The Blog of Diminishing Returns

Dishwasher Wanted Spanish Required

2012-01-09T17:32:00.000-05:00

In the last couple of weeks I have seen two local Silver Spring restaurants put help wanted signs up in Spanish only (no English) looking for someone to wash dishes. Despite the many Salvadorian places in my neighborhood, these two places serve Japanese and Moroccan food, respectively. What could be the potential cause of the sign only posted in Spanish?

1. There are no English speaking dishwashers who would want to work
2. Spanish speaking workers have higher productivity per dollar of wage than English speaking workers
3. The Japanese and Moroccan restaurants have a preference for Latin workers other than based on things other than 1 or 2.

Montgomery county's unemployment rate is roughly 5, but neighboring Prince George's County is above 7%. I'm sure unemployment rates are much higher for those with education credentials that would have people looking for a dishwasher, so I'm doubting 1 is the potential answer. The obvious answer seems to be 2, but I'm wondering if 3 could also be a possibility. If other kitchen staff are also Spanish speaking (not uncommon in non-Latin ethnic restaurants in Silver Spring based on my observation). A common language could help productivity and morale as I have heard Spanish jokes sometimes between restaurant staff.

Totally unrelated (I hope) one of those restaurants had a fire

Picking Brains for Free?

2012-01-05T11:46:00.001-05:00

A contributor to Forbes says she is done with allowing people to pick her brain for free. She suggests if people want to take you to coffee to pick your brain you should show them a fee schedule.

After reading Predictably Irrational I wonder if there isn't a problem from a behavioral economics perspective. One of the lessons of the book is that once money enter an exchange the feeling changes. The author Dan Ariely provides an example. If you need help changing your tire I might help you as a good person or your friend. However, if you offer me $5 to help you I might think you place no value on my time.

I think the key to building relationships and social capital is keeping the relationship like changing a tire for free. Sure at some point if people keep taking to much your time or they are using what you tell them to make lots of money you might consider charging.

Until then feel free to pick my brain, although you will probably get what you pay for.

via Twitter @justinwolfers who funny enough once picked my brain

School or Work from Modern India to 1900s Chicago

2012-01-04T12:41:00.000-05:00

"Of course when CCTs [conditional cash transfers] force children back into school the children might not learn to read and might not learn to divide, but they will learn an important, if tragic, life lesson: when you are poor the state has power and you do not." from Lant Pritchett posting at the World Bank's Development Blog

The post is a good read. In short he talks about some survey data that early 1900s kids working in factories preferred the factory over the school by a 4 to 1 margin. In short school was not a desirable place to be. Pritchett goes on to talk about how in modern India many schools lack the ability to actually improve math or reading outcome. Despite this the poorest countries adopt a solution conditional cash transfers that pay money to families but only if their children to go to school. As I have blogged previously I'm not sure CCTs can work in all countries. In short countries where CCTs have increased schooling substantially (Mexico and Brazil) are relatively well off, while Pritchett contrasts this with the poorest regions in India, which lack the schooling infrastructure or political capacity to run such programs. Most of the research I'm aware of though suggests that unconditional cash transfer can also lead to increases in schooling, when programs are stated to be intended for children's development and money is given to the mother. For example in Malawi one of the poorest countries in the world conditional and unconditional cash transfer payment to girls have been about as equally effective.

I wonder returning to the child in early 20th century factor, if they prefer the factory because they have some autonomy over their wages. That is when they collect their payment from the factory they get to spend some portion of it. One difference between the Malawi programs and most of the others I have seen is the payment were made directly to the girls as opposed to their mothers.

When Can I Retire to Portlandia

2012-01-03T13:47:00.000-05:00

I have been watching the series Portlandia (watch the video above) which satirizes people my age living the dream of the 1990s of working less, doing more weird stuff, and generally just hangin'. It has gotten me thinking as I take a break from working on a grant application that if it goes well will give me more work, why aren't there more people moving to Portland the city where young people go to retire (as Portlandia quips). A paper by Angus Deaton and Daniel Kahneman show that after about $75,000 a year extra money doesn't make you happier, but it makes you feel you have a better life.So perhaps I'm working to feel better about my life? At the Portlandia end of the spectrum people work a few odd jobs to maintain a minimum level of consumption. I have heard from friends of ours that move to Portland, that these part time barista, bike mechanic, and bar tender jobs are getting harder to find. Our friend said finding a full time job wasn't as hard since fewer people wanted them.Of course this is all anecdotal, but what do expect from a post about Portlandia?

An Economist's Dreidel

2011-12-20T09:07:00.004-05:00

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

2011-11-28T10:27:00.002-05:00

"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

2011-11-23T14:24:00.002-05:00

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?

2011-11-16T14:29:00.003-05:00

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

2011-11-14T13:24:00.002-05:00

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

2011-08-31T14:49:00.003-04:00

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?

2011-08-30T15:06:00.004-04:00

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

2011-08-29T11:30:00.002-04:00

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

2011-08-24T15:19:00.002-04:00

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

2011-08-23T09:03:00.002-04:00

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

2011-08-18T16:13:00.002-04:00

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

2011-08-11T11:41:00.002-04:00

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?

2011-08-10T11:06:00.007-04:00

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

2011-08-09T11:02:00.002-04:00

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

2011-08-08T09:09:00.003-04:00

"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

2011-08-04T11:57:00.004-04:00

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

2011-08-03T09:21:00.004-04:00

"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

2011-08-02T08:59:00.002-04:00

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

2011-08-01T10:32:00.002-04:00

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

2011-07-27T11:21:00.002-04:00

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

2011-07-20T10:58:00.003-04:00

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

2011-07-18T09:27:00.002-04:00

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

2011-07-15T12:51:00.002-04:00

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

2011-07-13T10:47:00.003-04:00

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

2011-07-12T14:28:00.004-04:00

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

2011-07-11T09:07:00.002-04:00

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

2011-07-06T11:11:00.003-04:00

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

2011-07-05T08:58:00.002-04:00

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

2011-06-29T09:53:00.003-04:00

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

2011-06-28T09:33:00.001-04:00

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?

