What is a "ClickTip"?

Journalist Stephen Dubner discusses the practice of clicking the ads on a page that is provided for free as a tip to the author of the webpage. Since many webpages make money based on how many people click the ads that are placed on the page, by clicking the ad, you are giving them a small tip.

Stephen references a commenter on his blog:

I think The N.Y. Times and Washington Post websites are great (although I don’t pay for “Times Select” but I do think that their site has the best presentation, appearance-wise). I always try and remember to click on the ad banners once in a while to try and keep the sites free or at least much of the content free. Opening the ads in another tab on Firefox is not so disruptive. Or click and minimize.

What do you think of this practice? Do you think it is (or would be) effective? Try to put in economic terms why people do this.

(Source: Freakonomics Blog)

Why Do New Yorkers Smoke So Much?

Economist Tyler Cowen posts an interesting question on his blog: why do New Yorkers seem to smoke so much more than people from other places/cities? Here are the possible reasons he offers:

1. Social networkers head to Manhattan, and social networkers smoke.
2. In Manhattan it is more important to signal you are cool.
3. Air pollution is higher, so the marginal health cost of smoking is less.
4. New York is colder, and that makes cigarettes more enjoyable.
5. The "artsy" variable is doing most of the work; of course this is related to #1 and #2.
6. NYC life is more stressful, and smoking calms some of these people down.
7. Many of them are poseurs, and these smokers don't have such valuable human capital.

I'd bet first on #2, and also on #7, but I don't have a good theory that will explain the rest of the cross-sectional evidence.

Which hypothesis do you find convincing? Any additional ones to add?

(Source: Marginal Revolution)

A Boom in Halloween Industries

In honor of Halloween, today's post is about the horror genre of movies is doing really well in recent years. And actually, the "Halloween industry" in general has been doing well, from costumes to decoration. Here is an article from USA Today discussing the boom in revenues from horror movies and a new venture planned by Comcast and Sony called FearNet.

Here are some questions from Sarah:

What has casued the rise in horror genre popularity over the past few years, especially given that most movies this year are sequels or part of a series?
Do you think this new horror web site will stay in business? Is there enough of a fan base?

(From: Sarah O.)

A Fat Tax

Economist Gary Becker considers a tax on foods with saturated fat as a solution to the problem of obesity in the United States.

One proposal receiving some attention is to impose a tax on foods that contain high quantities of saturated fat in the hope of cutting down consumption of these foods. The basic law of demand states that a tax on saturated fat would raise the price of fatty foods, and thereby would reduce their consumption. A good analogy is with other "sin"taxes, such as the very heavy tax in most countries on cigarettes, or the large tax in many countries on alcoholic beverages. These taxes have greatly raised the price of these goods and reduced their consumption. For example, it is estimated that every 10% increase in the retail price of cigarettes due to higher taxes cuts smoking by about 4% after the first year, and by a considerable 7% after a few years.

He ends up arguing against the use of a tax on foods with high levels of saturated fat due to the fact that there are other major causes of obesity, the likelihood of future medical advances, and a doubt of whether it would be an effective tax.

(Source: Becker-Posner Blog)

Reminiscing About Legos

The Economist has an article this week about Lego, the Danish toy firm, and how it has turned around its business in the last year or two. Apparently, they worried too much about diversifying their business into video games and clothing instead of sticking to what they know best, which I think is making people with cylindrical heads.

Either way, it is an interesting case study of how new management comes in and reworks a firm. Also, you get this interesting tidbit of information about Lego blocks:

everyone on earth has, on average, 52 of them.

Another Interesting Graphic on Gasoline Taxes

Economist Greg Mankiw has another interesting graphic up this week on gasoline taxes. It shows basically, the law of demand, showing that where gasoline taxes are higher (which results in higher prices), those nations consume considerably less gasoline.

(Source: Greg Mankiw's Blog)

Lucky Lottery Clerks

A statistician in Canada discovered that the clearks who sold lottery tickets were winning a whole lot of prizes in the Ontario lottery. That means that they were either really lucky or they were stealing lottery prizes from elderly customers. Not the most shocking crime, but it is an interesting application of statistics.

