jamesz

Chicken and egg economics

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After my recent post, which dealt with issues of equity, I have been invited to consider how appropriate it is to bring normative issues in to a discussion of economics. I was referred to a paper which discusses the distinction between economics as a science and political economy:

For Robbins, the science of economics and the entire field of economics were quite different… He saw [the] pure science of economics as only a small sub branch of economics — a branch, which in his view, had nothing to do with policy. He saw another branch of what economists do — political economy, as the branch primarily concerned with applied policy, not with science. Here, he wanted value judgments to have free reign, and to be allowed into the analysis.

I like the distinction, but I feel that the normative judgments should inform our science, not just the other way around. Read more

Matt Nolan

Is wanting less money irrational?

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The Standard links to an interesting LA times article on loss aversion. Now loss aversion in itself is a very interesting issue, something Rauparaha may like to write about ;). However, my focus is going to fall on the same result that The Standard was interested in namely that people would rather earn $50k when everyone else earns $25k than earn $100k when everyone else earns $250k. The article calls people ‘irrational’ for doing this – but is this the case?
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dant03

Water – is there a role for demand management at the household level?

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Lately, water shortages, and in particular rural droughts, have been in the news. While the farmers in many regions certainly are suffering, and there are definitely enough meaty economic issues around farmers’ current water allocations and associated issues, I want to concentrate on economic issues around water use by (mainly urban) households, and what role demand management should play.

For the most part, New Zealand has heaps of water. Yet in Wellington, where I live (for instance) sprinkler usage is currently rationed, and there is talk of an all out sprinkler ban if a big downpour doesn’t happen soon (the recent trickles are only holding things off for a while). That is because the main sources of drinking water in the region – the water catchment area in the rimutukas (near Wainui), the Hutt River near Kaitoke, and the Aquifers under the Hutt Valley, are all at about the limit of what they can give without incurring major damage, due to the recent low water flows.
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Matt Nolan

Record price for dairy products – are the manufacturers ‘taking advantage’ of us

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I fear that someone may look at the December PPI data and get a misleading impression about where the dairy money is going, this fear seems mildly justified by the tone of this piece by NZPA.

Looking at the December quarter figure by itself, we see a massive 15% increase in the price of manufactured dairy goods (the price dairy products are sold to clients of the manufacturer (eg supermarkets)), while the cost of inputs to the manufacturer rose only 0.8%. Furthermore, the price received by dairy farmers (where the income will be flowing in) only increased by 0.2%.
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jamesz

Should the disabled pay their own way?

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A blind couple are outraged that they got charged extra at a hotel when their dogs allegedly moutled all over the place and required extra cleaning work to be done. There appears to be some dispute over exactly what happened, and the manager of the hotel is clearly a PR disaster area, but is it fair that the couple should have been charged extra if it cost the hotel more to accommodate them?

Well, ordinarily, it makes sense to charge more when the cost of providing a service increases; however, it seems unfair to penalise those who are already disadvantaged through no fault of their own. Yet requiring hotels to house them and imposing the cost on the hotel owners also seems unfair: why should the hotel owners pay the entire cost of accommodating a few individuals’ disabilities? Since most people would like to see services provided for disabled people, yet few people are willing to individually pay for them, the obvious solution is to spread the cost over everyone. Read more

Matt Nolan

Externalities: A bridge too far

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CPW sent me a link to the following blog post on Econlog. In the post Bryan Caplan mentions an economist from Princeton (Roland Benabou), who argues that externalities provide a bridge between an economists conception of the world, and non-economists concepts. Although this may be a tad over the top (as non-economists place more value in normative statements than economists would ideally), I believe this is an important point insofar as it allows us to generalise our models, to take into account more possible states of the world.

Bryan Caplan puts forward four points of difference that he believes will still exist between economists and non-economists, however I think they were a touch over-cooked, here’s why:
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