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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