Tuesday, May 30, 2006

Floating Devices

While UVa's graduate student Adam Malcom has designed a very efficient floating device, the Argentinian model Sabrina Sabrok seems to have found a substitute for life jackets.

This past weekend she publicly showed that she can float without the need of any floating devices other than certain parts of her body. Guess which ones. Skeptical? The article can be found here (in Spanish).

I know this post is not related to economics but I couldn't resist. Or can you find a link? Besides this is part of what happens in the world, that is, in the game of life.

Thursday, May 25, 2006

Lima: Where Gas Is 35% More Expensive And Taxi Rides Are 80% Cheaper

No, it's not a joke and taxi rides are sometimes even cheaper. What explains the puzzle? Answer: The existence of low barriers to entry in the market for taxis.

Unfortunate high levels of unemployment have led thousands of car owners in Peru to try to make some money by placing a "Taxi" sticker on their windshields. This is pretty much the only barrier to entry faced by car owners. It's amazing how competition can lead to such low prices.

This might sound like heaven for consumers, however that's not necessarily the case for they end up bearing non-monetary costs due to the existence of negative externalities. Some of the non-monetary costs I have identified are:
  • Increased levels of air and noise pollution.
  • Low quality of service.
  • Increased levels of traffic.

The last of these -traffic- seems to have reached such a high level in certain parts of the city that is destroying the provision of the service itself. I had never been denied the service until yesterday: the first two cabs simply wouldn't want to take me to the downtown because 'there is just to much traffic over there'. What I find puzzling is that they preferred not to provide the service instead of adjusting the rate (there are no taximeters here, the rate is agreed at the time of boarding the car).

This seems to be a case in which governmental intervention is desirable. As a consumer of the service however, I must say that I prefer the free market case to the ridiculously high rates that are charged in Charlottesville.

Sunday, May 14, 2006

Necessary Speed Limits?

In How to Think Like an Economist, Roger Arnold mentions that in the absence of speed limits we should expect more crashes and deaths than with the current regulations. I disagree.

In the absence of a speed limit every driver has an incentive to drive faster. However every single driver also realizes that everyone else is driving faster and that in such conditions any casualties might be fatal. Because of this each individual driver has an incentive to pay a lot more attention when driving than when speed limits exist. The final result is that people might be driving faster but will also be a lot more careful when driving. Therefore, the occurrence of more crashes and deaths does not necessarily follow.

Whether driving without speed limits is more dangerous is an empirical questions that cannot be answered a priori. My guess is that the number of crashes with and without speed limits in highways might be similar in either case otherwise the famous Autobahns in Germany would have a speed limit regulation.

If I were to be a social planner I would probably choose to eliminate any speed limits in highways and save on enforcing costs. However, I would still enforce speed limits in urban areas to reduce the number of pedestrians that are hit by cars.

Friday, May 12, 2006

Polypolies

A student asked me:

If mono means one and poly means many, what's the logic of using both terms to denote the case of a single firm in the maket (i.e., monopoly)?

After checking an etymological dictionary I realized that poly in monopoly comes from the greek root polein which means to sell. This sweet etymological logic led me to find the following -rather amusing- concept which is rarely used:

  • Polypoly: when there are many sellers in a market.

Perfect competition would be a specific case of polypoly (or polipoly, there doesn't seem to be an agreement on how to spell the word).

So, it turns out that perfectly competitive markets are both polypolistic (have many sellers) and polyopsonistic (have many buyers). Also, the typical textbook case of a monopoly would more accurately be described by polyopsonistic monopoly, otherwise we could not be sure that there are many buyers in the market and the classical analysis would not work.

Anyway, this puts an end to the cultural moment of the day.

Tuesday, May 09, 2006

Airline Magazines

In the preparations to go back home to take a short break (this Friday!), the image of the airline magazine that will be in front of my seat came to my mind. In my thought I could feel the high quality of the paper used, the images used in it, among other high-quality characteristics. I also saw myself, however, flipping through all the pages in just a couple of minutes and putting it back into the pocket in front of my seat.

For a while I've wondered: how can airline magazines seem to be of such high quality and still be so boring? I realized I was not the only one who felt this way when I once told my sister: "that's probably more boring than American Way", and she fully agreed with such statement (and laughed like crazy as well).

