Economics For What Ales You

In the light of the recent HIV case in the adult film industry, I wrote with the assistance of Chris Mitchell, Director of Communications, and Adrian Moore, Vice President of Research, at Reason Foundation, an op-ed based on my academic unpublished paper on self-regulation in the adult film industry.

The op-ed basically repeats what I wrote in the paper. The adult film industry, given the market constraints, i.e., consumers rather watch movies without condoms than with condoms, is doing a pretty good job in preventing HIV outbreaks. If consumers do not want to see condoms in the picture, what’s the best next alternative: systematic testing. Since 1998, the adult film industry requires its performers and wannabe performers to be tested monthly with PCR-DNA HIV test instead of the standard ELISA test. Since 1998, there has been only one major outbreak where one performer infected three female performers. All the other cases of active performers testing positive for HIV have been detected prior to the performers being able to infect other performers.

Health officials and other commentators think that this new recent case is another evidence of self-regulation failure on the part of the industry. To my knowledge, this performer has not infected anybody else and, instead of viewing this as a failure, one should see this a success. Adult Industry Medical Healthcare Foundation discovers the performer testing positive prior to her infecting other performers.

Ultimately, the problem is not that the adult film industry does not want to use condoms. If using condoms were profitable, meaning, if consumers were indifferent between watching movies where condoms are being used as opposed to condoms not being used, this would not be a problem. Unfortunately, this is not the case.

Health officials want to mandate condoms. This is a very bad idea. Condoms should indeed be used and performers should be encouraged to use condoms, which, after all, do reduce risks of transmissions. But, if condom use were to be mandated through a regulation, the unintended consequences and associated costs would likely outweigh the benefits. I would go as far as to contain that imposing condoms would likely lead to more HIV outbreaks in the industry.Industry would go underground or just relocate outside California or outside the country, outside the reach of the government hand.

Government should learn from the prohibition era and the war on drugs. During the prohibition era, morality and health arguments were advanced to justify the prohibition of alcohol. What happened? Unintended consequences forced the government to repeal the prohibition. One thing the government should learn is that market forces can be hampered, slowed down but they can NEVER be stopped.

Good intentions just don’t guarantee good results. Bastiat wrote an essay called What is seen and What is Not seen. As an economist, you can’t simply focus on what is seen, you must also go further and examine the possible unintended consequences of a policy before you can pronounce any conclusions. This is a long tradition among economists to analyze the unintended consequences of economic well-intended policies. Coase, in a similar tradition, explained that as long as we do not understand that we are making choices between institutional arrangements that are more or less perfect, we are not going to make much progress.

The L.A. medias have overall rejected my op-ed. Maybe I was unable to convey clearly the message but I doubt this was the real reason.

You might consider buying a 120GB iPOD if you want to listen all of this on the go. The Freedom Network Audio Portal has it all. Podcasts from all the think-tanks that matter when it comes to seriously study economics, policy, economic and political freedom are available. I agree, it would be “a life-changing experience.”

HT: Art Carden

Tags: Economic Freedom, Economics, Education, Political Freedom

GMU BB&T Professor for the Study of Capitalism Peter Leeson talks about his book on The Invisible Hook: The Hidden Economics of Pirates on Reason.tv

Tags: Adam Smith, Economics, George Mason University, Invisible Hand, Pirates

Sam Kazman from the Competitive Enterprise Institute has an interesting opinion piece in the Wall Street Journal today on the trade-offs between fuel efficiency and safety. In his piece, he discusses the results from a study produced by The Insurance Institute for Highway Safety (IIHS) showing that small cars such as the increasingly popular fuel-efficient gasoline powered Smart car are just not safe. According to Kazman, the IIHS report shows that:

The death rate in minis in multi-vehicle crashes is almost twice as high as that of large cars. And in single-vehicle crashes, where there’s no oversized second vehicle to blame, the difference is even greater: Passengers in minis suffered three times as many deaths as in large cars.

Unfortunately, this report along many other reports produced by the IIHS are falling into death ears because this is clearly not what environmentalists and advocates of higher-fuel economy standards want to hear. Even Consumer Reports, supposedly the ultimate information provider when it comes to buying cars, does not mention this information.

