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Luke Froeb



Articles by Luke Froeb

Clorox is outbidding Vanderbilt for ad space

8 days ago

Following up on an earlier post showing Facebook, Instagram, Google, and Twitter show 20% fewer STEM ads to women than men:  as  Scientific America explains

Women are pricier to reach because they generally make more household purchasing decisions than men do. …

…on Instagram it cost $1.74 to get a woman’s eyeballs on the ad but only 95 cents to get a man’s.

In other words, Clorox is outbidding Vanderbilt for ad space likely to be seen by women because Clorox places a higher value on the ad.  However, auctions are efficient, so both men and women end up seeing the highest-value ads.   OK, so there is no "disparate treatment" of men and women, but isn’t it illegal to adopt practices that have a "disparate impact?" My understanding (I am NOT an attorney) is that Federal law

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“What happened to you?”

21 days ago

Andrew Sullivan has always had a unique perspective.  He calls himself an Obamacon and fears that we are at risk of replacing "the largest, freest, most successful multiracial democracy in human history" with:

…the end of due process, the rejection of even an attempt at objectivity, a belief in active race and sex discrimination (“equity”) to counter the legacy of the past, the purging of ideological diversity, and the replacement of liberal education with left-indoctrination.

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NIMBY zoning is hurting our kids

21 days ago

Housing prices now consume 40% of the income of new home buyers. Our generation paid only 30%. The difference is NIMBY zoning. Plus density is green.

Fabulous essay by Ken Glaeser on zoning:

Americans who settle in leafy, low-density suburbs will leave a significantly deeper carbon footprint, it turns out, than Americans who live cheek by jowl in urban towers. And a second paradox follows from the first. When environmentalists resist new construction in their dense but environmentally friendly cities, they inadvertently ensure that it will take place somewhere else—somewhere with higher carbon emissions. Much local environmentalism, in short, is bad for the environment.

Thoreau was wrong. Living in the country is not the right way to care for the Earth. The best thing

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I am not sure this is how I would characterize my work, but …

July 1, 2021

Why the US is so friendly to monopoliesWhat they’re saying: "Numerous hard-wired differences between the European and American enforcement regimes make it very difficult for U.S. antitrust enforcement agencies to emulate their EU counterparts," wrote antitrust experts Gregory Werden and Luke Froeb in an article in 2019. In 10 different areas, they found it much easier to crack down on large monopolies in Europe than in the U.S.The big picture: European antitrust measures are decided by politicians; in the U.S. it’s up to judges.

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Rent prices are rising fast, catching up to house prices

June 29, 2021

Except for in SF Bay area, NY, SF, Seattle, DC, and New Orleans, rents are increasing dramatically, to catch up with rising property prices.  From Chapter 9, we know that in equilibrium, you have to be indifferent between renting and owning because renters can buy and become owners, while owners can sell and become renters.  In an earlier post we showed that the price-to-rent ratio was getting really big: 50 in SF, 30 in SD, 19 in Nashville.  Rising rents will help bring this down, and could suggest a movement towards long-run equilibrium.

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New Unicorns suggest fast pace of innovation!

June 23, 2021

Two popular innovation metrics are total factor productivity the difference between output (like GDP) and the inputs (like capital and labor) used to produce it, or the number of unicorns, startups that reach a $1B valuation.  While total factor productivity seems rather flat, the number of unicorns seems to be accelerating.The US seems to account for about half of them, maybe due to its tolerance for inequality, and light-handed regulation.  Unicorns are concentrating in several US cities, sometimes called "innovation clusters." More posts about unicorns and innovation. HT:  Elad Blog

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G-7 countries collude to eliminate competition among themselves

June 13, 2021

Countries compete for residents by offering to do more for less (lower taxes), in the hopes of attracting people and firms, e.g.,

Ireland’s low [12.5% corporate tax] rate has helped attract many of the new breed of footloose digital giants that don’t need to be close to consumers to sell to them, and can register their intellectual property—from which their profits derive—just about anywhere.

