Protect Big Cities or Small Cities from Terrorists?

An article in the New York Times called "Bad Things Happen in Small Places" criticizes the Department of Homeland Security for directing all of its spending to large, coastal cities and neglecting terrorism defense for smaller cities.

The author was the governor of Oklahoma when Timothy McVeigh's Oklahoma City bombing took place in 1995, which provides the motivation for teh op-ed and part of his argument.

The decision of how to spend Homeland Security funds is definitely a problem of allocating limited resources. What do you guys think of how this decision should be made? What do you think of Keating's criticism of current spending plans? (Make sure you read the article before responding & you frame your answer in terms of costs and benefits).

(Source: Environmental and Urban Economics Blog)

Starbucks' Price Discrimination

This article last week by Tim Harford discusses price discrimination by Starbucks. Apparently, there is a size of cappucino that they do not list on the menu and you have to ask for specially: the "short" cappucino, which is higher quality and cheaper.

Making you ask for it is the way that they differentiate their customers: people who are more price-conscious are more willing to go through specially asking for the size.

This strategy is similar to the strategy of offering coupons. Another example mentioned in the article is a British grocery store, Tesco, that puts its cheaper store-brand of products in notoriously ugly packaging (again, more price-conscious customers will care more about the price than the packaging).

Any other examples of businesses trying to segment their customers this way? Any other explanations for why Starbucks would have that secret menu item?

Livestock ATM

Here are a couple of excerpts from an article from the BBC about Muslims in Indonesia being able to make religious sacrifices through ATMs:

On Tuesday Muslims across the world are celebrating Eid al-Adha, the Islamic day of sacrifice. Every Muslim who is rich enough is supposed to donate an animal to be slaughtered, and the meat is donated to the poor.

Sourcing the ideal beast can be time-consuming, but in Indonesia help is at hand. There is now an easy alternative - you can buy an animal at your nearest ATM machine. A newspaper, TV station and local bank have joined forces to provide the service. Having made their electronic purchase, customers are promised photographs of the slaughtered animal and a letter of thanks from the community which will benefit from the donated meat.

So far almost 4,000 goats have been sold this way at a cost of about $70 (£40) each. A sacrificial cow will set you back more than $500.

(Source: PSD Blog)

Xbox Shortage

For those of you who use 90% of your life to play Xbox, here is an economic question about the recent debut of the Xbox 360:

Why was/is there a shortage of Xbox 360's at many stores?

There is always a shortage of the most popular Christmas gift every year, and this year is no exception. The real question though is:

If Microsoft and retailers that sell the Xbox know that demand is going to very high for the Xbox 360 (which I assume they did), instead of running out of the game consoles, why don't they just raise the price to get rid of the shortage? They would then sell the same amount for a higher price and earn more revenues.

Any thoughts? I will post some articles that discuss this problem, but I want to see what you guys think on your own first.

Regulating Clothes Sizes

Marginal Revolution reports on a new law that has just taken effect in Buenos Aires:

Women in search of fashionable clothes the world over have a similar problem: What do you do if you are not a size 6?

Some government leaders in Argentina have an answer. They have passed a controversial law designed to break what they see as the tyranny of tiny sizes. Starting Dec.21, Buenos Aires province, which includes the capital's glitzy suburbs but not the fashion-forward city itself, will require shops catering to adolescent girls to stock clothing in a minimum range of sizes roughly equivalent to sizes 6 to 16 in the U.S.

Provincial inspectors will scrutinize merchants' clothing racks, "tape measure in hand," says Ana Serrano, the province's director of commerce and designated sizing sheriff. Shops that don't have the prescribed sizes in stock will face fines of up to $170,000. Officials maintain that the small clothes put pressure on young women to take up extreme dieting. That in turn contributes to one of the highest rates of anorexia and bulimia in the world, they say.

In a nation where stylishness is a national religion, the sizes law is triggering a fevered debate...Argentina women who aren't extremely thin have an unusually tough time finding fashionable clothes.

What do you guys think of this law from an economic perspective? Is there a market failure here that the government needs to regulate? Do you think the clothing stores are just providing what the consumers demand and there is no need to intervene?

Hiatus

Walker Economics Blog is currently on hiatus and will return better than ever at the beginning of the year.

Here is a link to where this blog was quoted in a C-Net article (scroll to the bottom of the page).

Also, here is a link to our page on a website called BlogShares that is a "fantasy stock market where weblogs are the companies." Ummmm......wow, that sounds like fun. I am pretty confident that the only thing more dorky that having an economics blog is trading "fantasy shares" in them.

Apparently, the assign a value to a blog and then you can buy shares in it, and it gains or loses value based on how many websites it links to and how many sites link to it. Right now, the Walker Economics Blog is valued at a whopping $1000 blogdollars...

