257 (23 March 2016)

Welcome to week 257!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(19 March 2016): “General Mills to Label Genetically Modified Products” (http://www.nytimes.com/2016/03/19/business/general-mills-to-label-genetically-modified-products.html)

——–“General Mills said on Friday that it would start labeling all products that contain genetically modified ingredients to comply with a law set to go into effect in Vermont.”  The company said “it was simply impractical to label products for sale in just one state, so the disclosures required by Vermont starting in July will be on all its products, beginning over the next several weeks.  Food industry officials have said they are open to labeling, but that it should be voluntary. . . . The Food and Drug Administration has said genetically modified ingredients are safe.  But advocates for labeling say more study is needed.”

********The summary is almost as long as the article.  You can read Vermont’s labeling rule at: http://www.ago.vermont.gov/assets/files/PressReleases/Consumer/Final%20Rule%20CP%20121.pdf.  Interesting that Vermont could have this impact on General Mills—one tends to think of California autos when it comes to leveraging state law to affect the practices of large companies.  This raises the question, though, of what General Mills would do if, say, California passed a law at variance to Vermont’s.  What would General Mills do then?  It is considerations like this that provide one reason for a federal approach to labeling.

(19 March 2016): “Australia to Register Its Concern About Foreigners Buying Its Water” [SR](http://www.wsj.com/articles/australia-to-register-its-concern-about-foreigners-buying-its-water-1458275941)

——–“Australia—the world’s driest inhabited continent—plans to require foreign investors to declare their interests in water rights like to . . . [the Murray River] used by farmers in three southeast states.  The proposed register, which for the first time would create a public record of the level of foreign ownership . . . Demand for water is rising ahead of government plans to turn the empty expanses of northern Australia into a food bowl for the rising middle classes of China and India.  Water is already a scarce commodity, but climate change is expected to make droughts even more frequent.”  Contributing to this development is Australia’s laws regarding water rights.  “Since 2007, investors have no longer needed to own land to be eligible to buy and sell water rights.  That’s allowed landholders to either use water on their property or offer it for sale—creating one of the world’s most advanced water-trading systems.”  Australian farmers export about 70% of their food produce and they are concerned that water speculators will price they out of the market for water.

********Here are two books that examine water markets.  First, Tapping Water Markets (http://www.amazon.com/Tapping-Water-Markets-Terry-Anderson/dp/1617261009/), by Terry L. Anderson, Brandon Scarborough, and Lawrence R. Watson.  Anderson, who is connected to the Property and Environment Research Center, is well-known as a free-market environmentalist.  You can learn more about PERC at: http://www.perc.org/.  Second, Shopping for Water: How the Market Can Mitigate Water Shortages in the American West (http://www.amazon.com/Shopping-Water-Mitigate-Shortages-American-ebook/dp/B00OD5PWLK/), by Peter Culp, Robert J. Glennon, and Gary Libecap.  This book—free at Amazon—appears to be a publication of The Hamilton Project, which appears to be connected to the Brookings Institution.  You can learn more about it at: http://www.brookings.edu/about/projects/hamiltonproject.

(20 March 2016): “Cutting Edge: Santa Monica firm says it has found a way to salt away electricity, literally” (http://www.latimes.com/business/technology/la-fi-cutting-edge-solar-salt-20160320-story.html)

——–Energy company SolarReserve believes it has found a way “to store electricity at an affordable price . . . the treasure sought by utility engineers and financial wizards.”  It does so by using molten salt.  “Called Crescent Dunes, the SolarReserve power plant [in Santa Monica, California] is a 110-megawatt facility with 10 hours of energy storage.  That translates into 1,100 megawatt hours of storage, enough to power 75,000 homes.”  Regarding cost, “The price tag . . . was $1 billion, or about 13.5 cents a kilowatt hour, roughly twice as much as the lowest-priced natural gas facility, which can run at about 7 cents to 9 cents a kilowatt hour.”  Since part of the unit was custom-designed, “the company said it was a bit pricier than it expects future units to cost.”

********As the article notes, facilities like Crescent Dunes have “great potential” given “California’s requirement that 50% of the state’s electricity generation come from renewable sources such as solar and wind power by 2030.”  Another article on the energy front deals with the transmission lines necessary to move renewable energy from where it is produced to where it is used, in this case the renewable energy comes from wind, which is plentiful in states such as Kansas, Wyoming, and Oklahoma.  You can learn more by reading “Fight to Keep Alternative Energy Local Stymies an Industry” (http://www.nytimes.com/2016/03/24/business/energy-environment/fight-to-keep-alternative-energy-local-stymies-an-industry.html).

(21 March 2016): “Amazon Leans on Government in Its Quest to Be a Delivery Powerhouse” (http://www.nytimes.com/2016/03/21/technology/amazon-leans-on-government-in-its-quest-to-be-a-delivery-powerhouse.html)

——–“Ever since Jeff Bezos started the website Amazon to sell books, he has wrestled with how to deliver its products as quickly and cheaply as possible.  Today, Amazon, now a retail giant, remains obsessed with this issue, building its own fleet of drones, buying trailers for trucks and signing up drivers for on-demand deliveries.  And nowhere is the company’s push to become a logistics and delivery powerhouse more evident than here in the nation’s capital.  Amazon has emerged as one of the tech industry’s most outspoken players in Washington, spending millions on this effort and meeting regularly with lawmakers and regulators.”  Illustrative of Amazon’s lobbying efforts, its spent $9.4 million in 2015, nearly double that of the previous year.  That amount, “compiled from public records by the Center for Responsive Politics, includes only the spending that Amazon must legally disclose.”