2011-06-22T15:02:00.003-04:00

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

2011-06-21T15:52:00.002-04:00

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

2011-04-18T10:09:00.002-04:00

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

2011-04-11T16:05:00.002-04:00

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

2011-04-07T10:44:00.002-04:00

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

2011-04-06T13:30:00.002-04:00

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

2011-03-31T11:09:00.002-04:00

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

2011-03-30T09:29:00.003-04:00

"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

2011-03-28T09:29:00.003-04:00

"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

2011-03-15T11:09:00.002-04:00

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

2011-03-14T09:23:00.003-04:00

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.

Irrational Super Market Shopping or Something Else

2011-03-09T08:41:00.002-05:00

Thyme is cheap. Twenty five cents worth is plenty for a family of four.

Hang out at the market and watch people buy expensive fish, chicken or beef to cook for a family gathering. Amost no one is buying fresh herbs. What's that about?

From Seth Godin

Godin suggests that when people spend $10 on the meat for their meal they don't want to also spend an extra quarter to buy fresh herbs. This reminds me of a classic economics example that shows people are sometimes irrational. In short more people would drive across town to save $5 on a $10 calculator than save $5 on $100 stereo even if they planned to buy both. The person should be indifferent, but our brains likes to save more on the cheap items.

I think one thing Godin misses is that fresh herbs are usually sold in packages that cost about $2. This makes it hard to spend just 20 cents on thyme for one meal.

An alternative, which my wife and I do is grow your own herbs at home.

Incentives for Teachers May Not Influence Test Scores

2011-03-08T09:12:00.002-05:00

Given the recent debates about teacher pay, a recent NBER paper by Harvard Economist, Roland Fryer, throws a wrench into the debate. His study finds that providing incentives (ie money) to teachers for improving math and reading scores in NYC had no positive impact on their students test scores, and if anything led to slight declines.

This article has a good overview of the study. In short Fryer hypothesizes the payment may have been too small and that the relationship between teacher effort and student achievement may have been unclear.

Another issue is that teachers split bonuses among all faculty in their school not just those that led to the improvement. Fryer sites other work that this shouldn't matter, although I find that hard to believe.

Economists always say that incentives matter, but this result shows how difficult it is to really improve test scores and achievement.

The Economics of Sleep Training

2011-03-07T08:36:00.002-05:00

My wife Marie went away for the weekend, so borrowing an idea from Spousonomics, I tried to work on sleep training our daughter Sylvia (ie getting her to actually sleep in her crib all night). Here are some economic thoughts on it.

First, like the Spousonomics example Marie and I agreed I had the comparative advantage in sleep training (ie I'm better at sleeping through her crying unless she really wakes up). Granted our parenting resources are diminished when Marie is out of town, but the sleep training job only requires one parent.

Past performance does not necessarily indicate future returns, but Sylvia has adapted to this crazy concept of sleeping all night in her crib. On the first night she needed 15 minutes to go from anger at being in the crib to asleep in the past 3 nights each night it has taken half as much time as the night before. She has also slept through the night for 3 nights in a row!

Parenting is a repeated game. We have to continue to signal to lead Sylvia to believe that sleeping is her best choice (a dominant strategy).

Information is not perfect, I'm not 100% about how Sylvia feels about sleep training so I never know exactly how she'll react.

Not all sleep economies are the same, what works for Sylvia might not work for another baby or might not work for Sylvia next week.

Unexpected changes (stochastic shocks) can bring everything down. A housing crisis, a vacation, high oil prices, or a cold.

Finally, most people focus more on losses or bad outcome than good outcomes. So this is my effort to celebrate the good outcome before the bubble bursts!

You Say You Can Predict Revolution: Shoe Throwers Index

2011-03-04T08:34:00.002-05:00

In my development class I have my students read Paul Collier's book The Bottom Billion, where Collier's hypothesis is that revolutions/civil wars/coups are the result of low gdp per capita (being poor) and low gdp growth (bad economic times). He has academic works to back up this hypothesis.

The economist magazine has come out with its own index for the likelihood of a revolution the shoe throwers index. I'm not sure they have tested it yet against data, but their method is "weighting of 35% for the share of the population that is under 25; 15% for the number of years the government has been in power; 15% for both corruption and lack of democracy as measured by existing indices; 10% for GDP per person; 5% for an index of censorship and 5%"

Sounds like a good start. In the comments people suggest % of the population that is college educated and internet usage. I'm sure will see some academic papers on the topic soon.

h/t Texas in Africa

Spousonomics Using Basic Economic Concepts to Improve Your Marriage

2011-02-28T09:04:00.002-05:00

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.

Friday Food News

2011-02-25T13:32:00.003-05:00

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.

Entrepreneurship at College Grinnell Needs a Dilbert

2011-02-24T09:57:00.002-05:00

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.

Cupcake, Coffee and a Condom for $4

2011-02-23T11:47:00.002-05:00

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.

Pizza Production Possibilities Frontier in Madison

2011-02-22T09:24:00.002-05:00

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.

Full Service Includes Birth Place of a President

2011-02-21T13:03:00.002-05:00

The Daily Show - Pump and Circumstance
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

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.

Colleges Violate the Law of Demand

2011-02-17T11:53:00.002-05:00

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

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

2011-02-16T08:38:00.003-05:00

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.

Steelers and World Vision Beat Zambia in Super Bowl

2011-02-14T09:04:00.003-05:00

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.

Historical price of a dozen roses?

