Monday, February 28, 2011

Spousonomics Using Basic Economic Concepts to Improve Your Marriage

Everyone always asks how you got together but no one asks how you stay together

A friend posted the above recently, right as I was finally reading Spousonomics , which asks how couples stay together through the use of economics. I'm about 3/4 of the way through the book, but I like what I have read so far. I'll try to do a more indepth review later.
Of course the authors certainly got on the right foot with me by asking me my opinion about economics and love, which earned me major bonus point with my wife. (see the post here)

The first chapter has made me think the most. It deals with how to use comparative advantage to improve your marriage. In short Econ 101 theory would say who ever can do the dishes faster relative to cleaning the house should do dishes, and the other person should clean the house. The book uses three couples in each chapter to demonstrate a concept. The first couple we meet splits every task 50/50 doing half the cooking, cleaning, dog walking, ect. The authors show that the couple became much better off once they decided to let each other specialize.

But the next two couples look deeper into comparative advantage. With Econ 101 we can't figure who will do how much. There is no way to determine what trade will happen although we can figure out a set of potential trades. For example the couple that used to do 3 nights of dishes and 3 nights of house cleaning each. May decided one member does any number of combinations, the potential list of fair trade is anyone where a member doesn't do more of both tasks.

From here though Spousonomics shows Econ 101 breaks down. How unpleasant the chores are isn't taken into account in a basic analysis to figure out who will do chores just based on how long it takes. (See their discussion here)
The rest of the book goes on to discuss imperfect information, moral hazards, and principle agent issues. These are all situations which typically lead to market failure.

I think that is the overall point of the book. When things go well in marriage the invisible hand of the household market for a spousal exchange (ie chores and attention) is functioning well so no need to worry. However, like markets marriages run into problems. When this is the case the partners need to work together to find ways to change the incentives and market structure to improve marriage.

I would recommend you read Spousonomics. If you are an economist you will know the concepts, but learn a lot about how people might apply them to marriage. If you aren't an economist you can get yourself a new tool kit to help improve your marriage.

Plus the authors (from the Times and Journal) have a huge absolute and comparative advantage over economists in humorous writing.

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Friday, February 25, 2011

Friday Food News

In Minnesota Chipotle has fired over 400 workers due to their workers inability to prove their legal status it sounds like DC and Virginia Chipotle audits are starting too. No word on if the have come to Silver Spring.

From an economics point of view. If the workers are immigrants be they legal or illegal they likely do hurt job opportunities for native born workers, particularly those without higher education. On the other hand with immigrants we get cheaper burritos, plus you could debate if the immigrants bring knowledge which improves the food (this argument is much easier to make at a non-fast food or chain place). As a burrito eater my thought is whatever it is that Chipotle does it should be legal because no chain impresses me more with their efficiency.

Unrelated, but since I'm doing something on food news. Guinness sales in Ireland are down with the recent economic crisis there. Typically beer consumption goes up during recessions, but Guinness may suffer because it is better on draft than in a bottle or can and during recessions people are more likely to drink at home.

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Thursday, February 24, 2011

Entrepreneurship at College Grinnell Needs a Dilbert

I wanted to look at something else besides cupcakes, coffee, and condoms from yesterday's post. Bob's the coffee shop at Grinnell is student managed and as long as I can recall has had financial difficulty. From the article it sounds like things haven't changed much. “Bob’s is 12,000 bucks in debt and basically every semester Grinnell talks about shutting us down, but they basically forgive the debt,”

Contrast this with Dilbert creator, Scott Adams's college experience, described here . It sounds like he turned businesses at his school to profitability. But it is worth noting before he started there was no system of accounting at his school's business.

Perhaps students should start with smaller businesses. Like selling pizza cupcakes. I'm not sure as Adam's suggests every B student would benefit from learning about entrepreneurship, but there is something about the experience that I think students learn a lot from that they can use in their own future employment.

