The Answer Is Transaction Costs
Michael Munger
"The real price of everything is the toil and trouble of acquiring it." -Adam Smith (WoN, Bk I, Chapter 5)
In which the Knower of Important Things shows how transaction costs explain literally everything. Plus TWEJ, and answers to letters.
If YOU have questions, submit them to our email at [email protected]
There are two kinds of episodes here:
1. For the most part, episodes June-August are weekly, short (<20 mins), and address a few topics.
2. Episodes September-May are longer (1 hour), and monthly, with an interview with a guest.
Finally, a quick note: This podcast is NOT for Stacy Hockett. He wanted you to know that.....
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Roads, Public Goods, and Focal Points
The Answer Is Transaction Costs
06/06/23 • 26 min
Episode 5: Notes and Sources
Vaughn Baltzly, "Publicized Goods, or the Promiscuity of the Public Goods Argument." https://www.cambridge.org/core/journals/economics-and-philosophy/article/abs/concerning-publicized-goods-or-the-promiscuity-of-the-public-goods-argument/DE16529B673600C47C22B59C87D198A9
Bruce Benson, "Are Roads Public Goods?"
https://www.springerprofessional.de/en/are-roads-public-goods-club-goods-private-goods-or-common-pools/11240720
Daniel Klein, KNOWLEDGE AND COORDINATION. https://www.amazon.com/Knowledge-Coordination-Interpretation-Daniel-Klein/dp/019979412X/ref=sr_1_1?ie=UTF8&qid=1324300010&sr=8-1
Thomas Schelling, THE STRATEGY OF CONFLICT. http://elcenia.com/iamapirate/schelling.pdf
"Are Roads Really Public Goods?" https://fee.org/articles/are-roads-really-public-goods/
"Economists on Federal Funding for NPR." National Public Radio, PLANET MONEY. https://www.npr.org/transcripts/134863998
"The Fundamental Law of Road Congestion." https://cityobservatory.org/the-fundamental-global-law-of-road-congestion/
"Tolls on the Connecticut Turnpike." https://www.latimes.com/archives/la-xpm-1985-10-10-mn-15553-story.html
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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Exchange Takes "Place," and the Strange Case of Lettuce
The Answer Is Transaction Costs
05/16/23 • 15 min
Why would sellers go to a "place" where many others are also selling the same product? Wouldn't it better to go someplace off by yourself, so you can get the monopoly price? Well, the answer is that transactions"take place," meaning they require a context. Amazingly, it's better to go where all the other sellers are going, because of the problems of triangulation, transfer, and trust. The Sears catalog was a "virtual" (paper) place, and Amazon is another "virtual" (online) place. But the answer to why we do that is "transaction costs."
But then I go back in time to my own introduction to the notion of transaction costs, in a class taught by the remarkable economist Yoran Barzel. The puzzle is so simple that it seems dumb: why do we measure lettuce by the head, meat by the pound, and diamonds by the caret?
Yoram Barzel, Measurement Cost and the Organization of Markets.
The Journal of Law & Economics, Vol. 25, No. 1 (Apr., 1982), pp. 27-48
https://www.jstor.org/stable/725223
Brian Albrecht, Brian Albrecht at Int Cent for Law and Econ
https://pricetheory.substack.com/p/are-transaction-costs-just-costs
Plus, the TWEJ!
And our first letter, as a homework assignment.
Are congestion taxes an effective way to overcome transactions costs pertaining to efficient use of roads? Probably not the best. There is no externality with congestion, because everyone stuck in traffic has moved to the harm. Those who could be held liable for causing congestion are not those who pay for a variable toll, but those who come later.
We'll talk about this in Week 3!
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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Current Event: Smart Grids, DERs, and the Economics of Energy
The Answer Is Transaction Costs
01/30/24 • 72 min
Unlock the secrets of the energy market evolution with economist Professor Lynn Kiesling, who brings her expertise on transaction costs and the digital transformation of the electricity industry to our table. Our energized discussion orbits around the innovative world of Distributed Energy Resources (DERs), where we explore the shift from consumers to proactive producers, thanks to technologies like rooftop solar panels and home energy storage. Professor Kiesling, drawing from her academic journey and reverence for Ronald Coase's work, delves into the institutional structure of production within firms and imparts her wisdom on navigating the complex regulatory frameworks that shape our smart grid technologies.
Also, 4 new TWEJ's, and a letter. It's the January TAITC!
- This month's guest: Lynne Kiesling: https://lynnekiesling.com/
- Our paper: Theisen, Kiesling, and Munger, "Airbnb to solar: electricity market platforms as local sharing economies." Public Choice: 2022
- Lynne's Substack: "Are We Talking Ourselves Out of Progress?"
