SEO: A Waste of Resources?
By Chris | August 25, 2008
This past weekend I attended a conference on online marketing. My brother sells cb radios online for a living and he invited me along to learn more about e-marketing. It was a lot of fun and really informative. Many of the speakers talked about search engine optimization (SEO). If you’re not already familiar with SEO, it is the process of creating a website that Google and other search engines will index and display when users search for certain keywords. A site that is well optimized will receive more traffic and therefore earn more money from products and advertisements. One way to increase your SEO is by using automatic tools to create links to your content in social media sites like Digg, Facebook, and Stumbleupon. Other tips include using lots of keywords on your web page and getting links from other related sites. It is phenomenal the amount of time and money that is spent to rank highly on Google. To a large degree, SEO is a zero-sum game. If my site gets listed on the first page of Google for “economics blog” (maybe one day!) it means that someone else’s site has been relegated to the second page. SEO creates value to the extent that it makes it easier for people to find what interests them. Imagine if webmasters didn’t think about the search terms users might use to try and find them; it would be a lot more difficult to find relevant content. It would be like using a phone book that didn’t tell you to go to the “Attorneys” section when you looked up “Lawyers”. An internet business is not like a physical store, no one will drive past and stop by out of curiosity. SEO is necessary, but at the current level it saps up a lot of resources. The internet would be better off if everyone spent a little less time trying to beat their competitors at SEO and a little more time improving their product, content or customer service. But, needless to say, that won’t be happening anytime soon.
Topics: Economics, Updates, Web 2.0 | 1 Comment »
Student Blogging: Brilliant or Boring?
By Chris | August 21, 2008
I’ve been preparing for the Intermediate Microeconomics class I will teach this fall. While working on my syllabus, I considered creating a blog and assigning each student in my class to contribute a post. I thought it would be a good way to get students thinking about economics in their everyday lives and would offer a creative environment for aspiring economists to identify themselves.
I wouldn’t be the first instructor to try such an experiment. While browsing 26econ.com, I read that Aaron had set up a similar blog for his students. He required students in his internet economics class to post about the business model of an online business. You can see the blog here. It doesn’t feel very bloggy. The last paragraph of one post starts with “In Conclusion”. Other posts list the references at the end. Some of the posts remind me of a condensed Wikipedia entry, not bad, but not something I’d peruse in my free time.
I think the trick to such an assignment is providing an incentive for students to post, without scaring them into writing superfluous drivel. It reminds me of a post by Ben Casnocha. In the real world, unlike college, no one is obligated to read what you write. You have to catch and keep the reader’s attention. I blog part-time and still struggle with this. Is it too much to ask of a student?
Topics: College, Economics | 5 Comments »
Baseball Blogging
By Chris | August 20, 2008
Sports are fun, and awash in data. It shouldn’t be surprising then that economists love to study them. For example, the best-seller Freakonomics discussed cheating in sumo wrestling and academics recently examined point shaving in professional basketball. Blogs such as Sabernomics and The Sports Economist are devoted to the application of economics to sports. While perusing Sabernomics, I was intrigued by a post noting that David Ortiz’s batting performance improved after the subsequent batter, Manny Ramirez, was traded to the Dodgers. Apparently, there is significant evidence that being followed by a power-hitter like Ramirez decreases the likelihood you will be walked, but also decreases your hitting performance. This runs contrary to the conventional wisdom that you’re protected by batting in front of a slugger. What is the story here?:
The gains a batter receives from seeing more pitches in the strike zone can be offset by the pitcher making those pitches more difficult to hit. Pitchers regulate their effort throughout a game in order to conserve energy for important moments, such as facing Ortiz with Ramirez on deck. An improved Ramirez may cause Ortiz to be walked less, but Ortiz will be seeing tougher pitches to hit.
