An Economist's Dreidel

Happy first night of Hannukah day fellow economics lovers. If you have enjoyed my previous Hannukah posts like the miracle PPF or the Economics Hannukah Song with musical arrangement by Jodi Beggs here is a little treat for you.

The economist's dreidel.

Like the regular dreidel it has four sides. But instead of the hebrew letters symbolizing the four words a Great Miracle Happened There, we have Consumption, Investment, Government Spending and Net Exports or C, I, G and NX the four parts of GDP.

The rules.

1.At the start of each round each player must put one penny into the pot.
2. If C is spun then like gimmel the player gets to consume all of the pot, except unlike regular dreidel there is a government that takes 10% of all earnings. Start a new round.
3. If I is spun then the player must invest 1 penny in the pot
4. If G is spun then the player gets all the money in the government pot. Unless that player currently has the most pennies in which case the money goes to the poorest player.
5. If NX is spun all players must give the spinner 1 penny.
6. Unlike regular dreidel at the start of each turn the spinner can elect to auction off his or her spin to the highest bidder.

Half Price Books or Full Price Books With Free Shipping

"A wag of the finger to Half Price Books Marketplace. Advertising free shipping for all books on cyber Monday, then marking up the price of the entire stock by the offset amount is not only a poor way to increase activity among the customer base on one's website, but also quite insulting to their intelligence" from a Facebook friend who of course is also getting a PhD in Applied Economics.

He's not the only one with the problem with the store see this discussion.

I think the thing economists often miss is that sometimes people are stupid.
It reminds me of this recent issue with Starbucks charging a $1.50 if you only got 1/2 a pound of beans, but not telling you until the rang you up. The person in this article missed the fact several times he was being charged the $1.50 fee.

I would point the finger at him and call him stupid, but I'm sure that I have missed being over charged from time to time. Interestingly Starbucks was fined for not listing this fee. By making laws that prices must be clearly displayed the government can reduce the cost to the purchaser associated with carefully following prices. I'm not sure it is completely efficient, since enforcing these laws costs money, but I think most people appreciate not having to double check everything is the right price if say you order 3 drinks and 1/2 pound of coffee at Starbucks or get 50 items at the grocery store.

CTT Conditional Turkey Transfers from Marion Barry

I talk plenty about conditional cash transfers, but what about turkey transfers. Marion Barry is giving out turkeys on the condition that recipients go in for health screening (link). Thanksgiving turkey can be seen as an in kind transfer that is instead of cash a good or service. The idea behind the conditions is that it will get people do other things that are good for them like go to health screenings. Like cash transfers this conditional turkey transfer requires health screenings.

There was some push back and now there are no longer conditions. Luckily there aren't drug tests for the givers or recipients.


h/t Dan Rothschild

Why Conditional Cash Transfers?

A lot of my work deals with conditional cash transfer, where payments in many Latin American countries are made to mothers on the condition that children go to school and go in for health checkups. Similarly in Florida now welfare payments are given on the condition that applicants pass a drug test. The analysis link suggested that after the cost is figured in of the drug test, with 96% plus of applicants passing the test the state is saving only $60,000 on a program that costs $178 million, so really it is in the rounding error.

Two things to consider about conditions.

1. Due they cost more to implement than the save? If the program in Latin America is designed to get kids to go to school, would more kids go to school if an unconditional transfer was given to more families than a conditional one is given to fewer? For these programs conditioning can make up 25% of the cost (link)

2. Perhaps conditioning is needed to build political support. Even if it makes the program more expensive and lowers coverage. It is possible people prefer a situation in Florida where welfare covers 100,000 drug free participants to one that covers 125,000 drug free participants and 2,000 drug users for the same cost.

Of course this assume rationality in Florida?

Generation X and Malaise

A couple of facebook friends linked a piece by NPR talking about how the current housing crisis has been impacted Generation X more than their boomer parents. In short since those in their early thirties bought their first house at the height of the boom, they are having a harder time recovering this is consistent with data that shows growing levels of wealth inequality between younger and older people.

Today seems like a good day to talk about the issue, since I sent off the paper work to purchase our first house. My thoughts on my own situation to purchase a house is somewhat independent of the general discussion below, but I know it influences my thoughts.

I have been thinking a lot about the resulting implication of the latest housing bust on my generation. I'm not one much for generalizing about generations, but I'm starting to see a trend emerge and perhaps it is the malaise of late generation x.

Malaise in my understanding is a vague sense of something isn't right. I'm not a student of history enough or was alive to remember the famous Malaise Speech by Jimmy Carter, which interestingly didn't feature the word.

Given the housing bust even those of us who didn't buy during the boom, we know friends that did (they are also the ones to post the article). There is a greater uneasiness of buying a house, which for a long time seemed link a sound investment. I think Megan McArdle summarized well the reasons for buying a house, which assumes "all calculations, mental and otherwise, were based on an assumption of no house price appreciation. " and I used similar assumptions and mental calculus as she did.

This uneasiness could also be reflected in generation x's retirement savings. This article in the Wall Street Journal is typical talking about gen X's movement away from stocks and into more conservative portfolios, which bucks conventional wisdom of take on risk when you are young.

