A View for All

A student says his family owns some property in rural East Texas.  The property on a hilltop next to it overlooks my student’s pond.  His neighbor says he really enjoys sitting on his porch watching the sunset over the pond.  The student’s family doesn’t benefit from the pond’s positive externality — they have no view at all. 

His father, who was annoyed by the neighbor’s bragging, decided to stop trimming the bushes around the pond. Soon, the neighbor called up and offered to maintain the property — trim the bushes and keep the pond free of rubbish.  A clever ploy by his father to force the neighbor to internalize the externality — although I wonder whether this induced behavior represented a stable equilibrium.  (HT: SF)

College Campus Beer Pricing

There are three convenience stores in the student area west of the University of Texas campus.  Store A sells the most beer, and barely looks at student IDs; but it also charges the highest price of the three.  Store B is a bit stricter on fake IDs, refuses some underage students, and charges a lower price.  Store C has the best prices, but its clerks inspect IDs thoroughly. My student reports that nobody makes it through with a fake ID.  This near-campus oligopoly defines a new pricing strategy: lenience on IDs that is unsurprisingly related to the stores’ pricing policies. I wonder about differences in the characteristics of the patrons of the different stores.

(HT: JZ)

Child Trafficking and the Internet

Chatting with a seatmate on a flight, I learned she was attending a conference, hosted by Shared Hope International, on domestic trafficking in minor children. Naively and optimistically, I asked if this problem has been diminishing.  No, quite the contrary.  Why?  The reason appears to be economic, having to do with technological change and technology transfer.  With the internet, it is much easier to engage in transactions — nothing needs to be done face-to-face, thus reducing the risk to traffickers. Also, organized crime is getting involved since the trade is so profitable, as at-risk children can be traded repeatedly (unlike an ounce of crack cocaine). With some modifications, an established drug network can be used as a child-sex network.  Disgusting, horrible, and a negative side-effect of technological progress.  (HT: JM)

Cheaper Plumbing on Fridays

We received a postcard from our plumber offering service on Fridays with no service charge, explaining that they can offer this because the plumber will be in our area of town, thus saving drive time and fuel costs. We are better off, saving the $59 on the service charge; and the plumbing company acknowledges that the savings make it better off too. It’s not often you see a company that understands Pareto improvements this well. I invite other examples of commercial offers where the advertiser makes the mutual gains as clear as this.

What's in an Americanized Name?

What’s in a name?  Steve Levitt and economists following on his work have examined how racial differences in given names generate (or don’t) differences in economic outcomes.  A new paper (PDF) by Costanza Biavaschi, Corrado Giulietti and Zahra Siddique shows that first names mattered for immigrants to the U.S. in the first half of the 20th century: people who Americanized their given names did better economically thereafter. 

But how to get around the possibility that those with more energy/ambition were more likely to change names—going from Giovanni to John or Zbigniew to Charles?  Answer:  use the complexity of the pre-change name to predict whether a person changes names; and this is a good predictor. 

Encouraging Pessimism for Greater Savings?

During the Social Security lecture to my class of 500 freshman, most expressed disbelief that the program would exist when they retire.  Like a young colleague of mine, they were sure they would never collect.  

Wrong!  I can’t see the program being abolished.  It is very popular, and its potential bankruptcy is one of the most easily dealt with policy problems we face:  just raise the age for regular benefits by one year in each of the next four quinquennia, raise the taxable base for FICA, and voilà — problem solved.

But perhaps my students’ pessimism is a good thing.  If they believe this, and act on their beliefs, they will set aside more for their private pensions — saving more. Given the low American saving rates over the last few decades, maybe I should encourage their pessimism!

A Silver Lining to Unemployment?

Friday’s labor-force data brought liberal outcries, and a comment from Ben Bernanke, that the drop in labor-force participation indicates unemployment is really much higher, and the economy in worse shape, than the 7.3 percent unemployment rate might indicate.  It is true that participation for men is at a postwar low and has decreased by 3-1/2 percentage points since the 2007 cyclical peak; and women’s participation stopped rising in 1999 and has fallen by 2 percentage points since the peak.

Is this so bad? Yes, if labor-force leavers are desperate to work and just get discouraged.  But perhaps no; perhaps it has taken the Great Recession to get Americans to realize that we shouldn’t be working harder than people in other rich countries and should be enjoying more leisure.  If this is so, perhaps there’s a silver lining in what so many people view as the economic doldrums of the last three years.

Product Placement at Universities

Public higher education in the U.S. is not in good shape—and the main reason is lack of funds.  States will not increase their funding, and often they severely limit tuition increases.  My university appears to have hit upon a solution:  product placement and direct advertising.  The new computer building, the Gates Building, is part of the Dell Computer  Science Center, and has a Dell logo and signs for eBay and PayPal in front of the building.

But why stop here?  Five hundred students stare at me for 1-1/4 hours 28 times each fall semester.  The university could ask me to advertise—wear a cap, or a t-shirt, just like a tennis star—showing the product of whichever companies bid the most for the rights to advertise on my apparel during class.  While I would probably insist on some of the royalties, the bilateral monopoly between the university and me would surely raise funds for the university.  With enough professors required to do this, public universities could alleviate some of their financial problems. No doubt readers have similar clever ideas for product placement that would help fund public universities, albeit at some cost in dignity.

In Praise of Big Prizes

An honors course of 150 students at the University of Texas requires short written assignments each week.  The instructor had given prizes of $,1500, $1,000 and $500 to the top three papers at semester’s end. He abandoned this prize structure and now gives prizes of $100 to the three best papers each week.

The instructor, an English professor, is unfamiliar with tournament models and the idea that larger top prizes and a steeper prize gradient will elicit more effort than a flatter gradient, one with more prizes of smaller amounts (Lazear and Rosen, 1981).  My guess is that he wants to be fair rather than confer such unequal prizes; but he would get better written work if he went back to the old system, just as Tiger Woods is better motivated by a big winning prize for a whole tournament than he would be by small prizes for having the best score in a particular round. Alternatively, combine equity and efficiency by offering two $100 prizes each week, then one $1,000 prize at the semester’s end.

(HT: L.C.)

Economists Needed in the Music Business!

For the first time, Austin City Limits, one of the two biggest music festivals in town, is running on two weekends instead of just one.  Unfortunately, the price for a pass for the second weekend on Craigslist is now down to half the festival sponsor’s original asking price.  Why?

1. The asking price for the second weekend was the same as for the first—not smart when you’re doubling the number of offerings; and the headliners are identical on the two weekends. The amount supplied is double in quantity, but no different in quality or even in variety; double supply, no change in demand.

2. Demand is almost certainly lower on the second weekend, since that is the weekend of the UT-Oklahoma game in Dallas.

It was probably a bad business decision to price the second weekend the same as the first. 

(HT: KM)