I came home from the airport today to discover my car had been broken into again, only this time they decided to enter by shattering my front window, which will now cost me $200 to replace.  I feel bad for the person who is in a situation where he has to break my window to steal what amounted to about $4 and some pens, but I can’t imagine that it was worth the effort.  It also nets a $204 loss to me, while only a $4 gain to him.  The Coase Theorem teaches us that we would both be better off if I just gave $5 to him. He’d have an extra dollar, and I wouldn’t have to replace my window.

Of course, some people call paying someone not to break your stuff extortion.  If only I could pay a group of people to protect me from potential car-robbers.  I could even pool my money with other car-owners and they could protect all cars, not just mine.  And maybe, while they’re at it, they could protect people from murders, or guard public events.  And as long as they’re protecting everyone, maybe we could fund them through some sort of tax scheme - after all, their protection would be a public good.

But what would we call such a group, and who would stop them from beating the crap out of everybody?

Categories: Community, Governance, Incentive Centered Design, Law, Politics
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My roommates and I do a decent job of keeping our apartment clean, but there’s definitely room for improvement in our systems.  The problem is that cleaning our apartment is a public good, and like any public good, there’s tons of room for free-riding.  Anyone who has ever had roommates has most likely dealt with dirty dishes in the sink, or papers on the table, or piles of unread mail.  Unfortunately,  my brilliant idea, described below, is something only an economist could love, and I live with lawyers.

The solution to our problem, of course, is to attach a price to the various household chores we want done and compensate the person who accomplishes the task by having the other two roommates pay him.  I struggled with how to set the optimum level of payment for each task.  We could have each person decide how much they’d pay for the task, but what if nobody wanted to work at that level?  An alternative is to say how much each person wants to charge, but what if nobody pays it?

Co-op housing attempts to solve this problem through a system of fines and penalties, but if the fines are too low, then it will be seen as a charge for the service and not a penalty (thanks behavioral economics!).  You can force compliance by making the charges too high, but then there’s an opportunity for trade - between people who want to clean or need money and those who don’t - that’s being missed.

The optimal solution goes back to game theory - which teaches us how to incent both action and truth-telling.  There’s a classic problem in game theory where two business partners are trying to split a pie, or their company, or something.  Anyways, two people are trying to split something - and the best way to find an equitable split is to have the first player propose how much the pie/company is worth to them, and the second player decides whether to buy them out at that price, or sell to them at that price.  Because Player One doesn’t know which option Player Two will choose, they want to be as honest as possible about their true value of the pie/company/something, and will be indifferent between the two options.

The same goes for cleaning the apartment.  Give one roommate the option of saying what they value the chore at.  The other roommate has the option of either completing the chore at that price, or they can pay to have it done.  Running through the register of household cleaning tasks should create an equitable outcome, or give one roommate some supplemental income as a maid.  Either way, everyone wins - we all get to live in a clean apartment.

How’s this for a long post, Mom?

Categories: Behavioral Economics, Crazy Theories, Governance, Incentive Centered Design, Information Economics, Strategy
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Gruntled Employees has a two word corporate blogging policy:

“Be professional.”

If your employee-bloggers are posting the secret-sauce recipe, bad-mouthing customers, or distributing NSFW (not safe for work) art, fire them. And if you’re concerned that your employees won’t understand what you mean by “be professional,” then you have a management problem or an employee problem. Or both

Categories: Business and Economics, Governance, Managing, Social Software
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Via ConfessionsofaCommunityCollegeDean, a Chronicle article on the importance of shared governance in universities:

Shared governance, especially in the context of a search for a top administrator, means that professors, staff members, and sometimes students get to participate in the process — unlike the bad old days when a university official could hire whomever he (and it was invariably a male) wanted without any input. “Shared” means that everyone has a role…
…
“Shared” doesn’t mean that every constituency gets to participate at every stage.
…
Clearly, the main reason why a search — especially for an administrator — cannot be a simple matter of a popular vote is that someone must remain accountable for the final decision, and committees cannot be held accountable.

Many governance institutions break down because they are a committee structure that is charged with decision making, rather than oversight, and no single individual is responsible for outcomes. At the same time, individual committee members will invariably cry foul when their own brilliance is dismissed by the group or the decision maker.

