TANSTAASWF Still Holds—Still Not Liking Them Pigouvian Taxes

Okay, so in my previous post on Pigouvian taxes, I said that I would look at a couple of papers to try to determine the methodology behind their social welfare functions.  Well, today I did so and I have to say that I don’t think that they really sate my hunger on this issue.

The article from Ross McKitrick entiteld What’s Wrong With Regulating Carbon Dioxide Emissions doesn’t pique my ire at all.   I highly recommend it because it is an easy read, is very well-written, and briefly explains the problems with regulation in this case.  The only time that he mentions “social costs,” he means nothing more than “aggregated individual costs” and does not attempt to justify a Pigouvian tax.  In fact, he criticizes it by noting that there are major costs to individuals brought about by such taxes on carbon dioxide production.

And there is also the Ian Parry and Kenneth Small article entitled Does Britain or the United States Have the Right Gasoline Tax?   This is a much more technical paper and I was mostly interested in the methodology rather than the conclusions.  In particular, I wanted to know how they determined their social welfare function to justify a Pigouvian tax.  Well, there are two tricks here.  First of all, they don’t really justify a Pigouvian tax, but rather a “quasi-Pigouvian” tax with a Ramsey tax element to it.  Though the interesting thing about their idea of the gasoline tax is that even though the Pigouvian element makes up roughly 75% of the “optimal” tax for the US and UK, pollution itself plays a minor role, and fuel-related pollution is swamped by congestion and accident indicators (though combining fuel-related and distance-related pollution components makes it so that the pollution effect is almost 1/3 of the Pigouvian element, or 1/5 of the total tax).

But that’s not the important part.  Rather, the part I consider most important is figuring out how they derive a social welfare function.  After all, the only way that a Pigouvian tax makes sense is if the social optimum is different than the individual optimum.  And here, we run into a bit of a problem.  Their social welfare function is a straight utilitarian function—which itself makes me wonder what a reason (other than methodological simplicity) the authors would have for selecting such a function.  And the way they chart said social welfare function is to take a “representative household” approach (so that you can get the entire economy by multiplying the result by the number of individuals in said economy).  But this still leaves the big problem of calculating individual utilities and still forces me to ask why this particular function is the most appropriate function to use.  From what I’ve read of their methodology, the results would differ greatly if you use a different social welfare function (such as a Nash function or Rawls function or even a weighted utilitarian function), so this is still an important point to consider.   And finally, this aggregation method assumes that utilities here are cardinal, or at least can be proxied by cardinal terms (such as using dollar figures, as Parry and Small do), and that’s not something I terribly like, especially when you are attempting to calculate a real value (such as this $1.01 per gallon gasoline tax figure).

So I’m still rather unhappy with the idea of a Pigouvian tax, and am still on the lookout for a paper which deals with social welfare functions rather than assuming that they’ll be fine to use.


No More Pencils, No More Books

I completed my last exam today.  I’m sure I have passed all of my examinations* and I will find out in due time what my grades are.  But as Barbara Farrelly would say (and has said many a time), grades are not a measure of personal worth.

Tomorrow, I shall start The Great Summer Plan, which will continue through, well, the summer.  I can’t wait to dig into my AI books and get back into doing Hebrew.  Now that I’m done with the stuff that I have to do, I can get to the stuff that I want to do.

But right now, what I want to do is sleep.  And that’s exactly what I will do.

* – This all assumes that I have not accidentally miscounted and shorted myself by a certain number of credit points.  I really doubt that I have, but there is a non-zero possibility that I will have to take some kind of course next semester.  I really hope not…

Penultimate Examination Completed

Today was my penultimate exam:  Management Models.  Tomorrow I shall have my final final:  International Monetary Economics, Redux.  After that, I get to do some reading.

On my agenda is James Q. Wilson’s Bureaucracy, in which Wilson attempts to pin a theoretical understanding on how bureaucrats behave.  I’m very interested in the book and look forward to reading it.  I also was just looking around and found a book entitled Management of World Fisheries.  It’s a little old but I would like to learn something about this area, and figure that now would be as good a time as any to skim through such a book.

And in the mail today, I received my copy of AI Techniques for Game Programming.  I was looking at a few of the pages and it looks extremely well-written.  If I like the way that the author presents things, I’m going to buy his newer book on AI.  And I still have to get through the big heapin’ helpin’ of Genetic Programming by Koza.

