Monthly Archives: July 2014

Vampire Dogs = Werewolves?

Sometimes, I find an article that just tests my ability to analyze it, through an economic lens or any other.  Like this one from the Philippines:

SIBALE ISLAND, Romblon—Eleven days before a new appearance of the super moon on August 10, “vampire” dogs attacked and killed on Wednesday seven goats, sucking its [sic] blood and taking out its [sic] heart and liver, a senior official said.

Mayor Lemuel Cipriano said the dogs, which some residents claimed were werewolves, attacked the herd of Ervin Ignacio, a farmer-fisherman, in Sitio Sinanrigan in Barangay Calabasahan.

“The goats were drained of blood. The predators took only the livers and hearts. The rest of the body were [sic] intact,” Cipriano said.

Couple of things to note here:  (1) The seeming uncertainty about whether there’s one predator (singular) or many (plural).  I chalk this up to poor English skills. (2) The dispute as to whether the predators are vampire dogs or werewolves. This could be a promising premise for the next supernatural cult TV show:  when a dog becomes a vampire, that’s how we get werewolves!  But does this kind of werewolf take human form?  As I recall from my Dungeons & Dragons days, there’s actually a fine distinction here:  a human who turns into a wolf is a werewolf, whereas a wolf that (partially) turns into a human is a wolfwere.

Another passage of note:

Romblon Gov. Eduardo Fiormalo has issued a “shoot-on-sight” against the suspected werewolves. Residents armed with bamboo spears and bolos patrol their neighborhood at night, but the animals have been elusive.

That’s right:  bamboos spears and bolos.  This really is the premise of a supernatural cult TV show.

Finally, there is actually an economic aspect to all of this:

The Department of Agriculture has announced it would replace the goats killed, but residents have become reluctant to herd goats because it attract [sic] the vampires and they could be the next victims.

“Who knows, if these unknown killers consumed all our goats, and they go hungry, we can be their next victims,” said Nelia Yap, the municipal agriculturist.

What do you think?  Should the government be subsidizing the raising of goats, which may be the source of a negative externality (attracting vampire dogs)?  Usually, economists recommend that activities with negative externalities be taxed.

Zombie Survival, Short-Term vs. Long-Term

My Google Alert for “zombie” brings me a seemingly endless stream of news about so-called “zombie survival camps.”  They have them in Iowa, California, New Jersey, Oregon, Canada, Japan, and I’m sure many other locations as well.  (Given the similarity of the language, I wouldn’t be surprised to learn that many of these are run by a single organization.)

While preparedness is surely a good thing, I wonder if these camps are really teaching people what they need to know.  Here’s a representative description, from the California camp linked above:

Stanislaus County Safety Officer David Becker … will present tips instrumental to surviving a potential zombie apocalypse before allowing the teenagers to assemble safety kits themselves. From water bottles to glow sticks, surgical masks to hand wipes, teenagers will choose life saving tools to keep on hand in the case that an unexpected disaster should strike.  While the approach is light hearted, at the core of the library’s mission is a serious message about the importance of preparation and communication prior to a catastrophe.

And here’s a description from the camp in New Jersey:

 We teach you everything you need to know to survive the apocalypse, including:

  • Find and create a safe environment and shelter

  • Train in self-defense and melee weapons

  • Handle and use a crossbow

  • Use firearms-handgun, shotgun and rifle (live ammo)

  • Stay healthy now and then

  • Build and lead your team

  • Collect, prepare and store your supplies

  • Build the perfect Bug-Out-Bag

  • And much more…

Notice a pattern?  Virtually all of the skills taught are essentially short-term survival skills:  what to pack in your to-go bag, how to use weapons, etc.  These skills are fine for getting you through the first few weeks.  But as Jim Dow argues in Chapter 3 of Economics of the Undead, “Packing for the Zombie Apocalypse,” you also have to think long-term.  Eventually, your duct tape, ammunition, glow sticks, and hand wipes will run out.  If civilization has collapsed in the meantime, you need to think about how you’ll support yourself in the post-apocalyptic economy.

There’s nothing wrong with packing stuff, but as Jim argues, what matters more in the long run is what you’ve packed in your head.  Do you have a skill that you can use to engage in trade with the other survivors?  It’s unrealistic to think you can be totally self-sufficient, which means you’ll need something to offer others that they will value.  Do you know how to build a still and distill alcohol (as Jim suggests)?  Manufacture new shot gun shells or crossbow bolts?  Turn bread mold into penicillin?  You probably can’t learn to do all of these things at a two-week survival camp, but learning just a couple could dramatically improve your odds of prospering (relatively speaking) in the aftermath.

Tontines: How Vampires Really Got Rich?

