Saturday, May 19, 2018

The hidden benefits and costs of Corporate Social Responsibility

Another fabulous pointer from MarginalRevolution:

John List started his own firm and ran randomized control trials in different cities (varying the wage and the CSR or the "corporate social responsibility" mission of the firm). He found that it was easier to attract workers to the CSR mission (adverse selection):

...the C.S.R. job attracts about 33 percent more in application rates, so ... “Rather than paying someone $15 instead of $11, I can just say I’m a C.S.R. firm and pay them $11 and I’m going to get the same ... volume of recruits.”

And that these workers were 25% more productive on average.  However, they were also less ethical, 24% more of these workers were found to be cheating on the tasks that they were being paid to do (moral hazard).  Apparently, having a CSR mission gives the workers a moral "license" to behave less ethically.  

Friday, May 18, 2018

Markets for blood

From MarginalRevolution:

It’s a very odd “ethical policy” that leads Canadian provinces to ban paying Canadians for plasma but then import paid plasma from the United States. I am one of the signatories (along with Al Roth, Vernon Smith and Gerald Dworkin among others) of a letter that argues for the efficiency and ethics of allowing compensation for blood plasma donation

Squeezing Scalpers is Backward Integration

The WSJ reports that scalpers are less important to Taylor Swift's current "Reputation" tour. About 3% of the tickets find their way to stubhub versus the usual 30%-50%. Previously, scalpers would purchase tickets to performances by high demand artists and resale these tickets at a markup. In essence, the promoter "outsourced" the task of price discrimination to scalpers. Scalpers were able to capture a margin but bore the risk of unsold seats. Since there is virtually free entry into scalping, I suspect they earn very small economic profits. Promoters would be happy with this if scalpers were better at price discrimination and so were able to pay higher prices up front.
"The primary market has been ceding pricing control to secondary markets," said David Goldberg, a former senior Ticketmaster executive.

But CRM technology has come to concert promotion. Taylor Swift's promoters now have the edge in ferreting out which fans are less price elastic.
For the current Taylor Swift tour, would-be concertgoers were encouraged to register for Ticketmaster's Verified Fan program months before tickets went on sale. They could boost their standing in the ticket queue by watching music videos and purchasing the "Reputation" album or merchandise. Users then received codes that allowed them the chance to purchase discounted tickets over a six-day presale period.

By exploiting this information, they can publicize discounts to hardcore fans while raising overall prices.
The best seats--some with added VIP perks--cost $800 to $1,500 at face value for a given show, with those immediately behind them at $250 each. Spots in the back of the house go for about $50. Regular tickets for Ms. Swift's tour three years ago cost about $40 to $225, according to Pollstar data

Dress it up as cutting out the middleman but this tour "has already grossed 15% more." This is because her organization is now even better at price discrimination than these middlemen had been.

Tuesday, May 15, 2018

Jobs Elasticity

Seattle recently voted to institute a "head" tax estimated to average $540 per year per employee. Amazon cited this as a reason to halt construction on an office building in Downtown Seattle estimated to bring an additional 7,000 jobs. Or the demand for labor is downward sloping.

But is this just posturing or might Amazon actually scrap the project? A friend did some calculations. Amazon has about 45,000 employees in Seattle. Amazon paid $250 million in state and local taxes in 2017. The tax would add about $24 million in new taxes in Seattle, So 7,000/52,000 = 0.132 and $45m / $250m = 0.18 making the elasticity 0.134/0.18 or 0.74. This estimate seems to me to be within the realm of possibility. The threat appears to be more than mere "cheap talk."

Hat tip: John McMillan

Monday, May 14, 2018

2018 Top 100 Economics Blogs

List is here:


Managerial Econ is the perfect blog for anyone wanting to solve managerial problems and make business decisions using economic principles. Hosted by the authors of the popular managerial economics book Managerial Economics, Managerial Econ is the perfect blend of business and economics and is highly recommended for those with an interest in economics and the managerial aspects of business.