In terms of education. Law school and other masters programs no longer seem like a good bet. When I advice students at Towson, I'm not sure what a good route is these days even for someone willing to work hard and with good skills.

This uneasiness isn't necessarily a bad thing. I have been trying to think more about how to prepare for the next crisis and not the past one. In my own field there could be a potential bust in the higher education sector. If enrollments and state budgets decline, while online courses increase. Could faculty members be like the manufacturing workers of the 60-70s? Clearly faculty have some advantages over the US manufacturing workers in terms protection from competition. To prevent this myself I try to ensure that I have other transferable skills (ie economic evaluation), which I think also complement my teaching. Faculty who don't strive to improve in other ways might fall victims to the next bust and wind up what economists called part of structural unemployment.

A little unease is good. If my generation responds to this by thinking/saving more before it purchases a house, saving more for retirement, and continuing to train, this malaise could turn out a good thing.

Filling Up on the Best Tacos in the DC/Baltimore Corridor

Defeated from a 3 hour wait to get my cruise control fixed at my car dealership and being told I needed to come back in a few days, I realized that R&R Taqueria, better known as Gas Station Tacos, was only minutes away. I had been meaning to go there since Tyler Cowen raved about R&R a few months ago then they were featured in the Wall Street Journal.

Cowen is a big proponent of looking for tasty authentic cuisine in locations where the rent in cheap, and a corner of a gas station seems to fit that description.

R&R is located at 7894 Washington Blvd,Elkridge,MD

Is Using a Free Textbook a Good Idea?

I will no longer be using Greg Mankiw's favorite textbook in my class, which I used myself as a first year college student 13 years ago and have used in every principles class since. I'm switching to Libby Rittenberg and Timothy Tregarthen Principles of Macroeconomics, which is published by Flatworld Knowledge. The main reason for the switch was that the new book is free online* (here is the free textbook). Of course if you want to print it or a paper copy it will cost you, but it will be cheaper than any other Principles text as a new book and close in price to used books.

The other change is I'll no longer be using Aplia, which is an online homework system. I liked a lot of things about it, they made things really easy for the professor. With Aplia and an electronic copy of Mankiw my students paid $80 a semester. I will now be doing home work through blackboard, which loses some of the nice graphing features of Aplia, but is also free. I can also use homework questions from Flatworld that I can import into blackboard.

So the question is with 70 students a semester at $80 each is this switch worth the $5,600 a semester (or about one student's tuition at Towson).

Will the students be better off? With money we could design an experiment where I use different books in my sections, then compare test scores controlling for student characteristics. If either publisher is willing to fund this experiment let me know. We would then have to estimate if the difference in learning if in fact Mankiw/Aplia are better is worth $80 per student, which would be hard.

Instead I think it will take a semester or two to see how students feel about the textbook and judge how they do on the exams, where I write all of the questions. I get no monetary benefit by switching and I have had to spend sometime switching my syllabus and will spend a fair amount of time getting used to the new homework system.

Over the semester I'll be going back to compare my new book to the old one and possibly a couple of other major textbooks.



* Opportunity Costs of free textbook not included.

Strasburg Fever and Prospects Influence on Attendance

Shameless Self Promotion Alert, but here is an article about my work with Tom Rhoads on minor league prospects' influence on attendance. Thanks to Ben Cohen for the great write up.

Professors Using Linkedin Could Lead to Productivity Gains

I have been trying to keep in touch with my former students, so I joined linkedin. My main goal was to find alumni I could put current students seeking jobs with in touch. Finding a job is costly (it takes time) and by developing a network these cost can be reduced. Economic research (like this paper) also suggests that by developing a network the best workers can be matched up to the right job, improving productivity of both the worker and employer. Recently I helped an employer find someone to hire I had worked with both are happy and there appear to be productivity gains on both sides. Plus I get bonus good feeling utility!

So far I think linkedin could work well. I have already found former students working for Congress and in Yemen who I hadn't been in touch with since graduation. So if you are a former student or not here is my linkedin page

One Man's Tale of Deportation and Trillion-Dollar Bills on the Sidewalk

Before you read my post today on immigration, go read Dani Zamora's story of being deported. Dani is still in Mexico and trying to get back to the US. Dani graduated from Grinnell College in 2008 and is currently applying for MFA programs in the US. He is a friend of a friend, but as a Grinnellian, I consider him part of my extended family. Again, read his account. I'm not sure at this point what can be done to support Dani (unless you know a good immigration lawyer), but as I have more info I will pass it on.

Dani is not alone many people throughout the world could see significant improvements in their lives by migrating to richer countries. In a new paper by Michael Clemens in Journal of Economic Perspectives, he cites research showing by lowering barrier to immigration World GDP could increase by trillions of dollars. Compared to reducing trade or capital barriers which are substantially smaller. The paper is well worth a read and is accessible to even those without training in economics.

Bad Signs at the Coffee Shop

i was working on a paper in a new coffee shop that opened blocks from my house. In the hour I was there 4 people came in

1. To sell advertising
2. To sell baked goods
3. To apply for a job, but only to get evidence of doing it for unemployment insurance
4. To ask directions to a different coffee shop.