In a previous post as well as a chapter in the book, Jim asks how vampires came to be so rich.  The obvious answer is compound interest, although Jim observes that it’s not as simple as it may sound.  Kent McKeever of Columbia Law School emailed to draw our attention to another aspect of undead finance:  tontines.  In a tontine, multiple members agree to make contributions to a fund, which pays out an annuity to the living members.  As members die off, the size of the annuity increases for the remaining members.  In an academic paper, McKeever argues that the tontine, morbid as it may sound, could actually be a worthwhile investment vehicle:

The tontine, with its underlying premise that the living participants benefit from the death of their fellows, does not deserve its shadowy reputation. It had some success in its original purpose, as a means of government fund raising. It was most successful as a means of private development and investment from around 1780 through the 1850’s. However, it was used as a gimmick in the selling of life insurance and as a cover for outright fraud in the latter part of the 19th Century. It was also subject to attack from writers who found the notion of gambling on other people’s deaths unseemly. The tontine developed an aura of shadiness, and was eventually abandoned. If re-developed as a form of insurance for the long-lived, it may be worth rehabilitation as an investment tool.

However, as McKeever notes in his email, the existence of undead investors could wreak havoc on the administration of tontines.  This suggests to me a possible alternate history of how vampires became rich:  by taking part in tontines with unsuspecting human partners.

The Economics of Cross-the-Grave Romance

(cross-posted at the Volokh Conspiracy)

Bella and Edward. Buffy and Angel. Buffy and Spike. Sookie and Bill. Sookie and Eric. Elena and Stefan. Elena and Damon. It seems you can’t crack a book, flip on the TV, or walk down a dark alley these days without finding a human girl and a vampire boy making googly eyes at each other.

— Chapter 1 of Economics of the Undead

It’s no secret that the recent vampire craze is driven, in large part, by a female fan base.  The final installment of the Twilight film series drew a 79% female audience (and that’s not even considering how many male viewers only went at the behest of their wives and girlfriends).  Similarly, female viewers of the Vampire Diaries outnumber male ones by about a two-to-one.  Not coincidentally, the past 20 years of vampire stories have sharply moved away from the vampire as repulsive villain and toward the vampire as romantic hero.

In editing Economics of the Undead, I realized that our book needed something to offer this particular audience.  And I knew what exactly it should be:  relationship advice.

Surprising as it may sound, economics actually has quite a lot to say about romantic partnerships, starting with Gary Becker’s famous 1973 article on marriage markets.  Moreover, bringing economics to bear on cross-the-grave romance allowed me to explore some concepts neglected by the rest of the book.  The relevant models aren’t ones you learn in your typical Econ 101 course — I personally didn’t learn about them until grad school — yet they are significant enough to have nabbed their creators Nobel prizes in Economics in both 2010 and 2011.

In “Human Girls and Vampire Boys, Part 1:  Looking for Mr. Goodbite,” I draw on the “search-matching” literature to analyze the process of seeking and finding a vampire mate.  The search-matching approach, pioneered by Diamond, Mortensen, and Pissarides (2010 Nobelists), applies in markets characterized by substantial heterogeneity, such as skilled labor markets, housing markets, and (yes) mating markets.  As I put it in the chapter:

Finding a romantic partner isn’t like going to the grocery store and picking out one of a hundred identical bags of rice. Vampire boys differ from each other in age, beauty, wealth, psychotic tendencies, and so on. Human girls differ substantially as well. The quality of the mate matters, to both sides. To complicate matters further, not every couple is a “good fit”; we all know perfectly nice couples who just don’t belong together, however much they try. So the quality of the match matters as well.

In markets like these, you must engage in a search over time.  With each potential partner you meet, you must decide whether to settle down or keep searching.  For human girls seeking vampire boys, the cost of search can be quite high, as you may have to visit unpleasant places like cemeteries, dark alleyways, and <shudder> local high schools.  And the longer it takes to settle down, the more time you have to spend by your lonesome self.  So you don’t want to keep search indefinitely looking for your one-and-only soulless mate.  But how do you know when to stop searching?

Economic theory has the answer.  A general result of search-matching models is that your best strategy is to decide upon a “reservation level.”  In a job search, for instance, you would calculate a reservation wage; you would accept any wage offer meeting or exceeding it, and refuse any offer below it.  In the mating context, you would decide upon your “reservation level of romantic satisfaction.” You would then accept any vampire who met or exceeded that level of satisfaction, and reject anyone else.  A variety of factors should affect your optimal reservation level, including the number of vampires in your area, how many other human girls are in the market, how patient you are, and how content you are living by yourself… but if you want to know more, you’ll need to read the chapter.

