Piratz Bar Rescued?

Perhaps I should just write about Piratz or reality TV since my readership for an article on Piratz Tavern featured on bar rescue  got roughly 20 times more views than my normal posts.

To summarize Piratz is local tavern with a pirate theme. Piratz was not doing well so they were featured on the Spike TV show bar rescue. You can watch the episode here. 

In my previous post on Piratz which I wrote during the filming in February, I examined the impact of the show bar rescue on the bars it helps. What is incredible is the Piratz has by far more reviews on Yelp than any of the bars I looked up. Particularly in the last day or two as the show aired there are by my count 37 reviews of the place over the weekend. What is very interesting is that nearly all of them are 1 or 4 or 5 stars with few ratings in the middle. This does not appear to be just caused by the airing of the show as after the show filmed you see fewer by similar ratings of either 1 or 4 stars.

The owner says business is up (although that may be due to press from the show).
I guess I will have to do my research at the barrrr!!

 

At the Margin Mortgage vs Retirement

First, I am not a financial planner (or panther) and I have no formal training in this so the below is for informational purposes only and does not constitute financial advice, seek a professional (preferably not someone named Ponzi or Madoff).

So my thinking through to pay above the minimum payments on my 30 year mortgage versus retirement savings. In short paying money to my mortgage provides roughly a 3% return (after accounting for the mortgage tax deduction).

These two articles provide the pros and the cons of making extra payments.

In short I agree if you have other debt at a higher interest rate, pay that before your mortgage. If you get a matching contribution from your employer for retirement savings then put more in retirement.

Assuming you have no other debts or matching to take advantage of it seems to me the question comes down to a bet on future returns in your retirement account.

If you are investing conservatively (like in say bonds and money market funds in your retirement) then it would seem paying off the mortgage makes sense.

Most people early in their mortgage instead invest in stocks. So in short putting more in retirement funds is a bet that stock market will beat 3% a year.   I could look up the average return to various funds but I’m not sure how informative past performance is.

One thought I have been having though if the stock market substantially outperforms 3% then putting money in your mortgage was the worse move. However, if the market substantially outperforms 3% adjusting for inflation than you will not have needed as much contribution in retirement. If on the other hand the market under performs than the mortgage contribution was a better deal.

What complicates this is if stock prices go up due to inflation say inflation for the years 2020-2030 was 8% and stock market returned 9% (or real inflation adjusted stock returns are 9 - 8 = 1% after inflation). The stock investment was better, but the real or post inflation return is really low so now under investment in retirement might sting more.

To me inflation seems as big a source of potential variation in this calculation then predicting returns. With treasury yields at 1.4% it seems that inflation expectations are really low.  I’m not worried about inflation now, but who knows in 10 or 20 years.

Unfortunately as someone once said economists are bad at predictions particularly about the future. So I’m not sure on the optimal choice.

Minimum Wage Protest in Silver Spring

The group this is our dc was protesting the minimum wage of $7.25 in downtown Silver Spring today. I wasn't sure who was organizing the protest and not sure who I could talk with to find more information about why in Silver Spring?

A really great summary of the economists point of view on minimum wage debate is summarized here. The minimum wage theory is simple, if it is accurate is another question. If wages have to artificially go up then there are fewer jobs, since companies want to hire fewer workers at any given wage. For example if the Majestic movie theater makes $7 an hour for one additional employees before wages then it hires the employee at $6 an hour, but not if the minimum wage is $7.25.

A ground breaking study by Card and Krueger showed that when New Jersey raised its minimum wage that employment did not fall compared to its neighbor Pennsylvania that didn't raise the wage. The paper has been criticized for how it collected its data and the debate in labor economics continues.

In theory I would think a wage subsidy (where the government basically pays part of the wage) would probably achieve the best results, but I'm still not sure.

It is also important to note that most minimum wage workers are young and many are teenagers. 

Deworm the world #1 or overrated? We need more studies

Deworming children in developing countries has for a while been thought of as one of the best bang per buck interventions (link 1, link 2).  Recently a systematic review (basically someone looks for every article ever written about a subject in a systematic fashion) suggested the results of dewormings impacts might not have been as good as touted  in their conclusion the authors state

"Our interpretation of this data is that it is probably misleading to justify contemporary deworming programmes based on evidence of consistent benefit on nutrition, haemoglobin, school attendance or school performance as there is simply insufficient reliable information to know whether this is so."

Two groups IPA and J-PAL have issued a joint response saying the systematic review is misleading.

My take having done a systematic review (not of deworming, but instead of cash transfer impacts on nutrition) is that the authors likely found nearly all of the relevant evidence. IPA and J-PAL point to three papers not included. I'm familiar with the Kenyan papers and think highly of both of them. However, I believe the might not add as much as other potential studies as there was already evidence from Kenya that deworming works (see the famous Kremer and Miguel paper).