Cheap Internet for Low Income Families

Comcast is offering $10 a month internet service for low income families. My guess is that the marginal cost of adding one more internet line is close to $10. To verify that families are low income, their children must be enrolled in reduced/free school lunch program. This helps Comcast prevent high income people from enrolling.

Comcast didn't do this out of the kindness of their own heart, instead it was required as part of the governments stipulations for Comcast buying NBC. PC World also has a good rundown of the pros and cons of the merger. To outweigh some of these cons home internet for disadvantage children seems like it could be a public good.

Are Restaurant Websites in Silver Spring Terrible?

Farhad Manjoo in slate yesterday had an article on why restaurant website are so overdone. Typical annoyances include unnecessary flash animations, annoying music and hard to find menus (see this example) or better yet don't click on it.

Manjoo doesn't have any hard data, but he thinks it is due to naive chefs and owners, as well as website builders who can make more by doing complex stuff than just posting the menu, hours, reservation info, and directions. This would be a good question for economists, are people irrational, is information imperfect (chef don't know what makes a good website) or our we missing something.

So how about Silver Spring, my town, how do they stack up on terrible websites. I'm not an expert on food or websites but I think I can review what is terrible or generally good about both. A quick review doesn't show anything too bad.

So here a few from Silver Spring

8407 kitchen bar a place I like to eat out on a date night, the website is a little busy but I was able to find things quickly. I also agree "The lamb Bolognese is legendary"
Jackie's another good date night option, tends to do better appetizer than main dishes. Website looks good and not to hard to find anything. Menu's are in pdf form, but they change enough that I don't find that a big deal.
Ray's The Classic is minimalist with pdf menus. One of the better deals in town is the Hell Burger served in the bar.
Pacci's Pizza makes the best pizza in town, but their website menus lacks prices and could use a little formatting, but I found the phone and menu pretty easily
Thai Derm my takeout standby has pdf menus but info is easy to find

So my quick sampling of places in Silver Spring, doesn't show any website that make me not want to go there. After reviewing a few others, I nominate Mrs K's Tollhouse as the most annoying Silver Spring restaurant website based on the music.

Anyone have examples of worse ones in the DC area?

Cash Transfers in Guatemala

I have written previously about conditional cash transfers that give money to mothers who give their kids to school and go in for health checkups. The programs have worked well in Mexico and Brazil, but what about poorer countries.

Guatemala in 2007 started its own conditional cash transfer program Mi Familia Progresa or my family progresses. This article about the program lists a series of examples of how these programs can fail. From the article we can see three main reasons the program is perceived to be failing

1.) The money isn't getting to the right people as evident by many of the registration documents belong to the same people
2.) Health workers have renamed the program my bar progress for Dads taking the money for drinking, I have heard this other places but the data doesn't generally support increased drinking from cash transfers in Nicaragua based on my own work.
3.) More kids are going to school but school budgets haven't been increased. So the schools can't handle the increased numbers of kids.

Phones and Economic Development in Africa

"The percentage of Africans who could access a mobile phone leapt from only 10% in 1999 to more than 60% by 2008—far outstripping improvements in other infrastructure (roads, clean water, or indeed landline telephones)" from Jenny Aker writing on the Center for Global Development's Blog

As described in the link cell phones can do a lot of great things. People can get updates on the latest prices, order goods faster, and communicate with their safety net in times of trouble. Cell phones are not a substitute for everything. To work well farmers have to have goods to sell or money to buy things. To complement cell phones Aker suggests there also needs to be improvements in education and health infrastructure. Related Aker is also working in Niger to see if phones can help improve literacy. Early evaluations by Aker and coauthors suggest that phones can in fact help people learn to write and improve their math skills.

I also recall using cell phones to deliver health information. So as Aker points out they may not be silver bullets, but her work suggests a lot of promise for phones.

This Post is For You

A loyal reader e-mailed me saying he liked my blog. I'm always a little surprised when someone I've never met finds my writing enjoyable. Of course I shouldn't be as surprised, when it's a fellow home brewer who has lived in many of the same places I have (Ohio, Wisconsin, DC).

Check out his new tublr blog The Homebrewing Triathlete about home brewing, beer, and triathlons.

You will find amusing stories like this about slugs preferences for beer

"The next morning there were two slugs in the Guinness, two in the Moosehead and none in the pan with a blend. Clearly they had no preference for Irish or Canadian brew, or Mexican if I included last week’s Corona. But compared to the number of slugs I found in the Budweiser, this performance was, well, sluggish"

Also amusing aside about the restaurant that chargers for no shows. As my friend Jennie alludes to my wife and I missed brunch with her and friends at a place we had reservations for 6. They didn't really believe Jennie that her friends canceled because they were off to have a baby, well until the other couple walked in saying did Marie, my wife, have the baby.

Finally, for Britt, I miss Beloit's Mexican food. True though outside of that Beloit isn't full of ethnic dinning dreams, but there are quite a few great places for breakfast.


