Rigotnomics

We now blog at rigotnomics!

Facebook in Canada

I just saw in Foreign Policy that about a third of canadians were on facebook! This is the highest proportion in the world! Furthermore, if you count out all those above 50 (about 35% of population) and those below 10 (10% of pop), the proportion jumps to about 3 out of 5. If you meet a canadian who's between 10 and 50 years old, most chances are he is on facebook!

This may be good news as "net interaction stimulates and improves the brain" and also, employers might be able to select who they hire better as "they thrawl facebook for lues about character and behaviour of potential employees"!

But why are we number 1 for facebook? Maybe this is because we are less resistant to change than other cultures, but why were we so slow to adopt cell phones then? I guess technology adoption is based on specific demands or need for pr$oducts that are closely related to culture. In other words, I would think that canadians adopted facebook becuz they needed it and it fits with their culture, whereas cell phones do not!

The decreasing returns to travelling

Jackie Lee is a traveller. While in Europe for his master’s degree, he flew to all easyjet destinations from Geneva. When in Bergen, enjoying the view of the amazing fjord and the UNESCO World Heritage city, he noted: “I don’t get impressed anymore by these things that are supposed to be gorgeous. I travelled too much”.
There are indeed decreasing returns to travelling, at least for some of us. Here's a way to grow old and keep on having fun travelling. It's all about technological progress in the pleasure production function.

Corruption survey

Of the economics students that took the survey (39 of them):

• 21% would prefer to work in a bank than a development agency;
• 73% favour relatively high wages for public officials;
• 94% would work for an International Organization;
• 23% think we should accept corruption as a fact of life.

Not surprisingly, people who prefer banks to development agencies are completely against high salaries in government.

People with lower grades tend to prefer banking and are more likely to tolerate corruption as they also come from more corrupt countries (according to Transparency International).

Finally, people from corrupt countries seem to tolerate corruption more, being more likely to accept it as a part of life. Furthermore, they would rather work in development agencies.

None of these results are significant.

The winner of the free lunch is Tadashi Ito.

Economics Departments Rankings

I made a new ranking based on where prolific researchers did their PhD, not where they teach now, and based on citations, not publications. The methodology is explained here and the data can be found here. The top 10 is:

MIT
Harvard
Chicago
Princeton
Yale
Stanford
Minnesota
Carnegie Mellon
Berkeley
LSE

Unilateral trade liberalization

This guy is an incredible blogger. He has 6 blogs, 3 on politics and economics and 3 non-political (farming, travel, and rotary). And he’s from Manila. He gives me here another good argument for a country to liberalize unilaterally. Here’s my favourite part:

“One wonders how much money have been paid by taxpayers from the countries concerned, first to pay for the salaries, travels, and perks of their country trade negotiators, including their pool of consultants and secretariat support, in all those years”.

Interested in US politics?

Can someone explain to me why the Japanese are more interested in the US presidential than the Americans themselves???

Sex at the Olympics

I was reading this article about how athletes at the Olympics have sex like crazy. Then came this interesting paragraph that reminded me of the speed dating paper, and reflects society in general:

"There is something about sporting success that makes a certain type of woman go crazy - smiling, flirting and sometimes even grabbing at the chaps who have done the business in the pool or on the track. An Olympic gold medal is not merely a route to fame and fortune; it is also a surefire ticket to writhe. But - and this is the thing - success does not work both ways. Gold-medal winning female athletes are not looked upon by male athletes with any more desire than those who flunked out in the first round. It is sometimes even considered a defect, as if there is something downright unfeminine about all that striving, fist pumping and incontinent sweating. Sport, in this respect, is a reflection of wider society, where male success is a universal desirable whereas female success is sexually ambiguous."

I guess this logic doesn't apply to beach volleyball girls!

MBAs and the business cycle

An MBA programme is a special type of animal in the jungle of post-graduate education. The typical student of an MBA programme is somebody with some working experience who drops out of the labour market for a couple of years, in order to get a hopefully better paid job later in his career. If in the same company or somewhere else often depends on circumstances.

When I have asked MBA students the question "Why did you do that?" the typical answers were:

1. "Because I am paid to do it";
   
2. "Because I want to start my own business";
3. "Because I was working too much, I needed a break";

Here is a chart taken from our favourite magazine which somehow gives a more economically sound argument.


