Wednesday, December 22, 2010

Why Jews Eat Chinese Food and Watch Movies on Christmas

Growing up Jewish my family celebrated Christmas in a very traditional Jewish way, we ate Chinese food and watched movies. The video below helps my fellow Jews improve their Chinese.

But why are Chinese restaurants different from all other restaurants? Most Chinese restaurants are staffed by Chinese people who don't celebrate Christmas. So the opportunity cost of working that day is a lot smaller than a Christian waiter. Even in Columbus Ohio a decent size city where I grew up it was hard to find much ethnic food other than Chinese until the mid 90s, this trend was similar throughout the country. Now I would guess there are more Thai and Indian places open for Christmas. However, if people associate Christmas with Chinese food, then other ethnic restaurants might not bother opening. Local DC food critics though suggest looking into non-Chinese options, since DC seems to do both Thai and Indian better than Chinese food.

Now why are the movies open? Movies are a capital intensive business. A movie theater only needs a couple of people to run it. Also movies are a great way to spend time together without talking to each other, a much needed gift during the holidays.

So enjoy your Christmas!

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Tuesday, December 21, 2010

Pricing at the IMAX and Silver Spring Econ #1

Just blocks from my house is a 20 screen movie theater, The Majestic, which just added an IMAX screen. Silver Spring Singular (a local blog) has a really great break down of some of the pricing for the IMAX screen (link).

For adults regular movies are $11 and IMAX are $17.50. We shouldn't be surprised by this the IMAX is according to most a better movie experience. Further there are fewer IMAX screen in the area then regular movie screens so competition is lower. The Majestic has a local monopoly on IMAX (the closest ones being about 30-40 minutes away).

Next as Singular points out for regular movies there are cheaper prices during the day, but not for IMAX it is $17.50 regardless of when you want to see the movie. Cheaper prices for matinée is what economists call price discrimination. The different prices allow the Majestic to get the most ticket sales depending on the demand for the time of day, it also allows the theater to attract cheap skates to the early show.

Finally, the convienance fee for printing your tickets at home for the IMAX is $2 compared to $1.25 for a regular movie. My guess is that people who are willing to see the IMAX are likely doing it for a special event (like the opening of Harry Potter) and probably willing to pay more to reserve a ticket. It could also be that as Singular puts it the people going to IMAX are "just rich as hell and don't give a damn"

Silver Spring Singular is a great local blog, but other local blogs haven't been posting as much. Perhaps I can add to the discussion about Silver Spring. I'm going to try to do some more Economics of Silver Spring (I realize this post wasn't too original) hopefully I can find things that both Silver Spring residents and non-residents find interesting. I'll be tagging the posts with Silver Spring Econ.

Final thought. Just one block further from the Majestic is the American Film Institute, where for $17.50 I can get a ticket, a beer, and a small popcorn. I'm guessing I'll do that more than go to the IMAX.

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Monday, December 20, 2010

How I avoided the lines at the post office on Saturday

Saturday was insane at the post office!!! I took one look at the line that ran out the door and was 9 deep for the one automated machine and ran away. I went straight to my local Office Depot. I knew they shipped UPS, so I figured even if spent twice as much to mail my package the savings in time and sanity would be well worth it. I got into Office Depot and they had no line. They also provide the same service that my post office does, literally they ship USPS mail.

Declaring my victory over opportunity costs and monopoly I walked over to Starbucks for a celebratory coffee (which was free with purchase of 1lb of whole beans).

Now to convince Office Depot to perform other government services.

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Thursday, December 16, 2010

The Public Good of Verifying Medical Claims?

"Companies like Dannon shouldn’t exaggerate the strength of scientific support for their products." FTC Chairman Jon Leibowitz in a statement.

The company, though, stands by its products' abilities to keep the bowels moving brisky....the company will now have to let consumers know that any statements about benefits for digestion or the immune system are based on European studies involving three servings a day of yogurt.

From NPR
My inner middle school child is amused by the story linked about how Dannon was fined $21 million dollars for exaggerating the ability of their yogurt Activa to keep you regular.

I'm not sure this is the best use of the FTC, since you can verify pretty easily how well activa works in this manner. Although, it would seem harder to verify its impact on the immune system.

So my quick analysis is that the FTC should work harder investigating claims that are less verifiable without research.

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Wednesday, December 15, 2010

Economics of Festivus

Frank Costanza: "Many Christmases ago, I went to buy a doll for my son. I reached for the last one they had, but so did another man. As I rained blows upon him, I realized there had to be another way."
Cosmo Kramer: "What happened to the doll?"
Frank Costanza: "It was destroyed. But out of that a new holiday was born: a Festivus for the rest of us!"

If you don't know Festivus, it is a holiday made popular by Seinfeld a late 90s TV show. From the above quote you can see Festivus avoids the problems associated with fighting over gifts. Many economists (not me I like gifts) have pointed out the problems with holiday gifts including the book "Scroogonomics: why you shouldn't buy presents for the holidays"

What about Festivus traditions how would economists judge them?

Decorations: Instead of a Christmas Tree or Menorah, Festivus is celebrated with a alumin pole. On the one hand the pole is likely cheaper and the set up time lowers the opportunity cost of celebrating the holiday. Assuming revealed preferences and rationality I think it is a wash which decoration is better from an economics perspective. However, behavioral economists should look into this further as the Constanzas may not be perfectly rational.

Festivus Dinner: Holiday dinners are very optimal! They build social capital (Ok maybe not the Constanzas) and utilize increasing returns to scale of food production between 1 and 20 people or so.

Airing of Grievances: Many economists are also professors so December is a good time to air our grievances. However, unless airing grievances brings satisfaction or change in relatives behaviour, I'm not sure it is optimal.

Feats of Strength: Awesome potential game theory problem. In the feat of strength the head of household challenges another household member to a wrestling match. This is a great signaling and reputation game similar to the beer and quiche problem. Really the best game theory problem ever.