2011-02-10T14:01:00.004-05:00

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.

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

2011-02-09T09:18:00.004-05:00

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.

Welcome Greg Mankiw Blog Readers

2011-02-08T08:49:00.002-05:00

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.

Why Greg Mankiw shovels snow off of his roof?

2011-02-07T12:45:00.004-05:00

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.

Is it more expensive to have a son or daughter?

2011-02-03T11:28:00.003-05:00

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.

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

2011-02-02T09:41:00.004-05:00

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.

Wine Inflation: 2 buck chuck is now 4 bucks?

2011-02-01T08:51:00.002-05:00

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.

Bad Ideas for Budget Problems at Universities

2011-01-31T08:25:00.004-05:00

This weekend Scott Adams (creator of Dilbert) in the Wall Street Journal proposed several what he called bad ideas to get wealthy people to support higher taxes on higher income brackets. He proposed bad ideas, because bad ideas can spur good ones (read his example about monkey helicopter pilots). So his bad ideas for higher taxes the rich get, free use of the carpool lane, to cut in line at the DMV, a thank you letter from welfare recipients, and to vote twice in any election. Again problems with all of these ideas, but perhaps from the bad can come good.

So in the spirit of bad ideas, I propose a few to help university budget situations. Schools like mine, Towson, are generally getting less funding from the state and haven't been able to raise tuition due to legislative mandate.

So again I necessarily don't support any of these ideas, they are merely to help develop good ideas. We could think of these individually or package them for any student who pays double tuition. I'm aware that universities already charge students different prices, but these are crazier (worse) ideas

Bad Ideas For Students:
1. Like the carpool lane idea, I propose we sell faculty parking passes to students, but at 3 times the cost that faculty to pay. At Towson, students often spend 15-30 minutes looking for parking, so even a $2,000 parking pass may look enticing to some.
2. A faculty member at another school told me that someone proposed he participate in an auction, where a faculty member would change one grade on the student record. The faculty member refused to participate, so bad idea. A less bad, but still bad idea might be to let students skip one required class.
3. If some students could save a semester by getting into the right classes, they may be willing to pay more to register early.
4. The alumni office declares an amount of donation it would like from the student body (say $100,000 or $5 a student) if it reaches that goal one day of class is canceled.
5. Have students in majors or colleges with higher demand (like the business) pay more (although this has been proposed at other places)

Bad Ideas for Faculty
1. Ditto for more money better parking.
2. How about a faculty member can pay a fee to have a student dropped from their class (bad idea)
3. In each department an auction is held the winning faculty member gets their choice of schedule.
4. If the faculty donate more (or 2x as much) than the class day is not canceled.

College President
1. Listen to any of the above advice

So what are your bad ideas?

State of the Union, It isn't all competition with China

2011-01-26T09:40:00.002-05:00

Quick thought on the State of the Union. I don't like setting up the US as in competition with China or India. In some cases this is true, we compete for jobs when a factory choses between China and Cleveland. But, one of Obama's goals is to raise our exports, one of the ways this is most likely to happen is if China and India continue to grow. As the Chinese and Indians grow richer they purchase more goods from the US.

Perhaps this is best demonstrated by the recent announcement that GM sells more cars in China than the US.

It is also worth reading this post from (Kids Prefer Cheese) reminding us that 20 years ago, it was the Japanese who were going to overtake the US.

Regression to the Mean and Tackling Health Care Cost

2011-01-25T08:31:00.002-05:00

Atul Gawande has a great piece in a recent New Yorker [the abstract is here]. It talks about programs aimed at reducing costs for the patients that have the highest medical expenses. Megan McArdle has a great discussion of the piece on her blog.

The thing that struck me the most is the big reduction in cost some programs that offered support services to patients whose medical expenses reached millions of dollar a year were able to achieve. I wasn't the reading the article with my economics thinking hat on, so I hadn't thought about a control group. As Atul pointed out and my econ thinking cap came on even without a program we would likely expect that some expensive patients would have better years the next year (not get hit by a car or fall down) that is they would move back toward the mean medical expenses for an average person. So even without a program their expenses might fall. It highlights the importance of having a non-treated comparison group.

Related an economist friend said the best way to show regression to the mean is to took look at batting averages for baseball players up until the All Star Break and then their final average.

Silver Spring Econ: Whole Foods No Self Checkout and Cheaper Coffee

2011-01-24T08:38:00.002-05:00

A couple of thoughts on the Whole Foods located just blocks from my house in downtown Silver Spring. In my area along with Whole Foods we also have a Safeway and Giant grocery store, which unlike Whole Foods have self check outs. I love this since I'm Safeway about 3 times a week. The Safeway self checkout seems to work better (although I don't go to Giant much), because there is 1 line for the 4 self check out kiosks, while at Giant there is one line for each kiosks, except for one line that is for the two under 10 item kiosk. Whole Foods, does not have a self checkout though in Silver Spring, but it does in other places.

So I why might Whole foods not have self check out, first Whole Foods shoppers buy a lot more non bar-coded items so ringing up your own groceries is harder. Second, Whole foods items on average cost more, so miss scanning items cost more.

Another thing surprised me about my trip to Whole Foods this weekend. They have one of the cheaper cups of coffee around town (I think $1.30) for a similar small at Starbucks it's $1.50 and $1.55 at Panera. I think Borders is even more. You could argue quality, but I don't think there is much difference. So perhaps cheap coffee (is a loss leader) or coffee gets you to buy more (I'm on to you Trader Joes with your small cup of coffee).

I'm now off to Carribou Coffe, which has $1 medium coffees on Mondays (which makes it more cheaper than the small), could it be they are trying to get me hooked, normally deals are found when demand is lower (lunch specials, matinées), but I'm guessing Monday is not the low point for coffee demand.

