The Millionaires’ Amendment and the Law of Unintended Consequences

Even more than the law of supply, the law of demand, or the law of diminishing marginal utility, economists love the law of unintended consequences. A brief editorial in the New York Times provides a nice illustration of that law.

One of the McCain-Feingold campaign finance reform laws was an exception to campaign finance limits for the case in which a rich candidate contributes a large amount to his or her own campaign. The idea is simple: campaign finance laws generally govern how candidates for office can raise money from others, but don’t restrict how much money they themselves can spend on their own candidacy. Therefore, if one candidate is of modest means while another is rich, campaign finance laws that make it harder for the poorer candidate to raise money implicitly help the richer candidate.

To solve this problem, McCain-Feingold lifted campaign contribution limits for candidates facing a challenger who spent more than $350,000 of his or her own money on the campaign. This provision of the law is now being challenged as unconstitutional by Jack Davis, a millionaire who ran unsuccessfully for Congress in 2006. Davis claims that the effect of the law is to deter rich people from public service.

The Times editorial makes the following rebuttal:

There is also no sign that the amendment is discouraging the wealthy from running or spending. The very rich are represented in Congress in large numbers. Contrary to Mr. Davis’s claims of “chilling,” the number of candidates who spent more than $1 million of their own money actually increased after the amendment took effect. It is now common for party recruiters to seek out “self-financing”—or wealthy—candidates.

Consider the structure of the two arguments here. Davis argues a theoretical point: that allowing opponents of rich candidates to raise more money will have a “chilling” effect on millionaires running for office. The Times seeks to refute that point with empirical evidence: that the number of wealthy candidates has increased since the amendment was passed.

Now, a fun part of thinking like an economist is being able to parse arguments like this. Here are some questions that get you started.

1. Is Davis’s argument internally consistent? That is, holding all else constant, would you expect this amendment to have a “chilling” effect on millionaire candidates?

2. The amendment cited in the article was part of broader legislation limiting campaign fundraising. What effect would this have on the incentives political party recruiters face when choosing to seek out “self-financing” candidates?

3. Does the Times make the most convincing possible case against Davis? How might you argue the point differently? What is the strongest argument you could use to refute the Times’ point?

4. Think about the goals of John McCain and Russ Feingold, the authors of the campaign finance legislation. How do you think they feel about the fact that one effect of their legislation has been an increase in the recruiting of wealthy candidates? Based on that increase, do you think they would want more or fewer provisions like the Millionaires’ Amendment?

The Per Capita Recession

GDP (Gross Domestic Product) is a statistic that economists use to gauge the output of a nation. Movements in GDP provide clues about the health of an economy.

Look at GDP growth over the last five years, and the United States comes out smelling like roses, relative to other high-income countries, at nearly 3% growth per year. But statistics can be deceiving.

An article from the Economist titled “Grossly Distorted Picture,” questions whether GDP is an accurate measure of a nation’s economic health. The article suggests that, though GDP growth for the United States is higher than other countries, other factors, like population, also play an important role. As the article points out, growth of GDP per person is perhaps a more meaningful measure of economic progress than simply growth of GDP.

For example, over the same four-year period (2003-2007) Japan’s GDP growth was just over 2%, far below the nearly 3% growth the United States experienced. But during that time, Japan’s population was shrinking while the population of the United States was growing at nearly 1% per year.

If you calculate GDP per person Japan’s economy actually grew faster (2.1%) than that of the United States (1.9%).

Discussion Questions

1. Which countries have the biggest discrepancies between GDP growth and GDP per person over the last five years? Does that change your perceptions of the health of these nations?

2. As the article points out, annual U.S. population growth is roughly 1%. The annualized growth of U.S. real GDP (real GDP is an inflation-adjusted measure of output) was 0.6% during the last three months of 2007. Assuming U.S. real GDP growth in the first three months of 2008 was about the same—what does this imply for U.S. GDP per person?

3. Economists typically define a recession as six months or more of declining real GDP How would the use of real GDP per person rather than real GDP change our perspective on recent U.S. economic performance? According to this method, is the U.S. economy in recession?

4. As gauges of economic output, both GDP and GDP per person have their flaws. For starters, each measure misses the value of things that are not traded in a legitimate marketplace but may nonetheless impact our economic well-being. Underground activity, whether illicit drug dealing or benign babysitting, does not register in national income accounts. Environmental damage associated with our production and consumption is also not a factor. Can you think of other statistics we should consider when measuring a nation's economic health? What are some of the benefits and drawbacks to those methods?

