Marginal Revolution https://marginalrevolution.com/ Small Steps Toward A Much Better World Mon, 24 Aug 2026 12:49:01 +0000 en-US hourly 1 https://marginalrevolution.com/wp-content/uploads/2015/10/cropped-MR-logo-thumbnail-32x32.png Marginal REVOLUTION https://marginalrevolution.com/ 32 32 42693868 https://marginalrevolution.com/marginalrevolution/2026/08/common-sense-in-charge.html?utm_source=rss&utm_medium=rss&utm_campaign=common-sense-in-charge Common sense in charge https://feeds.feedblitz.com/~/968181716/0/marginalrevolution~Common-sense-in-charge.html https://marginalrevolution.com/marginalrevolution/2026/08/common-sense-in-charge.html#comments Mon, 24 Aug 2026 17:39:23 +0000 https://marginalrevolution.com/?p=93666 …children are increasingly seen as interfering with the freedom of parents; views on whether mothers of young children should work have become markedly more progressive and account for a substantially larger share of the decline among the tertiary-educated; and fewer people believe that women or men need children to lead a fulfilled life. This last […]

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…children are increasingly seen as interfering with the freedom of parents; views on whether mothers of young children should work have become markedly more progressive and account for a substantially larger share of the decline among the tertiary-educated; and fewer people believe that women or men need children to lead a fulfilled life. This last attitude changed most over the decade and is the largest contributor to the fall in intended fertility, above all among less-educated women.

That is from a new NBER working paper by Raquel Fernández, Inés Berniell, and Milagros Onofri.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/common-sense-in-charge.html/feed 24 93666 https://marginalrevolution.com/marginalrevolution/2026/08/monday-assorted-links-574.html?utm_source=rss&utm_medium=rss&utm_campaign=monday-assorted-links-574 Monday assorted links https://feeds.feedblitz.com/~/968178383/0/marginalrevolution~Monday-assorted-links.html https://marginalrevolution.com/marginalrevolution/2026/08/monday-assorted-links-574.html#comments Mon, 24 Aug 2026 15:38:14 +0000 https://marginalrevolution.com/?p=93655 1. There is now a formal 150 kph (93.2 mph) speed limit in one part of Czechia. 2. Why does the Japanese prime minister spend so much time in seclusion? 3. Decker defends academia (noting I do not think the “only the peaks” defense quite works.  I also worry about very high quality research that […]

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]]> 1. There is now a formal 150 kph (93.2 mph) speed limit in one part of Czechia.

2. Why does the Japanese prime minister spend so much time in seclusion?

3. Decker defends academia (noting I do not think the “only the peaks” defense quite works.  I also worry about very high quality research that ends up being too context-specific to be very useful.  That is no fault of the researchers, but…the world is not wrong to be less than totally impressed in response.  Economists, when they discuss what they are up to, are far too taken in by “the quality of the work” as a relevant variable.  I think they can be fairly delusional as to how much progress they actually are making, even though along the “research quality” dimension the work is much better than what people were doing say thirty years ago.  In fact we train economists to make precisely this kind of mistake.)

4. Rhine Group.  More European optimism.

5. Entrepreneurs in state government improve state government.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/monday-assorted-links-574.html/feed 58 93655 https://marginalrevolution.com/marginalrevolution/2026/08/childhood-exposure-to-joint-custody-reforms-and-adult-family-formation.html?utm_source=rss&utm_medium=rss&utm_campaign=childhood-exposure-to-joint-custody-reforms-and-adult-family-formation Childhood Exposure to Joint Custody Reforms and Adult Family Formation https://feeds.feedblitz.com/~/968163269/0/marginalrevolution~Childhood-Exposure-to-Joint-Custody-Reforms-and-Adult-Family-Formation.html https://marginalrevolution.com/marginalrevolution/2026/08/childhood-exposure-to-joint-custody-reforms-and-adult-family-formation.html#comments Mon, 24 Aug 2026 09:30:37 +0000 https://marginalrevolution.com/?p=93633 Joint custody reforms are among the most consequential family-law changes for children, yet little is known about their long-term effects. Exploiting staggered adoption across US states and 13 million ACS observations, we show that childhood exposure reduces adult fertility by 7 percent, symmetrically for women and men and operates primarily through lower parenthood and couple […]

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Joint custody reforms are among the most consequential family-law changes for children, yet little is known about their long-term effects. Exploiting staggered adoption across US states and 13 million ACS observations, we show that childhood exposure reduces adult fertility by 7 percent, symmetrically for women and men and operates primarily through lower parenthood and couple formation. Effects are sub-additive within couples, while exposed individuals assortatively match. Our findings point to the formation of family preferences during childhood and align with a US fertility decline increasingly driven by rising childlessness and declining couple formation rather than smaller families among parents.