Like any cartel, the G-7 can make itself better off by fixing prices (corporate tax rates at 15%), thus eliminating competition among its members for residents and firms. Without competition to motivate them, I predict that:these countries will become less responsive to those they are supposed to serve; and/orthey will "cheat" on the collusive agreement by competing in other dimensions, e.g.,

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Should Dropbox make or buy cloud services?

June 11, 2021

By in-sourcing IT services, Dropbox saved $115 M over two years, doubling its gross profit margin.  Actual spend as a percentage of COR is typically even higher than committed spend: A billion dollar private software company told us that their public cloud spend amounted to 81% of COR, and that “cloud spend ranging from 75 to 80% of cost of revenue was common among software companies”.

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Inflation and the weak dollar

June 8, 2021

Good post about inflation, here is one part related to chapter 116) The USD is at a 3-year low. The way I look at it — and this is a vast oversimplification — is that a weak USD buys less in foreign goods, which increases the price of imports, contributing to inflationary pressures.In other words, the falling dollar increases demand for domestic good because it raises the price of substitute imported goods.  HT:   MarginalRevolution.com

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the reason behind the labor shortages, soaring wages

June 5, 2021

The graph above shows the labor force participation rate has fallen, two percentage points since the pandemic, decreasing the supply of labor.  A reduction in supply increases prices (wages increased at an 8.7% annual rate) and decreases quantity.  HT:  marginalrevolution.com

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How do you align the incentives of sea captains transporting criminals to Australia with those of British public (1800’s)?

May 27, 2021

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By paying them for the number who arrive alive–instead for number who board the ship–death rates dropped from 30% to 1%.This anecdote is taken from the introductory lecture from our friends at George Mason University, who had put their Microeconomics class online:Introduction to MicroeconomicsINSTRUCTOR: Tyler Cowen, George Mason University

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Do criminals respond to incentives? (II)

May 23, 2021

In San Francisco they do.  In 2014, the city reclassified nonviolent thefts as misdemeanors if the stolen goods are worth less than $950.  With a lower expected penalty for stealing goods, and big expected benefits, like open air markets that allow thieves to fence stolen goods, crime has surged.As I was paying for [a purchase], a man walked into the store, grabbed a handful of beef jerky and walked out. I looked over at an employee, who shrugged. Then I went to Safeway next door for some groceries and I saw a man stuffing three bottles of wine into a backpack and walking casually toward the exit.  …   Thieves “are obviously choosing locales based on what the consequences are,” Safaí said. “If there are no consequences for their actions, then you invite the behavior. Over and over.”

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On the post-pandemic future of cities

May 23, 2021

Bloomberg has an optimistic vision of the post-pandemic central business district (CBD), as more work from home, and density has come to be associated with disease:… The CBD can no longer function as a collection of low-end grab-and-go cafeterias, chain coffee shops, restaurants and salad bars. To evolve and survive, its offerings will have to become more local, authentic and actively curated. A day at the office will be spent less in a single building and become more like a localized business trip, with maybe an onsite meeting, checking some emails at an outdoor workspace, doing a group fitness session with colleagues, and taking some offsite meetings over lunch or coffee. The downtown expert David Milder dubs this as a shift from the old Central Business District to what he terms the

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Agile Software Development

May 20, 2021

Traditional software development ("waterfall"), is plagued by predictable problems:  developers plan the next software release, then design, built, test, and release it, completing one phase before the next starts.  The entire process might take a year or longer, and by the time it is done, the product is not very good for one of two reasons:  either the technology has advanced, so that the software is obsolete before it is released, or the client’s demands have changed, and they no longer want the product the developers have made.Agile development, illustrated above, differs from the traditional approach by prioritizing and ranking changes, then taking them on one at a time.  By breaking the long development cycle into many short "sprints," each taking a week or so to complete,

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Do criminals respond to incentives?

