Wednesday, January 30, 2008

Trolling for Gift Card Dollars

Still have some of those Christmas gift cards laying around? In a prior post, I discussed the fact that a significant portion of gift card value goes unredeemed (15% by some estimates). Business Week reports on what happens to that pile of cash.

As you might imagine, the government is trying to get a piece of the action. A number of states have passed laws that require at least part of the unused balances to revert to the state under unclaimed-property laws. This, in turn, gives retailers an incentive to set up their gift-card operations in states with the friendliest laws (although some states base the rules on the location of the card holder, not the card issuer).

Mind the gap, in income

Nice moving graph to illustrate the increasing poverty of Africa. The field of Development Economics has been trying to explain the increasing gap for a while. My favorite hypothesis is that the corrupt African governments (no property rights or rule of law) stifle development.

See John Stossel's take on African Poverty

Hat tip to Matt Haber

Tuesday, January 29, 2008

MSFT: making the rules so APPL won't

From Fortune:

In a case rich in irony, an antitrust suit has been filed against Apple (AAPL) accusing the company of illegally maintaining a monopoly in the digital music market by failing to support Microsoft’s (MSFT) Windows Media Audio format.

..., according to Somers’ lawsuit, which quotes Steve Jobs as bragging that Apple’s iTunes store is now “the Microsoft of music stores.”

According to the complaint, Apple controls 75 percent of the online video market, 83 percent of the online music market, more than 90 percent of the hard-drive based music player market, and 70 percent of the Flash-based music player market.

Yet among the major digital music vendors, Apple is alone in not supporting Windows Media Audio. The suit estimates that Apple could license WMA from Microsoft for less than $1 million — or about 3 cents for each iPod sold in 2005.

If Democrats raise taxes on investments, ...

From Real Clear Markets
The higher the taxes on investment returns, the higher the rate of return investors will require for their investments and the less they will pay for a given investment. A natural extension of this concept is that if the tax rate on investment returns increases, the value of those investments in the economy will decrease. In the context of the stock market, moving from lower investment tax rates to higher investment tax rates will lead to a drop in market values, all other things equal.

Equity Discount Rate:

Candidate Investment Tax Rates Base Rate Risk Premium Tax Premium Equity Discount Rate
A (Rep.)
15% 4% 0 0.7% 4.7%
B (Dem.)
35% 4% 0 2.2% 6.2%

[A Democratic proposal] to increase in investor tax rates will increase the equity discount rate by more than 30%. To put this into perspective, let us value a hypothetical company that is expected to generate $100 a year of cash flow into perpetuity. Under these circumstances, the values of this company under the policies of Republican and Democrat Candidates are $2127 and $1613, respectively. (Please note that these calculations did not require a premium for inflation or risk. Incorporating these factors into the discount rate, only serves to increase the final return demanded by investors and further reduce market values and economic growth.)

Monday, January 28, 2008

Charging for internet downloads could hurt AAPL, AMZN, NFLX


Time Warner and other major Internet service providers (ISPs) often blame slowdowns on the 5% of users who consume as much as 50% of network capacity downloading vast numbers of large files, such as movies, videos, and songs. By charging such consumers more, companies could encourage them to curb excess use, or generate enough extra cash to enable their systems to handle higher data demands. "What we are trying to do is create the best experience possible for all of our users," Time Warner spokesman Alex Dudley says.

But the plan could also stifle demand for movie-download services from companies including Apple (AAPL), Amazon (AMZN), and Netflix (NFLX), some consumer groups say. "It depends on how they structure it," says Art Brodsky, communications director of Public Knowledge, a nonprofit consumer advocacy group focused on digital rights. "You don't want to do it so you totally discourage uploading videos and downloading videos, and doing what the Net is used for."

Do working moms cause kids' obesity?

A recent paper, Maternal Employment and Childhood Obesity, suggests they do.
Recent research has found that maternal employment is associated with an increased risk of childhood obesity. .... We find that employed women spend significantly less time cooking, eating with their children, and playing with their children, and are more likely to purchase prepared foods. We find suggestive evidence that these decreases in time are only partly offset by husbands and partners. These findings offer plausible mechanisms for the association of maternal employment with childhood obesity.

More on Irrationality

Given the choice between a) earning $50,000/year while other people make $25,000 and b) earning $100,000/year while others make $250,000, which would you choose (and assume that prices stay the same)? Most people choose a) indicating that they would rather make less in an absolute sense as long as it’s more in a relative sense.