To Act, or Not to Act: That Is the Question

Like Hamlet, we often face tough decisions without perfect information. In Hamlet’s case, the choice was something like, “My dad was murdered. I think my uncle did it. Now he’s my stepdad. Sigh.” What’s a prince to do? Should he seek revenge? Should he rat out his uncle? Seemingly incapable of making a decision, Hamlet stuck with the default: do nothing and stew.

Maybe Hamlet had the right idea. According to Ofer H. Azar, a lecturer in the School of Management at Ben-Gurion University of the Negev in Israel, inaction may often be a prudent choice in situations where most of us feel compelled to do something.

Mr. Azar studied high-stakes decision-making—not in the boardroom, but on the soccer field, where he collected data on the attempts of professional goalies to block penalty kicks. Regularly faced with huge incentives to block penalty kicks, goalies offer a great proxy for people who routinely make quick, high-pressure decisions. Mr. Azar hoped to see just how rationally people respond to such situations. Surprisingly, he found that goalies facing penalty kicks tended to let their emotions dictate their actions—often leading to detrimental outcomes.

During a penalty kick, the goalie must stand with his heels on the goal line while an opponent kicks the ball from 12 yards away. The goalie cannot move until the opponent has kicked the ball, and there is not enough time for the goalie to watch the shot and react. Thus, goalies must make a choice about where they think the ball will be kicked before the shot is made.

Since the greatest proportion of shots end up near the center of the net, the goalie’s best defense is to stay put. The trouble is, goalies find it very difficult to stay in the middle, simply because it makes them feel they aren’t doing anything. When asked why they jump left or right when it's efficient to stay put, they explain that they would feel worse if they stayed in the middle and the shooter scored than if they had at least jumped one way or the other.

We are not all professional soccer goalies. But we may feel the compulsion to act under pressure. Even if inaction is more efficient, we may take action just so we feel good about doing something. Emotion can play a large part in our decisions, especially high-stakes decisions. Economists may need to reassess the degree to which emotions can influence decision-making. In the same article, Stanford economist Paul Romer says, “How people feel about various kinds of activities means a lot about what they decide to do. In many situations, [economists] just look at the narrow monetary payoffs and forget about the effects of preference or feelings.” To learn more about the blend of emotion and calculation that goes into our decisions, read this article from the New York Times and think about the questions below.

Discussion Questions

1. Apply this logic to high-stakes business decisions made by major corporations. When times are tough, do companies tend to want to do something rather than ride out the storm? Is that always the right decision?

2. What about playing the stock market? How much do emotions play a part in the decisions we make?

3. Identify areas in your own life where emotion plays a part in important decisions. Would the outcomes of your decisions be better if emotion did not play a part?

Conflicting Employment Figures

The government's monthly survey of businesses indicates that payrolls experienced a net drop of 63,000 jobs during February. At the same time, numbers from the government's monthly survey of households indicated that the unemployment rate declined from 4.9% in January to 4.8% in February. How can the unemployment rate fall even as the economy sheds jobs? Understanding this paradox requires a closer look at the household survey numbers for the past two months.

* Numbers in thousands

The household survey indicates that the number of employed persons saw a net decline between January and February. The ranks of the employed thinned by about 255,000 people. Normally, the net drop in the number of employed people would cause the ranks of the unemployed to swell by a similar amount. The government considers a person unemployed if she lacks a job but has actively searched for one in the past four weeks. Yet, the pool of unemployed workers actually shrank by about 195,000 people between January and February. The change in the size of the labor force over the same period provides some clues as to why.

The number of people dropping out of the labor force in February exceeded the number of new entrants—on net about 450,000 people left the labor force. These people either left jobs with no intent of finding another or gave up on their employment searches altogether. If you want a job but you're so frustrated with past failures to find one that you stop looking, the government classifies you as a discouraged worker and no longer considers you to be part of the labor force.

All things being equal, February's employment drop of 255,000 should have increased the pool of unemployed workers from 7.58 million to 7.83 million. Things weren't equal though, as a number of people considered unemployed in January gave up on their job searches in February, contributing to the 450,000 person drop in the size of the labor force and causing the number of unemployed workers to come in at 7.38 million in February rather than 7.58 million. If we assume that all 450,000 people became discouraged workers in February, the drop in the ranks of the unemployed and, consequently, the labor force, reflects the inability of those out of work to find compatible job vacancies.