As an aside, I’m a big Minnesota Twins fan. They are currently one game behind the first-place White Sox in their division and 1.5 games behind Boston for the wild card (Standings). Over the course of the season, the White Sox and Twins will have schedules of very similar difficulty. However, at an given time, the schedule difficulty to date may be skewed. If the Twins played lots of hard teams early in the season, and the White Sox played relatively easy teams, than the current record isn’t very informative. I decided to go back and compare the record of the Twins and White Sox against common opponents. If the Twins had played the Royals 10 times and won 8 of the games, and the White Sox had played the Royals 20 times and won 12 of the games, I pretended that each team had played the Royals 10 times and the White Sox had only won 6 of their games. In other words, I wanted to estimate what each team’s win percentage would be if they had exactly the same schedule. The result: The Twins won 54.2% of such games and the White Sox won 57.8% of the games. I’m still hoping for the pennant. That is the great thing about being a fan, no one expects you to be rational. (See the Excel file).
Topics: Economics, Sports | No Comments »
The Carbon Cutting Quandry
By Chris | August 18, 2008
Jim Manzi at Cato makes some great insights into the global warming debate in this post (HT econlog). I particularly enjoyed his criticism on using a zero-discount rate to calculate the present value of the costs of global warming. He notes that 50% of the world’s 2008 GDP is equal to .1% of the world’s projected GDP in 2200 . No one is willing to cut the modern world’s standard of living in half to make a much richer future world nominally richer. I was also intrigued by his argument that the aim of carbon taxes is innovation not conservation:
[Beginning of Quote]
“To evaluate this, start with the observation that the primary purpose of such a tax or rationing system is not to encourage conservation per se, but rather to induce the development of new technologies that can de-link economic growth from damaging accumulations of atmospheric carbon dioxide. Increasing the price or scarcity of carbon would cause some direct reduction in fossil-fuel consumption (e.g., biking to work instead of driving), and get more people to use some pre-existing technologies (e.g., efficient light bulbs), but these effects would be limited. Hairshirts are not enough. We would have to develop new technologies that use energy more efficiently, emit less carbon per unit of energy, remove carbon from the atmosphere, and/or reduce the harm done by carbon dioxide. The real costs of a program to address global warming are crucially dependent on how much time and money it would take to develop and diffuse these technologies, plus the incremental costs per unit of energy (if any) they would impose once deployed.
This explains why carbon tax or rationing advocates pay lip service to the naïve idea that the developing world will impose large carbon taxes if we just “lead by example.” Of course, under the reasonable assumption that the relevant technologies will be developed primarily in the United States, Europe, Japan, Canada, and Australia, it doesn’t really matter that much whether the developing world puts a price on carbon or not. The global crusade is a smokescreen. The goal is to create an artificial scarcity of carbon in the developed world.”
[End of Quote]
Manzi argues that the developing world will never agree to a carbon tax, therefore its main appeal is that it will drive innovation in developed countries. However, I suspect that most innovations will be self-defeating. Let’s assume that a carbon tax in the developed world stimulates innovators to develop cheaper and cleaner forms of energy. These technologies will certainly be cheaper than carbon-based technologies plus the artificial taxes. However, unless they are cheaper than carbon-based technologies alone, the developing world will continue to consume carbon-based energy sources. Indeed, as developed countries switch to new technologies, demand for carbon-based energy sources like oil will fall in the developed world driving down the price of oil for everyone else. The gains from clean technology will be offset by an increase in the quantity of carbon-based energy consumed by the rest of the world.
In the near to mid-future, I don’t believe that technology alone will be able to reduce global carbon emissions. Oil is just too cheap and most of the world is too poor to find conservation even remotely attractive. No matter how much you tax carbon-based energy, scientists aren’t going to develop the uber-cheap, totally-clean energy sources of science fiction novels: at least not anytime soon. There are already hundreds of billions of dollars on the table for such a discovery. It’s not like the current prize isn’t attractive enough.
