24 Http://www.kochind.com/industry/pipelines.asp.
25 Based on a personal conversation with Bill Dougan on January 6, 2007.
26 Jonathan Karpoff, “Private versus Private Initiative in Arctic Exploration: The Effects of Incentives and Organizational Structure,” Journal of Political Economy, January 2001, 38-78.
27 Government expeditions seemed to make up a larger share of the lesser know accomplishments. We can speculate that perhaps government-funded explorers, like their private counterparts, were motivated partly by the desire to acquire fame. Robert Peary, a government-funded explorer who was the first man to make it to the North Pole, wrote his mother that the fame of Christopher Columbus “can be equaled only by him who shall one day stand with 360 degrees of longitude beneath his motionless feet and for whom East and West shall have vanished—the discoverer of the North Pole.” Even more directly, he told her, “Remember, mother, I must have fame.” Bruce Henderson, True North: Peary, Cook, and the Race to the Pole, (New York: W. W. Norton & Company, April 18, 2005).
28 Michael Tanner, Congressional Testimony before the Finance Committee, U.S. Senate, March 9, 1995 (http://www.cato.org/testimony/ct-ta3-9.html). Here are some examples of private charity administration and fundraising expenditures as a percent of total expenditures: Habitat for Humanity, Washington D.C.—13.8%; The Salvation Army - 16.8%; YMCA of Metropolitan Washington - 19.4%; and American Red Cross of the National Capital Area - 11.6%. Source: charitablechoices.com, Charity Descriptions, All Charities A to Z (http://www.charitablechoices.org/categories/all.asp).
29 Kelly Bedard and William Brown, “The Allocation of Public School Expenditures,” Claremont Colleges Working Paper, August, 2000, 19 (http://econ.claremontmckenna.edu/papers/2000-16.pdf).
30 The relative costs of private schools assumes that religious teachers in parochial schools are paid at the same rate as lay teachers. For further discussion, see John R. Lott, Jr., “Why is Education Publicly Provided?: A Critical Survey,” Cato Journal, Fall, 1987: 476-77.
31 Jay Hancock, “Traded Funds May be Trend T. Rowe Price Can’t Let Pass,” Baltimore Sun, September 17, 2006, D1. Congressman Michael Oxley, “Mutual Fund Industry Practices and their Effect on Individual Investors,” hearing before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises Committee on Financial Services, March 12, 2003 (http://commdocs.house.gov/committees/bank/hba87798.000/hba87798_0.HTM).
32 71 percent of Americans understood that a “well-diversified portfolio will experience less volatility.” American Century Investments, On Plan I.Q. Quiz, KANSAS CITY, Mo., April 7, 2005 (http://www.americancentury.com/welcome/news_release2_2005.jsp?press_release=20050407a).
33 Robert Hansen and John Lott, “Externalities and Corporate Objectives in a World with Diversified Shareholders/Consumers,” Journal of Financial and Quantitative Analysis, (March 1996).
34 Ibid.
35 Ibid.
36 Ibid.
37 For a discussion of the role of a private predator acquiring the assets of firms that were driven out of business see John McGee, “Pedatory Price Cutting: The Standard Oil (NJ) Case,” Journal of Law and Economics, 1958-69. He also provides strong evidence that even if such actions were in fact behind Standard Oil’s acquisitions, it could not have been a successful strategy.
38 This discussion is connected to questions on the general growth of government. Related studies include Bennett and Johnson’s survey of the theories explaining why government has grown over time. I co-authored two other analyses of the problem. Lott and Fremling describe the growth of government based upon the costs of voters evaluating the long term versus short term effects of government regulation, while Kenny and Lott interpret the growth of government as a result of women’s emancipation. See John R. Lott, Jr. and Gertrud Fremling, “Time Dependent Information Costs, Price Controls, and Successive Government Intervention,” Journal of Law, Economics, and Organization, vol. 5, no. 2, Fall 1989: 293-306, and John R. Lott, Jr. and Larry Kenny, “Did Women’s Suffrage Change the Size and Scope of Government?,” Journal of Political Economy, vol. 107, no. 6, part 1, December 1999: 1163-1198. Also see James Bennett and Manuel Johnson, The Political Economy of Federal Government Growth: 1959-1978, (College Station, Texas: Texas A&M University Press, 1980).
39 Russell Hotten, “Paris Goes to War for Bigger Slice of Airbus,” Daily Telegraph (UK), November 25, 2006.
40 Michael Harrison, “Airbus may end up grounded if superjumbo fails to take off,” New Zealand Herald, November 23, 2006.