In “Human Girls and Vampire Boys, Part 2: ‘Til Death Do Us Part,” I draw on the field of organizational economics, especially the work of 2009 Nobelist Oliver Williamson, to analyze what happens after you’ve settled down with the undead man of your dreams.  At that point, the relevant question is when to stay together and when to break up.  As Williamson observed in the context of other long-term partnerships, such as employers-and-employees or firms-and-input-suppliers, something changes in the process of creating a relationship:  you start to create relationship-specific assets.  Again, quoting myself:

When you’re looking for a new mate, you’re shopping on a competitive market: you have many options, as do your potential partners. But as soon as you settle down, something changes. You start to make investments in your relationship — and, hopefully, so does he. You gain knowledge of each other’s tastes and quirks, like how you love sparkly clean fangs and he prefers type A blood. You develop routines that allow you to coordinate your schedules, which can be particularly hard when one of you sleeps in the daytime. And you create memories that are special just to you, like that time you faced down an army of bigoted anti-human vampires side by side. If you move in together, your new home will require a substantial investment in packing, decorating, coffin installation, and so on. Children, too, are an investment you make together. (There is some doubt as to whether human-vampire offspring are possible, but I take Twilight: Breaking Dawn—Part 2 as the definitive statement on the matter.) If you ever broke up, some of these assets that you’ve created together would become worthless, and others would lose much of their value. If you want to keep them as they are, you’re locked into bargaining with just one person. The situation is no longer competitive—it’s a monopoly. And because the same problem affects both partners, it’s a bilateral monopoly.

This shift from competition to bilateral monopoly, which Williamson dubbed the Fundamental Transformation, affects business situations as well.  Take, for instance, the casting of the Twilight movie series.  Before the first movie was made, the producers were buying on a competitive market, since many young actors and actresses would have been happy to take the roles of Edward and Bella.  But after Robert Pattinson and Kristen Stewart took those roles, something changed.  For the subsequent movies, the producers had to negotiate exclusively with the actors they’d already chosen, as any threat of substituting different actors would surely have angered the fan base and threatened sales.  As a result, the actors (both lead and supporting) were in a position to play hardball for better pay — which they did.

The Twilight casting story demonstrates Williamson’s most important insight about the Fundamental Transformation:  that it opens a wider range for bargaining over the terms of the agreement.  On a competitive market, it’s much easier for either party to refuse the deal.  But after some time has passed, it gets a lot harder to walk away.  For that reason, one or both members of the partnership may try to change the terms of the relationship after the fact, just as the Twilight cast members did.  This phenomenon is known as post-contractual opportunism.

For instance, what happens when that cute vampire boy who seemed to be vegetarian suddenly “relapses,” succumbing to his bloodlust and feeding on innocent victims (a scenario played out in both Buffy the Vampire Slayer and the Vampire Diaries)?  If he had behaved that way when they first met, the human girl would surely have spurned his advances.  But in the context of an ongoing relationship, the human girl feels obligated to help him through the rough patch, rather than dumping him and losing everything they’ve built together.

Students of economics might wonder if a version of the sunk-cost fallacy is at work here.  Aren’t rational people supposed to ignore costs they’ve already incurred and can’t get back?  But that’s simplistic Econ 101 thinking.  Yes, it’s true that unrecoverable costs should be ignored.  However, what those costs have bought you — the relationship-specific assets of your partnership — continue to be relevant.  For that reason, it can be perfectly rational for people to tolerate behavior within a relationship that would have been sufficient reason to reject a new partner out of hand.

And yet, as we know, relationships can, should, and do end – as we have seen in the case of Buffy and Angel, Sookie and Bill, and other cross-the-grave romances.  So how do you know when to put a stake in it?  Here, too, economics offers some answers, but once again I’ll leave those for readers of the book.

You might be asking yourself at this point whether I’m being serious.  And the answer is… sort of.  Obviously, the vampire part of the discussion above is fictional, and much of the presentation is tongue-in-cheek  But the application of search-matching and organizational economics to romance?  No, I’m not joking.  I’m not saying you need slide rules and spreadsheets to optimize your love life, but I do think the conceptual apparatus here is fundamentally right.  It’s just true that finding a life partner is a search, with all the characteristics (costliness, randomness, etc.) specified in the search-matching model.  And the recommended strategy is also correct:  you have to decide what “bar” a potential partner must clear in order for you to settle down.  As advice columnist and non-economist Dan Savage puts it, it’s silly to demand a partner who’s perfect in every respect; you have to find someone who’s good enough and then “round them up to the One.”  Similarly, it’s just true that committing to a romantic partnership changes things in ways that create incentives to stay together, even when problems arise (as they inevitably will), and that’s what makes many stay-together-or-break-up decisions so difficult.

In this case, as in many others, the economic way of thinking is vindicated.  And that is the larger lesson of Economics of the Undead:  the context may be fanciful or dead serious, but the principles of economics still apply.

