Wednesday, February 21, 2018

Why mansions are artificially cheap

That is the title of an excellent blog post by Jaap Weel. In a nutshell, because zoning regulations prevent them from being converted into a a higher valued uses. He compares to this home on a one acre lot that sold for $6 million in Atherton

to 350 unit mixed use condo on a 1.6 acre lot 2 miles further up the peninsula in Redwood City that would fetch hundreds of millions.

If one could convert the mansion into condos, the value of the property could easily increase tenfold.
But the zoning code mandates single-unit buildings with a floor area ratio below 18% on lots of at least 1 acre, so $6m it is. Quite the bargain.

Zoning - keeping assets in low valued uses.

Friday, February 16, 2018

Trucking Costs

One little tidbit in this WSJ story on Tyson's earnings has to do with them passing on to customers the rising MC of trucking transport:
Short-term prices to secure some big rigs have jumped 20% as a result, and long-term shipping contract rates are projected to climb between 5% and 8% this year.

This provides an opportunity to test the relative competitiveness of various downstream industries. We know that the simple pricing rule is (P-MC)/P = 1/|e|. In a more competitive industry, firm's demand curves are more elastic. At one extreme 1/|e| = 1 for a monopolist and at the other, 1/|e| is zero for a perfectly competitive industry. For the former, P should rise with 0.5*MC and for the latter P should rise with 1.0*MC (the math is left as an exercise for the reader). So, for different industries and firms, is the "pass through rate" closer to 0.5 or 1.0?

Sunday, February 11, 2018

Management matters

in exactly the way that economists would predict, both across countries:

Income differences between rich and poor countries remain staggering, and these inequalities are in good part due to unexplained productivity gaps , ..., US productivity is more than 30 times larger than some sub-Saharan African countries. In practical terms, this means it would take a Liberian worker a month to produce what an American worker makes in a day, even if they had access to the same capital equipment and materials.
and across firms within a country:

This huge productivity spread between countries is mirrored by large productivity differences within countries. Output per worker is four times as great, and TFP twice as large, for the top 10% of US establishments compared to the bottom 10%, even within a narrowly defined industry like cement or cardboard box production (Syverson 2011). And such cross-firm differences appear even greater for developing countries (Hsieh and Klenow 2009).

A new survey relates these differences to management practices:
we rated companies on their use of 18 practices, ranging from poor to non-existent at the low end (for example, “performance measures tracked do not indicate directly if overall business objectives are being met”) to very sophisticated at the high end (“performance is continuously tracked and communicated, both formally and informally, to all staff using a range of visual management tools”)...
The large, persistent gaps in basic managerial practices that we document are associated with large, persistent differences in firm performance. Better-managed firms are more productive, grow at a faster pace, and are less likely to die. 

Tuesday, February 6, 2018

7% gender pay gap for Uber drivers

The flexibility of the gig economy was supposed to eliminate the gender pay gap.  At Uber it didn't:
 ...the entire gender gap is caused by three factors: experience on the platform (learning-by-doing), preferences over where/when to work, and preferences for driving speed. This suggests that, as the gig economy grows and brings more flexibility in employment, women’s relatively high opportunity cost of non-paid-work time and gender-based preference differences can perpetuate a gender earnings gap even in the absence of discrimination.
HT:  Peter Klein

Monday, January 29, 2018

Is food demand at football games elastic?

"Yes" is the answer from the Atlanta Falcons:

Steve Cannon, CEO of the AMB Group, Blank's holding company, told ESPN that although food and beverage prices were 50 percent lower in its new Mercedes-Benz Stadium than the prices in the Georgia Dome the previous year, fans spent 16 percent more.

As a first approximation,
(% Change in Revenue) = (% Change in Price) + (Change in Quantity)

In this case, 16% = -(50%) + X, or X = 66%.  In words, revenue increased because the 50% drop in price was more than offset by the increase in quantity because food demand was much more elastic than the Falcons previously thought--otherwise they would have lowered prices last year. 

To maximize profit on food sales, set MR=MC which implies (Price-MC)/P=1/|elasticity|.  In this case, with an estimated elasticity of -1.32=66/50, the optimal margin on food is 76%. 

HT:  Justin

Saturday, January 27, 2018

Good story of the 2008 housing recession

From a reporter who bought at the height of the housing bubble, then held onto an underwater property for a decade, and then finally sold at a $50,000 loss.  Love the last paragraph:
At a wedding I attended recently, I met a real-estate broker who touted the riches to be made by buying units in the glassy residential towers popping up along the waterfront in Brooklyn, where I live. No matter how slapdash the construction, she said, prices have only one direction to go.  
I had sunglasses on. She didn’t see me rolling my eyes.

Wednesday, January 24, 2018

Video Game Arcade Bundling

"Geek Mania" in Madison ,WI does not price arcade games per game played. Instead, it sets an admission price and allows patrons to play as much as they desire. This is similar to Walter Oi's "Disneyland Dilemma" when Disneyland went from per ride tickets to a single price of admission.

Tuesday, January 23, 2018

Entry Barriers for Opticians

A new paper by Timmons and Mills,"Bringing the Effects of Occupational Licensing into Focus: Optician Licensing in the United States," examines the effects of labor market entry barriers. The argument for occupational licensing is that it can serve to assure the quality of practitioners. The argument against is that it restricts supply and drives up prices. Timmons and Mills find no evidence of the former but:
Our results suggest that optician licensing is associated with opticians receiving as much as 16.9 percent more in annual earnings. 

I don't think I have yet seen an example in which occupational licensing was found to improve quality and/or does not raise costs. This is why most economists who study the matter prefer to allow market mechanisms (e.g., warranties, reputation, third party reviews) assure quality rather than government regulation.