The unemployment rate is simply the ratio of unemployed people to the size of the labor force (unemployed / labor force). Since the ranks of the unemployed declined by 2.6% and the size of the labor force declined by only 0.3%, the fraction of the labor force considered unemployed declined from 4.9% in January (7,576 / 153,824) to 4.8% in February (7,381 / 153,374). In this peculiar case, the small drop in the unemployment rate reflects economic weakness rather than economic strength.

Discussion Questions

1. Here's what the employment numbers for February would have looked liked if the 450,000 people who left the labor force had remained in the labor force as jobless workers actively searching for employment (unemployed people):


* Numbers in thousands

Under these conditions, what would the unemployment rate have been for the month of February 2008?

2. You can find the Bureau of Labor Statistic's (BLS) news release for February 2008 here. The national unemployment rate is at best a rough gauge of joblessness in the United States. The February numbers illustrate how the unemployment rate can paint a misleading picture of labor market strength. A fuller understanding of labor market issues requires a closer look at employment figures. How do the unemployment rates for specific age and racial groups differ from the national rate?

3. According to the BLS, who are the people who “work part time for economic reasons”? What has happened to their numbers over the past year? Does the unemployment rate capture changes in the number of folks who work part time for economic reasons?

4. Our assumption that all 450,000 people who left the labor force in February became discouraged workers is unrealistic. (Indeed, the BLS only counted a total of 396,000 discouraged workers in February.) Who, according to the BLS news release, is considered a “marginally attached worker”? Are all marginally attached workers also discouraged workers?

5. An unemployment rate of just below 5% is still relatively low by historical standards. Nonetheless, tepid employment reports in January and February darken the U.S. economic outlook when considered along side reports of weak output growth and continuing turmoil in housing and financial markets. Keeping in mind that the Fed's recent rate cuts and the government's tax rebates will begin to impact the economy in May and June, what type of economic performance do you expect in the United States for 2008?

Resource Management, Post-Apocalypse Style

So suppose—and I’m not trying to get you down here—that an asteroid were to hit the earth, wiping out 90% of known species. (Or, if you prefer, that a combination of deforestation and our fascination with only growing a few key crops achieves the same outcome.) How could we regain our current biodiversity?

In case these kinds of things keep you up at night, you can rest easier thanks to the Svalbard Global Seed Vault that opened yesterday in Arctic Norway. There’s a great blog post about it on the New York Times website. The vault is a step up from existing seed banks, which are threatened by political instability or a lack of funding.

The post points out, though, that a group called grain.org has criticized the seed vault. Read their criticism here.

Discussion Questions

1. The post asks, “How much of this intergovernmental work help[s] sustain farming diversity, as opposed to museum-style genetic diversity?” Another way of asking this is as follows: producing food requires land, labor, and capital. The seeds themselves are just part of the equation. What happens if farmers, after hundreds of years of not farming these crops, lose the skills associated with their use? What can be done to preserve knowledge of how to maintain a species that is no longer actively farmed?

2. The seed vault acts as a centralized mechanism, much like a kidney donor list, that describes who is entitled to the seeds in the vault and under what circumstances. How does that mechanism compare to a market mechanism? Is it true, as grain.org argues, that the wrong stakeholders are given priority in this system? What rights do (and should) farmers have, as opposed to governments?

Ireland's Plastic Bag Tax

In an important scene from the 1999 movie American Beauty, two characters—Jane and Ricky—watch footage of a plastic bag dancing in the wind. That there's beauty all over the place, even in garbage, seems to overwhelm Ricky: "Sometimes there's so much beauty in the world, I feel like I can't take it, like my heart's going to cave in."

Unlike Ricky, Dubliners have to live without the heartbreaking splendor of airborne garbage. Plastic bags nearly disappeared from Ireland's cities after the government began taxing them in 2002. The tax, 33 cents per bag, was enough motivation for most shoppers to replace plastic bags with reusable cloth bags. Ireland's experience illustrates a basic principle of taxation: if you want less of something--like the not-so-biodegradable, sewer-clogging plastic bag--tax it. Read Elisabeth Rosenthal's New York Times article to learn more about Ireland's bag tax.

Discussion Questions

1. There's nothing like a green tax to bring out our inner-environmentalists. As Rosenthal points out, after the tax passed, plastic bag use became socially unacceptable in Ireland. In what way does the tax lower the barrier to adopting a disapproving attitude toward plastic bag use?