Here’s another one. Two stores are holding a contest to reward their millionth customer. At the first store, you are the millionth customer and win $100. At the second store, the person in front of you is the millionth customer and wins $1,000 while you win $150. Surprisingly, most people would rather be at the first store.

We have previously blogged about some of the irrational behavior of individuals. Michael Shermer, the Founding Publisher of Skeptic magazine and Adjunct Professor of Economics at Claremont Graduate University, has written a new book call The Mind of the Market in which he discusses why people are so emotional and irrational when it comes to money and business decisions. Here’s an essay from his site regarding the book. Looks pretty interesting.

Sunday, January 27, 2008

Who would put an expiration date on their currency?

From Ethan Zuckerman's blog:

Zimbabwe is desperately short of foreign currency, and their own currency is in an inflationary free fall - CNN reports an annual inflation rate of 1200%. For businesses like my hotel, which makes a lot of purchases abroad to feed guests and keep us in clean sheets, it’s critical to have dollars on hand, since few vendors will accept payment in Zimbabwean dollars. And it’s hard to buy dollars, and probably impossible to buy them at the official exchange rates. So the hotel needs me to pay them in dollars so they can buy the goods to run the hotel for the guests who pay in a currency that’s losing its value every day.

Friday, January 25, 2008

More criticism of Bill Gates' "chutzpah"

From Lawrence Kudlow:

A guy without a college degree who invented a new technology process in his garage that literally changed the entire world, a guy who took advantage of all the great opportunities that a free and capitalist society has to offer and got filthy rich in the process, is now trashing capitalism and telling us it doesn't work. What chutzpah.

For all his do-good preaching, Gates is ignoring the global spread of free-market capitalism that has successfully lifted hundreds of millions of people out of poverty and into the middle class over the last decade. Think China. Think India. Think Eastern Europe. (Maybe even think France under Nicolas Sarkozy.) Gates wants business leaders to dedicate more time to fighting poverty. But the reality is that economic freedom is the best path to prosperity. Period.

Part of FTC legend is that Mr. Gates once told the Commissioners (when they were first investigating MSFT's per processor licensing practices) that they were a bunch of "communists." Isn't it ironic?

Bill Gates knows how to make money, but...

Former student John Tamny takes issue with his "kind" capitalism:

Gates speaks wistfully of a world in which companies would pursue profits while “improving the lives for those who don’t fully benefit from market forces.” But it’s there that he most impressively contradicts himself. There are parts of the world, particularly sub-Saharan Africa, that owing to a non-embrace of market forces have according to Clark produced “among the lowest material living standards ever experienced.”

Simply put, it’s a lack of market forces that has produced the poverty and ill-health that so vexes Gates. No doubt he would agree to a point, but in seeking a form of “soft” capitalism, he would to some degree retard the ruthless process whereby capitalism rewards those fulfilling individual needs, all the while punishing those that don’t.

Thursday, January 24, 2008

Who pays income taxes?

Who Pays Income Taxes? See Who Pays What

For Tax Year 2005

Percentiles Ranked by AGI

AGI Threshold on Percentiles

Percentage of Federal Personal Income Tax Paid

Top 1%



Top 5%



Top 10%



Top 25%



Top 50%



Bottom 50%



Note: AGI is Adjusted Gross Income
Source: Internal Revenue Service

Price elasticity of demand for gasoline=0.06

From the CBO:
The research suggests that a 10 percent increase in the retail price of gasoline would reduce consumption by about 0.6 percent in the short run. [short run elasticity=0.06] .... Estimates of the longrun elasticity of demand for gasoline indicate that a sustained increase of 10 percent in price eventually would reduce gasoline consumption by about 4 percent. That effect is as much as seven times larger than the estimated short-run response, but it would not be fully realized unless prices remained high long enough for the entire stock of passenger vehicles to be replaced by new vehicles purchased under the effect of higher gasoline prices—or about 15 years.

Is Canada a good model for the US?

