Pre-market societies could sometimes have alot of violence

Non-capitalist or pre-capitalist societies can have quite a bit of violence. The first quote comes from The Making of Economic Society, 13e by Robert L. Heilbroner and William Milberg.

"It is difficult for us to reconstruct the violent tenor of much of feudal life, but one investigator has provided a statistic that may serve to make the point: Among the sons of English dukes, 46 percent of those born between 1330 and 1479 died violent deaths. Their life expectancy when violent death was excluded was 31 years; when violent death was included, it was but 24 years."

That came from T. H. Hollingsworth, “A Demographic Study of the British Ducal Families,” Population Studies, XI (1957–58). Imagine if someone told you that 46% of the sons of senators or Fortune 500 CEOs were going to die violently over the next 150 years.

Now there is a study out called "The Better Angels of Their Nature: Declining Violence through Time among Prehispanic Farmers of the Pueblo Southwest", American Antiquity, Volume 79, Number 3 / July 2014. See The Most Violent Era In America Was Before Europeans Arrived. It discusses some periods when native American life was quite violent. Here are some excerpts:

"Writing in the journal American Antiquity, Washington State University archaeologist Tim Kohler and colleagues document how nearly 90 percent of human remains from that period had trauma from blows to either their heads or parts of their arms.

"If we're identifying that much trauma, many were dying a violent death," said Kohler. The study also offers new clues to the mysterious depopulation of the northern Southwest, from a population of about 40,000 people in the mid-1200s to 0 in 30 years."

"It wasn't just violent deaths that poke holes in the harmony with the land and each other myth. A paper in June in the Proceedings of the National Academy of Sciences found that the Southwest also had a baby boom between 500 and 1300 that likely exceeded any population spurt on earth today. The northern Rio Grande also experienced population booms but the central Mesa Verde got more violent while the northern Rio Grande was less so.

Kohler has conjectures on why. Social structures among people in the northern Rio Grande changed so that they identified less with their kin and more with the larger pueblo and specific organizations that span many pueblos, such as medicine societies. The Rio Grande also had more commercial exchanges where craft specialists provided people both in the pueblo, and outsiders, specific things they needed, such as obsidian arrow points.

But in the central Mesa Verde, there was less specialization.

"When you don't have specialization in societies, there's a sense in which everybody is a competitor because everybody is doing the same thing," said Kohler. But with specialization, people are more dependent on each other and more reluctant to do harm."

Related post:

Violence was widespread in early farming society

Looks and Longevity: Do Prettier People Live Longer?

By Connor M. Sheehan and Daniel S. Hamermesh.

I have several posts on how better looking get better results like higher pay and better terms on loans (see Related Posts below). Daniel Hamermesh has done quite a bit of research on topics like this and his name is mentioned in several of these other posts.

"Abstract

Social scientists have given relatively scant attention to the association between attractiveness and longevity. But attractiveness may convey underlying health, and it systematically structures critical social stratification processes. We evaluated these issues using the Wisconsin Longitudinal Study (WLS, N=8,386), a survey of Wisconsin high school graduates from 1957 which provided large samples of women and men observed until their death (or through their early 80s). In doing so, we utilized a meticulously constructed measure of facial attractiveness based on the independent ratings of high-school yearbook photographs. We used linked death information from the National Death Index-plus through 2022 and Cox proportional hazard models as well as standard life-table techniques. We found that the least attractive rated sextile of the sample had significantly higher hazards of mortality (HR: 1.168, p <0.01) compared to the middle rated four sextiles of attractiveness. This finding remained robust to the inclusion of covariates describing high-school achievement, intelligence, family background, earnings as adults, as well as mental and physical health in middle adulthood. We also found that different specifications of the attractiveness measure consistently indicated no significant differences in the mortality hazard between highly attractive and average-looking people. Using life-table techniques, we next illustrated that among women in the least attractive sextile, at age 20 their life expectancy was nearly 2 years less than others’; among men in the least attractive sextile, it was nearly 1 year less at age 20."