41 Hauser, Rolland K., The Interface Between Federal and Commercial Weather Services for Agricultural Industries—A Question of Policy, report prepared for the United States Department of Commerce, National Oceanic and Atmospheric Administration, Office of the Administrator, Washington, D.C. (November, 1985), 23. Jerome Ellig provides a list of other similar cases in Government and the Weather: The Privatization Option. Federal Privatization Project Issue Paper #109, Santa Monica, California: Reason Foundation (August, 1989a).
42 Jerome Ellig, “For Better Weather, Privatize,” Wall Street Journal, vol. 71 (December 4, 1989b): A16. Hauser concludes that, “Current federal agweather policy, either advertently or inadvertently, has the effect of deterring investment by private meteorology in agricultural weather services.” Hauser, ibid.
43 Michael Stone, Executive Director of UCLA’s, Marketing & Communication Services, noted that for 2004-05, UCLA spent $3.35 billion, of which around $800 million was for research expenditures and $1.13 billion was for the medical school. Even excluding research spending, with over 37,000 students, that comes to almost $40,000 per student. In-state tuition in 2006-07 was only $6,522. See http://www.admissions.ucla.edu/prospect/budget.htm. and Office of the President, University of California, 2006-07 Budget for Current Operations, University of California, November 2005. The average tuition at public universities is $5,836 according to the College Board. See Jonathan Glater and Alan Finder, “In Twist on Tuition Game, Popularity Rises With Price,” New York Times, December 12, 2006.
44 In contrast, an elite private school like Swarthmore College spends slightly more per student ($73,690) but charges much higher tuition ($33,232). The public school tuition is only 20 percent of the private school’s, but the per pupil costs of the public school are 57 percent of the private school’s. Glater and Finder, “In Twist on Tuition Game.” See also Melissa Bertosh, “2006-07 Budget Calls for Tuition Hike,” The Phoenix (Swarthmore College), March 16, 2006 (http://phoenix.swarthmore.edu/2006-03-16/news/15931), and Jeanne Sahadi, “College Costs Spike Again,” CNN/Money, October 19, 2004 (http://money.cnn.com/2004/10/18/pf/college/college_costs/index.htm?postversion=2004101910) for a breakdown of public versus private university tuitions by region of the U.S. Private school tuitions are 3.3 to 4.2 times greater than public school tuitions.
45 See for example Steve Hill, “Merchants say A&M can hurt local business,” Bryan-College Station Eagle (Texas) (May 20, 1990a): A1, A4, and Steve Hill, “Businesses learn to live with A&M competition,” Bryan-College Station Eagle (Texas) (May 22, 1990b): A1, A3.
46 Gary Wolfram, “Private College Under Seige” USA Today, January 1, 1999. See also Southern Regional Education Board, Total Enrollment in Higher Education. (Summary of NCES Data) (http://www.sreb.org/main/EdData/DataLibrary/03/highered/enrollment/FB22.xls); U.S. Department of Education, National Center for Education Statistics, 2003-04 and 2004-05 IPEDS, Table 314 (http://nces.ed.gov/programs/digest/d05/tables/dt05_314.asp); and U.S. Department of Education, National Center for Education Statistics, 2003-04 and 2004-05 IPEDS, Table 197 (http://nces.ed.gov/programs/digest/d05/tables/dt05_197.asp).
47 Conversation with economics professor Isaac Ehrlich at the University of Buffalo.
48 John R. Lott, “Predation by Public Enterprises,” Journal of Public Economics no. 43 (1990): 237-251 and D. Daniel Sokol, “Express Delivery and the Postal Sector in the Context of Public Sector Anti-competitive Practices,” Northwes
tern Journal of International Law and Business, (2003): 353-381.
49 The German government still owned a majority of Deutsche Post AG at the time. For a detailed discussion of the Deutsche Post case in the context of trade liberalization, see Robert B. Cohen, “Trade and Competition Issues Raised by the Liberalization of State-Owned Monopolies: The Example of Deutsche Post’s Cross-subsidization of Its Express Delivery Operations,” (Washington, DC: Economic Strategy Institute) 2004. See also R. Richard Geddes, “Pricing by State-owned Enterprises,” Cornell University working paper (2006).
50 Geddes, “Pricing by State-owned Enterprises.” A competitor brought similar charges against the Japanese Post, though it did not win the case. Editorial, “Japan’s Postal Behemoth Digs In on Deregulation,” Wall Street Journal, January 6, 2000, A14.
51 US Postal Rate Commission, Domestic Mail Rate History (http://www.prc.gov/rates/stamphistory.htm) and 2006 Rate Source: USPS Express Mail Rate Table (http://pe.usps.com/text/dmm300/ratesandfees.htm#wp3804532). See also Lott, “Predation by Public Enterprises,” 237-251.