From Imprimis:

... the Canadian economy is more unionized. According to the Fraser Institute report, since the beginning of this century, the unionized proportion of the U.S. work force has averaged 13.9 percent. In Canada it has averaged 32 percent. ... last year, an Ottawa panhandler said that he may have to abandon his prime panhandling real estate on a downtown street corner because he is being shaken down by officials from the panhandlers union. Think about that. There’s a panhandlers union which exists to protect workers’ rights or—in this case—non-workers’ rights. If the union-negotiated non-work contracts aren’t honored, the unionized panhandlers will presumably walk off the job and stand around on the sidewalk.

....Canada’s [economy] is more protected. I was talking once to a guy from the Bay area who ran a gay bookstore, and he swore to me that he’d had it with President Bush and that he was going to move to Vancouver and reopen his bookstore there. I told him that would be illegal in Canada and he got very huffy and said indignantly, “What do you mean it’s illegal? It’s not illegal for a gay man to own a bookstore in Canada.” I said, “No, but it’s illegal for a foreigner to own a bookstore in Canada.”

...Canada’s economy is more subsidized. Almost every activity amounts to taking government money in some form or other. I was at the Summit of the Americas held in Canada in the summer of 2001, with President Bush and the presidents and prime ministers from Latin America and the Caribbean. And, naturally, it attracted the usual anti-globalization anarchists who wandered through town lobbing bricks at any McDonald’s or Nike outlet that hadn’t taken the precaution of boarding up its windows. .... not only had Canadian colleges given their students time off to come to the Summit to riot, but that the Canadian government had given them $300,000 to pay for their travel and expenses.

...obviously, the Canadian economy is more heavily taxed: Total revenue for every level of government in the U.S. is approximately 27 percent of GDP, while in Canada it’s 37 percent. And yes, that 37 percent includes health care

[Canada] doesn’t have the insanely wasteful federal agricultural subsidies that America has. In fact, if a Canadian wants to get big-time agriculture subsidies, he’s more likely to get them from the U.S. government. ... among their number is Edgar Bronfman, Sr., who isn’t just any old billionaire, he’s the patriarch of Montreal’s wealthiest family, owner of Seagram’s Whiskey, which subsequently bought Universal Pictures. So the U.S. taxpayer, in his boundless generosity, is subsidizing the small family farms of Canadian billionaires.

Comparative advantage: marginal analysis of trade

From The Richmond Fed:
..every country has a comparative advantage. For example, imagine if the United States and Mexico both produced tacos and hot dogs. To produce each taco, the United States needs two workers while Mexico needs three. For every hot dog produced, the United States needs one worker while Mexico needs two. The United States holds an absolute advantage in producing both tacos and hot dogs because it can produce both goods with fewer workers. However, Mexico holds a comparative advantage in producing tacos, because it can produce them at a lower opportunity cost. In the United States, every taco made costs two workers, and thus two hot dogs. For Mexico, every taco made costs three workers, and only one and a half hot dogs.

..if Mexico produced one extra taco, the United States could produce two extra hot dogs. In the global economy, there would be the same number of tacos and one more hot dog, indicating a slightly higher standard of living for both countries, assuming they could trade freely.

Whiskey vs. wine vs. beer: making the rules so their rivals' won't

From Washington Post:

Distillers have been working aggressively to get the serving-size alcohol content on the bottle because they think it would dispel the impression that spirits are more intoxicating than beer or wine.

"To know how much alcohol is in a serving gives everyone a point of comparison," said Guy Smith, executive vice president of Diageo, the world's largest alcoholic-beverage company. "Don't hide this stuff from consumers." producers ... asked lawmakers to convince the Tax and Trade Bureau that disclosing the alcohol in a serving would be "complex, redundant and could mislead consumers."

Vintners are concerned about the cost of the proposal, which would require lab testing of different wines. Besides, they complain, the nutrition-facts array would rob them of space for the artistic displays that are common on wine labels.

Wednesday, January 23, 2008

Understanding Changes in the Pork Market

Reading the local paper this morning, I stumbled across an article about predictions in the pork market from the 2008 Central Indiana Pork Conference (welcome to the Midwest!). Had you been able to attend you could have listened to sessions on "air quality in swine production systems, reproductive inefficiencies and failures and how to incorporate dry distillers grains."

One quote in the article from an agricultural economist perplexed me: "large pork supplies may result from the lowest pork prices we've seen in five years." Anybody else share my confusion? Low prices should lead to supply reductions, not supply increases. Perhaps it's a misquote. Any pork experts out there?