Related posts:

The obesity pay gap is worse than previously thought (2023)

The Moral Hazards of Being Beautiful: Research shows that attractive people tend to receive unearned esteem from others and cultivate self-serving beliefs (2023)

Attractiveness is associated with the belief that economic success is dependent on individual effort, rather than external circumstances (2022)

Do looks matter for an academic career in economics? (2021)

Higher economic status can offset lower physical attractiveness in men much more easily than in women (2017) 

The Unfairness of Unattractiveness (2016)

Better Looking Real Estate Agents Make More Money (2014)
   
Do Good Looking People Get Better Loan Terms? (2014)
 
Do Looks Help In The Job Market?  (2012)
 
From The Life Is Not Fair Category: Better Looking, Tall, Thin People Make More Money (2011)

Do looks matter? (2011)

How much more are consumers willing to pay for ethically sourced chocolate?

See A U.K. Grocery Committed to Paying Farmers More for Cocoa. Chocolate Bar Sales Skyrocketed by H. Claire Brown of The WSJ. Excerpts:

"In April, the British grocery chain Waitrose added a small yellow label to nine of its store-brand chocolate bars. “Tony’s Open Chain: Together, we’ll end exploitation in cocoa,” it read.

The rollout wasn’t accompanied by in-store advertising, and press coverage was relatively quiet. The price of the bars rose from 2 British pounds (about $2.50) to £2.20. Still, sales shot up by 43% year over year in the week after the launch, and averaged 34% in the first six weeks.

It can sometimes be hard to see a return on investments in the supply chain, said Marija Rompani, director of ethics and sustainability at John Lewis Partnership, which runs the Waitrose chain."

"In surveys, consumers frequently express a willingness to pay extra for products they perceive to be sustainable, but actual shopping behavior tells a different story. A 2022 study by the consulting firm BCG found that while 80% of respondents said they cared about sustainability, less than 7% actually paid extra for sustainable products.

It is even less clear how rich a “sustainability premium” people are willing to pay. Recent research has put the number between roughly 10% and 25%."

"In the broader food industry, the success of the rapidly-growing organic certification label offers some hint that the sustainability premium may translate to other products, though research has shown that health benefits may be a greater factor than environmental concerns. 

At Waitrose, customers appeared willing to pay extra for ethical cocoa sourcing—though it is also possible shoppers didn’t notice the difference. Inflation, and an attendant preference for store brands, might have played a role."

"Cocoa is produced by millions of small-scale farmers, and more than half of the world’s supply is grown in Ivory Coast and Ghana. In Ghana, where a living income is considered around $1.96 per person a day, farming families make about $1.42 per household member, according to Tony’s Open Chain. The companies that join the initiative commit to bridge the 54-cent gap by paying more for cocoa. 

The Ghanaian government sets the price of cocoa, and for the 2022-2023 growing season fixed it at 1,250 euros per metric ton. Buyers that participated in the Fairtrade certification program, a separate set of sustainability standards, paid an additional €245 premium per ton. On top of the Fairtrade premium, Tony’s Open Chain participants paid another €669 euros per ton in living income premium to ensure the farmers in their network earned $1.96 a day. (All of the cocoa sourced through the Open Chain is also Fairtrade.)"

Used-Car Sales Have Moved Online—Here’s Why Both Customers and Dealers Are Happy

The migration has armed consumers with much more information and choices. It has done the same for dealerships.

By Jinjoo Lee of The WSJ. Excerpts:

"It used to be harder to tell if that cream puff was really a lemon.

In 1970, Nobel Prize-winning economist George Akerlof wrote about used-car markets to illustrate the problem of information asymmetry in markets: Sellers know a great deal more about the quality of their cars than buyers do, making it difficult for buyers to differentiate between low- and high-quality vehicles.