2. Ohio issues yellow and red license plates to drivers convicted of drunk driving (apparently, Ohio officials didn't give much thought to tourists from the great state of New Mexico). Can you think of other situations or even laws that are governed largely by the threat of disapproval from others?

3. How is the Irish government's campaign against plastic bags similar to government campaigns against tobacco? In what ways do cigarette and plastic bag taxes increase efficiency for society as a whole?

4. Taxing bad behavior can be good, but implementation and enforcement are issues. It'd be relatively easy to cut down on paper waste from ATM receipts because the fee can be collected electronically at the site of the transaction. Why does a plastic bag tax that works remarkably well in the digitized supermarkets of Ireland run into implementation problems among the vendors and mom and pop shops in China?

Labels: Taxes, Incentives, Market Failure, Externalities, Environment

The Economics of Love

Those who know me well know I’m not often at a loss for words. Yet, here I find myself truly stupefied.

I thought that, for Valentine’s Day, I’d write a blog post on the economics of love. So I Googled “economics of love” and got Solve Dating. It’s one of the more interesting, if bizarre, applications of cost-benefit analysis I’ve ever seen.

Now don’t get me wrong—I wrote my Ph.D. dissertation on search-based marriage matching models, so I’m not against applying economic principles to questions of matrimony. But I wonder: how useful is it to try to get into the nitty-gritty of quantifying the costs and benefits of love? Is the equation “rejection cost = – (your self-esteem + frequency of past rejections)” a valid one? What units could you possibly use?

On the other hand, some of the conclusions on the site are fairly decent applications of basic economic analysis. For example, just below that equation is the insight “People who are sensitive to rejection are less likely to find their soulmates.” They suggest, “Build up your self-esteem. Convince yourself that it was their loss.”

Now there’s cost minimization for you! Happy Valentine’s Day.

Discussion Questions

1. We use a lot of math and graphs in economics, but some questions are better answered with equations than others. What lends a phenomenon to mathematical analysis? Do the good folks at Solve Dating go too far?

2. What kinds of questions of the heart can you answer with economic principles? Do you apply your knowledge of economics to your own love life?

3. My favorite title of a search-based marriage model paper was “Transplants and Implants: The Economics of Self-Improvement.” This paper discusses the fact that people rationally improve themselves when trying to attract a mate, and then optimally “let themselves go” once they get married. Is that an argument that makes sense to you? How could you test that hypothesis?

Will the FTC Allow Microsoft to Buy Yahoo?

The big news this morning is that Microsoft has made a nearly $45 billion bid to buy Yahoo.

In general, regulators might frown on such a deal: after all, wasn’t Microsoft the behemoth that was going to take over the entire technology world in the late 1990s? And yet, as the Associated Press reports, most analysts believe that regulators in the U.S. and Europe are unlikely to stop the deal. Why?

In a word: Google.

What could Google possibly have to do with a proposed Microsoft–Yahoo merger? To answer this question, you need to stop and consider the current state of the Internet search-engine industry.

It’s difficult to use a single yardstick to measure how competitive an industry is. For much of the last century, regulators would use the four-firm concentration ratio, which measured the total market share of the top four firms in an industry. Unfortunately, that didn’t give a measure of the precise extent to which one of those firms might dominate the industry. For example, suppose that in two different industries, the top four firms each have a total of 80% of the market. However, in Industry A, each of the four firms has a 20% market share, while in Industry B, one firm has a market share of 50% and the others each have a 10% market share. The four-firm concentration ratio would treat these two industries equally.

Nowadays, the usual method used by the FTC is to examine the Herfindahl index, which is calculated as the sum of the squared market shares of each firm in an industry. By squaring the market shares, the HI rises when market power is concentrated in one or two companies. For example, in Industry A (described above), the HI would be equal to 20² + 20² + 20² + 20² = 1,600; but in Industry B, the HI would be equal to 50² + 10² + 10² + 10² = 2,800.

According to comScore, which tracks Internet usage patterns, there were approximately 9.6 billion “core” searches performed in 2007. Of those, Google accounted for about 58%, Yahoo for 23%, Microsoft for 10%, Time Warner for 5%, and Ask for 4%. This is clearly a very concentrated industry already; but since Google’s position is so dominant, it might actually help consumers if Google had a larger adversary within the industry.

