# How do conflict-generated diasporas affect homeland conflicts?

Edward Said claimed,1 and Noam Chomsky agreed, that the acceptable range of political attitudes about the Israeli-Palestinian conflict are much more diverse among Israeli Jews than American Jews. I’ve been searching for some hard evidence that American Jews are more hawkish toward Palestinians than Israeli Jews, but haven’t found any.

The claim is plausible, though. Conflict-generated diaspora groups might feel a stronger urge to demonstrate in-group loyalty to compensate for their absence. Terrence Lyons explains in his 2004 paper,

One dynamic that tends to make conflicts in the homeland more protracted, therefore, is the existence of certain types of diaspora groups with strong symbolic attachments to a territory and uncompromising views on how conflict there should be understood and contested.

The hawkishness from without actually seems to aggravate the homeland conflict. Paul Collier and Anke Hoeffler hypothesize in their 1999 paper,

A further potentially important source of start-up finance for rebellion is a diaspora living in OECD countries. Such diasporas are usually much richer than the population in their country of origin. They are better-placed for collective action: emigrants have a cultural incentive to create diaspora organizations which can then discipline free-riding. They do not suffer the consequences of the conflicts they finance. As with grievance among the local population, in the greed-model grievance among the diaspora is assumed to be manufactured by the rebel organization rather than being an original cause of conflict. Hence, the diaspora increases the risks of conflict renewal, but not the initial risk of conflict. We measure the size of diasporas in the USA relative to the population in their country of origin.

They find,

By far the strongest effect of war on the risk of subsequent war works through diasporas. After five years of post-conflict peace, the risk of renewed conflict is around six times higher in the societies with the largest diasporas in America than in those without American diasporas. Presumably this effect works through the financial contributions of diasporas to rebel organisations.

Collier and Hoeffler also controlled for how large diasporas might be because of the size of conflicts themselves.

The case of the Israeli-Palestinian conflict in particular isn’t so straightforward. Jonathan Rynhold, writing in 2008, explains, “Prior to the 1980s Diaspora identification with Israel was expressed in unwavering support for Israeli policies. Since then Diaspora support for Israeli policies cannot be taken for granted.” Rynhold holds that the 1982 Lebanon War dissolved the unanimity of opinion in the diaspora, due to the media coverage of Sabra and Chatilla. The 1980s brought the Jonathan Pollard affair, as well as the First Intifada, which impelled liberals to contemplate the policies in the Palestinian territories.

It would be useful to collect opinion data from emigrant communities connected to current ongoing conflicts, and compare them to opinion data in the homelands. Where can I get some good, current research on this?

1 Edward Said, and Christopher Hitchens, Blaming the Victims, (London: Verso, 1988), 9-10.

# Why cash transfers, not social programs, make for better charity

Both This American Life and Tina Rosenberg recently covered GiveDirectly, a charity started by a few grad students who understood that social programs that provide specific kinds of goods or services can’t be as efficient as simple cash transfers.

What’s efficiency? Laypeople incorrectly assume that efficiency, for any given process, has to do with maximizing output while minimizing input. When economists discuss efficiency, it’s actually shorthand for Pareto efficiency. An allocation of resources is Pareto efficient if no individual can be made better off without making another individual worse off.

Assume that X represents a specific good or service, and Y represents all other possible goods or services. Without any help, an individual with budget constraint BC would consume at E. A social program that distributes only X would shift the recipient’s budget constraint from BC to BD, and the recipient would then consume at F. However, if the recipient were to receive cash, the budget constraint would shift to AD, and the recipient would be on an even higher indifference curve, and would consume at G.

BC is parallel to AD. It’s important to realize that, in either case, the donor would be spending the exact same amount of money. The donor has no way of knowing the recipient’s precise consumption preferences, so donating cash gives the recipient the freedom to more precisely choose how much to purchase of X and Y.

Tina Rosenberg discusses how politically unpalatable cash transfers are,

Those on the left tend to believe that the differences come from giant structural problems: bad or no education, health, transport, housing, few jobs. Giving cash to the poor, while helpful, solves one of these problems: credit constraints. It’s a big problem. But once it’s solved, another problem is likely to get in the way.