- Lynne's Substack: "Pareto-relevant Externalities (You don't have to internalize everything, folks!)
Links:
- Buchanan and Stubblebine, "Externality." Economica.
- Russ Roberts and the parable of the wind and the sun: https://www.econtalk.org/david-mcraney-on-how-minds-change/
- Amory Lovins (cold beer, hot shower, "Nega-Watts"): https://en.wikipedia.org/wiki/Amory_Lovins
- Ohtani's contract, from REASON: https://reason.com/2023/12/15/baseball-star-shohei-ohtanis-new-contract-is-a-massive-tax-avoidance-scheme-nice/
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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All You Can Eat, or By the Ounce?
The Answer Is Transaction Costs
08/22/23 • 21 min
There are many different pricing and packaging schemes for serving food in restaurants, and they all seem to coexist. But there are some significant differences, and thinking in terms of transaction costs and adverse selection can help us understand why.
Plus, a TWEJ on the eternal optimism of Keynesians: THIS time it might work!
Some links:
- Yoram Barzel, Measurement Cost and the Organization of Markets. The Journal of Law & Economics, Vol. 25, No. 1 (Apr., 1982), pp. 27-48 https://www.jstor.org/stable/725223
- Comeback of "all you can eat" https://www.today.com/food/restaurants/all-you-can-eat-buffets-comeback-rcna99462
Buffets, pricing, and management, seller's perspective
- https://www.cheftalk.com/threads/pricing-salad-bars-by-weight.70748/
- https://pdfcoffee.com/buffet-cost-control-pdf-free.html
- David V. Pavesic (1994) By-The-Ounce Pricing for Salad Bars, Journal of College & University Foodservice, 1:4, 3-11
- David V. Pavesic and Paul F. Magnant (2005; 2nd Ed). Fundamental Principles of Restaurant Cost Control, pp. 238-246. Prentice Hall.
Consumer's perspective
- https://www.budgetbytes.com/hit-salad-bar-like-boss/
- https://www.refinery29.com/en-us/whole-food-cheap-salad-bar-hacks
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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Middlemen: From Mancgere to Amazon
The Answer Is Transaction Costs
05/30/23 • 20 min
Does Starbucks have surge pricing?
What is a Mancgere?
Should the Stomach go to the Wheat, or should the Wheat come to the Stomach?
Plus, the TWEJ!
Some things discussed this week:
Michael Munger, "Market Makers or Parasites" https://www.econlib.org/library/Columns/y2009/Mungermiddlemen.html
Frederic Bastiat, WHAT IS SEEN AND UNSEEN. https://www.econlib.org/book-chapters/chapter-chapter-1-what-is-seen-and-what-is-not-seen/
Frederic Bastiat, "The Negative Railroad." https://www.libertarianism.org/publications/essays/negative-railroad
David Friedman, HIDDEN ORDER. http://ndl.ethernet.edu.et/bitstream/123456789/2041/1/47.pdf.pdf
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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Propriety, Norms, and Traffic Congestion: Episode 3
The Answer Is Transaction Costs
05/23/23 • 17 min
The third episode for TAITC: First, we take up the question of traffic congestion. Then, does the transaction cost approach have a relationship with moral and ethical theory?
Resources:
Econtalk: Traffic https://www.econtalk.org/michael-munger-on-traffic/
Roger Congleton Book Solving Social Dilemmas
Coase and Epstein: Intellectual Portrait Series, Liberty Fund
John R. Commons, 1931, American Economic Review
Ronald Coase, 1937, Economica
Oliver Williamson, Transaction Cost Economics
Douglass North, Institutions
And of course the TWEJ
The letter, for this week, from Anonymous: Does Starbucks have surge pricing? Once you realize that TAITC, then of course they do.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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Desert Town Dilemmas and the Problem of Property Rights
The Answer Is Transaction Costs
04/30/24 • 61 min
We embark on a journey through the lenses of Hume, Smith, and Coase, piecing together the roles of observation and empirical study in shaping our understanding of societal conventions and moral philosophy. David Schmidtz recounts a defining moment from his academic path, sparking a robust discussion on the fusion of economics with moral considerations in the realm of ownership and resource distribution.
The discussion with David delves into the essence of property ownership, dissecting what it means to hold rights over something as abstract as an idea or as concrete as land. We grapple with the notion that property is not just a "bundle of sticks" but a set of societal constructs, born from necessity and shaped by our collective desire for harmony. Through examples of conflict resolution and the negotiation of public and private interests, such as eminent domain and navigation easements, we confront the delicate dance between individual autonomy and the greater good. The philosophical undercurrents of property law are laid bare, revealing the presumption in favor of liberty in those deep waters.