The chart says that attending an MBA is more likely in times of economic downturns. Why? As the wage rate falls on the labour market, the opportunity cost of attending a post-graduate programme falls too. Thus, people hedge their loss in pecuniary assets investing in human capital. Here is the link to the original article.

By the way, if you want to know what they teach you at MBAs, I found this interesting book, reviewed always on our favourite magazine, which I have just ordered.

Good service: culture or competition

I was recently traveling in California and I was amazed at the quality of the service in restaurants and shops. No matter how you look, how you're dressed, you get a nice smile, suggestions and caring and on top of that a great selection. This led me to ask myself, is this amazing service the consequence of competition (restaurants want to offer the best experience to attract as many customers as possible), tips, or just culture?
In Geneva, I personnaly obtain the worst service that you can possibly imagine, to the point where I am scared to ask for too much when I am out, for example for a glass of water. Is this because of its protestant history or its lack of competition?So how about trying to identify the determinants of international differences in the quality of service in restaurants?
Some economists would be happy to prove the power of capitalism at work, others would be happy to show that only culture, or social capital explains service quality.I also came to wonder if waitresses were so nice to me beacuse they want a big tip (it can between 10 and 20% by law), or simply because they are nice people. If the former is the case, they surely are good actresses! I guess one way to find out would be to measure at what speed their smile dissapears from their face, the faster the faker.A good possible paper, I think.

An economy without cash

When I was taking the Macro 1 class I was convinced that monetary policy was a joke. How can these bankers really think they have any impact whatsoever on the real economy? My suggestion was then to keep the money supply fixed. “No!” I was told by my classmate, “money supply growth must equal GDP growth”.

So what would happen under a fixed money supply? Well, a 5% GDP growth should be accompanied by a 5% decrease in prices, automatically. In other words, shifting prices would ensure market clearing. Now imagine an oil price shock. As an oil importer, you let your currency depreciate (no inflation targeting whatsoever, which would make your currency appreciate instead). So the oil shock is offset by your exports boom.

So with this fixed money supply and shifting prices, you can say bye bye to the inflation monster, as you don’t care about prices that change constantly. Now the question is how can people adapt to this? My solution is to drop cash altogether. Only debit cards and mobile phones and voice signatures. Then prices can become any fraction of nay amount. With sustained GDP growth, a beer could become as cheap as 20 cents, while a phone call could be 0.0001 cent.

The Economist had already predicted the end of the cash era, but not the end of monetary policy.

Luxury lifestyle seekers

I was at this conference on the role of the WTO Secretariat and one of the panellists noted that the quality of the staff there was higher than ever, as PhDs were required for most jobs. Then a deputy to the director general made the comment that him and his work buddies had been selected by him among 80 other candidates, in a clear and transparent contest, and not by political appointment. Then it was mentioned that there was only 8 researchers at the WTO, and still it was able to produce high quality research (no puppets).

I don’t know if all of this is true. Living in Geneva for the last 3 years, almost not a day goes by without hearing someone complaining about the corruption and incompetence of the UN organizations staff, but also about the inefficiency and the uselessness of these offices. Crazy insider stories of the manipulation, the sexual abuse, the appointment of friends, the fake ads in The Economist etc… come out every day. Not so much about the WTO, but especially about the ILO, UNCTAD, WIPO and, worst of all, the Human Rights Council.

I am an internationalist. I don’t want to get rid of these organizations, but I would like them to be less of a waste. Many people talk about reform, but it is most of the time about very general things, like the mission an organization should have, how the security council should be enlarged, how a UN small army should be created. And what’s so funny about these articles is that they always mention how impossible it will be because of China and Russia, or because of conflicting neighbours. One very disappointing report of this kind is the one that came out this week in The Economist, “Who runs the world?”

But what about the inner workings of these organizations, like employment policies or employee benefits? Why don’t diplomats have to pay parking tickets? Get rid of that rule, right now. Isn’t it all about hiring the right employees and then getting their incentives right?

