Trading In Elephants

Conservation of the elephant is one matter that places many African countries such as Kenya and other southern African countries in conflict at the global stage. The essence of these arguments is that there's a surplus of elephants in southern African game reserves in Zimbabwe, South Africa and Botswana. On the other hand, most East and West African countries have had declining elephant populations since the 1960s because of poaching and illegal hunting.

The value of the elephants for these countries is in the revenues from tourism and the possibility that the ivory may be traded. Since it has a market value, there is substantial trade in ivory supported through illegal hunting. At the 14th CITES Conference of Parties, a substantive agenda item was concerned with a review of the moratorium in trade on ivory. Understandably, Kenya and Mali, being countries whose elephant populations continue to face the threat of illegal hunting, proposed an extension of that moratorium while South Africa and Botswana wanted to be able to get rid of existing stocks of ivory in their custody. In the end, a sub-optimal agreement was reached to extend the moratorium for another another twelve years though the final agreement was for an extension of nine years.

In this article on the BBC news site, the South African government announces that it will allow a cull of elephants to control their population. apart from the protests of the conservations groups who claim that this is inhuman and who are opposed to any interference with the animals, it is clear that this state of affairs is far from efficient. As first principles in economics would state, parties do benefit from trade and the east Africans should offer to buy the elephants from the south African nations to boost their own elephant populations and tourism. The revenues generated from toursim could be used to compensate the south African governments in addition to designing systems for the protection of the animals from illegal hunters. It is clear that the mere extension of moratorium after another at the CITES meetings will neither stop illegal hunting to support the demand for ivory. As it appears so far, the South Africans are bearing the burden of an international agreement built from emotive arguments without consideration of trade between the parties.

Bookmakers Deserve Their Profits

Granted that bookmakers create a product from sports events and make decent returns from designing and taking odds on the outcomes, the basis of this claim by sport organizing bodies in the UK is just beyond belief.

Essentially, their demand is to share in profits generated by bookmakers who take the risks associated with the outcome of the events. To my mind, this is a reflection of the inability of these bodies to generate their own revenues hence the alacrity in clipping a share of the profits of anyone connected to sports. They should fail in this. If, as they state, their claim is based on the need to assist in fighting match fixing, then a close observation of the odds and some clever forensics work suffices. Sharing profits will not ensure that there's less match fixing especially as the sports bodies will have an incentive in ensuring higher incomes for the bookmakers. This proposal ought to fail for being utterly disingenous.

Public Costs of Obesity: Myth or Fact?

There's an unhealthy obsession with the fact that a proportion of citizens of many countries are classified as obese. While I am reluctant to accept the claims of impending doom from the Obesity Epidemic, I am not opposed to benign public education and tax measures on the high calorie foods that lead to weight gain and subsequent health problems for individuals. What I have been opposed to in earlier posts such as this, is the imposition of any diet plans on students or adults under the guise of reducing future expenses to the state from morbidity that is driven by obesity.

I was therefore surprised by this piece by Daniel Engber in the Slate Magazine which summarizes a paper by Dutch researchers challenging the conventional view that providing medical care for fat people is inherently more expensive. Starting with the received wisdom that morbidly obese people have shorter lifespans, the consequence of this is lower medical costs on the whole. Essentially therefore, the cost savings argument that is used to justify interference with individual choices is not well-considered. There may remain a legitimate reason to make obesity a public health issue but cost savings on health expenditure is not one of them.

All that's left than are the secondary arguments of productivity losses and improvements on quality of life. As I may add, all these are important but rest entirely within the domain of personal choice. Or don't they?

Chandigarh Should Look to Ireland

In an earlier post here, I extolled the fact that Ireland has made great efforts at achieving near plastic free status entirely through the careful application of elemental principles of Pigouvian taxes. Now, the Indian state of Chandigarh has decided to pursue similar objectives through an entirely different route. Chandigarh has chosen to brandish the bureaucrat's most potent weapon: an outright ban. I am surpised that the idea appears popular as reported here.

While it is understandable that state officials may share the public's concern about the adverse effects of indiscriminate use of plastic bags, it appears that some economist did not remind them that the problem is not plastic per se but the failure of manufacturers and users to pay the cost of proper disposal. In other words, plastic bags are not adequately priced. Following the path of least resistance involves a rehashing of the dangers and great harms caused by the use of plastic retail bags and therefore to easily resort to a law and order approach of indiscriminate bans. I wish them luck but are certain that this ban will not efficiently accomplish that goal or at all.

Why Punish Investment Bankers?

