michael Giberson

Some of the most common questions about wind power revolve around the role of energy storage in integrating wind power with the electric grid.

So begins a position piece, “Wind Power and Energy Storage,” issued by the American Wind Energy Association. And just as there are common questions, there are common answers. Just about everyone who has thought about it has concluded that a little bit of energy storage would go a long way in improving the value of the variable electric power produced by the wind. At least as long ago as 1909 an engineer writing in The Times of London observed that the usefulness of wind energy was enhanced by power storage.

So you might think the AWEA’s article on “Wind Power and Energy Storage” reports that the technologies are best friends forever? Not so. The next few sentences:

The reality is that, while several small-scale energy storage demonstration projects have been conducted, the U.S. was able to add over 8,500 MW of wind power to the grid in 2008 without adding any commercial-scale energy storage. Similarly, European countries like Denmark, Spain, Ireland, and Germany have successfully integrated very large amounts of wind energy without having to install new energy storage resources. In the U.S., numerous peer-reviewed studies have concluded that wind energy can provide 20% or more of our electricity without any need for energy storage.

The article explains that the existing flexibility of resources connected to the electric grid provides sufficient capability to accommodate significant amounts of variable wind power output without requiring new energy storage systems.  The AWEA acknowledges that energy storage would be “helpful,” but also that “many types of energy storage are poorly suited to help accommodate … wind energy” and that it is “often not cost-effective.”  Elsewhere, AWEA refers to the “storage bogeyman” and says it is a myth that wind power needs energy storage.

So it may not be too surprising that energy storage supporters feel a certain animosity toward the AWEA, even if they see their energy storage and wind power technologies as natural complements.