Categories: Careers, Governance, The Academy
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The one thing each donor had in common? Recognition of KIPP’s past performance. Like it or not, this is what donors are after: an assurance that their donation will produce results. And school choice critics can bash KIPP until they’re blue in the face, but KIPP has produced results that are not merely outstanding and quantifiable, but predictable. These donors clearly believe that KIPP can expand and retain its same high standards. Could they be wrong? Sure. But it’s a calculated risk they’re willing to take.

Donors are funding the Knowledge is Power Program because they measure and deliver results.

via Joanne Jacobs

Categories: Education, Governance, Metrics, Philanthropy
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After an experience at a restaurant, the Evil HR Lady says:

We don’t train our managers correctly. We don’t teach them what they, as the manager, should fix and what their employees should fix. Managers are scared to let employees have any power–for fear they’ll make the wrong decision. If your employees are poor decision makers, you should not have hired them in the first place. Hire good employees and let them do their work.

Customers want the person they’re dealing with to be able to fix their problems, not have to pawn it off on someone else. If your employees need to get management approval to improve customer experience, they’re wasting everyone’s time. Better to hire talented people, focus them on the customer, and trust them to make the right choices. Let managers manage, and trust the employees who handle your most precious asset, your customers, to make the right decisions, because if you don’t, your customers will leave for a company that does.

Categories: Business and Economics, Careers, Customer Engagement, Employee Engagement, Governance, Managing, Marketing
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Also, if faculty governance actually means something, then faculty unionization makes no sense. You’re either management or labor; not both. If you really run the place, then you’re management. If you claim to run the place and you unionize to negotiate against it, I’d call that ’self-dealing.’ It’s a flagrant ethical violation, and of dubious legality. You can’t have it both ways.

From this blog that I just discovered, featuring the musings of an Anonymous Community College Dean

Categories: Careers, Education, Governance, Law, The Academy
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From the dumbest column I’ve ever read in Slate (which I normally read before anything else):

Suppose the national defense of the United States were relegated to the private sector. Instead of the publicly funded Army, Navy, Air Force, and Marines, the country would be defended by private militias funded mainly by insurance companies. In the event of foreign attack on U.S. soil, the militias would defend those citizens in the affected areas who’d paid defense insurance premiums through their places of work (or, if self-employed, as individuals).

The best-armed troops would defend the wealthiest and most hawkish segments of the population, who would have paid the highest premiums.

The premise of the article is that we should nationalize health care because it’s like the military, and look how good a nationalized military is. Wow, lets go through all the ways this is flawed.

1. National Defense is a public good, health care is not. You may think that health care is a right, or something everyone is entitled to, and those are philosophical positions, but health care doesn’t fit the definition of a public good in the economic sense. First of all, it isn’t non-rival, which means that if I consume some health care, you can’t consume that same amount. If I take a pill, or use a X-Ray machine, you can’t take that same pill or use the machine at the same time. In contrast, an army that protects the United States offers the same amount of protection, whether or not you add more people to it. Second, health care is excludable. I can stop you from taking a pill or getting that X-Ray if you don’t pay for it. But with national defense, if you don’t pay your taxes, the army still protects you. There are fundamental characteristics between them that make them different.
2. In general, everyone in the country shares the same risk if the country is attacked. Granted, people in high-risk areas may suffer a greater risk due to terrorism, and that is actually reflected most of the time in higher local tax rates to support police counter-terrorism, or insurance premiums for potential targets. In general, though, if there is a large scale attack against the United States or its allies, the risk to all of us is the same. When it comes to health care, we all have different amounts of risk, and only minimal information about that risk. Well planned insurance lets us pool this risk to reduce the cost to individuals and overcome some of this information problem. Nationalized health care has nothing to do with risk pooling, and it effectively involves the health and low-risk subsidizing the unhealthy and high-risk.
3. National defense is a pretty bad example. There’s definitely consensus on the left, and I think among some people on the right that we spend way too much on national defense. It costs the Defense Department orders of magnitude more to procure technology that is available cheaply in the private sector. Defense technology research involves massive outlays relative to the returns. The military is a sprawling and inefficient bureaucracy with a sprawling and inefficient supplier network supporting it. Do we really want to take our relatively dynamic biomedical research sector and make it part of a government supplier complex? Is this really a way to reduce costs?

