Americans favor SUV's over the environment, ...

...because they are exempt from fuel economy standards:

Because making light trucks held to lower environmental standards was more profitable than building small clean cars, automakers marketed big models, including suvs, enthusiastically. They portrayed them as quintessentially American, embodying freedom, strength and adventurousness. By 2002 light trucks made up a bigger share of light-duty vehicle sales than cars. After the price shock of the 1970s, by the 1990s petrol had become cheaper in America than in other rich countries—so the cost of running a big car did not deter buyers. Such models are convenient for suburban living, and consumers see them as safe. (The Economist)

This is an example of what economists call "revealed preference."  You don't have to ask people whether they care about the environment; instead you infer their preferences from how they behave.   

It is also an example of "incentive misalignment" from Chapter 1.  If we want people to drive more fuel efficient cars, we have to stop penalizing them for doing so.  

Why did Chocolate become so expensive?

 

From The Economist:

Carla Subirana Artus explains that severe drought and diseases, driven by extreme weather, together with regulatory pressures have created the perfect storm for the cocoa industry.

In other words, supply declined.

Like Snapshot for Your Home

Progressive Insurance pioneered telematic monitoring devices to offer Pay-How-You-Drive (PHYD) insurance policies over a decade ago. Now State Farm, along with other insurance companies, is partnering with Whisker Labs to offer the Ting home monitoring system. These are WiFi-enabled sensors that plug into an outlet to detect potential electrical fires. Whisker Labs monitors these sensors in what they claim is the largest Internet of Things (IoT) network to monitor the grid. State Farm is offering these for free to its customers presumably because, once insured, customers provide too little of their own monitoring.

The Effect of M&A on Workers

New research by Arnold, Milligan, Moon and Tavakoli investigates worker outcomes from mergers in Canada. They identify three possible mechanisms: 1) workers may gain bargaining power if the firm's products have increased market power, 2) workers may lose bargaining power if the reduced number of firms confer onto them monopsony power, 3) workers who are not retained after the merger may face worse job prospects. The first two do not seem to be important.

First, we don’t find that increasing corporate competition driven by M&A is important for workers either through concentrating the market for the products the workers produce, which would in theory increase worker wages, or through concentrating the labor market, which would in theory decrease their wages. 

However, job displacements usually lead to worse worker outcomes. Which begs the question as to why they were displaced. Earnings fall most for workers with more time at the old firm and workers with higher pay. Their firm-specific human capital may not carry over. Or these are entrenched, overpaid workers that represent the inefficiency the merger was meant to eliminate.

But the efficiency impact of these M&A-driven job transitions depends on whether the higher pay at the old firm reflected higher productivity or was itself a source of inefficiency that the M&A was able to eliminate.

Hat tip: Marginal Revolution

Should restaurants let menu prices "surge?"

 When demand increases, shouldn't price be allowed to rise? (WSJ)

Dynamic pricing—charging higher rates at peak times and dropping them at slower ones—has become commonplace in industries such as e-commerce, and mobile apps have made it easier for companies to study consumers’ buying and browsing and quickly adapt. Rising costs in recent years have led more retailers to implement it.

Restaurants are experimenting with the technology as the industry looks for ways to boost sales and increase profits. Many restaurants increased menu prices as labor, food and other costs have soared since 2021. Prices for food eaten away from home in January were 30% higher than in the same month in 2019, according to Labor Department data.

If prices cannot rise shortages will develop, and profits will fall, which will reduce the number of sellers (supply), further exacerbating the shortage. 

Using procurement for political ends gives you worse prices.

Over 20 years ago, some middling economists (cite) estimated that the Small Business Set-Aside program reduced Forest Service Timber prices by 15%.  By limiting the potential pool of available bidders to only smaller lumber mills, you get less competition and worse prices.

Now San Francisco is re-learning that lesson.  In 2016, it refused to do business with companies headquartered in states that don't share San Francisco's values. As a result, project costs increased 20 percent. 

Two forces are at work:  

• Short-run reduction in competition:  just as mergers which eliminate competition raise price, so too does limiting the number of bidders.  

NOTE:  a reduction in competition in a selling auction (high bid wins, e.g., timber), price goes down; in a procurement auction (low bid wins, e.g., city services) price goes up.  

• Long-run decline in bidder quality:  winning bidders must outbid the losers, so if losing bidders from states that share San Francisco's values--like unionization--have higher costs, they are easier to outbid, so price goes up.

REASON, "Great Moments in Unintended Consequences"

The Economics of Skiing

Vail's two-part pricing (Fixed Fee + Low Daily Price) from The Economist:  

With the Epic Pass, Vail has changed the offer. Skiers can now get unlimited skiing at a whole pack of resorts cheaply, but only by committing before the season starts. The result, says Stuart Winchester, who runs the Storm Skiing Journal, an industry blog and podcast, is that for the first time in decades skiing in America is reliably profitable. But it has come at a cost to competition. “Everyone else is swimming around. Vail is buying everything,” he says.

Vail now owns 41 resorts, including more than two dozen tiny hills on the East Coast and in the Midwest, which they consider “feeder” resorts that nurture new skiers who eventually may come west. In 2018 a competing pass, the Ikon, was launched by the Alterra Mountain Company, owned by the billionaire Crown family of Chicago, which shares revenue with independent resorts. Nowadays, most of America’s biggest ski areas are on one or the other pass.

Guide to Online Econ Videos

From Marginal Revolution 

• On day one, I show video on how secure Property Rights lead to growth.  The basic idea is simple, if you give owners secure title to their property, they have an incentive to take care of it, invest in it, and move it to its highest-valued use. 
• Others I like but do not assign.  
• Data Analysis Video , note that what he calls omitted variable bias is what I term "correlation vs. causation."
• Mastering Econometrics Video.  

Gaelic Price Control

 Here is a nice video on the experience with price control in Ireland and Scotland.

 

 

Hat tip: Marginal Revolution

Compensating Differentials in the Marriage Market

Potential mates differ in what they bring to the relationship. In online dating, youth, especially for women, appears to be sought after. In a forthcoming Journal of Labor Economics article, Corine Low applies the Indifference Principle to estimate how much more income a woman must earn each year she ages to remain equally attractive. Here is the abstract.

This paper quantifies the causal negative impact of age on women’s marriage market appeal using an experiment where real online daters rate hypothetical profiles with randomly assigned ages. Truthfulness is incentivized through the experiment’s compensation: participants receive professional dating advice customized according to their ratings. The experiment shows that for every year a woman ages, she must earn $7,000 more annually to remain equally attractive to potential partners. This preference appears driven by women’s asymmetric fertility decline with age, as it is present only for men without children and who have accurate knowledge of the age-fertility trade-off.