Tirole on Open Source

Jean Tirole is the latest recipient of the Nobel prize in economics, as was announced Monday. For more background on his work, see NPR and the New Yorker. My favorite portion of Tirole’s work (and, admittedly, pretty much the only part I’ve read) is his work on open source software communities. Much of this is joint work with Josh Lerner. Below I share a few selections from his work that indicate the general theme.

open_sourceThere are two main economic puzzles to open source software. First, why would highly skilled workers who earn a substantial hourly wage contribute their time to developing a product they won’t directly sell (and how do they convince their employers, in some cases, to support this)? Second, given the scale of these projects, how do they self-govern to set priorities and direct effort?

The answer to the first question is a combination of personal reputation and the ability to develop complementary software (Lerner and Tirole, 2002, p. 215-217). Most software work is “closed source,” meaning others can see the finished product but not the underlying code. For software developers, having your code out in the open gives others (especially potential collaborators or employers) the chance to assess your abilities. This is important to ensure career mobility. Open source software is also a complement to personal or professional projects. When there are components that are common across many projects, such as an operating system (Linux) or web framework (Rails), it makes sense for many programmers to contribute their effort to build a better mousetrap. This shared component can then improve everyone’s future projects by saving them time or effort. The collaboration of many developers also helps to identify bugs that may not have been caught by any single individual. Some of Tirole’s earlier work on collective reputations is closely related, as their appears to be an “alumni effect” for developers who participated in successful projects.

Tirole and Lerner’s answer to the second question revolves around leadership. Leaders are often the founders of or early participants in the open software project. Their skills and early membership status instill trust. As the authors put it, other programmers “must believe that the leader’s objectives are sufficiently congruent with theirs and not polluted by ego-driven, commercial, or political biases. In the end, the leader’s recommendations are only meant to convey her information to the community of participants.” (Lerner and Tirole, 2002, p. 222) This relates to some of Tirole’s other work, with Roland Benabou, on informal laws and social norms.

Again, this is only a small portion of Tirole’s work, but I find it fascinating. There’s more on open source governance in the archives. This post on reputation in hacker culture or this one on the Ruby community are good places to start.

What Really Happened to Nigeria’s Economy?

You may have heard the news that the size Nigeria’s economy now stands at nearly $500 billion. Taken at face value (as many commenters have seemed all to happy to do) this means that the West African state “overtook” South Africa’s economy, which was roughly $384 billion in 2012. Nigeria’s reported GDP for that year was $262 billion, meaning it roughly doubled in a year.

How did this “growth” happen? As Bloomberg reported:

On paper, the size of the economy expanded by more than three-quarters to an estimated 80 trillion naira ($488 billion) for 2013, Yemi Kale, head of the National Bureau of Statistics, said at a news conference yesterday to release the data in the capital, Abuja….

The NBS recalculated the value of GDP based on production patterns in 2010, increasing the number of industries it measures to 46 from 33 and giving greater weighting to sectors such as telecommunications and financial services.

The actual change appears to be due almost entirely to Nigeria including figures in GDP calculation that had been excluded previously. There is nothing wrong with this, per se, but it makes comparisons completely unrealistic. This would be like measuring your height in bare feet for years, then doing it while wearing platform shoes. Your reported height would look quite different, without any real growth taking place. Similar complications arise when comparing Nigeria’s new figures to other countries’, when the others have not changed their methodology.

Nigeria’s recalculation adds another layer of complexity to the problems plaguing African development statistics. Lack of transparency (not to mention accuracy) in reporting economic activity makes decisions about foreign aid and favorable loans more difficult. For more information on these problems, see this post discussing Morten Jerven’s book Poor NumbersIf you would like to know more about GDP and other economic summaries, and how they shape our world, I would recommend Macroeconomic Patterns and Stories (somewhat technical), The Leading Indicators, and GDP: A Brief but Affectionate History.