I wish I was going to Highland Origin, but they temporarily closed my favorite coffee shop so they could add an Ethopian restaurant to it, words you don't hear many places in the country.

How to Help the Orioles and Nationals

2011-01-19T08:32:00.002-05:00

Henrik Kleven, Camille Landais and Emmanuel Saez looked at movements and performance of top soccer players in 14 countries over decades, tracking successive tax regimes and salary. Tax rates, they found, matter to players, motivating them to shift locales and affecting the record of their teams.

(Bloomberg) discussing this recent paper

According to Business Week my two local baseball teams the Baltimore Orioles and Washington Nationals have the 11 and 15th highest income taxes for major league cities with only NYC and SF being higher for MLB cities.

In short to give the same income to a player as Seattle, Texas or Houston the Nationals and O's must offer almost 9% more to offset income taxes.

So if Spain can give David Beckman a 50% tax break, I figure as a baseball fan why not give the O's and Nationals one too for free agent signings.

As an economist though, I'm skeptical it's a good idea.

h/t to Pete for passing on the article

Microcredit crisis? Part II

2011-01-18T08:11:00.002-05:00

"Microcredit had this magical glow to it," Roodman said. "It's gone away, and that's healthy. But you wouldn’t say that just because of the mortgage crisis, we shouldn’t have mortgages."
David Roodman while being interviewed by Planet Money

The above quote is in response to a recent piece by Mohhamed Yunus in the NY Times about how microcredit was running into problems because private organizations had begun to lend money with the idea of making a profit. I have blogged recently about the microcredit crisis, where default rates on microcredit have sky rocketed in India.

Both Roodman and Yunus know far more than I do about microcredit, but I tend to side with Roodman that what works for Yunus in Bangladesh might not work in other places. As Roodman points out in this excellent longer post on his blog without international capital looking for some profit many wouldn't receive microcredit. Particularly in Latin America and Africa where population density is lower, so reaching borrowers is more costly and interest rates need to increase.

I would also suggest for further interest in the topic this piece in the New Yorker and this Planet Money broadcast

Economist in Love (me!) Welcome Spousonomics Readers

2011-01-14T09:42:00.002-05:00

If you regularly read the blog of diminishing returns head over to Spousonomics for my Q&A about a very special economist in love. Spousonomics is a new blog to promote a book about the economics of being in a couple.

I had a blast answering the questions, and I scored bonus points with my wife Marie so I call it a win-win.

I'm looking forward to purchasing a copy of the book when it comes out on February 8th (can you guess what Marie is getting for Valentines day?). Also I'll blog a review shortly after.

If you are a Spousonomics Reader, welcome to my blog. Check out a few posts and let me know if you have questions or topics you would like to hear about.

Food Stamps at Restaurants?

2011-01-12T08:44:00.002-05:00

San Diego just joined the LA area in allowing some recipients of food stamps to use their funds at restaurants.

The eligible recipients are the homeless, elderly, and disabled who may lack adequate kitchen facilities or the ability to prepare foods. Not surprisingly the list of restaurants taking food stamps includes famous fast food places like Pizza Hut, Subway, and KFC. The good news is it also includes El Pollo Loco, which I thought was pretty tasty the one time I was in LA.

However, it is unclear if the new program is a good use of resources. From the San Diego article one supporter of the proposal says

"This would be no different than going to the supermarket, which has healthy and not so healthy choices," he said. "I hope people understand that and hope they make healthy choices.

I tend to agree with this statement, my guess is that the nutrition from purchases at supermarket probably isn't that different from the restaurants. In welfare programs like food stamps we limit recipients choices (for example they can't buy alcohol with the funds).

Intermediate micro theory assumes a rational person and shows in short with cash recipients could purchase the same food or something they like better, so cash is the better option. It may be worth realizing though we aren't maximizing the happiness of the recipient, but a combination of the recipient and the tax payer who might have different preferences.

Toys R Us in Silver Spring Closing: Economics of Temporary Stores

2011-01-11T10:12:00.002-05:00

Last June a Toys R US express opened in downtown Silver Spring. Silver Spring Singular reported on the opening last year (link)

From the link
"What is Toys R Us Express? From what I was able to find, it is the name used by TRU for smaller, temporary holiday stores that have done well enough to justify their continued existence into the new year. Of course, as this location is being opened up in July, their plans appear to be to operate this location as a year-round store."

So it looks like sales didn't justify their existence. They do have a sign that says see you next season, so perhaps we can expect the Toys R US express store to open right after the Halloween costume shop closes. Then the express can close again for a Super Bowl TV store or Valentines flower shop, which is open until a snow cone stand comes in sometime around April.

Finally, thanks for Silver Spring Singular for the recent link. I'm going to be upping the Silver Spring content here, but balancing it out with stuff that non-locals will find more interesting than Silver Spring's most famous econ related native (Ben Stein).

7 Years and No Itch, Anniversary in Silver Spring

2011-01-10T10:04:00.002-05:00

Happy Anniversary to my wife, Marie! Last night to celebrate we got a babysitter and planned an evening out in Silver Spring.

Following the advice of Spousonomics (a good new blog on the economics of being a spouse), we tried to do something different and active (see their post on making date night count). So we headed over to the new ice skating rink in downtown Silver Spring. As we approached we heard a loud alarm. We found a car alarm just 50 ft from the rink was going off (boo negative externalities). Seeing (hearing?) no end in site to the alarm we headed to the local irish pub (McGinity's) for a pint of Guinness the beer from our first date. After a big bowl of stew and a pint, we checked out the swing dancing in the next room.

It turned out to be free and about our style (5 couples or so and varying levels of skill). So I spun my wife around the dance floor. So while we have been dancing many time before, we haven't been in too long.

So it was a good night and I'm looking forward to many more.