For my other readers, thanks for reading!!

Cheap Credit: Gordon Ramsay Kitchen Nightmares or Tyler Cowen Dinning Dreams

"The Austrian theory of the trade cycle explains why loans are systematically granted to people who will almost certainly not be successful restaurant owners." From a recent Forbes post by Art Carden

The article explains how poor restaurants featured on Gordon Ramsay's show Kitchen Nightmares are an example of misallocated capital due to cheap credit and with cheap credit people with little restaurant knowledge are more likely to open places wasting valuable resources. On the other hand, I wonder if cheap capital leads to what I would call Cowen dinning dreams, after Tyler Cowen the economist who touts the virtues of small ethnic restaurants. My guess is with out cheaper credit, I wouldn't have excellent Burmese, Vietnamese, and Thai places within a couple of blocks. There would likely be more chain restaurants, backed by companies who are wealthy enough to take on loans with higher interest rates and have the collateral to get lower interest rates.

I'm not the right economist to debate the Austrian business cycle, but with increasing information on where to find the best food, cheap credit would seem to lead to a tasty end (or two if you find a good place for Austrian sausage).

Bus Depot at Union Station

Union Station in DC is building a new bus terminal for the numerous buses specializing in short trips between major east coast cities.

I have only taken a bus to New York, one time. I agree with the post article that one of the biggest advantages of a terminal is it will avoid the confusion and congestion caused by having buses pick up passengers on the street. The confusing part is that buses have to change pickup locations from time to time, when I took my trip the Megabus website said the boarding location had recently moved.

Of course nothing is free, the depot will add a 75 cent surcharge to each ticket. Each company will also pay $30,000 per bus parking area. To me it seems worth it to have easier access to metro and the services at Union Station.

I had read but can't find it that some of the smaller bus companies might not move to the station because of the high fixed cost of a parking space.

I'm often skeptical of projects that help a particular business, but overall this one seems to pay for itself and provide some extra benefits.

What the World Bank Thinks About Fertilizer Subsidies

Last week at the American Agricultural Economics Association meetings I attended a panel on Malawi's fertilizer subsidy program. The program has been touted as a success by the NY Times a few years ago, but the Economist pointed out that the subsidized fertilizer was putting fertilizer sellers out of business.

The World Bank also has an FAQ on the program saying "In combination with favorable rains, this program has contributed to sharp increases in maize harvests in 2006 and 2007. During the most recent harvest, the country produced an estimated 3.4 million metric tons (a surplus of 1.2 million metric tons above national requirements). This has allowed Malawi to start exporting 400,000 t of grain to Zimbabwe and 80,000 t to Swaziland and Lesotho."

My biggest take away from the session was the program was really expensive, taking up 8-12% of Malawi's total government budget a year. I wonder if this is the best use of the funds. As one person at the session pointed out though, they thought this program was more about getting votes than doing what is best for development. It is important to remember development policy also needs to be approved, so sometimes second best is the only options.

More dispatches from the AAEA on chickens from my Towson colleague James Manley

Lessons from the Agricultural Economics Meetings

I just returned from the Agricultural and Applied Economics Association meetings in Pittsburgh.

One session I attended was on crop insurance, while this may not sound exciting insurance is a key part of international development. The basic conceptual theory is that poor farmers have two choices, they can grow a low yield and low risk crop or grow a higher yield high risk crop. Extremely poor farmers often don't take the risk of high yield crops, because one bad season can be a matter of life and death. Crop insurance could be offered to cover bad harvests. The difficulty is that insurance has to prevent moral hazard (if you have insurance why work hard on your harvest) so insurance is often tied to things out of the farmers control like rainfall or average harvest of many farmers.

One cited paper at the session by Gine and Yang tested if farmers in Malwai would buy insurance when offered as part of loans. They found that making insurance a requirement of getting a loan, made people less likely to borrow. From the abstract

"There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual's default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics."

I think the take away from the session is that insurance could potentially help but thus far it has been hard to find a way to get farmers to buy into it. The work in the session and above suggests making contingent loans might be the way to go.

Charging for No Shows

Nojo a Japanese restaurant in San Francisco has a policy that if someone in your party doesn't show up $25 is added to your bill. (from Inside Scoop SF)

In response to questions about the charge the owner shows how the policy was the result of perverse incentives when the restaurant would only take reservations for 6

“We started off where we didn’t charge, and people were making reservations for six and only four showed up,” he said. He added that in several cases the diners originally asked for a reservation for four and when they were told only reservations for larger parties were accepted they quickly upped their numbers. In more than one case, only four people showed up. By trying to scam the system, it often meant that seats went unfilled."

Some diners who had to pay the charge responded
"The food was great and I’d gladly go back had I not seen this side of the restaurant. As a party of 5 we were all left with a (pardon the pun) bad taste in our mouth. We amount to 5 Yelp reviews that could have negative consequences for them in some way and I’d think they’d value the business a bit more since they’re the new kid on the block."

So what damage could those 5 reviews do. A recent paper suggests that 1 yelp star is worth about 9% of revenues. I found a nice summary of the paper at a fine theorem.