I think both sides should take this as a call to test the external validity of deworming, do you get equal bang for the buck in other deworming contexts. As this post suggests all worms might not have equal impacts and if different worms are in different places, we would expect different impacts.

The Economics of the Long Line for Popcorn

Local blogger Silver Spring Singular is frustrated by long lines for popcorn at the Majestic Movie theater in our fair city.

I thought if economists could explain why popcorn is damn expensive (the J. Political Economy paper Locay and Rodriguez suggests its because theaters have cheap ticket prices to get the cheapskates in the door and high popcorn prices for the spendthrifts)

So a quick conceptual model of long lines at the movie theater concession.

Problem: It takes up to 25 minutes to pay a lot for popcorn. Doesn't it seem like that hiring one or two extra people would increase sales sufficiently to pay for their wages (in short if you sell two extra popcorns you probably pay an hours wages.) and profit.

Explanations.

1. The Majestic doesn't have perfect information and is underestimating the loss of popcorn sales.

2. The Majestic couldn't increase profit by hiring more workers
2.A There might be fixed costs to hiring workers so the wage is higher than we think. You need to include training and hiring costs
2.B they may need to give workers a minimal number of hours so at the margin 5 hours might need an extra staff person might not be worth training. Also it could be seasonal since movie sales are higher in the summer and the holidays.

3. Maybe waiting in line gets you to purchase more things

4. My best guess. The Majestic is not profit maximizing. Probably the manager prefers having fewer employees that are easier to manage than do the extra work of hiring and supervising more employees


Conclusion: You should really only buy popcorn at the AFI as the popcorn there is superior.

Avoiding Cellphone Taxes

Like anyone who reads their cellphone bill I have notice a number of taxes. As page 2 of this cellphone shopping guide demonstrates the average cell phone bill includes a Federal Service Charge (to provide phones in rural and low income users), a 911 tax, a regulatory charge (whatever that is) and that taxes can approach over 20% of the total bill, mine looks to be over 10% for my wife and me.

So I have been looking for a new phone. Not because like the kids these days I'm getting a second phone for when I hit the clubs (Huffington Post).


With a prepaid phone I can get around a lot of these taxes. At least for now as I found a couple of local areas in Oregon and South Carolina that are trying to add 911 taxes to prepaid phones 

So my prediction as people realize they can save money with prepaid cellphone they switch, until enough people switch that taxes are increased on prepaid users.  We see (saw?) the same thing in airline industry where airlines avoided taxes by moving charges to bag fees and seat upgrades that don't pay taxes.

Returns to School Only Help if People Know About Them

JPAL has a nice write up a piece by Robert Jensen which looks at how perceived returns to education influence how much schooling a child receives. Jensen examines boys in the Dominican Republic and tests to see if providing accurate information on how much extra money a child will make by going to school influences the schooling decision.

The first question is how much extra does a child make by going to school. As Jensen notes there is no micro data on this available for the Dominican Republic so he does out and collects his own. He then finds the difference in wages between adults who attend secondary school and those that do not. Next he asks children about what they perceive to be the difference in wages between educated and non-educated workers. Their estimates are substantially lower than Jensen's estimates.

Here is the neat part he then created an experiment where half of the children are told the estimate returns and half receive no extra information. The idea is by telling children they will earn more if they go to school it will motivate them to attend more school. The experiment shows that children who receive the information go to about 1/5 to 1/3 of a year of school more over the next four years. Given how cheap the program is (just need to have seminars to tell kids about schooling) this is a good return.

Jensen does add some important caveats in his conclusion
"Of course, the desirability of such information-based programs will depend on the ability to provide accurate information on the returns to schooling, which may often be difficult. Further, even with accurate estimates, there may be reasons that the returns for the marginal child may not be as large as the currently measured average return"

The piece is published in the Quarterly Journal of Economics a top econ journal. It would be interesting to see this type of experiment replicated in other countries.

Could China Catch up to the US

China's economy grew at only 7.6% last quarter (China Daily). A rule of thumb tells us that if this rate of growth continues the economy will double in size roughly every 10 years. At $8,400 per capita GDP China's out put per person is roughly 1/5 of the United States. Doubling every 10 years would put China at $16,800 GDP per capita in 2022 and 33,600 in 2032 and given current growth rates it would then pass the US sometime before I retire.


Of course this assumes China will keep growing at its current rate. The main model of economic growth theory (the Solow model) predicts that growth rates slow down  once an economy is larger. This happens because each additional machine we have adds less than the previous one (for example last week I had no computer due to this computer failing, going from zero to one computer increased my productivity a lot, giving me a second computer when i have another that works doesn't increase my productivity that much.) This is also called diminishing returns.