The right-wing argument is that the poor are poor because of the culture of poverty: people make bad choices, lack discipline, look for short-term gratification. This argument holds that giving cash to the poor doesn’t help much — and many people will misspend it in ways that make things worse.

Standard consumer choice theory dissolves these kinds of left-wing and right-wing superstitions. Unfortunately, such flawed political narratives tend to be based more on availability heuristics than sound systematic analyses.

# Direct democracy aggravates anti-immigration policy in Switzerland

Brett Gall recently alerted me to Jens Hainmueller and Dominik Hangartner’s fascinating study of Swiss naturalization decisions. They used changes of laws in different Swiss municipalities for a fairly sound regression discontinuity design to assess the effects of direct democracy on immigration.

Foreigners don’t simply apply to live in Switzerland. They apply to live in specific Swiss municipalities. Historically, some municipalities used representative democracy to admit immigrants, but some managed immigration requests via direct democracy, by actually sending the resumes of all applicants to all citizens of the municipality to approve or reject.

Hainmueller and Hangartner’s methodology is stunningly beautiful. There was a series of rulings by the Swiss Federal Court from 2003 to 2005 that required different municipalities to transition from direct democracy to representative democracy for their immigration decisions. The immigration application process takes about 4-5 years, so applicants weren’t able to anticipate any institutional changes to the municipalities to which they had applied.

Hainmueller and Hangartner collected panel data of different Swiss municipalities forced to transition, and used a regression discontinuity design to compare similar applicants whose immigration applications were processed, by the same municipalities, at almost the same time, via direct democracy or representative democracy.

The least xenophobic municipalities that switched didn’t see any change in immigration patterns. The most xenophobic municipalities that switched drastically increased their amount of immigration.

Why does this happen? Xenophobic citizens voting privately don’t need to justify their xenophobia to anyone. In contrast, public servants facing public scrutiny hesitate to reject applications on the basis of poorly reasoned xenophobia.

# What is meant by the term “Third World?”

The term Third World is a peculiar linguistic artifact from the Cold War. Usage in the English language accelerated in the mid-1960s, peaked in the mid-1980s, and has steadily declined ever since.

It originally described all the nations not aligned with either the United States or Soviet Russia during the Cold War. B.R. Tomlinson explains,

Like so much of the terminology used by historians and social scientists in the second half of the twentieth century, the notion of a Third World grew out of the rhetoric of the Cold War in the late 1940s and 1950s. The phrase had its origins in the idea of a ‘third force’ or ‘third way’ in world affairs (distinct from American capitalism or Soviet socialism) that was identified in the polemical literature of the non-communist European left in the late 1940s. The term was coined in August 1952 by the demographer and economic historian, Alfred Sauvy, in an article in the French socialist newspaper L’Observateur, entitled ‘Trois Mondes, Une Planète’, which stressed the disempowerment of the newly-independent countries of Asia and Africa, concluding that ‘the Third World has, like the Third Estate, been ignored and despised and it too wants to be something’.

This grossly oversimplified trichotomy seems to have framed dependency theory and later, world-systems theory. The research paradigm was fertile soil for grand historical narratives with extremely weak predictive value.

# Why is Netflix implementing user profiles?

Netflix has now implemented different user profiles for streaming accounts. By doing so, they’re finally acknowledging that users have been sharing accounts. Even if they had been interested in maximizing the number of paid subscriptions, they never really had any mechanism to prevent account sharing.

Before user profiles, sharing a streaming account did impose costs to users. Though users were able to share access to content, their taste profiles and suggestions were irrelevant, and the shared app wasn’t able to keep track of individualized progress for users watching the same shows at different rates. Such inconveniences might have been an incentive to prevent some users from sharing accounts, but not a significant incentive.

Netflix could have tried to squeeze more revenue from users by charging a dollar or two per additional profile, but they’ll profit a different way, by fostering customer loyalty through better user experience. They’ll also be able to more reliably quantify their audience to charge higher prices to advertisers for product placements.