Estimating Returns for Very-Long-Term Investors (and Vampires)

(Cross-posted at the Volokh Conspiracy)

As Glen will discuss in his Friday post, the women in books and movies these days all seem to want to date vampires. Of course, not any vampire, but a rich vampire, and there seem to be a lot of them around. What is the secret of how those vampires got so rich? In my chapter “Investing Secrets of the Undead” I’ll show you how to turn a $1,000 investment into a lifetime of wealth that will allow you and your family to…oops, sorry, wrong audience. Actually, in the chapter I use vampires in the media to illustrate some important academic principles of financial analysis as it relates to investing.

The first and obvious answer to why vampires are so rich is that vampires live (so to speak) a long time and so are in the position to take advantage of the power of compounding. Compounding does matter, but there’s more to investing than that.

In the chapter, I talk about various ways in which time interacts with risk for long-term investors, such as why time diversification does not work the way many people think it does, how mean reversion potentially offers opportunities for long-term investors, and the non-financial problems that might be associated with vampires delaying their consumption until the distant future. For this post, I want to briefly discuss one particular issue: how survivorship bias can affect the use of historical data when forecasting long-term investment returns.

There have been many studies looking at US stock returns in the post-war era. However, an investor with a very long investment horizon might be interested in how stocks have performed over the last 100 years in a variety of different countries. During that period, stocks have actually done quite well and a sophisticated vampire might decide to take advantage of that. As I describe it in the chapter:

Before I answer, let me tell you another story from a lesser-known piece of vampire fiction. Baron Federov was a minor aristocrat in the court of Alexander I of Russia in the early 1800’s. Known mostly for various bits of scandal related to the wife of a fellow noble, he lived a life of genteel poverty. However, his life radically changed one night when he was visited by Count Vardalok, who drank his blood and left him for dead. Accidentally, some of the Count’s blood dripped down the Baron’s throat, and so Federov woke that night as a vampire. Now, the Baron was a practical man and understood compound interest. Selling off what possessions he had, he invested in several promising Moscow properties and businesses, making a will that gave his assets to a “future descendant.” He faked his own death as a human and then hid away in a crypt, confidently planning to return many years hence to claim his inheritance and live the rest of his time in prosperity.

In 1917 he awoke to claim his riches. Unfortunately for the Baron, this also happened to be the time of the Russian Revolution, and he awoke not to the riches that compounding promised, but instead to see all his property taken away in the communist revolution. Penniless, he wandered the streets and was staked the next night by a patrolling revolutionary guard.

Okay, that isn’t a real story, but it illustrates an important point. It’s said that history is written by the winners, and that’s true for investing stories as well. Nobody is going to tell you about the money they lost playing the stock market. Because of that, you get a distorted idea about how likely it is for you to win. In the study that came up with our 7% average return, all the countries in the survey were winners. They were around in 1900 and they’re around today. If they weren’t, they couldn’t be included in the study.

The name for this problem is survivorship bias and it results in return numbers that are too optimistic because poor performers (in this case, stock markets and economies that fail) are excluded. The problem of survivorship bias is well understood and adjusted for in the best stock return databases, but this is often not done with unusual or specialty asset return data. Investors beware.

Economic Recovery after the Zombie Apocalypse

(Cross-posted at the Volokh Conspiracy)

Most zombie preparation guides focus on helping you survive the first few weeks with the idea that sooner or later the authorities will defeat the zombie menace and order will be restored. However, what we know from the literature (e.g. Dawn of the Dead and The Walking Dead) is that it’s quite possible that the zombies will do enough damage to knock society back to a more primitive social structure. Several chapters of the book, including one of my own, address the question of how people might begin to rebuild the economy after the apocalypse. (Spoiler alert: I’ll be referencing parts of World War Z and The Walking Dead, so stop here if you don’t want to know. Although, if you care that much, why haven’t you seen them already?)

Before we can face the zombies, we need to step back a bit and consider a basic principle of economic organization. Economies are built around connections between people, either through “hierarchical” organizations such as firms (or armies or families) or alternatively through market systems which are decentralized and built around organized systems of exchange. Each method has its own advantages and disadvantages. Hierarchies can be efficient since there is less time spent in negotiation; however, as the size of the organization gets larger, it’s harder for the person in command to have the specialized expertise needed to make the right decisions at each level. Markets, while seeming inefficient, allow economies to scale up in size which implies more specialization and so greater productivity.

We see both sides of this in the zombie war described in the book World War Z. The anti-zombie forces are finally organized under a centralized command, which allows quick decisions to be made on how to fight the zombies. On the other hand, it is often the people who are directly engaged in battle rather than the people at the top who are most effective in discovering new forms of weaponry and fighting techniques. Fortunately for the humans, the army command recognizes their efficacy, but if they did not, there would have been no alternate channel for the developers to offer their innovations.