It is such a golden ticket to land a job at the UN in Geneva as you get a relatively higher salary then in the private sector with no taxes, an incredible retirement plan and a standard of living way above the local population. Just look at the jewels the UNCTAD ladies are wearing or the cars the ILO gangsters are driving. But who gets attracted by these organizations? Candid, educated and honest idealists, yes, but also these gangsters (or snakes), because they are interested in the lifestyle, and not in saving the world. And who ends up spending their career there? The snakes, because the good ones have either been fed up by this rotten system or have not gotten the job, which was instead given to a friend by a corrupt boss.

So, yes, first things first, abolish the privileges, abolish the tax free shop. Many snakes will opt for other careers. And no more life time contracts, just simple 4 year contracts, renewable twice. So snakes won’t eternalise there either and won’t be attracted that much anymore. One other way to get rid of the luxury lifestyle seekers was to move the UN Geneva office to Nigeria, as only idealists would move there. But then again, this may be the most corrupt country in the world, so corruption could infest the offices there too. But does the local level of corruption affect the level of corruption inside the office? Is the UN in New York less corrupt then the UN in Geneva? This is an interesting paper idea.

Coming back to the WTO, is the Doha round dead because countries can’t agree or because the WTO twists the incentives of the negotiators? Are the countries’ representatives at the WTO lifestyle seekers snakes completely disconnected with their country’s government trade objective? One panellist was saying that they were representatives of the WTO to their own country, like promoting the free trade global public good to your own national government. If only he wasn’t lying.

Know your CO2 footprints

As PL noted in a post a while ago, the debate over if and what to do about climate change is becoming increasingly more complicated. There is on one side the evidence of the Stern Report and on the other side the praise and criticism surrounding it. Both have generated a fair amount of confusion within the population as noted in the post. A always bigger proportion of people is becoming sceptical about climate change, both for good and bad reasons. The confusion is even more palpable since we are facing the problem of rising food prices: people are concerned that what and if we could do something about climate, is going to be ineffective or even damaging.

If we buy the argument that doing nothing is better because either global warming does not exist, or because if I consume more of fossil fuels today it will lead to automatically more investment tomorrow in alternative, seems plausible, but it is incorrect. The words of wisdom I heard about the whole topic is that, since we do not know what is causing climate change, it is good to take the minimum effort to tackle it. It is then sound and correct to increase the price of what we think is the likely cause of global warming (via the imposition of a tax), since we know it will correct a market failure (pollution).

The other problem I find with the argument is more philosophical. The benefits accruing to society from Climate Change discussion is exactly the impact on our lifestyle. The world has been living with the idea that everything man-made / man-based is fine. The main argument that policy makers should advance instead, is that we can do little to make a huge impact. Be environmentally concerned just reduces the excesses that we were used to, without this implying a drastic change in our lifestyle.

Here though, the problem is how to improve the quality of the debate. We have been rightly hitting so far at SUV as a monstruosity that makes no sense. People are starting to think that Air Travels may be a problem as the true statistics about their impact are starting to emerge. While renouncing to a SUV is cheered, for Air Travel things are thornier. I advance here another element: What about food? Does food pollute? Of course it does. Here is an example. This guy has calculated that a cheesburger produces 4.5 Kg of CO2. To make things comparable, this is the amount of emission produced by a 2003 Toyota Yaris in a 30 Km ride. Some people I know find Cars outrageous because are polluting and prefer biking (or skating) instead. They would though never renounce to a Cheesburger. What would happen if people were aware of the Carbon Footprints of the food they consume? Well, they would probably know that, in order to be Carbon Neutral, they should go to their favourite Burgers' store by bike instead of taking the tram. This simple exercise would not only lead to a lower emission, but also a healtier lifestyle. What if they get tired? Won't they eat two burgers? Yes, but the ride by car has been offset by the bike ride. If you don't like biking, fine, here is an alternative: take a drive on a less polluting car (or an electric bus) and eat one instead of two burgers. The total footprint would be probably the same in the two situations, but the attitude toward the world we live in, and our concerns about the actions have changed: because what we are doing is just being more responsible for what we do vs ourselves and vs our planet. Peace

Gross Domestic Product

This map comes from some cool trade guy. US states have been replaced by countries with a similar level of GDP. Uzbekistan is Wyoming!