“The Impact of Leadership Removal on Mexican Drug Trafficking Organizations”

That’s the title of a new article, now online at the Journal of Quantitative Criminology. Thanks to fellow grad students Cassy Dorff and Shahryar Minhas for their feedback. Thanks also to mentors at the University of Houston (Jim Granato, Ryan Kennedy) and Duke University (Michael D. Ward, Scott de Marchi, Guillermo Trejo) for thoughtful comments. The anonymous reviewers at JQC and elsewhere were also a big help.

Here is the abstract:

Objectives

Has the Mexican government’s policy of removing drug-trafficking organization (DTO) leaders reduced or increased violence? In the first 4 years of the Calderón administration, over 34,000 drug-related murders were committed. In response, the Mexican government captured or killed 25 DTO leaders. This study analyzes changes in violence (drug-related murders) that followed those leadership removals.

Methods

The analysis consists of cross-sectional time-series negative binomial modeling of 49 months of murder counts in 32 Mexican states (including the federal district).

Results

Leadership removals are generally followed by increases in drug-related murders. A DTO’s home state experiences more subsequent violence than the state where the leader was removed. Killing leaders is associated with more violence than capturing them. However, removing leaders for whom a $30m peso bounty was offered is associated with a smaller increase than other removals.

Conclusion

DTO leadership removals in Mexico were associated with an estimated 415 additional deaths during the first 4 years of the Calderón administration. Reforming Mexican law enforcement and improving career prospects for young men are more promising counter-narcotics strategies. Further research is needed to analyze how the rank of leaders mediates the effect of their removal.

I didn’t shell out $3,000 for open access, so the article is behind a paywall. If you’d like a draft of the manuscript just email me.

Mexico Update Following Joaquin Guzmán’s Capture

As you probably know by now, the Sinaloa cartel’s leader Joaquin Guzmán was captured in Mexico last Saturday. How will violence in Mexico shift following Guzman’s removal?

(Alfredo Estrella/AFP/Getty Images)

(Alfredo Estrella/AFP/Getty Images)

I take up this question in an article forthcoming in the Journal of Quantitative Criminology. According to that research (which used negative binomial modeling on a cross-sectional time series of Mexican states from 2006 to 2010), DTO leadership removals in Mexico are generally followed by increased violence. However, capturing leaders is associated with less violence than killing them. The removal of leaders for whom a 30 million peso bounty (the highest in my dataset, which generally identified high-level leaders) been offered is also associated with less violence. The reward for Guzmán’s capture was higher than any other contemporary DTO leader: 87 million pesos. Given that Guzmán was a top-level leader and was arrested rather than killed, I would not expect a significant uptick in violence (in the next 6 months) due to his removal. This follows President Pena Nieto’s goal of reducing DTO violence.

My paper was in progress for a while, so the data is a few years old. Fortunately Brian Phillips has also taken up this question using additional data and similar methods, and his results largely corroborate mine:

Many governments kill or capture leaders of violent groups, but research on consequences of this strategy shows mixed results. Additionally, most studies have focused on political groups such as terrorists, ignoring criminal organizations – even though they can represent serious threats to security. This paper presents an argument for how criminal groups differ from political groups, and uses the framework to explain how decapitation should affect criminal groups in particular. Decapitation should weaken organizations, producing a short-term decrease in violence in the target’s territory. However, as groups fragment and newer groups emerge to address market demands, violence is likely to increase in the longer term. Hypotheses are tested with original data on Mexican drug-trafficking organizations (DTOs), 2006-2012, and results generally support the argument. The kingpin strategy is associated with a reduction of violence in the short term, but an increase in violence in the longer term. The reduction in violence is only associated with leaders arrested, not those killed.

A draft of the full paper is here.

Don’t Forget Your Forever Stamps

The price of a first-class US stamp is set to increase from 46 to 49 cents on January 26. Like Cosmo Kramer’s Michigan bottle redemption plan (see below), Allison Schrager and Ritchie King ran the numbers on whether it would be possible to provide from Forever Stamp arbitrage.