The weapon that is the turning point in the war is a new exploding anti-zombie ammunition built in a factory in Hawaii, which is safe from zombies. Unfortunately, the development of this ammunition seems problematic in the environment of World War Z. To make something so sophisticated would require expertise in chemistry, machinery, mining, logistics and a variety of skills that would be spread across the globe in a modern economy. But in a world overrun by zombies, the specialization and trade that these markets would require would become impossible. As the zombies advance and global markets collapse, the things an economy could produce would become less and less sophisticated. I expect World War Z is offering us far too optimistic an outcome.

A more likely vision of the new world is given by The Walking Dead, where society has broken down and survivors clump together in small communities such as Woodbury, which is ruled by the authoritarian “Governor”. This world would be built around production in small, local hierarchical organizations such as communities and extended families rather than around long distance trade which would suffer from insufficient support for modern transportation technology and the risk of being eaten (Brian Hollar has a nice chapter in our book that discusses precisely the issues of specialization and trade in a world full of zombies).

However, one might think it would be easy to revert back to normal once the zombies are gone; after all, we know how modern technology works and what a functional economy looks like, so it should just be a matter of reproducing what we know. On the other hand, the countries of the developing world know the same things too, and yet many of them still fail to move forward.

The typical Econ 101 model of development makes things too simple. It states that poor countries just need to save and as they build up their capital they’ll become rich countries (and yes, sometimes it even happens that way). However, a more sophisticated version of this model says that this only works if there is an effective legal system that identifies and protects property rights.

But this just pushes the question back one step: how does political and legal order come about? It often seems that a certain level of economic development is needed before you can have reliable and unbiased systems of property rights. But it also seems that you need those systems in place before true economic development can occur. This could either result in a positive feedback loop where small advances along one dimension promote development along the other or in stagnation where neither gets started because of the lack of the other. The older name for economics, political economy, reminds us that the long-run nature of the economy is not only based on competing firms but also on competing centers of power. How do you move from a dictatorial leader who keeps a community together in the face of the zombie hordes to a system of distributed property rights and neutral arbiters of disputes? Would the leader realize he would need to give up control, or would society have to relive 200 years of revolutionary history to move forward? Personally, I’m not an optimist about either zombies or humans, so I’m not planning for a quick recovery.

The Ethics and Economics of Vampire Re-ensoulment

(cross-posted at the Volokh Conspiracy)

io9 contributor Greta Christina, after re-watching the second season of Buffy the Vampire Slayer, raises serious questions about the ethics of vampire-slaying.  SPOILER:  At the end of Season 2, Buffy’s friend Willow casts a spell that successfully “re-ensouls” the vampire Angel, thereby rendering him no longer dangerous to humanity.  Christina wonders whether vampire-slaying is still ethically acceptable when another means of stopping vampires is available.  As she puts it, “Why don’t they just keep doing the re-ensoulment spell — on all vampires? Or at least, on all the vampires that they can?”

In the course of defending her position that re-ensoulment is morally superior to vampire slaying, Christina responds to an ecological concern:  “Vampires are immortal: they can be killed, but if they’re not staked or decapitated or exposed to sunlight, they seem to live forever. So if every vampire on the planet were re-ensouled, there would be a whole lot of living creatures (well, not living, but you know what I mean), requiring a certain amount of blood, who would pretty much never die. Would that… put too much strain on the planet’s resources?”  And here Christina steps from philosophical into economic territory.  Her response is, in essence, to deny that vampires will be numerous enough to constitute a substantial burden.  Assuming a prey-to-predator ratio of about 2000 to 1, her policy would only result in another 3.5 million beings on the planet; “If we can feed the cities of Los Angeles or New York, surely we can feed that many vampires.”

This defense is fine as far as it goes, but I’d like to go further.  Why presume that having more humans or human-like beings on the planet is even a problem at all?  The ecological concern seems to borrow from the perspective of doomsayers like Paul Ehrlich, who have been beating the population-bomb drum for decades.  And for decades, the doomsayers have been proven wrong.  In 1968, Ehrlich predicted mass starvation by the 1970s or 1980s.  Didn’t happen.  Since then, Ehrlich has continued to move the goal posts, but his predictions have stubbornly refused to come true.  Instead, the world has witnessed a massive reduction in poverty.  Between 1990 and 2010, the percentage of the world population living in extreme poverty fell from 43% to 21%, even while the world population rose by almost a third.