I'm not sure how many economists celebrate Festivus, but I wish any who do a joyous Festivus.

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Tuesday, December 14, 2010

The control group won't get what it wants, but if we try we might just find what it needs

Unfortunately, it’s often impossible to tell what will have the biggest impact if we always give everyone what they think they want. Science is a bitch sometimes.
-Jodi Beggs my favorite keyboard playing economist on her blog Economists Do It with Models.

She has a great post up about a program in New York that is randomly denying funds to people who apply to get help with their rent to avoid becoming homeless. The program has found that 90% of people who get help stay in their home, but the question is what would it be if there was no help. Perhaps it would 0% or 89% would still stay in their homes, a random experiment is the most accurate way of measuring the effect. However, it might not be the nicest.

One thing that happens in the developing world when a new program comes the group who doesn't receive the benefit(the control group) gets some other benefit even if it is not part of the design. For example I heard of one country where in half of villages children were payed to go to school and in the other half no benefits should have been received. But the government added in free school meal programs in many of the control communities increasing school enrollment in control communities and biasing the effect size downward.

I also heard of a randomize worker training program where those in the control group were given extra information about where else they could look for jobs.

So yes science can be a pain!

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Friday, December 10, 2010

Borrowing to Save and Financial Literacy

I blogged recently about the micro credit crisis that may be emerging in India and other developing countries, where repayments rates are falling. One issue is that poor families often use micro credit as a way to save instead of invest. Micro savings might not be viable as transaction costs are too high (see this post) . The distinction between savings and investment is important in economics. Savings is income minus consumption, while investment is purchasing things that will increase your income later (we call this capital). If you use all left over income to purchase capital then savings = investment.

Ideally micro credit would be used for investment. Since households must repay their loan at 50% interest. In some cases households use micro credit to save but not invest in income improving capital. In other cases micro credit is used to pay for school or medicine, which is an investment but the payoff is likely much further down the road. In any case it is hard to tell what is actually purchased with micro credit, since money as economist say in fungible. That is if you give someone $100 they could say they are using it for their business, but if they would have spent $100 on materials anyway and instead only increased their spending on schooling, then it is actually for school.

Perhaps most important is having financial literacy so that those who use micro credit can make better choices. This post is a couple months old, but Bilal Zia at the World Bank has a good description of current research in financial literacy.

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Thursday, December 9, 2010

9th night of Hannukah

Thanks so much to Jodi Beggs from Economists Do it with Models for putting music to my Economists Hannukah song! I never thought I would write a song.

Here are the original lyrics that Jodi improved.

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Are Economists Wrong About Secondary Ticket Sales?

Truly, there is a special place in Hell for people who buy Rose Bowl tickets with the sole intention of profiting from them. It is entirely unfair to those who actually love this football team and were counting on a cheap face value ticket in order to make the trip to Pasadena an economic reality

From University of Wisconsin's student paper the Badger Herald. The knee jerk economists reaction is that reselling tickets is efficient. If you can resell those who are willing to pay the most will get the tickets and those who want to pay less and win the lottery for tickets will get extra money. Those who lose the lottery should be indifferent. Now one point could be that the chance of losing is greater if the number of people participating in the lottery increases, because there are easy profits to be made. It should be noted although I didn't do it, I kept meaning in grad school at Wisconsin to sign up for football season tickets to resell them at a profit and get a couple of games free.

Now what economists may miss. I think most economists would do the analysis using consumer surplus that is the benefit is measured by the
#1) benefit = the most someone would pay - what they paid

Instead I think most people think the benefit might be measured as
#2) benefit = happiness from going to the Rosebowl - what they paid.

For students with limited funds, it's possible that way#1 and way #2 will yield different socially optimal distributions. It comes down to how close money and happiness are linked, which is a whole other line of research.

This is just a thought exercise, but it is worth thinking when economists disagree with public reaction strongly, how we reach our conclusions

h/t to Phil Miller at the Sports Economist

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Wednesday, December 8, 2010

Hi Marginal Revolution and Economix Readers

If you clicked on the link because you love Hannukah and Economics may I suggest you also see my Economists Hannukah song from 2007.

Enjoy your last night of Hannukah my jewish econ friends!

Or start get an early start on Passover with the economics of Passover posts.

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Money for me or jobs for the unemployed?

The compromise includes a one-year cut in the payroll tax by 2 percentage points. The tax cut will be entirely in the employees' share. Why do you think they designed the policy in this way? Was it the right choice

From Greg Mankiw's blog describing the agreement between Obama and republicans, which trades a cut in payroll taxes for a cut of taxes for income over $250,000.

Mankiw notes that for most goods making the buyer or seller pay the tax shouldn't matter. However, wages tend not to change fast particularly they tend not to drop (economists call this sticky wages).

In short to summarize Mankiw by cutting the employees' share that means more money in the pocket of anyone who gets a pay check (hey that's me!). If you cut the employers share it means they could hire workers for 2% less than they are paying now or use the savings for investment in new capital. So as I understand it giving the tax break to workers should increase spending faster, while giving it to employers should decrease unemployment faster.

As an economist #2 seems better, as a person keeping 2% more of my income sounds better. So perhaps the best political decision is to give the money to the employee.

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Tuesday, December 7, 2010

Discussing my research in class

In class today I'm discussing a paper I wrote with my favorite co-author/father. Below is the abstract. Here is a link to the full paper.

