Negative Externalities: Double Dipping
By Chris | February 2, 2008
I have always been critical of double dipping. Seinfeld-inspired research out of Clemson University finds that double dipping shares a surprisingly large amount of bacteria:
On average, the students found that three to six double dips transferred about 10,000 bacteria from the eater’s mouth to the remaining dip.
There are some benefits to double dipping, but they aren’t very large. I find that breaking the chip in two, or dipping alternative sides, provides a sufficient level of dip. Since “double dippers” don’t have to pay for any of the costs of increased bacteria, we have way too much double dipping. I’m doing my part to make it socially costly. Are you? (The same concept applies to sharing drinks, drinking out of the communal milk carton etc. etc.)
Topics: Economics | 3 Comments »
Recycling Christmas Trees: A Family Tradition
By Chris | December 24, 2007
Many cities host Christmas tree drop-off sites where used trees are picked up by city officials and mulched up to be used for compost and landscaping. Most trees are dropped off after Christmas. However, a few families leaving town early for the holidays drop off their tree early. My family banks on recovering such a tree each year. Everyone keeps a watchful eye on the drop-off spots, intentionally driving past them on the shopping trips and other errands. Earlier tonight we found a used Christmas tree for yet another successful scavenging year.
The used Christmas tree market doesn’t have a lot of economic implications. It’s not really a market because no exchange is taking place. One party is discarding a good and another, who values it, is recovering it. Which begs the question: why don’t families with unwanted trees try to sell them? The economist in me would argue that the market it too illiquid (most people already have trees by December 23rd) and the transaction costs are too high (especially relative to the deteriorating quality of the tree). However, another part of me likes to think that those families part freely with their trees in the hope that they will make someone else’s Christmas a little merrier. Listening to my sister shout gleefully, “A tree, a tree” I suspend my marvel with markets and enjoy the unique joy an anonymous gift can bring. Merry Christmas!
Note: Please forgive the sparsity of my posts recently. I should be back to a post every day or two after Christmas.
Topics: Economics, Markets | 3 Comments »
Thoughts from New Orleans
By Chris | December 16, 2007
I’m done with my first semester of graduate school and am spending the day in New Orleans before driving with my brother back to Idaho. We visited Bourbon Street last night. What a place. Drinking in public is allowed (no glass containers though), and it was really interesting to see the disparity in prices between drinks to go and drinks in bars with free live music. Almost none of the bars have cover charges. Instead, bars have a one or two drink minimum to enter the establishment. And, drinks in these bars are pretty pricey. I paid 12 bucks for a Budweiser and a Corona. You could have purchased three times the alcohol to go from a street vendor. The high beer prices pay for the music and environment while rationing seating during peak times. On off days like today (Sunday) 3 for 1 specials are abundant. Psychologically, consumers seem to prefer high prices and occasional discounts to lower prices and occasional surcharges (covers).
Speaking of psychology, I’ve been reading Blink by Malcolm Gladwell. He discusses an economist and psychologist who run a speed-dating service in New York. They have the daters fill out a survey on what characteristics they value in a potential date before participating. They are later asked to evaluate the people they just met on the same characteristics. It appears that the personal characteristics people say they value in others aren’t the characteristics present in people they end up picking. For example, beforehand a women may say she is looking for a smart and sensitive guy. But, later she will choose to meet guys that she ranks as funny and extroverted. What is the women really looking for? The economist, Raymond Fishmond says, “The real me is the me revealed by my actions. That’s what an economist would say.” It’s definitely not that simple. A person’s choice is dictated by the structure of the dating game. Matchmaking services online likely result in more pairings based on prior preferences. The nature of the internet probably diminishes the allure of those characteristics that are attractive in the moment. Incomplete information about the dating games available and the way our own mind works means that there is more to utility then just revealed preference. When preferences aren’t consistent over time, how can we compare them?
Note: I’m writing this from a coffee shop without prices on the menu: an interesting strategy that puts me in a dilemma. I’m not sure if the pleasure I’ll get from the cupcake will exceed its costs. It’s awkward to ask how much it costs. My brother offers to pick up the tab; I order the cupcake.
Topics: Economics, Updates | 2 Comments »
Finals and Ice Storms
By Chris | December 12, 2007
are keeping me occupied. I should be back to posting in a few days.
Topics: Updates | No Comments »
The Opportunity Cost of a Trip to Yellowstone…
By Chris | December 10, 2007
Is all the Wii you could have played if you stayed home. In a 2006 paper, Oliver Pergams and Patricia Zaradic come to the conclusion that the increase in electronic media is responsible for the decline in national park attendance since 1988. That national park attendance was on the decline was news to me. Growing up within a two hour’s drive from Yellowstone, the nation’s flagship national park certainly seemed more crowded every year. When I worked at Mt. Rainier National Park, it was obvious that the parking lot and other facilities were designed for much smaller crowds. And, I remember reading recently that Yosemite National Park was promoting park buses to reduce congestion.
