Books cost too much! (so I wrote a blog post)

Academic textbooks are really expensive. The current version of Mankiw’s principles text is $186 in hardcover.  I’ll go out on a limb and conservatively guess that the marginal cost of producing another copy is no more than $25. Of course there are substantial fixed costs but…

Here’s what I think is going on.

Textbooks are a type of network good. The more people use a given text, the more others will also want to use it. So the market approaches winner take all with just a few books selling well and making profits. This is probably true of all kinds of books.

Weirdly, the books that don’t sell well (the losers) almost have to price high as they are trying to cover their fixed costs over a small sales volume.

The winners don’t have to price high to break even, but given that demand is high and relatively inelastic, why shouldn’t they? Indeed they do, and with gusto.

So the losers price high to try and stay in business and the winners price high because the network good nature of the market gives them a serious degree of market power. In a market like this, a loser cutting price is quite unlikely to receive much of an increase in market share

So how to fix the problem?

Doubly weird is the tried and true idea of “more competition” in form of a larger number of texts on the market probably isn’t really going to help as will just create more losers struggling to stay alive. Competition here is “for the market” rather than “in the market” to use the terms of Cowen and Tabarrok’s expensive text.

Another market solution is resale, which happens on a very large scale already. Amazingly, new text prices would likely be even higher without this form of competition, where old copies of the winning books compete against new ones. Naturally, publishers don’t like resale and respond by pumping out new editions on an inefficiently fast schedule. But resale definitely is a check on new text prices already. If we want them lower, it’s not a new tool to use. It’s also true that resale doesn’t only work to lower new prices. The fact that there is a resale market for a product likely would increase the demand and raise the price for that product. So, it’s complicated.

If increased competition in terms of more textbooks is unlikely to help, and resale has already done what it can do, then what?

Well, Facebook is a network good and it’s free to the end users, so maybe allow textbooks to contain paid ads? There’s a free market solution for you folks!

There’s another type of industry with high fixed costs and low marginal costs; natural monopolies like utility companies. We generally regulate them with the alleged aim of getting the outcome to be close to average cost pricing. Maybe the same should happen in the textbook market?

If we don’t like a regulatory response, then it’s going to take a big decline in demand to get prices down. There is some evidence that some schools, community colleges in particular are going to open source texts or even abandoning the use of textbooks at all. This kind of makes sense as their customers are the most price elastic ones.

Oh pity the poor publishers. If only they could price discriminate better!

So don’t worry, Mankiw’s days at the top are numbered (anybody remember Lotus 1-2-3?), but the new best seller probably won’t be any cheaper.

Irony fail, international edition

There is too much “irony fail” in US politics right now–I would even know where to begin.  So for now we will concentrate on some interesting international examples:

First, we have Raul Castro vehemently arguing against the new US protectionism.  Did he have to actively stop himself from cracking up as he was saying these words:

“La nueva agenda del gobierno de los Estados Unidos amenaza con desatar un proteccionismo comercial extremo y egoísta que impactará la competitividad de nuestro comercio exterior [The new agenda of the US government threatens to unleash an extreme and selfish protectionism that will hurt our competitiveness in trade.]  

h/t to Greg Weeks (@GregWeeksCLT) for this gem.

Second, we have none other than former Iranian President Ahmadinejad joining twitter.  Ironic since he was “instrumental in getting it banned from the country.”  Apparently this is not unusual in Iran: “Despite the service being blocked for ordinary citizens, many of Iran’s top officials tweet regularly, including President Hassan Rouhani and Foreign Minister Mohammad Javad Zarif.”  See link here.

And last, but definitely not least, we have a great set of tweets by the excellent George Ayittey (@ayittey) on how African governments un-ironically respond to a need for less government and more private sector encouragement.

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I asked Professor Ayittey if the last suggestion was merely satire and he responded no, that Mali had actually set up a Ministry of Less Government Spending.  You can’t make this stuff up!

 

 

Giving new meaning to the term “academic scribbler”

It was amazing to me when we first moved to Mexico how much the average person knew about exchange rates and inflation.  Compare this to a class of American undergrads, where you have to explain in detail what inflation is and why it matters.

