EBay for Africa (or whatever's the hot disaster of the day)

People often want to donate things to help others.

People in need don't always need what donors are sending them. Money is often superior to used goods.


This sounds like an opportunity for arbitrage, or at least for a civic minded middleman.

Some people will still prefer to donate goods because they feel that gives them more control over how their donation is used than money (presumably your old tennis shoes aren't as likely to end up lining a tin pot dictator's pocket than a cash donation.) I imagine that others prefer to donate goods because it's just easier, or it gives them a chance to clean out some things they would like to throw away but feel guilty about "wasting." Also, donating something you'd like to throw away doesn't incur as much of a cost to you as a cash donation does.

So, how about starting a non profit that serves other nonprofits? Your local charities, churches, aid agencies, whatever will now accept donations of goods. Those goods will be picked up by our nonprofit, sold on EBay, and the proceeds given back to the original charity to use as they will. Alternatively, you could set up a firm that accepts donations of goods, sells them on EBay (or Craig's list or through their own contacts) and then donates the proceeds to a charity/aid agency that you choose from a list of their partners.

This would probably need to be a local effort, it's probably a lot easier to convince people to drop off their old stuff than to ship it. There will be some losses due to shipping expenses and donations of essentially worthless stuff. But the net result might be positive, more total donations (since agencies that wouldn't normally take donations of goods now could at low cost) and more liquidity within the donations market.

You can market it as doing two good things with one donation: Giving money to your preferred charity and providing quality used goods at low prices to people who need them.

Say it with me: "You cannot compare utility across individuals!"

"Irrationality" is a big subject in several fields of economics and is intruding on public discourse more and more. New York is debating banning the use of salt in restaurants because it can lead to high blood pressure or something, smoking faces ever more sin taxes and regulation, Libertarian or New Paternalism shows up more and more often. The underlying assumption: People are irrational and do not make the optimum choices. Therefore it is appropriate for the government or someone else to step in and encourage or force them to do what's best for them.

It's paternalistic, Father knows best reasoning.

It's also all based on, what I feel is, a very shakey assumption: The utility of some quality of life at some point in the future is greater than the utility you gain from this activity now.

I have serious doubts about this assumption. First, there is a great amount of uncertainty about the future, and uncertainty causes a rational actor to reduce the expected value of something. Look at smoking, I think they told me in high school that smoking a cigarette reduces my life expectancy by 15 minutes. Rationally, as a high schooler I should be indifferent between smoking and extra living, then, if the utility gained by enjoying that cigarette is equal to a marginal 15 minutes of life 60 or 70 years from now. However, I will only be able to enjoy those extra 15 minutes if I survive to the end of my natural life. I lose the time if I die in a car crash or break my neck in the shower or any number of possibilities, but I am certain to gain the utility of a cigarette if I light up now. Rationally, we should discount the value of future life due to the uncertainty of surviving long enough to enjoy it.

Secondly, this assumes that life in the future provides as much utility as life now, call it the time value of life. Remember to think at the margins, healthy living will add time to your life at the end of it. Is it that much of a stretch to believe that a rational actor will determine that their quality of life in their twilight years will be lower than it is now? Shouldn't the aches, pains, confusion, and indignities experienced at the end of life not affect our estimation of how much utility we gain from living at the end of our lives? If so, isn't it reasonable that a rational actor will discount the value of life at the margin and place a higher weight on activities now?

I don't have all the answers, or even all of the questions to address New Paternalists' assumptions now. But the glib assumption that people are irrational because they choose to smoke or eat fatty foods now instead of enjoying a few extra years when they're 80 seriously irk me. Someone else's preference ordering is different than yours, news at 6:00. There is no reason to assume that behavior that favor utility in the present over utility in the future are any more irrational than behaviors that prefer labor to leisure or pizza to beer.

One of the things that I have to think more about is that the utilty of life _now_ is very high, regardless of whether now is at the age of 15 or 50 or 97. We are always willing to give up a great deal to extend our life at this moment. But, should this future valuation affect our decisions now? I'm thinking this is because of a difference in relative values verses absolute values. Life in the now has a high relative value compared to life close to now. But the absolute value of life changes over time, the value of life during high school might be lower than when your children are in grade school, but higher than while you are in a nursing home. So, in that perspective, borrowing time from the end of your life through destructive behavior now might be the rational way to look at it.