With 88 reviews and a current average of 3.5, my rough estimate is that 5 1-stars reviews could at most bring down the average rating 1/2 a star (since the average is rounded to the nearest half). So potentially 5 negative reviews could cut around 5% of revenues.

Checking Yelp, shows only 1 reviewer that complained .

So it looks like Nojo may still see economic benefits to keeping the policy.

Silver Spring Econ: Fenton Street Market

The Fenton Street Market is a weekly craft fair held in downtown Silver Spring in the plaza in front of the civic building. Until recently the Fenton Street Market paid the county $50 for use of the space. Now the county wants to increase the rent to $1,200 a week. With 60 vendors at the market each week this works out to be $20 per vendor per week increase. However, this price increase may lead to the closing of the market as an online petition suggests with this price increase the market will close.

I'm not the first to do the math. In response to this the Fenton Street Market Blog says "Most aggravating to me, I’m being asked by some who have done the basic math on our business–60 vendors a week x $40 a booth space x 30 weeks a year–why we can’t afford $35,000 or more a year in rent. What about insurance, advertising, a website, signage, staff, taxes, credit card fees? What about the things that make the Fenton Street Market special: local artists playing music, nonprofits exhibiting, the model trains and other kid-friendly activities, the Community Roundtable discussions?"

I'm not sure where I fall on the issue as an economist and Silver Spring local. I haven't bought much at the market maybe a book or two, but it is nice to have there to walk around. To help clarify I wonder.

Have the vendors been surveyed, to see if they would pay $20 more a week for both space?

How much more could Fenton Street Market pay and still stay open?

Finally, Fenton Street Market also put out an economic impact report. These type of reports are outside of my specialty of economics, but I do have a couple of comments.

The receipts for the market are estimated at 1.5 million dollars a year, based on $50,000 in sales on the date of the survey. Was the day of the survey typical for sales, the study notes the survey was taken on June 25th a sunny day. Would we expect lower sales on rainy days in April or higher sales for other days?

Second the estimated impact includes people shopping at local businesses when they go to the market. The survey of 129 shoppers found 41% said the market was their primary reason for going to downtown Silver Spring. How did the study control for people who would have shopped downtown even without the market?

Finally, how representative where the 129 people surveyed?

These are all questions I ask myself before I can say how much the Fenton Street market should pay.

Overall though, I enjoy having the market there and hope it stays.

Marlins Close the Upper Deck, Could This Increase Attendance

The Florida Marlins are closing the upper deck to their stadium, which will get rid of a large number of cheap seats. The Oakland A's did this a few years ago too. Yet even when the A's have games where the stadium is sold out they don't open backup the upper deck (example the mid June series with the Giants).

I have been thinking about the issue of stadium size and attendance recently for a paper I'm working on. By making a smaller stadium, the Marlin and A's lower costs. They also get rid of cheaper tickets, so although they may sell fewer tickets they may make more money if some people buy more expensive seats.


A potentially related paper from Nobel prize winner Gary Becker, written in 1991 in the Journal of Political Economy. He proposed that some restaurants might not raise prices even when they are full and have long lines. The basic theory is that the demand for a good may be tied to the perceived popularity.

I haven't fully made the connection between Becker and the closing of upper decks, since the Marlins aren't like the popular seafood restaurant in Palo Alto Becker describes with lines out the door. However, the enjoyment of going to a game may be linked to how full the stadium is and how the team is perceived to be just like how I perceive a restaurant might be related to how crowded it is.



h/t to the International Journal of Sports Finance

Netflix price discimination

Undoubtedly Netflix was losing money on its unlimited DVD by mail deal, selling the package below market costs to grow the company's customer base.

from the International Business Times

Netflix announced it was raising its prices for receiving DVD and using the streaming service by 60%. What Netflix appears to be doing (based on their blog) is trying to further price discriminate against those who want streaming movies and those who want mailed DVD. They have created a new DVD only plan, so they can further separate people with different preferences for DVDs or streaming movies. It was likely at first important to build customers so people can identify which type of person they are, I would have thought I would go more streaming, but my wife and I watch mostly DVDs due to the selection.

I'm also guessing that many Netflix customers myself included pay little attention to their bill. It's likely that many people won't change their plan, but by offering a low cost option for either streaming or DVDs they can maintain the thrifty people.

Hopefully, I'll remember to change my plan.

Where Will The Immigrants Come From if Not Mexico

In short, US immigrants will be more African and much less Hispanic 15 or 20 years for now.

Hatton and Williamson (2011)

The linked article that appeared in the journal World Development cites that currently in the US 41% of immigrants are from Latin America and the Caribbean and 6% from sub-Saharan Africa. Countries with more children and lower economic growths rates in the past have seen higher rates of immigration. Since Latin America has lower birth rates and higher income growth than sub-Saharan Africa they predict that African immigration will increase faster. Their model predicts sub-Saharan African immigrants will make up 15% of US immigrants in 20 years, while Latin America/Caribbean will drop to 33%, the rest of the world will stay about the same.

