Arbitraging Influencers

The WSJ recent;y reported on lawsuits by Internet influencrs against the makers of browser extensions that seek out discounts. These extensions, such as  as PayPal Honey, Capital One Shopping and Microsoft Shopping, automatically seek out discounts that might exist elsewhere and apply them at checkout. Influencers no longer get credit for directing their followers to the retailer. 

“If the customer clicks on…the Plaintiff’s [influencer's] affiliate link and then at checkout clicks on the Honey pop-up, then the business tracks the sale as originated from Defendant [browser extension], and Plaintiff [the influencer] will receive no credit for the purchase,” one suit against PayPal said. “Honey erases Plaintiffs’ affiliate links and replaces it.” 

The problem stems from a standard industry practice. Influencer affiliates include a link into their content for interested followers to make purchases of a brand. The industry has settled on the practice of "last-click attribution." When the extension replaces the influencer attribution with its own, the influencer does not receive credit for the sale. This is kind of like paying someone to stand outside of a high-end boutique informing eager customers that they can save at a discount store. The brand wants to price discriminate by selling through both the boutique and the discounter, but its doesn't want the discounter to interrupt too many of the high-end sales. Actually, it more like a billboard company advertising discounters just outside the boutique. The boutique is suing the billboard company.

Is your master's degree worthless?

Economist:

In America returns are especially large in computer science and in engineering. They are slightly smaller in other science subjects, in part because an undergraduate degree in these already bumps up salaries by quite a lot. Teachers who bag graduate degrees in education tend to earn more, even if wages for the profession as a whole are fairly low, because many American school districts automatically raise the pay of those who have them.

Would Thomas Jefferson approve of DOGE?

From ChatGPT:

Thomas Jefferson would likely have mixed feelings about a Department of Government Efficiency, depending on its scope and function.

• Why He Might Approve: 
•  Limited Government & Fiscal Responsibility – Jefferson was a strong advocate for minimizing government waste and ensuring efficient use of public funds. If such a department worked to reduce bureaucracy and streamline operations, he might have supported it. 
•  Republican Virtues – He believed in a government that served the people effectively without unnecessary complexity, so an effort to improve government efficiency could align with his ideals. 
• Why He Might Disapprove: 
• Bureaucratic Expansion – Jefferson was skeptical of centralized power and large government institutions. The very creation of a new department could be seen as adding more layers to the bureaucracy he often opposed. 
•  State vs. Federal Power – He strongly favored states’ rights and decentralized governance. If the department operated at the federal level, he might argue that efficiency efforts should be handled at the state or local level instead. 
• Final Thought: If structured as a temporary commission to identify inefficiencies and reduce waste, Jefferson might have supported it. But if it became a permanent federal agency with expanding influence, he would likely have opposed it as a contradiction to his vision of a small, decentralized government.

All he wants is "good pricing"

Fron WKRN:

“There are too many liquor stores in Lebanon, just at the rate that more stores are opening. I never really felt that way before,” Andrea Ross, the owner of Cheers Wine and Liquor, said. “We know multiple liquor store owners in Lebanon [TN] that are great people, great business owners, but in order for us to continue to be able to provide good pricing and all the things that we offer, we have to be able to sustain the business.”

For anyone who has not read Chapter 6, what the incumbent liquor store owner means by "good pricing" is high pricing. To the residents of Lebanon, good pricing is low pricing. 

• By limiting competition from entrants, the city council create incentives for incumbents to support their reelection campaigns.
• Does the city council have enough information to make good decisions about the number of liquor stores, and the incentive [see above] to do so?

HT:  MH

Adverse Selection in Genetic Insurance Markets

A new paper by Azevedo, Beauchamp, and Linnér (ABL) finds that some predictions are coming true and that may be a problem. Economists predicted that the Human Genome Project would uncover many markers for diseases that may not present themselves until much later. For two decades, these predictions were hard to come mainly because single-gene mutations are not as informative. ABL show that more recent improvements developed from data on nearly half a million people in the UK Biobank has become much more predictive. This affects insurance markets.

In many countries, but not the US, a market for Critical Illness Insurance (CII) is growing. 

Critical illness insurance (CII) pays out a lump sum in the event that the insured person gets diagnosed with any of the medical conditions listed on the policy (Brackenridge et al., 2006). The lump sum can be used as the policyholder wishes. The policy pays out once and is thereafter terminated.

Consumers with bad test results should gobble up insurance. CII providers will have to adjust rates for this adverse election. Consumers with good test results will not find the insurance worth it. Will CII providers require genetic tests? Will they be allowed to risk rate their policies? As the predictive power of genetic testing improves, as it surely will, these issues will become more acute.

