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.

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.

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?

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)

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.

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.

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.

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 GiftCardRescue.com 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.

Happy Ramadan from Colonel Sanders

(Picture From El Vomitar)
One of the most memorable presentations one of my student has ever given mentioned that KFC offers a Ramadan meal in many Middle East countries. I thought of it today when I heard today was the first day of Ramadan.

DC Tourist Tax

With a new fare increase metro has put in what I think amounts to a tourist tax.

There are two ways to pay for a metro ride a paper fare card or a Smarttrip card. The paper cards can be purchased from vending machines in every station. Smarttrip cards can be purchased at vending windows in just a few stations and CVS. The Smarttrip card cost $5 plus whatever fare you put on them, while paper fare cards have no upfront cost before the fare.

With the new fare increase rides with a paper fare card cost 25 cents more than a Smarttrip. So in less you go on 20 metro rides, it's cheaper to use paper cards. On average though tourist who only use the metro a few times will pay more per trip than a regular native rider.

Even better for DC folks Smarttrip cards will be reduced to 2.50 at the end of August.

Final thought the fare increase is because the metro system is not earning enough money. Since metro has a monopoly on mass transit, this means it could gain even more profit by raising prices even further, but it is not a profit maximizer.

Development Work Isn't Easy Example 762

“Until they repay me,” he said, “I keep their ration card.”

Quoted from a NY Times Article from an Indian money lender who sometimes has ration cards for food assistance to as many as 150 families who owe him money. The money lender uses the card to buy cheap grain with government support then resell it for the regular price, while his borrowers starve.

I'm not sure there is an easy solution or if the ability to borrow against your government assistance is always a bad thing, although in this case it is.

Thanks Dad for the article

Is Canseco Robust?

Jose Canseco was a muscle bound slugging outfielder who currently is the self proclaimed poster boy of steroid use. His recent book Juiced describes how he helped several players access and use steroids throughout his career.

A popular belief is that steroids are the cause of the increase in home runs baseball saw during the late 1990s and early 2000s. If steroids increased home runs and Canseco helped players get steroids then we would expect players who played with Canseco to hit more home runs once he became their teammate. A study by two economists Eric Gould and Todd Kaplan in their analysis of Canseco's teammates found this very result. (see this slate article for a summary)

On reading the paper I felt the results seemed too good to be true. I'm not accusing the authors of faking the data, but I was curious how the results would hold up if they changed a few things that didn't seem typical in the way player performance is typically estimated. It looks like I wasn't alone JC Bradbury examined how the results would hold up if some things in the way the Canseco impact on his teammates' home runs were changed (link). In short Bradbury used only the years Canseco played 1985-2001 instead of all the years Canseco's teammates played 1970-2003. Bradbury made some other changes that I tend to agree with. When he makes these changes, Canseco no longer has a positive impact on his teammates home runs, if anything it's negative.

It's not clear if the Canseco effect via steroids exists or not, but Bradbury's analysis caste doubt on it. I think finding the Canseco effect doesn't exist could be almost as interesting.

The Kaplan and Gould paper was discussed in both slate and Freakonomics. On the one hand it shows economists can get a little too excited about a paper that has not been vetted. On the other hand within a few days or less, a new analysis was posted and our understanding was increased.

Flight Insurance 25 Cents

I was at the Smithsonian Air and Space Museum this weekend and they had an exhibit with an old vending machine that used to be in airports that for one quarter would sell you $7,500 worth of life insurance that would cover you in case your plane crashed (pictured here). A quick calculation shows that for the insurance company to make money planes would have to have fatal crashes in less than 1 in 30,000 cases. This source suggests in the 1960s crash rates were 1.2 out of 100,000 when these machines were popular.

However, this assumes that someone buying insurance will not influence the probability of a fatal crash. In researching these machines, I found the story of United Flight 629, which was bombed by the son of one of the passengers who had purchased extra insurance at the airport for his mother's trip.

So perhaps that's why we don't see these machines much anymore, although I have read they are still around.

Fording the River: Go West and El Norte

As a kid I loved to play the game Oregon Trail. If you haven't played the game before, it simulates migrating from Independence, MO all the way to Oregon in the mid 1800s. The game involved a lot of economics, at the beginning you had a limited budget to purchase your supplies (ox, bullets, spare parts, food, clothes). You also have to decide how to allocate your time (keep going on the trail, hunt, rest). The trail also presented dangerous diseases and river crossings. In short like the families that actually traveled the trail in your game shows you spending almost a whole year and a few thousand dollars making a dangerous trip all in the hopes of a better life.

Although the trip may be shorter, it many ways the economic analysis that most families make in Mexico to travel the trail up to the United States isn't much different. There is an upfront cost in some ways on a similar scale to those on the Oregon trail, there is chance of death or deportation, all in the hopes of higher incomes in a different place.



This post was inspired by the below video, which any Oregon Trail fan will love.

Were You Raised in a Barn?

For those of you who haven't been asked "Were you raised in barn?" it's a popular saying with parents of children who leave doors open. I wonder if some parent is shouting it now at store owners across the US who leave their doors open in the summer to let the breeze of AC entice customers into their stores.

Well one man from Bowie Maryland made a video of several stores at his local mall that left their doors open on a 100 degree day(see the Youtube video below or read this Washington Post Article)

Under most circumstances whenever people consume more of something the price is going to go up, so by fining stores that leave doors open, we might be able to lower electricity prices although the impact is likely to be small.

Another reasons that it might be better for stores to close their doors is that using energy creates pollution as power plants have to burn more coal and natural gas to provide the extra AC. This pollution impacts even people who don't shop at the Bowie mall (we call this an externality) many economists even relatively conservative ones think this is a bad result. For example Greg Mankiw a former economic advisor to Bush has long been a proponent of the Pigou Club, which proposes creating taxes on gas and electricity use to put the cost of the pollution on the user.

I'm agree with the Pigou Club, but I also like shout "Where You Raised in a Barn?". The good news is I can do both.

Finally, I apologize if I offended anyone who was actually raised in a barn, I hope this video will show that I actually think barn folk are great people.