Coming to Homerica: The Economics of Immigration
by Seth R. Gitter and Robert J. Gitter

Abstract: Like many people throughout history Apu Nahasapeemapetilon’s decision to migrate from a poorer place (India) to a richer one (Springfield) has been in part an economic one. We use him as a case study from the episode “Much Apu about Nothing” to demonstrate how economists study migration. As the standard models suggest, Apu receives benefits and pays costs as a result of migrating. We also analyze the impact of a large migration on an economy using the great wave of Ogdenvillians who came to Springfield in “Coming to Homerica.” We look at the effect of immigration on wages, taxes, and government spending. For readers like Lisa Simpson we conclude with some suggestions for further reading and pose policy questions. For readers like Bart Simpson we write in a style that can best be described as “eat my shorts.”

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Friday, December 3, 2010

Sometimes when you win you lose

With a win over Nevada, Boise State would play in a championship bowl. If Boise State makes a championship bowl, then all of the teams in its conference would also receive a 1 million dollar payout. Nevada is in Boise State's conference so if Nevada lost they would receive the million dollar payout (see this article). Now a more complex analysis would consider some other things, but I think looking at all the possibilities, Nevada would lose money by winning the game.

Nevada lost the million dollars, but won the game.

This reminds me of the story of trying to score on yourself. The game was Barbados vs Grenada in the 1994 Caribbean soccer cup. Due to tie breakers Barbados would advance to the next round if they won by 2 or more goals. With 3 minutes left Barbados was only leading by one goal. But a tournament rule declared a team won by two if they won in overtime. So Barbados scored on themselves on purpose forcing the game in overtime. Then they won in overtime and went to the next round.

h/t to John for sharing this article

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Thursday, December 2, 2010

How Many Economists Does It Take to Clean a Microwave?

So it looks like from an e-mail I got our cleaning services people won't clean the microwave in our departmental common area. The question then becomes.

How Many Economists Does It Take to Clean a Microwave?

Answers (in jest):
None, if it was optimal to clean the microwave one would have already done it.

One, once the dirtiness level surpasses the economist with the lowest threshold they will clean it themselves creating a public good.

Two, one to clean it and the other to point out that the other does not have a comparative advantage in cleaning.

Never more than three because there are diminishing returns to labor when cleaning a microwave

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Wednesday, December 1, 2010

A Miracle PPF Happy Hanukkah

If that isn't enough here is my economists' chanuka song from 3 years ago.
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Monday, November 29, 2010

Microcredit crisis?

"Loan officers learned that they could line up customers more quickly in villages where their competitors already operated, for there the women would have been educated in the mechanics of microcredit—and might want new loans to service old ones. So loans were heaped on top of loans."

From David Roodman's guest post over at Aidwatchers on the microcredit crisis described well on the link by Vivek Nemana.

One thing I have been worrying about with microcredit is that most loans are to start or continue simple businesses like selling food, making clothing, or opening a small store and at some point there is no more room for new business (see previous post).

After visiting a small village in Mexico with 4 rural convenience stores with little to no business for each one, I have to wonder if the opportunities to continue to make returns of 50% (a typical interest rate) for microcredit are still there.

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Wednesday, November 24, 2010

I'm Thankful You Read This

Thanks for reading my random musing on economics! I'm not sure how many of my 50 or so google subscribers and 30-40 show on my site meter read the blog regularly or if they all just looking for pictures of Abe Lincoln and the Dude I posted. Thanks to Britt, Dan,my Dad, and others for commenting on posts. I will get to Dan's question regarding Coase and Ostrom's take on PooPrints next week.

As always I'm happy to entertain questions and I hope you enjoy reading the blog.

I wish you and your family a happy thanksgiving!

If you still need some econ thanksgiving thoughts here is my two year old post on turkey prices

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Tuesday, November 23, 2010

Student Loans and Behavioral Economics Continued

Kelli Space graduated from Northeastern last year with $200,000 in debt. With 4 years of tuition, room and board, a semester abroad that doesn't seem unbelievable. She is now asking for donations at a website

I don't think her story is completely uncommon. I wonder why she chose to go to Northeastern over a state school, which would have been half the cost? Also is there a policy that could prevent people from making this choice? Finally should a policy exist?

In a behavioral sense we want to ask if Kelli exhibit awesome stupidity, or made a rational choice.

Although this paper by Rothestein and Rouse suggests it might not be that bad, if higher loans cause people to try to make more money.

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Monday, November 22, 2010

DNA shows who soiled the commons (a crappy analysis)

This American Life featured a story on PooPrints, a company that DNA tests dog dropping to determine which dog left a mess. Economists often talk about the tradegy of the commons, and anyone who has stepped in dog poop knows that commons (open shared green space) become less valuable when filled with dog poo.

So in what situation will PooPrints work? First since it costs $30 to register a dog and next for each test you need to pay $50 to have the sample matched against the database of registered dogs. To work you must have an area where only certain dogs go (like a gated apartment or condo) and an organization where people can actually get people to register their dog.

So when will PooPrints be worth it? To make it simple we could assume everyone is a dog owner and that no poo goes unmatched. In that cases the reduction in poo would have to be worth $30 for it to be approved in a vote. A more complex case could consider when both dog owners and no-dog owners have to pay and there are cases where the poo is not matched. In that case the difference in utilities from the amount of poo with PooPrints (Upp) minus the utility with no PooPrints (Unp) is greater than $30 times the percentage of people with a dog (d) plus the % of times there is no match (nm) times $50 we also subtract out the case where there is fine if the dog is matched which will happen 1-nm% of the time (one fomplex had $100 fine so we will use that).

Upp - Unp > d*$30 + nm*$50 - (1 -nm)*$100

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Thursday, November 18, 2010

Would you see a movie with scenes of awesome stupidity?

Yes I would see a movie with scenes of awesome stupidity. Like the intentional stupidity of Harold and Kumar or the unintentional stupidity of Plan 9 from outerspace.

So if Roger Ebert said about the movie The Perfect Man "[It] takes its idiotic plot and uses it as the excuse for scenes of awesome stupidity" do you think the makers of the movie would want to advertise this fact.

Well as my reader Brett pointed out the movie's Asian distributor put the quip on the cover of the DVD (link).