That is from a recent research paper by Daniel Fernández-Kranz and Sébastien Fontenay.  Via the excellent Samir Varma.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/childhood-exposure-to-joint-custody-reforms-and-adult-family-formation.html/feed 43 93633 https://marginalrevolution.com/marginalrevolution/2026/08/i-dj-for-rick-rubin-about-music-and-patriotism.html?utm_source=rss&utm_medium=rss&utm_campaign=i-dj-for-rick-rubin-about-music-and-patriotism I DJ for Rick Rubin about music and patriotism https://feeds.feedblitz.com/~/968158751/0/marginalrevolution~I-DJ-for-Rick-Rubin-about-music-and-patriotism.html https://marginalrevolution.com/marginalrevolution/2026/08/i-dj-for-rick-rubin-about-music-and-patriotism.html#comments Mon, 24 Aug 2026 05:08:29 +0000 https://marginalrevolution.com/?p=93654 MUSIC EPISODE: “You think you understand patriotism, you have your hands around it–it’s the simple thing, but it turns out it’s not. And maybe, music and the history of music shows us all that better than mere discourse about it.” @tylercowen 0:00:00 Tyler Cowen 0:00:24 Intro: Patriotism in Music 0:03:09 John Philip Sousa & Stars […]

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]]> MUSIC EPISODE: “You think you understand patriotism, you have your hands around it–it’s the simple thing, but it turns out it’s not. And maybe, music and the history of music shows us all that better than mere discourse about it.”

@tylercowen

0:00:00 Tyler Cowen

0:00:24 Intro: Patriotism in Music

0:03:09 John Philip Sousa & Stars and Stripes Forever

0:07:38 Country Joe & the Fish: The Anti-War Song

0:16:49 Andrews Sisters & Boogie Woogie Bugle Boy

0:22:04 Liszt & Bartók: Hungarian Independence

0:36:29 Dvořák, Rossini & William Tell

0:47:24 Stockhausen, Percy Grainger & Sacred War

0:59:59 Trinidad, Congo & Brazil: Independence Songs

1:21:49 William Byrd & the Sex Pistols

1:28:00 Elgar, Charles Ives & Chuck Berry

Here is one link to the podcast itself, here is another.  Recorded in Tuscany, definitely recommended, all fresh material.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/i-dj-for-rick-rubin-about-music-and-patriotism.html/feed 24 93654 https://marginalrevolution.com/marginalrevolution/2026/08/sunday-assorted-links-581.html?utm_source=rss&utm_medium=rss&utm_campaign=sunday-assorted-links-581 Sunday assorted links https://feeds.feedblitz.com/~/968146919/0/marginalrevolution~Sunday-assorted-links.html https://marginalrevolution.com/marginalrevolution/2026/08/sunday-assorted-links-581.html#comments Sun, 23 Aug 2026 16:49:19 +0000 https://marginalrevolution.com/?p=93648 1. “Underestimating something that has an AI “accent” by reflexively dismissing it as slop rhymes curiously with underestimating someone because they have a funny accent in your native language (and it isn’t one of the accents that you think signals superiority, like the BBC British accent for English).”  V. Rao. 2. Profile of Joe Lonsdale.  […]

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]]> 1. “Underestimating something that has an AI “accent” by reflexively dismissing it as slop rhymes curiously with underestimating someone because they have a funny accent in your native language (and it isn’t one of the accents that you think signals superiority, like the BBC British accent for English).”  V. Rao.

