Wednesday, June 30, 2010

Job openings in China for fair-faced foreigners

From CNN:
For a day, a weekend, a week, up to even a month or two, Chinese companies are willing to pay high prices for fair-faced foreigners to join them as fake employees or business partners.
Some call it "White Guy Window Dressing." To others, it's known as the "White Guy in a Tie" events, "The Token White Guy Gig," or, simply, a "Face Job."
Remember that signals are valuable only if they are difficult to mimic. In this case,the ability to mimic the signal should mean that its value as a signal will soon disappear.
...Because Western countries are so developed, people think they are more well off, so people think that if a company can hire foreigners, it must have a lot of money and have very important connections overseas. So when they really want to impress someone, they may roll out a foreigner.

Get sick, then buy insurance

This practice is raising the cost of Massachusetts health care for those who buy insurance before they get sick:
The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance.

Pharmaceutical Price Controls in the Philippines

Beware unintended consequences.

According to the WSJ, price caps on drugs are threatening the development of a strong generic drug industry and resulting in hospitals' increasing fees on other services to make up for losses on stocks of drugs.

Monday, June 28, 2010

Is Lollapalooza anticompetitive?

The Illinois Attorney General is investigating the so called "radius" clause that prevents acts from performing within 300 miles of a Lollapalooza site:
The C3 radius clause for Lollapalooza is generally six months before the festival and three months after, and extends for 300 miles outside Chicago. Local promoters and venues have complained in the past in Chicago and other cities with major festivals that restrictive radius clauses cut into the number of acts that can be booked by other talent buyers in the market.  
Interestingly, the radius clause, which reduces competition between Lollapalooza and rival concerts seems analogous to the restrictions on price discounting and advertising sought by PolyGram and Warner in the three tenors case. 
In 1997, PolyGram and Warner, two of the world’s largest music companies, formed a joint venture to distribute recordings of the 1998 World Cup concert. PolyGram independently had distributed recordings of the Three Tenors concert at the 1990 World Cup (3T1), and Warner alone had distributed recordings of the Three Tenors concert at the 1994 World Cup (3T2). The Commission found that PolyGram and Warner, concerned that the recording of the 1998 concert (3T3) would be less original and commercially appealing than the 1990 and 1994 concerts, agreed to a “moratorium” to restrict price discounting and advertising for 3T1 and 3T2 before and after the public release of 3T3.

The economic issue seems a little easier than the legal one. If the Lollapalooza concert would not be profitable without the radius restrictions, then the restrictions anti-competitive costs (rival concert output goes down) have to be weighed against their pro-competitive benefit (the Lollapalooza concert is performed).

This is similar to the economic issue in the 3 tenors case. If the third record would not be profitable without the price and advertising restrictions on the first two, then the restriction's anti-competitive costs (sales of the first two records go down) have to be weighed agaisnt their pro-competitive benefit (the third record gets made).

UPDATE:  Josh Wright weighs in by noting that the three tenors case involved restrictions between competitors (i.e. horizontal agreement) while the Lollapalooza restraints are unilaterally imposed on input suppliers. This is a classic exclusive dealing case which would require showing that Lollapalooza had antitrust market power. Not so in three tenors --- as Josh has written elsewhere.

Dont wait too long

The problem:
Americans increasingly are treated to death, spending more time in hospitals in their final days, trying last-ditch treatments that often buy only weeks of time, and racking up bills that have made medical care a leading cause of bankruptcies.
One solution:
- The average time spent in hospice and palliative care, which stresses comfort and quality of life once an illness is incurable, is falling because people are starting it too late. In 2008, one-third of people who received hospice care had it for a week or less, says the National Hospice and Palliative Care Organization.

Economics of Medical Marijuana

One of the odder experiments in the recent history of American capitalism is unfolding here in the Rockies: the country’s first attempt at fully regulating, licensing and taxing a for-profit marijuana trade.
The New York Times profiles the nascent medical marijuana industry in Colorado

Wednesday, June 23, 2010

The Cost of Protecting Ironing Board Makers

A Washington Post article yesterday discusses the 200 $15 per hour ironing board manufacturing jobs "saved" in the US from imposing 70%-150% tariffs on Chinese imports "dumped" on the US market. The article did interview someone not quite on-board with the program.

"It doesn't make much sense to force millions of U.S. consumers to pay higher prices for ironing boards to save 200 jobs," said Howard Rosen, an economist at the Peterson Institute who has organized efforts to get retraining programs for workers displaced by the offshoring of jobs. "It would make more sense to help workers move to other jobs."

Just how much do each of these jobs cost us? The company makes 720 per hour which comes to about ~1.5 million per year. It is unclear at what price the tariff is applied. The article claims a unit cost of $7 which is undoubtedly below the wholesale price. A typical board retails at Walmart for $55 which must be above the wholesale price. If one assumed the relevant price is $20 (a stab in the dark on my part) then annual revenue is about $29 million. At a tariff rate of just 70%, this would be about $12 million more than if we bought the "dumped" imports (more if there were an increase in sales). Or the higher prices paid by US consumers would imply that saving these jobs cost about $60,000 annually per job. This is about double the annual earnings of these workers. Amazing.

ADDENDUM

An anonymous commenter correctly noted that I linked to the wrong product. A better example would be this one at Amazon that retails for $25. In this case, my guestimated wholesale price of $20 is too high. If one used a $12 (or $15) wholesale price instead, the cost numbers above would be comparably scaled down by 40% (or 25%). This implies $36,000 (or $45,000) per job saved, still more than these folks earn.

A Return to Airline Regulation?

In response to the proposed merger of United and Continental, two U.S. House members say they will try to restore regulation to the airline industry if the merger is approved.
According to The Associated Press, Representatives James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee, and Jerry Costello (D-Ill.), chairman of the panel's aviation subcommittee, said they will attempt to re-establish a government agency responsible for overseeing the airline industry if the merger goes through.
The likely winners? The airlines. The likely losers? Consumers, who have seen a major drop in the cost of air travel in the deregulation era.

Tuesday, June 22, 2010

What will be the effect of a rising yuan?

A higher yuan could:
... boost commodity prices, encourage U.S. exports, control Chinese inflation, and spark U.S. inflation. 
It will hurt US consumers and help US businesses

Are stock's over-valued?

Shiller's P/E ratio says "yes." 
Note that the P/E ratio can be thought of as a kind of break-even analysis:  how long do I have to hold the investment until the earnings pay for it?