West Virginia coal mines and Minnesota iron mines

So, combine an aside in Oliver Williamson's "The Economic Institutions of Capitalism" (Chapter 1, section 5: Economic Organization of the Company Town) with the ubiquitous Minnesota Public Television documentaries on the Iron Range, and I got to thinking. The Minnesota iron towns didn't seem to shake out as exploitave company towns the way so many coal towns did down south. There were plenty of towns founded by the owners of the mines up here, but not the company stores charging high prices, or rented housing costing miners their entire wage (that I'm aware of.) Why is that? Did it have something to do with the history of the timber industry in the area? Or was that actually the cases in some places, and I'm just not hearing about it?

Williamson argues that company owned housing and a company controlled monopoly on the local general store could improve efficiency in some circumstances: For housing, if the society isn't highly mobile (few cars) and the market is thin (remote area) workers buying their own housing is equivalent to making a firm-specific investment and they will therefore require either guarantees (of employment or housing buyback) or wage premia. Company owned housing avoids these deadweight losses.

For the company store, his options are a company owned monopoly, a franchise (auctioned either by the firm or the workers) or a worker owned co-op. The former obtained in many coal mining company towns, Williamson favors the latter two, and I'm not sure what Minnesota towns ended up with. (Most of the PBS programs focused on the bars, not the general stored. =)  )

The Minnesota iron range fits his criteria perfectly:

Assume the following: (1) A remote mineral resource has been located, the mining of which is deemed to be economical; (2) the mineral can be mined only upon making significant investments in durable physical assets that are thereafter nonredeployable; (3) requisite labor skills are not firm specific to any significant degree, but there are set up costs associated with labor relocation; (4) the weather in the region is severe, which necessitates the provision of durable housing for protection from the elements; (5) the community of miner is too small to support more than one general store; and (6) the nearest city is 40 miles away.

I have to check, but this Minnesota seems to fit these criteria as closely as anywhere in coal country.
Mobility and remoteness play a big role in Williamson's reading of the phenomenon. Perhaps Minnesota was less remote due to railway access? On the other hand, I can't imagine West Virginia coal mines _not_ having rail access. Maybe the concentration of multiple mines in one area created a large enough community of miners to not be "small?"

I suppose it's as good an excuse as any to go check out the Hennepin County Historical Society's library a block away from home. Probably not the best starting point for Iron range research, but hey, when they're only open 1-5pm I need a little extra incentive to get up and around in time. Seriously, getting up and functional before 5? That's a stretch.

Betting on Superbowl viewers

So, I just found out that the Wiki articles on each superbowl list the cost of a 30 second commercial and the number of viewers.

Since advertising prices are set beforehand, they could be interpreted as marketers' estimates of the number (and hence value to sellers) of viewers watching the game. I wonder how well correlated prices are to viewership.

I'm thinking change in the real cost of a 30 second add from one year to the next should correlate to the change in number of viewers from one year to the next (or perhaps the change in the percentage of the population that is viewing the game.) There could be an argument for change in viewership of the preceding superbowls would be the driving factor, but I think the popularity of the teams in the current championship and the success of the current season has more impact on viewership than the previous superbowl.

So, some time in the near future, I think I'll try to throw some math at that data and see if there's much correlation.

(And yeah, I need to finish up the gaming analysis post, too. Not to mention health care that I got started on.)

Why I love reading econ papers

There are so many fun tidbits in the proceedings of the dismal science, like in this excerpt of the abstract from Genes, Legitimacy and Hypergamy: Another Look at the Economics of Marriage

As a consequence, it is shown that the equilibrium can only be of two types. In the "Victorian" type, all agents marry somebody of the same rank in the distribution of income. In the "Sex and the City" (SATC) type, women marry men who are better ranked than themselves. There is a mass of unmarried men at the bottom of the distribution of human capital, and a mass of single women at the top of that distribution. It is shown that the economy switches from a Victorian to an SATC equilibrium as inequality goes up.

 I don't follow physics or biological or other hard science literature, but can you think of any objective, serious paper from a field outside economics that would name equilibria "Victorian" and "Sex and the City?"

MMO Economics

Today we demonstrate te law of demand through gaming.

All fantasy MMOs (massively multiplayer online games, think World of Warcraft) use a leveling system to keep a demographic of players coming back. Players kill monsters to accrue experience points on their character. At certain benchmarks, the character gains a level, giving them more powerful abilities, stats, skills, whatever.