Nevertheless, the picture isn’t as gloomy as it might seem. When we develop a relatively cheap, significantly-cleaner, energy source, we can just pay poor countries to use it. As thing stand, countries have the defacto right to release carbon into the air. Rich countries value a world without global warming more in monetary terms than poor countries do. So, why not pay them to use our cleaner energy technology? I think Coase would agree.
Topics: Economics | 1 Comment »
Why do CEOs Make so Much Money?
By Chris | August 14, 2008
Fortune 500 CEOs are constantly criticized for their excessive salaries. Over the last few decades their wages have been rapidly rising while the median wages have been stagnating. See the graph that illustrates that:
“In 1965, U.S. CEOs in major companies earned 24 times more than an average worker…Since then, however, CEO pay has exploded and by 2005 the average CEO was paid $10,982,000 a year, or 262 times that of an average worker ($41,861).”
This trend is disconcerting to many people. A very close friend of mine told me that his soon to be in-laws advocated regulations capping CEO pay at a multiple of a company’s entry level salary. This issue is very emotional because many people can’t comprehend how someone deserves 11 million dollars a year when others working full time can’t afford health care.
Here are three explanations I’ve come across to explain high CEO pay:
1. CEO pay acts as a prize to motivate everyone in the organization to strive to work their way up the corporate ladder. This argument was presented by Tim Hartford in The Logic of Life
2. CEO pay reflects the marginal product of savvy strategic decisions. Smart decisions by CEOs can mean the difference between millions of dollars in profits or losses. The use of options as a mechanism to compensate executives (despite its flaws) represents an effort to pay CEOs in proportion to the value they add to a corporation.
3. High CEO pay is the result of shareholders mistakingly attributing positive performance to CEO skill rather than random noise (luck). Nassim Taleb argues in Fooled by Randomness
“CEOs make a small number of large decisions, more like the person walking into the casino with a single million-dollar bet. External factors, such as the environment, play a considerably larger role than with the cook. The link between skill of the CEO and results of the company are tenuous. By some argument, the boss of the company may be unskilled labor but one who presents the necessary attributes of charisma and the package that makes for good MBA talk…There are so many companies doing all kinds of things that some of them are bound to make “the right decision.”
I don’t think that Taleb gives CEOs enough credit. CEOs aren’t given their position, they have to earn it. They often do so by succeeding multiple times on a smaller scale: by running a profitable team, then a department, and eventually a division. These managerial roles require many small decisions and the likelihood that repeated successes are the result of chance is quite small. Nevertheless, I can’t help but agree with Taleb that it is in our nature to attribute skill to success stories that are often the fueled by external factors. As an undergraduate business student, Southwest was constantly lauded as a model airline with a sound business strategy. In reality, it made one lucky bet on oil and hasn’t been operationally profitable for years.
Overall, I find #2 as the most convincing, albeit simplest, explanation of CEO pay. However, when a CEO is making a few big bets, shareholders can be comforted in the knowledge that even if they are overpaying an unskilled CEO, at least they’re encouraging everyone else to work harder.
Topics: Economics, Labor Economics | 3 Comments »
Baggage Economics
By Chris | July 6, 2008
I just got back from a trip to Florida. On the trip back to Kansas, I flew on American Airlines which has recently started charging passengers to check luggage. It costs 15 dollars for the 1st bag and 25 dollars for the second bag. I’m normally in favor of such fees. Handling luggage costs the airline money. Including the cost of handling luggage in the airfare results in too much luggage being checked. If I value 15 dollars more than the hassle of carrying around my suitcase, it is efficient for me to carry on my luggage (assuming that 15 dollars is the airlines marginal cost of handling the luggage). Bundling luggage handling and airfares means that passengers with no checked luggage are effectively subsidizing those customers who do check bags.
