One of the most interesting results of this study is that incentives created a spillover effect. The teachers facing incentives were rewarded if students did well in two subjects, but the benefits weren’t limited to those subjects. This is good news, showing that a little incentive can go a long way. It also indicates that the test score gains reflect real learning rather than cheating, for if teachers were to artificially inflate scores in hopes of a reward, they would have no reason to distort scores in subjects that are unrelated to the incentive.

How do incentives for one subject improve test scores in a separate subject? It could be that students are taking the skills they learned in reading or math class and applying them in other areas; students who are well-prepared in math can go farther in science, for example.

The spillover could also be because of another effect of merit pay: Incentives change the way people view their profession. When teachers are paid according to a set schedule, they may feel, “I’m just like any other teacher with the same amount of experience. We all do the same work, and we earn the same amount. I don’t need to try to be exceptional.”

But when teachers are rewarded for student achievement, they think, “My students’ success depends on my individual effort and creativity. I don’t have to wait years for a pay raise; I can get one immediately if I bring achievement up far enough. We earn bonuses because outstanding teachers are valuable, and I want to be outstanding.” This attitude can motivate teachers across all subjects, not just in the areas linked to a monetary incentive.

For more about why I like merit pay for teachers, see this recent post.

The post Incentives for Teachers: Empirical Evidence appeared first on Show-Me Institute.

So, the state regulates a legal substance and gets a temporary drop in illegal activity, then has to impose more and more regulations to try to get that effect again. Sounds … addictive.

The post Addicted to Regulating appeared first on Show-Me Institute.

Free-market advocates want to reduce violent crime as much as any other group, perhaps more so. If gun buybacks* reduce crime, I’m officially gung-ho: Let’s do it.

Unfortunately, there appears to be no evidence that gun buybacks actually reduce crime in the slightest measurable way. Here are some links. From the first link:

[A]cademic researchers – often divided by passionate differences over gun control – are in rare agreement in their conclusions.

[…] University of Pennsylvania professor Lawrence Sherman, who headed a wide-ranging assessment of crime prevention programs, called gun buy-backs “the program that is best known to be ineffective” in reducing firearms violence.

From the fourth link:

“The typical person who hands in a gun is not a criminal,” [research director at the Independent Institute, Alex] Tabarrok says. “If they want to reduce crime, they ought to put more police on the streets, something we know works.”

Show-Me Daily has covered this before — mostly last year, when this unfortunate idea took hold of our police. I don’t particularly blame them; if it were my job to deal face-to-face with criminals every day, I’d want to do whatever I could to reduce the chance that they’d wave a gun my way. Unfortunately, gun buybacks simply are not a useful way to accomplish this, and they may have the opposite of their intended result.

For a tangentially related post to which the Peltzman Effect also applies, read this (if you haven’t already).

*The word “buyback” in this case is a particularly euphemistic misnomer, in my opinion. It subtly reinforces the idea that the police are the source of all guns/protection, thus undermining the notion that individuals have the right/responsibility to defend themselves. This is in no way aimed at the StL PD, who I’m sure did not invent or popularize this term, I mean only to call attention to the subtle psychological damage this term may be inflicting.

The post The Gun Buyback May Not Come Back appeared first on Show-Me Institute.

Imagine that instead of guns, the Oakland police decided, for whatever strange reason, to buy back sneakers. The idea of a gun buyback is to reduce the supply of guns in Oakland. Do you think that a sneaker buyback program would reduce the number of people wearing sneakers in Oakland? Of course not.

All that would happen is that people would reach into the back of their closet and sell the police a bunch of old, tired, stinky sneakers.

Gun buybacks won’t reduce the number of guns in Oakland. In fact, buybacks may increase the number of guns in Oakland.

He goes on to explain that gun buyback program make buying new guns more attractive. Once people are done with the gun, they can get some of their money back. So they’ll be more eager to buy guns in the first place. It’s like college textbook buybacks. Students are more willing to buy textbooks if they can sell the books back to the bookstore at the end of the semester.

Just something to keep in mind the next time St. Louis tries it.

The post Tabarrok on Gun Buybacks appeared first on Show-Me Institute.

The price of an item isn’t just what you pay for it in cash. The true price, to you, of a bag of groceries includes things like driving to the store, time spent browsing the shelves, waiting in line, effort expended pushing the cart, etc. The more difficult it is to get the thing you’re buying, the higher the real cost — regardless of what it says on the price tag.

Ticket-scalping policies are usually adopted out of a desire to keep prices down. If scalpers buy all the tickets for an event at face value, then turn around and sell them at a high markup, consumers are worse-off, right?

Not quite.

