The Code in Aviation

An email from a frequent reader/listener, and really smart person, provoked by the recent Roberts-Munger podcast on "The Code" in sports. 

What follows is a LONG post, with a lot of links and videos.  But it is remarkable (remember, I didn't write it; I'm just reproducing it, redacted a bit).  Save it for sometime when you have 20 minutes to really think about it.  Fascinating.  And quite a commentary on how air travel is much less planned, and much more of a spontaneous order, than many people think.  I am most grateful to the anonymous person who sent the email; great stuff.

[Your] show made me think about aviation. It's a profession THICK with your conception of how law, legislation, equipment, and code interplay. There is much I could say about this. Thought you might be interested in just a little bit since there are connections to both your podcast topic and (possibly) the Asiana accident that's in the headlines these days. The evolution of aviation provides an example where
1) "The code" proved faulty
2) Intervention was required to change it, and
3) Change was successfully adopted/embraced with measurably better results.

Much more after the jump...

Russ Roberts and I talk about sports "codes"

Michael Munger of Duke University talks with EconTalk host Russ Roberts about the role of formal rules and informal rules in sports. Many sports restrain violence and retaliation through formal rules while in others, protective equipment is used to reduce injury. In all sports, codes of conduct emerge to deal with violence and unobserved violations of formal rules. Munger explores the interaction of these forces across different sports and how they relate to insights of Coase and Hayek.  ATSRTWT!

UPDATE:  A.R. comments over at the podcast about the "greatest scandal in the history of cricket."  Just being able to type that phrase made my whole day.  "Cricket scandal" is an excellent start to any paragraph.  And then the scandal does in fact turn out to be extremely interesting.  Reading the first paragraph of this, I realized that I am painfully ignorant of cricket.  But this is a bit easier to understand.  This is more serious.  And very interesting.  Thanks, Aswin!

UPDATE II:  Ghostbusters!  "More like a guideline than a rule..."  at 0:14.  WARNING:  NSFW!  Her request is rather indelicate.  (Nod to WH)

A New Institution

Standing in line involves lots of deadweight losses, especially when the bureaucrat behind the window is doing something that takes a while.

So, human ingenuity comes up with a solution!

With thanks to WH

Loud Penis

You did not know this.

And you did not even know that you did not know that.

But now you know.

(Nod to Tommy the Brit)

Calculation Debate

Markets on a (Computer) Chip? New Perspectives on Economic Calculation

Mark Jablonowski, Science & Society, July 2011, Pages 400-418

Abstract: Is it possible to implement an efficient economic alternative to market capitalism using economic planning? The debate, which has blown both hot and cold over the last 80 years, has turned on the feasibility of calculating solutions to what amounts to a vast quantity of economic equations. More recently, issues of respecting the uncertainty and preserving the information content inherent in "real world" economic transactions have surfaced. The question may ultimately be decided not on how much computing power is needed to solve complex economic problems, but rather on how well new solutions are articulated. New developments in computer "chip level" computation, including the rebirth of electronic analogs and the incor-poration of the fuzzy set formalism for computing in complex systems, may impart a greater feasibility to the idea of deliberate public planning that integrates the benefits of the market process for the achievement of social objectives. These developments have implications for establishing workable alternatives to capitalism.

(Nod to Kevin Lewis)

Misallocation and Productivity

I just read two interesting papers that highlight how market distortions like labor market regulations or capital subsidies can affect both actual productivity in a country and also our attempts to measure productivity in a country.

First is Hseih & Klenow's MISALLOCATION AND MANUFACTURING TFP
IN CHINA AND INDIA (QJE 2009, ungated version here). They use firm level data and estimate that if resources were allocated across sectors in China and India the same way they are in the USA, that manufacturing productivity could rise 40% or more!

No word on how eliminating distortions in the USA would raise our productivity though.

Second is a new NBER paper (ungated version here) by Fernald & Neiman entitled Growth Accounting with Misallocation: Or, Doing Less with More in Singapore. They set up a model which shows how having a sector of the economy that has preferential access to resources and earns a pure profit can cause different techniques for measuring productivity growth (i.e. using quantities vs. prices) can produced answers that disagree with each other and fail to capture actual productivty growth.

Interestingly, their case study of Singapore shows that the subsidized sector of the economy their had negative productivity growth even more severe than that estimated by Young in his classic piece.