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The Huffington Post has an interesting article about Long Beach Mortgage. In interviews:
[F]ormer employees say the company encouraged the sales force to churn out as many loans as possible with lavish commissions and bonuses. And it didn’t matter if the loans went bad because Long Beach Mortgage bundled them and sold most of them quickly to investors.
There are two preliminary moral hazard problems. First, obviously the sales force does not have the incentive to screen out “bad loans” given the incentive contract offered. Second, as mortgages can be bundled and traded, the managers do not have the incentive to give the sales force the incentive to screen our bad loans. They want to maximize raw volume rather than quality-adjusted sales.
This leaves “the market” as the potential monitor. A large group of owners of securities faces a free-rider problem in monitoring so no-one monitors. The price of the bundled security reflects the mix of good and bad loans in the market. An individual issuer of mortgages has the incentive to screen out bad loans if this is reflected in the price of the security they sell. But if no-one is monitoring, no-one will notice the extra benefits from screening, the price will not improve and there is no incentive to invest in making just good loans.
Finally when everything does tank, if banks sell mortgages and the banks are too big to fail, they get bailed out by taxpayers. One final bit of moral hazard to make sure there is no incentive to monitor the monitor to monitor the mortgage sale.
If the grand coalition of lenders, borrowers and taxpayers can form, they can design a better mechanism. In fact, a system with less liquidity gives better incentives to monitor – if the owners of Long Beach Mortgage cannot sell mortgages they have better incentives to design good incentives for their salesmen. It doesn’t seem impossible to make things a bit better. But without the taxpayers in the coalition, there is no reason for the remaining sub-coalition to design the socially optimal mechanism. If a bunch of people are playing poker but they can dump their losses on an innocent bystander, why will they ever stop playing?
So, what do Olympia Snowe and Ben Nelson think about financial reform? The median Senator responds to the median voter in their state. Wise people of Maine and Nebraska over to you, again. And people of Connecticut, if you can get Joe Lieberman to be a bit more predictable, that would be great.
Loosely based on a meal we had at Rendezvous in Central Square, Cambridge. Everyone loved it and I’ll definitely make it again.
Brocoletti are less bitter than Broccoli Rabe and I bought them on whim at Whole Foods because they were on sale. Stir fry them with a little garlic. Stir in cannellini beans when the broccoletti are crisp and green. Make a garlic broth by boiling up bruised garlic in salted water. I made too little – next time I’ll make four cups.
Cook the orecchiete till they are al dente – take a minute off the cooking time. Meanwhile, toast panko breadcrumbs in a frying pan (no oil needed). Put the breadcrumbs aside and lightly grease the same pan. Stir fry the drained orecchiete in the pan. They should get crispy at the edges. I didn’t grease the pan enough and we ended up with a thin layer of toasted pasta that stuck to the bottom – it was delicious! Mix up everything, grate on the parmesan and you’re done. Chewy pasta, coated with breadcrumbs in a garlicky broth with crisp broccoletti and beans. Yummy.
Needs around four pans but it’s actually pretty easy and can be done in 30 minutes. Guilt someone else into doing the washing up because you did all the cooking.
1. Documents have been found suggesting that Iran is or was working on a neutron initiator for an atom bomb.
2. Iterated deletion of dominated strategies in Star Wars Game Theory from Dan Hamermesh via Freakonomics blog.
3. The British have the best teeth in the world, contrary to the conventional wisdom!
The health plan being considered in the Senate includes an individual mandate: everyone has to get health insurance. There is a good reason to include this if the insurance market is competitive. Otherwise, low risk types opt out and go to the emergency room if they get sick and impose a negative externality on the rest of the population who end up paying for them in their health insurance premiums, taxes etc. An individual mandate eliminates this cross subsidy and allows prices to fall for the people getting health insurance at the current status quo.
But if the health insurance market is not competitive, the insurers will make yet more profits by charging the low risk types a high price. Moreover, they will not cut prices for the high risk types and there will be no benefits to health reform except to insurance companies. This is the nightmare scenario. And in fact my Kellogg colleague Leemore Dafny has a nice paper (Are Health Insurance Markets Competitive?) showing that in concentrated markets with a few health insurers, a firm that enjoys a positive income shock sees a greater increase in health premiums for its employees. So, there is evidence of market power and hence some basis for the nightmare scenario that Howard Dean etc. are concerned about.
To prevent this from arising, there has to be more competition. Then, an insurer that keeps prices high is undercut by another who is going for profitable volume. The public option was meant to provide competition. It was going to be run as a non-profit so it might have had lower costs by avoiding the costs of marketing and advertising and creidbly played the role of the undercutting competition.
What’s left now that the public option is no longer an option? The best answer I have found is in a blog by Ezra Klein at the Washington Post. His answer is:
Under health-care reform, there are at least three bulwarks against the monopoly-profits scenario: Inter-insurer competition, regulators, and the tax on excessive premiums. Two of these mechanisms don’t exist in the current market. One — the market itself — is much weaker and more opaque, and individuals have a far harder time navigating it.
