Lynne Kiesling

The Tour starts today, yay!!!! I’m totally jazzed. Here’s a very useful guide from Wired to various ways to follow the Tour online. And even more cool, it’s a wiki, so if you know of some other sources they are missing, log in and add ‘em!

This year I’m cheering all-American — Christian Vande Velde, Team Garmin-Slipstream, Levi Leipheimer (riding for Team Astana), George Hincapie, Team Columbia-High Road in particular. Dave Zabriskie in the time trials, of course. Oh yeah, and there’s that Lance guy …

My favorite stages are the ones where the sprinters have the advantage (I’m a fast twitch girl at heart), and this year my favorite sprinter, Aussie Robbie McEwen, is out because of rehab from a broken tibia (ouch).

Time to get in the saddle …

Lynne Kiesling

Gee, I really feel like the new, new world has truly arrived, when one of the most visible conversations in the places I frequent is about Malcolm Gladwell’s New Yorker review of Chris Anderson’s Free: The Future of a Radical Price. Chris Anderson responds to Gladwell, continuing the conversation.

But you know that it’s game on when you attract the attention of the digerati, including Anil Dash (focused on the methodology of argumentation from anecdotes vs. data) and Seth Godin (focused on the marketing-related implications of using “free” to capture scarce consumer attention). And, of course, our own Tyler Cowen, although he is circumspect and offers only a pointer to the discussion.

I, too, remain circumspect until I have read the book, but I have read some of Anderson’s articles on the topic. I see the core of Gladwell’s criticism as this: how do we know that “free” is the future when it doesn’t generate revenue streams, and is therefore not a sustainable business model? That’s where I think Godin’s comments are useful — free can be a way to get attention in a crowded retail space, although the firm will have to incur costs to keep that attention in the face of relentless innovation and rivalry. But there are also products for which “free” reflects the marginal cost of producing an additional unit of output, and in that case, to be sustainable the business model has to bundle that free good with others for which consumers are still willing to pay. The changing music business model, evolving toward “free” music and higher prices for concerts, t-shirts, etc., is an example of this type of model.

I won’t wade into the thicket of whether Gladwell is sensitive to Anderson’s argument because of the decline of old-school journalism, although that is definitely part of this debate. Follow the above links if you want to participate.

BTW, when I put “free” in quotes it’s not because I’m necessarily skeptical of Anderson’s argument, but because of my economist pedantry — I prefer to think of goods as having price=0 instead of being “free”. But “zero-price” is a less felicitous word than “free”.

Lynne Kiesling

How cool is this? Solar cells that can tune to the light angle and quality at different latitudes:

Quantasol has now created GaAs [gallium arsenide] solar cells that can be tuned to the prevailing light conditions of a particular place, to get the most out of the cells wherever they are.

To do that, the firm added indium gallium arsenide (InGaAs) to pores just a few nanometres across on the surface of their cells, called quantum wells. Like the GaAs that makes up the rest of the cell, they can absorb light to produce electric current. But they do so at very specific frequencies.

The pores can be tuned to absorb light at the frequencies that are most common in a particular place but aren’t absorbed well by GaAs. Over time this strategy should extract more energy than an off-the-shelf solar cell.

In fact, this cell has achieved the first real efficiency gains in 21 years. Gallium arsenide cells are more expensive than the traditional silicon-based solar cells, but if the efficiency differences are high enough, they could actually be cost effective:

HT: Slashdot

Michael Giberson

The New York Independent System Operator – the folks the manage the electric power transmission system in the state – has released a report on the potential effects of plug-in hybrid vehicles (PHEV) on New York power systems  operations.  Given the very early stage of technology development – if there are any PHEV’s in the state now they are likely experimental research vehicles or hobbyist homebrews – a lot of the report comes down to saying “it depends on how things eventually work out.”

From the point of view of the power system, the most important issues concern how and where and when the vehicles recharge. As the report points out, consumer recharging choices will be significantly affected by retail rate designs. A flat rate means that consumers will not be dissuaded from adding to overall electric load at peak times, when the transmission system is congested and high-cost generation units must run to keep the system operating. Time-of-use rates or market-driven prices will encourage consumers to shift charging to off-peak periods.

The flat rate scenario will require additional investment in electric generation, transmission and distribution systems, while the more reasonable pricing systems may allow the power system to accomodate significant numbers of PHEV with little or no additional investment in supply-side capacity.

