Wednesday, July 27, 2011

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.

Bookmark and Share

Wednesday, July 20, 2011

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.
Bookmark and Share

Monday, July 18, 2011

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.

Bookmark and Share

Friday, July 15, 2011

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

Bookmark and Share

Wednesday, July 13, 2011

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.
Bookmark and Share

Tuesday, July 12, 2011

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.

Bookmark and Share

Monday, July 11, 2011

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).

Bookmark and Share

Wednesday, July 6, 2011

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)

Bookmark and Share

Tuesday, July 5, 2011

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.

Bookmark and Share