Andrew Gelman says that economists are fun

I could not help it and have to direct your attention to Andrew Gelman's blog http://www.stat.columbia.edu/~cook/movabletype/mlm/. Gelman wrote:

"Sarah Igo came yesterday in our seminar to tell us about her recent book, The Averaged American. It was a lot of fun, and she commented that when she speaks to historians, they just let her speak, but we're more fun because we interrupt her frequently. I assured her that if interruption=fun, then economists are the most fun of all..."

I have to add that Israeli economists are extra fun...

Clusters of high-rise building in Tel Aviv

Two colleagues (Lucien Benguigui, our PhD student Rafi Roth) and I just completed a major study concerned with the evolution of high-rise buildings in Tel Aviv. We conducted empirical analyses of the temporal and spatial evolution of the city in 3D and we built corresponding cellular automaton (CA) simulation models.

Until some 15 years ago economists were satisfied with observing cities through a prism of stylized facts and the Alonso type mono-centric urban model. The recognition of the existence of "edge cities" led to models with multiple centers. Both types of models suggest that high-rise buildings tend to cluster in space.

In our study clusters are defined as spatially continuous concentrations of buildings of pre-defined heights. We succeeded to generate 3D clusters by means of our cellular automaton model. The rules of behavior are relatively simple and have an economic intuition. More recently we attempted to identify empirically clusters of high-rise building in Tel Aviv over time with the help of GIS.

The results are interesting. The frequency distribution of building heights displays twin peaks. More, interesting, using a variety of measures we identified clusters already in the 1970s. However, over time the clusters tend to weaken.

These days we parade our results at various conferences.

Figure 1 Distribution of heights in Tel Aviv 2003

Figure 2 Distribution of heights of high buildings in Tel Aviv 2003 with exponential fit

Is there technology based solution to global warming?

Last November I wrote about the important research of Nir Shaviv and his co-researchers at the Hebrew University in Jerusalem concerning global warming [see http://urbaneconomics.blogspot.com/2006/11/global-warming-alternative-viewpoint.html]. According to Shaviv's model, recently (partly) tested at CERN (see http://www.sciencebits.com/CO2orSolar), the major source of influence on the earth's temperature is solar activity that causes ionization and cloud formation.

Added evidence was provided by the Danish National Space Center (DNSC) Sky experiment that was published in the Proceedings of the Royal Society. Shaviv reported as follows [http://www.sciencebits.com/SkyResults]:This is the Royal Society's press release on the publication of Svensmark et al.: “Using a box of air in a Copenhagen lab, physicists trace the growth of clusters of molecules of the kind that build cloud condensation nuclei. These are specks of sulphuric acid on which cloud droplets form. High-energy particles driven through the laboratory ceiling by exploded stars far away in the Galaxy - the cosmic rays - liberate electrons in the air, which help the molecular clusters to form much faster than atmospheric scientists have predicted. That may explain the link proposed by members of the Danish team, between cosmic rays, cloudiness and climate change.”

Now the Shaviv team proposes a theoretical model that provides an insight concerning a possible technology that can reduce global warming. If solar activity does not provide the means for cloud formation over the Pacific Ocean, a set of giant lasers firing horizontally high in space can create the required effect.

I am far from capable of judging these ideas. But in the absence of contrary evidence, it makes me skeptical about size of the anthropogenic influence on global warming and hopeful that technology will provide the answer. I would like to hear some cogent discussion of the Shaviv hypotheses.

Richard Musgrave and Jesse Burkhead

I read in Greg Mankiw's blog (http://gregmankiw.blogspot.com/) that Richard Musgrave passed away.

Musgrave was a hero at the Maxwell School when I was a student there some 30 years ago. He visited and gave guest lectures in a heavy accent. He was a short man and already then he had a huge mane of white hair.

Musgrave was a star at Maxwell not the least because the focus of research at Maxwell was set by my teacher, the late Jesse Burkhead. Jesse emphasized the expenditure side of the budget. All the PhD students worked on productivity measurement in the public sector. We all read repeatedly Musgrave's The Theory of Public Finance as well as the Burkead and Miner Public Expenditure.

It was very clear to all at Maxwell that Musgrave initiated a revolution in public finance by introducing analytics. Burkhead used Musgrave's framework to do empirical work.

Lifeline electricity rates - 2007 version

In 1975 I was part of a study team charged with examining "lifeline rates" for electricity in the USA. At the time energy prices were extremely high and the world was in the midst of an energy crisis. Last week a member of the Israeli parliament proposed that people with low incomes will be provided with electricity free of charge.

It is not surprising that a politician should propose such a policy. It is somewhat surprising that Israel Electricity Corporation, still a vertically integrated government monopoly, is behind the policy. IEC is in a process of battling the intention of the government to restructure it and to introduce competition. The company is not well regarded in the public. The employees of IEC receive the highest salaries in Israel. IEC support of the policy may make it somewhat popular among the potential beneficiaries.

Just as 30 years ago, it is my opinion that this is an economically bad policy. As any first year student of economics knows distorting relative prices will cause an inefficient allocation of resources. Poverty should be addressed directly, by creating jobs. If such a policy is not enough a second best approach consists of transfer payments.

There is nothing good about lifeline rates.

We need more roads

Above is a photo of the main freeway entering Tel Aviv.

It is an accepted knowledge among urban economists that for much of the income scale, the income elasticity of car ownership is close to 1. In other words, in western countries a percentage increase in income is expected to generate a similar percentage increase in car ownership.