It should go without saying that smart grid systems (devices and commercial practices) could play a critical role in getting the most consumer value out of a PHEV.

The NYISO report draws from three much more detailed technology analyses, one by Oak Ridge National Laboratory, another by the Electric Power Research Institute  and the Natural Resources Defense Council, and the third by Pacific Northwest National Laboratory, and several other studies. Despite the tentative nature of the NYISO report, it provides a concise, readable introduction to the issues addressed at more length in the technical studies.  In addition, the NYISO report includes an extensive bibliography.

Not a bad place to start if you are interested in understanding these issues.

RELATED: EPRI and PJM conducted a “PHEV Summit” in January of this year, exploring these same issues.

Lynne Kiesling

I have to admit, I thought that this point was obvious. Clearly Walmart (accurately, I think) sees itself as well-positioned to leverage its size nationally to negotiate better health care arrangements than its competitors, so its newly-announced support of employer-based health care is a classic example of raising rivals’ costs.

Apparently, it’s not so obvious to everyone, as Megan McArdle pointed out:

I find it hard to believe that none of the liberal commentators breathlessly celebrating Wal-Mart’s “capitulation” on national health care have even entertained the most parsimonious explanation:  that Wal-Mart is in favor of this because it raises the barriers to entry in the retail market, and hammers Wal-Mart’s competition.  Yet somehow, this appears nowhere in any of the analysis. …

Regulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost.  Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors.  Finally, a high fixed cost means either that it’s harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.

Megan also recommends what I think should be universal required reading:

All of which is to say, Bootleggers and Baptists should be required reading in all schools.  When you find strange bedfellows in politics, don’t look for a surprising outbreak of spontaneous virtue:  looking for the hidden conspiracy.

Note: I don’t particularly care about what “breathless commentators” of various partisan stripes do or don’t claim politically; I do care about the economic content and substance of their analyses. Raising rivals’ costs and the political economy of leveraging regulation to do so is an important economic lesson.

UPDATE: I just got around to reading this morning’s Wall Street Journal, which has a lead editorial making the same point:

The employer-mandate endorsement falls into the same self-interest department. A boost in the minimum wage helps Wal-Mart because most of its workers already earn well over the wage floor, and it hurts smaller, less-profitable competitors that can’t afford to pay more. On health care, an employer mandate will also reduce the margins of their rivals. This is especially true for businesses of a slightly smaller size that cannot insure on the same scale or currently don’t reach the 55% of the 1.4 million Wal-Mart employees who are insured through the company. (Another 40% or so are covered by spouses or the likes of Medicaid.)

Lynne Kiesling

Germany’s utility Yellow Strom is a technology leader. They are leading in the introduction of digital technology in the interface between their wires network and the customer’s home; for example they are one of the first partners with Google to roll out Google’s Power Meter, and they are working on an application that will use data from the customer’s meter and enable customers to set up a Twitter stream for their home’s energy use (like the now-private Andy’s house that I discussed in October 2008).

In an earth2tech article today, Katie Fehrenbacher points out what’s been my drum beat here for a long time: digital (and ultimately transactive) technology transforms the set of possible end-use value propositions, thereby changing the possible range of differentiated retail products and services in the retail electricity industry. It also changes the business models of firms in the industry … if the firms don’t resist it and use political mechanisms to stifle it, and if regulatory inertia doesn’t stifle it.

Compare that type of innovation to what your average utility is doing — just keeping the lights on — and it’s like night and day. “There’s close to a revolution happening,” when it comes to bringing the Internet and energy consumption together, says Martin Vesper, Yello Strom’s executive director. Think about it: The emergence of broadband connections in our homes has changed the way people consume media, communicate with each other, buy goods and work. And the hope, which Yello Strom is betting on and which could do wonders for fighting climate change, is that broadband will also fundamentally change both our energy consumption habits and what it means to be a utility.

However, she then goes on to say that she’s not arguing for retail competition in the US:

While we’re not arguing for U.S. energy deregulation — various U.S. states have already failed miserably at that — it does create a more friendly market for leveraging consumer trends, like the emergence of home broadband connections. It also leads to companies taking bigger risks and being more innovative.