So what can we conclude. Either the distributor doesn't know what the quote means, the public doesn't know what the quote means, the customer will likely disagree with Roger Ebert, or the public wants to see bad movies.

I'm going to go with a combination of #1 and #2. I think too often economists ignore the fact that people sometimes show signs of awesome stupidity, including me.

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Wednesday, November 17, 2010

What Has Two Thumbs and Can Increase Movie Revenue

I'm always happy to take blog request and reader Brett asked me take on the question "Specifically, what is the value of critical acclaim (or criticism) to a movie? "

My first thought was this would be hard to figure out, since if a movie is good more people will see it and critics will rate it more highly. So high critic ratings might not actually be causing the result. I did a literature search and Reinstein and Snyder (2005) in the Journal of Industrial Economics take on this vary question.

The abstract starts by saying "An inherent problem in measuring the influence of expert reviews on the demand for experience goods is that a correlation between good reviews and high demand may be spurious, induced by an underlying correlation with unobservable quality signals." In other words critics like movies audiences like.

So how do they deal with this. They use the timing of Siskel and Ebert's reviews to see if they had an impact on a movie's revenue. In other words they compare opening weekend revenue for movies that get a thumbs up during or before opening weekend and those after. Reviews released after should have no impact on revenue. Unless Siskel and Ebert choose when to review movies based on how good they are. Luckily the paper shows that timing is not influenced by quality.

So how much is a thumbs up worth? About 37% increase in revenue for art house films and a 51% increase for dramas. Siskel and Ebert appear to have had no impact on comedies or action movies.

This paper came out in 2005 and uses data I think from the late 90s (ie the time before wide use of the internet). I wonder if any of the major critics have the same impact today.

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Tuesday, November 16, 2010

Tuition and Drink Selection

Maybe if college wasn’t so expensive, we wouldn’t have to try to get a six-pack of beer from one three dollar can.

From a Towson Student defending the drinkers of four loko a 12% alcohol beverage with lots of caffeine too.

Doing a quick literature search I could not find any evidence that increasing college tuition changed students drinking habits. I did find this paper by Benjamin Cowan that suggests that high school students engage in less risky behavior if college tuition is lower from his article. Although I don't know Benjamin he did get his PhD from Wisconsin Madison, so I'm going to assume he has observed people drinking.

From his abstract: "Specifically, a $1,000 reduction in tuition and fees at two-year colleges in a youth's state of residence (roughly a 50% difference at the mean) is associated with a decline in the number of sexual partners the youth had in the past year (by 26%), the number of days in the past month the youth smoked (by 14%), and the number of days in the past month the youth used marijuana (by 23%)."

So maybe this four loko drinker is on to something.

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Monday, November 15, 2010

Why is there no soda variety pack?

On vacation my parents usually got us the variety pack of mini cereal boxes. You can buy mixed six packs of beers from many brewers. I ran into an issue this weekend when buying soda for my daughter's first birthday party this past weekend (by the way Happy Birthday Sylvia!). I knew lots of different people were coming, probably each had a preferred soda. I would be willing to pay extra for a 12 pack of say a mix of coke, diet, sprite, and orange soda. I guess I can only deduce that there are few people like me that want this mix of 12 pack of cans. Another possibility is that Coke and Pepsi have reached a good equilibrium where they both don't offer variety packs, causing people like me to buy too much soda. After all this thought I bought lemonade instead.

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Wednesday, November 10, 2010

Diminishing Returns to Mascots?

The Chorizo was added for the 2006 season to commemorate Latino contributions to the game of baseball, as well as to acknowledge the Brewers' growing Latino fanbase.[6] It ran its first race (and the only one of the 2006 season) on Saturday, July 29 to celebrate Cerveceros Day (cervecero translates to beer-maker or maker of beer in Spanish; the Brewers also wore Cerveceros jerseys on this day). However, the Chorizo did not become a regular participant in the Sausage Race until the 2007 season because of an MLB rule stating that a team may not introduce a new mascot in the middle of a season
From Wikipedia

For those of you who don't know the Milwaukee Brewers, a Major League baseball team, feature a sausage race. I was thinking about the newest sausage the other day (El Chorizo) who was introduced last year. I wondered what kind of diminishing returns to mascots there are. It is interesting that the Brewers, Pirates and Nationals all feature racing mascots (Sausage, Pirogies, and Presidents) until El Chorizo each race had 4 mascots. At what point will the Nationals add another president or the pirates another pirogie. If they haven't added another one can we infer that the marginal cost of an additional mascot is higher than the marginal benefit.

Finally isn't it funny the baseball has a rule against introducing new mascots during the middle of the season?
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Tuesday, November 9, 2010

Say Cheese! US Government Wants 6 kinds of Cheese

Domino's American Legends® - Wisconsin 6 Cheese Pizza Domino`s presents its new Pizza called Wisconsin 6 Cheese New Wisconsin 6 Cheese Pizza $12.99 Ingredients Robust tomato sauce, cheeses made with 100% real Mozzarella, Feta, Provolone, Cheddar, Parmesan, Asiago and sprinkled with oregano on a Parmesan and Asiago crust. The Wisconsin 6 pizza was designed for cheese lovers.

Now some of my favorite things to eat in Wisconsin include fresh cheese curds, fried cheese curds, and macaroni and cheese pizza (try it at Ian's).

This story has now been on NPR and was in the New York Times. But it is worth repeating. The US department of agriculture in part funded the creation and marketing of this 6 cheese pizza.

Of course dairy funds also in part funded my graduate research, so I shouldn't complain too loud.

Now pass me a slice of pizza.

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Monday, November 8, 2010

Support Your Local Brewer and Wisconsin Week

In graduate school in Madison my wife and started getting vegetables from a local CSA (community supported agriculture). Each week through the growing season we got a box full of vegetables, we had lots of opportunities to visit the farm, and I even worked one day a week there one summer. Madison has one of the most active CSA communities in the nation with almost 9,000 memberships at various farms.