Monday, January 21, 2008

Customizing Perks

Although economics often focuses on the relationship between cash rewards and job effort, non-salary incentives can be an important motivational tool as well. With the increasingly global market, however, these perks need to be tailored to the local environment.

This week's issue of Business Week has an interesting description of how perks vary across the world. A few highlights of perks offered in different countries:
  • India: health care coverage for parents
  • Hong Kong: health care coverage for traditional Chinese medicine
  • Japan: family allowances depending on size of family
  • Mexico: "pollution-escape" trips
  • Brazil: kidnapping protection
  • Russia: company-sponsored mortgages

Sunday, January 20, 2008

AT&T trying to make the rules so its rivals won't

AT&T is trying to enter the Huntsville market with its new U-verse product:

... more than 300 channels, remote recording of programming and interaction between Internet, phone and TV functions. The system, which is based on running fiber lines to a "node" that completes the transmission over copper lines to the home, includes a set-top box with a built-in digital video recorder that allows recording of up to four programs at once. ...'

But it is a wide-open question whether Huntsville customers will ever enjoy the service.

AT&T says it will be reluctant to enter the Huntsville market if the City of Huntsville seeks to require it to enter a franchise agreement for video services, similar to deals the city has with Comcast and Knology.

Latest Presidential Nomination Futures prices

John McCain to be the Republican Presidential Nominee in 2008
M Trade50.2
Rudy Giuliani to be the Republican Presidential Nominee in 2008
M Trade16.7
Mitt Romney to be the Republican Presidential Nominee in 2008
M Trade20.0
Mike Huckabee to be the Republican Presidential Nominee in 2008
M Trade5.5

Hillary Clinton to be the Democratic Presidential Nominee in 2008
M Trade65.2
Barack Obama to be Democratic Presidential Nominee in 2008
M Trade33.0
John Edwards to be the Democratic Presidential Nominee in 2008
M Trade1.1

Friday, January 18, 2008

Clinton & Edwards want to "freeze" mortgage rates

From Fortune:
"I have a plan - a moratorium on foreclosures for 90 days [and] freezing interest rates for five years, which I think we should do immediately," Clinton announced at what was the last Democratic debate before the Nevada Caucus on Jan. 19. ... John Edwards, has endorsed an even broader rate freeze - one lasting seven years

....such a freeze would be disastrous. Interest rates on new mortgages would skyrocket - perhaps past 8 percent, as the mutual funds, pension funds and other investors who typically provide capital to the mortgage market shift their money into other investments where the government isn't impairing returns. With higher mortgage rates eroding buying power, the downward pressure on home prices would only increase. Lower home prices would lead to even more defaults, as more folks who'd lost the equity in their homes choose to walk away from their mortgages.

Are borrowers this stupid?

From WSJ:

...most folks underestimated how much savings would grow and how much debt would end up costing.

The problem: People think in terms of simple interest, not compound interest. For instance, if our investments clock 8% a year for 10 years, we don't earn 80%, as many people assume.

Rather, we would notch a cumulative 116%. Remember, we earn returns not only on our original investment, but also on the investment gains earned in earlier years. Similarly, with credit-card debt, we pay interest both on our original purchases and on any monthly interest charges we didn't pay off in full.

Boards vs. CEO's

From WSJ:

In order to properly oversee these companies, boards need to believe that the CEO -- who's often their main source of information -- is giving them an accurate picture. "In the past, CEOs had carte blanche to do what they needed to do to run the company," says Dirk Hobgood, a governance and risk-management consultant, and chief financial officer, at consulting and executive-search firm Accretive Solutions, based in Hauppauge, N.Y. "Today's CEO really has to work effectively as a team member with the board and keep them up-to-date, and keep the players involved."


Why is it so tough for CEOs to keep the board informed in a timely manner? Simply enough, CEOs want to appear to be in control, experts say. It can be hard for them to concede defeat or to admit they don't have all the answers.

"I think sometimes CEOs struggle with the question of when to share bad news largely because they want to bring solutions, not problems, to the board," says Mr. Copeland, the former Deloitte & Touche CEO. "They want to be able to say, 'We have this problem, and here's what we're going to do about it.' "

Defending the Indefensible: Pimps

From the Economist:
...prostitutes do better with pimps—they work fewer hours and are less likely to be arrested by the police or preyed on by gang members. The paper's discussant at the conference, Evelyn Korn of Germany's University of Marburg, said that her favourite result from the study was that pimps pay “efficiency wages”. In other words, pimps pay above the minimum rate required by sex workers in order to attract, retain and motivate the best staff. Mr Levitt said that a few prostitutes asked the researchers to introduce them to pimps.
Note: Walter Block has a fun book by the same title as this post.

