Some of you may already be aware of this, but I hadn't heard the quote until I read an article in this month's JEP:
"I should have computed the historic covariances of the asset classes and drawn an efficient frontier. Instead...I split my contributions fifty-fifty between bonds and equities" -- Harry Markowitz. Yes, the one who won a Nobel for MPT. How cool is that? Makes me feel less bad about my own ad-hoc investment strategies.
I actually couldn't find that quote in the source given in this month's JEP, but typing "I split my contributions fifty-fifty" in google brings up a bunch of sources with different extended versions of the quotation.
Thursday, September 20, 2007
Wednesday, September 19, 2007
Sex and Externalities, Redux
Dave sent me an email yesterday, alerting me to the fact that Nerlove had added this article to his regular bulletin board. The link is to a short review on a book by Steven Landsburg. Notice that there is a link to the entire first chapter in the left-hand margin.
The first chapter weighs in (sort of) on a debate that sprung up long ago in the old Tim/Mike/Chad/Beat office on externalities. I argued that the government should subsidize consumer purchases of condoms since there was a consumer-to-consumer externality (I didn't call it that at the time; I lifted the "consumer-to-consumer" part from Just, Hueth, and Schmitz) that accrued to all sexually active people every time a single party used a condom.
An interesting counter argument was forwarded by Dave (others maybe, but I don't remember well) that because each participant in the sex market participated despite known risks and could effect their own risk through partner selection and use of a condom themselves, that there was no externality present. The idea here was that so long as participation was voluntary (the costs of participation and thus the external benefits from decreased disease-spreading were avoidable) an externality was not quite the right tag to place on the disease suppressing effects of condom usage.
At the time I didn't find this to be a compelling argument, but I turned to a few sources that gave weak support to Dave's claims. No source confronted the voluntary/unvoluntary nature of the external effects, but all of the examples I could root out of a good text seemed to implicitly support Dave's categorization.
The Landsburg argument does not resolve anything, per se. But he does use an externality argument to arrive at the conclusion that disease-free people should all have more sex. So that's pretty cool.
Dave and I have exchanged several emails filling out our positions. Let's continue this discussion using the comment section of this post.
Feel free to include your own definition of an externality. Here is the Just, Hueth, and Schmitz definition, for good measure:
"An externality is defined as the case where an action of one economic agent affects the utility or production possibilities of another in a way that is not reflected in the market-place. External effects are often classified into the effects of consumers on consumers, producers on producers, producers on consumers, and consumers on producers..."
The first chapter weighs in (sort of) on a debate that sprung up long ago in the old Tim/Mike/Chad/Beat office on externalities. I argued that the government should subsidize consumer purchases of condoms since there was a consumer-to-consumer externality (I didn't call it that at the time; I lifted the "consumer-to-consumer" part from Just, Hueth, and Schmitz) that accrued to all sexually active people every time a single party used a condom.
An interesting counter argument was forwarded by Dave (others maybe, but I don't remember well) that because each participant in the sex market participated despite known risks and could effect their own risk through partner selection and use of a condom themselves, that there was no externality present. The idea here was that so long as participation was voluntary (the costs of participation and thus the external benefits from decreased disease-spreading were avoidable) an externality was not quite the right tag to place on the disease suppressing effects of condom usage.
At the time I didn't find this to be a compelling argument, but I turned to a few sources that gave weak support to Dave's claims. No source confronted the voluntary/unvoluntary nature of the external effects, but all of the examples I could root out of a good text seemed to implicitly support Dave's categorization.
The Landsburg argument does not resolve anything, per se. But he does use an externality argument to arrive at the conclusion that disease-free people should all have more sex. So that's pretty cool.
Dave and I have exchanged several emails filling out our positions. Let's continue this discussion using the comment section of this post.
Feel free to include your own definition of an externality. Here is the Just, Hueth, and Schmitz definition, for good measure:
"An externality is defined as the case where an action of one economic agent affects the utility or production possibilities of another in a way that is not reflected in the market-place. External effects are often classified into the effects of consumers on consumers, producers on producers, producers on consumers, and consumers on producers..."
Thursday, September 13, 2007
Weak Property Rights = Pollution?
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