I later found that Arnold Kling took a briefer, though probably more economically informed shot at the column as well.

Categories: America, Business and Economics, Distribution, Governance, Incentive Centered Design, Information Economics, Politics
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Chris Anderson has noticed that risk aversion and a lack of imagination are making CIOs irrelevant:

The consequence of this is that many CIOs are now just one step above Building Maintenance. They have the unpleasant job of mopping up data spills when they happen, along with enforcing draconian data retention policies sent down from the legal department. They respond to trouble tickets and disable user permissions. They practice saying “No”, not “What if…” And they block the ports used by the most popular services, from Skype to Second Life, which always reminds me of the old joke about the English shopkeeper who, when asked what happened to a certain product, answered “We don’t stock it anymore. It kept selling out.”

Later on he notes that this is the biggest problem at universities:

The life of a university CIO is like the life of a telco CEO, fast forwarded by about five years. The users want a dumb pipe, preferably at gigabit speed. They neither need or want the university to administer their email, wikis, blogs, video storage or discussion groups. They want it to simply get out of their way.

From what I know, universities didn’t create CIOs until recently, and they don’t really have much function. Most departments manage there own IT. In the liberal arts, this just means faculty and administrator desktops, but in the hard sciences it usually involves research equipment that goes over the central service’s head. Yes, there are certain shared services that the university needs - most importantly single sign-on, but I’d argue mail and file storage as well - but then get out of the way. With the price of storage as low as it is, I can’t imagine why universities have such low quotas, which is one of the things that drives engineering and art colleges to run their own parallel systems. If your job is keeping the lights on, that’s where you need to innovate - give people the tools they need to do what they want to do better, don’t blow money on tools that other people do better, cheaper.

And, as in all cases, if you’re having discussions about whether or not you’re relevant anymore, it means you’re already irrelevant. It’s time to either reinvent what you do, or stop wasting resources.

Categories: Business and Economics, Governance, Information Economics, Libraries, The Academy
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Googling around I found this Jewish Week article on why Jewish mega-philanthropists aren’t donating to Jewish causes:

Our annual research of mega-gifts — gifts above $1 million — turns up at least 50 people who could match or exceed Stanton’s generosity. Typically, these are wealthy Jewish business leaders who give only relatively modest gifts to Jewish causes.

It’s tempting to write these people off as uncommitted Jews, but it would be wrong.

If Jewish causes want to receive mega-gifts, they have to prove themselves worthy. They have to compete on equal ground with the secular hospitals, symphonies, museums and universities, all of which court and inspire Jewish donors.

The money-paragraph at the end:

Look at it this way: Today’s philanthropists think like investors, because that’s how they got wealthy. They want their money to achieve a return; they want results.

That means Jewish causes need to change the way they run their businesses.  Want to attract investment?  You need a clear definition of what you hope to accomplish, a strategy for accomplishing it, and clear metrics that demonstrate your progress.  Even more importantly, those metrics have to reflect your goals, not your activities.  Non-profits, especially in the Jewish community, need to treat their donors like corporations treat their shareholders, and start to demonstrate real, measurable results.

Categories: America, Community, Governance, Jewishness, Metrics, Philanthropy, Strategy
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Turner Broadcasting and their ad agency are paying the city of Boston $2 million after law enforcement there confused a glowing Mooninite advertising the new AquaTeen Hunger Force movie with a terrorist threat.  Half will be “goodwill” funds given to the agencies for training and equipment.  Does this mean they just got a million dollars for their screw up?  Will they use this to prevent a similar embarrassment?  Doesn’t this provide an incentive for police departments to overreact, forcing a settlement with corporations who will then pay up to prevent a PR disaster?  After all, none of the departments in 9 other cities, who figured out that a glowing Moon Man isn’t a bomb, got any free money.
The companies can’t say what I’m going to: Boston law enforcement overreacted and behaved in a bumbling and incompetent manner.  The more we are willing to kowtow to our fears of terrorism, the more effective it becomes as a tactic.

Categories: America, Entertainment Media, Governance, Incentive Centered Design, Law, Marketing, Television
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Newly elected New York governor Elliot Spitzer is going to tie school funding to performance metrics:

Schools that do not perform well, he said, would be shut down. Educators who do not meet performance goals would be dismissed. A new accountability system would monitor how schools are performing academically and whether they are making the best use of their money, he said. Also, the schools will be judged on whether their academic programming is helping students perform better.