Even if the insurance market is competitive, it’s not clear what’s happening to the costs of inputs, drugs, doctors’ fees, hospitals, administration etc.
Secret deals with Pharma, the AMA, death panels and tea partiers, the random movements of Lieberman, Ben Nelson’s signaling to the voters in Nebraska….not as exciting as the primaries and the general election but pretty close. That rollercoaster had to end November 4. Will this one end December 24?
Everyone can do it thanks to the friendly Secret Service:
Harvey and Paula Darden, from Hogansville, Georgia, had mistakenly arrived a day early for a White House tour arranged through their Republican Congresswoman.
They presented themselves at a White House security booth on the south side of Lafayette Square on the morning of November 11 and were asked to wait while their names were checked by Secret Service staff.
After a few minutes the Dardens were told: “You are cleared to come in.” They were then escorted to the East Room where 200 veterans and their families were helping themselves to a breakfast buffet. Minutes later they were having breakfast with the President.
Here’s a useful historical guide:
How to gatecrash
Look the part In her glittering sari, Michaele Salahi looked like a glamorous guest at a state event for the visiting Indian Prime Minister. At the other end of the scale, in 1987 Christian K. Hughes drove straight in because an officer assumed that he was a deliveryman
Play the religious card George C. Weaver, a Californian clergyman, met six presidents. He gatecrashed a prayer breakfast in 1991 attended by George Bush Sr, and Bill Clinton’s inaugural luncheon in 1997
Bring the family In 1982 James Douglas Imes, his wife and two sons drove to the White House in a minivan, hooted their horn and were let through. They got as far as the Oval Office entrance
Tag on to an unsuspecting group In 1994, Stephan O. Winick, a celebrity-chaser, joined the entourage of the actor Harrison Ford in a lift as the group was escorted to meet Clinton at a hotel in Los Angeles
Do your research and don’t give up One third of presidential gatecrashers had checked the lie of the land. Four in ten were known to the authorities
OK, so far I managed to resist writing a post about Tiger but I can’t help leaping into an analysis of the future strategy of Joe Lieberman. Let me begin by collecting some quotes and thoughts. My favorite post is “Toward a Unified Theory of Lieberman” (the title alone takes this into home run territory) by Jonathan Chait at TNR. It begins with this pithy paragraph:
It has been a banner day for the field of Lieberman Psychology. My own contribution is that Lieberman is not as smart as people think he is, and certainly not detail-oriented or well-versed in public policy.
Chait has an even more prescient analysis in an earlier post:
Lieberman thinks about politics in terms of broad ideological labels. He’s the heroic centrist voice pushing legislation to the center. No, Lieberman doesn’t have any particular sense of what the Medicare buy-in option would do to the national debt. If the liberals like it, then he figures it’s big government and he should oppose it. I think it’s basically that simple.
Chait’s theory now has huge support as Lieberman says he changed his mind on the Medicare buy-in policy because:
he was particularly troubled by the overly enthusiastic reaction to the proposal by some liberals, including Representative Anthony Weiner, Democrat of New York, who champions a fully government-run health care system.
“Congressman Weiner made a comment that Medicare-buy in is better than a public option, it’s the beginning of a road to single-payer,” Mr. Lieberman said. “Jacob Hacker, who’s a Yale professor who is actually the man who created the public option, said, ‘This is a dream. This is better than a public option. This is a giant step.’”
So, if liberals want it, it must be wrong.
Whatever the heroic narrative he is repeating to himself, Lieberman will eventually realize his position. He is an anathema to Democrats, having supported McCain in the general election and now randomly wandering between positions to counteract the left. He cannot run as a Democrat in 2012 as he will not make it through the primary. If he runs as an independent, he will face a three way race splitting the vote with the Republican. So, he will run as a Republican.
Lieberman will move further and further right of center as he realizes he has tp woo Republicans in his home state. He has his finger in many legislative pies in Congress (same sex marriage, climate change). He will take the Republican perspective on these and screw them up deliberately.
Obama should get the Senators from Maine into every conversation he can. They are more secure than Lieberman and their own heroic narrative is more patrician: rich people must look after the common man. They are to the left of Lieberman and have the most potential for Obama to achieve his agenda.
Or, of course, maybe Joe just wants to become an insurance company lobbyist. That would explain everything.
Saddam promoted incompetents in his army deliberately, believing they would be less likely to sponsor a coup. There is a similar process that can operate within firms, the Peter Principle: If firms automatically promote the best performer at level k of the hierarchy to the level k+1, people will be promoted till they find their level of incompetence. Saddam’s promotion policy can be justified on rational choice grounds and similarly we might ask how firms can counteract the logic underlying the Peter Principle.