Thinking about this made me recall something I read on a prediction by Paul Samuelson in the book Why Nations Fail the well known economist and textbook author predicted in 1973 that the USSR would have a GDP per capita equal to the US by somewhere between 1990 and 2015.

Brad Delong has an older post on how using the standard Solow model even if we assume that communism under China or the USSR has lower productivity (that is the same number of machines per person produces less) that a communist country could catch up to the US by essentially forcing savings and in the model any savings is used to buy more machines thus increasing output.

So we should watch not only China's growth but also changes in consumption and savings.

Finally, it is my duty as an economist to say it isn't necessarily bad if China has a higher GDP per capita than the US.

Maternal Literacy and Child Health

A new study released through UNICEF and other agencies examines the impact of the child support grant in South Africa. In short the program gives households below a certain income threshold a monthly cash payment around $30 a month.

One thing that caught my eye in the study is that the overall impact on children's height is not statistically different from zero. We care about how tall children are because several studies have shown in the long run children's height is strongly associated with future income also children who receive help or avoid shocks that stunt their growth tend to earn higher incomes when they grow up. This is consistent with a meta-analysis I did with co-authors that should be released shortly that cash transfers have small impacts on height for age.
The child support grant was found to improve height for age for children whose mother had at least 8 years of education, this is consistent with previous findings in Mexico (and I looked into this in a similar Nicaraguan program and found the same thing).

As the authors of the South African study suggest mothers may need to have schooling to fully implement the associated changes in behavior such as improved nutrition and hygiene that are needed to get the most out of the cash payments.

 h/t Roving Bandit 

Family Planning in Malawi

The below video on Family Planning in Malawi put out by the UK Dept for International Development (DFID) * and tweeted today by USAID demonstrates the main issues surrounding fertility in low income countries like Malawi. Economists see access to family planning and contraceptives as a supply and demand issue. On the supply side the question is can women get access to contraceptives are there clinics available. On the demand side do they actually want them notice in the video the clinics also includes education programs for the women about the benefits. In the video one woman also talks about how she asked her husband about getting birth control and then wanted to make sure he wouldn't pressure her for more babies. Intrahousehold issues and women's bargaining power are also key.

Fertility in Malawi has fallen substantially since 1980 when it peaked at 7.5 kids per woman falling to 6 kids per woman today (Gapminder). Nearly in every country over the last 30 years fertility has fallen, some may be surprised that countries like Brazil and India only have 1.8 and 2.6 kids per woman, respectively.

The video also demonstrates another issue as families have fewer kids (quantity is reduced) they can invest more in each one so (quality) increases.  One thing I teach my students is that in poorer countries children are in a sense a form of an old age pension or social security (since they will take care of their parents when the parents get older). During the last 30 years child mortality in Malawi has fallen from roughly 1 in 4 kids not making it to age 5 in 1980 to 1 in 9 today. This may also be related to falling birth rates


* in the past my research has received funding from DFID

Utility from Utilities: Principal Agent, Monopoly, and Pepco

Like many DC area customers of Pepco (our local power company) my house lost power last week* The Washington Post  in a recent story on Pepco claimed that the company under performs adjusting for the weather and tree cover that my area has. As someone who has lost power for multiple days at a time several times since moving into my house three years ago today I am sympathetic to this argument. So I put on my economist hard hat and got to thinking.

1. The Issue: a power company like Pepco is an agent that makes decisions about how much effort to put into making sure power is reliability provided. I am a principal who is effected by that decision. The Principal-Agent problem  can lead to many sub-optimal outcomes (no power is sub-optimal!), it also may lead to underinvestment if we can't observe Pepco's effort and random shocks occur. In my class a couple of weeks ago I showed my students a simple model where the probability of making a profit through farming was related to effort (which was costly). When someone worked on their own land they would worked twice as hard as if they worked on someone else who paid them only when a profit from a good harvest is realized. Furthermore, if the land owner paid the worker when a bad outcome occur it would only decrease effort.

2. Perhaps this suggests a solution. We should only pay Pepco when we have electricity (the good outcome)? Oh wait I guess we already do that. Perhaps Pepco's customers should be able to deduct from their bill a rate equal to the average power use from their house on the number of days they lost power (or perhaps some multiple of that the number). I would like to see an economic model of that

3. I don't know much about if Pepco is doing a good job. I also don't have the ability to choose another power company (unless I move). In this case Pepco has a monopoly. For some industries with high fixed costs a monopoly is natural (that's why we call it a natural monopoly), we wouldn't want 8 different companies stringer wires (well maybe we would want another at this point). When public utilities have a monopoly it seems logical to have outside experts evaluate if Pepco is doing a good job. I would like to read less about politicians saying people are fed up with power outages and more actual reports from impartial experts if Pepco is not properly behaving in terms of its natural monopoly.

update Arnold King at AEI has similar thoughts as a PEPCO customer h/t to Dan Rothschild

* I should add I was in San Francisco for all but 4 hours of the power outage, but my wife and daughter were there and they are part of my household utility function which includes utility from utilities.