Categories: Education, Governance, Incentive Centered Design, Metrics, Politics
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It also raises several questions. Has the American reaction to the attacks in fact been a massive overreaction? Is the widespread belief that 9/11 plunged us into one of the deadliest struggles of our time simply wrong? If we did overreact, why did we do so? Does history provide any insight?

Certainly, if we look at nothing but our enemies’ objectives, it is hard to see any indication of an overreaction. The people who attacked us in 2001 are indeed hate-filled fanatics who would like nothing better than to destroy this country. But desire is not the same thing as capacity, and although Islamist extremists can certainly do huge amounts of harm around the world, it is quite different to suggest that they can threaten the existence of the United States.

Historian David Bell asks “Was 9/11 Reall That Bad?“   It’s only Monday, but I’m going to call this as the must-read for the week.

Categories: America, Governance, Politics
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According to Slate, an attempt to get a nobody elected to the NHL All Star Game has exposed gross incompetence on the part of the site administrators and league officials:

How did the Rory Vote-O-Matic work? According to Touesnard, online security at NHL.com was pathetic. The league tried to counter automated scripts by making voters decipher words embedded in distorted images—a system known as CAPTCHA. But the NHL used only 51 different picture files and each one had a predictable name, like “1.gif.” All the Rory hackers had to do was create a table that linked up each file name with the appropriate pass phrase. Touesnard coded up the Vote-O-Matic in just a few hours.

Incentive centered design problem for online voting, anyone?

My favorite tidbit:

Some have even gone so far as to suggest the whole thing was orchestrated by the league’s viral marketers, who have been pushing a fan-centered brand under the slogan “My NHL.” But it’s hard to imagine how anything positive could come from such a parade of scandalous incompetence.

Having viral marketers is stupid enough on its own.  Then giving them positive credit for something they didn’t start and subsequently blatantly mismanaged?

Categories: Business and Economics, Community, Governance, Incentive Centered Design, Information Economics, Information Markets, Marketing, Social Software, Users as Partners
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Jane Galt has some interesting posts on the war in Iraq (start here, revisited here, again here), the debate leading up to it, and how everyone has 20/20 hindsight. Before the war, my opinion was that it was a bad idea because we didn’t have a clear goal, and more importantly, I didn’t think we could pull it off. I admit I wasn’t very vocal about it, because it was tough to find a place on the anti-war “fighting is wrong” left, and you couldn’t really get away with saying “the military is great, just not that great.” What I don’t get, though, is why so many otherwise rational people, who are usually so skeptical of government’s ability to solve huge problems, actually thought that the military could accomplish all of its goals in Iraq: find Weapons of Mass Destruction, dismantle the government, create a new one, and keep the peace. That’s still my biggest issue: why did people actually think this would work, given all the prior evidence from American military experience.

Unlike most anti-war activists, I don’t really question the motivations for going to war. I think that most supporters were genuinely afraid or genuinely wanted to overthrow the government. What I don’t get is why they were so cocky they thought they could pull it off without thousands of people dying and things getting worse before they got better. Making democracy is really, really hard. We’ve been at it for over 230 years, and we’re still figuring a lot of things out. And we started from scratch. By the way, that is not an argument for staying the course.

Somewhere in Yithak Rabin’s memoirs, he talked about a meeting with Henry Kissinger where he said that the only way you could win a war was if you had a clear objective and ended it once that was accomplished. The Powell Doctrine was pretty similar - you need to have an exit strategy. We never had a clear objective, a clear measure of when it was accomplished, and we never had an exit strategy, all things that we needed at the beginning. This isn’t hindsight, this is foresight that we should have had from the 70’s, 80’s, and 90’s, but that we keep forgetting.

The lesson everyone learns from prolonged military engagements or occupations is that they don’t work, that you can’t beat an entrenched indigenous insurgency, and that conventional militaries are bad at unconventional warfare. So why, every decade or two, does someone roll around and forget all this?

—Update, like 5 minutes later—

Robin Hanson says it might be due to an overconfidence bias among hawks.

Categories: America, Governance, Politics, Strategy
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