However, I think charging a surcharge for checked luggage is inefficient in this case. The problem stems from security constraints. Terrorists are not very price sensitive. If checking luggage is the most efficient way to smuggle in explosive devices, weapons etc. they will not be deterred by a nominal charge. But, I suspect that smuggling items through carry-on luggage represents a greater potential security breach. By charging for checked luggage, airlines such as American are providing travelers an incentive to carry on more items. More carry-on items in circulation means more screening and more congestion at security stations. As travelers try to sneak sunscreen and toothpaste past security, it will become more costly and difficult for the TSA to spot offending violators with more sinister motives. At the very least, it seems that by charging for checked luggage American Airlines is cutting its expenses while imposing external costs on a federal agency.
The new policy also creates wasteful incentives for travelers who choose to follow TSA liquid regulations. My travel companion and I decided to throw away 10 dollars in shampoo, conditioner, and sunscreen in order to avoid a 15 dollar checked luggage fee. Throwing these products in the garbage was a waste of resources. Society would have been better off if we had transferred 15 dollars to American Airline shareholders and kept our 10 dollars worth of liquids, but we didn’t. I can’t help but thinking that if The Terminal had been filmed today, Tom Hanks could have made a lot of money in sunscreen arbitrage: purchasing leftover sunscreen from departing Florida tourists with carry-on luggage and selling it new arrivals. (Okay…The Terminal is set in JFK, but nonetheless)
Topics: Economics, Travel | 5 Comments »
Tornadoes and Chance
By Chris | June 12, 2008
I got the book Fooled by Randomness by Nassim Nicholas Taleb in the mail the other day. I happened to pick it up this evening as the Tornado sirens blared in Manhattan, KS. Taleb argues that often humans attribute skill to outcomes that are really the result of chance. Successful people may be playing games with a high probability of a small favorable outcome and a very low probability of a disastrous outcome. He argues that we should judge success based on the expected outcome over hundreds of lifetimes. I’m enjoying the book and will give a full review when I finish.
Most tornados warnings are false alarms. They are issued if the storm is capable of producing tornadoes. However, tonight the storm actually produced them. Twisters touched down on campus and on the west side of town. I heard on the news that approximately 50 homes were destroyed. The building where I will be teaching in the fall was damaged. I think humans have the tendency to overestimate the likelihood of dramatic disasters like tornadoes. On average, more people die each day in the U.S. in car accidents than die in natural disasters in the entire year. Nevertheless, sometimes disaster strikes.
Topics: College, Economics | 1 Comment »
Agricultural Inconsistencies: Senegal
By Chris | May 24, 2008
It seems like just the other day that Bono was vilifying developed countries for flooding the world markets with cheap food. Consider this excerpt from a news article leading up to the 2006 G8 summit:
In Senegal, a resilient showcase of democracy in a continent otherwise pervaded by corrupt dictatorships and brutal wars, producers of tomatoes and other food products have been suffering for more than a decade under the unfair trade relations with Europe and other wealthy regions of the world. Their markets are overflowing with cheap, subsidised tomatoes from Italy, onions from the Netherlands, rice from Japan, cotton from the United States, and chicken parts from across Europe. As the UNHDR 2005 put it, “Sub-Saharan Africa has become increasingly marginalised (in the global trade). Today, the region, with 689 million people, accounts for a smaller share of world exports than Belgium, with 10 million people.”
Today, no one in Senegal is complaining about an overflow of cheap food:
The world food crisis, with rising prices causing shortages, riots and hunger — often for those already struggling to feed themselves — has brutally exposed Senegal’s Achilles’ heel: it imports the majority of its needs. This has left the west African state particularly at risk as it struggles to keep prices under control while setting up a vast programme to stimulate food self-sufficiency…locals grumble they can no longer afford to buy sufficient food.
Agricultural subsidies are neither efficient nor equitable. They often end up in the richest farmers’ pockets. For example, take a look at this map showing the 2007 subsidies received by farmers living in…Manhattan…New York. Nevertheless, I have always been hesitant to blame agricultural subsidies on the economic woes of lesser developed nations. Subsidies in rich countries effectively subsidize the cost of food for people around the world. Some producers are hurt, but on net, the world is getting free food. Domestic farmers may complain when prices are too low, but nations riot when prices are too high.
