Three items on copyright and revenue all on the same day.

First, is Taylor Swift’s open letter to Apple upbraiding them for not paying royalties to artists for their music during the trial period of its new streaming music service.  It caused the weenies at Apple to change their tune.

Second, a high court ruling in the UK which erased an earlier UK decision that made it lawful for users to copy purchased content for personal use. Related is freedom of panorama  which permits the photographing of copyrighted buildings and sculptures in public places. Up for vote this summer before the European parliament is legislation that would restrict such rights.

The Swift letter echoes the points she made earlier when she pulled her wares from Spotify:

“In my opinion, the value of an album is, and will continue to be, based on the amount of heart and soul an artist has bled into a body of work, and the financial value that artists (and their labels) place on their music when it goes out into the marketplace.”

One of the more poetic renditions of the labor theory of value I’ve read. Here is another line from the same missive:

“Valuable things should be paid for.”

No. Its the added value of a good or service that commands a premium. Pearsall-Smith got this right when writing of the novelists of his age.

“The diction, the run of phrase of each of them seems quite undistinguishable from that of the others, each of whose pages might have been written by any one of his fellows.”

Thus, the question is whether the heart and soul each artist bleeds into their work serve to differentiate it in a way that matters from others. The effectiveness of music recommender systems suggests not.

Enough of `Swiftian’ logic and lets turn to the UK high court ruling. The Electronic Frontier Foundation complained that it contained more economic theory than common sense. An irritating remark as the level of theory barely exceeded that you would find in an intermediate micro-economics course. It makes me wonder whether the pundits at the EFFs ever went to college.

The ruling is a perfect example of how consistency can become a procrustean bed. The UK government had earlier made the duplication of copyrighted material for personal use legal. It claimed that its reasons for doing were consistent with an EU copyright directive that requires the copyright holder to be compensated for forgone revenues lost to copying. The Judge concluded that the government’s rulings were, in fact, inconsistent with the EU directive and overturned it making copying for personal use illegal.

The law, as Dickens said, is an ass (the quadruped not the posterior). So, lets focus on the economics. The ruling by the way quotes Varian’s 2005 piece in the Journal of Economic Perspectives as well as Boldrin and Levine.

Suppose I sell you a song in a medium which is costly to reproduce and transport. If you want to listen to the song both at home and in your office you must purchase two copies. Now, a sea change. The medium on which the song is transmitted changes. The cost of duplication and transport is now zero. Am I worse off? If I am, then under the EU directive I should be compensated for this loss.

With this sea change, you would buy one fewer copy. However, I, recognizing the sea change gives you the same benefit as buying two copies, can simply raise my price to account for this. The High court ruling called this  pricing-in and the case turned upon whether the music seller, me in this example, could perfectly price-in. If not, then under the EU directive I am entitled (bizarre, I know) to compensation for lost profits.

If the sea change allows you to consume music in ways you previously could not (in the bathroom, in your car at night etc.) then it seems obvious that I could anticipate this and price-in. If the sea-change allows you to copy and distribute my music costlessly, then, I may be forced to sell my music at a discount or withhold it (see the Varian paper for intermediate cases). Whether I am harmed or not depends on whether you intend to use the sea change for personal use or to compete with me.

Interestingly, the discussion in the ruling as well as Varian’s paper ignores those who own the devices for transmitting, duplicating, storing and playing the music. Lets use the example in Varian pg. 11. You are willing to pay $20 for home use of a CD and $10 (actually 10 - \epsilon to break ties) for office use. The cost of copying is initially infinity.

The revenue maximizing price is clearly $20 for a CD, unless I could use a 2-part tariff. Now a third party develops a technology for copying CDs that is simple and convenient. Copying is now legal. Under the pricing-in story I should just charge $30 (assuming you have the technology). I’m better off and you are no worse off. However, we have ignored the owner of the copying technology. You, the music consumer have $30 to shell out. I can certainly capture $20 of it but to capture the remaining $10, I need the owner of the copying technology. Any simultaneous split of the $10 is a Nash equilibrium. The point is that the music and the technology that allows one to copy, format shift etc complements the music itself. That $10 is a joint gain to the owner of the song as well as the owner of the copying technology. One might argue that the owner of the copying technology is entitled to the full $10 as it is her innovation that allowed one to capture it. Hence, the copyright holder, me in this example, suffers no loss from the fact you can now copy my music.