# Why would a firm choose vertical integration?

American Apparel has long bragged that they’re completely vertically integrated. Their strategy seems to stem more from ideologically avoiding sweatshop labor than serious fundamental analysis,

Our average factory worker makes $12 to$14 dollars an hour—the highest pay worldwide for the manufacturing of apparel basics, and significantly more than California’s minimum wage. For us, higher pay means heightened efficiency, a better and more consistent quality of work, stronger employee morale, and ultimately, retention rates of skilled operators. For them, higher pay is often a path to the American Dream for their families.

We don’t have to do things this way, we just believe it’s the right way.

Avoiding sweatshop labor might be effective marketing for their progressive hipster clientele, but not effective enough to avoid the brink of bankruptcy. The positive sentiment for the brand doesn’t seem to translate into enough of an increase in sales to offset the increased labor cost.

So, even though American Apparel might be the most famous example of vertical integration, it doesn’t seem to be a good example of vertical integration undertaken for profit maximization.

Why would a profit-maximizing firm choose vertical integration? Recall from Coase that firms exist to minimize transaction costs. If transaction costs between lessors and lessees are high enough, vertical integration is attractive. According to the widely cited 1978 paper by Benjamin Klein, Robert G. Crawford, and Armen A. Alchian, we might see vertical integration from a specific kind of transaction cost: post-contractual opportunistic behavior. A production technology with high fixed costs that cannot be recovered by being scrapped into alternative uses will tend to be vertically integrated into the rest of the product’s production process. What are some implications of this? The paper explains:

•  Fisher Body once supplied specialized metal dies that would stamp entire automobile bodies for General Motors. Fisher repeatedly tried to extract monopoly rents from GM, but eventually, in 1926, the companies merged.
• Oil refineries are usually vertically integrated with oil pipelines, but not with oil tankers. An independent oil refinery would be hostage to a monopsonistic pipeline lessor, but an oil tanker has a potential appropriable rent near zero, because an oil tanker could easily be repurposed for shipping other goods.
• Owners of highly perishable crops are quite vulnerable to collective demands by their laborers. Slavery was a form of vertical integration, but now, absent slavery, long-term labor contracts with unions consist of rigid wages with layoff provisions so that employers can’t opportunistically claim false reductions in demand.
• Franchise relationships mimic vertical integration because, although a franchisee is technically an independent firm, the franchisee is essentially renting a brand, and is subject to certain controls by the franchisor.
• Specific capital investments that have high fixed costs and can’t be easily repurposed could be subject to opportunistic behavior by workers, so the owners of firms tend to own specialized capital investments. Owners of firms use detailed employment contracts to prevent the appropriation of specialized capital by their employees. Such detailed employment contracts mimic the function of vertical integration.

# We really do need tolls on our roads

I was recently driving across the state of Virginia, and a trip that should have taken me about four hours via the highways actually took me about seven, due to heavy congestion. This is so beyond unacceptable for modern, civilized society. Such congestion is not inevitable.

Most road warriors I talk to about the problem of traffic seem to think the problem is intrinsic to our road system, which is simply not true. The existence of such horrible traffic frustrates me enormously, but each conversation with people who take it as a given compounds my frustration even more.

Just a little bit of basic economic theory points to an extremely obvious solution, but discussing such solutions triggers predictable political irrationality. A fee-for-service model is an obvious way to correct a commons problem, but for temperamental reasons, some individuals lack the ability to think systematically or partake in proper epistemic hygiene.

## Congestion is not inevitable

I can’t stress enough that traffic congestion is not inevitable. Some common refrains include: “There are just too many cars on the road,” or “This is just rush hour traffic.” Such fatalism is unwarranted.

Even meta-political public choice fatalism usually reserved for the federal government is unwarranted, because policy changes only need to be passed through state and local municipalities. Local governments are subject to Tiebout competition.

While unexpected accidents can always cause traffic jams, we can completely eradicate cyclical “rush hour” traffic.

## A commons problem

Congestion on highways is a clear instance of a tragedy of the commons. Without tolls, highways are open-access resources. Individual motorists using open-access highways aren’t paying for the full social cost of consuming the scarce resource at the point of service.