Plus, as I promised last week, I’m going to read those two carbon tax articles and see what’s up with those.  Given my exams, I just haven’t had the time, especially because one paper is roughly 50 pages long.

So I have some reading to do, and I might even start some of this tomorrow afternoon.  Let us hope that my plans come to fruition.

The thought processes of the male and female Homo Sapiens

First off, sapiens is a participle in Latin. THERE IS NO SUCH THING AS A HOMO SAPIEN. Now that we’ve got that out of the way…

Assume, for a moment, that you have a decision to make. To simplify, it is a binary decision, i.e. A or not-A (or, if you like, A or B).  Here is the male decision tree:

Choice — Obligation? — Cost-benefit? — Decision.

As you can see here, the man has a choice to make. First, he determines whether he actually has a decision to make, i.e. is it obligatory? Second, he generally weighs several factors to determine whether he benefits or not. Now, there’s a case to be made for short term vs. long term benefit, but the process is the same either way.

Here, however, is the woman’s decision tree (highly theoretical):

Choice — PMS? — Chocolate? — ???? — Decision.

The only two things I have been able to successfully isolate as variables that apply for all variables are PMS and chocolate. PMS negatively affects decision making, chocolate positively so.  However, there is also a ???? area. Where the man would have cost-benefit analysis, the woman has some sort of mystical decision making process. Perhaps, like the Roman auspices, she examines the entrails of birds. The important thing is that this ???? is WHOLLY INCONSISTENT. Given the same set of factors in the same situation, the woman will make DIFFERENT DECISIONS. This makes predicting female behavior impossible. It isn’t that she chooses the opposite decision of the man in every situation; this would be easy to predict. No. It is the equivalent of making decisions with a random number generator, dividing that number in 2 until you reach a prime number, take the cube root, and then base your decision on the color of the first person’s shirt you see. Or something. You can’t even use the Chewbacca defense because they occasionally do make sense.

Ladies, this is why men don’t get you. Nothing is guaranteed to produce a consistent result. And this mystery decision making process applies to ALL women. If any of you can provide a consistent formula for how to predict your behavior, even if it only succeeds 60% of the time, mankind as a whole will be better off.

Books On The Shelf

Tyler Cowen, as usual, has an interesting question:  should the number of books on your bookshelves be mostly read or unread books?   As part of this, he makes a little tongue-in-cheek comment concerning Austrian economists needing to be on the extreme of the unread side if they really believe in Knightian uncertainty.

Well, I am happy to say that no karmic retribution will be coming my way…at least on this front.  At home, I would estimate that 90% of my books are unread.  And even here, excluding reference books, I have 15 books in Germany and will soon have a 16th.  I have completely read through 3 of them and a 4th one is mostly done.  This is great news for karma, but horrible news for traveling, as I have to ship all of these home…

Happy Ten O O O to Us!

A few days ago, we passed the 10,000 total views benchmark. Which makes us a pretty inconsequential site, but quite a bit more than just a means of three college buddies to keep in touch, which is what I thought this blog would be. Lately we’ve been getting about 150 views a day. I’d like to share some of the searches that have lead to views of our site.

“Can’t believe how strange it is to be anything at all”
“I have a horrible dream”
“Whiny cat”
“Pronouce Proust”
“The women who didn’t decay”
“eHarmony number of matches”
“Monopoly Kingdom of Loathing”

And the dude or dudette who searched for women who don’t decay liked us so much as to view us six times. So I’d say we’ve succeeded in the eccentricity department.

Occasionally someone Googles one of our names, and when it’s mine this is pretty disconcerting. Who are you, and what do you want from me?!

Most of our searches seem to be from people who are looking for neked redheads, which is awesome because my redhead posts are among the crappiest I’ve written. At least Mandolin, who claims to be a redhead, liked one of my posts enough to e-wink at Kevin and me, causing us to respond with the blushy emoticons, though we didn’t publish these reactions.

Props to Kevin for getting commented on by the Pigou Club.

So where do we go from here? I’ve been thinking about making some serious, non-BS philosophy and literature posts. I don’t know, sounds a little too much like hard work, and throwing things out there that I have to be held somewhat accountable for.

On Israel, peace!