May 12, 2021

At least in Minneapolis they do.I am old enough to remember the debate (late 1980’s at the Sentencing Commission) about whether punishment deters crime.  Some criminologists mocked the economic model of crime which assumes that criminals respond optimally, rationally and self-interestedly to the incentives created by expected punishment (the probability of being caught and convicted times the punishment if convicted).  The policy implication was clear:  increase the expected penalty to reduce crime, called "deterrence."It looks as if Minneapolis has run an experiment to test the deterrence hypothesis (defund the police==>lower probability of being caught==>lower expected penality==>more crime).  The experiment took less than a year to complete, and they seem to have learned something from

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A Simple App to Teach Regression

May 11, 2021

A Simple App to Teach RegressionVanderbilt Owen Graduate School of Management Research Paper15 Pages Posted: 10 Jan 2020 Last revised: 8 May 2021Luke M. FroebVanderbilt University – Owen Graduate School of ManagementDate Written: December 30, 2020AbstractThis paper introduces a simple, free web app for teaching regression that “inverts” the usual pedagogy. Rather than asking students to run regressions on data, it asks them to “create” data to achieve a given outcome, like a statistically significant line. By clicking on an (x, y) graph, students watch the regression line update with each mouse click, along with its confidence intervals and test statistics. The exercises presented in this paper are designed to give students an intuitive feel for the relationship between data and

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Removing intellectual property protections: what could possibly go wrong?

May 6, 2021

Marginal Revolution has a devastating critique of the Biden Administration support for “the waiver of IP protections on COVID-19 vaccines to help end the pandemic.”  First, IP protections are not a bottleneck, production is:  All of the vaccine manufacturers are trying to increase supply as quickly as possible. Billions of doses are being produced–more than ever before in the history of the world. Licenses are widely available.It follows that the waiver of IP protections will do little (nothing?) to help.  Second, Moderna has already said that they won’t enforce their patents during the pandemic, but no one has stepped up to produce because because producing RNA vaccines is really hard.  Third, there are tried and true ways of encouraging vaccine production, like Operation Warp Speed.

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Costs of lockdowns are more than 3 times higher than the benefits

April 22, 2021

Essay from a Canadian economist concludes"…the cost/benefit ratio of lockdowns in Canada, in terms of life-years
saved, is between 3.6–282. That is, it is possible that lockdown will go down as
one of the greatest peacetime policy failures in Canada’s history.1.  The benefits of lockdowns are small because:Even without lockdowns, vulnerable people take care of themselves by isolating, so the effects of lockdowns are small.Covid deaths are concentrated among the elderly, with fewer years ahead of them.  The following table shows the value of a statistical life ranges from $14 million for toddlers down to $2 million for an 85 year old.  2.  The costs of lockdowns on an economy are much larger than the fall in GDP (Canada’s Gross Domestic Product graphed below):The hidden costs of

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Revealed preference: people are leaving California in droves

April 16, 2021

I grew up in San Diego and, despite the great weather and surf (swells three to four feet at ten-second intervals), I left the state for a better job.  Now, the National Review reports on the current exodus (links below are to past posts on the website about the Not-So-Golden State).

…what caused and continues to cause the exodus out of California is not tax burden, or regulation, or cost of living, or housing prices. Rather, it is the burden, and regulation, and cost of living, and housing prices, and more.Taxes:  One making $58,000 a year in California is in a marginal tax bracket (9.3 percent) nearly double that of someone in Arizona making over $500,000 a year (4.5 percent)The top 5% of filers make 67% of tax payments, and they are starting to leave)Regulation:Why are Cows leaving

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Does venture capital still contribute to growth?

April 10, 2021

The New Yorker has a harsh critique of some Venture Capital firms, like the ones that funded WeWork:  A widely read summary by a Harvard Business School professor, Nori Gerardo Lietz … exposed WeWork’s “byzantine corporate structure, the continuing projected losses, the plethora of conflicts, the complete absence of any substantive corporate governance, and the uncommon ‘New Age’ parlance.” At the same time, she wrote, the S-1 (Disclosures to the regulators about the company’s financial health ) failed to provide many conventional financial details. …S-1 laid bare a basic truth: WeWork’s dominant position in the co-working industry wasn’t a result of operational prowess or a superior product. Instead, WeWork had beaten its rivals because it had access to a near-limitless supply of

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President Joe Biden vs. Joe Biden

April 8, 2021

NY Times has a good article on the Biden administration’s contempt for economics.  