Discussion Questions

1. Calculate the HI of the search industry before and after a potential merger between Microsoft and Yahoo. By how much does the HI of the industry increase?

2. Google and Yahoo get their search-based revenue from advertisers who place ads based on what people are searching for. However, using Google or Yahoo is free to Internet surfers. If you were a regulator, how would that fact impact your decision to support or oppose a merger between Microsoft and Yahoo?

3. Microsoft’s core business is selling operating system software. How might the acquisition of Yahoo affect that aspect of its business? Might regulators be concerned that having Yahoo become a part of Microsoft could increase Microsoft’s market share in its main market as well?

Creating Money (or Jobs) Out of Thin Air

Today, amid foreign financial market volatility, the Federal Reserve cut the federal funds rate from 4.25% to 3.5% to prevent a recession. You may read the official press release here. The move is rare for two reasons. The Federal Reserve reduced the federal funds rate before its regularly scheduled meeting next week, and the Federal Reserve reduced the rate by 75 basis points, as opposed to its usual 25 or 50 basis point increments. In summary, today’s move is rare for its timing and magnitude.

The federal funds rate, or the interest rate that U.S. banks charge each other for overnight loans, is the benchmark rate for many short-term and long-term interest rates in the United States. A reduction in the federal funds rate, often times (though not always), decreases the interest rate on credit cards, automobile loans, and mortgages. Lower interest rates encourage consumers to spend and businesses to build new offices and purchase computers, machinery, and software. A boost in consumption (e.g. buying new clothes) and investment (e.g. building new offices) spending are exactly what the economy needs when it is slipping into a recession caused by sudden drops in overall spending. Though the U.S. economy is NOT officially in a recession, the Federal Reserve forecasts “slowed growth” and would like to cut rates just-in-case.

The previous explanation shows how the Federal Reserve could use monetary policy to minimize the depth and length of a recession. However, what is less well known is the process with which the Federal Reserve is able to manipulate the federal funds rate. Essentially, the Federal Reserve lowers the federal funds rate by expanding the money supply. This is easier said than done.

First and foremost, the Federal Reserve does NOT print new dollar bills. So how is it able to create new money? There are two main forms of money—cash in circulation and checking deposits held in banks. Separate from the money supply are “reserve accounts” that commercial banks are required to have at the Federal Reserve. These reserve accounts hold cash for the commercial banks in case depositors cash-out some of their deposits.

The Federal Reserve can expand the money supply by expanding the amount of deposits held in the U.S. commercial banking system. One way to do so is to purchase U.S. government bonds issued by the U.S. Treasury department. When the Federal Reserve purchases government bonds from commercial banks, it takes bonds out of circulation and electronically credits reserve accounts. U.S. commercial banks armed with more cash reserves will issue new loans which are then deposited back into the banking system. This method effectively increases the dollar amount of checking deposits in the economy, and hence, expands the money supply.

Discussion Questions

1. Suppose U.S. commercial banks are highly reluctant to issue new loans even if they are armed with more reserves. How would this impact the Federal Reserve’s ability to expand the money supply and lower the federal funds rate?

2. Republican presidential candidate, Ron Paul, believes that the Federal Reserve “debases and depreciates” the currency through its manipulation of the money supply. In fact, he wants to abolish the Federal Reserve altogether. Using the definition of the money supply and the relationship between interest rates and unemployment, how could the money supply be “pro-cyclical” without the Federal Reserve?

What's a Fiscal Authority to Do?

The likelihood of slow growth or a recession in the United States has policymakers looking for ways to soften the blow. There are two basic ways the government can stabilize output: monetary policy (changes in the money supply and interest rates) or fiscal policy (changes in government taxation and spending). The U.S. monetary authority, the Federal Reserve (or Fed), responded to the threat of recession by lowering interest rates. Lower interest rates reduce the cost of borrowing, accommodating investment and consumption spending during downturns (with the added benefit of lowering the value of the dollar and thus boosting U.S. exports). The timing and magnitude of interest-rate changes are always tricky, but even if rate cuts don't avert a downturn altogether, they'll almost certainly reduce the depth and length of a recession.