AEA interview advice from someone who has done it twice

2011-01-05T08:55:00.003-05:00

For those of you who are going to Denver this weekend to interview for your first post graduate school economics job I wish you luck. Having done the economics job market twice I wrote up a few pointers for interviewing at a non-R1 school some apply to both R1 and non-R1.

Quick story. The job market guide written by John Cawley suggested " Bring granola bars or other portable snacks with you in your briefcase and eat between interviews." I was amazed how many people followed this advice exactly and brought granola bars.

So if you see a nervous looking young economist eating a granola bar wearing a dark suit in Denver this weekend wish them luck!

Will Mexican and Brazilian Welfare Programs Work Elsewhere?

2011-01-05T08:28:00.004-05:00

The NY Times Fixes recent column by Tina Rosenberg (link) was about conditional cash transfers (CCTs), programs that pay cash to mothers in poor families who send their children to school and go in for health check ups. CCTs have been very successful in Brazil and Mexico at increasing school enrollment and had mild positive impacts on children health.

A couple questions in my mind remain. In the long term does sending more children to high school in Brazil and Mexico actually lead to lower poverty? It will be hard to test this since in both countries basically everyone who is poor is now receiving payments from the government (including 90% of the coffee growers in yesterdays post). What happens when there is a large increase in schooling for a generation?
Do they get jobs that use that education?

I also think that health benefits in the article are a little over stated. One of the best measures of children's health is their height and both programs seem to have little to no improvement in children's height, and one study even found Brazil's CCT decreased children's height (see previous post)

Now turning away from Brazil and Mexico, which are borderline developed/developing country. I think the big question is what influence can CCTs have in poorer countries. The Times article makes a good point.

If conditional cash transfer programs are to work properly, many more schools and health clinics are needed. But governments can’t always keep up with the demand — and sometimes they can only keep up by drastically reducing quality. If this is a problem for medium-income countries like Brazil and Mexico, imagine the challenge in Honduras or Tanzania.

In my experience with a Honduran CCT, which showed no impact on schooling or children's health. The program also failed to deliver on promised school and hospital construction. Additionally even the Nicaraguan CCT that is often held up as example of a successes story increasing school enrollment more than 20%, was terminated due to lack of funding.

Although, I don't have evidence of it, since there haven't been enough studies (for example in terms of height the influence of only 8 or 10 CCTs has been tested), I'm guessing that part of the success of Brazil and Mexico is the government capacity they have.

Like microcredit, I've come to the belief that CCTs are generally good when well run (a big if), but I don't think they are a magic bullet.

See my previous posts on conditional cash transfers here.

h/t to Dan for the article

The Best Way to Help Mexican Coffee Farmers

2011-01-04T10:29:00.008-05:00

The above graph ((click on it to make it bigger) is from my most recent journal article on fair trade coffee farming in Southern Mexico. The graph shows the income sources for our survey of 850 coffee farming households. In short these households get as much in government subsidies as they do in coffee income. And of all the income sources remittances are by far the biggest. Only 35% of households receive them, but they represent something like 35% of income. In short we find that Fair Trade coffee farming can boost income around 5-10%, while sending one person to the US can double income.

If you are interested you can read the paper here

Thanks to my friend and loyal reader Lowell for passing on a related link that also shows migration can dwarf other development policies.

About my new links

2011-01-03T15:21:00.002-05:00

I have edited my links to reflect what I'm reading lately or intend to read more of in 2011. Here is a quick description on each blog. All blogs are highly recommended!

I include links to my professional web page and papers. If you want a copy of a paper behind a pay wall send me an e-mail.

Aidwatchers: Bill Easterly is a must read for people working or planning to work in International development
Chris Blattman: Place to go for thoughts on development, Africa focus
Economists Do It With Models: Jodi Beggs is one of the funniest economist out there
and world famous for arranging/performing the economics of Hannukah song
Freakonomics: Get your econ freak on with a variety of economists
James Manley ReseconTowson: My buddy and colleague provides insight on resource and environmental econ
Marginal Revolution: Full of great stories and always a new post.
Megan McArdle: Favorite blogging journalist covering financial news
NPR Health Blog: My old neighbor Scott on all things health
Seth Godin: Marketing insights daily
Silver Spring Singular: If it happens in Silver Spring it is there
Spousonomics: Linking marriage and economics. Buy their book in Feb 2011!
The Sports Economist: Best place for Sports Econ on the Web
Towson University: Hey they pay me, but I should mention the views here don't reflect that of Towson

Qdoba vs Chipotle

2011-01-03T08:20:00.002-05:00

-Picture from Green Eggs Marketing

On New Years Day I walked to downtown Silver Spring and in front of the Chipotle (which was closed for New Years) was a man handing out coupons for 2 for 1 burritos from Qdoba that is located 2 blocks away.

As economist I love this scene. It shows there is no burrito monopoly. It demonstrates the ice cream on the beach problem, where on a long beach two ice cream sellers should set up next to each other (see this old post)

Qdoba's 2 for 1 deal is also great news for those on the burrito diet!

Why Jews Eat Chinese Food and Watch Movies on Christmas

2010-12-22T08:53:00.002-05:00

Growing up Jewish my family celebrated Christmas in a very traditional Jewish way, we ate Chinese food and watched movies. The video below helps my fellow Jews improve their Chinese.

But why are Chinese restaurants different from all other restaurants? Most Chinese restaurants are staffed by Chinese people who don't celebrate Christmas. So the opportunity cost of working that day is a lot smaller than a Christian waiter. Even in Columbus Ohio a decent size city where I grew up it was hard to find much ethnic food other than Chinese until the mid 90s, this trend was similar throughout the country. Now I would guess there are more Thai and Indian places open for Christmas. However, if people associate Christmas with Chinese food, then other ethnic restaurants might not bother opening. Local DC food critics though suggest looking into non-Chinese options, since DC seems to do both Thai and Indian better than Chinese food.