However, per capita, average annual national park visits fell from 1.16 in 1988 to .92 in 2002. That is about a 20% decline in attendance. This is a sharp reversal from the preceding upward trend in attendance since 1940 (see this graph). In their own words:
“Multiple linear regression of four of the entertainment media variables [television, internet, theatre and video game measurements] as well as oil prices explains 97.5% of the recent decline [in attendance]. We may be seeing evidence of a fundamental shift away from people’s appreciation of nature (biophilia, Wilson, 1984) to ‘videophilia,’ which we here define as the ‘new human tendency to focus on sedentary activities involving electronic media.’ “
The regression between per capital national park attendance and the obvious uptrend in electronic entertainment isn’t surprising. You’d surely find obesity rates negatively correlated to park attendance over this time period as well. I would also have liked to see the authors examine the impact of the price of admission on attendance. Nevertheless, it’s hard to argue that the rise of electronic entertainment and the attitudes it fosters has contributed to less interest in national parks. Should we be worried though?
National parks and other forms of outdoor recreation are “rival” goods. The more congested a national park, the less serene it is for all visitors. The more anglers fishing a stream, the fewer trout are alive and willing to bite. The more popular a backpacking trail, the more likely you are to find someone else’s toilet paper. The opposite is true of electronic entertainment. By nature movies, video games, and internet content have relatively high fixed costs but very low marginal costs. When I rent the latest blockbuster on DVD, no one is worse off. In fact, when more people consume digital content average costs decline and product variety increases. It’s sad that many people are content to explore only virtual worlds and watch geysers erupt only on the movie screen. But, when I’m catching wild trout on a pristine stream, I don’t mind that competition for this resource may be getting less cutthroat.
Note: I found this article lying on a table in my university library. It’s amazing how how easy it is to get distracted while studying for finals.
Topics: Economics, Environment, Markets, Web 2.0 | 1 Comment »
Markets in Everything: “Mafia” Clubs
By Chris | December 7, 2007
The game that involves 10 to 20 players role-playing townspeople and members of the mafia is phenomenally popular in China. The game is based on deceit and deception. A few players are secretly designated as the mafia and attempt to kill off the other players (townspeople) before they themselves are discovered and executed. If you’re not familiar with the game check out this explanation on Wikipedia. The game is a lot of fun, I learned how to play at a debate tournament in high school. It is a well known social game in America, but it has not been commercialized. That’s not the case in China:
Xclub, in the Haidian District of Beijing, was one of the first “Mafia” clubs in China. The Beijing-based club has registered more than 50,000 members all over the country since opening for business in March [of 2006]. Yuan said members are from a wide range of circles, including public relations workers, media people, IT engineers and students.
And these clubs are big:
The PK Game Club was one of the first and biggest clubs for Mafia in Beijing…The club, which has seven rooms capable of holding 12 to 16 people each, exists solely to provide a venue for the 2,000-plus members to play the game from 5 p.m–8 a.m. Music gets piped into the rooms to signal when the rounds change, and referees make sure things proceed in an organized fashion. The club also offers training for prospective players who aren’t yet up to international assassin levels.
Mafia clubs exist in many other parts of China as well. One club charges 10 yuan (US$1.2) per hour, per player. It appears as though the popularity of Mafia may have peaked in 2006, but it’s still thriving.
Hat Tip: My friend Xiaobao who informed me that Mafia is played professionally in China. Special thanks to loyal reader, Laura, for hosting a much anticipated Mafia night.
Topics: Economics, Markets | 3 Comments »
Hometown Unemployment
By Chris | December 5, 2007
The unemployment rate in the Idaho Falls/Blackfoot greater area is currently 1.4 percent (as of September). The data is courtesy of Economagic.com, a great site that compiles all sorts of interesting economic data. It is worth checking out. And, if you’re looking to relocate to a small western town with amazing trout fishing, frisbee golf, and 4th of July fireworks, you should consider Idaho Falls as well.
Topics: Uncategorized | 14 Comments »
Causes of the Subprime Fiasco
By Chris | December 5, 2007
I tutor a Principles of Macroeconomics class and today I helped some students prepare for a final exam question on the causes of the subprime housing meltdown. We discussed how the packaging and sale of securities on Wall Street provided the wrong incentives for banks granting loans. The tendency of appraisers to overvalue homes was considered. Low interest rates and irresponsible (occasionally fraudulent) borrowers were also mentioned as culprits.