Thursday, January 17, 2008

Virtual banks can fail too

Technology Review reports that Second Life has decided to close its banks after a series of frauds,

Robert Bloomfield, a Cornell University economist and virtual-world watcher who had argued that self-regulation deserved a chance to fix Second Life's financial problems, says he believes that banks will face runs and be unable to pay depositors, triggering new losses. (See "Second Chance for Second Life.") But he says that the larger Second Life economy, which by one recent measure has more than 300,000 participants, would not be profoundly affected because people will still be able to make, buy, and sell digital goods and exchange virtual and real dollars.

Wednesday, January 16, 2008

The Reality of Entrepreneurship

In addition to my studies in strategic management and economics, I am very interested in entrepreneurship. It only seems natural given the increasing rates of entrepreneurship in this country and the fact that the United States leads the world in rates of entrepreneurial activity. Plus, people are risking very large pools of capital in launching new start-ups.

So, what’s the problem? The problem is that the three facts I just cited are flat wrong. The rate at which start-ups are forming in the US is actually declining over time, and the US ranks quite low across a number of measures of entrepreneurial activity. And the large capitalization of new businesses? The typical start-up only requires about $25,000 in capital.

How do I know these facts are wrong? Because I just finished reading The Illusions of Entrepreneurship by Scott Shane, one of the top scholars in the field of entrepreneurship. With a very readable approach, Shane shatters some of the most common myths surrounding entrepreneurship using the best evidence we have available regarding those who actually engage in the process of starting new businesses. Shane also provides useful advice for those who want to become entrepreneurs themselves based on the real facts. Take the quiz and see how well you know the facts.

My favorite quote from the book:
But the odds of getting venture capital are lower than the odds that you will get hurt mowing your lawn (3,623 to 1) or fatally slip in the bath or shower (2,232 to 1). When you are thinking about your new business in the shower tomorrow, don’t ponder getting venture capital, think about making sure you don’t fall. The chances are that it will be a better use of your time.

For less than $20 on Amazon, this book is a steal for anyone interested in studying or practicing entrepreneurship.

Tuesday, January 15, 2008

Why are women more likely to be obese?

From an NBER study of obesity in Africa:
Three factors explain the greater obesity rates we find among women. Women who were nutritionally deprived as children are significantly more likely to be obese as adults, while men who were deprived as children face no greater risk. In addition, women of higher adult socioeconomic status are significantly more likely to be obese, which is not true for men. These two factors can fully explain the difference in obesity rates we find in our sample.

New house prices down more than old ones

In past blog posts, we have noted that when the real estate market crashes, prices do not adjust; rather quantity does. Now we learn that new house prices have declined by more than old house prices:
And while new construction has declined from its highs of a year or two ago, it has not disappeared. From January to October of this year, Los Angeles County has approved about 17,000 new housing units. Owners of new units planned while prices were at their peak may be loath to chop prices in the wake of the housing downturn, but newly approved units, conceived amid the bad news of the past year, should enter the market priced to move.

Monday, January 14, 2008

Is the writers' strike hurting the networks?

A colleague asks:
Are the networks' actually profiting from the writers strike? Unlike auto worker, longshoreman or California grocery strikes, the networks are not shut down. Viewership is off and so advertising dollars are lower but expenses are also lower. It depends on the elasticity of demand w.r.t. "new programming" versus the elasticity of supply w.r.t. "new programming."

This reminds my of the "advertising game" played by cigarette makers. The story goes that advertising did not increases industry demand as much as it caused customer switching. Producers could not commit to an advertising ban but would have loved one (a classic prisoners dilemma game). The advertising ban as an outcome of the Surgeon Generals report was a blessing since it lowered costs more than it lowered revenues.

For whom should you vote?

A helpful quiz

Are video games substitutes for crime and violence?

Yes, according to Michael Ward:
For six of eight categories of crime, more game stores are associated with significant declines in crime rates.

Prediction Market Problems

My co-blogger is fond of keeping everyone up to date on the latest prices from the political prediction markets. Supposedly, these markets generate accurate predictions by aggregating the opinions of a very diverse set of people with access to different types of information.

