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Rounding Error and Information Quality: The case of Exxon Shipping Co. v. Baker

2008-06-30T15:30:00GMT

Last week the Supreme Court reversed an appellate court opinion that would have imposed $2.5 billion in punitive damages resulting from the 1989 Exxon Valdez oil spill. In the majority opinion written by Justice David Souter, the Court opined on a matter of maritime law for which there was neither a constitutional precedent nor operating law. The Court ruled that a 1:1 ratio of punitive to compensatory damages "is a fair upper limit in such maritime cases."

The Court obtained this ratio by conducting an ad hoc qualitative statistical analysis of trial court practice, which yielded a ratio of 0.65:1, then rounding up to 1:1. It is instructive to note the practical financial significance of the arcane information quality issue of significant figures (see here and here).

Are Airline Loyalty Programs About to Die? Delta (and others?) to start charging for award tickets

2008-06-28T13:00:00GMT

Delta Airlines has announced new fees for redeeming frequent flyer miles into airline tickets -- $25 for domestic flights and $50 for international destinations. Other airlines are considering reciprocal actions.

What does economics teach about the likely consequences of this action?

Oscar Merida

2008-06-24T18:00:00GMT

McCain's $300 Million Prize for a 'Super Battery': Would this help or hurt?

2008-06-24T10:15:00GMT

Sen. John McCain has proposed that the federal government award a $300 million prize for the "for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars."

Assuming it would be a good thing to have this technology, is McCain's proposal economically sensible?

Carbon Taxes and Auctions: What to do with $7 trillion, part 2

2008-06-17T12:15:00GMT

In a story summarizing an in depth interview with Sen. Barack Obama, Wall Street Journal reporters Bob Davis and Amy Chozick provide news insights concerning how he or Sen. John McCain would propose to spend trillions of dollars in new government revenue that would be collected by auctioning carbon emission allowances.

Cap and Trade: Applying it to gasoline

2008-06-14T19:00:00GMT

Energy economist Jonathan Lesser publishes a commentary in the Wall Street Journal "recommending" a cap-and-trade program for gasoline. The piece is lightly satirical but nevertheless highlights an important point: All emission permit systems, including the proposed cap-and-trade regime for greenhouse gases, is a form of rationing.

Carbon Taxes and Auctions: What to do with $7 trillion

2008-06-04T12:00:00GMT

Robert Reich, secretary of the Department of Labor in the Clinton Administration, addresses the question of what the federal government should do with several trillion dollars worth of new revenue from carbon taxes or auctioned permits.

Economists, Advocacy Groups, and Climate Change: The Southern Alliance for Clean Energy's 'Economist Statement'

2008-06-02T18:15:00GMT

The Senate is this week debating what would be the most far-reaching environmental legislation in US history, the Lieberman-Warner Climate Security Act (S. 3036). A regional US advocacy group, the Southern Alliance for Clean Energy (SACE), has distributed a "Cap and Trade Economist Statement" which would imply that economists favor the bill.

The Statement is interesting on several levels. First, it never mentions the bill being debated. Second, it focuses solely on one narrow (but politically important) aspect -- whether carbon emission permits would be given way or auctioned. Third, the principles that SACE wants economists to agree with are fundamentally incompatible with elementary economics. Finally, SACE says that a number of distinguished economists have signed the Statement anyway.

Breaking Even is Hard to Do: The higher cost of hybrid vehicles

2008-06-01T23:00:00GMT

New York Times reporter Bill Vlasic says "[c]onsumers have been slow to embrace" General Motors' new Yukon/Tahoe Hybrid despite the near 50% improvement in city driving fuel efficiency. It's easy to see why.

Economic Incentives that Work: How to stop 'flopping'

2008-05-30T11:30:00GMT

The Washington Post's Ivan Carter writes that the NBA has decided to fine players who 'flop'. Will it work?

Information Quality and Peer Review: Are disclaimers in draft documents effective?

2008-05-29T21:00:00GMT

Since 2002, federal information quality guidelines have required agencies to avoid disseminating scientific information that is not objective, and to have effective administrative systems for managing requests for the correction of information that a petitioner believes is incorrect. The burden of proof of error rests with the petitioner.

All information that is "disseminated" is covered by these rules, but information that is made public solely for the purpose of scientific peer review or public comment is exempt from the definition -- provided that it is accompanied with a specified disclaimer (p. 8):

“THIS INFORMATION IS DISTRIBUTED SOLELY FOR THE PURPOSE OF PRE-DISSEMINATION PEER REVIEW UNDER APPLICABLE INFORMATION QUALITY GUIDELINES. IT HAS NOT BEEN FORMALLY DISSEMINATED BY [THE AGENCY] AND SHOULD NOT BE CONSTRUED TO REPRESENT ANY AGENCY DETERMINATION OR POLICY.”

The purpose of this disclaimer is to deter people from relying on draft documents. An empirical question is whether the prescribed language is strong enough.

An interesting test case has arisen with respect to the industrial chemical bisphenol A (BPA).

Gas Tax Holidays, Part 4: Pressure in favor mounts in Europe

2008-05-28T11:45:00GMT

Public discussion about a federal gas tax holiday has abated in the U.S., but according to the Washington Post it is heating up in Europe.

More Evidence that Consumers Respond to Gas Prices Increases observed in mass transit use

2008-05-27T16:00:00GMT

During the short-lived debate about suspending the federal gas tax to ease prices, economists quoted in the news seemed to agree that consumer demand is highly inelastic -- that is, as price increases a lot, the quantity demanded changes very little.

The news increasingly contains stories suggesting that consumers respond more to changes in the price of gasoline than economists have assumed is the case. Example: rising use of mass transit.

To Save Gas, Consumers Accept More Safety Risk and Emit More Air Pollution Some costs of switching to motor scooters

2008-05-24T13:30:00GMT

The Wall Street Journal reports that at the same time consumer demand for low-mileage SUVs and trucks has plummeted in response to high gasoline prices, consumer demand for high-mileage motor scooters has intensified. This tradeoff is entirely predictable. Scooters are ubiquitous commuter vehicles in European cites, where because of high taxes gasoline prices have for years been as high as they are now in the U.S.

Consumers are making two less obvious (but just as predictable) trades to get higher gas mileage: increased risk of injury and death from motor vehicle crashes and more air pollution.

Gas Tax Holidays, Part 3: Do economists' predictions make economic sense?

2008-05-09T01:45:00GMT

It has been widely reported that over 200 recognized economists, spanning the political spectrum, have signed an open letter opposing the federal gas tax holiday proposed by Sens. John McCain (R-AZ) and Hillary Clinton (D-NY). Despite the ubiquitousness of reporting about the letter, we've been unable to locate an authoritative copy of it. Still, what we have have found raises questions about the economists' economic reasoning.