Okay, his much talked about paper on how Chinese imports reduced inflation more for the poor than the rich in the US and hence reduced consumption (or real income) inequalities was a bit too conservative, as it omits the fact that if poor people consume different products (even though equivalent for economists) than the rich, it pisses them off.

Climate change economics

What (if anything) do you do now to fight global warming that you didn’t do two years ago?

Since I believe that global warming is largely natural, and not man made, I don’t do anything to “fight” global warming since that would be futile. But to the extent that we will need to eventually move away from carbon based fuels, I am helping to spur the investment in new energy technologies by consuming as much as possible today. Increased consumption builds wealth and that wealth will be needed to fund the R&D into alternative energy technologies. And the second thing I do? Encourage others to do the same.

It would be exceedingly difficult for me to go without: air conditioning in the summer, heating in the winter, a good filet of beef on occasion, gasoline to go wherever I want, and everything else that we use in life that requires energy … which, last I knew, includes everything. But since doing and using all of these things will encourage new investments in energy technology (see above), I’m happy to report that I don’t need to give up anything!

My question is is this argument valid? Should I reduce my carbon emissions or not, since, by consuming more of it, I increase its price and encourage others to reduce their consumption...

This answer is from Roy Spencer, author of Climate Confusion and the U.S. Science Team leader for the Advanced Microwave Scanning Radiometer flying on NASA’s Aqua satellite. It appears along otherpeople on freakonomics who tell us what they think of climate change.

Long-haul flights and price discrimination strategy at Ryanair

Airline companies are the textbook example of price discrimination, the practice to charge different prices to different customers for the same products (for reasons unrelated to their costs). The low-cost airlines have very well understood this concept and have thus made huge profits out of it. Now, Michael O'Leary, CEO of Ryanair, has announced that "the company is considering launching a separate airline that would fly long-haul between Europe and the United States around the turn of the decade". The strategy is to charge very low prices for the economy class (let's say 15 CHF) and very high prices for the Business class (whatever price). Perfect, but how to convince people to fly business class? Here it is the press conference where he explains how:

A preliminary analysis of the Euro results

The Euro UEFA Cup 2008 currently jointly hosted by Austria and Switzerland, has already emitted its first verdict. At the time of writing, one of the host countries, having lost both the first and the second game, is out of the tournament...I won't tell you which one, but the other will probably follow soon the same faith.

In terms of results from the first wave of games, they have also been in some cases surprising, confirming once again that the tournament is really competitive and unpredictable. Take the example of Italy (guess why??). The latest World Cup Champion, has badly lost against Netherlands with a striking 3-0: in one game, Italy has conceded more goals than the ones conceded in the whole World Cup in 2006! A little worried by this event, me and Cosimo had a look at the data of the results in the Euro cup since 1980, to answer the following question: does it matter if you lose the first game? Can you still pass the round? The answer is, yes and no. It does not matter overall, but it matters if you have lost badly, with a big margin of difference in goals. For those of you interested in the methodology and the exact results of the exercise, they are described here. It's quite intuitive to understand that a bad start may be psychologically costly, but, if you are able to score 4 points, it has never happened that a team did not pass the round. In this respect, even losing a second match does not matter. What about the probability of winning the tournament? Do those who qualify as first have more chances to win the cup? Well, apparently not. It does not give you better chances. It may sound strange, but actually, it gives you slightly more chances if you arrive second! How can you interpret this strange result? If you think harder, it is actually not so strange. Being as competitive as it is, there is really not so much of a difference between the winner of a group and the runner up of another. If you have poorly performed in your group, while the other teams have had supreme performance, the psychologic effect may work in reverse, favoring those who had a worse start. We are not giving advice on betting. The intention is not to forecast anything. We just wanted to see what has historically happened in the Euro so far. Then, let's wait and see what happens on the field, and enjoy this wonderful show!

P.S.
I just saw that Germany, one of the favourite team for the final victory quite unanimously across bookmakers has just thirty minutes ago incredibly lost against Croatia for 2-1. May my Germans friends be scaramantic as much as I am, but maybe they should not worry that much...

The inflation monster

Economics of Love Part III - Will you marry me?

