Debating the Limits to Money Transactions

One of the most frustrating arguments that libertarians face is the seemingly sensible claim that society should proscribe certain things especially because there is unequal access to them or that their consumption and distribution may offend morality. Among the most erudite scholars posing this question is Michael Sandel in his book published last year called, What Money Cant Buy: The Moral Limits of Markets. reading that book last year, I deferred to the author's depth in the inquiry but was also frustrated with the view that moral categories must be imposed on all irrespective of the fact that no harm is caused in allowing a poorer person to sell a kidney to a wealthier person in need of it. It is true that in creating a price on organs, society accepts that there will be unequal access will occur.

In an article in late December, John Kay illustrates the absurdity of imposing uniformity by alluding to his payment of €12 to purchase the right to priority boarding on a flight. My view is that paying for kidneys does not of necessity put society on  a slippery path towards slavery because in the latter case, no contracts are willingly executed. there are certainly limits to what money can buy but most democratic societies are hardly close to the limits. As a libertarian, it is clear to me that few markets would survive for a long time if they were completely repugnant to free participants. Thus a market for kidneys and other organs is not the worst thing that could afflict society today. that some markets are not available today is due to lack of innovation and respect for individual freedom and not because of the possibility of exploitation of the powerless or fear of exceeding moral limits.    

Should Zoos Be Conservation Parks?

If asked, I would answer that the primary purpose for the existence of a zoo is to assemble a number of animals that would meet the curiosity of people who would visit and pay some money to cover costs. By this definition, the functions of a zoo are largely for the entertainment of visitors. Reading Leslie Kaufmann's article in the NYT tells me that there is substantial pressure on successful zoos to incorporate the conservation of threatened species into their business model. It is immediately clear that an accreditation body is trying to use the conservation of species as a new criteria for certifying zoos in the United States.

It is altogether understandable that it would be a big advantage to be able to display a wide range of animals as part of building the experience for visitors. However, I think that the management of zoos should not be compelled to change the business model to incorporate conservation because that change will imply different costs and requirements in terms of staff and operations. To start with, some of the fauna that are arguably in danger of extinction may be unknown to the visitors to zoos and therefore the diversion of resources towards saving them may not be a cost effective policy. As stated, tensions will inevitably arise because of the required trade offs where the more popular species as elephants may not be in as much danger. In the eyes of many school children, to visit a zoo to see a toad or unique species of frog in place of the elephant and the Zebra may not be acceptable.

Clearly therefore, the approach should be to allow individual zoos to choose the species in which they would specialize and let the conservation efforts be handled by others that are resourced for it. It will become clear in good time whether these models could co-exist or be run separately. Ensuring the restoration of numbers of some of the species with low numbers may in the end be even beyond some zoos. they should therefore be allowed to provide entertainment only.  Conservation requires concentrating resources on a few species and this limits the variety within zoos.    

AA's Too Frequent Flyer Plan

source: www.aa.com

Many corporations are interested in creating a long-term commitment with their highest margin clients. In the quest to do that, the marketing professionals within firms sometimes generate ideas intended to ensure that business relationship with selected clients are maintained. One real example of that is the American Airlines' AAirpass which was intended to be a one-time upfront payment for selected customers in exchange for unlimited travel in the future. It is understandable that in the thinking of the corporation, this was meant to ensure upfront payment for a service that would be consumed in the future.

Washington Post reports here that the lifetime travel pass was initially sold for US$ 250, 000 and was adjusted a number of times thereafter. For a student of applied economics, it is clear that here is an instance in which the designers of the AAirpass failed t properly reckon with the fact that ownership of the pass would change travel behaviour for some customers. With the benefit of hindsight, it is clear that the AAirpass was purchased by individuals who would in turn trade on it and travelled far more frequently and longer distances. That the corporation resorted to use of detectives to detect the alleged abuses and ended up suing some customers is less a demonstration of deviousness of the customers than the fact that the marketing team that came up with this idea understood very little and crated a poorly designed product.  

Apple's Effect on Competition in E-Book Market

This blogger has maintained in posts including this that the book publishing industry has chosen to go the way of music producers by burying their heads in the sand. iIn particular, I am of the view that it is preposterous to sell digital copies of books at the same cost as the paper version. For a while Amazon seemed to be acting in the interest of the reading public by ensuring that new publications were available at lower cost in digital format and thereby ensuring that the gains from digitization broke the existing model of book publication and pricing.

Indeed, there was a danger that Amazon could have used its market power to depress the margins for publishers. And then came Apple with a deal for the publishers for an agency model for digital books on the iPad. This gave greater power to the publishers as they were able to apply new clout to ensure that books were sold through an agency model with retailers keeping 30% of the sale price. The effect of this is that prices of books not only went up but that the odd fact of digital books going at higher costs became real again.