Kazman’s conclusion is quite pessimistic. In a time where there is an increasing pressure on car automobile manufacturers to increase the fuel efficiency of their cars, it’s likely that “driving is going to get even more lethal over the next decade.” 

Ultimately, there is nothing surprising in this piece or these results. It’s one of the fundamental lessons of economics: opportunity cost. In face of scarcity, we have to make choices and these choices by definition lead to trade-offs and sacrifices. Imposing stricter environmental standards on car manufacturers will force these manufacturers to make choices and trade-offs will take place. Whether it’s politically-driven and hippie-like-mentality-driven, it does not matter. These tradeoffs are unavoidable. In other words, pick your poison. Until people understand that there is no free lunch and good intentions do not guarantee good results we will observe this type of outcomes that are, in this case and in my own opinion, counterproductive.

Tags: automobile, energy, opportunity cost, Policy, safey, trade-offs

The Sir John M. Templeton Fellowships Essay Contest for junior faculty and students in higher education is held every year. The submission deadline is May 1, 2009 . Winners will be announced in October, 2009 . The 2009 Templeton Fellowships will be awarded for the best essay on the topic:

“Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.” —Benjamin Franklin Which virtues contribute the most toward achieving freedom, and how can the institutions of civil society encourage the exercise of those virtues?

Please visit the Guidelines page for more information about how to write your essay.

Awards:

The Sir John M. Templeton Fellowships Essay Contest encourages college students and young college professors around the world to study the meaning and significance of economic and personal liberty.

Co-sponsored by the John Templeton Foundation and the Independent Institute, the essay contest honors Sir John M. Templeton and is held annually with a different topic each year.

Created in 1974 by Olive W. Garvey, the Fellowship contest has drawn essay submissions from more than 75 countries on 5 continents. Garvey winners have since become some of the finest of scholars, business and civic leaders, and journalists, applying and advancing public knowledge and appreciation around the world for the ideas of individual liberty and personal responsibility.

• Essay Guidelines
• Suggested Essay Reference Bibliography
• Past Winners
• Submit Your Essay

Tags: Civil Society, Economics, Ethics, Freedom, Morality

I just finished reading Brothel: Mustang Ranch and Its Women by Alexa Albert. This is a very interesting book. Alexa Albert, then engaged and planning to go to med school, spent several months with the women working at one of the most famous Nevada’s licensed brothels: the Mustang Ranch. The purpose of her research was to make an epidemiological but also sociological study of licensed brothel prostitution in Nevada. Her research as well the other papers she wrote in the American Journal of Public Health (1995, 1998) produce very interesting results

First, she tells us that since 1986 when testing for women working in these brothels became mandatory no brothel worker had tested positive for HIV and the incidence for other STDs was negligible.

Second, since Nevada state laws mandated condom use for workers in these brothels, no HIV case was reported. Alexa Albert during the course of her study also reports that the rates of condom slippage and breakage are as well as negligible.

Third, Alexa Albert discusses at length the process of becoming a licensed sex workers in Nevada, which most important one is the testing part (license application also involves a complete background check). Every woman applying to become a licensed brothel prostitute or entertainer is required to be tested for HIV and other STDs such as Syphilis. Women who test positive see their application rejected.

Fourth, Alexa Albert discusses at length the mentoring process that takes place within brothels where more experienced, older women are required to mentor the new entertainers and teach them how to put a condom on without breaking it, avoid condom slippage, wash, and check the customer’s private parts for sign of STDs.

The important lesson of the book is that when it comes to prostitution and public health, the source of HIV and STDs outbreaks and outspread is not to be found in brothels. Under no circumstances, Alexa Albert sanctions or defends prostitution. Her main purpose is to humanize these women who sell sex for money. More importantly, I see her book and her research as an attempt to demystify these stereotypes prevalent in the public that prostitutes and brothel sex workers are the ones who are the sources of HIV and other STDs breakouts and outspreads. She provides hard evidence to substantiate her conclusions.