Madison also has an active beer drinking community (I know hard to believe). But Madison drinkers like more than just Schlitz, PBR, and Milwaukee's best. Madison has an active microbrew scene. But one man, Page Buchanan, noticed that there was a demand to have a close relationship with your food provider from the CSA, but no brewer truly met that desire (although I do recommend the Cap City Brewery and New Glaurus brewery tours).

With that idea in mind he created the CSB (community supported brewing). Each month for a subscription fee of about $10 a six pack Brewer Master Buchanan will brew you a batch. There will also be educational demonstrations about brewing. Plus Buchanan will work to get local Wisconsin ingredients in his beer.

By getting subscribers Buchanan will lower his risk and fluctuation in sales making starting his brewing project more attractive. And by offering the relationship with the brewer the CSB provides an extra benefit just like the CSA.

Thanks to Amy for pointing me to the Wisconsin State Journal article about this.

Finally, this week's post will all have a Wisconsin link. Of course the next two posts will deal with cheese and sausage.
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Friday, November 5, 2010

RIP Sparky Anderson

Sparky Anderson, one of the greatest baseball managers of alltime passed away yesterday. He managed my favorite team the Detroit Tigers through my whole childhood. Everything I have read indicates he was a good guy.

In tribute to him two economic related things about Spark Anderson.

First, Anderson was one of the only managers to refuse to manage with replacement players during the 1994-1995 strike. In some sense it is hard to pick sides between players and owners as a fan during a strike and I wish 1994 would have finished as it seems like one of the great seasons that could have been. But I think you have to admire a manager who will stand up for his players.

Second, relating to the shiny objects posts. Every year Sparky would say that all of the Tigers rookies were going to be the next Micky Mantle and Tom Seaver. After years of the rookies flopping people started to ignore Sparky's praise. I think it shows that overpraising can get people to not trust someones opinion. But, a manager isn't trying to maximize what people think about his ability to rate players. He's trying to win ball games. I wonder if by praising people he got more out of them then he would have with a more honest answer. Although Sparky didn't have a great history of developing young talent with the Tigers in the second half of his career. I'm not sure the Tigers gave him much to work with. His teams records suggest his was doing something right.

Rest is peace Sparky.
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Thursday, November 4, 2010

Cash for babies

Our findings show that the program in Honduras, which may have inadvertently been designed to create incentives to have children, may have in fact raised fertility by somewhere between 2-4 percentage points – a non-negligible impact in a country where fertility is relatively high.
From a paper I was talking about in class today by Stecklov and others.

The program in question is the Honduran conditional cash transfer program that pays money to mothers if kids go to school and health check ups. Unlike other countries like Mexico and Nicaragua Honduras extended payments to mothers who had children after the program was announced.

I think the question is did it cause them to have more babies in the long run or did families just have babies sooner then they would have without the transfer.
The data available is too short to figure that out (only 2 years between the last round of data and the pre-program data).

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Wednesday, November 3, 2010

The Economics of Shiny Objects

"People, as all creatures, are innately attracted to shiny objects. If you can make your brand, product, or service a shiny object to your customers and prospects, you'll be immensely successful." From the book Shiny Object Marketing

Any business that wants to attracts new customers has to convince customers to consider their product. Searching for new products takes time, but it seems from this book our time is more enjoyable if we are looking at a shiny object. So this book suggests that you lower the cost of searching for a new product if you make your good a shiny object. But if all businesses know this and can make their objects equally shiny, then the shine of objects will go to an equilibrium where the marginal cost of extra shine equals the marginal profit.

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Tuesday, November 2, 2010

Early Voting and Lower Turnout

Megan McArdle describes a recent study from the University of Wisconsin that early voting leads to lower voter turnout. At first this may seem surprising. Early voting should allow people to vote when they have lower opportunity costs and increase turnout. For example I voted on a day I wasn't working instead of today when I'm in class most of the day. However, by voting early I wasn't wearing my I voted sticker on election day. The analysis suggest that by allowing early voting election day becomes a smaller deal and less people vote.

Now for predictions. My favorite midterm election prediction goes to Justin Wolfers over at The Freakonomics Blog. Instead of saying “World complicated. Highly-paid experts often wrong.” or hedging his bets saying it depends. Wolfers predicts the dems will hold onto both houses of congress. He predicts even though he indicates the probability of it happening could be around 1 in 5 or less.

Why does he do this, because we give higher rewards and respect to people who make predictions if they are right and go against the common judgement.

So let's go with Dems still +10 in the house and +4 in the Senate. If I'm right, like Wolfers I'll point people to this post.

If I'm wrong well then..... LOOK OVER THERE A SHINY OBJECT!

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Monday, November 1, 2010

Seasonality and Pumpkin Futures

Homer Simpson: Yeah, that's right, Barney. This year, I invested in
pumpkins. They've been going up the whole month of October and I got a feeling they're going to peak right around January. Then, bang! That's when I'll cash in.

a few days later

Homer Simpson's Broker: Homer, you knuckle-beak, I told you a hundred times: you've got to sell your pumpkin futures before Hallowe'en! Before!

I don't know as much as I should about agricultural economics given I have a PhD in it, but I do know that pumpkin futures don't work that way.

But the pumpkin futures story shows the importance of seasonality. Just like the demand for pumpkins changes from October to November, the demand for all goods changes from month to month depending on the season. Unlike pumpkins, turkeys, and Christmas trees the demand for all goods in the economy doesn't change by huge amounts from month to month, but it is enough to make job losses into gains once the season is taken into account.

So economists make seasonal adjustments to price, unemployment, and GDP data so the numbers reflect that purchasing habits reflect the time of year.