My theory is that the editors realize that most passengers will eventually pick up the magazine and flip through its pages. In the absence of interesting contents people will pay more attention to the advertisements in the magazine, and so an equilibrium with lots of advertisements and few quality contents is reached.

Those advertisements are mostly targeted to the business traveler however. I don't fit in the category of business traveler (instead trouble is my business when flying: e.g., getting lost on the way to the airport, my bags rarely ever arriving with me, going to the wrong airport, and also the sad experience of missing a flight because all the parking garages at DCA were full) (1), and so I end up not paying attention to neither the contents nor the advertisements in the magazine.

Anyone else find airline magazines boring? If so, do you think this is a consistent theory to explain why there are few incentives to provide high quality contents in an airline magazine?

(1) I can't wait to see what new experience will be awaiting for me this Friday on my way to Reagan Airport (or is it Dulles?)

This post was written on May 9, 2006 at 2:51pm but will be made public as soon as the blog gets declassified from the spam category.

Economic Arguments About the Living Wage

I had thought about preparing a detailed post with comments on the Living Wage Economics document I found on the website of the campaign supporters. Then I realized that this was going to be something that would consume considerable amounts of time.

But then I thought: "hey, replying to such comments is exactly what you used to gladly do while working for the Peruvian Telecommunications Commission, so why not simply do again what you used to do in the past!". Then I realized that the difference is that in the past I got paid to reply to such comments; that is no longer the case.

I have also noticed that Jeff plans to do the same thing in The Living Wage: Part Ten point Seven Two, so I think I might just prepare a shorter post and free ride, in part, on his analysis.

Again, this post was written on May 9, 2006 at 3:55am, but will appear posted as soon as my blog gets unlocked.

The Spam of Life

While getting ready to start my next post I got an email from the Blogger system telling me that The Game of Life has been classified as a spam blog! The email literally says:

...This system has detected that your blog has characteristics that resemble spam... You won't be able to publish posts to your blog until we review your site and verify that it is not a spam blog...
So this post won't appear until the blog is checked by a real person instead of a spam-detection robot. That is, this post will appear assuming that the reviewer declassifies the blog from the spam category.

Anyway, can anyone tell me how on earth the spam-detection algorithms considered this blog to be spam?

This post was written on May 8, 2006 at 8:58pm, but will appear on ???

Sunday, May 07, 2006

A hidden cost of the living wage

While forcing UVa to pay a minimum wage of $10.72/hour might or might not be welfare improving, I feel few are taking the following into account:

When people are paid more for each hour that they work, they are likely to spend more hours working. Unfortunately this does not necessarily imply that more tasks are going to be completed, but instead that more time is going to be required to complete a same task.

Because a higher wage per hour makes spending more time at work relatively more attractive than at the next-best alternative, people will naturally choose to stay at work for longer hours. Exerting effort is costly for everyone and is not verifiable (pretty much anything can be used as an excuse to justify why one task is taking so long to be completed), therefore a higher hourly wage does not provide incentives to work harder. Any rational agent would be expected not to exert more effort as a result of the salary increase.

The net effect is workers exerting the same effort in a longer span of time, or equivalently, lower effort per unit of time. Holding everything constant UVa would not only face greater costs due to the proposed salary increase, but also because it would need to pay for the additional hours that each required task will consume after the salary increase. It is true that this effect can be mitigated by supervising employees and/or monitoring them, but this also implies an additional cost.

Despite this post, I don't have a formed opinion on the living wage issue. I reserve the right to make additional posts on it as I become more acquainted with the arguments used by either by its proponents and opponents.

This Blog

Seems like having your own blog is the way to go these days. A couple of friends and I wanted to start one (Wilson's Dynamic) in 2005 but ended up implicitly abandoning the project.

After having a bunch of interesting conversations about economic-related topics, I've decided to publicly post my own contributions. I gratefully acknowledge Jeff, Eric, Albert, Adam and Howard for these conversations. As expected, my posts might be on every aspect of life, and most likely will have some economics embedded in them.

The name and description of the blog are inspired in the song El Juego de la Vida, interpreted by the Puerto Rican singer Daniel Santos (probably during the fifties). I believe the name and description provide an accurate background for what I plan to start posting here in the upcoming days.