Thursday, May 27, 2021

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

Wednesday, May 26, 2021

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.

Sunday, May 23, 2021

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.


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. 

Thursday, May 20, 2021

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, 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?

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

    Wednesday, May 12, 2021

    Do criminals respond to incentives?

    At least in Minneapolis they do.

    I am old enough to remember the debate (late 1980's at the Sentencing Commission) about whether punishment deters crime.  Some criminologists mocked the economic model of crime which assumes that criminals respond optimally, rationally and self-interestedly to the incentives created by expected punishment (the probability of being caught and convicted times the punishment if convicted).  The policy implication was clear:  increase the expected penalty to reduce crime, called "deterrence."

    It looks as if Minneapolis has run an experiment to test the deterrence hypothesis (defund the police==>lower probability of being caught==>lower expected penality==>more crime).  The experiment took less than a year to complete, and they seem to have learned something from it.   


    Saturday, May 8, 2021

    A Simple App to Teach Regression


    A Simple App to Teach Regression

    15 Pages Posted: 10 Jan 2020 Last revised: 8 May 2021

    Luke M. Froeb

    Vanderbilt University - Owen Graduate School of Management

    Date Written: December 30, 2020


    This paper introduces a simple, free web app for teaching regression that ``inverts'' the usual pedagogy. Rather than asking students to run regressions on data, it asks them to ``create'' data to achieve a given outcome, like a statistically significant line. By clicking on an (x, y) graph, students watch the regression line update with each mouse click, along with its confidence intervals and test statistics. The exercises presented in this paper are designed to give students an intuitive feel for the relationship between data and regression, and to teach them what regression can and cannot do.

    Keywords: Teaching Regression; Causality vs. correlation, Differences Between Groups, Within Estimators

    JEL Classification: A2 (Economic Education)

    Froeb, Luke M., A Simple App to Teach Regression (December 30, 2020). Vanderbilt Owen Graduate School of Management Research Paper, Available at SSRN: or

    Thursday, May 6, 2021

    Removing intellectual property protections: what could possibly go wrong?

    Marginal Revolution has a devastating critique of the Biden Administration support for the waiver of IP protections on COVID-19 vaccines to help end the pandemic.”  

    First, IP protections are not a bottleneck, production is:  

    All of the vaccine manufacturers are trying to increase supply as quickly as possible. Billions of doses are being produced–more than ever before in the history of the world. Licenses are widely available.

    It follows that the waiver of IP protections will do little (nothing?) to help.  

    Second, Moderna has already said that they won’t enforce their patents during the pandemic, but no one has stepped up to produce because because producing RNA vaccines is really hard.  

    Third, there are tried and true ways of encouraging vaccine production, like Operation Warp Speed.  Subsidize something and you get more of it.

    We must spend. Trump’s Operation Warp Speed spent on the order of $15 billion. If we want more, we need to spend more and on similar scale. The Biden administration paid $269 million to Merck to retool its factories to make the J&J vaccine. That was a good start. We could also offer Pfizer and Moderna say $100 a dose to produce in excess of their current production and maybe with those resources there is more they could do. South Africa and India and every other country in the world should offer the same (India hasn’t even approved the Pfizer vaccine and they are complaining about IP!??)

    Finally, what happens when drug manufacturers figure out that patent protection can be removed by a vote-pandering politician, will they be willing to produce vaccines for the next pandemic?  The Biden administration must be thinking that the government can take over that duty.  

    Lets call this policy out for what it is, worse-than-empty virtue signaling that does way more harm than good.  

    Bottom line is that producing more takes real resources not waving magic patent wands.  

    You may have gathered that I am angry. I am indeed angry that the people in power think they can solve real problems on the cheap and at someone else’s expense. This is not serious. I am also angry that they are sending the wrong message about business, profits and capitalism.