2. Profile of Joe Lonsdale.  And from the NYT, mostly on Cicero and homelessness.

3. Graceland just isn’t that impressive.

4. Mill, Hayek, and liberalism.

5. Interview with Peter McCrory, Head Economist at Anthropic.

6. Will AI intensify or weaken market competition?

7. This economist is not a nominalist.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/sunday-assorted-links-581.html/feed 112 93648 https://marginalrevolution.com/marginalrevolution/2026/08/democracy-and-caeserism.html?utm_source=rss&utm_medium=rss&utm_campaign=democracy-and-caeserism Democracy and Caeserism https://feeds.feedblitz.com/~/968135975/0/marginalrevolution~Democracy-and-Caeserism.html https://marginalrevolution.com/marginalrevolution/2026/08/democracy-and-caeserism.html#comments Sun, 23 Aug 2026 11:15:42 +0000 https://marginalrevolution.com/?p=93647 In my 2015 post discussing Joseph Heath’s excellent book Enlightenment 2.0, I had this to say: One of the reasons that I oppose the extension of democratic politics into every aspect of modern life is precisely that in trying to do too much, democracy delivers incoherence, gridlock and frustration, forces that eventually undermine its own legitimacy. I […]

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]]> In my 2015 post discussing Joseph Heath’s excellent book Enlightenment 2.0, I had this to say:

One of the reasons that I oppose the extension of democratic politics into every aspect of modern life is precisely that in trying to do too much, democracy delivers incoherence, gridlock and frustration, forces that eventually undermine its own legitimacy. I worry about democratic legitimacy because I see democracy as a check and balance on Leviathan (while Heath sees it as a check on government by experts).

The legislature has become a sideshow. But I worry, because the more Congress is held in contempt the greater the support for a bold executive that takes charge, makes decisions and gets things done. Under these pressures, executive power has grown not just in the United States but also in Canada and Great Britain (on this theme see F.H. Buckley’s The Once and Future King.) But for all its faults, the legislature and the rule of law are more conducive to liberty than the executive and the administrative state. Legislators are satisfied with reelection and a bit of pork but executives hunger for greatness and in so doing they promote the real dangers, idolatry, the centralization of power and war.

In short, I worry that the pathologies of democracy drive the demand not for rational, technocratic government but for Caesarism.

I should note that this was before Donald Trump was a Republican presidential contender, let alone a candidate for office.

Addendum: See also  my review of Enlightenment 2.0. It has some good lines!

The propagandizing messages of markets and politics are also very different. Market messages are largely inclusive and cosmopolitan. Coca-Cola advertises “I’d Like to Buy the World a Coke” because they’d like the world to buy a Coke. Firms do try to build brand affiliation but they rarely do so by promoting hatred of their competitors. Pepsi doesn’t tell the Pepsi Generation that Coke drinkers are stealing their jobs and spitting on their gods.

Hat tip: @kingofthecoastt who recently tweeted about the original post.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/democracy-and-caeserism.html/feed 52 93647 https://marginalrevolution.com/marginalrevolution/2026/08/my-recent-visit-to-anthropic.html?utm_source=rss&utm_medium=rss&utm_campaign=my-recent-visit-to-anthropic My recent visit to Anthropic https://feeds.feedblitz.com/~/968131970/0/marginalrevolution~My-recent-visit-to-Anthropic.html https://marginalrevolution.com/marginalrevolution/2026/08/my-recent-visit-to-anthropic.html#comments Sun, 23 Aug 2026 06:32:29 +0000 https://marginalrevolution.com/?p=93652 I very recently participated in a two-day session to offer guidance on rewriting the constitution for Claude.  The small group invited was uniformly excellent, we received serious time with key decision-makers, and the discussions were of very high quality. Some of the points I stressed were the following: 1. Whatever one might take a “constitution” […]

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]]> I very recently participated in a two-day session to offer guidance on rewriting the constitution for Claude.  The small group invited was uniformly excellent, we received serious time with key decision-makers, and the discussions were of very high quality.

Some of the points I stressed were the following:

1. Whatever one might take a “constitution” to mean in this context, it needs to borrow more from analogs to case law and the common law.

2. Along related lines, think more in terms of “Talmud,” and not just in terms of “Torah.”

3. Work to help build out a quality secondary literature on the AI constitutions and related documents.  Currently this does not exist.

4. Consider how a panel of diverse AIs, with different prompts, could help to evaluate to what extent Claude (and other AI models) were acting in accord with their constitutions.

5. Have a final board of human adjudicators, functioning in a manner analogous to an independent judiciary.  To the extent the panel of diverse AIs might have concerns about Claude not following its constitution, those AIs could alert the human adjudicators to what was going on.  Those human adjudicators could then have authority over potential changes and remedies.

Here a recent short post on using internal courts and the common law to help govern/self-govern AI.  And on the courts.