Silver Spring Econ: In the Long Run Pier 1 is Dead

Pier 1 in dowtown Silver Spring is closing (see Silver Spring Singular). One of the many signs advertising going out of business sales says "Lost our Lease". My econ intuition says this is a textbook case of when a business might decide to shut down.

In econ 101, we call a lease on the building a fixed cost, since Pier 1 will have to pay the rent until the end of the lease regardless if it is open or closed.

So supposed not including the lease that Silver Spring Pier 1 makes $10,000 a month in profit. It would continue to stay open.

If the lease costs $15,000 a month, then the store is losing $5,000 a month (15-10 =5). However, losing 5,000 a month is better than having an empty store and losing $10,000 a month to pay the rent.

So my guess is that Pier 1 lost its lease because they chose not renew it. Pier 1 likely stayed open for a while (economists call this the short run) even though it was losing money since it had fixed costs. In the long run Pier 1 decided to close since it couldn't make a profit after fixed costs (so in the long run it would shut down).

Trends in Mexican Migration

Mr. Massey said, referring to illegal traffic. “For the first time in 60 years, the net traffic has gone to zero and is probably a little bit negative."

from the NY Times


You have a number of contributing factors, increased border security, which has raised the cost of an illegal crossing from the US to Mexico from a few hundred to a few thousand dollars. The US economy doesn't have as much demand for Mexican labor particularly in construction. The drug wars make crossing even more dangerous. Opportunities for education and income are much higher in Mexico than they were 15-20 years ago. The linked article is a good read, and covers the main topics.

Also worth pointing out is that earlier research by Massey showed that in the late 1990s almost half of migrants returned to Mexico in two years. In short many Mexicans came to the US for only a short time with plans to return. One of my papers found that these Mexicans once they returned were about as good at finding jobs as those who had never left Mexico, so leaving doesn't seem to hurt people too much (see here)

How Working Papers Work or Don't in Economics

Before economists publish papers they often write a working paper. The paper is a rough draft that hasn't usually been through a formal review process although some more prestigious working paper series do review papers (NBER for example). In economics since it can take anywhere from one to many years to get a paper published once it is submitted, economists use their working paper to get their research distributed.

Berk Ozer from the World Bank suggests that economists might be releasing working papers too soon in this blog post, making a bad first impression. From the comments of the post and the post overall, I wonder if the profession wouldn't be well served by a better working paper site. On the site people could post feedback on papers, economists could post updated papers, and write notes about the paper. People could follow a paper and find out when it was published. As an added bonus the system could create and update bibliographies.

Of course this would be a public good, but maybe it is something that one of the working paper websites like SSRN or IDEAS could take on.

In the mean time, I will continue to post my working papers as part of Towson's working paper series. I also keep meaning to blog more about actual published articles, as the Ozer posts suggests blogs are often too quick to jump on interesting working paper results, before the papers have been vetted.

Game Over! Video Game Company Lets You Play One Time

Capcom's new video game "Resident Evil: The Mercenaries 3D" will only allow one saved game and the game cannot be reset. I haven't played many video games since the days of Mario 3 so apologies if I get things wrong. In short this is a problem, because it hurts the resale value of the game. Some larger outlets of rented and second hand games are not making Resident evil available. Articles like this one in Wire complain that not being able to trade, rent, or lend the game decrease the value to the original buyer.

The author in Wire won't buy the game, but as he also points out the game even with the potential resell might not be worth the $40 price tag. If Capcom lowered the price sufficiently to compensate for the loss of the value of holding the right to the game, my guess is people would buy it. It would seem that would be the case. If you rent a game or buy a pay preview movie you do not own the right to resell it.

My colleague at Towson claims students would rather have a tradition book they can resell, than an e-book they can't, since Mom & Dad usually pay for books, but the students keep the cash from selling their book.

President of Argentina Discounted TVs for All

Cristina Kirchner, President of Argentina, has just announced a new program that will provide subsidized TVs for Argentinians (via Kids Prefer Cheese). It may shock you that this was announced as she is beginning her reelection campaign.

One good benefit is that TVs tend to reduce population growth, too bad retirees will be the first to receive the TV. Of course Kirchner is probably thinking more the handouts will help her get votes. This has worked in several Latin American Countries as popular Conditional Cash Transfer programs that pay money to mothers to send their kids to school and go in for health check ups have helped incumbents grow their support in Brazil and Mexico.

Immigrants doing jobs that wouldn't get done?

I just got back from teaching a 3 week class in Spain. As part of the class we had a guest lecture on immigration to Spain. The change in immigration in Spain is incredible. 20 years ago less than 1% of Spain was foreign born now that figure is close to 15% (similar to the US). Like the US many immigrants came to work in Spain in construction, agriculture, and domestic services.

In Spain there seems to be much less blame on immigrants for negative impacts on the economy. According to our speaker the Spanish were more likely to believe immigrants were doing jobs that Spaniards wouldn't do, well that and a good social safety net.