That information gap has narrowed over the years: In 1975, the Magnuson-Moss Warranty Act, also known as the Lemon Law, started requiring sellers of consumer products to provide detailed information about warranty coverage. Since 1985, the so-called Used Car Rule has required car dealers to display a window sticker with warranty information. Sellers have made it easier for consumers to pick out the highest-quality used cars by certifying cars that have been inspected and repaired. Services such as Carfax help consumers track vehicles’ history, and third-party resources such as Consumer Reports and J.D. Power help consumers suss out which vehicle models are more reliable than others."

Prospective buyers and sellers of used cars have more access to information than they have ever had. Online, consumers can look up not only the price, but how many of a particular vehicle model are available in the local market, how long the vehicle has been on the market and reviews of the dealerships themselves. CarGurus’ Zales said the platform has seen prices for similar vehicles converge over time. 

“Dealers have to get as aggressive as possible, knowing that information is out there online,” he said. 

A 2001 academic paper by lead author Florian Zettelmeyer, professor of marketing at Northwestern University’s Kellogg School of Management, illustrated this: New vehicle buyers who used an internet referral service paid 2.2% less for their car than those who didn’t. 

That might seem like it is stacking the deck against dealers. It actually could help them earn more money. Dealers can use real-time market data to determine the optimal bidding price in wholesale auctions, for example. A McKinsey report by senior partner and lead author Ben Ellencweig analyzed 15,000 car transactions in 2022 and 2023, and estimated that dealers could expand their margins by 2 percentage points if they used real-time used-car-market pricing data to bid. That comes out to a $22 billion opportunity in the U.S. and Europe combined. McKinsey also estimated that dealers in the U.S. and Europe could collectively make $1.2 billion more by allocating used-car inventory to the right places around the country. 

Online wholesale auctions should help. When wholesale car auctions were done in person, it limited the pool of buyers to dealers within a certain driving distance. This meant that, for instance, a used soft-top car sold in the winter in Massachusetts might be auctioned off to a low bidder nearby, when a dealer in Florida might have been willing to pay a higher price. Virtual auctions can remove that inefficiency."

"Asymmetric information" is a situation in which the seller knows more about a product than the buyer (sometimes the buyer knows more about something important like how healthy or risky they are as it relates to insurance). These markets do not operate optimally. If insurance companies don't know how healthy or risky you are, they can't be sure of how much your premiums should be. So they try to find other information, like your occupation, that might be correlated with your risk. My students might recall I discussed this after we played the supply and demand game in class. A good example is the used car market. Sellers usually know alot more about the product than the buyers.

I play a game in class that touches on insurance. Click here to see the Lessons From the Supply and Demand Game. 

Related posts:
Lose the Fat to Lower Your Insurance Rates
How Did Astronauts Of The 60s "Purchase" Life Insurance?
Should Overweight People Pay More For Health Insurance?
Should We Pay People To Adopt A Healthy Lifestyle? 
'Spy car' worries raised by new Allstate patent
Should your company or insurer reward you for meeting exercise goals?
How insurance companies are using technology to better assess how risky customers might be
The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender
Some History of Insurance
Companies and governments are paying people to get healthy, and it works
Social media, insurance and asymmetric information
California to Toughen Rules on Group Discounts for Car Insurance 

Magnets and the Law of Increasing Opportunity Cost

See America’s War Machine Runs on Rare-Earth Magnets. China Owns That Market: U.S. defense needs are pushing revival effort after decades of deindustrialization by Jon Emont of The WSJ.

Rapidly increasing production of a certain good in a short period of time leads to increasing opportunity costs as less capable resources have to be switched over from some other productive activity (capital has to be re-tooled and workers retrained (this article specifically mentions this). All of that adds costs that were not there before. So it actually costs more to produce additional units, on average. After excerpts from the article, there is a numerical example.

"The Defense Department in the past few years has committed more than $450 million toward rare earths and the magnets they power. The Energy Department is offering its own incentives because the magnets are also critical for electric vehicles.

The funding is helping a German magnet-maker set up its first North American factory, which broke ground in March, two decades after its last U.S. factory shut down. The facility, in Sumter, S.C., will buy rare earths locally. Those supplies could come from other projects that are receiving government funding—such as processing plants coming up in California and Texas, owned by American and Australian miners, respectively.