Of course, poverty and starvation are not the only measures of the burden of humanoids on the planet, and there are certainly some respects in which conditions seem to have worsened.  But poverty and starvation strike me as a darn good place to start, and on that measure — the measure chosen by doomsayers like Ehrlich — we seem to be doing quite well.  For that reason, I think we ought to lean more heavily on the perspective of economist Julian Simon (he of the famous bet with Erlich).  Simon argued that having more humans on the planet could actually be a good thing — a source of positive externalities — because the human mind is the “ultimate resource,” a generator of new ideas that can improve our lives by seeing new resources where there were none before.  Given that vampire minds are just altered (evolved?) human minds, they too are part of this ultimate resource.

Having more people — and, I would add, vampires — means more opportunities for specialization and trade.  As Darwyyn Deyo and David T. Mitchell argue in Chapter 11 of Economics of the Undead, the gains from trade between humans and the undead could be substantial.  Although Deyo and Mitchell focus on the principle of comparative advantage, it’s possible that the gains from innovation could be even greater.  Vampires are certainly no less intelligent and creative than humans, and their very long lives and peculiar experiences might give them a perspective that leads to surprising insights — especially once they can come out of the shadows and cooperate with humans in a public manner.  The option of ensouled vampirism also means our best scientific minds could stick around for longer.  Thomas Edison registered almost 2000 U.S. patents during his 84 years on the planet; imagine how many more advances he could have made if given another 84 years.

One last point.  Isn’t it problematic that vampires drink blood, and they would therefore be dependent on the human population for sustenance?  Again, I think the answer is no.  None of us are perfectly self-sufficient.  How many of us grow our own food?  We are all dependent on a massive web of human cooperation to provide us with food, shelter, clothing, and most everything else we need.  In this sense, vampires’ dependence on human blood is just a special case of everyone’s shared dependence on everyone else.  The key issue for sustainability is not requiring self-sufficiency, but assuring that most people and vampires contribute enough to productivity to pay for the services that others provide them.  By establishing a legal market in human blood, as suggested by Enrique Guerra-Pujol in Chapter 12, we could go a long way toward creating an incentive for vampires (especially re-ensouled ones) to eschew violence in favor of remunerative work in the combined vampire-human economy, to the benefit of both the living and the dead.

Tragedy of the Blood Commons

(cross-posted at the Volokh Conspiracy)

Undead film and fiction are burgeoning with economic questions.  But the most glaring of these questions relate to the economics of food.  Vampires and zombies are both known for their peculiar and often voracious eating habits.  It’s natural to wonder whether there’s enough food to feed all those hungry mouths.

The movie Daybreakers explicitly addresses the question of how the undead can manage (or mismanage) the food supply, depicting a world in which vampires have hunted humans to the point of extinction — and consequently face starvation themselves.  When I first heard about the movie’s premise, I immediately thought, “Tragedy of the commons!”  Eventually, my reaction expanded into Chapter 15 of Economics of the Undead.  Here’s an excerpt:

To understand the perverse incentives that accompany open-access resources (also known as common-pool resources or “commons” for short), it’s useful to consider a short parable.

The vampire Reynaldo has trapped a young human woman in a dark alleyway. Just as Reynaldo is preparing to sink his fangs into her flesh and suck her dry, his keen hearing picks up something unusual… a second heartbeat. The woman is pregnant!

Reynaldo pauses for a moment, deciding what to do. Maybe he should let her go. If he does, then the woman will eventually give birth. At some later date, Reynaldo thinks to himself, he can trap her again, drain her, and still have her offspring left for dessert. And being immortal, Reynaldo isn’t so impatient that he couldn’t wait a while longer. Resisting his bloodlust for now seems like the rational thing to do.

And yet . . . if Reynaldo lets this woman escape, who’s to say it will be Reynaldo who gets to drink her later? There are plenty of other vampires out there, all of whom would happily take this woman’s lifeblood, and her child’s, too. If there are just nine other vampires out there, Reynaldo thinks to himself, then he has only a one in ten chance of being the lucky one. So it’s one meal for sure now, versus a 10 percent chance of two meals later. Reynaldo frowns as he does the math. . . .

And plunges his teeth deep into the young woman’s neck.

Repeat that same decision-making calculus for all the other vampires, and you have a recipe for overhunting of the human population — to the detriment of all vampires.  The basic problem is that the individual vampire reaps the whole benefit of feeding now, while the cost of that feeding (fewer humans left behind to breed) is shared among all the other vampires who prey on the same human population.

As the remainder of the chapter makes clear, humans have faced similar difficulties with managing common-pool resources.  The best-known modern example is the overfishing of the international oceans, which by one estimate has reduced the stock of large ocean fish to ten percent of its pre-industrial level.

To the uninitiated, overfishing might seems like a problem of excessive demand.  When people want a lot of something, they overuse it, right?  But that explanation is belied by the existence of other species, like chickens and cows, that are in no danger of extinction despite high demand.  As I put it in the chapter, “The key question is how vampires can make humans less like fish, and more like chickens and cows.”  And the answer lies in the institutions that govern economic life — in this case, whether renewable resources are treated as communal or private property.  Communal ownership tends to result in the overuse and destruction of resources, while private ownership encourages conservation.  The chapter, written from the perspective of a vampire economist, therefore makes the tongue-in-cheek proposal that vampires ought to privatize the humans in order to prevent a Daybreakers-like disaster.

