New Unicorns suggest fast pace of innovation!

Two popular innovation metrics are total factor productivity the difference between output (like GDP) and the inputs (like capital and labor) used to produce it, or the number of unicorns, startups that reach a $1B valuation.  While total factor productivity seems rather flat, 

the number of unicorns seems to be accelerating.

The US seems to account for about half of them, maybe due to its tolerance for inequality, and light-handed regulation.  

Unicorns are concentrating in several US cities, sometimes called "innovation clusters."

 More posts about unicorns and innovation. 

HT:  Elad Blog

G-7 countries collude to eliminate competition among themselves

 Countries compete for residents by offering to do more for less (lower taxes), in the hopes of attracting people and firms, e.g.,

Ireland’s low [12.5% corporate tax] rate has helped attract many of the new breed of footloose digital giants that don’t need to be close to consumers to sell to them, and can register their intellectual property—from which their profits derive—just about anywhere.

Like any cartel, the G-7 can make itself better off by fixing prices (corporate tax rates at 15%), thus eliminating competition among its members for residents and firms.

 Without competition to motivate them, I predict that:

1. these countries will become less responsive to those they are supposed to serve; and/or
2. they will "cheat" on the collusive agreement by competing in other dimensions, e.g., reducing property taxes, cutting red tape, giving away land, subsidizing wages.

Should Dropbox make or buy cloud services?

 By in-sourcing IT services, Dropbox saved $115 M over two years, doubling its gross profit margin.  

Actual spend as a percentage of COR is typically even higher than committed spend: A billion dollar private software company told us that their public cloud spend amounted to 81% of COR, and that “cloud spend ranging from 75 to 80% of cost of revenue was common among software companies”. 

Inflation and the weak dollar

 Good post about inflation, here is one part related to chapter 11

6) The USD is at a 3-year low. The way I look at it — and this is a vast oversimplification — is that a weak USD buys less in foreign goods, which increases the price of imports, contributing to inflationary pressures.

In other words, the falling dollar increases demand for domestic good because it raises the price of substitute imported goods.  

HT:   MarginalRevolution.com 

the reason behind the labor shortages, soaring wages

 

The graph above shows the labor force participation rate has fallen, two percentage points since the pandemic, decreasing the supply of labor.  A reduction in supply increases prices (wages increased at an 8.7% annual rate) and decreases quantity.  

HT:  marginalrevolution.com 

How do you align the incentives of sea captains transporting criminals to Australia with those of British public (1800's)?

By paying them for the number who arrive alive--instead for number who board the ship--death rates dropped from 30% to 1%.

This anecdote is taken from the introductory lecture from our friends at George Mason University, who had put their Microeconomics class online:

Introduction to Microeconomics

INSTRUCTOR: Tyler Cowen, George Mason University

Why Finding a Rideshare is So Difficult in Boston

Because the state restricted surge pricing. Boston Magazine has a nice article explaining the market for ride-sharing. A relatively new state law that forbids “surge pricing” during declared emergencies. Surge pricing is a higher than normal price when demand temporarily increases more than supply. The higher price, and higher payment to drivers, was meant to encourage more drivers to participate. Since the pandemic has been declared a state of emergency, surge pricing has been banned for the past year. It is just not worth it for many Uber and Lyft drivers to take on riders anymore. 

That is, it is not worth it to drive people.  Delivering food is still worth it.

Not all of those Uber drivers got off the road entirely—gig workers looking to pick up some extra money have been kept pretty busy transporting meals instead of late-night revelers. Sales at apps like DoorDash and UberEats more than doubled this past year. Working for these services, and not having to risk interacting with an anti-masker in your back seat, may simply be a more attractive option right now.

Also, unlike ridesharing services, food delivery apps can charge surge prices whenever they want.

Do criminals respond to incentives? (II)

 In San Francisco they do.  In 2014, the city reclassified nonviolent thefts as misdemeanors if the stolen goods are worth less than $950.  With a lower expected penalty for stealing goods, and big expected benefits, like open air markets that allow thieves to fence stolen goods, crime has surged.

As I was paying for [a purchase], a man walked into the store, grabbed a handful of beef jerky and walked out. I looked over at an employee, who shrugged. Then I went to Safeway next door for some groceries and I saw a man stuffing three bottles of wine into a backpack and walking casually toward the exit.  ...   

Thieves “are obviously choosing locales based on what the consequences are,” Safaí said. “If there are no consequences for their actions, then you invite the behavior. Over and over.” ...

Walgreens said that thefts at its stores in San Francisco were four times the chain’s national average, and that it had closed 17 stores, largely because the scale of thefts had made business untenable.

HT:  MarginalRevolution.com

On the post-pandemic future of cities

Bloomberg has an optimistic vision of the post-pandemic central business district (CBD), as more work from home, and density has come to be associated with disease:

... The CBD can no longer function as a collection of low-end grab-and-go cafeterias, chain coffee shops, restaurants and salad bars. To evolve and survive, its offerings will have to become more local, authentic and actively curated. A day at the office will be spent less in a single building and become more like a localized business trip, with maybe an onsite meeting, checking some emails at an outdoor workspace, doing a group fitness session with colleagues, and taking some offsite meetings over lunch or coffee. The downtown expert David Milder dubs this as a shift from the old Central Business District to what he terms the Central Social District, in which workers and people meet, collaborate and socialize together. As I see it, the Central Business District will evolve into a hub in a system of more decentralized Neighborhood Business Districts that span from the city center out to the suburbs and rural areas. Far from being dead, the CBD is perhaps the single best place to be transformed in this way. 

Agile Software Development

Traditional software development ("waterfall"), is plagued by predictable problems:  developers plan the next software release, then design, built, test, and release it, completing one phase before the next starts.  The entire process might take a year or longer, and by the time it is done, the product is not very good for one of two reasons:  either the technology has advanced, so that the software is obsolete before it is released, or the client's demands have changed, and they no longer want the product the developers have made.

Agile development, illustrated above, differs from the traditional approach by prioritizing and ranking changes, then taking them on one at a time.  By breaking the long development cycle into many short "sprints," each taking a week or so to complete, developers are able to deliver the most valuable changes immediately, and to adapt quickly to changes in technology or client preferences.  Clients get the changes they value more quickly and the developers can incorporate software innovations as they occur.  For example, Salesforce.com famously releases three model updates to its software each year.  

We can easily fit this into the problem-solving framework of Chapter One:

• Who is making the bad decision?  

Clients and Developers are jointly deciding how to design software that will be available in a year's time.

• Do they have enough information to make a good decision?

NO!  Clients don't know what their preferences are going to look like in a year and developers' don't know which capabilities are going to added to newer versions of the software.  

• Do they have the incentive to make a good decision?

Yes. 

Agile development mitigates the client's and developer's information problems by shortening the planning horizon to a week or so.   Clients rank which features are most valuable, and developers use the latest and best technology.  If client preferences or software changes, Agile development adjusts by the next sprint. 

HT:  Halley and Brian