The New York Times magazine has a section on interesting ideas of the year. One of them concerns the Peter Principle. A group of Italian physicists did a computer simulation with various promotion policies. Random promotion outperformed a “promote the best” policy. It increases the chance that someone who is actually good at the job makes it to the next level. This seems pretty straightforward and eminently amenable to a simple analytical model. But peer review is even better than random promotion: ask the co-workers who might be good at the higher level job. If they have big incentives to lie, at worst you can ignore them and get random promotion as the optimal policy. Or better, share some of the rents from promoting the right person with the reviewers and get some useful information out of them.
These are old ideas from contract theory but we are clearly not doing a good job at getting our insights to the New York Times. On that note, let me congratulate Dan Ariely and his co-authors who have at least three of the best ideas of 2009. The experiment involving the drunks playing the ultimatum game was the most fun – won’t give the point away so you can enjoy it yourself! But it makes me think Jeff and I should do some experiments in our wine club. I wonder if we can get the NSF to support it so I can finally taste a Petrus.
I happened to pick up Samuelson’s Foundations a couple of years ago in the Northwestern University Library. We do not read it anymore and get our PhD training from Mas-Colell, Whinston and Green. So, I’d never picked it up and I was shocked by how much of modern microeconomics was already in Foundations. Everything from the revealed preference paradigm to consumer theory, producer theory etc etc….and he continued to make huge contributions throughout his life.
On top of all that, I’m visiting MIT Economics this year. Paul Samuelson built the department and its culture:
“Despite his celebrated accomplishments, Mr. Samuelson preached and practiced humility. The M.I.T. economics department became famous for collegiality, in no small part because no one else could play prima donna if Mr. Samuelson refused the role, and, of course, he did. Economists, he told his students, as Churchill said of political colleagues, “have much to be humble about.” “
It is all true. Just looking around the lunchroom on Wednesdays you are awed by the company. And then you are charmed by the friendliness and collegiality. Also, there is a laser-like focus on training the next generation of great economists and this shared mission creates the atmosphere of collegiality. Paul Samuelson studied the free-rider problem in public good production but he knew how to solve it. His work will live not only in his papers but also in the institution that he built.
2. I loved Trio Atelier in Evanston, the restaurant started in the former Trio space when Grant Achatz left to start Alinea. The chef at Atelier was Dale Lewitsky and he turned up later on Top Chef. He came in second but then what happened to Dale Lewitsky? Seems he had some up and downs but now he has a new restaurant, Sprout. Looking forward to going there.
The GOP is stipulating that candidates sign a statement of beliefs in certain key principles (eg “no gun control”) to prove they are really committed to the cause. Of course, there is nothing to stop moderates from signing it and them reneging. Candidates must therefore credibly reveal their true beliefs through a real choice – the principle of revealed preference. Stephen Colbert has designed just the right way to do this.
There are now going to be ten nominees for the best picture category. This poses a danger with choosing the film that gets the most votes as the “best picture”: what if it is the worst film according to people who put other movies at the top? Maybe they all agree on the second-best movie and if you take this into account, you’d have a quite different “best picture” winner. To take this kind of thing into account, the Academy of Motion Pictures has come up with a new scheme:
Voters will be asked to rank the 10 best picture nominees in order of preference, one through 10. Davis says that the category will be listed on a special section of the Oscar ballot, detachable from the rest so that a separate team of PricewaterhouseCoopers staffers can undertake the more complicated tabulation process.
Initially, PwC will separate the ballots into 10 stacks, based on the top choice on each voter’s ballot. If one nominee has more than 50 percent of the vote (unlikely, but conceivable some years), we have a winner.
But if no film has a majority, then the film ranked first on the fewest number of ballots will be eliminated. Its ballots will then be redistributed into the remaining piles, based on whichever film is ranked second on those ballots.
If those second-place votes are enough to push one of the other nominees over the 50 percent threshold, the count ends. If not, the smallest of the nine remaining piles is likewise redistributed. Then the smallest of the eight piles, then the smallest of the seven…
Eventually, one film will wind up with more than 50 percent.
Which is the voting system that is more manipulable via strategic voting, the original one or the new one? How is it manipulable? Harvey Weinstein will be willing to pay for advice.
Update: As Mallesh says below and David Austen-Smith pointed out to me in an email, this voting system is the Single Transferable Vote system. It violates Arrow’s independence of irrelevant alternatives and is manipulable as the Gibbard-Satterthwaite Theorem applies when IIA fails. I guess manipulability per se is not the right criterion. One should study the (Bayesian?) Nash equilibria of the voting system in question and compare them via some notion of welfare to the equilibria of the original system. The original system (as far as I can tell – I am not an Oscar voter), was simply one man-one vote with the movie getting the most votes picked as the winner. The new system is much more complicated as you have to report a whole ranking.
Suppose two crossword puzzle compilers start with the same key word.
1. The word has to be divided and embedded into phrases.
2. Puzzle designers share the same sense of “taste”: It is considered elegant to divide the key word into as many separate words as possible.
3. Puzzles have to have a certain shape (“180 degree rotational symmetry”).
So, if two or three puzzle designers start off with the same keyword they are highly likely to come up with very similar crosswords as there are only so many solutions given the constraints.