52 John R. Lott, “Predation by Public Enterprises,” Journal of Public Economics no. 43 (1990): 237-251.
53 NASA claims that it costs about $450 million to launch each shuttle, though other estimates are much higher. The cost of taking cargo into orbit is now over $20,000 per pound. NASA, Frequently Asked Questions, Kennedy Space Center, http://www.nasa.gov/centers/kennedy/about/information/shuttle_faq.html#10. See also Milton R. Copulos, “Hearings before the House Committee on Science and Technology, subcommittee on Space Science and Applications,” June 18, 1985,1-2, and Associated Press, “Critics scrutinize cost of shuttle,” USA Today, February 4, 2003 (http://www.usatoday.com/news/nation/2003-02-04-shuttle-critics_x.htm).
54 John M. Logsdon and Ray A. Williamson, “U.S. Access to Space,” Scientific American, vol. 260, no. 3 (March, 1989): 34-40.
55 See John R. Lott, Jr. and Tim Opler, “Testing Whether Predatory Commitments are Credible,” Journal of Business, vol. 69, no. 3, (July 1996), 339-82 and Lott, Are Predatory Commitments Credible?: Who Should the Courts Believe? (Chicago: University of Chicago Press, 1999), Chapters 1 and 2.
56 For more examples, see Lott, Are Predatory Commitments Credible?, University of Chicago Press, 1999.
57 For a discussion of guilds in Paris and Genoa see Steven A. Epstein, Wage and Labor Guilds in Medieval Europe, (Chapel Hill: The University of North Carolina Press, 1991).
58 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations [1774]. Edited by E. Canna, (Chicago: University of Chicago Press, 1974) 133, 136-7. Milton Friedman wrote his dissertation on how modern professional licenses restrict entry into a profession in order to drive up incomes. See Milton Friedman, “Income from Independent Professional Practice,” Ph.D. Dissertation, Columbia University, 1946. Also published in: Milton Friedman and Simon Kuznets, Income from Independent Professional Practice, NBER Publications, (New York: National Bureau of Economic Research, 1954).
59 Epstein, 1991, 106-09, 141-43. See also Richard MacKenney, Tradesmen and Traders: The World of the Guilds in Venice and Europe, c. 1250- c. 1650, (Totowa, New Jersey: Barnes & Noble Books, 1987).
60 Robert J. Havighurst, study director, National Commission on Accrediting: Commission on the Study of Optometric Education, National Commission on Accreditation: Washington, D.C. (1973), and David P. Bianco, ed., Professional and Occupational Licensing Directory: A Descriptive Guide to State and Federal Licensing, Registration, and Certification Requirements, (Detroit: Gale Research Inc., 1993), 697-704.
61 Helen Hofer Gee and E. Shepley Nourse, Admission Requirements of American Medical Colleges Including Canada, Association of American Medical Colleges, Washington, D.C., 1960. See also Comprehensive Guide of Bar Admission Requirements, American Bar Association Section of Legal Education, 1989, and AAMC Curriculum Directory, Association of American Medical Colleges, Washington, D.C., 1972-1980.
62 Bureau of Labor Statistics, “Training, Other Qualifications, and Advancement,” U.S. Department of Labor, Occupational Outlook Handbook (http://www.bls.gov/oco/ocos169.htm#training).
63 David P. Bianco, 1993, 155-190.
64 Bianco, 1993.
65 Association of Real Estate License Law Officials, 1991. Also based upon an interview with Joe McClary from the Association of Real Estate License Law Officials (334) 260-2928).
66 Data are for the U.S. during the 2001-2002 academic year. Wendy Stock and John Siegfried, “Time-to-Degree for Economics Ph.D. Class of 2001-2002,” American Economic Review (May 2006): 467-474. The ranges of time-to-degree were obtained by the author from Wendy Stock.
67 Charlotte Tubbs, “Teacher Job Fair Attracts 1,500 Prospective Educators,” Arkansas Democrat-Gazette (Little Rock), February 6, 2005.
68 John R. Lott, Jr., “Why Does Professional Licensing Rely on Minimum Schooling Requirements,” University of Chicago Working Paper, 1996.