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Friday, October 29, 2010

Great Kids Village, A Pricing Question

Sylvia (my 11 month old daughter) and I just got back from Great Kids Village in Silver Spring. The place is a store sized indoor play area for young kids (I'd say ages crawling to age 6 or so) with lots of toys and things to climb and explore. Sylvia had a great time.

Looking at their prices I was a little surprised by the pricing for memberships. If you buy a family membership the price is the same if you have one kid or are an Octomom (she did move to Rockville I think, so it's not out of the question).

Now I have seen things in the past where the second kid costs less than the first, but I wonder why they don't charge different prices depending on the number of kids?

Some possibilities.

1. It might not matter much in a place like Silver Spring with a lot of single child families.

2. They plan to open a cafe soon, so families with more kids would bring in profits in other ways.

3. The pricing is a result of what economists call price discrimination. Usually discrimination is a bad word I don't want you to think that it is on economics, but other examples of price discrimination include senior and student discounts. In some sense they are charging the same price to both families with one kid or more than one kid. In another they are charging different prices per kid to these two groups. Usually price discrimination happens when two groups are different (like students or senior have less money than the average person). So perhaps families with more than 1 kid have less disposal income.

Either way Sylvia had a good time so that's all that matters!
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Thursday, October 28, 2010

Is This Restaraunt Worth My Time?

I like to read Todd Kliman the Washingtonian's food critic's weekly chat about places to eat in the DC area.

This week in answering a question about a local restaraunt Kliman said
"For years my wife and I have assigned "minute-marks" to restaurants as a way of rating them -- not stars.

"In my book, I would drive an hour-and-twenty minutes to dine at Komi. Nooshi, on the other hand, I would consider a 6-minute restaurant.
The Source: a 45-minute restaurant. Sonoma: a 15-minute restaurant.
2 Amys: a 40-minute restaurant. Dino: a 20-minute restaurant."
(link to chat)

I love this method. Economists favorite example is the free lunch. Whenever we eat out one place we give up eating at another place, so even if we get free sushi we give up eating Indian food.

Now if I set a minute rating on local restaraunts several things should be taken into account.

1. Obviosally how good is the restaraunt in terms of food quality and service. The highest drive time on Kliman's list is also a restaraunt he ranks in the Top 5 in his yearly dinning guide. I haven't been to Komi yet but I have been meaning to do it.
2. Second is price. There is an Indian restaraunt a 10 minute walk from where I live. But I always seem to spend 20% more than I think I should.
3. Other available restaraunts play a factor. When I lived in Grinnell, Iowa in undergrad the Indian restaraunts 1 hour away in Iowa City were rated 1 hour restaraunts. Indian restaraunts of the same quality as those in Iowa City would be much lower as now that I live with in 10 minute walk of at least 2 (Indian Thai, Vietenemess, Ethopian, Italian, Peruvian Chicken, Sushi)
4. There ability to not put cilantro in my take out order. This may not factor into your ratings but my wife really hates cilantro. So that Indian restaraunt within 10 minute walk of my house I never go to (well that and see #2). Instead I drive 15 minutes to another place, which is really good.

Final thought when recommending restaraunts I don't know if Silver Spring where I live and has a lot of good places to eat has any restaraunts I would say are 30 minutes or more places for people in the DC area.

I would like to give a thought that my favorite place in Silver Spring right now 8407
is getting close to a 30 minute place. So Bethesda and Rockville should try it, Arlington I'm not sure it is worthy of getting on the beltway.

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Wednesday, October 27, 2010

Microcredit will it work in the long run?

In India, people in the slums that had access to microcredit were more likely to cut down on things like tobacco and alcohol in favour of durable goods (particularly items such as pushcarts or cooking pans that are used heavily by traders and food-stall owners

From a recent article in the Economist describing two new studies of microcredit that used randomized experiments to test for impacts of microcredit. In the short run consumption does not seem to go up and poverty does not seem to go down with microcredit. The possible good news that one article finds is that more durable goods are purchased particularly those that are small business related.

I worry though if too many people start buying pans and carts to sell food that the gains from selling food on the street will be really small. For example see Alex Tabarokk's discussion of his recent trip to El Salvador about "a pueblo with about 8 or 9 pupuserías in direct competition." How much money can be made in a village with several pupusa vendors.

Both analyses discussed in the article plan to continue to follow the groups they are studying so perhaps long term influences will start to become clearer.
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Tuesday, October 26, 2010

Feed the Meter and the Homeless

A new type of parking meter is going up in various cities throughout the US including Silver Spring. The meters collect coins for the homeless to provide funds to shelters and soup kitchens (see some pictures here). They also provide a substitute for those donating to give their money to the meter instead of the panhandler on the street. The meters also decrease revenue for pan handlers lowering the benefit to asking for money on the street.

One result is that instead of asking for money those panhandling may increase their use of shelter and soup kitchen services. Another possible result is that the relative payoff of petty crime may increase.

This could be a neat experiment for a city. Put homeless meters up in some part of the city and not in others. Also collect data from panhandlers (difficult, but I think doable). Do they move? Do people give more or less when meters are around? Does crime increase?

All sorts of things can happen. I don't think it's clear what the result will be if meters are installed in most busy places.

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Monday, October 25, 2010

Pricing of Baby Formula

My daughter like many babies drinks formula. About a month ago Similac one of the major formula brands announced a large recall of its products because they contained beetle parts. Not surprisingly this recall led us to switch formula to the 50% cheaper store brand. I had been meaning to try to switch earlier, but inertia had set in just like Similac had hoped when the doctors office gave us free samples

At first I was suprised that formula prices for the store brand were cheaper after the recall. One would think if a lot of product was removed from the market (Similac Recall) that prices would go up. The recall may encourage some mothers to breast feed or get their children off of formula sooner, but most children who drink formula can't easily change. Since formula consumption does not change much with price (its an inelastic good) you would think prices would go up after the recall.