Interestingly, while same problem can occur in economics research, I believe it is less likely than in design of crossword puzzles. For example, I attended at NBER conference on relational contracting. This area of contract theory studies how incentives between a firm and its supplier might be aligned as they interact repeatedly (eg early “cheating” might be punished by a worsening of the relationship later on).
Many researchers at the conference had the same motivation: Why does Toyota deal with a core group of suppliers while GM acquires parts via competitive bidding? So, there are two constraints: same motivation and same theoretical approach (ie relational contracting). And yet the papers were quite different.
The universe of potential models is infinite, unlike natural language, and hence accidental and near identical replication is less likely. To enjoy the infinite, the human brain must know no bounds. Some say this is the case though their claims are controversial.
(Hat tip: Matt Gaffney at Slate)
1. Ahmad Jamal Trio at the Newport Jazz Festival 1959. I love every version I’ve ever heard of Poinciana.
2. Newton’s letter describing his theory of light, diagrams from his optics book..and much more amazing stuff.
3. Lego version of Matrix scene
I am very, very interested in studying one particular one: 18,000 bottles from the cellar of La Tour d’Argent are being auctioned off. It’s their first auction since the restaurant started in 1582. They are going through some tough times but:
Adversity is nothing new to La Tour d’Argent, which was pillaged in 1789 during the French Revolution. In the late 1980s, the wine cellar was flooded by the Seine River. And it was plundered in World War II, when the Nazis occupied the city.
The top wine is
a bottle of Corton, a red Burgundy, vintage 1895, its label blurred with mold and its price estimated at 1,000 ($1,488) to 1,200 euros ($1,786) .
The whole list is here. No “star” wines are being sold buy maybe that means there are bargains. It’s better to focus on wines that under the radar. If you still get excited and overbid, at least you can drink away your sorrow.
In 2006, the pharma company Cephalon faced entry by generic drug producers. It’s blockbuster drug Provigil was coming to the end of its patent protection. The solution – buy off the competitors for an extra six year window:
Cephalon negotiated separate deals with four generic drug makers — Teva Pharmaceuticals, Ranbaxy Laboratories, Mylan Pharmaceuticals and Barr Laboratories — seeking to develop generic versions of Provigil.
Under those settlement agreements, Cephalon granted the generic drug makers non-exclusive, royalty-bearing rights to market and sell a generic version of Provigil starting in October 2011, or April 2012 if Cephalon obtains a pediatric extension for the drug. Cephalon maintains it has valid patents for Provigil until that time frame.
In documents filed with the Securities and Exchange Commission, Cephalon disclosed it received licenses to certain modafinil-related intellectual property developed by the generic-drug companies. In exchange for the licenses, Cephalon agreed to make payments to Barr, Ranbaxy and Teva “collectively totaling up to $136.00 million over the next several years.”
And this is legal apparently.
(Hat tip: Zachary Roth at Talking Points Memo)
Straight from the horse’s mouth….well, Dubner and Levitt’s, as interviewed by Jorn-Steffen Pischke of LSE.
You have to scroll down to Nov 9, 2009 to find the video. Lots of other interesting videos there…..Sen, Krugman, Bueno de Mesquita.
For the operative who is confused about polite, Talibany behavior, the senior leadership has been kind enough to offer a code of conduct. It is written in a spartan and logical fashion, point by point, a bit like the work of Ludwig Wittgenstein.
Number 15 is their policy on torture:
If some one admits that he is spy because you forced or tortured him, that does not make this person a spy and you can’t punish him. lt is prohibited for a Mujahid to promise to someone that if he admits then he will not be killed, he will be let go, or will not be tortured. There are two kinds of promises: the first is forcing, like you are telling him if you admit then we will let you go or we are not going torture you or put you in jail. lf you use force to cause admission, this is not legitimate. Second, you do not use force but you tell him that if you admit we will give you money or a high ranking position. This method also is not legitimate.
They recognize the possibility of false confessions using stick-based incentives like torture. Interestingly, the humble Mujahid is not even allowed to use carrot-based incentives. There is a problem of generating false confessions from an informant who just wants to get a reward.
The Taliban also know a little elementary implementation theory. One method to determine if someone is a spy is if (point 14): “There are two witnesses
that testify such person is a spy” (my emphasis). We can improve incentives to tell the truth if we can cross-check what one person reports against what another reports. If only one person says someone is a spy, there is the possibility the informant is lying for some reason – personal animosity, theft of the purported spy’s possessions once he is killed or incarcerated etc. But if we require two informants to say the person in question is a spy, if the two contradict each other, the senior Taliban can at the very least investigate further. The simplest way to encourage truthtelling is to punish both informants if they contradict each other. The document does not elaborate on this and relies on ambiguity of outcome (fear of repercussions?) to suffice to give incentives. The contract is incomplete in other words….another issue that is a concern of mechanism design and contract theory.