In general I had thought, the doing jobs natives weren't willing to do isn't quite the right way to put it. That immigrants were working at wages that Spaniards (Americas) would not want to work at. However, it may also be that immigrants are doing jobs that have such low returns that no Spaniard would work for amount of income the job creates. In short imagine picking cotton creates $4 an hour worth of income, if no American/Spaniard is willing to work for $4 an hour than no one will pick cotton. Adam Ozimek demonstrates this nicely in a post with a discussion of farmers in Georgia leaving crops to rot since they can't get immigrant labor.

Of course the second part is that cotton prices will rise and so will wages, but if there are substitutes from other countries or machines can be used the potential wage may never exceed the minimum wage native workers will accept.

It's Hagerstown not Harperstown

Bryce Harper last year's number 1 draft pick in major league baseball is playing well for his minor league team the Hagerstown Suns. However, Hagerstown hasn't filled the Suns park every night to see the future star. Comparing attendance up until this point to previous attendance through June for the last five years shows the team's attendance has jumped maybe 200-300 fans a game, when overall attendance is around a couple thousand. The total impact on attendance may also be reduced if fewer fans go to Suns games this season once Harper is promoted and leaves Hagerstown.

This result is consistent with a paper (Top Prospects and Minor League Attendance) my Towson colleague Tom Rhoads and I published in this month's Journal of Sports Economics, where we find over the last 15 years even the top prospects only increase attendance by a small amount for minor league teams.

See more thoughts on the subject Camden Depot and some other baseball studies.

The Plane Waited For You, But What do I Get

Just got back from Madison last night, great conferences which I will describe later this week. So a traveling story. About how to go from the bad guy to the good guy.

Part 1: Flight from Madison to Detroit is delayed 2 hours. Lands in Detroit just as our plane to DC is supposed to leave. We arrive and find the flight is being delayed (I think so we and some other can get on) we have 10 minutes to get from Gate 77 to 33.

Part 2: Mixed strategy. Marie and Sylvia take the tram, I take the stroller. I figure it will take more time to get the stroller up and down the elevator to the tram, plus I can run with the stroller. I also figure if Marie and Sylvia arrive, they'll hold the plane an extra minute or two for a Dad (or at least his cute baby).

Part 3: Make it to the plane and board!!! While we were boarding, a woman who was sitting in our seat is clearly aggitated that the plane was held 15 minutes for those of us with tight connection.

Part 4: She exclaims they held the plane for you, but what are they going to do for me (well after saying she just wanted to f-ing get to DC).

Part 5: I instinctively offer to buy her a beer. Since, I'm in a good mood, just made a connection I was sure to miss and Sylvia is asleep.

Part 6: She refuses the beer and grumbles. I say seriously let me buy you a drink.

Part 7: Nice lady behind angry lady who only wants to f-ing get to DC, rolls her eyes at angry lady. Now I'm the nice guy with the baby and she is the angry lady.

Part 8: Angry lady buys her own beer and looks mad the whole flight we arrive to the gate 2 minutes late.

Part 9: I win!

The Invisible Hand That Created the $1,500 Stroller

Slate has an article on the Bugaboo the $1,500 stroller. Many people probably think $1,500 is too much for a stroller. I do not own a $1,500 stroller (I think ours was $200), but it does not surprise me based on four reasons.

First as income goes up people spend more on somethings. People like to spend money on their children, so we should expect over time as incomes increase the demand for upscale stroller to increase.

Second, I'm pretty sure there is a growing number of urban/wealthy parents who also spend a lot of time with their kid. For people like me, I walk my daughter Sylvia in a stroller to the grocery store, park, and other places at least twice a week. We have a car, but many parents substitute high quality strollers for cars in urban areas. Where I live it is faster for me to walk with a stroller to either grocery store within 1/2 mile of my house than it is to drive and load/unload the car.

Third, sometimes for luxury products higher price is taken (mistaken) as a signal for quality. In that case some products (college tuition, sports cars, cologne, and wine) people buy more when the price goes up and this violate the law of demand which is as price goes up people buy less.

Four, what else our the babies on Etrade going to do with their money.

Bryce Haper's Debut, Prospects Have Small Influence on Attendance

Bryce Harper will be making his pro debut in Rome Georgia tonight. Harper was the #1 pick in the MLB draft last year, but is starting the year playing for Hagerstown instead of Washington. I'm guessing a lot of people who go to games have not heard of Bryce Harper. Drafted players in MLB have a much smaller chance of making or staring in the majors than NFL or NBA players.

Recently my colleague Tom Rhoads and I did a study showing that having a top prospect on your minor league team had only small influence on attendance (at most a few % increase). The paper will come out in this June's Journal of Sports Economics, I'll link it then.

Who Has The Property Right

Earlier this year, the Loudoun County reader and her husband dined at a “very busy” Palio Ristorante Italiano in Leesburg, where she says they were seated promptly for their 6:30 reservation. “We had a cocktail, lovely meal and coffee,” after which “the waiter came to the table and asked us to leave, as he needed the table for another reservation. It was 8:45 p.m. To say we were astonished is an understatement. We made no fuss and left. We did not see anyone waiting to take the table.”