Then I remembered the intertia that we had for our daughter's formula brand once we tried a new one. Like the free samples we were offered at the doctors office for Similac, formula brands are likely lowering prices to attract former Similac buyers. Once we get used to buying the new brand prices will likely increase again.

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Monday, September 20, 2010

Going Meta, What a Meta-analysis tells you

I have not been updating the blog much lately. I have been hard at work on a project funded by the British Government's Department For International Development.

The project is a meta-analysis of how giving poor families money influences their children's height. A meta-analysis means I'm examining a bunch of different studies (a couple of dozen is what we found after weeks of searching databases). Why children's height, because it's a good indicator of health?

I'm not ready to be cited yet, but I have learned there really aren't that many studies of how cash influences children's health (a couple dozen). Cash programs (and particularly those with conditional health check ups and schooling) seem to be extremely popular with governments and aid agencies.

I hope our study sheds a little light on what might influence a program's effect on children's height (and health). Since most of the support for these cash payments is based off of results on a handful of programs continuing to analyze differences between countries is important.

A study in Brazil (Morris et al. 2004) where a cash payment actually decreased child height, gives us a little pause. The authors suggest that families feared they might lose the transfer if children were too healthy (even thought this wasn't the case). This shows even if a type of program would work well in all places, you might not get a well functioning program everywhere.
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Friday, September 10, 2010

Loyalty in the Information Age

"Loyalty is what we call it when someone refuses a momentarily better option." from Seth Godin

I like this quote as it applies to brand loyalty. There are very few brands I'm loyal too. In fact I can't think of any right now. One thing is with low cost items I can try a new one out if it's cheap. For high cost items the internet makes searching for reviews easy. In the information age, I wonder if loyalty is falling since people can research other options.

One type business I try to be loyal to is a local coffee shop. Loyalty should seem to increase for service oriented transactions that occur regularly. A renovated store front around the corner looks like it might be a coffee shop, will I stay loyal to the other one? I'm not sure.
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Wednesday, September 8, 2010

The High Price of Coffee

The price of coffee has soared to a 13 year high. This Wall Street Journal article highlights the causes more demand and bad harvests.

So could this increase in coffee prices be good for coffee farmers? Yes in the short term they are likely to earn more money (assuming they aren't having the bad harvest). In fact the harvest might be so good they may pull their kids out of school to work on coffee farmers (Krueger (2007) in Journal of Development Economics)

13 years ago the last time coffee prices peaked was 1997. Just 3 years later coffee prices had fallen 50-70% and many families who earned income through coffee saw their income fall substantially. Why did this happen? With all the profits to be made in coffee, countries like Vietnam increased production to the point where there was a glut in the market.

So I'm guessing this price surge will be temporary. But the linked article suggests

"If coffee prices stay high, it may make sense at some point for die-hard drinkers to start stocking up. If you buy the beans green and roast them yourself, they will stay fresh longer. You're earning no interest on the money you have in the bank anyway, so the "opportunity cost" of the money is minimal. You might as well withdraw some of it and buy your coffee "forward.""

Having had fresh roasted beans this sounds like a great idea!

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Monday, August 30, 2010

DJ the moocher and economic development

"The DJ has now replaced his bed with friends' couches" from a BBC article on people giving up their possessions and simplifying their life. Many of the comments where I saw this article first (Boston Gals Open Wallet) suggested this DJ was a moocher, I'm inclined to agree. Reading the article he seems to have a steady income but is doing extended couch surfing. Maybe he's making payments to the people renting the house.

But it got me thinking about mooching in developing countries. Maybe mooching isn't the right right word because people in extreme poverty turn to their family, neighbors and friends because few or no other outlets will lend them money or help them when pressed with financially difficulty.

The likelihood that people will ask you for money if you start doing better financially may change your incentive to work. I have heard several stories about the difficulty of advancing financially and maintaining ties to your community in extremely poor countries, since once you make it people close to you will start asking you for money.

My favorite example is how it relates to savings and microcredit. Many people use microcredit to purchase livestock. If they try to save up the money they might feel obligated to help their friends and family and spend the savings before they can save enough to buy a cow. However, once a cow is bought it is a lot harder to divide a cow (well without harming the cow) to help a friend with just a few dollars. By borrowing the person with money actually saves and builds wealth.

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Wednesday, August 25, 2010

Free Coffee or Beer (in 3 years)

So I bought a new laptop on Friday. Not surprisingly the store that sold it to me Staples wanted to sell me an extended warranty. This one was different if I bought the warranty and never used it in its 3 years of coverage I would get a gift card back for the full amount of the warranty.

Of course the catch is that 3 years from now I'm unlikely to remember to fill out the paper work to get the gift card back. In fact I have only 30 days after the warranty is up to claim my gift card. I set google calendar to remind me on August 20, 2013 to send me an e-mail reminder.

I'm not 100% sure Google Calender is full proof. So here is where the free beer comes in. If you are one of the first 10 people to e-mail me on Aug 20 of 2013 with a link to this blog post I will buy you a beverage of your choice (value up to $5). If I don't know you I will mail you a $5 Starbucks gift card.

So will you remember in 3 years? Let's find out!

3 years ago I started my job at Towson here is a post about my thoughts on my first day.

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Tuesday, August 24, 2010

Who Put Popcorn in the Collection Plate?

On Sunday morning I was walking around downtown Silver Spring with my daughter Sylvia. At both of my local movie theaters churches had rented space and were having services in the theater. As an economist this seems like a great idea. There is a large fixed cost to have the seating and building for movie theaters. No one goes to see movies on Sunday mornings so the space is not being used so the marginal cost of having the church there is near zero. I think all you would need is to have someone unlock the door and maybe clean up after. I do wonder if they open the concession stand?