But what, if anything, can the fiscal authority—Congress and the President—do to assist the economy? According to Fed chair Ben Bernanke, "Fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary actions alone." (Read this New York Times article for more.) However, Bernanke is hedging a bit here. By saying that tax cuts or spending increases "could be helpful in principle," he implicitly acknowledges that such measures may be ineffective, or even harmful, in practice. The process of agreeing on and passing legislation limits the usefulness of fiscal policy for stabilizing mild fluctuations in economic output. By the time our representatives haggle over and pass legislation, the downturn may be over or the resulting policy may reflect political rather than economic considerations. For this reason and others, recent commentaries by Greg Mankiw and Robert J. Samuelson argue that we should leave the Fed to address mild ups and downs in the business cycle, reserving fiscal policy for deep or prolonged recessions.

Discussion Questions

1. Limitations of fiscal policy aside, Bernanke seems to understand that politicians seeking a track record to run on will often favor policy action over informed inaction. What advice does he give policymakers who are eager to implement fiscal policy?

2. Three specific types of "lag" may delay the beneficial effects of economic policies. The recognition lag is the time it takes us to figure out we're in an economic pickle. We often don't know that we're in a recession until months after it's started. The implementation lag is the time it takes policymakers to agree on and implement policies. The impact lag is the time it takes a policy to work its way through the economy and affect economic output and unemployment. For example, an increase in government spending on highway construction will show up as additional output over the entire life of the project, not all at once. How might these lag times differ between monetary and fiscal policy?

3. Plotting economic output over time reveals two basic observations: the smooth upward trend in output growth over the long haul, and the up-and-down wiggle of output in the short term. To paraphrase Aplia's founder Paul Romer, it's easy to lose sight of the trend for the wiggle. Policymakers can get so wrapped up in temporary economic tumults that they lose focus on the bigger picture. If we're headed for recession, odds are that it will be mild by historical standards and the Fed will have plenty of policy ammunition to soften its adverse effects. Meanwhile, small changes in the long-run rate of economic growth have large impacts on future living standards. Given that, what policies would you recommend the action-minded fiscal authority focus on to improve the long-term growth prospects of the U.S. economy?

For more on the appropriate role of fiscal policy, listen to Bloomberg’s interview with Stanford economist John Taylor.

Scarlet and Gray (And a Little Green, Too)

I don't know what I did to deserve such good fortune, but for some reason, God saw fit to allow me to be born in the state of Ohio. Growing up a Buckeye, you learn early in life that blue is a four-letter word (maize might as well be also), and that all good things come packaged in red sweater vests.

It is also my good fortune that Ohio State will be playing the college football national championship game in New Orleans this January, as I will be in town attending the ASSA meetings*, and thus will naturally be attending the game shortly thereafter.

The teams are set: OSU vs. LSU. The only big question left is—what will I pay for the privilege of watching them duke it out? I'm not counting on getting a ticket from the lottery drawing, so I plan to buy a ticket from a reseller. For your typical fan, buying tickets from resellers is the norm for big games like this. It is not uncommon for these tickets to be sold for 5 to 10 times their face value in the resale market.

Some games are unexpectedly good (see Browns vs. Bills this Sunday in an unlikely battle for a playoff spot, or the recent Missouri vs. Kansas game as #1 and #2). With these games, it's easy to see why the resale market would dominate—most tickets were sold cheaply early in the season before anyone realized the game would be so meaningful. When demand rises, so do prices.

The explanation isn't so straightforward, however, for games that are guaranteed to be important (like the national championship). In this article, ESPN writer Gregg Easterbrook discusses some reasons why tickets are still sold by sports teams at face value, regardless of expected market rates.

*A big economics conference. There is a good chance your professor is going. Maybe they'll buy you a hat.

Discussion Questions

1. Fairness is always an issue with pricing decisions. Easterbrook calls it a “public relations move” to keep prices standard. Might raising prices for important games create resentment that could extend forward into the months and years to come?

2. In his autobiographical Fever Pitch, Nick Hornby writes that club owners would be daft to raise prices beyond what their rabid fans can readily afford, since the marginal fan comes to games as much to see and experience these crazed fans as to see the action on the field. How would raising the price affect the demographics of those who could attend? Do rabid fans confer a positive (or negative) externality on the rest of the crowd?

3. Last Monday night, Michael Vick and the Falcons took on Reggie Bush and the Saints in an epic battle for the NFC South. Oh, wait, nevermind—neither of these once-great teams is likely to even smell the playoffs this year, and neither of those players were even on the field to try and help the cause (Bush is injured, Vick is in prison). How might setting prices upfront allow teams to capture more total revenue on games that turn out to be duds?