(Source: Freakonomics Blog)

A Prize for Good African Leaders

Part of the reason why Africa continues to be in a cycle of poverty is due to corrupt leadership in many African nations. In these cases, foreign aid is not effective because that aid typically falls into the hands of corrupt leaders and helps them stay in power at the expense of their people.

As a solution to this problem of bad/corrupt governance, an African billionaire has offered a lucrative monetary prize to any African leaders that meet certain standards of governance.

The contest, launched in London, will award winning leaders $5m (£2.7m) over 10 years when they leave office, plus $200,000 (£107,000) a year for life. The award will go to African heads of state who deliver security, health, education and economic development to their constituents.

In an interview with the Financial Times newspaper, Mr Ibrahim, 60, said leaders had no life after office. "Suddenly all the mansions, cars, food, wine is withdrawn.
Some find it difficult to rent a house in the capital. That incites corruption; it incites people to cling to power. The prize will offer essentially good
people, who may be wavering, the chance to opt for the good life after office,"

What do you think of this prize? It is actually similar to the Netflix innovation prize we discussed recently. Do you think it will be effective in combatting the corruption in many African governments?

Economist Tyler Cowen thinks the prize is too small. Here is another post about it where the author is skeptical, thinking that is gives a reward for something that should be expected.

(Source: Marginal Revolution)

Possible Solutions for the US Health Care System

Here is a discussion from Stanford Medicine Magazine with different experts weighing in on how they would fix the US health care system. Here is a question from Carrie:

How should the US healthcare system be reformed?
Which of these solutions seems that it would work the best?

(Source: Carrie S.)

Will Small Countries Be Bought and Sold in the Near Future?

Economist Tyler Cowen discusses the future of colonialism. Specifically, how future technologies or wealth might change the ability of more powerful countries to control weaker ones.

One idea he brings up is whether small countries may be simply bought by industrialized nations in the near future. In his words:

If the world's very poor countries stay in Malthusian traps, how long will it be before wealthy philanthropists can try to "adopt a country"? Measured Haitian gdp, for instance, is only a few billion dollars a year. Yes many countries have laws against foreign investment and land ownership, but at some point a correct strategy can put the money to good use. Can an entire corrupt government simply be bought out? Just how much money, and what kind of plan, would a private philanthropist need each year to turn Haiti around, or at least bring it to the standards of Martinique?

What do you guys think? Do you think this will happen in the forseeable future? Could it be a way to improve some countries or merely a power that will inevitably be abused?

(Source: Marginal Revolution)

Optimal Buffet Eating Strategy

Economist Tim Harford, who was mentioned in the last blog post, also has a column for the Financial Times called Dear Economist, where he gives advice from the perspective of an economist on questions that are not your typical economics questions. A recent question:

Dear Economist,

From time to time I find myself eating a meal with an unlimited supply of food: sometimes an all-you-can-eat buffet, sometimes a more sophisticated meal laid on by a friend or someone trying to impress: weddings, banquets, that kind of thing. I like food but there are limits to how much I can eat. So how should I pace myself for optimal enjoyment of the meal?

Mr M. Newman, Shrewsbury

Harford offers two strategies depending on how the food is presented:

• try a little of everything to decide what you like before going back for the main eating fest
• consider the incentives of the food supplier if the dishes are brought out sequentially to save room for the best food

Any thoughts on the best buffet strategy?

Are Kids Fat Because of Working Parents?

In this Slate article, Tim Harford argues that one of the reasons why more children are overweight these days is because there are more two-income families with moms working instead of staying home. In an earlier blog post, we discussed some of the other factors at work that Harford references, but this adds another idea into the mix. Here are questions to go along with the article:

In some ways, says Tim Hartford, author of the article, this makes sense: having two working parents leaves young children unsupervised, at daycare or with a nanny, who probably puts them in front of the TV and feeds them high-calorie processed foods that take less effort to prepare. And at the end of a long working day, exhausted, they may provide fast food for the children rather than cooking a traditional, nutritious meal. (Just look at it based on opportunity cost: if parents are too exhausted, the cost of cooking a meal would be much higher than the "small" weight gain associated with just one fast food meal...and then that just snowballs.) But on the other hand, for example, many kids at Walker have two working parents, and few of them are overweight. Is Hartford's proposal a plausible cause of the childhood obesity epidemic? Could it be a major player, or only one of many factors? If it is one of many, what other possible causes (within the family) could there be (i.e., parents' income levels, living in the suburbs vs. the city, even firstborn vs. second, third, etc child)?