The real price of a consumer good is just a measurement — an intersection of supply and demand. If a baseball team sets the price of its tickets much lower than the real price that the market will bear, it hasn’t made the extra cost vanish. The team has simply shifted the cost in some way, perhaps by giving people an incentive to camp out all night in the rain so they can be first in line. The time and effort spent waiting in line is all part of the price of the ticket.

There was an excellent example of this sort of cost (which I linked to earlier this month) when a county in Virginia tried to sell several iBooks at $300 below market price. The result? "Mothers clutched their children for protection, people screamed as they were knocked to the ground, a stroller was demolished, cars inched through the crowd…" Economist Alex Tabarrok noted:

You can get rid of the market but you can never get rid of competition.  Goods not allocated by market prices have to be allocated somehow and so long as goods are scarce there will be competition to obtain them, if not by outbidding competing buyers with money then by outbidding them in time spent waiting in line, doing political favors or some other method.

What happened in Henrico county is the same type of thing that happens when there is a price control.

Controlled prices rise above the nominal price tag, despite all efforts to keep them low. Tabarrok goes on to point out:

It’s very important to notice that that the shop owner gets your money but does not get your time. Thus, money expenditures are a transfer but time expenditures are a waste.

The best way for our hypothetical baseball team to keep real prices low is to sell tickets for what they think the market will bear. And the best way for politicians to keep real prices low is to get out of the way — let people trade, sell, give away, or destroy the tickets they’ve legally purchased.

Another critical point to consider is that markets for used merchandise affect the price of new merchandise. Economist David D. Friedman, in his book Hidden Order: The Economics of Everyday Life, provided an example:

Once, in the middle of a conversation with an economics editor who knew very little economics, I mentioned the resale market for textbooks. Instantly her eyes, and those of her colleagues, lit up. If there was one part of the economy they knew and hated, it was that market. Their reason was simple; every time a student bought a secondhand copy of one of their textbooks, they lost the money they would have made selling him a new copy.

I put the following question to them: Suppose an inventor walks in your door with a new product—timed ink. Print your books in timed ink and activate it when the books leave the warehouse. At the end of the school year, the pages will go blank. Students can no longer buy secondhand textbooks. Do your profits go up—or down?

Their answer was "Obviously up—we want it." Mine was "possibly down." To see why, consider a simplified version of the problem. Textbooks last two years. New textbooks sell for $30; used textbooks for $15. The cost to a student of using a textbook for a year is $15; either he buys a new one for $30 and sells it at the end of the year for $15, or he buys a used one for $15 and throws it out at the end of the year.

If the publisher switches to timed ink and keeps charging $30, he has just doubled the cost of the book to students—from $15 for a year’s use to $30?—which will surely decrease the number of students willing to buy it. If he wants to keep all his customers, he will have to cut his price in half, at which point revenue will be the same as before he adopted the new ink (twice as many books at half the price), cost will be higher (since he has to print twice as many books, in addition to paying the inventor to use his new ink), so profit will go down. He could, of course, keep his price at $30 and sell fewer books. But if that increases his profit, he would have done even better selling books without timed ink at $60, since that results in the same cost to the students and lower costs to him.

In this simple example, timed ink reduces profits. In more realistic cases the answer is more complicated. But the editor’s instant response, which simply assumed that the price you could sell a new book for was unaffected by how long it would last, was wrong. Understanding economics is useful—even to economics editors.

When you artificially restrict the after-market options for a commodity, the de facto price of that commodity rises. If I don’t have the option of selling CDs from my collection that I’ve grown tired of, or books from my collection that I’ve already read and am unlikely to revisit, I’ll probably buy fewer CDs and books in the future. So, if the after-market declines, the initial market also declines; artificial restriction of secondhand sales decreases new sales as well, because the restriction has caused the commodity to become, literally, more expensive.

This is a point lost on the recording industry when it calls for royalties on used CDs or radio play, and on author-advocacy groups who complain about used book sales on Amazon. Their concerns are misguided. A healthy market for used items will always spur new-market sales as well — because the very existence of the used market makes new items all the more valuable for consumers.

In the market for event tickets, a restriction on after-market sales hits season ticketholders especially hard. People who can’t make it to every game, or every symphony performance, are less likely to splurge for season tickets — because they can’t do what they want with the tickets they’re not planning to use. If, in addition to a restriction on scalping, ticketholders also weren’t allowed to sell their tickets at face value, or give them away, the de facto cost of season tickets would rise so substantially that the market would likely dry up unless the nominal up-front price was reduced at the same time.

In the final analysis, there’s nothing quite like economic freedom to keep real prices low.

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