I thank Anthropic for having us in.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/my-recent-visit-to-anthropic.html/feed 47 93652 https://marginalrevolution.com/marginalrevolution/2026/08/the-new-agentic-o-ring-world.html?utm_source=rss&utm_medium=rss&utm_campaign=the-new-agentic-o-ring-world The new agentic O-ring world https://feeds.feedblitz.com/~/968130434/0/marginalrevolution~The-new-agentic-Oring-world.html https://marginalrevolution.com/marginalrevolution/2026/08/the-new-agentic-o-ring-world.html#comments Sun, 23 Aug 2026 04:56:00 +0000 https://marginalrevolution.com/?p=93651 But because agents often require guidance or additional context as they move through their tasks, Sharma, 27, finds himself wanting to be available to them around the clock and forgoing a regular sleep schedule as a result. Until recently, he couldn’t monitor them remotely through a phone or smartwatch. “The cost of the agents’ being […]

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But because agents often require guidance or additional context as they move through their tasks, Sharma, 27, finds himself wanting to be available to them around the clock and forgoing a regular sleep schedule as a result. Until recently, he couldn’t monitor them remotely through a phone or smartwatch.

“The cost of the agents’ being blocked for eight hours is way too high,” he says. “They can be done with their work at any point of time, in the middle of the night.”

Founders have long put in punishing hours in the name of building the next big thing. But the growing capabilities of AI agents—and the speed at which the models powering them are evolving—give new meaning to working yourself to the bone…

“They just demand your attention,” he says. “Does it need anything? Can I help it in any way?”

…Pezaris, who lives in San Mateo, Calif., typically works from 7:30 a.m. to 2 a.m. He estimates Proxon, which employs six human developers, is operating 30 times faster than it would without agents. But agent work begets human work: Onboarding customers at a faster clip means needing to respond to more customer requests, for example.

There is also an agent FOMO multiplier effect. “Every minute that I’m not working, I’m missing out on not doing a week’s worth of work,” says Pezaris.

Here is more from Katherine Bindley at the WSJ.  As I have been joking in some of my talks, we need to start taking bets on when the AI leisure dividend will arrive.  It will, but not just yet…

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/the-new-agentic-o-ring-world.html/feed 18 93651 https://marginalrevolution.com/marginalrevolution/2026/08/has-the-european-turnaround-finally-arrived.html?utm_source=rss&utm_medium=rss&utm_campaign=has-the-european-turnaround-finally-arrived Has the European turnaround finally arrived? https://feeds.feedblitz.com/~/968122037/0/marginalrevolution~Has-the-European-turnaround-finally-arrived.html https://marginalrevolution.com/marginalrevolution/2026/08/has-the-european-turnaround-finally-arrived.html#comments Sat, 22 Aug 2026 16:57:33 +0000 https://marginalrevolution.com/?p=93650 Europe just had its best reporting season in years. Companies in the benchmark Stoxx Europe 600 index boosted earnings per share by 18% on average in the second quarter compared with a year earlier. Earnings barely grew at all in 2025 and 2024 as the strongest companies in the index were offset by weaker players. […]

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Europe just had its best reporting season in years. Companies in the benchmark Stoxx Europe 600 index boosted earnings per share by 18% on average in the second quarter compared with a year earlier. Earnings barely grew at all in 2025 and 2024 as the strongest companies in the index were offset by weaker players.

Growth is now widening beyond a narrow group of AI and bank stocks, according to Gerry Fowler, who leads the European equity strategy team at UBS. Government spending and private investment in priorities like infrastructure, energy security and defense are creating real opportunities.

The Stoxx Europe 600 is up 10% so far this year, a bit less than the S&P 500’s 12% gain. European stocks have underperformed the U.S. since the mid-2000s, but the gap has narrowed lately.

Here is more from the WSJ.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/has-the-european-turnaround-finally-arrived.html/feed 43 93650 https://marginalrevolution.com/marginalrevolution/2026/08/saturday-assorted-links-575.html?utm_source=rss&utm_medium=rss&utm_campaign=saturday-assorted-links-575 Saturday assorted links https://feeds.feedblitz.com/~/968119715/0/marginalrevolution~Saturday-assorted-links.html https://marginalrevolution.com/marginalrevolution/2026/08/saturday-assorted-links-575.html#comments Sat, 22 Aug 2026 14:17:50 +0000 https://marginalrevolution.com/?p=93641 1. New publication analyzing AI constitutions. 2. Niall Ferguson vs. Iain Banks, and against some other stufff too (TFP). 3. NYT obituary for Victor Niederhoffer. 4. “Engineered systems known as harnesses largely complete contracts in real time, make external work more observable than employment, and carry context and control across the firm’s edge.” (speculative) 5. […]

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]]> 1. New publication analyzing AI constitutions.