Now why are the movies open? Movies are a capital intensive business. A movie theater only needs a couple of people to run it. Also movies are a great way to spend time together without talking to each other, a much needed gift during the holidays.

So enjoy your Christmas!

Pricing at the IMAX and Silver Spring Econ #1

2010-12-21T11:13:00.004-05:00

Just blocks from my house is a 20 screen movie theater, The Majestic, which just added an IMAX screen. Silver Spring Singular (a local blog) has a really great break down of some of the pricing for the IMAX screen (link).

For adults regular movies are $11 and IMAX are $17.50. We shouldn't be surprised by this the IMAX is according to most a better movie experience. Further there are fewer IMAX screen in the area then regular movie screens so competition is lower. The Majestic has a local monopoly on IMAX (the closest ones being about 30-40 minutes away).

Next as Singular points out for regular movies there are cheaper prices during the day, but not for IMAX it is $17.50 regardless of when you want to see the movie. Cheaper prices for matinée is what economists call price discrimination. The different prices allow the Majestic to get the most ticket sales depending on the demand for the time of day, it also allows the theater to attract cheap skates to the early show.

Finally, the convienance fee for printing your tickets at home for the IMAX is $2 compared to $1.25 for a regular movie. My guess is that people who are willing to see the IMAX are likely doing it for a special event (like the opening of Harry Potter) and probably willing to pay more to reserve a ticket. It could also be that as Singular puts it the people going to IMAX are "just rich as hell and don't give a damn"

Silver Spring Singular is a great local blog, but other local blogs haven't been posting as much. Perhaps I can add to the discussion about Silver Spring. I'm going to try to do some more Economics of Silver Spring (I realize this post wasn't too original) hopefully I can find things that both Silver Spring residents and non-residents find interesting. I'll be tagging the posts with Silver Spring Econ.

Final thought. Just one block further from the Majestic is the American Film Institute, where for $17.50 I can get a ticket, a beer, and a small popcorn. I'm guessing I'll do that more than go to the IMAX.

How I avoided the lines at the post office on Saturday

2010-12-20T13:06:00.002-05:00

Saturday was insane at the post office!!! I took one look at the line that ran out the door and was 9 deep for the one automated machine and ran away. I went straight to my local Office Depot. I knew they shipped UPS, so I figured even if spent twice as much to mail my package the savings in time and sanity would be well worth it. I got into Office Depot and they had no line. They also provide the same service that my post office does, literally they ship USPS mail.

Declaring my victory over opportunity costs and monopoly I walked over to Starbucks for a celebratory coffee (which was free with purchase of 1lb of whole beans).

Now to convince Office Depot to perform other government services.

The Public Good of Verifying Medical Claims?

2010-12-16T09:31:00.003-05:00

"Companies like Dannon shouldn’t exaggerate the strength of scientific support for their products." FTC Chairman Jon Leibowitz in a statement.

The company, though, stands by its products' abilities to keep the bowels moving brisky....the company will now have to let consumers know that any statements about benefits for digestion or the immune system are based on European studies involving three servings a day of yogurt.

From NPR
My inner middle school child is amused by the story linked about how Dannon was fined $21 million dollars for exaggerating the ability of their yogurt Activa to keep you regular.

I'm not sure this is the best use of the FTC, since you can verify pretty easily how well activa works in this manner. Although, it would seem harder to verify its impact on the immune system.

So my quick analysis is that the FTC should work harder investigating claims that are less verifiable without research.

Economics of Festivus

2010-12-15T13:11:00.003-05:00

Frank Costanza: "Many Christmases ago, I went to buy a doll for my son. I reached for the last one they had, but so did another man. As I rained blows upon him, I realized there had to be another way."
Cosmo Kramer: "What happened to the doll?"
Frank Costanza: "It was destroyed. But out of that a new holiday was born: a Festivus for the rest of us!"

If you don't know Festivus, it is a holiday made popular by Seinfeld a late 90s TV show. From the above quote you can see Festivus avoids the problems associated with fighting over gifts. Many economists (not me I like gifts) have pointed out the problems with holiday gifts including the book "Scroogonomics: why you shouldn't buy presents for the holidays"

What about Festivus traditions how would economists judge them?

Decorations: Instead of a Christmas Tree or Menorah, Festivus is celebrated with a alumin pole. On the one hand the pole is likely cheaper and the set up time lowers the opportunity cost of celebrating the holiday. Assuming revealed preferences and rationality I think it is a wash which decoration is better from an economics perspective. However, behavioral economists should look into this further as the Constanzas may not be perfectly rational.

Festivus Dinner: Holiday dinners are very optimal! They build social capital (Ok maybe not the Constanzas) and utilize increasing returns to scale of food production between 1 and 20 people or so.

Airing of Grievances: Many economists are also professors so December is a good time to air our grievances. However, unless airing grievances brings satisfaction or change in relatives behaviour, I'm not sure it is optimal.

Feats of Strength: Awesome potential game theory problem. In the feat of strength the head of household challenges another household member to a wrestling match. This is a great signaling and reputation game similar to the beer and quiche problem. Really the best game theory problem ever.

I'm not sure how many economists celebrate Festivus, but I wish any who do a joyous Festivus.

The control group won't get what it wants, but if we try we might just find what it needs

2010-12-14T11:59:00.002-05:00

Unfortunately, it’s often impossible to tell what will have the biggest impact if we always give everyone what they think they want. Science is a bitch sometimes.

-Jodi Beggs my favorite keyboard playing economist on her blog Economists Do It with Models.

She has a great post up about a program in New York that is randomly denying funds to people who apply to get help with their rent to avoid becoming homeless. The program has found that 90% of people who get help stay in their home, but the question is what would it be if there was no help. Perhaps it would 0% or 89% would still stay in their homes, a random experiment is the most accurate way of measuring the effect. However, it might not be the nicest.

