• Anyone who commutes in to New York from New Jersey knows that the smallest glitch can throw the entire rail system into chaos, delaying 1,300 trains worth of people. Many argue that there is an urgent need for a new rail link between the two states, but viable plans to build such a thing have yet to materialize.

    Here's the economist's outlook on the problem: While a new rail link would provide positive returns for society, neither private nor public institutions are properly incentivized to make it happen.

    Traffic on the current rail links, two 100 year old tunnels, is at full capacity and demand will only increase over time. Lawmakers and analysts dispute the cost of building a new tunnel, but it's generally estimated to be in the neighborhood of $10 billion. It will take decades to recoup the investment. This type of massive-scale infrastructure is beyond the scope of any corporation, but not for the simple reason of scale. Consortiums of private institutions can raise massive amounts of money. But can you imagine anyone in the private sector investing in a project that may not earn money for several generations?

    More important is that the project would have many positive "externalities," or societal benefits that no owner can capture and charge for. If 100 people need to get from New Jersey to New York City every day, society benefits from them sitting in a single train, rather than 100 automobiles: less pollution and less congestion. But the owner of the train or the tunnel it goes through cannot charge one person for the value of slightly cleaner air. Only a government can internalize the value of clean air for all.

    While the government can value something like clean air, it is not good at valuing long term investments. In the same way that corporations are obsessed with daily stock prices and quarterly earnings, politicians are obsessed with monthly poll numbers and biennial elections.

    Read More »from Is the New Jersey tunnel project too big to succeed? The economist’s view.
  • François Hollande, the Socialist Party candidate for president of France, has an 85.3 percent likelihood of capturing the presidency from incumbent Nicolas Sarkozy in the upcoming election. At this point, the other three major competitors: Marine Le Pen (far-right), Jean-Luc Melenchon (far-left), and François Bayrou (center) have negligible likelihoods of victory. It is almost certain that the election will be decided in a run-off, rather than anyone gaining a majority in the first round.

    Likelihood of Winning French Presidency

    Sources: Intrade and OddsChecker

    For French observers who are not familiar with the Signal, we frequently utilize prediction market data to determine the likelihood of upcoming events. A prediction market is a place where political handicappers back up their convictions with real money. The price is determined by how much money users are willing to invest up front in order to win back one dollar if they are right. If a 90-cent investment is required to win one dollar, users think the candidate is

    Read More »from Hollande favored as next French President
  • Click image to see more photos (AP/Scott Applewhite, File)Click image to see more photos (AP/Scott Applewhite, File)

    Now that the race for the Republican nomination is effectively over, Mitt Romney's campaign is speaking publicly about who they might choose as his running mate. While the prediction markets we rely on for forecasting elections also take action on vice-presidential nominees, this is a different type of race, decided by a small council of insiders rather than an election or caucuses. The current frontrunner in the prediction market data is Marco Rubio, the first term senator from Florida.

    A presidential candidate has two political priorities for his second-in-command: That the candidate helps and that the candidate does not hurt. For Romney, this breaks down as follows: A candidate can help by providing the former Massachusetts governor cover from the right, recruiting some votes from the center or left, or by helping capture the candidate's home state or region. A candidate can hurt Romney by overshadowing the campaign, either with questions about his or her fitness for the top office--see Quayle and Palin--or by causing a scandal of some degree. Reaching a bit farther back, one can recall Thomas Eagleton of Missouri throwing the 1972 McGovern ticket into total chaos when it was revealed he was treated with shock therapy for depression and possibly an alcoholic.

    Let's look at who leads in the market and their individual potential for helping or harming Romney's chances.

    Marco Rubio is 23.2 percent likely to gain the nod from Romney, an extremely high likelihood for a race categorized by uncertainty. He would provide cover for Romney from the right and he could possibly draw Latino supporters from the center or left (he's Cuban-American). On the other hand, he does not have much experience in the public spotlight and arguably has a few small skeletons in his closet that have come to light as the media has begun to scrutinize him. The Signal take on Rubio: Big potential upside with medium potential downside.

    Rob Portman, also a freshman senator from another big swing state (Ohio), follows Rubio with a 12.8 percent likelihood. Of the people listed in this article, he is probably the least well-known. In endorsing Portman for the job, the Ohio Dispatch refers to him as "safe and sensible." Their argument is that he is a reliable conservative but does not scare moderates and liberals. He would provide cover for Romney from arch-conservatives and his longer track record of solid, non-confrontational public service should make him safe not to embarrass the campaign. Portman: medium potential upside with low potential downside.

    Read More »from Romney’s top-five vice presidential nods: Who’s the potential time bomb?

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(177 Stories)

About The Signal

The Signal is the Yahoo! News predictions blog featuring real-time forecasts and sentiment on politics, economics, and more. MEET THE TEAM: David Pennock, David Rothschild

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