While writing this post, I learned that the U.S. requires that all food aid originate in the United States. Transportation costs make this incredibly wasteful.
One cost-cutting measure, supported by many economists and by relief organizations such as CARE, would be to permit the U.S. government to buy at least some of the grain it donates from farmers nearer to famine zones — to buy, say, South African or Ethiopian wheat and ship it to the hungry elsewhere in Africa. Both the European Union and Canada have recently authorized such “local and regional purchases,” with broadly successful results. President Bush has called for allowing as much as 25 percent of the U.S. food aid budget to be used this way.
The provision did not make it into the final bill that was passed by Congress, despite the president’s veto.
Topics: Economics, Food, Law, Markets | 21 Comments »
Guns
By Chris | May 17, 2008
In the wake of recent school shootings, a group on campus has been petitioning the university to allow students to conceal and carry hand guns on campus. I have never owned a gun but have shot guns with a number of friends. A fellow economics major at Idaho took me out one afternoon to shoot pop cans with his AK-47. As exhilarating as it was to blow shards of coke cans 15 feet in the air, I have a hard time justifying their legality. I highly doubt that the legal benefits of assault weapons come anywhere close to eclipsing the lives that such weapons can so efficiently destroy. I was in Moscow, ID this past summer when a man with an AK-47 showered downtown with bullets, killing a police officer and a church caretaker, injuring a student and finally taking his own life.
While it may be efficient to ban assault weapons, it makes little sense to me to ban concealed guns on campus when they are allowed everywhere else. The classroom is quite vulnerable to would be attackers. Buildings on college campuses are spread out and lecture halls are large. Campus police are too few in number and too dispersed to stop an attack before it is too late. Of course campus shootings are extremely rare. However, violence on campus isn’t. While I was at the University of Minnesota, a string of senseless beatings prompted the graduate and professional association to request UMN’s gun ban be removed. I see the costs and benefits of allowing guns on campus as the following:
Benefits:
- Mitigates the loss of life due to a random student rampage (presumably armed students will protect themselves and others)
- Increases the costs of rational criminals who seek to assault or rob students on campus
Costs:
- Increases the probability that minor conflicts on campus escalate into deadly outcomes
- Increases the likelihood of accidental shooting (inebriated students and guns are not a good combination)
It is difficult to assess the psychological effects of a ban. Some people will feel protected and others will simply be constantly reminded at the fragile, vulnerable nature of life. However, I think that overall the benefits outweigh the costs. Fights rarely take place on campus so it seems unlikely that removing a gun ban will result in the escalation of many skirmishes to fatal outcomes. It would be more appropriate to ban guns in bars. Accidental gun deaths are more likely. But, I doubt accidental deaths would outweigh the deterrent and cost mitigating benefits of guns. I’d be interested to see the data on accidental gun deaths on campuses that allow their possession.
Mark Thoma’s nostalgic post on guns got me thinking about this topic. If you’re looking for a safe school you can check these statistics out. It doesn’t get much safer than my alma matter.
Topics: College, Economics | No Comments »
It’s Been Awhile
By Chris | May 17, 2008
The end of the semester is always busy and I temporarily lost the urge to write. Hopefully, a few readers out there have weathered the lull and will keep checking back for content. While I’ve been a complacent writer, I haven’t been a complacent thinker. Now that finals are over, I’m looking forward to exploring a backlog of ideas and observations. I will be posting about the Genetic Information Nondiscrimination Act, price discrimination at fast food restaurants, strategies for taking finals and how students respond to extra credit.
If you didn’t notice, I updated the logo graphic to make it look more crisp and clear. I recently installed the software necessary to run and test blogs in WordPress on my personal desktop computer. As I learn more about web design and the WordPress platform, the blog may undergo some cosmetic changes.
Topics: Economics, Updates | No Comments »
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