Hilton Starbucks Thinks I Won't Walk 1 block for $1

I have shared most of my thoughts from the Western Economics meetings, but one final thought after I returned home. The Hilton at Union Square in San Francisco has a Starbucks that charges $2.85 for a cup of coffee the Starbucks just down the street charges $1.85 (or something there about), so the Hilton charges a $1 more.

Why might this be the case? First, hotel guests might not know there is a starbucks one block away (I discovered this only because the Hilton had no free wi-fi (see this old post) and a 15 minute line for coffee). Second hotel guests are often attending conferences and may be time constrained (which is why I did buy one cup of coffee for $2.85). Third, someone else might be paying for the coffee purchase (in my case that wasn't true since I'm not using Towson travel funds for coffee).

Evidence Economists Influence the NBA but not Safeway

A recent paper by Price and Wolfers showed that in the NBA " that more personal fouls are awarded against players when they are officiated by an opposite-race officiating crew than when officiated by an own-race refereeing crew. " The paper got quite a bit of press and another paper showed you could make money betting on teams that had a higher percentage of players the same race as the referees. So did the paper have any effect on the NBA. First the NBA claimed their referees weren't bias and that they didn't do anything to address the issue since there wasn't an issue. Now a new paper presented at the Westerns Economics Association Meetings with Pope, Price and Wolfers shows that "that racial bias continued to exist in the NBA prior to the media coverage, but then completely  disappeared during the four years thereafter" So not proof that the NBA listened to Price and Wolfers, but it is consistent that they did.


Now this morning I was out trying to buy ice, because my house hasn't had power since Friday (it's Tuesday). I go to 7-11, the gas station and Safeway and all are sold out of bags of ice. The worst was Safeway still had signs up advertising a sale on ice. Typically economists suggest when demand for a product rises due to outside forces (like say ones that knock out power for 1 million people) ice prices should go up. Some people call this gouging. In fact many did in Silver Spring. I say raise the price so people only buy the ice that is necessary. 


I also did ice arbitrage. I filled up large soda cups with ice that only cost 25 cents and brought them home instead of a bag of ice. Of course now I've got the Power (back)

European Sports and the LA California Angels of Anaheim

Still at the Western Economics meetings in San Francisco. First a restaurant thought there is a great breakfast place around the corner (Taylor Street Coffee), in fact it was so good I have eaten there two days in a row. As an economist I love that they are a little pushy at getting tables to turn over. they bring you your check with the food and take your plate as soon as you are done (or almost done). Diners and breakfast places run on thin margins and have peaks on weekend mornings so higher turnover is key. If that is what they need to do to serve such awesome food, I approve.

At the Westerns I have seen papers on cricket and Australian rules football. In terms of the cricket paper it turns out there is a new cricket league in India that plays cricket matches that last only a few hours as opposed to longer versions that last a full day or days. Interestingly the league has an auction model for players salaries for some players and a minimum salary for others. The authors test what impacts the salary including previous performance. Indians apparently really like watching Indian players, although performance has weaker effects. I should have mentioned this to the authors but it may indicate star players like David Beckham in soccer whose fame may exceed their past play. I also now have a much better understanding of how the game works. Interestingly in baseball the home team bats last while in Cricket they choose. I over heard another economist saying that baseball has one of the lowest home field advantages in terms of winning, this may be because some research has shown batting first may be optimal.

The Australian rules football paper looked at scheduling. In short the league has something like 16 teams but plays 28 games a year, so while all teams play once not all teams play twice. A lot of research has gone into the optimal scheduling of teams, you might want rivals to play each other more (Yankees/Red Sox) which does happen in American sports with divisions or leagues. I think the results of this paper and others show matching teams up by quality the previous year would increase attendance and so would replaying the previous year champions. I wonder why MLB doesn't have one series between the defending AL/NL champs.

Finally, another paper looks at why teams chose the region they are named after. Should it be the California Angels or LA Angels or Anaheim Angels. The paper looked at how the name correlated with funds received from the government they were named after. Surprisingly, the correlation was that teams got less money when they were named after the state. One audience member said the Minnesota Twins were the first team to be named after a state. One interesting extension might be look at why teams keep names for cities they aren't located in (New York Giants, Washington Redskins, and Dallas Cowboys)

Finally, sorry I don't have links to the papers.