Consider the following passage:
The first sound in the mornings was the clumping of the mill-girls’ clogs down the cobbled street. Earlier than that, I suppose, there were factory whistles which I was never awake to hear. There were generally four of us in the bedroom, and a beastly place it was, with that denied impermanent look of rooms that are not serving their rightful purpose. One afternoon, early in October, I was invited to black coffee at Fritz Wendel’s flat.  Fritz always invited you to ‘Black coffee’ with emphasis on the black. He was very proud of his coffee. People used to say that  it was the strongest in Berlin. Fritz himself was dressed in his usual coffee-party costume–a very thick white yachting sweater and very light blue flannel trousers.
Was it written by George Orwell or Christopher Isherwood? In fact, both. Its part of a longer passage composed by Cyril Connolly, a noted literary critic, whose name is now lost to posterity. The longer passage melds Orwell with Isherwood and Hemingway to produce something coherent (it appears in Connolly’s semi-autobiographical Enemies of Promise). With current technologies one wonders if one might form an entire novel using only sentences that have appeared in various other books.
What was Connolly’s purpose for sampling in this way? It was to make a point about competition for market share in literature. Best to let him relate it in his own words:
This, then, is the penalty for writing for the masses. As the writer goes out to meet them half-way he is joined by other writers going out to meet them half-way and they merge into the same creature-the talkie journalist, the advertising, lecturing, popular novelist.

Fox News and CNN have been in knots recently about how to allocate scarce debate slots to the many Republican pretenders to the oval office. Should Poll numbers be the criteria? What about gender, race, state office etc. etc. There is a simple and transparent way to allocate the slots: an auction. Neither CNN or Fox are charities. If the debates are a public good, there is no reason why Fox and CNN alone should forgo profits to host them. They should, instead auction off the rights to participate in the debates.

What design questions would have to be answered? First, how much time to allocate to the debate, i.e., what is the supply of the resource to be allocated? Second, should one auction slots or time. For example, should it be 10 slots of equal time lengths in a 2 hour time period? Or, should one allow the bidders to bid on the actual amount of time they would get in the 2 hour period? Are candidates the only ones allowed to bid, or can anyone submit bids on their behalf? Can one bid to deny time to the candidates? Actually, as these are not debates at all, but parallel news conference, perhaps one should auction off the right to answer questions. In real time. That would be entertainment!

In England, a number of students who took the GCSE  mathematics test have been complaining about a question involving Hannah and her sweets. Here is the question:

There are n sweets in a bag. Six of the sweets are orange. The rest of the sweets are yellow. Hannah takes a random sweet from the bag. She eats the sweet. Hannah then takes at random another sweet from the bag. She eats the sweet. The probability that Hannah eats two orange sweets is 1/3. Show that n^2-n-90=0.

Not a difficult question. I would lengthen the last sentence to read: Use this information to show that n must satisfy the following equation. But a pointless one. It gives the study of mathematics a bad name. How is it we know there are only two colors of sweets in the bag without knowing n? How is it we know that there are only 6 orange sweets without knowing how many yellow ones there are? Why can’t I work out n by emptying the bag and counting its contents? In short, students are asked to accept an implausible premise to compute something that can be done simply by other means.

Is it the business of the US Government, indeed any government to police FIFA? Lets start with the legality of bribing of FIFA officials? Under a variety of laws related to commercial bribery, bribing them is indeed illegal. Were I to bribe the CEO of a public company to sell me, below cost, the wares of her company, it is right and proper for the shareholders to have the ability to punish the CEO. However, is it the obligation of the Government to police the CEO for the shareholders? When a FIFA spokesperson announces that it is the damaged party in this, why aren’t they mounting the investigation and bringing charges against those accused of accepting bribes?

When someone burgles my house, the state, upon being informed will mount an investigation. In the event they should identify the burglar the State will, on my behalf, prefer charges and prosecute. The State does not charge me a `user fee’ that is directly tied to the efforts it has made on my behalf. The expenses of the State are covered through my taxes. Were each individual to bear the full costs of investigation, prosecution and punishment, few would elect to do so unless the private gains exceeded the costs. This in a nutshell is the public goods argument for why the Government should police FIFA.

Government resources, however, are limited. Not every crime reported is investigated with equal fervor. Not every suspect is pursued with equal vigor. We give the Government the discretion to decide how best to provide the `public good’. What is the argument for prioritizing the prosecution of FIFA officials for accepting bribes? A New Republic  article by John Affleck suggests it is to preserve the `integrity’ of the game. I suppose the Bravo network is next in line for attention to preserve the `integrity’ of reality TV. Affleck goes on to quote Transparency International:

“Sport is a multi-billion dollar business engaging billions of people. It is also a global symbol of fair play and a source of great joy for many people on this planet, whether participating, attending or watching events,” the group’s introductory statement says. “With so much public involvement, political influence and money at stake, corruption remains a constant and real risk. Mounting scandals around match-fixing, major events and elections, and systemic deficiencies in sports governance are now so undermining public trust that it is reaching a tipping point.”

Billions of people can vote with their eyeballs. Read a book, watch Real Housewives of Atlanta, have sex, see a play. There are many ways in which we can spend our time while hanging around waiting to die. Soccer is just one. If Soccer is in danger of losing its audience surely this is a powerful incentive for FIFA `clean up’. The private benefits probably exceed the private costs of enforcement.