It is also worth thinking about the potential positive externalities to the college like Grinnell from having a coffee shop. I know Bob's was one of the things that attracted me to Grinnell.
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Wednesday, February 23, 2011

Cupcake, Coffee and a Condom for $4

Bob's the coffee shop at Grinnell College has a new offer a cupcake, coffee and a condom for $4. Sometimes goods are bundled so that people will buy more. For example suppose half of people at Grinnell will pay $2 for a cupcake and $1 for coffee and the other half will pay $1 for a cupcake and $2 for a coffee. If Bob's sells coffee or cupcakes for $2 a piece it will only sell each to half the students. If it bundles a coffee and a cupcake in a single value meal for $3 then everyone will buy it.

Now back to offering condoms as part of a bundle. Freakonomics has talked about a store that offers free condoms to anyone buying diapers. I also remember in the late 80s or early 90s a brand of hats that included a condom tucked in a pocket.

Now the problem at Grinnell is that we all learned in first orientation that condoms are free at the health center. However, Bob's is open hours the health center is not so willingness to pay goes up. If I recall though there are condom vending machines in the laundry rooms, so there is competition.

Of course the best part of crazy bundles is the press you get. Although I'm not if my post will increase sales at Bob's.

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Tuesday, February 22, 2011

Pizza Production Possibilities Frontier in Madison

The protest against changes in union bargaining rules in Wisconsin are getting a lot of press. Since, the issue is complex and I don't have a lot of time today. I thought I would instead focus on Ian's Pizza. Ian's is the closest pizza place to the capital where the protests are going down and people from around the country and globe are calling in orders to feed the masses of protesters. In fact the orders have gotten so numerous that Ian's has closed to the public and is now exclusively making pizzas for those camped out at the capital (link).

From their Facebook page it looks like Ian's it at its pizza production frontier. They said they have not set up a Paypal account and are only taking orders one at a time so they don't get more orders than they can fill.

It's also a good example of comparative advantage, and trust me Ian has a comparative advantage in making pizza. Next time you are in Madison grab a slice, I recommend the Mac & Cheese pizza or Buffalo Chicken.

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Monday, February 21, 2011

Full Service Includes Birth Place of a President

In honor of Presidents Day, I thought I would put up a post on Rutherford B. Hayes, the 19th President. Hayes and I were born in the same town Delaware, Ohio. As the above Daily Show video shows his birth place, is not exactly a historical museum, but the plaque out front is pretty nice. Growing up I often dreamed I would become President. Of course my childhood bedroom would become a museum with a velvet rope.
I can't find much info on why the Hayes birth place was demolished, but it looks like it happen in 1926 and confirms the story I heard in school that it was during the depression and the building owners needed money.

I guess it would be nicer in general if the house Hayes was born in was still standing. Previously I had written about valuing monuments, but my guess is few tourists would visit Hayes's memorial. So perhaps tearing it down was the best economic decision. Although if you do come to Delaware, I recommend you go around the corner for a milkshake at the Hamburger Inn.

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Thursday, February 17, 2011

Colleges Violate the Law of Demand

Yet the same strategy proved disastrous for North Carolina Wesleyan College. Ten years ago that college cut tuition and fees by 22 percent, to $7,150. But it attracted fewer wealthy applicants and more poor ones, who needed more aid even as the revenue generated from tuition declined.

“It didn’t work out the way it had been hoped,” said Ian David Campbell Newbould, the college’s president. “People don’t want cheap.”

The law of demand in short as prices go down people want more. For some reason that might not always be true with colleges. I remember when Muskighum College in Ohio cut tuition by about 1/3 and I thought I recall hearing it didn't go so well. The above quote is from a 4 year old New York Times article shows it didn't go well for NC Wesleyan, although suggests Muskighum did OK.

Recently Sewanee College agreed to cut their tuition by 10% as described by this Times article.

I think times are different. Small liberal arts schools are fighting economic trends that would lead people to state schools (even though I'm economist I won't call state schools an inferior good).

I also wonder as a generation of parents who had sizable student loans comes of age, if the willingness to borrow of their children will fall. This assume children actually listen to their parents.

Still 4 years of Towson is about the price of one year 1 year of Sewanee College
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Wednesday, February 16, 2011

How to save on menu costs and Michigan's sticker law

If prices change through inflation then businesses like gas stations and super markets have to change the signs or stickers where prices are shown. This cost of hiring someone to change the billboard or put stickers on peas is called menu costs. My friend Dan e-mailed me the above picture, which I love. The shell station saves the menu costs of having to change the sign regularly. A really complex game theory type game could be developed based on that sign.