I didn’t see any repeated games insights though. Maybe in the next version.
A basic tenet of micro theory: a firm should shut down if the price for its output is so low that it cannot even cover variable costs. Alligator skins are fetching “prices far lower than in the past and lower even than the price of raising an alligator.” Budding alligators farmers should turn their firms into zoos not Jimmy Choos.
At least inputs into alligator bags, shoes and watch straps are very cheap and competition between producers should make Choos and Blahniks cheaper, offering one possible resolution to the annual Xmas shopping conundrum for many confused men. Typically but not in this case:
“Every time I go to Neiman Marcus and say every year the price is going up, they fight me tooth and nail,” said George D. Malkemus III, the president of Manolo Blahnik. “They say, ‘I’m not going to spend $4,000 for an alligator shoe.’ ”
One popular theory: Hermes is fast becoming the dominant player in the supply chain from Florida to Paris. The firm has scarfed up many tanneries and has the market power to set the price to farmers low and the price to Blahniks high. The middleman reaps the rents.
I don’t think they are any men’s Choos and anyway I’m quite happy in my Merrell’s. But the Xmas shopping issue awaits….
1. Leaked documents reporting British commanders’ “special relationship” with US commanders and much more. The summary of the documents is here.
2. Social networking 1950s style.
3. NYT Guide to mid-level Chicago restaurants (Big Star Taqueria, Xoco, and Great Lake menus)
Happy Thanksgiving.
Jackson, NH
Apparently, financial firms seem to believe that this is the case:
An increasing number of hedge funds and brokerages are scrutinizing professional poker to find talent and analytical tools, according to financial recruiters including Options Group, a New York-based executive-search company. Susquehanna International Group LLP, the Bala Cynwyd, Pennsylvania-based options and equity trading company, uses poker to teach strategic thinking.
“Someone who has made a successful living as a poker player for a few years would more likely be a good trader than someone who hasn’t,” said Aaron Brown, a 53-year-old former poker pro who is now a risk manager at AQR Capital Management LLC in Greenwich, Connecticut, which oversees $23 billion. “They know to push when they have the edge and they know how not to bust, and that’s a tough combination to find.”
I just attended an interesting NBER conference on organizational economics. I discussed a very nice paper by Giacomo Calzolari of the University of Bologna, Italy’s best public university. Bologna is in Emilia Romagna which has given the world Parma ham, Parmesan cheese, mortadella, prosciutto and, of course, tortellini. Food generates much happiness for consumers and high income for producers. It even greases the wheels of the finance:
The vaults of the regional bank Credito Emiliano hold a pungent gold prized by gourmands around the world — 17,000 tons of parmesan cheese. The bank accepts parmesan as collateral for loans, helping it to keep financing cheese makers in northern Italy even during the worst recession since World War II. Credito Emiliano’s two climate-controlled warehouses hold about 440,000 wheels worth €132 million, or $187.5 million.
Alas, like gold, Parmesan attracts thieves:
Thieves tunneled into one warehouse in February and made off with 570 pieces before they were apprehended by the police. “Thank heavens we caught the robbers before they grated it,” said William Bizzarri, who manages the warehouses.
Little wonder then that food is a local obsession. Giacomo told me that he himself organized a tortellini tasting competition. He and his friends purchased tortellini from around thirty shops that sell handmade pasta in Bologna. Just imagine living in a city where there are that many places specializing in one artisanal culinary product!
As all economists would know, to truly study which store makes the best products, you have to control all other variables apart from the store-induced variation. As far as I understood from Giacomo, they did this by buying the same kind of classic tortellini from all the stores. The story is that a chef from Bologna peeked through a keyhole to see the naked Venus but all he could glimpse was her navel. His view is immortalized in the shape of the tortellini. There is only one way to improve on Venus – by adding a lot of components of the noble pig: the filling is pork loin, mortadella, parma ham and of course parmesan cheese in just the right proportions. The recipe is registered by the Chamber of Commerce in Bologna. (Even a baconatarian (i.e vegetarian except for cured pork products) might be put off by the meatiness but I’m willing to give it a shot.) To control for any bias of the people sampling the tortellini, Giacomo had a blind tasting.
The winner: Boutique de Tortellini.
They did not publish the results but word-of-mouth alone helped to increase sales at the Boutique.
Of course, there are many great food regions in Italy. Giacomo himself actually prefers Sicilian cuisine because of its great variety and incorporation of ingredients from all across the Mediterranean.