This summer I am going to attend three weddings. Ok, this is not an interesting fact, I know. But this is the reason why I started writing these posts about what I called the Economics of Love. In the end, what motivates people to enter the market for partners is the final intention to get married sooner or later (more or less explicit for women, but I think also latent for men). Why, then, do people want to get married, I asked myself?
Economists started to think about the Economics of Marriage almost 40 years ago with the seminal contributions of Gary Becker with his JPE article, “A Theory of Marriage”. Whenever I speak to non-economists about this literature, they look at me as if economists were immoral nerds. This attitude is widespread and maybe reflects the simple scepticism about the idea that economics can explain any realm of life, as Lazear explained in Economic Imperialism.
To understand the main contribution of that paper and the literature that followed, one needs to know that, at the time of writing, in the 70’s, many women were still out of the labor force. Thinking about the family as a small firm producing non marketable goods, let’s say warm coffee brought to you in bed when you are still sleeping, assistance when you caught a flu and you’re down, Becker’s insight was that, if the man was the provider of financial resources while the woman was the provider of childbearing and domestic activities, a marriage could only mean one thing: gains from specialization. This would have entailed advantages for both partners. You can say this is not a romantic argument for marriage, but still, it’s economically sound.
Since then, societies have undergone enormous changes and transformations. The most important ones are the woman slow but continuous emancipation and increasing government intervention. By providing explicit insurance schemes, like pensions and health care, the governments have reduced the incentive to build a family, which was traditionally the informal provider of such services. Governments have thus also increased the opportunity cost of women to stay out of the labor force while raising their returns from investing in education. In concomitance, formal markets have started producing goods that have reduced the comparative disadvantage of men in doing domestic activities. The combined effect of these transformations has been a constant, declining relevance of legal marriages. Since there are fewer gains from specialization, there are as well reduced incentives from getting married under the economic viewpoint of Becker.
What is driving then my friends’ decision to get married? Paradoxically as it may sound, the argument advanced is that, by these very same changes, today, marriage can only be a spontaneous decision driven by pure, romantic love. As you commonly observe, people tend to hang out with people with more or less the same background: economists with economists, lawyers with lawyers, Brad with Angelina…In a couple, a man and a woman do not gain by sharing resources anymore; they gain by sharing common values, interests, ideas. In the economists ‘jargon, a couple is not a unit of production anymore but a unit of consumption. People “merge” because they like to consume the same goods, and they like to do it together. This is what is called “Hedonic Marriage”, which basically means, you enjoy a marriage since you think you really are “two of a kind”.
The final remark is the following: if marriage is becoming a “hedonic” institution, when will we observe a marriage happening? When will people decide to get married? It is clear that such a decision is not only influenced by pure “love”, but also by people’s attitudes toward this institution, which are somehow determined by their relative cultural background. Depending on the type of society you come from, you may still enjoy the “hedonic” aspect of sharing your life with someone else, without feeling the need to get “married” in a legal sense. Vice versa, you may be forced to marriage by a society where pressure to get married is higher, without feeling completely involved. We will see in Part IV that these factors have important implications for currently observed phenomena of delayed marriage, cohabitation, and declining divorce rates.

Commitment Contracts

If you really want to finish your paper before this week-end, and stop delaying it because you are too lazy (or making the rational decision, you can buy a "Commitment Contract" from Stickk.

Stickk, a company created by two Yale economists, Dean Karlan and Ian Ayres, forces its customers to think about their future selves by selling "Commitment Contracts," which require the completion of a specified task that you might otherwise put off (finishing a paper, quitting smoking, losing weight). When you sign the contract, you hand over a sum of money and get it back only if you keep your commitment by a particular date. So, rather than having a vague and distant motivation for finishing that dissertation, there's the much more immediate cost of seeing your $1,000 disappear. So is Stickk's business model to bet against our ability to resist procrastinating? Not quite. Stickk makes its money from advertising, not from its customers. If you fail to live up to the terms of your contract, your money goes to a randomly selected charity. Or, if you want some extra motivation, you can have your commitment payment go to an "anti-charity" of your choosing. They cater to all tastes—both Americans United for Life and the Pro-Choice America Foundation are possible recipients. This paragraph was taken from www.slate.com