Microcredit crisis?

"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

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

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)

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?

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.

What Has Two Thumbs and Can Increase Movie Revenue

I'm always happy to take blog request and reader Brett asked me take on the question "Specifically, what is the value of critical acclaim (or criticism) to a movie? "

My first thought was this would be hard to figure out, since if a movie is good more people will see it and critics will rate it more highly. So high critic ratings might not actually be causing the result. I did a literature search and Reinstein and Snyder (2005) in the Journal of Industrial Economics take on this vary question.

The abstract starts by saying "An inherent problem in measuring the influence of expert reviews on the demand for experience goods is that a correlation between good reviews and high demand may be spurious, induced by an underlying correlation with unobservable quality signals." In other words critics like movies audiences like.

So how do they deal with this. They use the timing of Siskel and Ebert's reviews to see if they had an impact on a movie's revenue. In other words they compare opening weekend revenue for movies that get a thumbs up during or before opening weekend and those after. Reviews released after should have no impact on revenue. Unless Siskel and Ebert choose when to review movies based on how good they are. Luckily the paper shows that timing is not influenced by quality.

So how much is a thumbs up worth? About 37% increase in revenue for art house films and a 51% increase for dramas. Siskel and Ebert appear to have had no impact on comedies or action movies.

This paper came out in 2005 and uses data I think from the late 90s (ie the time before wide use of the internet). I wonder if any of the major critics have the same impact today.

Tuition and Drink Selection

Maybe if college wasn’t so expensive, we wouldn’t have to try to get a six-pack of beer from one three dollar can.

From a Towson Student defending the drinkers of four loko a 12% alcohol beverage with lots of caffeine too.

Doing a quick literature search I could not find any evidence that increasing college tuition changed students drinking habits. I did find this paper by Benjamin Cowan that suggests that high school students engage in less risky behavior if college tuition is lower from his article. Although I don't know Benjamin he did get his PhD from Wisconsin Madison, so I'm going to assume he has observed people drinking.

From his abstract: "Specifically, a $1,000 reduction in tuition and fees at two-year colleges in a youth's state of residence (roughly a 50% difference at the mean) is associated with a decline in the number of sexual partners the youth had in the past year (by 26%), the number of days in the past month the youth smoked (by 14%), and the number of days in the past month the youth used marijuana (by 23%)."

So maybe this four loko drinker is on to something.