I went to a totally fascinating talk at MIT given by Kevin Woods from the Institute for Defense Analyses. Woods interviewed Saddam’s key henchmen, like Chemical Ali and Tariq Aziz, who were captured after the invasion. He also has access to documents in Saddam’s palaces and intelligence offices. Saddam also has the “Nixon disease” and taped everything. Woods and his team are busy listening to all of the tapes. There were many fascinating anecdotes and I list all of them I can remember:
1. Delusions At a meeting in the mid-ninetees with leading generals and strategic thinkers, one officer offered a subtle and nuanced theory of how an invading army might be forestalled and defeated by an attrition strategy using small, fast-moving decentralized groups (a little like the fedayeen that plagued US troops in Gulf War II). The officer compared this to the strategy used by the Russians against Napoleon. ( I assume extreme heat replaces extreme cold as the weather component of the strategy.) Saddam dismissed the strategy. His argument was that the fact that he, Saddam, was still standing and alive meant that he had defeated the U.S. coalition in Gulf War I. A coalition of thirty odd nations had been brought to its knees by him. Therefore, since he had a winning strategy in 1991, there is was no reason to replace it for the next invasion. Notice that Saddam also wants to learn from his mistakes – that is why he had the after-event analysis done, just like the analysis done for the US by Woods. But Saddam is subject to so much overconfidence that he cannot use any useful information that might come out of the analysis.
From the U.S. perspective, Saddam was deliberately left in power to prevent a collapse of the country and the growth in the influence of Iran. Saddam’s perspective was obviously different.
Saddam became more and more delusional over time. Initially, he used to defer to his generals but by the end he started writing memos on how to organize even small groups soldiers. Woods said that such memos are written by sergeants in the US Army so Saddam had reached this level of micromanagement.
2. Information
2.1 Every Thursday, all the cars used by the key players in the army and government had to be taken in for “maintenance”. It was common knowledge that the batteries were being replaced in the “secret” recorders in the cars.
2.2 Saddam’s key fear was a coup. He was suspicious if officers talked too much in case they were plotting something. Officers at the same lateral level did not talk, fearing repercussions. Vertical communication was OK, especially as the top brass were insiders who were most likely to have Saddam’s support.
2.3 A key player, the head of research into WMDs, was asked: Is it possible that there was a WMD program and you did not know about it? He said it was quite possible. First, information was compartmentalized and no-one knew anything. After Gulf War I, many documents, resources etc were destroyed so inspectors would not find them and hold Saddam in contempt of various UN resolutions. But this process was haphazard and no-one really knew what was and was not destroyed and whether some WMDs had been hoarded secretly.
Why did he believe that Saddam had WMDs? Because “little Bush”, as Saddam called him, had said there were WMDs. And if he invaded and there were no WMDs, Little Bush would be very embarrassed so he would make sure there were WMDs before saying it!
3. Nepotism, Cowardice and Stupidity
Saddam lived in fear of a coup mounted by the Republican Guard. His solution was to create the Special Republican Guard, whose main remit was to protect him against coups particularly from the Republican Guard. You would think that the head of this outfit would be a fearsome figure who would terrify any budding coup plotters. Woods asked other leading figures if this was indeed the case and the answer was a resounding NO! Why? Saddam was well aware of the “who monitors the monitor problem” – what is the head of the Special Guard mounted a coup himself? Saddam’s solution was not original: appoint a relative. Make sure the appointee is a coward so he would not dream of mounting a coup. Just in case he is tougher than you might think, choose someone stupid so he cannot mount a successful coup and is too stupid to recognize someone else’s good ideas for a coup.
4. WMDs
Saddam did not have them in 2003 and hid that fact and in 1991 he had them but did not use them. Why did he not use them in 1991? He thought the U.S.has lots of chemical weapons and would not hesitate to use them. Ditto Israel. Why did he not reveal that he had no weapons in 2003? That would embolden aggressors and leave him naked in the face of an internal coup or an external threat like Iran. This is the part of Woods’ work I was familiar with and is cited in my paper Strategic Ambiguity and Arms Proliferation with Tomas Sjostrom.
For an economist, some of Saddam’s strategies are reminiscent of themes in the economics of organizations…promotion of dumb managers, though for quite different reasons, the difficulties of coordinating across divisions…
Another theme is also familiar to game theorists though we have no clear answer: it is very hard for one player to understand the strategic intent of another. It is very hard for one player to communicate his strategic intent to the other indirectly: presumably Big Bush thought it was obvious which side had defeated the other and could not imagine that Saddam would even consider Gulf War I a win for the Iraqi regime! This leads the players to have two quite different interpretations of the same event and creates room for future errors.
How should one player credibly communicate his strategic intent and beliefs to another? This is the fundamental question for the US from this excellent and interesting study by Woods and his team.
Obama is close to a decision on the U.S. strategy is Afghanistan. What is the rational way to approach this decision assuming the U.S. is maximizing its own payoff? This is the “realist” assumption rather than one incorporating a moral component, though it is not too hard to jazz up some of the analysis to deal with this objective function too.
First, think through whether we should be there in the first place. What is the threat to the U.S. if Afghanistan falls to the Taliban? Will Al Qaeda move back in or not? If the belief is that the Taliban is not a threat to the U.S. and Al Qaeda will not move in, the realist conclusion is to withdraw and focus on counterterrorism. This is the debate taking place within the Obama adminstration
Second, what if the Taliban is a threat and/or Al Qaeda will flourish in a Taliban-led Afghanistan? This is the more interesting case from the strategic perspective and an analysis has been provided by Nolan Miller. He applies it to Iraq as his paper was written during the election but it could equally be applied to Afghanistan.