When a motorist takes a car onto an open-access public road, they enjoy the private benefit of using the road to travel to their destination, but they impose a public cost of increasing the probability of traffic congestion. The cost to any one individual motorist is low; no one car causes heavy congestion. When too many motorists add in their externalized costs onto the road, congestion results. It’s a giant prisoner’s dilemma, because no one motorist faces the incentives to limit their usage, and motorists have no way of cooperating with each other to ration out the resource in any logical way.

Tolls are a way of exacting the costs from each motorist adding one more car onto the road.

## The efficiency gains come about from changing behavior

Unsophisticated opponents of tolls have argued that cars unequipped with E-ZPass have to stop at tolls to pay, and actually cause buildups.

Where have we seen this flawed mental model before? Marx theorized that the base unidirectionally influenced the superstructure. Marx would have argued that tolls, as technologies in the base, constrain motorists by extracting money out of them. Marxist analysis can’t account for motorists’ individual cognitions. Dialectical materialism fails.

It’s the sort of mistake a child makes before developing a theory of mind. In reality, different motorists have different preferences and resources, and don’t want or need to use roads at the same quantity.

With tolls in place, individual motorists can decide on the margin whether or not to bear the cost of adding one more car to the road.

## Elasticity

In technical economic terms, a toll’s fare needs to be high enough to change the price elasticity of demand from being inelastic to elastic. Increases in fares need to rise so that the percentage change in quantity demanded is greater than the percentage change in the price. If the price of a toll isn’t high enough, then the price elasticity of demand would remain inelastic, and cyclical traffic would persist.

Critics of tolls charge that the poor bear the costs of tolls disproportionately. Such a claim is incoherent.

It’s important to remember that the problem the poor have is that they don’t have enough money. If we’re concerned in society with redistributing from rich to poor, we should redistribute the most liquid resource available, which is money, in the form of a transfer as close as possible to a lump-sum subsidy. Redistribution does not justify social engineering via taxes and subsidies on specific goods, services, or behaviors.

It doesn’t make sense to justify the continued existence of a market inefficiency on the basis that it puts the poor on an “equal” footing with the rich. At first glance, it may seem more fair to keep the resource unpriced. The underlying narrative is that not even the rich would be able to bypass the traffic in an open-access resource, and that if the rich were able to pay to exit, they would leave the poor either stuck in traffic, or unable to afford the new price of the tolls.

The narrative is wrong because when externalities exist, Pareto improvements are available by internalizing such externalities.

Tolls would actually help the poor, because the poor, along with everyone else, would experience the roads without traffic. Time wasted in traffic has the opportunity cost of foregone wages, commissions from sales, visits to clients, or valuable leisure time. Traffic also wastes gasoline. Dissolving traffic would increase the amount of resources available to all motorists, including the poor.

With the roads clear of congestion, people could still choose to substitute money for time by deciding how much to work. It makes no sense to lock people into a system that precludes any deliberate tradeoff, and it makes no sense to lock people into a system that just wastefully and unidirectionally converts money into time.

We can model the market for a toll road as having two segments, rich, R, and poor, P. The rich’s price elasticity of demand for a toll road ($E_{d_R}$) might remain inelastic, while the poor’s price elasticity of demand ($E_{d_P}$) might turn elastic:

• $-1
• $-\infty

This is a feature, not a bug. Income is one of the factors that affects elasticity. By converting the price elasticities of some motorists from inelastic to elastic, we can reveal preferences. Without any sort of bureaucratic central planning, motorists would find creative solutions to use toll roads at the point where marginal costs equal marginal benefits. Some motorists would turn to carpooling or slugging. Some would choose to not use the road during rush hour, and instead use the road only when the fares are lower. Some employers would adjust employees’ schedules accordingly.

## In the interest of fairness, don’t we need tolls installed everywhere, all at once?

Some critics charge that if tolls are only installed on a few key roads, the motorists who use the toll roads bear some cost, while the motorists of other open-access roads avoid such a cost. Such thinking is exactly backwards.

Money, for all its usefulness in fueling civilization, is still abstract enough to severely confuse people. The fact that money is exchanging hands doesn’t automatically mean that costs are higher. On the contrary, tolls internalize the externality of traffic, and thus, using a decongested toll road costs less than a clogged open-access road. A congested road has the high cost of wasted time; a decongested toll road has a lower cost that’s exactly reflected in the price of its fare.