Here's an article from Slate Magazine that discusses why prediction markets have performed so poorly of late. The author argues that "the price movement tends to respond to conventional wisdom and polling data; it doesn't lead them." One wonders as well whether the traders on these sites are really a diverse set of people with access to different types of information.

Sunday, January 13, 2008

Why do we disagree on policy?

From Sunday's NY Times:

Steven Pinker identifies five "spheres" of morality: harm, fairness, community, authority, purity.

Many bones of contention, like homosexuality, atheism and one-parent families from the right, or racial imbalances, sweatshops and executive pay from the left, reflect different weightings of the spheres. In a large Web survey, Haidt found that liberals put a lopsided moral weight on harm and fairness while playing down group loyalty, authority and purity. Conservatives instead place a moderately high weight on all five. It’s not surprising that each side thinks it is driven by lofty ethical values and that the other side is base and unprincipled.

Friday, January 11, 2008

It is better to lend than to receive

From Vanderbilt Magazine:
Before and after receiving a gift of charity, the poor remain the poor and in debt. But through microlending the poor borrower gains both the new capabilities developed to meet the demands of repayment and the reputation as someone with whom others can do business. That is, when it all works, the poor become more like the non-poor: willing and able to pay their debts.

Thursday, January 10, 2008

Will high oil prices lead to recession?

From Cato:

In 1983, the economist James Hamilton shocked the profession by showing that "all but one of the US recessions since world war two have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum".

Professor Hamilton's thesis was challenged in 1997 by Mr Bernanke, Mark Gertler and Mark Watson. It is difficult to isolate the effect of oil prices on recessions, they argued, because "a number of the most significant tightenings of US monetary policy have followed on the heels of major increases in the price of imported oil". They found that "an important part of the effect of oil price shocks on the economy results not from the change in oil prices per se, but from the resulting tightening of monetary policy". ...

In 2007, by contrast, the Fed stopped chasing higher oil prices with higher interest rates. As a result, the US embarked on a fascinating new experiment in which oil prices and interest rates were moving in different directions for a change.

Anti-conservation incentives

From Cato:

In early 2006, landowners in Boiling Springs Lakes, N.C., began clear-cutting timber from their property after the U.S. Fish and Wildlife Service (FWS) announced that development could threaten local red-cockaded woodpecker populations. The FWS released a map showing clusters of the woodpecker in the area and announced plans to identify additional habitat for the endangered bird. That prompted landowners to grab their chainsaws to clear their property of the trees in which the woodpeckers make their homes before their land could be designated as endangered species habitat.

...As a practical matter, the Endagered Species Act (ESA) requires private landowners to obtain permission from the FWS before modifying endangered species habitat on their own land. However, it is not illegal to modify land that might become endangered species habitat some day in the future, nor are landowners required to take affirmative steps to maintain endangered species habitat. So, in Boiling Springs Lakes as elsewhere, landowners seek to avoid the burden of the ESA by eliminating potential species habitat on their land.

Wednesday, January 9, 2008

90,000 deaths caused by organ donation policy

From Regulation Magazine: one has yet articulated a sensible, ethical reason for why we should continue to allow thousands of patients to die each year instead of paying surviving families a few thousand dollars to motivate an increased rate of consent for organ removal.

...Certainly, there are parties directly involved in this policy debate that benefit economically from a continuation of the organ shortage. For example, owners of dialysis clinics, investigators who receive funding for xenograph research, the agencies that manage organ procurement and allocation activities, and even the transplant centers themselves all may experience significant financial gains from shortage conditions. As with any cartel-type arrangement, producers receive increased profits when they are able to restrict supply.

Payment for Sex in a Macaque Mating Market

From Time:
According to the paper, "Payment for Sex in a Macaque Mating Market," published in the December issue of Animal Behavior, males in a group of about 50 long-tailed macaques in Kalimantan Tengah, Indonesia, traded grooming services for sex with females; researchers, who studied the monkeys for some 20 months, found that males offered their payment up-front, as a kind of pre-sex ritual. It worked. After the females were groomed by male partners, female sexual activity more than doubled, from an average of 1.5 times an hour to 3.5 times. The study also showed that the number of minutes that males spent grooming hinged on the number of females available at the time: The better a male's odds of getting lucky, the less nit-picking time the females received.