"Lord knows I suffer from the riches of bankers, like everyone who lives in London or New York alongside them. But the fact they are paid as they are is a matter for individual resentment, not official intervention". John Gapper

It is difficult to add much to this concise statement in an article in the Financial Times because the clamour for the regulation of wages for investment bankers is ill-informed. This is essentailly because not all investment banking institutions have been as casual in pushing out products of dubious value and laws ought to be able to assign responsibility without wholesale condemnation. Given a choice, I would much rather have a slight raise of the marginal tax rate than wage regulation.

Do Information Markets have Limits?

Information markets are gaining a good name as fairly accurate predictors of events in the future. more pertinently, they are used now to test the probability of electoral outcomes for specific candidates in addition to sporting or other events. Accepting that I have simplified the logic behind it, it is claimed that information markets are approximations of futures markets to the extent that they allow informed players to wager bets and stake money in the results. They have been accurate predictors of the outcomes political contests and in cases even been more accurate than pre-election opinion polls. So far so good.

General excitement in the discovery of a new tool brings to mind the fact that novelty leads to the possibility that its real limitations are not taken into account. David Leonhardt, writing in the NYT here, identifies some of the existing weaknesses of Intrade and how those are being exploited.

As if the lesson deserves to be stated again, the exuberance was obviously unwarranted because the equity markets in which information markets are modeled are not perfect predictors either. Therefore, Intrade may have a thin market with a small number of really savvy traders on some of the calls. This sounds to me as the same problems that afflict a number of futures markets too. The article nails it with the statement that these markets are not as advanced as their most vocal supporters may claim.

Hugo Chavez's Dangerous Bluff

Hugo Chavez is reported here to have sent out a threat lacking subtlety about cutting off the US from supply of crude petroleum. One wonders whether he understands what the real effects of this would be. The US is still the major buyer of crude petroleum and it is a sensible argument that any real conservation efforts from the US would be critical for prices to fall internationally. Taking account of the unintended effects, US consumers may simply purchase petroleum from an alternative source or start on a long overdue conservation effort through improvements on engine standards and an alternative energy source.

Once the SUV drivers are compelled to demand cheaper fuel and labs set to provide an alternative source, it would be a matter of time before crude petroleum producers have more petroleum than they can sell. Mr. Chavez ought to be careful what he wishes for because he may just have it. He may be a brilliant polemicist but he should review this threat.

Data Rules Baseball

Any person familiar with American sports will have noticed the claims by the Mitchell Report stating that a number of baseball athletes did take performance enhancing drugs some years back. These drugs are the Human Growth Hormone and steroids that are banned by the Major League Baseball. From the perspective of economics, it is easier to understand the incentive for an athlete to take banned substances weighed against the possibility of capture and suspension. Financial rewards that come even with a moderately successful sports career in the MLB today is substantially high in my view to tempt a number of athletes into taking that risk.

One of the athletes that has been named in the report responded by appointing statisticians to supply statistical evidence showing that the accusations in the report do not apply to him. This NYT piece put together by a group of statisticians and the Economist Justin Wolfers have looked at the data and drawn very interesting conclusions. It makes for an interesting read but is clear that there was clearly selection bias in the data and the metrics used in exonerating the athlete. In addition, it states that Roger Clemens had a very unique late career when considered against the historical record of peers. To their credit, they state that evidence of drug use cannot be gleaned from an examination of the data but that it is clear that Roger Clemens had a very unique career history and that the reason cited in the report in defense of his record is not supported by any data. However, the argument remains open and Ray Clemens may yet provide the exculpatory data and analysis but I do not bet on it. Teachers of economic theory and emprirical economics may cite this case to make classes fun while demonstrating the value of all that data crunching.

Ireland Nearly Plastic-free

Development economists have named Ireland the Celtic Tiger in reference to the great achievements in economic growth and improvement of the material conditions of citizens that that the country accomplished over three decades. Indeed, an earlier post highlighted the country's sensible and admirable approach to policy questions. Responding to another public policy question, this report in the NYT shows that creative societies do not stop applying the most basic principles of economics to those questions.

Irrespective of the views that may be adopted by the majority, it is evident that plastic bags are cheap and convenient for carrying groceries but are an aesthetic and environmental nuisance. As a purist would suggests, a tax on plastic bags ought to be imposed to ensure a reduction in their use and the possible rise of an alternative. Through the imposition of a tax on plastic shopping bags, Ireland saw a 94% reduction in their use and this has persisted. Outright bans would hardly have been half as effective.

In addition to the willingness to apply the basics of economic theory, the success of the initiative must be attributed to the fact that the bags were imported hence strong protectionist pressure from a domestic manufacturer was absent. One can only hope that when the facts are clear and the policy objective is understood, then the application of the principles could be this easy. And as successful!