(Source: Nicole O.)

Argument for a Higher Gasoline Tax

Economist Greg Mankiw has an article in the Wall Street Journal arguing for a $1.00 increase in the per gallon gasoline tax. He argues for the tax to be phased in by $0.10 a year for the next 10 years and offers a very clear list of reasons why he favors it.

One of his reasons harkens back to our discussion of tax incidence in Unit C:

Tax incidence. A basic principle of tax analysis -- taught in most freshman economics courses -- is that the burden of a tax is shared by consumer and producer. In this case, as a higher gas tax discouraged oil consumption, the price of oil would fall in world markets. As a result, the price of gas to consumers would rise by less than the increase in the tax. Some of the tax would in effect be paid by Saudi Arabia and Venezuela.

What do you think of his argument? If you agree, what is the most convincing aspect? If you disagree, is there a better alternative?

Celebrity Baby Names

Why do celebrities name their kids more unusual names than the general population? This may not seem like an economics question, but it involves a decision, which can always be examined from an economic perspective.

This article talks about some of the examples. There are the ones we have all heard of lately like Suri, Apple, and Shiloh. My favorites from the article are Penn Jillette's daughter named Moxie CrimeFighter and Jason Lee's son named Pilot Inspektor.

Why are celebrities choosing these names? I am not sure if the whole answer is publicity because I don't think that Tom Cruise or Brad Pitt and Angelina Jolie need more publicity than they have now.

An Economist also Won the Nobel Peace Prize

Last week the Nobel Peace Prize was awarded to Muhammad Yunus, who is actually known for his advances in applying economics to helping developing nations. Yunus is known for starting a microfinance organization called Grameen Bank, which gives loans to individuals in developing nations (Grameen operates in Bangladesh).

Here is a basic explanation:
One of the obstacles faced by individuals and families in developing nations is that they have a difficult time obtaining loans (for consumption or starting and running a small business, etc.). Two of the reasons why it is difficult is that poor families do not have anything to offer a collateral, and it is not cost-effective for larger banks to offer such small loans. Since they have no collateral to offer, banks have no way of ensuring repayment.

Yunus started a bank based on the fact that individuals in developing nations have strong social bonds that could be used as a type of collateral. He took advantage of these strong social bonds by having the lenders apply together in groups. If one person in the group defaults on their loan, then everyone in the group is responsible for the loan. Therefore, the bank uses social pressures (the borrower not wanting to let down or burden their peers) as a way to enforce repayment.

The bank has been incrdeibly successful and has a very high repayment rate. Overall, Yunus and Grameen Bank are an example of helping developing nations by helping them build their own economies and their own markets instead of forcing western models upon them or just throwing foreign aid money at the problem.

Edmund Phelps Wins the Nobel Prize in Economics

The announcement was really about a week ago, but I have not gotten around to posting about this until now. Edmund Phelps is a macroeconomist, so his accomplishments will not mean as much until next semester.

His main contribution is the idea of a natural rate of unemployment, which is a certain level of unemployment that will exist even when the economy is functioning at its potential. He also wrote about the importance of inflationary expectations -- the fact that it matters what people think inflation is going to be in the future.

Phelps is honestly not an economist whose work I know very well, but here is the press release announcing what he got the award for, and here is a summary of his accomplishments by economist Tyler Cowen.

Optimal Charitable Giving Strategies

Tim Harford has an article in Slate that talks about the economics of charitable giving. The part that I think is most interesting is when he argues that we should give only to one cause to maximize the effectiveness of our charitable giving. Here is his explanation:

Even the way we choose to dole out cash betrays our true motives. Someone with $100 to give away and a world full of worthy causes should choose the worthiest and write the check. We don't. Instead, we give $5 for a LiveStrong bracelet, pledge $25 to Save the Children, another $25 to AIDS research, and so on. But $25 is not going to find a cure for AIDS. Either it's the best cause and deserves the entire $100, or it's not and some other cause does. The scattershot approach simply proves that we're more interested in feeling good than doing good.