Holding Banks Accountable for Abandoned Property

Business Week has an interesting story in its most recent issue on the efforts of local governments to deal with the glut of abandoned houses being driven, at least in part, by the recent trouble in the mortgage markets.

The problem arises when borrowers either become unwilling or unable to continue mortgage payments. The banks often threaten foreclosure, and at this point, the borrower abandons the house. In many cases, the bank abandons the property as well because it can't be sold for enough to make the process worthwhile.

A number of local governments (Buffalo features prominently in the article), are trying to force lenders to spend money to maintain these properties. A New York state law's definition of an "owner" of a property includes those who exert "control" over a premises. Buffalo thinks lenders exert control when they threaten to evict homeowners.

Tuesday, January 8, 2008

Latest presidential futures prices

Big movement from last week, from

At, one can buy and sell contracts that payoff $1 if a candidate receives the nomination. If the markets are "efficient," then the prices reflect the probability that the candidate will win.


John McCain to be the Republican Presidential Nominee in 2008
Rudy Giuliani to be the Republican Presidential Nominee in 2008
Mike Huckabee to be the Republican Presidential Nominee in 2008
Mitt Romney to be the Republican Presidential Nominee in 2008
Ron Paul to be the Republican Presidential Nominee in 2008
Fred Thompson to be the Republican Presidential Nominee in 2008

Barack Obama to be Democratic Presidential Nominee in 2008
Hillary Clinton to be the Democratic Presidential Nominee in 2008
John Edwards to be the Democratic Presidential Nominee in 2008

Monday, January 7, 2008

A Major Move in the High Def DVD Wars

We have discussed the fight between HD-DVD and Blu-ray to establish the standard format for high definition DVDs (see posts here, here, and here).

Last week, HD-DVD took a haymaker to the chin when Warner Brothers announced that it would release new movies only in Blu-ray format (see ABC News story here).

Only two major US studios support HD-DVD, while five support Blu-ray. Is HD-DVD headed for the Betamax pile?

Sunday, January 6, 2008

The Economist's view of HR

Good survey article in this month's JEP on Personnel Economics:
In 1974, the 90th percentile of wage earners received about 1.9 times the hourly wage of the 50th percentile, but this multiple has risen steadily over the last three decades and has now reached about 2.3. ...

The proportion of employees’ pay that comes from bonuses rather than from base salary has increased. ... the share of large firms that have more than 20 percent of their workforce working with some form of individual incentives, like a performance bonus, has grown from 38 percent to 67 percent. The percent of firms using any form of “gain-sharing” or group-based incentives has grown from 26 percent to 53 percent.

Friday, January 4, 2008

Compensating beauty differentials

The Economist reports that beautiful people earn more:

[In the US,] the ugliness “penalty” for men was -9% while the beauty premium was +5%. For women, perhaps surprisingly considering popular prejudices about the sexes, the effect was less: the ugliness penalty was -6% while the beauty premium was +4%.

Since then, he has gone on to measure these effects in other places. In China, ugliness is penalised more in women, but beauty is more rewarded. The figures for men in Shanghai are –25% and +3%; for women they are –31% and +10%. In Britain, ugly men do worse than ugly women (-18% as against -11%) but the beauty premium is the same for both (and only +1%).

New Hampshire primary prices: Republicans

Mitt Romney to Win
John McCain to Win
Rudy Giuliani to Win
Mike Huckabee to Win

New Hampshire primary prices: Democrats

Hillary Clinton to Win
Barack Obama to Win
John Edwards to Win

Tuesday, January 1, 2008

Auto Dealership Managerial Incentives

Those interested in economics should go car shopping more often. It's like the Thunderdome of economic combat ("Two men enter; one man leaves"!!).

We ran into an interesting situation when shopping for a car recently. Our preferred color/model combination was not on the lot of our local dealer. But, that combination was on the lot of another dealership location, owned by the same company. The local sales manager, however, was not enthusiastic about making a trade with the other location. Why? I don't really know what the mechanics of a dealership are, but I imagine that making the trade would have somehow cost him. Then it becomes a rational decision to resist the trade given his incentives.

But what about from the perspective of the company as a whole. The trade makes sense for the company because a sale is made. But, the local manager's incentives must not be aligned with the overall goals of the company. The result? We went to another dealer (a different company).