Violence in Sports

Italian soccer has been in the news lately because there were riots at a soccer match in Sicily where a police officer was killed. They cancelled the professional matches in Italy last weekend, and this weekend, they are playing the games, but not letting any fans watch them in the stadiums. European soccer has a reputation for hooliganism and has struggled to limit the violence around matches for decades.

Stephen Dubner, co-author of Freakonomics, asks why there is so much less violence in American sports than in European soccer, especially since the US has a higher overall rate of violent crime.

He offers the following possible theories:

1. Many soccer matches are more local affairs than U.S. sporting events, thereby attracting a lot of fans for both teams, who are more likely to mix it up than if 95% of the fans are rooting for the same team.
2. We have better security.
3. We drink less; many U.S. stadiums and arenas now cut off the sale of beer, e.g., before the end of the game.
4. Perhaps the audiences at U.S. sporting events don’t include the criminal element — the result, perhaps, of high ticket prices.
5. For years, there has been talk of how American sports, particularly football, are a proxy for war and true violence; maybe this is actually true.

What do you think? Any of these convincing or is there something else? Don't give an answer like "Europeans are just more fanatical about soccer" unless you have an explanation for where that fanaticism comes from.

(Source: Freakonomics Blog)

Sunday Alcohol Sales

There is a current proposal in the Georgia House to repeal the law that bans the sale of alcoholic beverages on Sundays (laws like this are also called "blue laws"). [Technically, it is a law to allow local jurisidictions to decide the issue.] The ban currently covers liquor stores and sales of beer in grocery stores, but does not cover drinks purchased in restaurants. Do you think this will have any economic impact?

(Source: Drew W.)

Setting Your Watch Fast

Tim Harford also has a column in the Financial Times called "Dear Economist," where he answers "Dear Abby"-type questions with an economist's perspective. Here is one recent question:

Dear Economist,
I have the habit of setting my watch five minutes fast. This fools me into avoiding being three minutes late for meetings, or the train – well, more often than not – and instead being two minutes early. But if I am a rational economic agent, how do I succeed in fooling myself so systematically?
Yours (in haste),
Mark, Oxford

I am familiar with this because in past years in my classroom I would set the clock 3-4 minutes slow, which typically prevented students from packing up their books when there was still 5 minutes left in class.

Your first instinct would be that people learn the pattern pretty quickly and adjust their mental clocks to account for the difference. But it still works. Why do you think people succeed in fooling themselves and rational others with this?

Here is Harford's answer.

Here is a clock that assists people in fooling themselves by randomizing how fast the clock actually is (within a range).

Giving Money to a Bum

Many people would like to give money to homeless people on the street, but are hesitant because they are not sure where the money is going or whether the person really needs it. If you could be assured that a panhandler was truly in need and not going to spend the money on drugs or alcohol, many more people would give a few dollars or cents.

Tim Harford (who wrote the article you are reading this week in class) uses this idea to formulate a question: if you could ask 10 bums one common question, and give money to only one of them based on their answer, what would the question be?

One thing to keep in mind is that the bums know what you are doing, and therefore, are tempted to lie.

What would you ask and how would you decide who to give the money to?

Here are some possibilities from the economists who write for Marginal Revolution.

More on the Minimum Wage

On Free Exchange, the blog for The Economist, there is a post that does a good job of summarizing the main issues with the minimum wage. A couple of excerpts:

It is probable that the minimum wage increase will not cost enough jobs to make its effects readily distinguishable from random economic variation...
On the other hand, it also seems probable that much of any benefit that goes to poor families will come out of the pockets of other poor people—very probably even poorer people, such as convicts, who are currently barely hanging onto the fringes of the labour force...
CEO's who support higher minimum wages are not, as the media often casts them, renegade heros speaking truth to power because their inner moral voice bids them be silent no more. They are by and large, like Mr Sinegal, the heads of companies that pay well above the minimum wage. Forcing up the labour costs of their competitors, while simultaneously collecting good PR for "daring" to support a higher minimum, is a terrific business move...