In times of high inflation menu costs can really start to add up. A friend from Argentina told me a story of times of high inflation in the 1980s in Argentina where price stickers were changed three times a day based on the current prices. This would be even crazier in Michigan where apparently every item at a store must have a sticker. This Wall Street Journal article describes how difficult it is to keep stickers on things like frozen peas. The article also sites a study by a retailers lobby that says repealing the sticker law would save over 2 billion dollars. One retailer calls that "estimate" stupid, but does point out it takes 80 labor hours a week to put stickers on everything.

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Monday, February 14, 2011

Steelers and World Vision Beat Zambia in Super Bowl

Before each Super Bowl or other major sporting event 2 sets of 100,000 of World Champion t-shirts and hats are printed for each team. The winning team's merchandise (the year the Packers!) gets sold to Cheese Heads, while the losing teams merchandise are denoted to World Visions. World Vision then gives out free t-shirt in countries like Zambia, Armenia, Nicaragua, and Romania.

What could be so bad about free t-shirts? In the US at a game fans will cheer widely and jump in the air for a single free t-shirt. The blog Good Intentions are Not Enough has a run down of why the free t-shirts are so bad.

In short it hurts local clothing seller (since you can't compete with free), the merchandise company may get a big tax write off even though the t-shirts are nearly worthless, and World Vision gets to add the t-shirts to it's funds distributed helping it's overhead ratio.

I generally agree with the blog post. I'm not 100% sure free shirts couldn't offset the purchase of other clothing and help the poorest of the poor (if that is who gets the t-shirts). I do think selling the losing t-shirts in the US as a collectors items and using that money to help aid organizations or give it directly to the poor would help more. Although a link in the blog post suggests the demand for losing shirts isn't that much.
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Thursday, February 10, 2011

Historical price of a dozen roses?

A lot podcasts I listen to have adds for companies selling roses for Valentine's day. The host often commnets how much cheaper roses have gotten over the years. I tried and tried but can't find historical prices for a dozen roses, but my guess is that roses prices have fallen in real terms (adjusting for inflation) because of imports from Colombia and Ecuador. The Hertiage Foundation reports that Americans saved 16million dollars last year from reduced tariffs on Colombian roses.

Of course some are worried about labor conditions in other countries, so now you can even get Fair Trade roses.

If anyone has data on historical rose prices I would be curious.

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Wednesday, February 9, 2011

How to tell if someone is poor or will sleep with you on the first date?

In this case I'm thinking of two very different situations. First, international development program often want to target funds to those most in need so they need some way to indentify who should receive aid. A program could just ask people their income, but then there would an incentive to lie in order to meet the criteria to receive funds. Instead programs like conditional cash transfers often use a proxy means test. In a proxy means test program staff visit a house and see if it has indoor plumbing, a cement floor, a TV, a car ect. to see if the family actually needs the money. It doesn't work perfectly to figure out who needs the money perhaps a family was once relatively well off and had plumbing and a cement floor, but was now starving. If done right proxy means testing is pretty close and harder to fake how well off you are.

So totally unrelated, except for the fact that this is also a discussion of related things. But OK Cupid (a dating website), uses their data to see what answers to questions correlate well with others. When asking a potential mate if they like beer, they find "No matter their gender or orientation, beer-lovers are 60% more likely to be okay with sleeping with someone they've just met"

This could be a valuable question, because no one would mind being asked if they liked beer, but asking about sleeping with someone on the first date probably sends a bad signal and you might not get a truthful answer. On the other hand if everyone discovers the signal, then people may lie about their preferences in order to avoid sending the wrong signal.

Read more from OK Cupid here.

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Tuesday, February 8, 2011

Welcome Greg Mankiw Blog Readers

In part I was inspired to write this blog, by Mankiw so I hope you enjoy such posts serious posts as (Will Mexican and Brazilian Programs Work Elsewhere) and (How to Help Mexican Coffee Farmers).

If you still feel a holiday spirit try the Economics of Festivus or get ready for Passover

I hope you consider subscribing to my google feed or joining my Facebook group.