From Restaurant Critic Tom Sietsema's Column

Well of course the restaurant has the property right to ask someone to leave. But it comes with a cost, of upsetting customers. I have heard some restaurants well tell people up front how long they can have the table for. Seems to be a good solution. This is a case where norms (i.e. typical behavior) matter.

The story has an interesting ending too.

Most restaurateurs are loath to ask seated customers to free up their tables. “It’s not my style,” says Antonio Pino, the co-owner of Palio. He says the server in question is no longer employed there.

Dining Under The Table in Silver Spring

If you are the type of person who would think about going to an underground restaurant then you will like Dining Under the Table.
-From a review of an underground restaurant in Silver Spring

In economics we often make an assumption that everyone has the same preferences, let's just say we can assume the reviewer and me along with my wife and the reviewer's wife have similar preferences.

Underground restaurants avoid some of the fixed costs of being a restaurant. The benefit is that they can have smaller number of diners (for example under the Table has 6). It can also allow people to cook and experience the pleasure of serving good food to people, without fully investing in a restaurant.

There are draw backs of underground restaurants too, but the reviewer's description of the meal sounds too good to worry about that for the moment.

Postdoctoral Fellowship in Renewable Energy

"We're looking to combine deep scientific thinking with a young person's perspective," says Marie Mapes, a physical chemist who is overseeing the new fellowship program along with her regular duties in EERE's Solar Energy Technologies Program. "And we thought postdocs would be the best way to do it."
-From an interview in Science Magazine

The new postdoctoral program described in the article, that Marie (my wife) is working with, will fund researchers to not only work with top scientists, but also encourage them to spend 20% of their time working on their own projects. The 20% idea comes from the tech industry, which has had some of the biggest growth of any industry.

I also think the postdoctoral program is a good idea based on research I was working on as an RA on in graduate school. In general the research found that post-docs were one of the best ways to improve university production of patents (a sign for technological progress).

Shortage of dogfish beer, why not raise prices

"Every market that we have has had more demand than we can support,"
from The Dogfish Head Brewery's vice president, Mariah Calagione.

Dogfish Head is one of the top microbrews in the nation and with Sam Calagione, the brewer and founder of the company, gaining national fame through a TV show and nomination for a James Beard Award, Dogfish is having trouble keeping its beer in stock. They have taken the step of eliminating distribution in four states Tennessee, Indiana, Rhode Island and Wisconsin, because as the quote above notes they can't keep up with the demand. The brewery has expanded production increasing in size 4 times it output from 2006.

Here's an article describing what Dogfish head is up to. Basic economic theory would tell us when a sellers sees that there is excess demand for their good they should raise prices. There is no mention of raising prices in the article. I think we can conclude one of two things, and I think 2 is more likely

1. They are actually raising prices, they just don't want to mention it in the article.
2. They aren't profit maximizers. If you have read or seen anything about Sam Calagion you know he seems much more motivated by making awesome beer than maximizing profit. As he points out in the article they could make more money by only selling their 60 minute IPA (and a fine beer it is).

Of course #2 is good for drinkers who can still find Dogfish Head at their local stores, but bad for those in the four state who can no longer but dogfish head locally (well except Wisconsin, they'll be fine plenty of good beer there).

Finally, the good news is you can always make your own Dogfish Head beer at home. I made the 60 minute once, turned out well.

Your Food is Half Price if You Eat Next to the Bathroom

Alexander’s Steakhouse has embraced its terrible table, located between the two bathrooms, in a rather novel way. For diners who opt to sit there, sense of humor in hand (and presumably sans a super sense of smell), Alexander’s will take 50% off the entire bill — both food and beverage.

From SFGate


The deal is mentioned on their facebook page, although it wasn't obvious from their website. In Europe and a few US restaurants it is common to pay less to eat at the bar (actually our campus sports bar has bar only specials). I like that this restaurant has taken it to the extreme.

It is a good gimic that could be copied elsewhere. I wonder what type of restaraunt this is best for. If a place is too fancy it might take away from the ambience, if it is too cheap the marginal benefit of a nice table isn't much. A steak house seems like just the right place. In Silver Spring this wouldn't work because the $7 burger at Rays is already too good a deal.

No BLTs at Silver Spring Potbelly

The downtown Silver Spring Potbelly (a sandwich fast food place) had a sign that said due to cold weather there weren't enough tomatoes, so for a temporary time sandwiches would come without them.

Not surprisingly since this is not the time of year to buy Maryland tomatoes, this is happening throughout the country.

Potbelly Sandwich Works in downtown Fort Worth put up a sign saying it was not packing subs with tomato slices because of the situation. Sysco, a major food service distributor, told its wholesale customers that produce suppliers have broken contracts, using a weather-related "act of God" clause, according to its Internet posting.

-From this article

Wendy's is using a different trick, which is not putting on tomatoes unless people ask (link)

An economic analysis would suggest that it is not that there aren't enough tomatoes, it's that they have gotten too expensive to give away free on a sandwich. Potbelly could add a tomato charge, but the hassle of figuring out the pricing and customer push back might not be worth the extra bit of revenue.

Plus, given the quality of tomatoes the above sandwiches use, I don't think we are missing much.