What Affects Tips?

Remember this in case you ever get a job waiting tables (from an article in the Washington Post by Richard Morin):

Scrawling a patriotic message on a restaurant tab is a great way to boost tips -- at least in northern Utah. Communications professors John S. Seiter of Utah State University and and Robert H. Gass of California State University at Fullerton instructed two waitresses to serve up four different types of bills to 100 diners at two local restaurants.

The servers wrote "United We Stand," and "God Bless America" or "Have a nice day" on the bills. A control group received no personal note.

Patrons gave a 20 percent tip on tabs that included "United We Stand" but only 15 percent when they got no message at all. The other two messages garnered slightly more than 15 percent, Seiter and Gass reported in a recent article in the Journal of
Applied Social Psychology.

These conclusions about tipping come from a researcher named Michael Lynn from Cornell:

1. Two studies show little relationship between quality of waiter service and size of tip.

2. Hotel bellboys can double the size of their tips, on average, by showing guests how the TV and air conditioning work.

3. Tipping is less prevalent in countries where unease about inequality is especially
strong.

4. The more a culture values status and prestige, the more likely that culture will use tipping to reward service.

5. Tips are higher in sunny weather.

6. Servers can increase their tips by giving their names to customers, squatting next to tables, touching their customers, and giving their customers after-dinner mints.

7. Drawing a smiley face on the check increases a waitress's tips by 18 percent but decreases a waiter's tips by 9 percent.

8. In one study, waitresses increased their tips by 17 percent by wearing flowers in their hair. In general it pays to look distinctive albeit not freaky.

Here is a full article by Dr. Lynn offering advice on how to increase tips based on his research.

Any thoughts on why these techniques work for increasing tips? Any other things that you think affect the amount that you tip in a restaurant?

(Source: Marginal Revolution)

Hiring Funeral Guests

Here is an article about professional funeral guests in Taiwan. You hire them to create the appropriate level of sorrow at a family member's funeral:

Liu and her five-member Filial Daughters' Band are part of a thriving mourning business in Taiwan. They're professional entertainers paid by grieving families to wail, scream and create the anguished sorrow befitting a proper funeral.

The performances are as much a status symbol for the living as a show of respect for the dead on this island of 23-million people lying 145 km off the Chinese coast.

Weary, grieving relatives hire groups like the Filial Daughters' Band to perform their mournful stuff for $600 for a half day's work.

Maybe for a little more money, you could get Al Pacino to give an impassioned eulogy or bring in a phone booth and have Will Ferrell scream out "I'm in a glass case of emotion!" at your funeral.

(Source: Marginal Revolution)

Social Benefits and Costs of Advertising

This is an extension of our discussion in class on advertising.

What do you think of advertising? In what ways is it good for society as a whole or bad for society as a whole? In what ways is it efficient or inefficient? You should come up with specific examples.

From the individual perspective, advertising is pretty avoidable in a lot of cases if you find it personally annoying (XM radio, HBO, Tivo or other DVRs, popup blockers on web browsers). See this post from economist Bryan Caplan.

Feel free to throw in your own favorite commercial in addition to your comment. One of my favorites was one I saw on a big screen in the middle of the Ginza district in Tokyo: it featured a a big formation of people singing and dancing with a huge smiling, laughing teapot at the front of the formation. I may have found it funny because it was really strange, because it reminded me of the Kool-Aid guy, or because I don't think the commercial was advertising anything to do with tea or teapots, but then again it was mostly in Japanese.

Economics of Torture Policy

A big news item of late is the debate over whether to make torture illegal that has involved Dick Cheney and Congress. Alex Tabarrok posted a very interesting point on how the debate over whether to make it illegal is not a debate over whether to never use torture, but rather on how high to make the price of torture:

President Bush, Dick Cheney and others who support the use of torture by the United States and its agents usually rely on the ticking time bomb argument. Sometimes torture is necessary to prevent a greater evil. I accept this argument. If my kid were kidnapped and the suspect was refusing to talk, I'd want Vic Mackey to do the questioning.

But it does not follow from the "ticking time bomb" argument that torture should be legal. The problem with making torture legal is that the government will abuse its powers. I do not trust the government, any government, to use this power responsibly. Leviathan must be heavily restrained, especially when it comes to torture.

Here is where economics can make a contribution. By making torture illegal we are raising the price of torture but we are not raising the price to infinity. If the President or the head of the CIA thinks that torture is required to stop the ticking time bomb then they ought to approve it knowing full well that they face possible prosecution. Only if the price of torture is very high can we expect that it will be used only in the most absolutely urgent of circumstances.