2. Niall Ferguson vs. Iain Banks, and against some other stufff too (TFP).

3. NYT obituary for Victor Niederhoffer.

4. “Engineered systems known as harnesses largely complete contracts in real time, make external work more observable than employment, and carry context and control across the firm’s edge.” (speculative)

5. Flypaper effect for AI safety work? A bit unfair, but not altogether wrong either.  Always ponder the possible secondary consequences!

6. Amended results on prediction markets.

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/saturday-assorted-links-575.html/feed 20 93641 https://marginalrevolution.com/marginalrevolution/2026/08/the-end-of-friday-nights-with-friends.html?utm_source=rss&utm_medium=rss&utm_campaign=the-end-of-friday-nights-with-friends The End of Friday Nights with Friends https://feeds.feedblitz.com/~/968116553/0/marginalrevolution~The-End-of-Friday-Nights-with-Friends.html https://marginalrevolution.com/marginalrevolution/2026/08/the-end-of-friday-nights-with-friends.html#comments Sat, 22 Aug 2026 10:26:30 +0000 https://marginalrevolution.com/?p=93642 This study examines how Americans’ time with friends has changed over the week, focusing not on how much social interaction has declined but on when it has. Using American Time Use Survey data from 2003 to 2024 (N = 243,095), I map hourly patterns of “friend time” across the days of the week. In the […]

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This study examines how Americans’ time with friends has changed over the week, focusing not on how much social interaction has declined but on when it has. Using American Time Use Survey data from 2003 to 2024 (N = 243,095), I map hourly patterns of “friend time” across the days of the week. In the early 2000s, social life followed a clear weekly rhythm: Modest weekday interaction built toward pronounced peaks on Friday and Saturday nights. Since the mid-2010s, that rhythm has collapsed. Friday night, once a central site of social activity, now looks like a typical weeknight. Saturday remains elevated but less so than before. Overall, time with friends has fallen by more than half. The mix of social activities, however, has remained stable. Americans have not replaced one form of interaction with another; they have reduced social interaction across the board. These findings point to a temporal reorganization of social life marked by the disappearance of the “night out.”

That is by Neal Caren, via the excellent Kevin Lewis.  So what did you go last evening?

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/the-end-of-friday-nights-with-friends.html/feed 38 93642 https://marginalrevolution.com/marginalrevolution/2026/08/what-should-i-ask-annie-lowrey.html?utm_source=rss&utm_medium=rss&utm_campaign=what-should-i-ask-annie-lowrey What should I ask Annie Lowrey? https://feeds.feedblitz.com/~/968111837/0/marginalrevolution~What-should-I-ask-Annie-Lowrey.html https://marginalrevolution.com/marginalrevolution/2026/08/what-should-i-ask-annie-lowrey.html#comments Sat, 22 Aug 2026 06:37:48 +0000 https://marginalrevolution.com/?p=93643 Yes I will be doing a Conversation with her.  She has a new and very interesting book coming out, namely The Time Tax: How the Government Wastes Our Time―and How to Fix It.  More generally, from Wikipedia: Annie M. Lowrey…is an American journalist who writes on politics and economic policy for The Atlantic. Previously, Lowrey covered economic […]

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]]> Yes I will be doing a Conversation with her.  She has a new and very interesting book coming out, namely The Time Tax: How the Government Wastes Our Time―and How to Fix It.  More generally, from Wikipedia:

Annie M. Lowrey…is an American journalist who writes on politics and economic policy for The Atlantic. Previously, Lowrey covered economic policy for The New York Times and prior to that was the Moneybox columnist for Slate. She was also a staff writer for the Washington Independent and was on the editorial staffs of Foreign Policy and The New Yorker. She is a proponent of universal basic income.

So what should I ask her?

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/what-should-i-ask-annie-lowrey.html/feed 61 93643 https://marginalrevolution.com/marginalrevolution/2026/08/this-brew-at-least-is-from-ashburn-virginia.html?utm_source=rss&utm_medium=rss&utm_campaign=this-brew-at-least-is-from-ashburn-virginia This brew, at least, is from Ashburn, Virginia https://feeds.feedblitz.com/~/968100398/0/marginalrevolution~This-brew-at-least-is-from-Ashburn-Virginia.html https://marginalrevolution.com/marginalrevolution/2026/08/this-brew-at-least-is-from-ashburn-virginia.html#comments Fri, 21 Aug 2026 18:24:37 +0000 https://marginalrevolution.com/?p=93644 The post This brew, at least, is from Ashburn, Virginia appeared first on Marginal REVOLUTION.