The game of Ragnarok Online follows this model, giving players the opportunity to progress their characters from level from 1 to 99. (Then you can transcend and do it again. And there are job levels that rise in parallel to character level. I'm sure game designers would have a field day.)

This takes time, and leveling is only part of the experience in an MMO. PvP allows players to pit their characters against other players' characters, and endgame content allows characters of maximum level to continue fighting challenging monsters. So leveling fast can be a benefit.

Enter, in Ragnarok Online's case, the Battle Manual. Players can purchase this item using real world money (through the intermediary of "Kafra Credit Points") and increase the experience points their character gains from killing monsters by 50% for 30 minutes.

Finally, the point. Ragnarok Online's website has surveys, one of which being:

There are enhancements to leveling available for Ragnarok Online that increase Experience gain. How often do you use the Battle Manuals? If you don't use them much what would inspire you to use them more? Please be honest with the poll else it can't be considered appropriately.

The responses:

• "I always use them!"  --  94
• "I never use them." -- 70
• "I would use more if they were 80 points."  -- 25
• "I would use more if they were 50 points."  -- 134
• "I would use more if they were 30 points."  -- 400
• "I would not use more."  -- 35

Battle manuals currently cost 40 or 50 points, depending on whether you play on a free server (50 points) or a server with a monthly subscription fee (40).

Kafra Credit Points are sold on a sliding scale, 500 points for 5 dollars, 1050 for $10, 1650 for $15, 2300 for $20, 5200 for $40 or 10,400 for $75.

The questions aren't exactly what I would have asked, there is no "I would use them if they cost 0 points" question, and how do we differentiate between "I would not use more" and "I always use them?" Do one or both represent usage at the current price in the same frame of reference as the responses at specific price points?

For a start, let's take "I would use more if they were n points." responses to mean "I don't currently use Battle manuals but would if they were available for n points. That gives us consumption of 400 at p=30, 134 at p=50 and 25 at p=80. This gives us a price elasticity of demand of -0.9975 when going from a price of 30 Kafra points to 50 Kafra points, -1.356 going from 50 to 80 points and -0.5625 from 30 to 80 points.

So, elasticity increases at higher price ranges, but is never highly elastic and it's close to -1 at the lower price ranges. I'm not sure what my intuition on this might be. I would probably expect a fairly low elasticity, possibly with an area of higher elasticity around some point of inflection. (Think an arc tan graph.) The absolute price ranges are very small, ranging from a low of forty three cents an hour at the minimum to one dollar 60 cents an hour at the high end.

There is much more to look at here, I think. It looks like the discounts on buying Kafra points cause greater price differences than the change in points, and I haven't even looked at the other options in the survey.

But I'm out of time for now. more tomorrow.

Healthcare data

This chart was getting bandied around on a forum and it got me thinking about US healthcare spending. Luckily it mentioned its data source, leading me to http://www.oecdilibrary.org/content/book/health_glance-2009-en and a statistics package from BPI consulting. It's going to be time to think about relationships and throw some math at some data to see if I can reject a null hypothesis or two.

Question:  Why is the US healthcare system so expensive (relative basically everybody else)?*

 Possible contributers:
     -Lack of monopsony  power by purchasers.
          -Insurance companies do have some monopsony power in re doctors and hospitals.
          -Drug price ceilings?
     -Inefficient competition in the market.
          -AMA licensing and accreditation limits participants.
          -Lack of the ability to advertise. Compare Lasik to other outpatient procedures
          -Limited numbers of hospitals, does this compare to other limited suppliers?
          -How do these factors make the American market different than other healthcare markets? 
     -3rd party payments
          -Moral hazard and adverse selection
          -Creates a subsidy or price floor. (Which is a better model?)
     -Technology
          -Do we use more medical technology than other countries?
     -General American trends
          -Do we pay doctors, nurses and medical people more than others?
          -Do we pay doctors etc more relative similar Americans?
     -Income effects
          -Do we consume more healthcare because it's a superior good and we can afford it?
          -Can this be related to the income differences between Americans and Europeans?
          -Test: What kind of things do we spend out money on? What percentage goes to "extra" healthcare?
      -All the stuff I haven't thought of yet

OK, so the data that I found don't look like they address most of the things that cause high US health costs. This will take some thinking.

*Let's leave results out for this, those may be for other reasons than economics and I don't know enough medicine to tell the difference between a good theory and data mining.** 

**I probably don't know enough about the healthcare system to tell good results from data mining either, but hey, there might be some chance on that one!