Friday, April 27, 2007

Why Are There So Many Reality Shows?

Economist Austan Goolsbee has an article in the NY Times that looks at the economics of reality shows. He starts with a question of why there are so many reality shows (in particular, shows like American Idol), and comes up with the following initial answer:

Some say it’s just that people now lack the attention span for old-style television or that our tastes have changed.

Most insiders point out that reality shows cost much less to make than scripted shows, and, they argue, this is just a profit play by the broadcast networks.

However, he astutely points out that if reality shows are popular because they are cheap to make, why weren't they popular 20 years ago. As Goolsbee says, "Surely the broadcast networks wanted to save money back then, too."

Goolsbee then cites Harvard economist Richard Caves, who comes up with the explanation that reality shows are popular because there are so many TV choices with the proliferation of cable and satellite:

He points out that such incentives depend on the size of the potential market. The programming is a fixed cost — networks pay for the programs even if nobody watches. If paying an extra $1 million to get a star onto a show, for example, raises every customer’s love of the show by the equivalent of $1, the investment more than pays off if there are 10 million potential viewers. But the $1 million investment would be a terrible flop if there were 10,000 potential viewers.

So the increase in reality programming is not just a matter of broadcasters wanting to save money. It’s that a shrinking potential market gives the networks less incentive to spend money. They can’t recoup it with enough viewers.

Any opinions on this question of reality show popularity?

(Source: Marginal Revolution)

Thursday, April 26, 2007

Fascinating Predictions

Here is a list of predictions of what the world will be like in the year 2000, made for a magazine in the year 1900. It is a really interesting list. Here are a few of the most interesting to me:

Mosquitoes, house-flies and roaches will have been practically exterminated.

Strawberries as Large as Apples will be eaten by our great-great-grandchildren for their Christmas dinners a hundred years hence.

There will be No C, X or Q in our every-day alphabet. They will be abandoned because unnecessary.

There will be no wild animals except in menageries.

Those are some of the ones that sound ridiculous, but there are actually plenty of others that sound familiar. For instance:
Ready-cooked meals will be bought from establishments similar to our bakeries of today.
Any that you find particularly interesting? Be sure to explain why.

(Source: Marginal Revolution)

Which Countries Supply the Most to Wal-Mart?

Benjamin Edwards spent a day driving to as many Wal-Marts as he could (he went to 8) and writing down where each product he picked up came from (he picked up 727 items).

Here is a map showing where the most goods came from (the relative size of the country on the map indicates how many goods came from that country).

(Source: Marginal Revolution)

Explaining Income Inequality Through Harry Potter

Economist Alex Tabarrok argues that the way to explain why incomes are becoming less equal in the world and in the United States is to look at why some writers, like JK Rowling are making tons of money. Basically, it comes down to the fact that everyone is staying about the same, while a few top-earners are making a lot more than they used to because they have larger global markets than they used to. So Tabarrok's explanation is not that the poor are getting poorer, but rather, the richest few are pulling away from the pack.
I do not disparage Rowling when I say talent is not the explanation for her monetary success. Homer, Shakespeare and Tolkien all earned much less. Why? Consider Homer, he told great stories but could earn no more in a night than say 50 people might pay for an evening's entertainment. Shakespeare did a little better. The Globe theater could hold 3000 and unlike Homer, Shakespeare didn't have to be at the theater to earn. Shakespeare's words were leveraged.
(Source: Marginal Revolution)