What if FIFA itself suffers from a collective action problem? Each official by themselves would prefer not to take bribes, but given everyone else is doing so, what is one to do? This is easily solved. Allow FIFA officials to be bribed. Instead of running beauty contests to decide where to hold FIFA events, auction off the right to the highest bidder. This can be done in two ways. Allow each FIFA official with a vote to auction off their vote to the highest bidder. Or, do away with the officials altogether and have countries bid directly for the right to hold FIFA events. Full transparency, no bribery and FIFA may be richer than before!

See the notice on the Game Theory Society website.

hardy's 11

G. H. Hardy leading his cricket team out onto the pitch.

A word that Paul Romer used in a recent piece in the Papers and Proceedings of the AER. Its inspired, no doubt, by Stephen Colbert’s notion of `truthiness’. Romer defines it as

Like mathematical theory, mathiness uses a mixture of words and symbols, but instead of making tight links, it leaves ample room for slippage between statements in natural versus formal language and between statements with theoretical as opposed to empirical content.

Romer is not the first to coin the term. Credit goes, I think, to Jordan Ellenberg. Ellenberg defined it as

…..a series of fervent gestures that gives the impression that mathematical ideas are being expressed, but doesn’t actually deliver the goods.

The recent turmoil in Baltimore and the news of Ray Fisman’s impending move to Boston University reminded me that he (along with Tim Sullivan) had penned a column for Slate on Jan 7, 2013 entitled:

Excellent Police: What the Baltimore P.D. can teach your office about multitasking and incentives.

In hindsight, the title seems ironic. The article itself is an excerpt from the author’s book on Organizations (in the genre pioneered by Freakanomics) and can be interpreted as illustration of Goodhart’s law. The article itself does not align perfectly with the title. Apparently, what the Baltimore PD has to teach us is what not to do as the following quote suggests:

To illustrate the double-edged sword of arrest incentives, Moskos recounts the example of a fellow officer who decided to set a record for monthly arrests. His plan: lock people up for violating bicycle regulations. At night, all bikes need a light. The officer would stop cyclists in breach of the bike light rule (which was most of them), ask for ID, and pull out his pad to write a citation. Most riders, though, were biking without ID, and since all offenses become arrestable without identification, the officer’s little scheme netted 26 arrests in a single month. A record. His sergeant was thrilled, telling Moskos, “Look, I don’t know what his motivations are. But I think it’s good. He’s locking people up, which is more than half the people in this squad.”

Finally got around to reading the PCES report on economics education at Manchester. The Francis Urquhart  half of my dual selves was duty bound to dislike it. My Urquhart self, would urge the authors to switch subjects and find  fulfilling careers in one of the caring professions, like, personal incontinence counselor. My milquetoast self prevailed and I buckled down to read it.

The report raises two issues and its writers have made the mistake of conflating them or at least not separating them clearly enough. The first is the effectiveness with which economics is taught. The second is what is to be taught.

On the first, the report makes for depressing reading. It summarizes an economics education as dull as ice fishing. For those unfamiliar with ice fishing, it is a sport (and thats being charitable) practiced by the inhabitants of Minnesota and the remoter parts of Wisconsin. In dead of winter, one drives a large vehicle over a frozen lake. If that were insufficient to tempt fate, one then cuts a hole in the ice for the ostensible purpose of catching fish. In practice one sits around the hole drinking prodigously while trying not to fall in. Beans, flatulance and an absence of sanitation figure prominently.

On the second, the report’s authors write

Our economics education has raised one paradigm, often referred to as neoclassical economics, to the sole object of study. Alternative perspectives have been marginalised. This stifles innovation, damages creativity and suppresses constructive criticisms that are so vital for economic understanding. Furthermore, the study of ethics, politics and history are almost completely absent from the syllabus. We propose that economics cannot be understood with all these aspects excluded; the discipline must be redefined.

Exposure to history, psychology and politics? Of course, yes. Within the US system this happens naturally as a function of breadth requirements. Students are not shy about trying to reconcile what they have learnt in Psychology and what they are mastering in Economics. It makes for a lively classroom.

What about these alternative perspectives? In for a penny in for a pound, so I decided to read a paper  by Steven Keen. Keen, as far as I can gather is one of the leading lights of these alternative perspectives. The paper I read (co-authored with Russell Standish) appeared in Physica A and can be found here. If you’ve not heard of it, there is a good reason for that. Continue to ignore it. Pauli might have described it thus:

Das ist nicht nur nicht richtig, es ist nicht einmal falsch!

Reading it lowered my IQ, something I can scarce afford to do. If this is representative of what passes for alternative perspectives, the writers of the PCES should leave economics and find fulfilling careers as incontinence counselors. Finally, for those who think my description of Keen and Standish uncharitable, I refer them to the following by Chris Auld.  Stamping out ignorance is a thankless task and one is cheered to see there are some who take it on.

The urge to promote these alternative perspectives is to be found  across the Channel as well. There, a sub group of scholars and  nescafe society currently wished to form a separate group so that they may be evaluated by different norms.  Jean Tirole, in a letter to  the State secretary in charge of Higher education and Research in France, argued against this. A response can be found here.

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