In this instance she is incorrect, and I believe those two positions are internally inconsistent, as the second quote I pulled from her article demonstrates. While many states claim to have retail competition, only Texas has truly rivalrous, meaningful competition for the business of residential consumers. Retail restructuring in other states has been hamstrung by phased-out retail rate caps, by default service contracts that constitute a substantial entry barrier in a market segment where customer acquisition costs are already high, and by other administrative and regulatory half-moves that leave the retail market uncertain and entry costly for the competing retail provider. Thus it is incorrect to say that various US states have failed at deregulation, because they actually have not had the political gumption to do it.

This article, and Germany’s Yellow Strom, illustrate the chicken-egg problem associated with innovation and regulation in the electricity industry. Retail competition is easier with smart meters at the interface between the regulated wires company and the customer premises. But it’s also true that innovation and entrepreneurship flourish, with benefits for both consumers and entrepreneurs, in rivalrous retail markets with low entry barriers. Which should come first?

Lynne Kiesling

Today a post from Ben Casselman at the WSJ’s Environmental Capital highlights one of my favorite unintended benefits of open-road electronic tolling: by eliminating deceleration and acceleration to pay a cash toll, electronic tolling reduces emisssions, with one big caveat:

So does eliminating toll booths really cut down on emissions? The answer appears to be a qualified “yes.” A 1998 study in Orlando, Fla., found that installing an electronic toll collection system at the Holland East Toll Plaza there cut carbon monoxide emissions by 7.29% and hydrocarbon emissions by 7.19%. The reduction came even though the number of vehicles passing through the tolls during peak hours increased by 30%.

The downside: Nitrogen oxide emissions increased by 33.77%, apparently because cars were able to drive faster with the electronic tolls. (The Orlando road kept some cash lanes, so the impacts—positive and negative—would presumably be even greater in a totally cash-less system such as Dallas’.)

Casselman then draws what I think is the natural conclusion:

In theory, cashless tolls could pave the way for a more radical move: congestion pricing.

Yeah, bring it on!

Lynne Kiesling

I’ve had a lovely morning catching up on some of Russ Roberts’ EconTalk podcasts. In particular, I listened back-to-back to Michele Boldrin discussing intellectual property and Paul Romer discussing growth, including intellectual property institutions, with Russ.

As the show notes for the Boldrin podcast note, “Boldrin argues that copyright and patent are used by the politically powerful to maintain monopoly profits. He argues that the incentive effects that have been used to justify copyright and patents are exaggerated–few examples from history suggest that the temporary and not-so-temporary monopoly power from copyright and patents were necessary to induce innovation.” Listening to these two podcasts together provide an illuminating overview of the complicated economics of copyright.

Michael Giberson

Robert Rapier asks what is likely the least frequently asked question ever: “What if I’m wrong?“

Rapier explores that question with respect to his beliefs on peak oil and global warming, but it is good, all-around, general purpose question that should be put to more frequent use.

Michael Giberson

From Platts Power Line blog, a discussion of the 1958 law banning of futures trading in onions and suggestions that Congress should contemplate the lessons from that experience before it gets too exciting about clamping down on speculation in energy commodities.

The ban on onion futures trading, introduced by freshman congressman Gerald Ford of Michigan in 1958, was supposed to reduce price volatility in onion markets. It didn’t work.

A short article by Roger Gray in the 1963 Journal of Farm Economics indicated that storage season price volatility was significantly reduced during the years of active onion futures trading, as compared to the years before and after that trading. Related discussion by Holbrook Working in the 1963 Food Research Institute Studies also supports that conclusion.

Much more recently, David Jacks published “Populists versus Theorists: Futures markets and the volatility of prices” in the 2007 Explorations in Economic History. Jacks discusses several cases in which futures markets have been banned, and some cases in which a ban was instituted and then repealed. His main conclusion: “the results presented in this paper strongly suggest that futures markets were associated with—and most likely caused—lower commodity price volatility.”

Not every analysis of volatility and futures trading finds that futures trading always reduces volatility – the wikipedia article on the Onion Futures Act mentions Aaron Johnson’s “Effects of Futures Trading on Price Performance in the Cash Onion Market, 1930-1968″ as concluding onion prices were more stable after the ban (I haven’t actually read this study, so can’t vouch one way or the other for it) – but the overwhelming result from many, many analyses of the issue finds that futures markets tend to reduce price volatility.

SEE ALSO: Commentary by Jon Birger, What onions teach us about oil prices, Fortune.

REQUEST: Some references I looked over this morning indicated that an infamous onion futures market manipulation in 1956 fostered political support for the ban, but I haven’t found a good discussion of the episode. If you know of one, put a reference in the comments.