Growing up in the 90’s my mom was constantly looking for a new house. We went to a lot of open houses. It got to the point where she knew most of the Realtors in my hometown of 50,000 on a first name basis. And while, she never found anything with the charm and location of our brown house with black walnut trees, perusing houses with my mom gave me a pretty good pulse on the housing market. And prices always went up, at a surprising rate. Initially, I thought a growing population was the driver of price increases. Land, as a finite resource, will become more expensive as more people are alive to demand it. But, population growth alone can’t explain real estate prices. The U.S. population grows at approximately 1 percent per year. Moreover, land is usually a small percentage (maybe 25% at most) of the cost of a new house. In California, and elsewhere, restrictions on land use have likely contributed to higher housing prices. But, the root of growth in national housing prices lies elsewhere.
While median income has grown slowly over the last decade and a half, consumers tastes and preferences have changed dramatically. One need look only to the most recent subdivision to see that today’s median home dwarfs those built in the 1960’s and 1970’s. I found the argument made by this article very compelling:
People have become so enthralled with status that they seem to have forgotten the reason why we live under a roof and between four walls–shelter.At one point, that’s all a home really was. Nowadays, things are a bit different. Owning a home has not only become the equivalent of owning a piece of the American dream, it has become a way to measure success.
An overwhelming number of people embraced this concept during the most recent housing boom. Home prices began to swell beyond reasonable levels as more and more people bought into the market.
It wasn’t long before it became impossible for most people to buy median-priced homes on median incomes. By 2005, people were spending 60 percent more on average in the largest metro areas to buy rather than rent.
Median income doesn’t capture the entire picture. Higher incomes in the top percentiles have been growing at a faster rate than median income and some of that income is being plunked into real estate. Nevertheless, in a country so image conscience that average annual savings is often negative, is it really surprising that lots of homeowners have bit off more than they can chew when purchasing their home?
Topics: Economics | 4 Comments »
Carbon Emissions Fall
By Chris | December 4, 2007
From the December 3, Wall Street Journal opinion page:
The Bush Administration announced last week that U.S. emissions of carbon dioxide fell by 1.8% from 2005 to 2006. Output of all greenhouse gases was down 1.5% last year. All this while the American economy grew by 2.9%. It’s the first time since 1990, when the U.N. began counting these things, that the U.S. has reduced emissions without also suffering a recession.
Critics immediately pointed to the Energy Department’s acknowledgment that the reductions were in part due to higher energy prices and favorable weather. But greater use of lower-carbon energy sources, including natural gas, also played a big role. The U.S. reduction also suggests that letting markets work through higher prices will reduce carbon emissions more than the cap and trade mandates favored by environmental lobbies and most Democrats.
I’m not sure the last sentence is accurate, McCain for example is a big supporter of a cap-and-trade system and Giuliani opposes any new energy taxes. Even if carbon emissions are falling on their own, there will always be too many of them if the environmental cost on others isn’t added to the price. I don’t have strong feelings about global warming. I found the video the Great Global Warming Swindle surprisingly convincing, but I also recognize that this is not the scientific consensus. It bothers me when people without economics backgrounds attack free trade, so I’m hesitant to do the same in the realm of climate science. Even though scientists largely agree that humans are causing the globe to warm, what to do about it is largely an economic question. Is it cheaper to adapt to climate change or reduce emissions now? At what rate to we discount future benefits/costs? The issue is complicated by a lack of understanding of the consequences of climate change, and gross wealth disparities between the developed and developing worlds. I don’t have any answers, but in the meantime it’s nice to know that 3.00/gallon gas prices are causing annual carbon emissions to fall.
Topics: Economics, Political Science | No Comments »
Chavez Constitution Fails
By Chris | December 3, 2007
Voters rejected the proposed amendments to the constitution 51 to 49 percent. The new constitution would have eliminated term limits, making it possible for Chavez to rule indefinitely. The United States is still the single largest buyer of Venezuala’s oil. However, much of the oil is consumed internally.
Petróleos de Venezuela, the state oil company, says it produces 3.3 million barrels a day, but OPEC places its output at just 2.4 million barrels. And private economists estimate that a third of oil production goes to meet domestic consumption, which is surging because of a subsidy that keeps gasoline prices at about seven cents a gallon.
I’m guessing that if President Bush subsidized gasoline down to 7 cents per gallon, his approval rating would be pretty high as well. If the country wasn’t so politically unstable, I’d be tempted to visit just to go on some long drives.
Topics: Economics, Political Science | No Comments »
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