I thought the only thing that could be better would be a synagogue that meets in a bowling alley, you know for people who like their local alley but don't roll on shabbas. Of course LA had one in the earlier nineties , I wonder if Walter Sobchak was a member of Rabbi Espstein's congregation?

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Monday, August 23, 2010

Basu ban continued

This post is for my buddy Dan, I'll try not to make it too technical for others. See his full comments on Wednesday's post. In short he asks how can wages for adults go up enough to compensate for a ban on child labor. Basu generally seems to think child labor bans won't work, because if they are not monitored (tough to do) then some firms will hire child workers and be successful, while goods produced with child labor will be cheaper and the workers in the developing country will be worse off. It is hard to test if child labor bans work, since it is difficult to measure the impact of one ban or another, since we don't know what happens in the absence of the ban. But, here is a long explanation of how a ban might actually help in a rare case.

If a long theoretical explanation isn't for you come back later this week for discussion of churches going to the movies and a $250 memory test

So let's start with Basu and Dan's assumption that each person is paid their marginal product of labor. That is whatever the value of extra output each person produces that is their wage.

Now Basu assume that the marginal product of labor is diminishing. That is for each extra worker we have the next worker's extra output (marginal product) falls. So if we cut out children then adults wages go up.

Can adult wages go up enough to compensate for the loss of child wages? Here is when the good being made is important. In most cases where we talk about bans in child labor we are talking about exports from a developing to a developed country (say Bangladesh to the US).

So if adult wages are going to go up enough to offset the lost in child wages then the price of the export has to go up. However, as the price goes up people in the developed country buy less of the good.

In a more recent paper Basu and his co-author create a model to show that when the quantity demand changes a lot with little change in price (ie elastic goods) then child labor bans will make families worse off. However for goods that their quantity demand is not impacted much by price (inelastic goods) then bans might work.

The only problem is most goods made with child labor are very responsive to price (elastic) so a ban is unlikely to work.

So to sum up child labor bans might work if they can be monitored and the good being produced is inelastic (ie not often)
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Wednesday, August 18, 2010

Should we boycott child labor in other countries?

I came across an article that inspired a lot of my research Kaushik Basu and Pham Hoang Van's (1998) American Economic Review article on "The Economics of Child Labor" (or a short summary here)

The article provides a model of what would happen if child labor is banned in a developing country.

A ban could be good if children stop working, then wages rise for adults and now the developing country has richer parents and children who are not working and maybe going to school.

A ban could be bad if children stop working in factories and there is not enough money to feed the family or keep non-working children in school. Children without factory jobs may turn to dangerous unregulated jobs or prostitution.

The article shows that although many countries have anti-child labor laws, it really isn't until a country develops that children stop working.
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Tuesday, August 17, 2010

How economists would take on skateboarders?

Although Treasury Secretary Tim Geithner is no stranger to skateboards, economists probably couldn't win a skate off with local skateboarders in Silver Spring, but we can analyze the problem of skateboarders in a public space. A new civic building with a nice large plaza in front opened this summer just a few blocks from my house in downtown Silver Spring. Soon after it opened skateboarders came. Accounts vary but most skaters seemed well behaved and a few caused trouble including an assault. A few bad apples ruined the fun and now there is no skating in the plaza.

So should skating continue or be outlawed? I really like the opening lines of this local blog post on the issue form blogger Just up the Pike

"We might want to impose rules on a park or plaza to make it seem safer or more pristine, but excessive regulations could kill the vibrancy that people go there for. Sometimes, we have to let people police themselves."

The plaza is a public resource. If a skateboarder skates on it then some may not get full enjoyment of the plaza. Although skaters also produce positive externalities for the people who enjoy watching them. Economists generally look at the negative effects of one user taking part of a public resource on another person. If several farmers share a pasture, if I let my cows graze not as many of your cows can graze. Similar examples come up in water use, fishing, and forest management. In fact Elinor Ostrom won a Nobel Prize in economics for the her contribution to the study of public resources. From the Nobel Prize press release:

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

It's been a while since I've read Ostrom's work, but generally common property is better managed when there are few users, they interact often, and share cultural norms. Ostrom's work might suggest that a place like a plaza in an urban area might not be the best place to let rules develop organically. However, I think it was worth seeing how things might have worked out.

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Monday, August 16, 2010

Did Walmart Insult My Family?

So I went on vacation with my parents, sister, brother's family, my wife, and daughter. To celebrate we got a family portrait taken at Walmart with all 10 of us. After the session we were offered two prices either we got to keep a CD of the pictures for $225 and got no prints. Or we could pay $179 got to keep the exact same CD and would be given several prints of varying sizes.

Walmart will pay $50 for us to leave with prints of our own family? Are they saying we photographed so poorly they would pay us to leave with our own photos?

Not really, we take an excellent photo. It's just they are hoping that if we start choosing prints we'll order more and we will likely come back to the store to pick up those prints at which point we'll spend even more at Walmart.

Thanks to my Dad for pointing out this pricing scheme to me.
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Thursday, August 12, 2010

When 109 pennies = $1

Two years ago I blogged about the last time I tried to convert a few hundred dollars worth of change into money (link). I pointed out how at a local bank it costs 7-10 cents on the dollar to trade in pennies, nickles, dimes and quarters for paper money. On recommendation of my friend Lowell this time I tried coinstar. Which chargers 9.8 cents on the dollar for the change to paper conversion. As Lowell pointed out you could also get a gift certificate for the full amount.

My guess is that Coinstar can buy gift certificates for 90-95 cents on the dollar, since they are willing to offer the 1 to 1 conversion. As websites like a gift card can often be had for 90 cents on the dollar.

So I got the gift certificate through Amazon, since we've been buying a lot more stuff there lately for Sylvia or to avoid going shopping with a baby along.

Final thought with a new crawling baby who likes to put objects in her mouth I'm changing my stance on saving the penny.

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