“The next generation of the economics profession is rebelling against its predecessors by being all about inequality in the same way that my generation rebelled against its predecessors by being all about incentives, and this is a good thing,” said Larry Summers, who served as Treasury secretary under Bill Clinton and N.E.C. director under Barack Obama. 
Biden has less trust in economists, and so does everyone else. Obama’s constant frustration was that politicians didn’t understand economics. Biden’s constant frustration is that economists don’t understand politics….  The backdrop for this administration is the failures of the past generation of economic advice. Fifteen years of financial crises,

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Restrictive zoning causes segregatation in Connecticut

April 5, 2021

Restrictive zoning–90% of Conneticut allows only (expensive) single-family homes–limits supply, especially of lower priced housing like apartments, and drives up the price.  From Vox:According to one measure by researchers at the University of Pennsylvania’s Wharton School, Connecticut has the 15th-most regulated residential building environment. In doing so, it has confined poorer people to small parts of the state and likely discouraged countless more from ever moving to the state.The results are pernicious:By artificially restricting the supply of housing through onerous regulations, Connecticut has in effect driven up the cost of living for everyone and priced out lower- and middle-income Americans from living in most of its towns and cities. Simply put: fewer homes and growing

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Is the recent 10% house price increase going to stick?

March 16, 2021

Last year, house prices in my zip code increased by about 10%; and they are forecast to increase another 10% this year.  This "tightness" or "seller’s market" is indicated by the small available supply relative to demand, as indicated by the 2.1 months of inventory.  [NOTE:  months of inventory=(# houses for sale)/(selling rate per month)].  In the scatter plot below, we see that an inventory of 2.1 months (vertical axis) is normally associated with about a 1.5% monthly price increase (horizontal axis).  The increase in housing demand caused by the lockdowns, as working from home increases demand for bigger living spaces, or for owning a bigger home instead of renting a smaller apartment, is probably behind the price appreciation.  And if you can explain a price change with demand and

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Which cities have the cheapest house prices?

March 16, 2021

From chapter 9, we know that in the long run a mobile asset has to be indifferent to where it is used, otherwise it will move.  This long-run indifference principle means that in the long run, you should be indifferent about where to live and whether to own or rent.  In particular, the price-to-rent ratios should reflect this "indifference," and be  similar across cities.  However, this is is certainly not the case.  Here are the most expensive cities:CityPrice-to-RentRatioHome Price(for a $1,000 Rental)San Francisco, California50.11$601,362Oakland, California41.05$492,611Honolulu, Hawaii39.50$474,014Los Angeles, California38.59$463,135New York, New York36.83$441,987Long Beach, California36.37$436,385Seattle, Washington36.07$432,862San Jose, California33.77$405,263Washington,

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Housing Bubble-ology: is this time different?

March 16, 2021

The WSJ is apparently reading our blog: (earlier blog post)The Pandemic Ignited a Housing Boom—but It’s Different From the Last OneResidential home sales are hitting peaks last seen in 2006, just before the bubble burst, but this time mortgages are stricter, down payments are higher, and a tight supply is supporting prices

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South Lake Tahoe: when housing inventory is low, price increases

March 16, 2021

More evidence of adjustment in the housing market to changes in demand and supply.  The Pandemic has increased demand for housing, taking the available supply of houses to buy (blue line) to historic lows.  Price increases (red line) generally follow.  The seasonal spikes are due to increases in seasonal demand for vacation houses (higher in summer).  South Lake Tahoe has a large percentage of second (vacation) homes. CalculatedRisk is a good blog to follow if you are interested in real estate.

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Mask moral hazard?

March 14, 2021

According to an AP article, "Virus Tolls [are] Similar Despite Governors’ Contrasting Actions." The article suggests moral hazard is the cause:

Some people voluntarily were “being more vigilant in states where the guidelines are more relaxed,” said Thomas Tsai, an assistant professor at the Harvard T.H. Chan School of Public Health.In other words, in states where it is safer, people take more risks.

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