69 There are two types of tests that doctors take to practice: board and licensing exams. Doctors can in theory practice with just a license, but hospitals will rarely let a doctor perform surgery without the doctor being board certified. Board exams are different than the licensing exams and these tests do try to evaluate skills, such as a surgeon’s ability to perform an operation. For information on licensing see G.F. Dillon, J.R. Boulet, R.E. Hawkins, and D.B. Swanson, “Simulations in the United States Medical Licensing Examination,” Quality & Safety in Health Care, 2004:i41-i45 (http://qshc.bmj.com/cgi/content/full/13/suppl_1/i41); Kate Shatzkn, “Test for better bedside manner fulfills Melnick’s mission,” Physician Executive, July-August 2004 (http://www.findarticles.com/p/articles/mi_m0843/is_4_30/ai_n6133525) and Anthony M. Alleman and Al F. Al-Assaf, “Have you Wondered About Your Colleague’s Surgical Skills?” American Journal of Medical Quality (March/April 2005): 78-82 (http://ajm.sagepub.com/cgi/reprint/20/2/78.pdf).
70 This also explains why the length of the time requirements gradually increase over time. As a profession’s overall quality falls, professionals keep expanding school requirements in order to discourage increasing numbers of ambitious aspirants from joining the profession. As the quality of existing professionals declines, hardworking, ambitious students become more serious threats as potential competitors in the field. Of course, testing also plays an important role by maintaining a floor on the quality of entrants. Professions may run into trouble if the quality of new entrants declines too much.
71 This discussion is based upon Robert G. Hansen and John R. Lott, Jr., “Regulating Indoor Air Quality: The Economist’s View,” The EPA Journal, vol. 19, no. 4 (October-December, 1993): 30-31.
72 Http://miltonfriedman.blogspot.com.
Chapter Four: Crime and Punishment
1 Robert E. McCormick and Robert D. Tollison, “Crime on the Court,” Journal of Political Economy 1984, 223-235.
2 The original work on this point was done by Brian Goff, William Shughart, and Robert Tollison, “Batter Up!: Moral Hazard and the effects of the designated hitter rule on hit batsmen,” Economic Inquiry, July 1997. See also John C. Bradbury and Douglas J. Drinen, “Crime and Punishment in Major League Baseball.” Economic Inquiry, 2007.
3 Michael E. Staten and John Umbeck, “Information Costs and Incentives to Shirk: Disability Compensation of Air Traffic Controllers,” American Economic Review, December 1982, 1023-1037.
4 Larry L. Bailey, David J. Schroeder, and Julia Pounds, “The Air Traffic Control Operation Error Severity Index: An Initial Evaluation,” U.S. Department of Transportation, Federal Aviation Administration, April 2005. Http://www.faa.gov/library/reports/medical/oamtechreports/2000s/media/0505.pdf.. See also Staten and Umbeck, “Information Costs,” 1034-1035. The “Operation Error Severity Index” is based on a number of factors: vertical and horizontal separation distances, relative flight paths, cumulative closure rates, as well as the air traffic controller’s awareness of the problem. If controllers want to increase their error rate without actually causing mor
e accidents, errors should occur during relatively light traffic volumes, not primarily when the controller is “overloaded.” And indeed, Staten and Umbeck cite evidence for this.
5 Eric Ferkenhoff, Darnell Little and David Mendell, “Murders in Illinois jump by 10%,” Chicago Tribune, June 30, 2002, C1.
6 The data were obtained from the FBI UCR data: http://www.fbi.gov/ucr/ucr.htm.
7 Lynette Clemetson, “The Gospel According to John,” Newsweek, February 12, 2001, 25.
8 Valerie Pottie Bunge, Holly Johnson, and Theirno Balde, “Exploring Crime Patterns in Canada,” Crime and Justice Research Paper Series, Statistics Canada, Ministry of Industry, 2005. Canada had a smaller percentage drop in its murder rate than did America in the 1990s, but it already had a lower murder rate when the decade began. Canada registered a lower murder rate despite the fact that its overall violent crime rate, surprisingly, is about 50 percent greater than America’s. The International Crime Victimization Survey, http://www.unicri.it/wwd/analysis/icvs/pdf_files/key2000i/app4.pdf.
9 The information for these figures was obtained from: http://www.ojp.usdoj.gov/bjs/glance/tables/viortrdtab.htm, http://www.ojp.usdoj.gov/bjs/glance/tables/proptrdtab.htm, http://www.ojp.usdoj.gov/bjs/dtdata.htm#crime, and http://www.disastercenter.com/crime/uscrime.htm. The reported crime rate is obtained by dividing the number of crimes reported to police departments by the National Crime Victimization Survey that indicates the number of crimes people reported to the pollsters. The arrest rate is obtained by dividing the number of arrests by the National Crime Victimization Survey that indicates the number of crimes people reported to the pollsters.
10 FBI Uniform Crime Reports, Crime in the United States, September 2006. Http://0-www.fbi.gov.mill1.sjlibrary.org/ucr/05cius/data/table_07.html.
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