Pennies Are Evil

Right now, there are two US currency problems: (1) The increasing uselessness of the penny, (2) the government currently loses money of producing nickels (the combined losses from making nickels and pennies is estimated to be $40 million). NY Times columnist Austan Goolsbee discusses a solution offered by an economists at the Chicago Fed: eliminate the nickel and make the penny worth 5 cents.

Mr. Velde, in a Chicago Fed Letter issued in February, has come up with a solution that would abolish the penny, solve the excess costs of making nickels, help the poor, keep the Lincoln buffs happy and save hundreds of millions of dollars for taxpayers.

Pennies would then cost a little over 1 cent to make and would be worth a nickel, so the government would again be making a profit on money. We would have plenty of new Lincoln nickels so we could stop minting our current nickels at a heavy loss. The Jefferson nickels would stay in circulation, just as the old wheat pennies do now. Because metal in nickels is valuable, though, they would probably be melted down.

What do you think of this option? The most important benefit of the policy to me is that K-Fed would be happy.

Breaking Down GDP Growth

This article in The Economist this week discusses the high GDP growth rates of India and China. They argue that China's growth is more impressive because it is due to greater increases in productivity, while India's GDP growth is due more to increased employment levels without those workers becoming more productive. Therefore, since China's growth is more associated with productivity increases, it is more likley to sustain itself.

The article also discusses how the growth in each country has been in different sectors:

According to conventional wisdom, Chinese workers have shifted largely from farming to factories, whereas India's growth has been driven largely by services, from call centres to writing software. In fact, jobs in services have expanded more strongly in China than in India. Since 1993 the rate of increase of China's service-sector jobs has been four times that in industrial jobs and has exceeded that in India. China's real output of services has not only grown almost as fast as its industrial output, but also faster than India's services. Indeed, a larger proportion of workers is employed in services in China than in India. However, the share of services in GDP is much smaller in China (33%, against India's 50%), because Chinese industry is so much more productive.

This article provides a deeper look at increases in GDP and a little background on the rapid growth of India and China.

"Meatlifting"

According to this article, the item that is most often shoplifted from grocery stores is meat.

Meatlifting is a grave problem for food retailers: According to the Food Marketing Institute, meat was the most shoplifted item in America's grocery stores in 2005. (It barely edged out analgesics and was a few percentage points ahead of razor blades and baby formula.) Meat's dubious triumph is due in part to a law enforcement crackdown on methamphetamine use. Meat used to be the shoplifting runner-up to health-and-beauty-care items, a category that includes cough medicines containing pseudoephedrine, a key ingredient in home-cooked meth.

Why do you think this is? Especially given that meat seems like a messy item to steal. The most straightforward answer is that meat is one of the more expensive items in many grocery stores. Are there any other reasons?

(Source: Free Exchange)

Hire a Protester

A German company offers young Germans that you can hire to protest for your cause:

Young, good-looking, and available for around 150 euros (£100), more than 300 would-be protesters are marketing themselves on a German rental website. They feature next to cars, DVDs, office furniture and holiday homes.

Next time you want me to postpone a test, just hire some Germans to protest outside my apartment...

(Source: Marginal Revolution)

Your Personality & Lifestyle as a Tradable Asset

An Australian guy is selling his current life on eBay:

This auction is for a New Life in the coastal town of Wollongong, Australia of a 24 year old male. It includes the following:

Winning bidder will take ownership of my:
-Name
- Phone number
- All my possessions
- I will teach you my skills
- Will introduce to all my friends & potential lovers (around 8 which I have been flirting with)
- I have around 15 close friends and around 170 other friends
- I have 2 nemeses.
- Lifestyle is very social. It includes a lot of going out.

NB: Friends will treat you exactly as they have treated me. This includes friends who take me surfing, running, climbing and cook for me. All of these features will be transferred over to the winning applicant.

