How do landlords find good tenants?

One of my former students who owns and manages several rental properties sent me his favorite screening techniques:

• Big initial deposit (first, last, and deposit, all in first check):
• All payments by check only (dead beats are more likely to use cash)
• All payments in one check: (does not accept individual checks from multiple renters)
• Leases are 12+ months in duration: 
• STP marketing: (Segmenting, Targeting, Positioining) to attract desireable renters--dont use classified ads; instead advertise in the weekly newspaper; do advertise amenities, like location, fenced yard, full appliances, proximity to schools, pets, etc.
• It used to be that Internet literacy was important; but with the increasing popularity of the Internet, this has lost value as a screen.

Incentives Matter - Bosomy Hitchhikers Edition

Apparently one of the incentives (see the link if you are interested in a photo of what a bosomy hitchhiker might look like) associated with picking up a female hitchhiker is appreciation of her chest. In an experiment in which the apparent breast size of a hypothetical female hitchhiker was varied from an A-cup to a C-cup, men were significantly more likely to stop for the C-Cup compared to the A- or B-cup; women drivers, however, weren't affected by this "incentive."
HT: Eric Barker

Steve Wynn goes John Galt

Life imitates fiction.

More on MLB Price Discrimination

Add the San Francisco Giants to the list of Major League Baseball teams trying to increase profits through price discrimination (we previously highlighted the Cubs and the Orioles). The Giants use a software package developed by Qcue:

[the software] helps the Giants price baseball games in much the same way airlines manage seat prices to keep planes full. Kahn's company, Qcue (pronounced "Q-Q"), crunches numbers on dozens of variables to determine prices that will get the largest number of fans into the stands. The software helps the Giants set prices based on past ticket sales, the day and time of the game, the teams' records, the pitching match-up, the weather, the going rate on resale Web sites like StubHub, and other data.

When should you sell Treasury Debt?

I have more than a few economist colleagues who lost money by betting that long term treasury rates would increase and the dollar would fall.  We know this will happen, but we don't know when:

Dan Fuss, who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.

Did Cash for Clunkers work?

One theoretical objection to Keynesian stimulus is that it merely "steals" economic activity from the future. For Cash for Clunkers the future was only a couple of months away.

How long should you wait before you evict a deliquent homeowner?

This is an extent decision that uses marginal analysis to balance two opposing forces:

...too little time in the foreclosure process, [means that] some borrowers are unable to recover from relatively mild setbacks before they lose the home ..., and too much time in the foreclosure process, [means] that the borrower is incented to let the home go to foreclosure sale during which no mortgage payments are made (in essence, free rent for a significant time).

270 days is the optimal time.

Vertical Integration and Tax Avoidance

Vertical integration refers to the practice of a company buying a supplier (backward integration) or customer (forward integration). One of the motives for vertical integration is to avoid regulation, such as taxes. If a company has customers or suppliers located in countries with lower tax rates, it makes sense to purchase one of those companies in order to shift profits to the lower tax location.

Here's a really interesting story from Business Week on how one pharmaceutical company, Forest Laboratories, uses vertical integration to avoid taxes. As just one example, about 5 percent of the company's workers are located at its Irish facilities, yet around 70 percent of its 2009 sales were realized there (care to guess whether Ireland has high or low corporate taxes?). Follow the money as it visits the US, Ireland, the Netherlands, Bermuda, . . .

Do organizations "test" the decisions they make?

When his firm decided to introduce a Christmas menu into their restaurant chain, one of my students decided to test the profitability of the change by introducing it in only half the restaurants in his territory. By comparing sales changes at these restaurants (the "experimental group") to changes at restaurants that did not introduce the menu (the "control group"), he concluded that the change did little to increase overall sales, despite the apparent popularity of the menu.

This inference was possible only because my student constructed what economists call a difference-in-difference estimate of the change. The first difference is before vs. after introduction of the menu; the second difference is between the experimental and control groups.

The difference-in-difference methodology controls for other unobserved factors that might have accounted for the change. The FTC has released a number of studies following up on merger enforcement decisions to try to figure out whether they did the right thing. For two consumated oil mergers, FTC economists Dan Hosken and Chris Taylor (article) and John Simpson and Chris Taylor (article) found that prices in cities affected by the merger did not increase relative to prices in control cities. In the time series graph below, the three lines represent gas prices of the experimental city (Louisville) relative to gas prices in three control cities (Chicago; Houston; Arlington, VA) for the Marathon Ashland gasoline merger. The vertical line represents the date of the merger. By comparing prices before and after the merger, we see the merger had no effect, or that the FTC was correct to let it through without a challenge.
FTC General Counsel (now Commissioner) Bill Kovacic coined the term "Enforcement R&D" to describe the practice of government agencies following up on their decisions to improve policy (article).

I would like to hear stories from readers about how, or if, their organizations test decisions.

NOTE: This post is copied from our old, almost defunct blog, Management R&D.

Soft drink manufacturers collude to stay out of schools?

Is this anti-competitive behavior in the public interest?

Let’s face it. The real reason the competing beverage companies agreed to this campaign is because they want to preempt more onerous regulation and/or “sin taxes” on sugary drinks. (See these articles from Advertising Age.) Unlike the purported goal of enhancing output by creating goodwill, this goal is best served by concerted, rather than individual, action. That’s because voluntary action to preempt more onerous regulation is subject to a collective action problem. Any firm that voluntarily cuts back its sales to forestall regulatory action will want to sacrifice as few sales as possible. Each firm also knows that in deciding whether to impose restrictions, regulators tend to look at overall industry trends. Each firm therefore wants its rivals to cut back a lot (so that the industry as a whole appears to be acting responsibly) while it cuts back only a little (thereby minimizing the cost of its preemptive strategy). If every firm has this attitude, though, the total voluntary reduction by the industry as a whole won’t be sufficient to prevent regulatory action. Thus, rivals seeking to forestall more onerous regulation need to commit to each other that they will each achieve specified reductions.