There is no discussion in the book or her work as to whether such laws or rules could have emerged without local government involvement. My research on the Adult Film Industry suggests that brothels would have incentives to do so for the same reasons than the industry did. As the book describes, a significant portion of the sex workers and brothels’ revenues come from regular patrons. One could reasonably assume that, profit-seeking brothels and revenue-maximizing sex workers would have incentives to adopt self-policing rules to protect themselves from HIV and other STDs as, particularly, these entertainers’ physical capital is their main sources of revenues. Moreover, brothels get 50% of what these women make. Therefore, given that a significant portion of the revenues made by these women comes from regulars who tend to contract the services of their favorite providers, it would be in the brothels’ interests to get their customers satisfied by keeping their independent contractors healthy and avoiding these women to get infected by one-time guests. If brothels did not enforce these rules, they would be at risk to face the same outcome than the one described in Akerlof’s (1970) “Market for ‘lemons’.”

I would like to add that the sociological discussion that takes place in the book is very interesting as well. We learn that some of these women are from out of state and have a family life with friends and neighbors who have no idea what their real jobs are. When in vacation, they return to their family as if it was a regular job. Not all of these women are victims of sexual, psychological, or physical abuses. Some of them grew up in “normal” families. It just happened that financial needs led them to prostitution.

We also learn that while prostitution is legal in some Nevada counties, it does not mean that it is legitimized and brothels have to continuously defeat attempts to make brothels illegal in Nevada. For this reason, they organized themselves in an association the Nevada Brothel Association. The main function of such association is to lobby and ensure that bills to make brothels illegal never pass.

Tags: Economics, HIV, NBA, Prostitution, Public Health, Self-Regulation, STD

Everyday I learn new things and today I learned that the Academy of Motion Pictures Arts and Sciences is a monopsony.

I was reading the gossip news on IMDB and learned that a jury in Los Angeles ruled in favour of blocking the sale of two Oscars awarded to silent movie legend Mary Pickford.

IMDB reports that:

In the 1950s, the Academy of Motion Pictures Arts and Sciences implemented a rule against selling Oscars in a bid to preserve the awards’ unique value. According to the agreement signed by Pickford, the academy has the right to buy back Oscars for up to $10 (GBP6.80) before any statuette can be sold.

The jury in L.A. has therefore decided that statuette’s owners are bound by the agreement.

I assume that when winners are informed of this clause, they must perform a quick calculation of the marginal benefits associated with winning an Oscar and the marginal costs associated with not being able to resale the golden statuette on the market. The marginal costs are, I imagine, relatively small. On the other hand, the marginal benefits ought to be quite significant in terms of increased revenues associated with winning an Oscar: higher paycheck, more offers in terms of screenplay, and more offers in terms of advertisement. To be sure, often, one could argue award winners have already achieved some status and maybe these marginal benefits are not as significant as one would expect.

Here is an idea of a paper: The Marginal/Net Benefits of Winning an Oscar.

Tags: Contract, Cost/Benefit Analysis, Economics, Entertainment, Monopsony, Oscar

Here an interesting picture that unfortunately reflects the truth about the automobile industry bailout and is another perfect illustration of rent-seeking.

HT: Lawrence H. White via Division of Labour

Tags: Economics, Lobby, Politics, Rent-Seeking

Last evening, I decided to watch Law & Order: SVU and I am glad I did! The episode was about a serial rapist and the SVU team attempting to find and get the rapist convicted.

During the trial, the serial rapist and his lawyer plead “not guilty by reason of mental disease.” The lawyer’s defense plan was that her client was addicted to porn and, more particularly, to porn movies where rape was simulated. After interviewing a psychiatrist attesting that the defendant had acted upon his fantasies having resulted from is porn addiction, A.D.A. Kim Greylek cross-examines the psychiatrist testifying for the defense and asks her if she has heard about studies by Milton Diamond and Ayako Uchiyama [entitled "Pornography, Rape, and Sex Crimes in Japan" (International Journal of Law and Psychiatry,Volume 22, Issue 1, 2 January 1999, Pages 1-22)] and by B. Kutchinsky [entitled “The effect of easy availability of pornography on the incidence of sex crimes: The Danish experience” (Journal of Social Issues, v. 14, 1973, pp. 47-64)]. The psychiatrist answers by the affirmative and, after being asked, she explains that both studies show that there is no positive correlation between pornography and rapes. If any correlation exists between pornography and rapes, it is negative. Legalization of pornography is associated with a decline in porn incidence suggesting that pornography and rape are substitutes.