Many people are unconvinced by this argument—which I owe to Steven Landsburg—because they are used to diversifying their financial investments (a bit of Google stock and a bit of Exxon, too) and varying their choices (vanilla ice cream AND bananas). But those instincts are selfish: They are not intended to benefit both Google and Exxon, nor both the ice-cream company and the banana growers. With charity, the logic is different, and a truly selfless donor would bite the bullet and put his entire donation behind one cause. That we find that so hard to imagine is just one more indication of how hard it is for us to think ourselves into a truly selfless view of the world.

None of this is to say that these contributions are worthless or economically insignificant. Just don't get too starry-eyed about the motives behind them.

Economist Tyler Cowen discusses this article and gives another argument for giving to only one charity:

I agree with Harford's point in a different regard. The fixed costs of processing a donation are relatively high, if only because the charity will send further letters asking for more money. For that reason it may be better to focus our giving on a single charity.

What do you think? If you had $1,000 to give, what strategy would yield the biggest impact?

(Source: Marginal Revolution)

Doggie Ice Cream

Good Humour is going to start making ice cream sandwiches for dogs.

Companies appear to be on a never-ending quest for ways to pamper your pooch, and here's the latest evidence: Ice cream maker Good Humor and pet food producer Pedigree have announced plans to produce ice cream sandwiches for dogs.

Apparently this is not a stupid pet snack. The companies said they needed a special formula for the dairy treats, as many dogs are lactose intolerant and cannot easily digest regular ice cream. Pedigree Ice Cream Sandwich Treats for Dogs will be dairy-based and have the same texture as ice cream, but contain only 1 percent lactose. The treats also will have added protein and no sugar, and are "pawsitively delicious," the firms' press release exclaims. A package containing 6 frozen yummies will
sell for $3.99.

Why do you think there would be a market for this? You could also argue why there will not be a market for this (or why no one will buy it as long as they have that horrendous slogan).

(Source: Marginal Revolution)

Rising Prices of Cancer Drugs

The NY Times this week has an article about the skyrocketing prices of cancer treatment drugs. They profile a new drug called Abraxane that costs $4,200 per dose, and is considered to be only a marginal improvement (if at all) over the older, much cheaper drug. The article also highlights the reasons why the prices of cancer drugs are increasing so much:

The rise in cancer-drug prices is a microcosm of broader trends pushing up health care costs nationally. Despite decades of efforts by governments and insurers to restrain costs, patients continue to want the newest — and most expensive — drugs and medical devices. And doctors and the health care industry have little reason to keep costs in check, because insurers rarely deny coverage for new treatments on the basis of price.

Drug industry experts say Abraxane’s price reflects the fact that makers of cancer drugs can charge high prices for new medicines even if they are only marginally better than their older counterparts. That pricing dynamic is enabled by insurance, which shields patients from the full price of drugs. Without pressure from their insurers, patients have little reason to choose older treatments over expensive new therapies.

And the insurance companies are not the only ones that face the higher price:

Even if they have insurance, many patients face co-payments of 20 percent for their cancer drugs, an expense that can become ruinous for patients receiving combination therapy with several new drugs. For example, Abraxane is being tested along with Avastin, a treatment from Genentech that costs $8,000 a month for some patients.
Drug costs are rising so fast that some patients cannot afford the newest treatments, and access to some therapies “is beginning to be eroded,” Ms. Hinestrosa said.

Here are some questions that go along with the article from Sarah:

What are the problems of this current system and what can be done to limit the prices of these not even miracle drugs? What are the long term effects of this trend and is it caused only by increased demand by consumers?

(Question posed by Sarah O.)

World Gasoline Taxes

Below is a graph showing the taxes on gasoline in industrialized countries from the NY Times this week:
(Source: Greg Mankiw's Blog)