jamesz

There are too few smart people in the world

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I know you’ve all thought it at some time of your life, but Chris Dillow thinks it really is true:

It could be that the reason why so many “top jobs” are done badly is not that second-raters do them, in which case the problem would be solved by hiring the right people. Instead, it could be that the jobs are so demanding that no amount of brains and ability would suffice. …Humans just lack the skills to do many complex tasks.

It does seem unlikely that many high-pressure, and highly paid, jobs would have only incompetent applicants. Or that the interviewing panel wouldn’t care enough about the future of their firm to put some effort into finding the right person for the job. Yet it is common to hear people complain about how terrible this politician or that CEO are. So perhaps the job really is just too much to expect of a human.

Dillow’s solution sounds like a good one: design jobs that humans can do rather than looking for super-humans to do them. It probably makes sense even if there are some super-humans out there. Not only would the search costs to find them be immense, but so would the salaries that they command! Of course, you have to wonder why, if the solution’s so obvious, someone hasn’t done it before? Maybe the (meta-)problem’s just a bit harder than Dillow is giving credit for.

Matt Nolan

The vegetarian cross-subsidy

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On the Freakonomics blog there is a discussion of why a delicious vegetarian option at a restaurant was cheaper than the meat options:

Was it because his revenue from it was only €63 compared to €91 for a five-course regular menu (which had one meat and one fish course)?  Maybe. But I don’t believe the vegetarian menu used less labor, nor was there a €28 difference in materials cost. My guess is that he prices at mark-up over materials cost, thus making the veggie menu a relatively good deal for the customer—and a relatively bad deal for him. Another possibility is that he thinks vegetarians have lower incomes and higher demand elasticities, and he believes he is rationally price discriminating.

All fair explanations.  However, I’m not convinced by them, as this is an expensive restaurant where the relevant sample of vegetarians will be wealthy.  Furthermore, given they can’t “substitute” to another meal this surely indicates they should be charged more!

I have a simple explanation – cross-subsidisation.

When there is a large upper-middle class group going out to eat there are generally lots of meat eaters, and very few vegetarians.  However, the existence of us pesky vegetarians means that the group has to go to a restaurant that serves vegetarian food.

If we then assume that vegetarians have better knowledge about where the vegetarian food is – they will essentially be the ones deciding which restaurant to go to!  As a result, restaurants will cut the price of vegetarian meals and increase the price of meat ones in order to get the groups to come – and then extract rents.  Huzzah.

For me, this suggests that table bills with vegetarians should be split evenly – if you can get past the issue of over ordering 😉

jamesz

Parking fees enrage locals. Again.

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Wellington City Council is considering lifting parking fees again because it thinks people are holding on to the spaces too long. The local paper disapproves, as does David Farrar. Now, I’m no expert on the local politics and they may be quite right that this is just a revenue raising measure, despite the council’s position that it’s about turning over parks more quickly. But let’s take the council seriously for a minute and consider whether it is so obviously stupid.

First, there’s nothing wrong with a local government body raising funds for the services it provides. It needs to do that but the question is how it does it. Rates are the most common revenue raising tool, but are not a particularly efficient one since they don’t correct any market problems. Now, parking obviously has an implicit price so it makes sense to raise some revenue from parking fees by setting the price optimally. That allows either lower rates or more service provision, depending upon electors’/ratepayers’/councillors’ (delete as you like) preferences.

DPF and the Dom Post contend that parking times are already optimal because they’re controlled by time limits in addition to the charges. However, there’s no reason to believe that the upper time limit is the optimal stay from a social viewpoint. Read more

jamesz

Faking it can be hazardous to others’ health

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Apparently, saying your products aren’t tested on animals doesn’t mean what you might think it means:

…for example a company may say ‘Finished product not tested on animals’ or ‘not tested on animals’, which means the ingredients could well be!
…
Avon says: “Avon does not test products or ingredients on animals, nor do we request others to do so on our behalf. … BUT they may still buy new ingredients that have been tested on animals, therefore benefiting from animal testing.

So the companies aren’t actually lying on their packaging, but they’re not really telling the whole truth. If you don’t know the full set of denials that would be required to constitute no animal testing, as it would be commonly understood, then you can’t know what they are doing: only what they’re not doing. Clearly that’s an unsatisfactory state of affairs for anybody concerned about animal welfare.

So what’s the real problem? The problem is that the companies who genuinely avoid animal testing don’t have any way to tell us about it. It’s what economists call a ‘signalling’ problem because what they want to tell you–that they don’t test on animals–can be faked by a lot of other companies who do use animal-tested products. Read more

jamesz

Poor migrants

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Contrast this new government policy:

Poor migrants who speak little or no English are to be subject to stricter immigration laws… Immigration categories are to be changed in an effort to “reduce the number of unskilled migrants who find it difficult to get jobs and are more likely to get benefit payments”.

to this academic research:

The vast wage differences across countries are a sizeable economic distortion, and offer the possibility of large gains through international migration. From a development perspective, a key challenge is to increase the opportunities for poor, relatively less skilled, individuals to participate in migration.

Read more

jamesz

Size matters

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The Economist thinks that the prevalence of small firms in Greece is a problem.

A bias to small firms is costly. The productivity of European firms with fewer than 20 workers is on average little more than half that of firms with 250 or more workers (see right-hand chart). …If the best small firms were able to grow bigger, Greece and the rest might solve their competitiveness problems…

This is pertinent to New Zealand since we also have a small number of very large firms, although we may not have the prevalence of very small firms that Greece does. Beyond the arguments over data issues, it’s interesting to ask whether we might agree with The Economist that this poses a problem for growth. Certainly, New Zealand’s growth might be higher if firms grew, but then why haven’t they already? Not because the owners don’t want to reap the rewards of growth, surely.

Of course, what we need to ask is why the proportion of small firms/large firms is the way it is. The Economist points to tax and labour laws in Greece that punish large firms. In New Zealand it is hard to point to similar legal barriers to growth in firm size, as far as I know. It may be that New Zealand firm owners prefer smaller firms, or that it is difficult for firms to find local, skilled labour (random speculation, not to be taken too seriously). What this highlights is the importance of understanding the differences in countries, as well as their similarities, before rushing to emulate them. Are we the next Ireland/Singapore/Finland? Well, no, we’re a bit different from all those countries and we can’t replicate their successes without understanding those differences.