Israel is experiencing, and is expected to experience, a relative rapid growth in GDP per capita. There are think tank groups in Israel that predict and propose policies that will bring Israel to among the 10 highest income countries in the world within the next 20 years. I am not sure that this will happen. However, income is expected to grow and so will car ownership.

This expected growth raises an important policy issue. Already today, the density of cars on roads is creating massive traffic jams on inter-urban roads and especially during morning in-coming traffic hours and during afternoon exiting traffic hours. The cost in work time lost and in property and life losses due to traffic accidents is enormous. The number of car accident victims in Israel is greater than the losses due to wars.

There is no doubt that improvements in mass transit infrastructure will alleviate the situation, somewhat. And indeed, investment in inter-urban rail and suburban light rail systems is massive and is expected to grow. And so it should.

However, there is a need to invest in roads as well. It is unreasonable to think that people who do not reside within walking distance of fixed rail corridors will be consumers of these systems. As the cost, in terms of time, increases the demand for mass transit is expected to decrease. Therefore, unless we invest in roads the density of cars on roads will continue to grow and the associated cost with it.

Obviously, I am for the use of the price system to regulate the allocation of road space. As of now, the cost of owning and using a car in Israel is exorbitant. The tax on the purchase of a car is upwards of 100 per cent. The cost of gasoline is equally high in comparison to the USA. It is peculiar that Israelis are unwilling to part from their cars.

Low housing prices and high price of land

In today's real estate section of Haaret'z newspaper, Arik Mirowski reports that in Haifa land price changes do not reflect changes in the value of apartments. Land prices are steady at US$ 150 thousands, while apartment prices, especially in the better neighborhoods have been sliding for several years now. Mirowski does not provide an explanation. He raises a question.

As a possible explanation Mirowski suggests that land prices have a quality of options. As such land prices are subject to greater volatility than apartment prices. In Haifa they indicate that finally the housing market is likely to take off. The situation of relatively high land prices in the better areas of the city and stagnant housing prices has been going on for the last three years.

Here is an alternative explanation. For the last 15 years every attempt to generate a land use change and to provide the market with a housing product that was in demand faced a massive opposition from various "green" groups. The local planning board lacked political leadership and almost no significant project was approved in Haifa. Land developers are rare animals in Haifa. The rate of housing starts has declined and most importantly, new housing products do no correspond to demand characteristics.

In other words, there is pent up demand and no supply. Land prices reflect the pent up demand and the location characteristics of the better areas in the city. The existing housing stock does not match the demand requirements. Existing demand migrates outside of Haifa. As a result housing prices are stagnant.

The housing market in Haifa is waiting for a political leader who will bring back the construction industry and allow them to build the type of housing that people want to buy.

Topology of urban transportation networks

Dr. Efrat Blumenfeld-Lieberthal informed me of her recent research and agreed that I share it here. Efrat was my PhD student at the Technion. I am trying to persuade her to share my blogging chores on a regular basis. Here are Efrat's words...

There are two major contributions of the science of networks to transportation and urban systems. The first suggests that complex networks have the characteristics of small world networks, i.e. most nodes are neighbors of one another (have high clustering coefficient), but each node can be reached from all the other nodes by a small number of steps (short average path). The second contribution demonstrates that one of the best measures to characterize the nature of a network's morphology is the degree distribution of networks, which is the probability that each node has a specific number of links. It was found that in many types of complex systems the degree distribution obeys a power law. In other words, in complex systems there are few highly connected nodes and many nodes with low connectivity.

Cities are complex systems by their nature. Similarly to the organization of other complex systems (e.g. the WWW or the molecules in a cell) urban networks have no central force that affects their spatial structure. Thus, it is reasonable to assume that the spatial behavior of the components of urban systems would fit these characteristics of networks. In 2006 at the Centre for Advanced Spatial Analysis, at University College London I studied transportation networks of urban systems in different countries. I considered the cities as the nodes, while highways, railways, and air routes represented the links. I found that that these networks share some common characteristics. Apparently, the topology of the transportation networks revealed the type of economy to which they belonged (e.g. stages in the economic development of countries). The following figures present the number of links (degree) as a function of the clustering coefficient for different cities in different countries. This presentation indicates the connectivity levels of each city. It can be seen that all Western European countries present similar characteristics, while Poland and the USA behave differently.

Figure 1 – Germany

Figure 2 – Italy

Figure 3 – UK

Figure 4 – Poland

Figure 5 – USA

Royal odor externalities

Photo of the town Aqabah from the south-west.

The local newspapers in Israel reported recently in small print that King Abdullah II of Jordan launched a complaint with the Israeli government concerning unpleasant odors that reach his vacation home in Aqabah, across the border from Eilat, on the Red Sea. The source of the odor is cows that belong to Kibbutz Eilot several miles north of Eilat.

In his blog on January 1, 2007 Matt Kahn wrote (http://greeneconomics.blogspot.com/):

Does the Coase Theorem Apply in the Middle East? Cross-Border Odor Disputes
It's a hard life being a king. All work and no play but at least he provides an interesting case study for environmental econ teachers. Perhaps the siting of this livestock facility is no accident? International borders are a convenient place to locate such noxious stuff.Jordan king complains of Israeli odors….

This is an old story that comes to life whenever the direction of the wind is from the north-west. Most days the situation is bearable for the King and unbearable for the Israeli and European tourists in Eilat's hotels (to the left in the photo).

It is high time to impose an odor tax and to remove the externality.