Given the centrality of eating-and-drinking in undead lore, it shouldn’t be surprising to find the tragedy of the commons manifesting in other ways.  In Economics of the Undead, it comes up in at least two other chapters.

First, it arises in Tufte, Tufte, & Bishop’s chapter, “What Happens Next? Endgames of the Zombie Apocalypse.”  If the zombie horde eventually converted all the humans into zombies, the zombies would find themselves without neither food nor future hosts.  It is therefore in the zombies’ interest to restrict their consumption so as to foster a stable (or even growing) human population.  Like vampires, however, the zombies’ individual incentives may deviate from the optimal behavior for the group.  Unlike vampires, zombies lack the rational capacity to consider alternative institutional arrangements.  But as Tufte, Tufte, & Bishop argue, the virus that inhabits all zombies might evolve to solve the problem.  After all, a virus that leads to the extinction of its host species is not a well-adapted virus.  A superior zombie virus would moderate its hosts’ eating patterns.  This could be regarded as a quasi-centralized alternative to private property as a solution to the tragedy of the commons.  (Saturday Morning Breakfast Cereal offers an awesome comic version of this scenario.)

Second, the tragedy of the commons also comes up in Michael O’Hara’s chapter on “Zombies as an Invasive Species.”  O’Hara suggests that recreational zombie-hunting might provide a means of controlling the zombie population, much as recreational hog-hunting has helped to curb the feral hog population in some states.  But if zombies became an economically valuable species in this way, it’s possible that humans might overhunt the zombies, leaving too few zombies for future hunters.  As a solution, O’Hara says, we might see the emergence of private zombie-hunting preserves.

Returning to my own chapter, you might think that I’ve chosen an odd way to champion the concept of private property, given that most human readers would not fancy becoming part of some vampire’s herd — even if the herd were “free-range” and its members unaware of their owned status, as suggested in the essay.  Although I don’t address this concern in the chapter, I’ll address it here.

From a philosophical perspective, humans are unlike cows and chickens because they are intelligent and self-aware.  This distinction seems relevant to omnivores, less so to vegetarians and vegans.  But let’s set aside the philosophy for a moment.  Obviously, the best scenario for humans would be for vampires not to exist at all.  Next best would be “vegetarian” vamps who voluntarily refrain from eating humans (like Louis in the Vampire Chronicles, Angel on Buffy, and the Cullens in Twilight).  But if vampires really existed in large enough numbers to threaten the human population, if they resisted our best attempts to destroy them, and if they couldn’t be persuaded to go veggie, then wouldn’t we want vampires to at least find a way to conserve us?  Our survival as a species would depend on it.  Both humans and vampires would gain from the privatization.  Being oblivious, free-range humans might not be so bad.  Who knows?  Maybe we already are.

An Apologia for Undead Studies

(cross-posted at the Volokh Conspiracy)

(coauthored with James Dow)

Economics of the Undead: Zombies, Vampires, and the Dismal Science is a collection of 23 essays, written by ourselves and many others, that apply economic reasoning to understand zombies, vampires, and the humans who share their world.  And no, we don’t just mean metaphorical zombies and vampires — we mean the real thing.  The book includes chapters on the investing secrets of wealthy vampires, preparation for economic recovery after the zombie apocalypse, optimal taxation of zombie labor, and the political economy of responding to undead threats (by the Volokh Conspiracy’s very own Ilya Somin).

Why should we waste time studying the undead, especially when there are so many serious topics to consider?  Although the appearance of academic articles, books, and even courses on the undead has mostly drawn favorable press, some critics argue that the opportunity cost is too high.  The leading critic seems to be Michael Poliakoff, policy director for the American Council of Trustees and Alumni, who is cited in two recent articles on the subject.

Michael Poliakoff … says the proliferation of undergraduate courses in topics like zombies and vampires is helping ruin American students’ brains. Citing various studies, Mr. Poliakoff says many U.S. college graduates still lack proficiency in basic verbal literacy.

“What have we given up in order to dabble in the undead?” he says. “We’ve given up survival skills.”

How do we respond to these charges?  Our defense is two-fold.

First, lighten up!  Not everything in life is about eating your vegetables.  Zombies and vampires are fun, and there’s nothing wrong with that.  And for a certain type of geeky personality (that’s us), part of enjoying any product of pop culture is getting hyperanalytical about it.  Sometimes we academics like to apply our training in less-than-serious ways. Rather than perceive undead studies as a bad investment, we regard it as good consumption.

