Compensating risk differentials for prostitution are small

Past research has found that prostitutes earn about twice the weekly wage of a typical non-manual female worker and three times that of manual workers. One reason for this wage premium is the opportunity cost of foregoing marriage, though working in a foreign country reduces this cost. New research finds that Chicago street prostitutes earn roughly four times their hourly wage in other activities, but this higher wage represents relatively meager compensation for the significant risk they bear. One reason for the low compensation despite the high risk is the relatively elastic supply.

Lessons from Iceland: let the banks go bust

In past posts, we detailed the bursting bubble in Iceland, but it looks as if they are on the road to recovery:

Like Ireland and Greece, Iceland has taken a large dose of austerity measures to rebuild its economy. Unlike Ireland and Greece, however, Iceland allowed private banks to fail, and its currency, the krona, has declined by about 46 percent against the dollar since the start of 2008. ...

Iceland’s experience, he said, offered a lesson for the euro zone as it grappled with its own crisis: “This is the proper process. If you go through a bubble economy and you need to correct it, the answer is not to convert private debt into public debt. Rather it is to restructure the debt to the level of the assets.”

Cartoon intro to Co-opetition

Cooperation+Competition=Co-opetition. My coauthor made a movie for his strategy class.

Visual display of quantitative data

We have blogged about this before, but one of the biggest improvements in the past two decades has been in the visual display of quantitative information. The video below (taken from Gapminder) dramatically illustrates how easily one can "see" relationships in data that are displayed graphically. This is part of a much larger trend, where business decisions are made better and faster, by relying on easy-to-communicate performance metrics, like those presented on business "dashboards." (example)



HT: Don Marron

Unintended Consequences - Academic Standards Edition

Even university administrators must anticipate adverse selection. My fine university is working to become even finer. The university has been able to hire more and better researchers and is experiencing very impressive enrollment growth. One metric the university wants to improve is our graduation rate. Historically we have had an embarrassingly low 52% graduation rate. Many students can get admitted to the university but do not meet higher requirements for admission to a departmental major and then drop out. To boost student retention, the university has developed a degree in generic "University Studies," a catch-all for these students, administered by University College.

How would one expect departments to react? 'Low quality' students are headaches that suck up departmental resources. We set departmental admissions criteria to avoid dealing with these students. I just came from an academic standards meeting in which two of our academic units have proposed to increase departmental admission standards (GPA in the program) even further. A justification for not doing this earlier was that it was not fair to students who have made it to their senior year by taking courses in a program and then have this coursework not count toward a degree on campus. But with "University Studies" these courses can apply to a degree. The various departments are in a race to dump their 'low quality' students into "University College."

Why can't we get work done at work?

...because meetings and managers get in the way.

When will AIDS prevention work?

Only when the benefits of investing in AIDS prevention (longer life) are bigger than the cost (less sex). Emily Oster presents her research on AIDS, showing that everything we know about AIDS is wrong. My favorite part of the video is when she shows that AIDS prevention efforts fail in countries with high malaria rates. In these countries, life expectancies are so low so that investment in AIDS prevention (less sex to gain a longer life) doesn't pay off (negative NPV) because you are likely to die of malaria even if you don't get AIDS.

Price Discrimination + Yield Management + Viral Marketing

Groupons has a pretty innovative business plan. They allow firms to offer discounts to consumers who are more price sensitive, willing to take a little risk and willing to put up with a little hassle. Retailers can dump excess capacity into the system at a reduced price. The deal is only activated if enough consumers choose it. Thus, groupon users are encouraged to solicit their network of acquaintances to opt in too. This, in turn, selects consumers who might not be familiar with the product (more elastic) and they get an endorsement from a "trusted" acquaintance.

I have seen other Internet based coupon or discount sites before. Most are small shoestring operations. By combining social networking elements, this effort may become more established. At least Google thinks so.

What happens when you make it easier to shop?

High search costs make demand less elastic (lower prices attract fewer customers because not as many consumers can "find" lower prices) and this leads to higher prices in markets like gasoline. Products like SmartFuel (review) are designed to allow customers to search more cheaply. As products like SmartFuel bring search costs down, the market will become more competitive, and gas prices will fall.



DISCLAIMER:  The guy in the video, George Sibble, is a former student, and I have a financial interest in his company.

Practical Employee Screening

Following the previous post, I found this interesting article, "15 Google Interview Questions That Will Make You Feel Stupid" about tough interview questions by interviewers at Google. I did OK but I think I'll keep my day job.