Their highest hurdle is low Chinese prices. A U.S. Commerce Department probe in 2022 found that China’s dominant position enabled it to set prices low enough to make production unsustainable for competitors.

In the West, mines and processing facilities face more regulations. There are only a small number of experts left in the field, requiring pricey workarounds such as importing foreign talent, sending Americans abroad for training and automating." [this is where the increasing cost comes in-you pay a salary for each additional worker but you have to pay more on top of that for the extra training and that means each additional unit costs more to make]

"Pushing defense suppliers to buy more-expensive magnets that are made in the U.S. would raise costs and have a knock-on effect, potentially affecting how many defense systems such as submarines and jet fighters the Defense Department is able to buy, Schwartz said. 

The other question is who else will buy the magnets. Defense demand, while considerable, isn’t enough. Other industries that use magnets, such as makers of EVs, wind turbines and MRI machines, would need to be willing to pay more today in exchange for a reliable supply chain.

At least one major player, General Motors, has agreed to buy American-made magnets when production starts. Some others say they are interested."

Related posts:

EV-Battery Plants and the Law of Increasing Opportunity Cost 

Flushing out the true cause of the global toilet paper shortage amid coronavirus pandemic 

Ventilators and the law of increasing opportunity cost

Hand sanitizer and the law of increasing opportunity cost

Monoclonal-antibody drugs and the law of increasing opportunity cost

Here are some basic terms that economists use to discuss this issue:

Opportunity Cost-The value of the best foregone alternative. There is no such thing as a free lunch. If we want to build one more skyscraper, we may have to give up one submarine, since there may not be enough steel to go around (steel is scarce!).

The law of increasing opportunity cost-As more of a particular good is produced, the opportunity cost of its production rises. Why is the law of increasing opportunity cost true? Different resources are better suited to different productive activities. This is just about the same as saying people have different abilities, like some are more entrepreneurial and some are more bureaucratic.

Let’s assume that we have society with five workers who can make either of two goods, candles or shoes. Now the best candle maker will not necessarily be the best shoemaker and some candle makers will be better than others. This simply means that workers have different abilities.

In the real world, the best doctor would not be the best lawyer. Some plumbers are better than others.

In the table below, the number of candles OR shoes that each worker can make in a day is listed.

Worker	Candles	Shoes
I	7	3
II	6	4
III	5	5
IV	4	6
V	3	7

Again, the workers have different abilities, just as they do in the real world.

What are all of the combinations of candles and shoes that this society can make? If all the workers make candles, they can make 25 (just add up how much each worker can make). How many shoes? ZERO, since each worker spends all day in the candle factory (this is combination A in the table below).

If we want to make some shoes, the first worker we would tell to stop making candles, if we are rational and trying to get the best deal, would be worker V.  So we gain 7 shoes and lose 3 candles. That is why combination A is 22 and 7. Worker V no longer makes candles since they are making shoes. So the opportunity cost of making a shoe is some number of candles (and vice-versa).

The rest of the combinations that show what would happen if we kept moving workers out of candle making and into shoe making is in the table below.

Combination	Candles	Shoes
A	25	0
B	22	7
C	18	13
D	13	18
E	7	22
F	0	25

Now what happens to the opportunity cost as we move from combination A to combination B? Then combination B to combination C, and so on? The table below shows this:

Change	Candles Given Up	Shoes Gained	Candles per Shoe
A to B	3	7	0.429
B to C	4	6	0.667
C to D	5	5	1.000
D to E	6	4	1.500
E to F	7	3	2.333

By moving from point A to point B, we give up 3 candles to gain 7 shoes. The cost of each shoe in candles is .429 (3/7). Then we give up 4 candles to get 6 shoes, with each shoe costing .667 candles. The more shoes we try to produce, the more candles that have to be given up to get each shoe. So the opportunity cost of producing shoes rises.

