Agglomeration externalities are the hot thing in policy these days. For believers they’re one of the things that economists have missed by excluding geography in the past. To sceptics they’re just another excuse for the Government to justify picking winners and organising the country. I recently came across a couple of VoxEU articles that might point the way to a reasonably middle ground. Read more
At the moment, many of my friends are getting married. At the same time some of my other friends who are not married are telling me they don’t understand why people get married.
While I am not married, I think the idea of marriage is grand. I think it is a great way of dealing with a social issue that involves both search and relationship specific investment!
Now, you may think I’m being too romantic here by bringing up terms like “relationship specific investment” – but let us not forget the awesome power of economics for dealing with these ideas. The question is, given marriage as an institution what specific type of co-ordination failure did marriage turn up to solve?
This week (Infometrics link here), Matt Nolan discuss daylight savings, specifically discussing the way an economist would probably look at it – as a type of ‘co-ordination game’ where a government can help individuals co-ordinate actions.
He then goes on to discuss a prisoner’s dilemma that exists between government around global warming – implying that organisation that may help individuals co-ordinate in some place (daylight savings) may fail to co-ordinate themselves about broad action (such as global warming). Concluding he states:
Here we have concentrated on examples where government, and other institutions, can help individuals co-ordinate their actions – helping improve outcomes.
This is a great way to view, and understand, government policy. However, we always need to keep in mind that individuals are co-ordinating themselves, by making choices given the incentives they face. Prices, which are determined by the relative supply and demand of products, offer the main device for co-ordination in our society.
To understand the role of government, we need to think about how the use of prices, and co-ordination move generally, may fail – and in what ways government can sensibly recognise this and lend a hand.
The hard thing with global warming is that individual governments do not have an incentive to solve this problem, which was the original justification for the Kyoto Protocol. With that failing there is a genuinely concerning policy issue here, which the global community does not appear to be able or willing to face.
The America’s Cup might be returning to NZ and local newspapers are already weighing in on what it means for the economy:
As Team New Zealand moves close to match point there is already speculation that the next cup series will bring over half a billion dollars in financial gain to the country.
Don’t believe it, says Shane Vuletich of Covec, specialist in economic evaluation of tourism and major events, who warns numbers already being used are far too large.
Vuletich and TVHE’s straight-talking Shamubeel Eaqub—”the economic benefits of a cup regatta in 2017 would be based on ‘over-hyped studies that are proven to be absolute b…….. after the fact.’”—are absolutely right: major events don’t tend to be good financial investments. What surprises me is that this is worth reporting. Read more
Netflix makes a lot of money from understanding your viewing preferences and one thing they’ve learned is that ratings don’t matter, only viewing behaviour is predictive:
Why do I see so many three- or even two-star movies in my recommendations?
Gomez-Uribe: People rate movies like Schindler’s List high, as opposed to one of the silly comedies I watch, like Hot Tub Time Machine. If you give users recommendations that are all four- or five-star videos, that doesn’t mean they’ll actually want to watch that video on a Wednesday night after a long day at work. Viewing behavior is the most important data we have.
Amatriain: We know that many of the ratings are aspirational rather than reflecting your daily activity.
We can’t hide from you.
Gomez-Uribe: A lot of people tell us they often watch foreign movies or documentaries. But in practice, that doesn’t happen very much.
This is why economists focus on revealed preferences almost to the exclusion of stated preferences.
There’s an interesting article on the NYT about an accountant who has stopped billing by the hour:
A few years ago, he said, he realized that the billable hour was undercutting his value—it was his profession’s commodity, suggesting to clients that he and his colleagues were interchangeable containers of finite, measurable units that could be traded for money. Perhaps the biggest problem, though, was that billing by the hour incentivized long, boring projects rather than those that required specialized, valuable insight that couldn’t (and shouldn’t) be measured in time. Paradoxically, the billable hour encouraged Blumer and his colleagues to spend more time than necessary on routine work rather than on the more nuanced jobs.
I look at this from two perspectives: billing within the firm and billing to clients. Read more