********Clearly Amazon has recognized, like Boeing and Alphabet (Google) before it, the importance of having a substantial Washington lobbying presence.  Analyst Colin Sebastian notes, “Amazon is disrupting huge industries; retail was a start, then the enterprise market with its cloud platform and now transportation logistics . . . This is Jeff Bezos’s playbook, and achieving it by influencing legislation would be consistent with that plan.”  So, legislation, regardless of its level—municipal, county, state, or federal—is a significant disruptor.  You can learn more about the Center for Responsive Politics at: http://www.opensecrets.org/.

(22 March 2016): “Simply Irresistible?  ‘Second-Cheapest’ Restaurant Wine in Theory & Practice” (http://wineeconomist.com/2016/03/22/second/)

——–“Last week I wrote about the theory that you should always order the second-cheapest wine on a restaurant’s list.  The second-cheapest wine rule as it is usually explained, is a naïve application of game theory to the problem of restaurant wine.  The premise is that the restaurant is trying to gouge its wine-drinking customers and that it does this by putting incredibly high mark-ups on the cheapest wine on the list. . . . So where does the second-cheapest wine theory come in?  Well, since you are smart and know that the cheapest wine is a rip-off, you can ‘stick it to the man’ by ordering the second-cheapest wine instead.  Second-cheapest wine—the sweet spot in every wine list!”  However, the game theory that underlies the theory is bad.

********A nice illustration of informal game-theoretical reasoning in the context of ordering wine.  I hadn’t known about the “second-cheapest wine” strategy until last week but now it provides yet another illustration of the breadth of game theory in analyzing human behavior, as well as some of its challenges.  Veseth, who wrote this column, provides links to some related articles on the subject, including one on how to chat up a sommelier in a restaurant.

(22 March 2016): “Accounting’s 21st Century Challenge: How to Value Intangible Assets” [SR](http://www.wsj.com/articles/accountings-21st-century-challenge-how-to-value-intangible-assets-1458605126)

——–“How do you attach a price tag to something you can’t see or touch?  The question is increasingly significant for investors as more companies collect information about their customers and use it to develop products and services. . . . Assigning a value to a physical asset like a store or equipment is relatively easy.  But, in the murky world of intangible assets, the calculations are squishy.  The problem of how to value such assets has vexed accountants for decades.”  The importance of addressing this problem stems from the fact that companies now “put far more money into nonphysical assets, such as customer databases, than they do in building new factories.  Companies invested the equivalent of 14% of the private sector’s gross domestic product in intangibles in 2014, according to research by economist Carol Corrado.  The investment in physical assets was about 10% of that sum.  That’s essentially the reverse of 40 years ago, when 13% of private-sector GDP went to tangibles and 9% to intangible assets.”

********An important area for future research.  Carol Corrado seems to be fairly prolific and influential, and I was unable to identify her paper from the information given.  Here is one example of her work, which appeared in the American Economic Review (http://www.gcbpp.org/files/Academic_Papers/AP_Corrado_Measuring_052010AER.pdf).

(23 March 2016): “Chinese Demand for Ivory Alternative Threatens Rare Hornbill Bird” (http://www.nytimes.com/2016/03/23/world/asia/china-hornbill-helmeted-ivory-indonesia.html)

——–“Even as China, the world’s leading market for illegal ivory, promises to help safeguard elephants in Africa, a rare bird in Southeast Asia is in danger because its skull is being sold in China as an ivory alternative, conservationists say.  The bird, the helmeted hornbill, is already threatened by habitat loss in the lowland forests of Malaysia and western Indonesia, but now poaching is rising sharply, according to conservation groups.”

********The article concludes with a quote from Charlotte Davies of the Environmental Invest Agency, a London-based environmental agency: “Criminals can be opportunistic and will exploit legal loopholes as well as create new markets, so enforcement needs to keep up.”  Of course, this is not limited to criminals.  In economic terms, the skulls of the helmeted hornbills are substitutes for ivory, so increased restrictions on ivory possession have led to an increased demand for ivory substitutes, thereby placing the helmeted hornbill in even-more-perilous circumstances.

********Another example that looks at the increased demand for a substitute that is even closer appears in “China’s Success Regrowing Its Forests Has a Flip Side: Deforestation Elsewhere” (http://insideclimatenews.org/news/22032016/china-success-regrowing-its-forests-has-flip-side-deforestation-carbon-emissions).  In short, ceteris paribus, if it becomes more difficult, for whatever reason, to use Chinese forests, it is likely that non-Chinese forests will be used instead.  Markets are interdependent, so a change in one will almost surely affect others, too.

May you have a good week!

Bruce

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