One thing that happens in the developing world when a new program comes the group who doesn't receive the benefit(the control group) gets some other benefit even if it is not part of the design. For example I heard of one country where in half of villages children were payed to go to school and in the other half no benefits should have been received. But the government added in free school meal programs in many of the control communities increasing school enrollment in control communities and biasing the effect size downward.

I also heard of a randomize worker training program where those in the control group were given extra information about where else they could look for jobs.

So yes science can be a pain!

Borrowing to Save and Financial Literacy

2010-12-10T10:18:00.003-05:00

I blogged recently about the micro credit crisis that may be emerging in India and other developing countries, where repayments rates are falling. One issue is that poor families often use micro credit as a way to save instead of invest. Micro savings might not be viable as transaction costs are too high (see this post) . The distinction between savings and investment is important in economics. Savings is income minus consumption, while investment is purchasing things that will increase your income later (we call this capital). If you use all left over income to purchase capital then savings = investment.

Ideally micro credit would be used for investment. Since households must repay their loan at 50% interest. In some cases households use micro credit to save but not invest in income improving capital. In other cases micro credit is used to pay for school or medicine, which is an investment but the payoff is likely much further down the road. In any case it is hard to tell what is actually purchased with micro credit, since money as economist say in fungible. That is if you give someone $100 they could say they are using it for their business, but if they would have spent $100 on materials anyway and instead only increased their spending on schooling, then it is actually for school.

Perhaps most important is having financial literacy so that those who use micro credit can make better choices. This post is a couple months old, but Bilal Zia at the World Bank has a good description of current research in financial literacy.

9th night of Hannukah

2010-12-09T14:25:00.002-05:00

Thanks so much to Jodi Beggs from Economists Do it with Models for putting music to my Economists Hannukah song! I never thought I would write a song.

Here are the original lyrics that Jodi improved.

Are Economists Wrong About Secondary Ticket Sales?

2010-12-09T12:01:00.004-05:00

Truly, there is a special place in Hell for people who buy Rose Bowl tickets with the sole intention of profiting from them. It is entirely unfair to those who actually love this football team and were counting on a cheap face value ticket in order to make the trip to Pasadena an economic reality

.

From University of Wisconsin's student paper the Badger Herald. The knee jerk economists reaction is that reselling tickets is efficient. If you can resell those who are willing to pay the most will get the tickets and those who want to pay less and win the lottery for tickets will get extra money. Those who lose the lottery should be indifferent. Now one point could be that the chance of losing is greater if the number of people participating in the lottery increases, because there are easy profits to be made. It should be noted although I didn't do it, I kept meaning in grad school at Wisconsin to sign up for football season tickets to resell them at a profit and get a couple of games free.

Now what economists may miss. I think most economists would do the analysis using consumer surplus that is the benefit is measured by the
#1) benefit = the most someone would pay - what they paid

Instead I think most people think the benefit might be measured as
#2) benefit = happiness from going to the Rosebowl - what they paid.

For students with limited funds, it's possible that way#1 and way #2 will yield different socially optimal distributions. It comes down to how close money and happiness are linked, which is a whole other line of research.

This is just a thought exercise, but it is worth thinking when economists disagree with public reaction strongly, how we reach our conclusions

h/t to Phil Miller at the Sports Economist

Hi Marginal Revolution and Economix Readers

2010-12-08T13:20:00.003-05:00

If you clicked on the link because you love Hannukah and Economics may I suggest you also see my Economists Hannukah song from 2007.

Enjoy your last night of Hannukah my jewish econ friends!

Or start get an early start on Passover with the economics of Passover posts.

Money for me or jobs for the unemployed?

2010-12-08T10:52:00.002-05:00

The compromise includes a one-year cut in the payroll tax by 2 percentage points. The tax cut will be entirely in the employees' share. Why do you think they designed the policy in this way? Was it the right choice

From Greg Mankiw's blog describing the agreement between Obama and republicans, which trades a cut in payroll taxes for a cut of taxes for income over $250,000.

Mankiw notes that for most goods making the buyer or seller pay the tax shouldn't matter. However, wages tend not to change fast particularly they tend not to drop (economists call this sticky wages).

In short to summarize Mankiw by cutting the employees' share that means more money in the pocket of anyone who gets a pay check (hey that's me!). If you cut the employers share it means they could hire workers for 2% less than they are paying now or use the savings for investment in new capital. So as I understand it giving the tax break to workers should increase spending faster, while giving it to employers should decrease unemployment faster.

As an economist #2 seems better, as a person keeping 2% more of my income sounds better. So perhaps the best political decision is to give the money to the employee.

Discussing my research in class

2010-12-07T13:06:00.002-05:00

In class today I'm discussing a paper I wrote with my favorite co-author/father. Below is the abstract. Here is a link to the full paper.

Coming to Homerica: The Economics of Immigration
by Seth R. Gitter and Robert J. Gitter

Abstract: Like many people throughout history Apu Nahasapeemapetilon’s decision to migrate from a poorer place (India) to a richer one (Springfield) has been in part an economic one. We use him as a case study from the episode “Much Apu about Nothing” to demonstrate how economists study migration. As the standard models suggest, Apu receives benefits and pays costs as a result of migrating. We also analyze the impact of a large migration on an economy using the great wave of Ogdenvillians who came to Springfield in “Coming to Homerica.” We look at the effect of immigration on wages, taxes, and government spending. For readers like Lisa Simpson we conclude with some suggestions for further reading and pose policy questions. For readers like Bart Simpson we write in a style that can best be described as “eat my shorts.”

