goonix

Obvious perverse incentive of the week award goes to…

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As rightly pointed out over at Kiwiblog, when you make something free you distort incentives around use of that good or service.

The previous Government introduced a Supergold card, offering concessions and discounts on various goods and services. In all their wisdom, they offer free off-peak travel on certain public transport. One such service was the Fullers Ferry to Waiheke Island.

It has now been reported that pensioners flocking to Waiheke Island have delivered more than $750,000 in Government subsidies to Auckland ferry operator Fullers in the first five months of free travel, with an average of 200 pensioners per day taking in the journey.

Who could possibly have foreseen that response?

Matt Nolan

Raising the drinking age: Not a lifesaver

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Just saw this article courtesy of Greg Mankiw. In the article the authors talk about the impact of rising the drinking age from 18 to 21 in the US. There were two parts – a voluntary lift in some states, and later on a legislated increase for the whole country.

The key bit for me is this (highlighting by me):

The results are striking. Virtually all the life-saving impact of the MLDA21 comes from the few early-adopting states, not from the larger number that resulted from federal pressure. Further, any life-saving effect in those states that first raised the drinking age was only temporary, occurring largely in the first year or two after switching to the MLDA21.

So this isn’t saying that lifting the drinking age is necessarily a bad idea – but that it isn’t necessarily going to save lives either. In the end only the states which did it voluntarily (where it was more of a community effort) had any impact – and even that was only temporary.
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jamesz

Easter surcharge confusion

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When I had breakfast in town over Easter I was charged a 20% surcharge on everything, allegedly because their labour costs are higher over Easter. Now it’s true that they are statutorily required to pay more over the Easter break, so their labour costs are higher; however, the marginal cost of providing a meal is not. The average cost might be, but that could be defrayed over the course of a year if the firm planned to open on Easter. If the marginal cost of the meal is no different then why would you price the meal differently? Read more

Matt Nolan

Cartoon: The company economist

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Another Dilbert cartoon to complement yesterday’s:

Source (Dilbert)

What can I say – the life of a forecaster is packed with situation where you have to tell people what they don’t want to hear.

Then again – given the success of some forecasting, I wonder if a company economist saying this is a contrarian signal.  Is Dilbert’s company just about to experience a pick up in demand 🙂

Matt Nolan

Susan Boyle: Revealing institutional settings

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Like pretty much everyone I enjoyed the performance of Susan Boyle on Britain’s got talent.  I love Les Miserables and she did a great performance of an incredibly difficult song from the show.

However, what stirred me up the most was the behaviour of the crowd and judges.  Both were very dismissive to start with – undoubtably a product of the format of the social situation they were in.  Unlike many commentators, I do not believe that the crowd and judges were strictly representative of “most” of reality.

We could argue that this type of social situation represented an extremely concentrated version of reality – so that the implicit biases and signals used in society were amplified, and therefore easier to spot.  If this is the case, the dismissive nature of the crowd illustrates something quite uncomfortable about all of us.

But I disgress – following the judgments, once Miss Boyle illustrated her talent the behaviour of the crowd changed, and changed remarkably.

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Matt Nolan

Cartoon: Forecasting warlords

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Source (Dilbert)

I’m not used to economists making assumptions based on changes in political structure – the business must have an interesting forecast team 😉