Could the scheme make money? Maybe–if you get the timing right and pay low interest on capital:

Assuming we sell all 10 million stamps for the bulk discount price of $0.475 each, our profit will be $150,000. Subtract out the $399 for the distributor database. Let’s also assume we spent the $3,500 for Check Stand Program plus, say, $300 to make the 100 displays for advertising in stores. That gives us $145,801.

If we do manage to shift the stamps in a month, the interest on our debt will be $29,000. That brings our profits to $116,801. Then we’ll return the equity to our shareholders, along with 50% of the profits.

That leaves us with the other 50%: $58,400.50. If you look at that as a profit on the $4.6 million initial outlay, it’s not very much: less than 1.3%. But remember, all that outlay was leveraged. So if you look at it as a return on our investment—$33.25 for shipping—it’s 175,541%.

What Can We Learn from Games?

ImageThis holiday season I enjoyed giving, receiving, and playing several new card and board games with friends and family. These included classics such as cribbage, strategy games like Dominion and Power Grid, and the whimsical Munchkin.

Can video and board games teach us more than just strategy? What if games could teach us not to be better thinkers, but just to be… better? A while ago we discussed how monopoly was originally designed as a learning experience to promote cooperation. Lately I have learned of two other such games in a growing genre and wanted to share them here.

The first is Depression Quest by Zoe Quinn (via Jeff Atwood):

Depression Quest is an interactive fiction game where you play as someone living with depression. You are given a series of everyday life events and have to attempt to manage your illness, relationships, job, and possible treatment. This game aims to show other sufferers of depression that they are not alone in their feelings, and to illustrate to people who may not understand the illness the depths of what it can do to people.

The second is Train by Brenda Romero (via Marcus Montano) described here with spoilers:

In the game, the players read typewritten instructions. The game board is a set of train tracks with box cars, sitting on top of a window pane with broken glass. There are little yellow pegs that represent people, and the player’s job is to efficiently load those people onto the trains. A typewriter sits on one side of the board.

The game takes anywhere from a minute to two hours to play, depending on when the players make a very important discovery. At some point, they turn over a card that has a destination for the train. It says Auschwitz. At that point, for anyone who knows their history, it dawns on the player that they have been loading Jews onto box cars so they can be shipped to a World War II concentration camp and be killed in the gas showers or burned in the ovens.

The key emotion that Romero said she wanted the player to feel was “complicity.”

“People blindly follow rules,” she said. “Will they blindly follow rules that come out of a Nazi typewriter?”

I have tried creating my own board games in the past, and this gives me renewed interest and a higher standard. What is the most thought-provoking moment you have experienced playing games?

The Economy That Is Stanford

Five of the six most-visited websites in the world are here, in ranked order: Facebook, Google, YouTube (which Google owns), Yahoo! and Wikipedia. (Number five is a Chinese-language site.) If corporations founded by Stanford alumni were to form an independent nation, it would be the tenth largest economy in the world, with an annual revenue of $2.7 trillion, as some professors at that university recently calculated. Another new report says: ‘If the internet was a country, its gross domestic product would eclipse all others but four within four years.’

That’s from this London Review of Books piece by Rebecca Solnit. The October, 2012, research report on which the claim is based is here, based on survey data. Solnit’s piece is interesting throughout, including a discussion of parallels and differences between the tech boom and the Gold Rush.

The Economics of Movie Popcorn

The Smithsonian’s Food & Think blog recounts a long history of movie theaters’ objections to popcorn. They wanted to be as classy as live theaters. Nickelodeons didn’t have ventilation required for popcorn machines. Moreover, crunchy snacks would have been unwelcome during silent films.

But moviegoers still wanted their popcorn, and street vendors met their demand. This led to signs asking patrons to check their coats and their corn at the theater entrance.