Even knowing this, I was still surprised at the fact that there is monetary policy graffiti in the state of Oaxaca, Mexico!  David Harrison, reporter on monetary issues for the WSJ, tweeted this yesterday:

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This roughly translates to “and they raised interest rates, making credit more expensive.” Impressive.  So not only is the graffiti pretty high brow, they also get the economics right. Nicely done.

 

Go on, take the money and run….to Stanford?

So Peru announced a 100,000 Soles bounty on the head of that desperado, Alejandro Toledo, its president from 2001 to 2006, who’s accused of taking in millions in bribes while in office.

Some observations:

That’s about $30,000 making Toledo 1/833 as evil as Saddam or Bin Laden ($25 million).

Toledo is an unpaid “visiting scholar” at Stanford with an office and library privileges so it shouldn’t be too hard to find him.

If he really has $20 million in ill-gotten booty, couldn’t he just offer $31,000 to NOT capture him?

Is the government of Peru unaware that they have an extradition treaty with the USA (since 2001 ironically enough)?

Since I was once mistaken for Toledo by a crowd of Peruvians in 2000, this whole situation has me marginally more jittery than usual.

These kinds of prosecutions are often just political payback and posturing, but in this case the ex CEO of the bribing company is directly saying they bribed Toledo.

Maybe Alejandro could get the cell next to Fujimori??

 

 

Leggo my Ego (Morales)

Ah Evo.

Who can forget his “signing” as a pro player by a Bolivian soccer club in 2014?

And of course there’s his new “Evo Museum” built for $7.1 million in his home town of Orinoca (population 900) and dedicated to his life. This has been in the works since 2006, as it was one of Evo’s first acts as president to commission his museum.

Usually, you don’t build the “presidential” library until after you are no longer president. But as far as Evo is concerned, that’s not happening anytime soon. Already on his supposedly impossible (according to the constitution) 3rd term, Evo is still planning on running and winning a fourth term in 2019. This despite last year’s referendum where voters rejected his bid.

“Now, Morales is trying to invalidate the referendum claiming that the opposition had won because of false news reports, and is seeking new ways to reform the constitution to be able to run for a fourth term. He was recently quoted by the daily La Razon online as saying — using a soccer analogy — that the 2016 referendum was only “the first half” of the game and that there will be a “second half.””

When I was born for the 7th time

Very cool new paper in the AEJ Applied.

Here’s the abstract:

Political favoritism affects the allocation of government resources, but is it consequential for growth? Using a close election regression discontinuity design and data from India, we measure the local economic impact of being represented by a politician in the ruling party. Favoritism leads to higher private sector employment, higher share prices of firms, and increased output as measured by night lights; the three effects are similar and economically substantive. Finally, we present evidence that politicians influence firms primarily through control over the implementation of regulation. 

I love these kind of quasi-experimental papers! I preach/teach this approach to all who will listen (or are forced to pretend to listen).

Here’s a link to a working paper version.

A few comments.

“Favoritism leads to” is a bit of false precision. “Just barely electing the ruling party candidate vs an opposition candidate” is probably more accurate.

What are we supposed to think here, that the ruling party does this for all districts? Or that, having won a district they didn’t think they would, they invest at the margin to try and make it more secure?

Is this happening because the ruling party is favoring the barely won constituency or because it is punishing the barely lost constituency (or a combo of both)?

Do these kind of effects depend on how competitive the overall elections are? If say Congress has 70% of the districts, would this be happening? In other words, how generalizable is the finding.

These comments probably seem critical, but I would have pushed the “accept” button if I’d refereed the piece.

And here’s the “money shot” from the piece:

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Looks like they punish the closely lost districts, no? or low growth is serially correlated and low growers vote for the opposition?

 

 

Holiday advice from Dr. Angus

If you must listen to Christmas music (and I really don’t recommend it), you could do a lot worse that the collected Christmas works of Sufjan Stevens. Dude really loves Christmas and has put out a ton of Sufjan-ized holiday music. You can get a lot of it on the u-tubes right here.

For Non-Christmas Sufjan, I highly recommend, Greetings from Michigan, Come on feel the Illinoise, and his latest, Carrie & Lowell.