Life also includes the following features
- Will have access to a cruisy job in march delivering fruit.
- You will write a satirical horiscope in the University of Wollongong Magazine.
- You will have new parents to have Christmas with & birthday presents from friends.
- A birthday party will also be organised for you.

This auction also includes the following
- A 4 week training course by the former me which includes the following:
- Many anecdotes and stories from a very interesting and intriguing past 24 years of my life
- 6 Jokes
- Training in becoming me (fashion, food, lifestyle, style of seduction, interests)
- Haircut like mine
- Piercings to the value of $180.
- Lessons in my personal history (The good stuff and the bad stuff)

NB: After the 4 week training winning bidder will also receive 2 months of on-call support.

There are a few more interesting details at the site. He seems to be doing this to film a documentary about it. The current bid is over $60,000 Australian dollars (about $47,000).

Another example of a creative way of finding something of value that you can sell as an asset.

(Source: Marginal Revolution)

Economics of Trying New Things

A post at Free Exchange discusses a small purchase he made that brought him a lot of joy. The key part of his post is this:

While I was at AEA, I had lunch with Dick Thaler, the famous behavioural economist from the University of Chicago. He lauded my (much derided) penchant for experimental purchases of small items at supermarkets and drugstores, pointing out that at my age, the net present value of future utility from a "find" is huge, while the costs (pecuniary and utilitarian) are negligible.

The idea is that young people should try a lot of new things because if they find something you like, you have much of your life left to enjoy it. Even if you try 10 new foods and only like 1 of them, you have given up relatively little and gained a lot of future enjoyment.

What do you think about this idea? Is it a good reason to try new things? Or is there a better reason to stay with what you like? What else could this apply to other than trying new foods?

An personal addendum to this rule that I used when travelling in Japan is that I am willing to try any food, provided I am not told what it is or what is in it until after I have tried it. It helps me keep an open mind.

(Source: Free Exchange)

A Controversial Idea

UGA Economist Dwight Lee has an idea that he claims would help the immigration controversy in the United States, and the homeless/panhandling problem: allow US citizens to sell their citizenship to non-Americans. The American selling their citizenship would have to leave the country, and the buyer would be a US citizen.

Here is part of his explanation:

First consider the fact that America's homeless and panhandlers (who are often different people—some homeless don't panhandle and some panhandlers aren't homeless) are actually quite wealthy. Almost all own an asset—their United States citizenship—that is worth several hundred thousand dollars. The problem is that they are denied the right to sell that asset.

Citizenship in the United States is a highly valuable asset because it gives its owner enormous productive potential. American citizens are able to take advantage of the
opportunities to combine their ambition, ingenuity and labor with an unparalleled capital base and other hard-working and talented people to create wealth. The homeless and panhandlers in America have clearly failed to use their citizenships as productively as many non-U.S citizens could, and would, if they became citizens.

What do you think of this idea? Do you think it would work at its stated purpose (with restrictions on selling citizenship to terrorists, etc.)?

Minimum Wage Issues

An interesting political issue is whether to apply any minimum wage increases to the islands that belong to the United States, like American Samoa and the Northern Mariana Islands.

Under the new proposal before Congress to increase the minimum wage, the Northern Mariana Islands would now be subject to the minimum wage. The reason why that is so important is because the average wage in the islands is half of the proposed minimum wage. There is a lot of debate amongst economists as to how much an increase in the minimum wage affects employment, but I think most would say that doubling the average wage would have a significant impact.

To add to the interesting situation, right now, American Samoa would still be exempt from the minimum wage, offering a possible comparison of the effect of the minimum wage if instituted.

(Source: Marginal Revolution)

Christmas Break

The Walker Economics Blog is currently taking a Christmas break of its own, and will return the second week of January. In the meantime, here is some reading material:

1. A paper by two prominent development economists at MIT that describes how the poor in developing nations live (by poor, they mostly document people that live on $1/day). Here is a summary of their conclusions on Marginal Revolution.