Again, no need to get political; stick to an economic discusion of incentives and what you expect to happen in various circumstances.

Economics of Thanksgiving

I know it is a little early for Thanksgiving talk since it is still a couple of weeks away, but here is the question anyway:

What do you think are the economic effects of Thanksgiving?

Or you could just discuss the economic effects of the Thanksgiving holiday weekend. Again, the more creative the answers, the better. For example, I thought one of the best answers about the economics of Halloween was from Andrew, who talked about how all of the planning of Halloween parties and leaving work early to get little kids dressed up in their costumes, would probably cause a decrease in productivity that day.

Let the market do the work

There are lots of claims that we are too dependent on oil as an energy source, and that the government should step in and tax gasoline to fund research into alternative energy. For an example of this line of thinking, the New York Times today has an editorial calling for a "windfall profits tax" on oil companies used to fund alternative energy. There is also a lot of controversy lately over "price gouging" by the oil companies, as evidenced by the current Senate hearing on the profits of the big oil companies.

The useful thing about markets, though, is that high prices are a signal of the degree of scarcity in the market. High prices of gasoline have decreased the quantity of gasoline demanded by US consumers over the past months. Further, high prices of gasoline spur investment into other energy sources (since the potential profits from alternative energy sources are much higher). In an article in this week's Economist (subscription required), they confirm that the recent high oil prices have led to more investment in alternative energy sources:

GE's wind-turbine business, which was inconsequential a few years ago, made over $2 billion in sales this year. Ethanol, a costly green fuel which in America is usually made from corn, now looks a better buy. And wind and solar power are also back in fashion.

Industry sources reckon that global sales of solar panels this year will reach $11 billion, up from $7 billion last year. America's Energy Conversion Devices, a pioneer in hydrogen storage and solar cells, has seen its shares soar by 50% this year and venture-capitalists are taking an increasing interest in the industry.

All told, reckons Christopher Flavin of the Worldwatch Institute, a green think-tank, investments in “new renewables” (not including big dams, which nobody likes anymore) grew from $24 billion globally in 2003 to $29 billion in 2004—and, he thinks, the pace of growth is even faster this year.

The article goes on to discuss that high oil prices are not only increasing environmentally friendly energy sources, but also alternative sources that are not so "green," like coal.

Overall, the point is that even though high prices of gasoline are painful to pay, those same high prices will help reduce reliance on oil more efficiently than any reasonable government plan could.

Don't be grumpy, ja!

A German company has banned grumpiness at work, according to this article:

After one female employee refused to smile all day at work, a German IT company banned grumpiness in an effort to promote a more congenial atmosphere, according to The Australian.

The new policy requires employees at Nuzwerk, in the German town of Leipzig, to sign a contract requiring them to remain in a good mood all day at the office and leave complaints and gripes about co-workers and work conditions at home.

"We made the ban on moaning and grumpiness at work official after one female employee refused to subscribe to the company's philosophy of always smiling," office manager Thomas Kuwatsch told TheAustralian.

(Source: Marginal Revolution)

Sponsoring an African business

You are probably well-acquainted with the commercials that offer a chance to sponsor an African child. There is a new site called Kiva.org, that offers the opportunity to sponsor an African business through a small loan (as little as $25).

By choosing a business on our website and then lending money online to that enterprise, you can "sponsor a business" and help the world's working poor make great strides towards economic independence. Throughout the course of the loan usually 6-12 months), you can receive monthly email updates that let you know about the progress being made by the small business you've sponsored. These updates include reports on loan repayment progress, photos of new capital equipment, narratives on business growth and standard of living improvements, and more. As loans are repaid, you will get your original loan money back.

It is currently being offered just in Uganda and because of the publicity they have been receiving, they are currently out of businesses to sponsor. Apparently if the company defaults on the loan, your loan becomes a donation, but none of the companies have defaulted yet.

You can see the businesses that are being sponsored here.

What do you guys think of this strategy for helping people in developing nations? What are the advantages of this over traditional aid that are pure donations?

(Source: Private Sector Development Blog)

Which disasters do people donate aid to?