Hat tip: Marginal Revolution

Can President Trump break the International Corporate Tax Cartel?

 From the Economist:

The international tax system has long suffered from two related problems: firms go to great lengths to book profits in low-tax jurisdictions, and governments thus have strong incentives to compete with each other in cutting levies so as to attract investment [only a dirigiste would consider this a problem]. Hoping to forestall a [competitive] race to the bottom, 136 countries reached a [collusive] compromise in 2021 to overhaul tax rules—the outcome of talks held under the auspices of the OECD, a group of mainly rich countries. The crucial element was that governments would impose a minimum tax rate of 15% on the profits of multinational companies.

...Unlike America’s withdrawal from the World Health Organisation and the Paris climate agreement, the OECD framework is not a formal treaty that America can leave. Rather, it is a common approach that depends on governments each passing legislation to impose top-up taxes on companies that pay less than the 15% minimum. This means that, if some countries choose to tax a multinational firm at a lower rate, others can claim the difference.

In other words, if the US doesn't tax its corporations at 15%, foreign countries can claim the difference.

...Mr Trump hopes to break this logic by promising brutal retaliation. Any country that imposes a top-up tax on an American company would, in his administration’s view, be guilty of extraterritorial overreach. In executive orders issued on January 20th, the day of Mr Trump’s inauguration, it said that it could respond by doubling taxes on citizens and firms from any offending countries. These orders displayed his advisers’ talent for unearthing obscure statutes that serve their goals: the law that allows the doubling of taxes on foreigners has been in place for nine decades without being used. Even if Mr Trump’s objection to the OECD deal was expected, his threat’s ferocity surprised observers.

Airline Yield Management

 It had been hard to manage an airline in the Covid-19 and early post-Covid-19 era. As Alison Sider
 at the WSJ reports:

Airfares plunged in the early months of the Covid-19 pandemic, only to soar in 2022, when airlines couldn’t add flights quickly enough to keep up with the frenzied urge to travel. Then prices tumbled when airlines expanded service and flooded into popular routes. Now airlines are constraining supply and lifting prices. 

Now it looks like things have settled back into a yield management problem. The quantity demanded has been  rising for the past three years, but the seems to have plateaued.

Airline price increases have begun to outpace inflation.

This suggests that demand has shifted out enough that it is constrained by airline capacity. Airline load factors have rebounded to pre-Covid-19 levels. At these higher prices, Airlines would like to sell more seats, but there are no more seats, at least in the short-run.

Is $5,000 enough to screen out bad dates?

That is how much it costs to join Tawkify.  A friend said he found his dates interesting (so it was)  but complained about the distance he had to travel to meet them.  

Would eliminating DEI improve government procurement?

Yes, by 15%.  From a paper by some middling economists,

Mergers, Cartels, Set-Asides, and Bidding Preferences in Asymmetric Oral Auctions, The Review of Economics and Statistics, 2000, vol. 82, issue 2, 283-290.  

The SBA [Small Business Administration] set-aside program limits auction participation to "small" firms... The set-aside program has numerous analogies in other areas of government contracting in which, for example, bidding is restricted to minority-owned firms (Froeb and McAfee (1988)).

The costs of the SBA program can be simulated by assuming that small, high-cost firms evolve into large, more efficient firms. The expected price change under this hypothetical scenario is computed over all 51 [Forest Service] auctions... . On average, [timber] price [revenue to the govt] would increase by 14.8%. 

Gig Work as Entrprenerial Training

There can be many hurdles to becoming an entrepreneur, particularly for those without a background in business startups. New findings from Denes, Lagaras, and Tsoutsoura indicate that Gig work can help budding entrepreneurs overcome these hurdles. Using data from U.S. Tax Returns, they can track individual's sources of income.

We find that gig workers are more likely to become entrepreneurs, particularly those who are lower income, younger, and benefit from flexibility. We track all newly created firms and show that gig workers start firms in similar industries as their gig experience, which are less likely to survive and demonstrate higher performance. Overall, our findings suggest on-the-job learning promotes entrepreneurial entry and shifts the types of firms started by entrepreneurs.

Of course the obvious benefit from Gig work is that we consumers have more choices to acquire goods and services. This is a static benefit. But a dynamic benefit is that Gig work becomes a stepping stone for workers to realize their potential. They will create new goods and services or they provide competitive pressure on existing suppliers. Policies that limit Gig work could undermine an economy's growth potential.