Friday, May 11, 2018

Dog invents currency, convinces humans to accept it

The problem with fiat currency, backed by nothing but the faith that it is valuable, is that the monetary authority will print more of it.  This leads to an erosion of faith which shows up as inflation.   The dog pictured above has invented his own currency.
Early on in Negro's tenure at the school, he came to be aware of the little store on campus where students gather to buy things on their breaks; sometimes they'd buy him cookies sold there. 
This, evidently, is where the dog first learned about commerce — and decided to try it out himself. 
"He would go to the store and watch the children give money and receive something in exchange," teacher Angela Garcia Bernal told The Dodo. "Then one day, spontaneous, he appeared with a leaf in his mouth, wagging his tail and letting it be known that he wanted a cookie."

The dog has apparently have found a way to credibly commit to not printing money to finance deficit spending. Venezuela could learn something from him.

Monday, May 7, 2018

Adverse Selection in Marriage Markets

Someone is having some fun over at "Mail Order Husbands" which appears to be a spoof on the notion of mail order brides. Perhaps adverse selection is a bit more severe among men. Ladies, here are just three of the gentlemen to select from. The others are hilarious too.

Saturday, May 5, 2018

Gain an Ally in Your Negotiations

A strike hurts management because the firm does not earn revenue. But it also hurts customers, which could hurt with public relations. If you simply don't collect fares, you hurt management and get the public on your side. This could increase your bargaining position. This strategy could be adopted more broadly.

Thursday, April 26, 2018

Kidney Holdup

Its seems that, back in 2012, a woman was fired by her boss soon after she donated her kidney to her boss ... because she was taking too long recuperating from the donation.
“I feel very betrayed. This has been a very hurtful and horrible experience for me. She just took this gift and put it on the ground and kicked it.’’

It seems she was hired, or rehired, so as to obtain access to her kidney. She had an implicit expectation that she would have continued employment post-donation. But after the operation, the decision was sunk and created a holdup opportunity.

Of course, she sued and apparently she lost. This may not have happened if selling a kidney were legal and she could have contracted for compensation. A market would likely have other benefits as it moves assets (kidneys) from low values uses (essentially "spare parts" in healthy bodies) to higher valued uses (bodies with nonfunctional kidneys).

Tuesday, April 24, 2018

How "localized" is hospital competition?

So-called "gravity choice models" estimate demand using revealed preference.  For example, a vacationer who passes a nearby polluted lake to travel a more distant one tells us that she values the pollution reduction associated with the more distant lake by more the increased “travel time” that she “pays” for it.  Similarly, a consumer who passes a lower-quality grocery store to visit a more distant one tells us that he values the higher quality shopping experience by more the increased travel time that he pays for it.  In both of these applications, the opportunity cost of travel is estimated or assumed to be about $25/hour, close to the median wage.

For health care gravity choice models, however, consumers behave as if their travel costs are much, much higher.  For example, a typical patient will not travel five minutes for elective surgery at a more distant hospital with much lower mortality risk.  The implied opportunity cost of travel is several orders of magnitude higher than in these other contexts, e.g., as much as $100/minute.  This means that competition is extremely localized, or that a merger between two nearby hospitals, located even a small distance away from a non-merging rival, can have enormous effects. 

However, the real reason for the observed reluctance to travel may not be the patient's aversion to travel, but rather the preferences of the patient's physician.

DeveshRaval and Ted Rosenbaum at the FTC show this by estimating travel costs by comparing the change in hospital choice between the first and second births for women who move and switch hospitals.  If the travel costs are all that is determining hospital choice then the woman should switch to a nearby hospital for her second child's birth.  But the data show that the woman is often likely to go to hospitals that are not as close at second birth.  The authors conclude that there must be that something other than distance, like physician preference, determining her choices.  

Their corrected estimates of travel cost imply that demand falls by 5.4% for an extra minute of travel, about half of what it would be without the correction.  

Bottom line:  hospital competition is localized, but about 50% less localized than it would appear from looking at simple choice models.