The "Desert Town" source: https://www.cambridge.org/core/books/abs/elements-of-justice/desert/268B6C7A9B17949572933A4DAA0CAB09
Wall Street Journal article on Costco gold purchases: https://www.wsj.com/finance/investing/selling-costco-gold-bars-f14e966f
Biden DOT rule on airline refunds:
- https://www.transportation.gov/briefing-room/biden-harris-administration-announces-final-rule-requiring-automatic-refunds-airline
- https://abcnews.go.com/Politics/airlines-give-automatic-refunds-canceled-flights-delayed-3/story?id=109573733
Lynne Kiesling on The Essential Ronald Coase, Fraser Institute.
Books:
C. Johnson, R. Lusch, Schmidtz, Commercial Society: A Primer on Ethics & Economics (Rowman & Littlefield).
Bryan Caplan and Ady Branzei. Build, Baby, Build. Graphic novel just published by the Cato Institute
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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Conventional Wisdom, Chesterton Fences, and "Excuse me"
The Answer Is Transaction Costs
07/04/23 • 19 min
(NOTE: SORRY for audio glitch earlier. Fixed now!)
BR asks about the economic content of "old sayings."
We talk about habits, character, and "thinking fast and slow."
Plus, TWEJ takes on cultural norms.
Some links and background:
- F.A. Hayek on habit and information
- B. Hooker on Rule Consequentialism
- Munger on Pave the Muddy Paths
- Munger on Rule Utilitarianism
- Russ Roberts on Wild Problems
- Roberts and Munger on Norms and Sports
- Roberts and Munger on Cultural Norms
- David Schmidtz on "Desert Town"
- Adam Smith on being committed to your principles
- Alfred North Whitehead on habit
Lagniappe:
I think we all see different headlines. This one (to me) says, "Sheetz raises gas prices using long lines and frayed tempers on one of the hottest days of the year!"
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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Making Deals With Shadows: The Economics of Ransomware and Cybersecurity
The Answer Is Transaction Costs
02/27/24 • 44 min
The digital realm is rife with invisible threats, and this episode doesn't shy away from the gritty realities of ransomware and the burgeoning industry of cyber insurance. We tackle the conundrum: How do these defensive expenditures impact our economy when they don't actually produce anything tangible? From the early days of cyber insurance to the ongoing battle against hackers, learn how organizations across the board—from the halls of government to the frontlines of business—are fortifying their defenses against a barrage of cyber threats, each with their own unique strategies and vulnerabilities.
Wrapping up with a human touch, our conversation turns to the pivotal role individuals play in the security of networks and the negotiation tactics employed once defenses have been breached. And because all work and no play makes for a dull podcast, we round off the session with a sprinkling of economic humor, answering listener queries with a blend of wit and wisdom. Don't forget, for those hungry for more knowledge, I've got some book recommendations to deepen your understanding of the legendary thinker Adam Smith.
Links:
Anja Shortland Website: https://www.kcl.ac.uk/people/anja-shortland-1
Duke CHOPE Hayek Lecture with Dr. Shortland: https://www.youtube.com/watch?v=Czs2EYDo2sI
Books:
Arthur Herman: How the Scots Invented the Modern World https://www.amazon.com/How-Scots-Invented-Modern-World/dp/0609809997
James Otteson: Adam Smith's Marketplace of Life https://www.amazon.com/Adam-Smiths-Marketplace-James-Otteson/dp/0521016568/ref=monarch_sidesheet
Adam Smith: The Theory of Moral Sentiments https://www.libertyfund.org/books/the-theory-of-moral-sentiments/
EconTalk Book Club (six episodes): https://www.econtalk.org/klein-on-the-theory-of-moral-sentiments-episode-1-an-overview/
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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TAITC: Episode 1
The Answer Is Transaction Costs
05/09/23 • 9 min
The introductory episode for TAITC: "The Answer is Transaction Costs!" The new weekly podcast from Duke University's Mike Munger (http://michaelmunger.com)
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitz
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FAQ
How many episodes does The Answer Is Transaction Costs have?
The Answer Is Transaction Costs currently has 42 episodes available.
What topics does The Answer Is Transaction Costs cover?
The podcast is about News, Podcasts, Social Sciences, Science and Politics.
What is the most popular episode on The Answer Is Transaction Costs?
The episode title 'Exchange Takes "Place," and the Strange Case of Lettuce' is the most popular.
What is the average episode length on The Answer Is Transaction Costs?
The average episode length on The Answer Is Transaction Costs is 30 minutes.
How often are episodes of The Answer Is Transaction Costs released?
Episodes of The Answer Is Transaction Costs are typically released every 7 days.
When was the first episode of The Answer Is Transaction Costs?
The first episode of The Answer Is Transaction Costs was released on May 9, 2023.
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