Sometimes when you win you lose

2010-12-03T14:06:00.004-05:00

With a win over Nevada, Boise State would play in a championship bowl. If Boise State makes a championship bowl, then all of the teams in its conference would also receive a 1 million dollar payout. Nevada is in Boise State's conference so if Nevada lost they would receive the million dollar payout (see this article). Now a more complex analysis would consider some other things, but I think looking at all the possibilities, Nevada would lose money by winning the game.

Nevada lost the million dollars, but won the game.

This reminds me of the story of trying to score on yourself. The game was Barbados vs Grenada in the 1994 Caribbean soccer cup. Due to tie breakers Barbados would advance to the next round if they won by 2 or more goals. With 3 minutes left Barbados was only leading by one goal. But a tournament rule declared a team won by two if they won in overtime. So Barbados scored on themselves on purpose forcing the game in overtime. Then they won in overtime and went to the next round.

h/t to John for sharing this article

How Many Economists Does It Take to Clean a Microwave?

2010-12-02T09:19:00.003-05:00

So it looks like from an e-mail I got our cleaning services people won't clean the microwave in our departmental common area. The question then becomes.

How Many Economists Does It Take to Clean a Microwave?

Answers (in jest):
None, if it was optimal to clean the microwave one would have already done it.

One, once the dirtiness level surpasses the economist with the lowest threshold they will clean it themselves creating a public good.

Two, one to clean it and the other to point out that the other does not have a comparative advantage in cleaning.

Never more than three because there are diminishing returns to labor when cleaning a microwave

A Miracle PPF Happy Hanukkah

2010-12-01T09:23:00.002-05:00

If that isn't enough here is my economists' chanuka song from 3 years ago.

Microcredit crisis?

2010-11-29T16:27:00.004-05:00

"Loan officers learned that they could line up customers more quickly in villages where their competitors already operated, for there the women would have been educated in the mechanics of microcredit—and might want new loans to service old ones. So loans were heaped on top of loans."

From David Roodman's guest post over at Aidwatchers on the microcredit crisis described well on the link by Vivek Nemana.

One thing I have been worrying about with microcredit is that most loans are to start or continue simple businesses like selling food, making clothing, or opening a small store and at some point there is no more room for new business (see previous post).

After visiting a small village in Mexico with 4 rural convenience stores with little to no business for each one, I have to wonder if the opportunities to continue to make returns of 50% (a typical interest rate) for microcredit are still there.

I'm Thankful You Read This

2010-11-24T13:01:00.003-05:00

Thanks for reading my random musing on economics! I'm not sure how many of my 50 or so google subscribers and 30-40 show on my site meter read the blog regularly or if they all just looking for pictures of Abe Lincoln and the Dude I posted. Thanks to Britt, Dan,my Dad, and others for commenting on posts. I will get to Dan's question regarding Coase and Ostrom's take on PooPrints next week.

As always I'm happy to entertain questions and I hope you enjoy reading the blog.

I wish you and your family a happy thanksgiving!

If you still need some econ thanksgiving thoughts here is my two year old post on turkey prices

Student Loans and Behavioral Economics Continued

2010-11-23T11:57:00.002-05:00

Kelli Space graduated from Northeastern last year with $200,000 in debt. With 4 years of tuition, room and board, a semester abroad that doesn't seem unbelievable. She is now asking for donations at a website

I don't think her story is completely uncommon. I wonder why she chose to go to Northeastern over a state school, which would have been half the cost? Also is there a policy that could prevent people from making this choice? Finally should a policy exist?

In a behavioral sense we want to ask if Kelli exhibit awesome stupidity, or made a rational choice.

Although this paper by Rothestein and Rouse suggests it might not be that bad, if higher loans cause people to try to make more money.

DNA shows who soiled the commons (a crappy analysis)

2010-11-22T12:09:00.003-05:00

This American Life featured a story on PooPrints, a company that DNA tests dog dropping to determine which dog left a mess. Economists often talk about the tradegy of the commons, and anyone who has stepped in dog poop knows that commons (open shared green space) become less valuable when filled with dog poo.

So in what situation will PooPrints work? First since it costs $30 to register a dog and next for each test you need to pay $50 to have the sample matched against the database of registered dogs. To work you must have an area where only certain dogs go (like a gated apartment or condo) and an organization where people can actually get people to register their dog.

So when will PooPrints be worth it? To make it simple we could assume everyone is a dog owner and that no poo goes unmatched. In that cases the reduction in poo would have to be worth $30 for it to be approved in a vote. A more complex case could consider when both dog owners and no-dog owners have to pay and there are cases where the poo is not matched. In that case the difference in utilities from the amount of poo with PooPrints (Upp) minus the utility with no PooPrints (Unp) is greater than $30 times the percentage of people with a dog (d) plus the % of times there is no match (nm) times $50 we also subtract out the case where there is fine if the dog is matched which will happen 1-nm% of the time (one fomplex had $100 fine so we will use that).

Upp - Unp > d*$30 + nm*$50 - (1 -nm)*$100

Would you see a movie with scenes of awesome stupidity?

2010-11-18T10:39:00.003-05:00

Yes I would see a movie with scenes of awesome stupidity. Like the intentional stupidity of Harold and Kumar or the unintentional stupidity of Plan 9 from outerspace.

So if Roger Ebert said about the movie The Perfect Man "[It] takes its idiotic plot and uses it as the excuse for scenes of awesome stupidity" do you think the makers of the movie would want to advertise this fact.

Well as my reader Brett pointed out the movie's Asian distributor put the quip on the cover of the DVD (link).

So what can we conclude. Either the distributor doesn't know what the quote means, the public doesn't know what the quote means, the customer will likely disagree with Roger Ebert, or the public wants to see bad movies.

I'm going to go with a combination of #1 and #2. I think too often economists ignore the fact that people sometimes show signs of awesome stupidity, including me.