Rent controls are a textbook example of a well-intentioned policy that does not work. They deter the supply of good-quality rental housing. With rents capped, building new homes becomes less profitable. Even maintaining existing properties is discouraged because landlords see no return for their investment. Renters stay put in crumbling properties because controls often reset when tenants change. Who occupies housing ends up bearing little relation to who can make best use of it (ie, workers well-suited to local job opportunities). The mismatch reduces economy-wide productivity. The longer a tenant stays put, the bigger the disparity between the market rent and his payments, sharpening the incentive not to move.
... It is unrealistic to expect politicians to ignore voters’ demands. But the danger is that one abuse of power is replaced by another as renters, just like NIMBY's, campaign for regulations to lock newcomers out of the market. Although today’s residents might benefit from capped rent increases, outsiders, faced with less supply and fewer opportunities, will suffer. Just ask the 636,000 people who were queuing at the end of 2018 for a diminishing stock of rental housing in rent-controlled Stockholm. There, the average waiting-time to find a long-term tenancy is ten years and black-market rentals have begun to thrive. Rent control harms almost everyone eventually because the housing stock deteriorates.
In August the knights of the Business Roundtable announced that they are putting “stakeholders” ahead of shareholders as their primary business purpose.
...Every company with revenue of more than $1 billion would have to obtain a new federal charter, in contrast to the current system of state charters.
Instead of serving the interests of the shareholders who own the company, CEOs and directors would have to serve some combination of “the workforce,” “customers,” “the local and global environment” and “community and societal factors.”
Consider, for example, video tape rental industry. Prior to 1998, distributors sold video tapes to rental outlets, which proceeded to rent them to end consumers. The tapes sold for around $60 apiece, far in excess of marginal cost. The rental stores, naturally enough, economized on their purchase, leading to queues for popular movies.
In 1998 the industry came up with a new contractual form: studios provided video tapes to rental stores for a price between zero and $8, and then split revenue for rentals, with the store receiving between 40 and 60 percent of rental revenues.
.. these contracts increased revenue of both studios and rental outlets by about 7 percent and consumers benefitted substantially. Clearly, the revenue sharing arrangement offered a superior contractual form over the system used prior to 1998.
The interesting thing about this revenue-sharing arrangement is that it was made possible only because of computerized record keeping. The cash registers at Blockbuster were intelligent enough to record each rental title and send in an auditable report to the central offices. This allowed all parties in the transaction to verify that revenues were being shared in the agreed-upon way. The fact that the transaction was computer mediated allowed the firms to contract on aspects of the transaction that were previously unobservable, thereby increasing efficiency.
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.
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).
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.
...Wu’s assertions about U.S. corporations wholly focused on profit without regard to “employees, suppliers, customers, and the communities to which they belong” would have meaning if he could produce evidence that the best get that way while running roughshod over the aforementioned.
...executive pay often violates the informativeness principle. In rewarding the CEO of Ford for example, an obvious piece of information that should used in addition to the price of Ford stock is the price of GM, Toyota and Chrysler stock. If the stock of most of the automaker’s is up then you should reward the CEO of Ford less because most of the gain in Ford is probably due to the economy wide factor rather than to the efforts Ford’s CEO. For the same reasons, if GM, Toyota, and Chrysler are down but Ford is down less then you might give the Ford CEO a large bonus even though Ford’s stock price is down. Oddly, however, performance pay for executives rarely works like a tournament. As a result, CEOs are often paid based on noise.
We wrote a managerial economics textbook (Amazon, Barnes & Noble, Cengage) to teach students how to solve business problems (7 min. video). We started this blog to support those who use the book, and to keep up with developments in the field.
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