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Monday, February 7, 2011

Why Greg Mankiw shovels snow off of his roof?

Greg Mankiw is the author of one of the leading intro to econ text books, and like any intro to econ book he discussed comparative advantage. In short comparative advantage shows you can be better off if you do what you're best at. So instead of shoveling snow off of his roof, Mankiw should spend an extra hour consulting and make $500 and pay someone $100 to shovel snow off of his roof. Yet Mankiw last week was up on his roof shoveling snow, despite his worries he might fall off an injure himself (he wasn't worried about dieing as much since he had life and not disability insurance)

Few people hire someone to do everything for them, most people cook their own food, wash their own clothes, and spend time with their children even though many people could earn more working extra. The basic theory doesn't include a few things.

1. People on salary might not be able to earn a few extra dollars to make trade offs.
2. After a certain number of hours working is less fun, even things like being an economist. We do get utility from cooking our own dinner, so at some point we might like to do things ourselves
3. Transaction cost are high, I could hire someone to do my laundry, but either I would have to take it somewhere, a pain, or pay more to get it picked up and delivered.

But I think Mankiw still would have not been influenced by 1-3. In short, I think Mankiw just couldn't find anyone to hire. He was worried about his roof collapsing and in the snow storm most crews were over booked (although they should probably raise their price then) or might not get to the Mankiw residence in time.

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Thursday, February 3, 2011

Is it more expensive to have a son or daughter?

Reader Brett, posed the question to me does it cost more to have a son or daughter. I have a 14 month old daughter, so I'm starting to gather data. This paper by Lunberg and Rose attempts to answer that question by looking at how households with one daughter or son spend money. In short they find for most things spending is the same. However, families with sons live in bigger houses and spend more on personal care services (eg hair cuts), while families with daughters spend more on clothes.

The conclusion of the paper of the paper tries to figure out the results for boys, since the girls results seemed pretty intuitive. The authors argue that perhaps boys need more space or that families want to have boys live in better neighborhoods to avoid risk. They also suggest mom spends more on hair cuts because in their words "This result suggests some redistribution from fathers to mothers, and is consistent with the hypothesis that boys directly increase their father’s utility, relative to girls."

I'm surprised Lundberg writes after seeing this, I'm not sure her husband could be much happier.

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Wednesday, February 2, 2011

Engel's Law and Inflation: Food Prices Hurting The Poor

The above chart is from Business Insider it shows what percentage of the CPI is made up of food. The CPI is a measure of prices based on what the average consumer buys, economists call the things the average consumer buys a basket of goods (or basket for short). So an American basket would include some food, clothes, a house, a car, ect. an Indian basket would include a higher percentage of food, because Indians spend a higher percentage of their income on food. This is not surprising since we know the average Indian is poorer than the average American and poorer people spend a larger percentage of their budget on food. Economists refer to the relationship between the percentage of budget spent on food and income as Engel's Law (see the below chart)

h/t to Newmark's Door, which also asks why Argentina has such a high percentage given their relative wealth. I'm not sure why either, but my guess would be Argentines spend a larger percentage of their income on food then we would expect given their income, how else are you going to get all that beef.

Returning to yesterday's post my Dad asks for my cheap wine picks. Malbec is the way to go. Frontera can be found for $5. I also drink Yellow Tail (Australian)* and Rex Goliath (California) for their reds and Chateau Ste. Michelle (Washington) for Rieslings. Make a mixed case of these wines and it seems to go well.

* correction Yellow Tail is Australian, which should be easy to remember with the kangaroo on the label.
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Tuesday, February 1, 2011

Wine Inflation: 2 buck chuck is now 4 bucks?

The wine economist has a recent post on wine price inflation. Linking to a recent paper by two IMF economists that suggests like rising oil prices the increasing wine prices are due to growing demand for emerging economies like the BRIC countries (Brazil, Russia, India, and China). As the graph above shows the price of oil and wine move together.

The wine economist suggests this might be due to the quality of wines in BRIC countries which aren't that good, although there are some surprises.

So in an effort to stimulate exports of wine to China, President Obama served visiting Chinese president Hu some fine America wines.

All that said, I find now that I have a handful of $5-7 wines I like, I'm spending less money on wine.

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