This is called the law of increasing opportunity cost.

The law of increasing opportunity cost-As more of a particular good is produced, the opportunity cost of its production rises. (see how the numbers rise in the “Candles per Shoe” column in the table above)

Why is the law of increasing opportunity cost true? Different resources are better suited to different productive activities. This is just about the same as saying people have different abilities, which is what we see in the number of candles and shoes each worker can make.

 

 

 

Nice EV You Got There—Can You Afford to Insure It?

EVs are fast and full of technology. That makes them fun to drive but tougher to insure.

By Telis Demos and Stephen Wilmot of The WSJ. Excerpts:

"In the U.S., the average severity of a claim for a repairable EV was $6,066 in the first quarter, nearly 30% higher than for internal-combustion-engine (ICE) vehicles"

"Part of that cost can be the greater work involved: over three mechanical labor hours on average for a repairable EV claim estimate, versus less than two for ICE vehicles"

"Mechanics sometimes have to de-energize electric vehicles before removing their high-voltage batteries to avoid damaging them during repairs"

"EVs naturally have more torque, which means that their electric motors can instantly deliver power to the transmission. Some insurers worry that faster acceleration from traffic lights could lead to more accidents, though some reviews have also found that EVs are less frequently involved in insurance claims."

"the monthly EV premium cost to be on average 12% higher."

"The so-called combined ratio for U.S. personal auto insurers industrywide hit 112% in 2022 and 105% last year, according to Fitch Ratings. This ratio means an insurer made an underwriting loss, paying out more in claims and expenses than they collected in premiums."

"Time could help alleviate EVs’ repairability problems. As the recycling and secondary parts and vehicles market evolves, mechanics learn and manufacturers adapt. “My belief is that you will see the insurability costs begin to come down as EVs scale,” says Craig Carrington, who runs commercial-vehicle insurance and financing for Ford Motor"

"One complication is the trend toward “gigacasting”—using smaller numbers of larger cast parts to make vehicles. Tesla has championed the technology, and others, including Toyota, are now following. But it could make cars even more expensive to repair. If lower production costs mean higher insurance costs, then drivers won’t actually save money.

More complicated cars aren’t all bad: Whether in EVs or traditional cars, digital technology holds the promise of lowering insurance costs because it generates the kind of driver data that could potentially help underwriters manage risks better. This is one reason carmakers increasingly offer insurance.

Prompted in part by customer complaints that its products were expensive to insure, Tesla launched an insurance business in California in 2019, promising rates up to 30% cheaper than other providers. General Motors and Ford followed suit.

Ford offers a 10% discount on insurance to fleet managers in exchange for consent to use their data, with a view to using it to help them reduce risky driving behavior and hence insurance costs. Vehicle-generated data can identify some driving practices that a smartphone can’t, such as seat-belt usage, says Ford’s Carrington."

Related posts:

 

The EU forbids the use of gender to help calculate car insurance premiums, leading women to pay more and men to pay less (2021)

Lose the Fat to Lower Your Insurance Rates  (2007) 

 
How Did Astronauts Of The 60s "Purchase" Life Insurance? (2012)

Should Overweight People Pay More For Health Insurance? (2009) 

 

Should We Pay People To Adopt A Healthy Lifestyle? (2010)

 

'Spy car' worries raised by new Allstate patent (2015)

 
Should your company or insurer reward you for meeting exercise goals? (2016)

How insurance companies are using technology to better assess how risky customers might be (2018)

The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender (2011) 

Some History of Insurance (2019

Technology Was Supposed to Transform Insurance Pricing. It Hasn’t (2023) 

Obscure Model Puts a Price on Good Health—and Drives Down Drug Costs (2020)

Pharmacy-benefit managers and drug prices (2023)

Patients Lose Access to Free Medicines Amid Spat Between Drugmakers, Health Plans  (2023)

Employers Cut Off Access to Weight-Loss Drugs for Workers  (2023)

Home Insurance Is So High in This Florida Town, Residents Are Leaving (2023)