Juliette Garside reports on the effort by antitrust officials in Europe who are questioning the new arrangement. Their main claim, with which I am in agreement, is that the agency model has placed consumers at a disadvantage in the sense that books have gone up by a margin of up to 50%. To my mind, there is no price war anymore as the publishers are back in the driving seat, with Apple's help, and are dictating costs and seeking uniform prices again. Like most windy antitrust cases, this will probably go on for long but on this score, i am confident that the bureaucrats are on the side of the consumers.   

Creative Destruction in Publishing Industry

In my view, it is in the decade after the Internet bubble ended that it is becoming clear that there are solid businesses ideas that can be based on the Internet and digital capabilities today. Amazon is one of the few corporations that seems to be particularly savvy at taking on old businesses using the Internet as a plank of the strategy. David Streitfeld writes that publishing firms are watching in disbelief as Amazon is cutting down the number of people in the transactions chain and contracting authors directly before publishing their work.

This bears a number of advantages for the author in terms of time saved and a chance to publish book. On the other hand, authors are sure that there income will be entirely dependent on the recorded sales as there is no upfront bonus payment. because a number of authors are taking up this offer with alacrity, I am certain  that in spite of the complaints, it seems that this approach is a useful alternative to the vertically integrated structure that traditional book publishers prefer.

There's no guarantee that the publishers will be wiped out but I think that as I have stated here and here before, publishers should not defend a flooded shore. They must move to higher ground and ensure that Amazon does not wipe them out. A book publishing and author payment model based on sending papers to physical book stores will not suffice. This is an industry that i would watch and while I do not advise on stocks, I would downgrade and keep downgraded the stocks for most publishers until it is clear that they have real understanding why they are losing readers first and now authors. Is this creative destruction at work?  

Is US$ 25 Million Enough to Catch a Terrorist?

While it is demonstrably true that the significant prizes money often leads solutions for policy questions, it has never occurred to me to question whether that is also true for law enforcement action. And with my stated bias most recently stated here towards prizes as a form of outsourcing solutions to business and public policy problems, I begun to think about why this confessed terror boss was not apprehended sooner. Is it possible that a US$ 25 million prize was an insufficient incentive for someone to cooperate with the US state Department?

Writing in Slate Magazine here, Annie Lowrie argues with herself on the same issue too by asking whether the US State Department will be giving out that money for any person who may have provided some information that enabled the planning and execution of that daring raid. As she concludes, there is a dearth of data available for independent testing of the hypothesis and yet officials claim that offering a bounty for fugitives works. Absent some public data and analysis, I am unsure that the US$ 25 million was the right amount because perhaps a fraction or a multiple of that amount would have gotten the same effect much sooner. Maybe so, maybe not.  

Publishers Have Hangups About E-books

It has become clear to me by day that publishers are unable to think clearly about the economics of e-books because they are caught up i comparing it directly with its printed versions. Patrick Kingsley of the Guardian cites  an instance in which one of the largest publishers has insisted that e-books made available to libraries would have to be replaced after being lent out 26 times. The reason given is that print editions have often been replaced after that number.

Now, one does not have to be partial to e-books or particularly like Amazon to see that this is an unbelievably preposterous argument. To start with, e-books are e-books and therefore not printed books and so to try and market them or calculate profitability based on that which is being replaced is laughable. What is clear here is that this publishing house has not made time to think carefully about how e-books will alter their marketing posture and have tried to graft the lives of e-books o that which they know; print versions. And as the story states, two librarians have already proved that the number 26 was arbitrarily determined and is therefore unjustifiable.

I must sympathize with an industry whose leading paradigm is changing rapidly and whose future is uncertain. Still, this is no reason to maintain such woolly thinking by holding on to the familiar. E-books are now going to reduce margins but they have the advantage that they are easily reproducible. A more reasonable approach to how libraries lend out e-books requires rethinking but should not be based on such a poor premise and hangups with paper versions of publications.     

Google Ranking Adjusted

Everyone with a little knowledge about search engines understands that the most valuable today is the google search engine. Given the number of websites out there, the fight to feature at the top of google rankings is intense. Corporations therefore go about it by trying to take rig websites to ensure that they feature prominently on the search game. Google has responded to the quest of corporations and site owners to manipulate the search engine by readjusting the algorithm that produces it results to account for the manipulation by content farms.

As explained in this piece in the Guardian, these content farms try to manipulate the search engine by generating lots of popular words and sticking those to websites which exist purposely to ensure that they show up in searches. Such systematic attempts to raise the profile of a business is obviously not illegal but may artificially inflate the frequency of a firm's appearance in common searches.  David Segal of the NYT explored the same phenomenon in this intriguing article which shows how a number of websites constructed to generate high ranking in search were implemented and led to successful results.

For a lay person, the story illustrates the fact that a prominent website presence has lucrative value and this makes the decision to try and manipulate the search engine all but inevitable. In addition, it shows that a dominant search engine such as Google must always be on the look out to ensure the integrity of results because once people understand the rough manner in which the ranking of pages is established, then they will try to manipulate it. In this way, Google's strength is also its weakness.