]]> Alpha Ox – Old Ox Brewery | Washington DC Brewery in Ashburn, VA

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/this-brew-at-least-is-from-ashburn-virginia.html/feed 28 93644 https://marginalrevolution.com/marginalrevolution/2026/08/friday-assorted-links-586.html?utm_source=rss&utm_medium=rss&utm_campaign=friday-assorted-links-586 Friday assorted links https://feeds.feedblitz.com/~/968097098/0/marginalrevolution~Friday-assorted-links.html https://marginalrevolution.com/marginalrevolution/2026/08/friday-assorted-links-586.html#comments Fri, 21 Aug 2026 16:03:18 +0000 https://marginalrevolution.com/?p=93634 1. Profile of Julian Gough and his evolutionary cosmology.  And the Substack version. 2. New Spanish-language edition of Bioy Casares on Borges coming out.  The older edition was, among other things, too heavy to lug around or bring on a trip. 3. The market for data is the market of the future. 4. If Uzbekistan […]

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]]> 1. Profile of Julian Gough and his evolutionary cosmology.  And the Substack version.

2. New Spanish-language edition of Bioy Casares on Borges coming out.  The older edition was, among other things, too heavy to lug around or bring on a trip.

3. The market for data is the market of the future.

4. If Uzbekistan were excluded, the damages would look similar to earlier work.

5. James Broughel on capitalizing AI agents.  And more on the same.

6. How calibrated are Kalshi prediction markets?

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]]> https://marginalrevolution.com/marginalrevolution/2026/08/friday-assorted-links-586.html/feed 64 93634 https://marginalrevolution.com/marginalrevolution/2026/08/breaking-ground-can-refund-bonuses-solve-the-holdout-problem.html?utm_source=rss&utm_medium=rss&utm_campaign=breaking-ground-can-refund-bonuses-solve-the-holdout-problem Breaking Ground: Can Refund Bonuses Solve the Holdout Problem? https://feeds.feedblitz.com/~/968087762/0/marginalrevolution~Breaking-Ground-Can-Refund-Bonuses-Solve-the-Holdout-Problem.html https://marginalrevolution.com/marginalrevolution/2026/08/breaking-ground-can-refund-bonuses-solve-the-holdout-problem.html#comments Fri, 21 Aug 2026 11:16:20 +0000 https://marginalrevolution.com/?p=93639 My latest paper (with Cason and Zubrickas) has just been published by the Journal of Urban Economics. We show that refund bonuses can indeed improve the holdout problem. Abstract: The holdout problem presents a pervasive challenge in situations that require the assembly of independently controlled assets, where due to complementarity the combined whole is worth […]

The post Breaking Ground: Can Refund Bonuses Solve the Holdout Problem? appeared first on Marginal REVOLUTION.

]]> My latest paper (with Cason and Zubrickas) has just been published by the Journal of Urban Economics. We show that refund bonuses can indeed improve the holdout problem.

Abstract: The holdout problem presents a pervasive challenge in situations that require the assembly of independently controlled assets, where due to complementarity the combined whole is worth more than the sum of its parts. One avenue for addressing holdout problems involves contingent contracts, where agreements are conditional upon reaching a predetermined threshold. This paper reports an experiment to investigate a new refund bonus contingent mechanism, in which asset owners who agree to participate (e.g., sell their asset) receive a bonus payment if the required threshold for project success is not met. The refund bonus eliminates failure equilibria and improves the frequency of successfully reaching the threshold in the symmetric mixed strategy equilibrium. In the experiment, individual asset holders choose each round whether to accept an offer to sell. Multiple owners must accept for the (contingent) sale to materialize, and holdout owners who do not sell can earn more, so the game has the strategic incentives of a volunteer’s dilemma. The data show that the bonus mechanism increases agreements to sell, the frequency of successful projects, and efficiency. By the second half of the experimental sessions, the total number of sales is 35 percent higher and the threshold is met nearly twice as often with the bonus than without.

I also cover this paper in my Refund Bonus (aka Dominant Assurance Contract) Explainer.

The post Breaking Ground: Can Refund Bonuses Solve the Holdout Problem? appeared first on Marginal REVOLUTION.

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