An interesting article in the Washington Post looks at which disasters compel Americans to donate aid. There are a lot of disasters that happen around the world (Katrina, the Pakistan earthquake, civil war in Sudan), and some receive a lot more donations from private American citizens than others. It is not surprising that US disasters get more donations than non-US, but some are more puzzling (the immense giving for tsunami aid last year). The author has a few rules for the disasters that provoke the most giving:

• Natural disasters beat manmade disasters (e.g. victims of hurricanes and tsunamis generally attract more donations than victims of war and other politically caused crises like Sudan & Uganda)
• Sudden disasters beat slow-moving crises (a sense of urgency mobilizes donors in a case like Katrina, whereas the devastation of a famine is so gradual)
• TV counts (e.g. videos that allow viewers to imagine themselves at the scene make a huge difference)
• Drama and timing play an important role (e.g. the Southeast Asia Tsunami occurred during the US holiday season)
• Ease of giving makes a big difference (i.e. over a fourth of the dollars received by the Red Cross following Katrina came in through its Web site.)
• Personal experience helps (people have visited New Orleans but have a hard time picturing a Pakistani village)
• Disaster giving doesn't supplant donations to other causes (just because people give to disaster relief does not mean they give less to their regular charities)

(Source: Private Sector Development Blog)

Voting and Rational Ignorance

Here is a seemingly simple question:

Why do people vote?

Voter turnout has been decreasing over the past decades (a little more than half of eligible voters voted in the most recent Presidential election), and one reasonable explanation is from the first chapter in Friedman: rational ignorance. The basic idea is the following: Voting is costly in terms of time. It takes time to actually go out and vote, and it takes even more time if you plan on actually finding out about the candidates. Then combine that with the fact that the probability that your vote will influence the outcome of an election is essentially zero. In fact, according to an article from the guys who wrote Freakonomics,

Of the more than 16,000 Congressional elections...only one election in the past 100 years - a 1910 race in Buffalo - was decided by a single vote.

So as opposed to asking why people are not voting, the better question becomes: why do people vote?

(by no means am I saying that people should not vote, I am just asking what I think is an interesting question that could help reaffirm the choice to vote anyway)

Off This Week

So the blog is not going to have any posts this week. You guys (my students) have 4 days off, and I have a huge grad school exam Friday, so I think it would just be better to pick up with blog entries and comments Monday 11/7.

Economics of Halloween

A fairly open question to end things for the week:

What do you think are the economic effects of Halloween? The more creative (and the less obvious) the better. What markets do you think are most affected by the holiday (positively or negatively)?

To go ahead and take away the most obvious answers, I am sure that candy makers and costume shops have a sharp increase in demand for their products. A more interesting question along those lines though: If the demand for those products is higher during Halloween, why do most grocery stores have sales on candy? Or why don't costume shops increase prices during Halloween (it is my experience that they have sales suring this time as well)?

Why Do We Laugh?

This post relates more to evolutionary biology than economics, but it is a questions that I have always been interested in: Why do humans laugh? What biological or evolutionary purpose does laughing serve? A possibility is offered by V.S. Ramachandran in his book: A Brief Tour of Human Consciousness:

The common denominator of all jokes is a path of expectation that is diverted by an unexpected twist necessitating a complete reinterpretation of all the previous facts -- the punch-line...Reinterpretation alone is insufficient. The new model must be inconsequential. For example, a portly gentleman walking toward his car slips on a banana peel and falls. If he breaks his head and blood spills out, obviously you are not going to laugh. You are going to rush to the telephone and call an ambulance. But if he simply wipes off the goo from his face, looks around him, and then gets up, you start laughing. The reason is, I suggest, because now you know it's inconsequential, no real harm has been done. I would argue that laughter is nature's way of signaling that "it's a false alarm." Why is this useful from an evolutionary standpoint? I suggest that the rhythmic staccato sound of laughter evolved to inform our kin who share our genes; don't waste your precious resources on this situation; it's a false alarm. Laughter is nature's OK signal.

What do you guys think of this explanation? Can you think of other biological reasons or evolutionary reasons why people laugh? Can you think of jokes that are counterexamples to this explanation?

Source: Marginal Revolution

History of the Minimum Wage

An interesting excerpt from a paper by Tim Leonard called Protecting Family and Race: The Progressive Case for Regulating Women's Work:

It's no surprise that progressives at the turn of the twentieth century supported minimum wages and restrictions on working hours and conditions. Isn't this what it means to be a progressive? Indeed, but what is more surprising is why the progressives advocated these laws. A first clue is that many advocated labor legislation "for women and for women only."

Progressives, including Richard Ely, Louis Brandeis, Felix Frankfurter, the Webbs in England etc., were interested not in protecting women but in protecting men and the race. Their goal was to get women back into the home, where they belonged, instead of abandoning their eugenic duties and competing with men for work.

Unlike today's progressives, the originals understood that minimum wages for women would put women out of work - that was the point and the more unemployment of women the better!

When we discussed minimum wage in class, our main conclusion was that the minimum wage would result in increases in unemployment among low skilled workers. The implication of the above excerpt is that the creators of minimum wage knew this and intended it to only apply to women so women would be kept out of the workforce to a certain degree.

Source: Marginal Revolution