I have to confess I did not know about these two studies. However, I was aware of a more recent research paper by Todd Kendall on “Pornography, Rape, and the Internet.” In his study, Todd Kendall shows that the arrival of the internet (which contributed to reduce the costs of accessing pornography) is associated with a reduction in rape incidence. As for the previous studies, Kendall’s results suggest that pornography and rape are substitutes.

Too many antiporn crusaders tend to argue that pornography leads to rape and other sex crimes and defense lawyers tend to use these attacks to “excuse” their clients when they commit sex crimes. “It’s not their fault, it’s porn’s fault.” However, this is not so.

The porn industry is a multibillion dollars industry, which is consumed by millions of consumers in the United States and around the world. One might argue that pornography is morally wrong, the fact is “porn is mainstream” as Det. Odafin “Fin” Tutuola a.k.a Ice-T argues in the show. Moreover, from a scientific viewpoint, there is no good evidence that porn leads to rape.

While we are on the point of blaming various type of entertainment, violence in movies (as well as video games) have been increasingly blamed to explain increases in violent crimes. Gordon Dahl and Stefano DellaVigna in a paper entitled “Does movie violence increases violent crimes?” :

Find that violent crime decreases on days with larger theater audiences for violent movies. The effect is partly due to voluntary incapacitation: between 6PM and 12AM, a one million increase in the audience for violent movies reduces violent crime by 1.1 to 1.3 percent. After exposure to the movie, between 12AM and 6AM, violent crime is reduced by an even larger percent. This finding is explained by the self-selection of violent individuals into violent movie attendance, leading to a substitution away from more volatile activities. In particular, movie attendance appears to reduce alcohol consumption. Overall, our estimates suggest that in the short-run violent movies deter almost 1,000 assaults on an average weekend.

These two authors are not necessarily advocates of violent movies to reduce crimes but rather attempt to clarify that there is no causal link between the two. Here is a New York Times article summarizing their research.

Similarly Michael Ward in a paper entitled “Video Games, Crime, and Violence” finds that video games are associated with significant declines in crime rates suggesting that they also substitutes.

Tags: Economics, Pornography, Television, Video Games, Violence

Announcing the 2009 APEE Young Scholars Program

APEE has received a grant to help young faculty and graduate students attend our annual meeting April 5-7, 2009 in Guatemala City, Guatemala. These funds are designed to encourage younger scholars to consider the advantages of APEE membership.

Successful applicants will have their registration fees reduced to $75 (normally $390) and be eligible for a stipend of up to $910 toward travel expenses. To apply applicants must supply us with the following: (1) a short essay (250-300 words) explaining why the applicant wishes to attend the meeting; (2) a short letter of reference, preferably from an APEE member or someone known to APEE indicating why support should be provided to the nominee, and (3) a brief letter from the applicant’s department chair or graduate director indicating the level of departmental support that the applicant can expect for this trip. Some of the applicants may be on the program and preference will be given to these applications. The deadline for applying is January 19, 2009. Those selected will be notified within two weeks of that date. Successful applicants will be required to register for the conference (at the reduced rate of $75) by February 19, 2009.

Please send applications to Dr. E. F. Stephenson at efstephenson@berry.edu . If you have questions, you may email him or call him at (706) 238-7878.

Please note: A valid U.S. passport is required for all U.S. citizens, regardless of age, to enter Guatemala and to depart Guatemala for return to the U.S. It may take 4 – 6 weeks to obtain your passport. For additional information please visit the U.S. Government Department of State website at http://travel.state.gov/ passport/passport_1738.html .

Tags: APEE, Economics, Research, Travel