Australia Needs Effective Camel Population Control Solution

We live in a world in which sensitivity to the effects of human and animal activity to the environment is facing sharp scrutiny every day. So Australia has designed a camel population control policy that relies will rely primarily on shooting the animals from the air. Without doubt, animal rights activists are unhappy as they term this particular approach as completely brutal and unnecessary. As this story states, it appears that all the discussion is based on contentions without new and alternative proposals coming to the fore.

What most impresses me about the story is the fact that the camel population, which is estimated at 1 million, is expected to double in another nine years. The effective growth rate therefore is close to 8% annually. At this rate of growth, it is clear that a working solution is required. And I am pretty convinced that there's definitely a far better solution that could be brought to bear on this problem than that at hand. Again, admitting my bias towards solutions developed from competition, I am certain that for a prize equivalent to the anticipated cost of the camel population cull, a far better market derived option can be developed and put to use.

For instance, using a proportion of the Australian $20 million as a prize, the Australian government should set out a competition on the development of a viable population control plan that could be implemented across a time frame. In my view, the prize money could then be paid out in slices depending on the achievement of certain metrics. This can be done and I would myself enter that competition encouraged by even a small proportion of that prize.

So what would I propose? I cannot state this off the top of my head now but I think that the chosen approach would probably involve a variety of solutions as opposed to a silver bullet model. It is possible that a 900 kilogrammes animal could yield meat for export, with skin used as leather and live animals being auctioned too. I would wager that a composite solution comprising a market mechanism would emerge that would bring back a significant proportion of the Australian $20 million.

Do Golfers Earn Income the Hardest Way?

In an article praising the recent performance by an older golfer during the British Open tournament, Thomas Friedman considers how unique Tom Watson's performance was. It was a singular achievement because Tom Watson was 59 years and therefore the oldest golfer among the competitors, but also lost in a play-off. Most of the field was comprised of golfers at least two decades younger.

However, the most fascinating part of the article is the way in which he chooses to distinguish golf from many other sports events. one of those is that golfers tend to play as individuals and not in team events and where ability is demonstrable to all. the playing surface for golf is also largely created to be an obstacle unlike for other sports events. But the most unusual one is the fact that playing professional golf requires that one wins in order to earn money. While this is not unique to golf, this is a poignant distinction about how sports prizes are distributed.

The lesson here is that the manner in which sports prizes are organized for team events leave scope for a lot of free riding. i wonder what the pay differential would be like if team players were paid by certain objectively identifiable deliverables. Granted that certain Formula One teams also pay huge salaries, a good number of them also pay for finishing and placing among the points. On the other hand, I think that the pay structure for team sports recognizes that a element of team work is useful and that athletes ought to see their success as a product of joint work.

Conficker Malware's Security Lessons

All I read about the Conficker malware was that it had sleeper instructions that it would unleash which would either disrupt the Internet generally, steal proprietary information or even attack sites for selected businesses on 1st April this year. Since that day passed without much visible effect, it is clear that that may have been either a red herring or that digital Armageddon is postponed for a later date.

Farad Manjoo's piece in the Slate Magazine dissects the worm quite clearly for a person without in-depth understanding of computer code writing and the effects of worms generally. What emerges from this is that no doubt the worm is written by a set of people with cutting edge skills and who understand the inherent weaknesses in the Internet and the economics of the software industry. This is because the malware relies on the fact that many PC users do not update their software that as regularly as would be ideal. This behavioural failure then makes the propagation of that or any other malware nearly impossible to stop.

While Farhad does not stress it enough, it is also clear that a successful fight against piracy may actually predispose the Internet to dangers from contagion with malware like this. The reason being that pirated copies of the most Microsoft software are unable to receive security patches. By keeping out the people who install pirated copies of software, the vast majority of whom are from low income countries, the developers of Conficker are sure that they will infect a minimum number of PCs that would allow the proliferation of the malware into other machines.

To my mind therefore, it becomes ironical that a mechanism that is designed to reduce software piracy is in turn leading to the unintended consequence of propagating insecurity of software for all. This trade off shows that the mechanism for the response to worms and viruses is demonstrably ineffective. As I stated in a blog post, it will not be useful to spend money in apprehension of the developers of the malware. Instead,that money should be dedicated to preemptive action in determining the security gaps in ubiquitous software and operating systems so that they may be plugged.

But the clearest response now is to review the architecture for enhancing Internet security. Since the largest growth in Internet users will invariably come from the lower income countries, the use of pirated software shows that none is safe. As Bruce Schneier has argued convincingly in this post, it may be time to consider Internet security as a public good and subsidize its development. The reality of the economics of the industry show that the real incentive to develop more robust operating systems does not exist. In sum, that the developers of the Conicker malware merely demonstrates that the incentives for software security developers and the developers of dominant operating systems are not aligned to improving overall security and failure to take this message will mean that the April Fool's joke is due in the future.