2. Richard Posner discussing the ban placed by NYC on using trans fats in food sold in restaurants. His blogging partner, economist Gary Becker, will add his two cents next week.

3. The blog for the magazine The Economist, called Free exchange.

Have a happy holidays!

Why Is College Tuition So High?

Economist Greg Mankiw has a great post on his blog about why college tuition has risen so much in the pst few decades. He gives 3 possible explanations:

1. Increasing costs due to Baumol's cost disease (which I explained in this earlier post).
2. Higher demand for a college degree since the wage gap between college-educated and non-college educated workers has been increasing.
3. Price discrimination means that the published tuition is not really the price that most students are paying. So the average price that a student is paying is much lower. And the increase is due to increasing skill at price discriminating

This topic is very relevant to you guys since you and your family will start paying these tuition fees in about a year. Any other possible reasons you can think of? Which one of these reasons do you think explains most of the increase?

Another Example of the Peltzman Effect

At the beginning of the year, we read an article about how when seat belts became mandatory in cars, people started to drive more dangerously, countering the effect of seat belts. Here is another example of that so-called Peltzman Effect: the NY Times magazine reporting on research that motorists drive closer to people on bicycles when they are wearing a helmet.

(Source: Newmark's Door)

The Economics of Hidden Fees

The NY Times has an article on hidden fees, where the stated price of the good does not reflect the full cost. Examples are ATM surcharges that you may not know about when you open your bank account, expensive minibars in hotels where you don't know that you are paying $4 for a Coke until you get the hotel bill, or expensive printer cartridges you have to buy every month for a printer that you got on sale.

The main question the article asks is: why don't firms compete to offer low ATM surcharges or low printer cartridge prices? A firm could offer their printer cartridges or minibars at lower prices and advertise those lower prices to increase their business.

The article references a paper by two economists that argue that it is a form of price discrimination (even though they don't use that term in the article):

Their argument assumes the existence of two kinds of consumers — sophisticates and “myopes.” Sophisticates play the hidden-fee game well. They seek out low advertised rates and whenever possible avoid or find substitutes for the hidden fees, using cellphones at hotels, steering clear of the minibar and setting their printers to draft mode. Myopes, by contrast, obliviously sip $5 Cokes.

Now ask yourself: what would happen if some business tried to blow the whistle on hidden fees in its sector? Consider a hotel chain that wants to expose the use of hidden fees by, say, the Hilton chain. Because Hilton makes so much on the extras, it can charge a low, even a loss-leader, price (say, $80) for its rooms. The other chain might charge more (say, $100) as it hits the airwaves with ads saying: “Watch out for our competitor’s hidden fees. We charge fairly for breakfast and local phone calls.”

But now ask yourself: whose behavior would such an ad change? Sophisticates already know about the hidden fees. All that the ads will do, Laibson and Gabaix contend, is turn some myopic consumers into sophisticates. And in turn these newly wised-up consumers will spend less on extras at both hotels — indeed, at any hotel they use from then on. Unshrouding hidden fees is “good for the consumer and bad for both firms,” Laibson and Gabaix conclude. “Neither firm has an incentive to do it.” Multiply the hotel example by a thousand, across all sorts of industries, they say, and you see how we got the countless deceptive price structures we have today.

Any other examples of hidden fees? What do you think of the author's argument? Are you a "myope" or a "sophisticate"?

(Source: Marginal Revolution)

Marginal Tax Rates in the US

Here is a graph of the top marginal tax rate in the US tax system over the past century or so.