Second, and more seriously, we contend that — at least in economics — academics and the undead are complements, not substitutes.  As instructors, we are constantly looking for ways to keep our students awake and engaged in the material, and often that means using humorous and provocative examples to demonstrate economic principles.  Importantly, those principles remain unchanged.  The supply-and-demand model is essentially the same whether applied to widgets (booooring), illicit drugs, or units of blood.  Comparative advantage is the same whether applied to trade between the U.S. and China or between the living and the dead.  In editing Economics of the Undead, we were scrupulous about making sure the economic concepts and reasoning were sound, despite the fictional subject matter.

(An aside:  One of our colleagues said to Glen, “Back in the day when I learned economics, it was about widgets, not zombies!”  To which he replied, “To be sure, the zombies will be working in widget factories.”)

This defense might not work as well in other disciplines.  If English departments have completely abandoned Shakespeare and Jane Austen in favor of the latest schlocky zombie novels, we concede that might be a problem.  (Then again, maybe they’re assigning Pride and Prejudice and Zombies and getting the best of both worlds.)  However, if the goal is to impart basic writing skills (Poliakoff’s concern), those skills can be learned by writing about pretty much anything.  Why must English composition always be paired with (classic) English literature?  If writing about vampires is what motivates students to write at all, we say more power to the vampires.

As in all things, moderation matters.  If zombie studies courses really are pushing out, rather than complementing, courses that teach important skills, then Poliakoff’s concerns may be warranted.  But we are skeptical.  We suspect the real opportunity cost of zombie studies courses is not basic required courses, but elective courses on topics that are equally pointless in terms of students’ long-term life prospects.  How much good did that whole semester on Faulkner do you, anyway?  (We sure hope you didn’t get your writing composition skills from The Sound and the Fury.)  Moreover, devoting an entire course to the undead isn’t the only way to go; we haven’t yet pitched an Econ Undead course to our university.  We think the best way to make use of the undead in the classroom is to integrate them into existing courses alongside other (more serious) examples, sucking students into the discipline by showing them the breadth of its possible applications.

And did we mention that zombies and vampires are fun?

Are Zombies Labor or Capital?

Although the possibility of zombie labor comes up more than once in Economics of the Undead (particularly Chapters 11 and 14), apparently none of the authors knew about “The Dead,” a little gem of a zombie story by Michael Swanwick, which I read for the first time today. The story suggests several more answers to the question of what jobs zombies might perform in the new undead economy:

“There’s no money in it.” I waved a hand toward our attentive [zombie] waitstaff. “These guys must be — what? — maybe two percent of the annual turnover? Zombies are luxury goods: servants, reactor cleanups, Hollywood stunt deaths, exotic services” — we both knew what I meant — “a few hundred a year, maybe, tops. There’s not the demand. The revulsion factor is too great.”

As the rest of the story suggests, the narrator’s pessimism about the demand for zombies might be unjustified. “The Dead” raises a number of economic questions, including whether zombies could drive the human working class into permanent unemployment. I hope to address that issue in a future blog post, but for now I want to highlight a narrower question: Should zombies be regarded as labor or capital?

Joseph Mandarino, in his chapter on “Taxation of the Undead,” essentially claims the latter when he says that non-sentient undead (zombies) should be taxed as property, whereas sentient undead (vampires) should be taxed as persons. If zombies are genuinely mindless, then they’re akin to work animals. Work animals are classified (I believe) as capital equipment in the national income accounts, and the income they generate is a return to capital. But in some depictions, zombies aren’t totally mindless. Some are capable of engaging in a certain amount of thought, even strategic planning — as in Return of the Living Dead, where a zombie moans, “Send… more… paramedics” into an ambulance’s radio, thereby summoning fresh brains to the scene. (I took this example from my coeditor Jim Dow’s chapter on “Packing for Zombie Apocalypse.”) In some depictions, zombies even form societies under the leadership of smarter and more foresighted zombies (as Jean-Baptiste Fleury and Alain Marciano discuss in their chapter, “Order, Coordination, and Collective Action among the Undead”). Zombies like these are much closer to humans than equipment.

Thus, it appears that sentience is not an all-or-nothing proposition. Zombies exist on a spectrum from fully mindless drones to rational beings. If so, then economists’ sharp distinction between capital and labor (or “K and L” in deeper econ jargon) may be unjustified. Even if we chose an arbitrary dividing line on the K-L spectrum, we could always imagine a zombie that sits right on that fence, wreaking havoc on our presumptively clear-cut distinctions.

For what it’s worth, economists’ mathematical tools are fully up to the challenge of treating K-L as a spectrum rather than a sharp dichotomy. But I remember working with models like that in grad school, and trust me on this: it’s enough to make your brain hurt.