The U.S. strategy affects two other players, Karzai and the Taliban. If the U.S. adopts an aggressive approach and commits to a large military presence, this reduces the incentive of the Taliban to be aggressive and their effort is more likely to be futile. But equally there is a free rider problem for Karzai: if the U.S. is exerting effort anyway, this reduces the incentive of Karzai to do so.
These two effects go in opposite directions. If Karzai is weaker than the Taliban in the absence of intervention, the reduction in his effort after U.S. intervention is outweighed by the reduction in the effort of the Taliban. In that case, it is better to adopt an “output-based” strategy where the U.S. commits to a security level that it tries to achieve regardless of the Karzai government’s and insurgent’s effort.
This appears to be the pertinent case if the belief is that we should pursue counterinsurgency rather than counterterrorism. Miller also explores more complex solutions.
I haven’t pre-ordered the Saran Palin “Going Rogue”. Many of the juicy details have already leaked out. She did the disastrous Katie Couric interview because she “felt sorry” for her. The McCain campaign manager Steve Schmidt gets slammed for shouting at her over the phone after Palin gets tricked into taking a fake call from Nicolas Sarkozy etc. etc.
In fact, according to the Times:
The most sustained and vehement barbs in this book are directed not at Democrats or liberals or the news media, but at the McCain campaign. The very campaign that plucked her out of Alaska, anointed her the Republican vice-presidential nominee and made her one of the most talked about women on the planet — someone who could command a reported $5 million advance for writing this book.
It all smacks of paranoid high school behavior. Tina Fey not only did a great Palin on SNL but also the sense of Palin we see in the book reviews was captured in Fey’s movie “Mean Girls”. This Venn Diagram captures it all:
There were no fire engines, horse-drawn or otherwise. The citizens were the fire department. Each house had its own firebuckets and in the event of a fire, everyone was meant to pitch in. That meant taking your firebucket and joining the line of people from the water tank to the fire.
Does the story so far give you a warm, fuzzy feeling? Friendly folk working together, helping each other out and living by the Kantian categorical imperative. Let me rain on your parade – I am an economist after all. The private provision of public goods is subject to a free-rider problem: The costs of helping someone else outweigh the direct benefits to me so I don’t do it. Everyone reasons the same way so we get the good old Prisoner’s Dilemma and a collectively worse equilibrium outcome.
People have to come up with some other mechanism to mitigate these incentives. In Concord, they chose a contractual solution. Each fire-bucket had the owner’s name and address on it. If any were missing from the fire, you could identify the free-rider and they were fined.
This is the story we got from the excellent tour guide at the Old Manse house in Concord. Home to William Emerson, rented by Nathaniel Hawthorne and overlooking the North Bridge, the location of the first battle of the American Revolution. (We were carefully told that earlier that same historic day in Lexington, although the Redcoats fired, the Minutemen did not fire back so that was not a real battle.) The house has the old firebuckets hanging up by the staircase.
Independent Joe Lieberman is driving Gail Collins and the progressive left crazy. He caucuses with the Democrats and holds a plum committee chairmanship on the strength of largely voting with the Democrats. But he is threatening to filibuster the healthcare reform vote in the Senate. The only way to give him the incentive to drop this threat is to threaten him in turn – strip him of his chairmanship if he filibusters the vote.
The problem is that Lieberman knows that if he filibusters, the Democrats do not have the incentive to carry out their threat because they need his vote in the future. Their threat to strip him of his chairmanship is not credible. This is a classic issue in deterrence theory: how can we make our threat to bomb the Soviets if they bomb us credible? Many of the strategies do not transfer (e.g. the automated response à la Doomsday machine in Dr. Strangelove), but one does: the Democratic leadership has to rely on reputational devices to incentivize Lieberman.
Forgiving Lieberman may create future defections as the Democratic leadership shows they are wimps. Carrying out the threat shows that Reid and Obama are tough and signals they will be tough in the future. This is the slippery slope argument and the classic “act crazy to get a reputation for toughness” strategy. Dick Cheney gets this strategy (though it seems to be the only strategy in his arsenal).
If Lieberman finds the threat credible, the Democrats do not even have to carry it out because he will not filibuster. But if he does not find it credible, he will filibuster. Then you face the problem of losing his vote in the future if you accept the slippery slope argument and feel you must punish Lieberman for his treachery.
To evaluate this possibility, we have to consider the credibility of Lieberman’s threat to vote Republican in the future if he stripped of his chairmanship. The Republicans are too extreme for the Connecticut voter. If Lieberman votes with them or switches parties, he is in trouble at home. So you can rely on his reelection motive to discipline him and get his vote on some mainstream Democratic issues.