Eventually, movie theater owners realized that if they cut out the middleman, their profits would skyrocket.  For many theaters, the transition to selling snacks helped save them from the crippling Depression. In the mid-1930s, the movie theater business started to go under. “But those that began serving popcorn and other snacks,” Smith explains, “survived.” Take, for example, a Dallas movie theater chain that installed popcorn machines in 80 theaters, but refused to install machines in their five best theaters, which they considered too high class to sell popcorn. In two years, the theaters with popcorn saw their profits soar; the five theaters without popcorn watched their profits go into the red.

Much more here, including how movie theater demand changed the types of popcorn that are grown.

PopcornPortionSizeExample

Popcorn and other concessions are important to theaters because a large percentage of ticket sales (especially during the first couple of weeks after a movie premieres) go to the studio. Recent figures I’ve seen are that concession sales are 80-90 percent profit, whereas in the opening weekend only about 20 percent of the sale price goes to the theater. This means that concessions can make up nearly half the profit for a theater–no wonder they try to keep viewers from bringing in their own refreshments.

Small bags of popcorn have now turned into buckets, perhaps in an effort to justify charging $8-10 rather than the nickel such snacks sold for when “talkies” were new. This transition is covered in the book Why Popcorn Costs So Much at the Movies and an interview with the author is here.

 

Visualizing the BART Labor Dispute

Labor disputes are complicated, and the BART situation is no different. Negotiations resumed this week after the cooling off period called for by the governor of California as a result of the July strikes.

To help get up to speed, check out the data visualizations made by the Bay Area d3 User Group in conjunction with the UC Berkeley VUDLab.  They have a round up of news articles, open data, and open source code, as well as links to all the authors’ Twitter profiles.

The infographics address several key questions relevant to the debate, including how much BART employees earn, who rides BART and where, and the cost of living for BART employees.

bart-salary

bart-ridership

More here.

African Statistics and the Problem of Measurement

We have briefly mentioned Morten Jerven’s work Poor Numbers before, but it deserves a bit more attention. The book discusses the woeful state of GDP figures in Africa and the issues that arise in making cross-national comparisons between countries whose statistical offices operate very differently (interview here).

Discussing Jerven’s work now is especially timely given current events. Jerven was scheduled to speak at UNECA on statistical capacity in Africa. However, Pali Lehohla of South Africa strongly objected to Jerven’s ideas and led the opposition which ultimately prevented Jerven from speaking. Had he been allowed to present, Jerven’s speech would have summarized the issues thusly: 

I would argue that ambitions should be tempered in international development statistics. The international standardization of measurement of economic development has led to a procedural bias. There has been a tendency to aim for high adherence to procedures instead of focusing on the content of the measures. Development measures should be taken as a starting point in local data availability, and statisticians should refrain from reporting aggregate measures that appear to be based on data but in fact are very feeble projections or guesses. This means that it is necessary to shift the focus away from formulas, standards, handbooks, and software. What matters are what numbers are available and how good those numbers are. Comparability across time and space needs to start with the basic input of knowledge, not with the system in which this information is organized. (Jerven, 2013, p.107).

African Arguments gave Jerven a chance to respond to his opposition:

The initial response from many economists working on Africa varied between, ‘so what?…we already know this’, ‘we don’t trust or use official statistics on Africa anyhow’ and ‘I know but what is the alternative?’ Many more scholars in African studies and development studies, who were generally concerned with the long-standing use of numbers on Africa as ‘facts’, were relieved that there was finally someone who sought, not only to unveil the real state of affairs, but genuinely wanted to answer some of the problems that users face when trying to use the data to test their scholarly questions….

We need to rethink the demand for data and how we invest in data in Africa and beyond. My focus has been on Africa because the problem is particularly striking there. To fix the gaps we should first re-think the MDG and other donor agendas for data and do a cost benefit analysis – what are the costs of providing these data and what is the opportunity cost of providing these data? The opportunity cost is often ignored. Local demand for data needs to come into focus. A statistical office is only sustainable if it serves local needs for information. Statistics is a public good, and we need a good open debate on how to supply them.

This is a major issue, and all social scientists–not just economists–should be aware of Jerven’s work. As James C. Scott has pointed out, measurement is a political act.