A couple of things to notice:

- the decrease of the highest marginal tax rate during the 1920s and the subsequent increase of that rate during the Great Depression

- the decline in the highest marginal tax rate over the past few decades

Richard Posner argues that this decrease in the highest marginal tax rate helps explain the increasing income inequality in the United States:

What are the causes, and what are the effects, of this trend in the income (and of course wealth) of the highest-earning segment of the distribution? Part of it is reduced marginal tax rates, because high marginal tax rates discourage risk-taking. Consider two individuals: one is a salaried worker with an annual income of $100,000 and good job security, and the other is an entrepreneur with a 10 percent chance of earning $1 million in a given year and a 90 percent chance of earning nothing that year. Their average annual incomes are the same, but a highly progressive tax will make the entrepreneur's expected after-tax income much lower than the salaried worker's. Many of the people at the top of the income distribution are risk takers who turned out to be lucky; the unlucky risk takers fell into a lower part of the distribution.

Economist Greg Mankiw adds:

Has the fall in top marginal tax rates over the past several decades in fact encouraged people to pursue higher-risk career paths, thereby exacerbating inequality in ex post incomes? As far as I know, this hypothesis has not received much attention in the empirical literature on income inequality.

(Source: Greg Mankiw's Blog)

Is Student Debt Too High?

Economist Gary Becker asks that question on his blog. He concludes that student is not too high, especially considering:

On the other side of the ledger, higher tuition over time was related to sharply higher financial benefits from a college education. The typical college graduate earned per hour about 50 per cent more than the typical high school graduate in 1980, and the gap is now about 95 per cent. Earnings of graduates with a professional degree or other post-graduate education grew even faster over time than did earnings of college graduates.

His main conclusion is that interest rates on student loans should be determined by the amount of income you make after graduating from college:

Within any category of graduates, earnings vary considerably by type of job-- teachers and clergymen earn a lot less than investment bankers--and by degree of success within jobs. Fixed interest loans are not the best way to borrow when loans are used for risky activities. Returns on higher education are rather risky, even after adjusting for how they co-vary with returns on assets. Businesses often borrow with the equivalent of equity to finance start-ups and other risky activities, where the equity pays off well if the venture is successful, and pays little if the venture fails.

This suggests that student loans should not have fixed interest rates that require a fixed amount to be repaid per $1.000 borrowed, but rather should have the equivalent of an "equity" repayment system. That would mean that persons who earn very little repay little, while those who earn a lot repay a lot (per $1,000 borrowed). Requiring individuals who are repaying student loans to submit their income tax statements each year, so that lenders could document what the borrowers earned, could enforce such an income-contingent repayment system.

(Source: Becker-Posner Blog)

Economics of Procrastination

Marginal Revolution links to an article that looks for reasons why procrastination may be rational from an economic perspective:

But is it possible that there is also a rational component to our procrastination habits? There are at least three reasons why this might be the case. The first is that there are fixed costs to doing homework. Suppose that in order to do homework you have to run to Kohlberg for a mocha latté...and check your favorite five media outlets as a preemptive distraction. In that case, it makes sense to have longer homework sessions in order to reduce the total number of sessions (and number of fixed costs to pay). Thus, putting things off in order to concentrate the work for a paper in one epic block means that you don’t have to waste time setting up to write again and again.

The second reason is that there may be decreasing marginal costs to doing homework. Suppose that the second hour of doing homework is much easier than the first, and the third easier yet and so on. You get in the homework zone. Then it makes sense to make your homework sessions as long as possible in order to take advantage of these returns to scale in doing homework...

The third reason is that there might be “thick-market externalities” in doing homework. The idea is that if everyone else is doing the same thing that you are, it gets easier and more enjoyable. If all of your friends are procrastinating at the same time, then the opportunity cost of doing work is that you miss an excruciatingly funny episode of “Curb Your Enthusiasm”... Similarly, when everyone is doing work, the opportunity cost of work is very low. After all, “Curb” is far less excruciatingly funny when watched alone. So it makes sense to do work when your friends do work, and avoid work when your friends avoid work.

It is fitting to make this post now because I am cramming several posts into one post-wrestling match evening, after neglecting this blog for the past several days...

Any other possible reasons why procrastination could be rational?

(Source: Marginal Revolution)