There is also a subtle way to give Lieberman the incentive to go along with his punishment without ganging up with the Republicans. It is a “penal code” to design dynamic incentives and it was discovered by Dilip Abreu. The penal code boils down to forgiving Lieberman gradually over time to get his cooperation in the future. In this scenario, this requires some deviation from standard seniority principles for allocation of committee chairs. Put a stopgap person, Al Franken, in charge of Lieberman’s committee. Tell Lieberman that Franken will step down if Lieberman is on board in future. Otherwise, goodbye chairmanship forever. If this subgame is triggered as Lieberman is bloody minded, Franken should step down in favor of whoever is in line for the chairmanship now if Lieberman is ejected. This might be necessary to get this person on board with the plan to deviate from the status quo procedure for allocation of committee chairs.
And if all this Machiavellian structure falls apart, Al Franken is Chair of an important committee. He is a professional comedian while the rest of the Senate are amateurs. That seems like an improvement to me.
Our youngest son went to a preschool in Evanston and goes halfday to a nursery school here. The kids muck about with Lego, go to a playground in both settings and the only difference is that the nursery school has an all day option which some kids in the morning class (or their parents!) take up. Therein lies the rub.
Anyone who values the all day option uses the nursery school as daycare as both spouses work and do not have a nanny. The parents’ are sometimes forced to drop off a child with a cold or the beginnings of flu. On the other hand, if your child goes to preschool you must have some afternoon solution, a solution you can employ if your child is sick. So, halfday nursery school leads to more infections than preschool, as we are finding out.
Not exactly. But the story is about the same guy who I blogged about before (United Breaks Guitars):
After baggage handlers at United broke his guitar last summer and the airline refused to pay for the $1,200 repair, Mr. Carroll, a Canadian singer, created a music video titled “United Breaks Guitars” that has been viewed more than 5.8 million times. United executives met with him and promised to do better.
So how was Mr. Carroll’s most recent flight on United?
Same as usual:
This Everyman symbol of the aggrieved traveler was treated, well, like just another customer. United lost his bag.
In an interview, Mr. Carroll said that for more than an hour on Sunday, he was told he could not leave the international baggage claim area at Denver International Airport, where he had flown from Saskatchewan. He said he had been told to stay because his bag was delayed, not lost, and he had to be there to claim it when it came down the conveyor belt.
“I’m the only person pacing around this room,” Mr. Carroll said, recalling how he was caught between an order from United staff members to stay and collect his bag, and a federal customs official telling him he had to leave the baggage claim area. The bag never showed.
As we say in MBA world, Carroll has “turned a crisis into an opportunity” – he has a business speaking to customer service reps:
This latest episode provided him with fresh material for his most recent performance, which was why he was flying on United — to speak to a group of customer service executives on Tuesday (though without his best shoes and “United Breaks Guitars” CDs that were in his still missing suitcase).
Three very nice Pinot Noirs, all under $25.
First, Martinborough Vineyards Russian Jack, NZ 2008: $19 from Wine Bottega in the North End of Boston. Best wine for everyone but me. Cherries, floral nose and very smooth. Coconut taste at end suggests oak. My second best.
Second, A to Z Pinot Noir, Oregon 2007: Widely available. But rough to begin with. Still classic cherry. Consensus worst of three. But I would buy it and drink it again as it was quite good nevertheless.
Third, Soris Pere and Fils, Santenay, 2006: $25 at Formaggio Kitchen. Multi-layered. Stinky barnyard and hay as well as cherry. But tannic. My favorite, everyone else’s number two.
Overall, very good wines at this price. Had some Vin Santo (Allegrini 1999) as well that our guests brought. Four bottles of wine between four people at one sitting! Didn’t feel worse for wear the next day. Either liver is in trouble or the wines were good. Hope it is the latter.
Central Square has gentrified since my days living on Harvard Street. There’s a Starbucks (whoopee). There’s still a range of eclectic stuff left over from the dodgy past – the Middle East is still there and the Toscanini’s. They’ve been joined by some high-end restaurants. One of them, Central Kitchen, was recommended to us with the caveat that those of us in the sunrise of our forties might be able to bear the background music better than those approaching the sunset. They were right- I hardly noticed the music. I did notice the food.
Closest I’ve come to Mussels from Brussels are Jean Claude van Damme movies. So, my reference point for the best mussels I’ve eaten is the Hopleaf in Andersonville on the North side of Chicago. And I prefer them cooked in beer rather than cream and wine. Central Kitchen does them in some kind of herb butter. They plonk some frites on top with aioli. The mussels were soft and delicious, bless their little hearts. The broth was wiped up with stellar bread. Jacques Brel on the stereo and a Chimay in my hand would have completed the picture. No need for beer – I was happy with the pinot noir.
The main course was very good but couldn’t live up to the moules. And it was too big and too expensive – I felt bloated at the end. Next time, a salad for the appetizer and the moules for the main course.
We shared the cinnamon beignets for dessert. They were stale. The falling down chocolate cake has to be ordered thirty minutes in advance. Next time.
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