Magic Kingdom Economics

Back in 1971 an economist by the name of Walter Oi wrote a paper on two part pricing at Disneyland. A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly. Apparently back in those days when you enter Disneyland the fee for entering the park itself is separate from the fee to ride a particular ride inside the theme park.

On wonders why Disney decided to just have one access fee later on. We all know why lines are created because the price for the good or service is too low. If you raise the price high enough I bet some of the people in the line would stop thinking how great a ride Space Mountain is. Is it a desire to create an equitable world? where everybody has the same "purchasing power?" Imagine if prices were set according to the intensity of demand, there will be inequality in Disneyland! Rides for the wealthy and rides for the poor! That's no magic place at all.

My recent visit to Disneyworld shows that some innovations to manage the queues have been made. Disney calls it Fast Pass, you feed a machine your admission ticket and it spits out a ticket just for one ride and gives you an appointed time. This way riders self sort themselves into rides. The currency is really still your time. At Epcot, there is a line called "single riders" of course I told my group to just line up there, the only cost here really is you don't get to ride together but be treated as filler for seats not filled out by a party. In most rides we ended up riding together anyway, so a potential 65 minute wait was actually cut to 15 minutes.

Witching hour

I read a paper by a Harvard graduate student on the relationship between witch trials, temperature, and economic growth. She found a robust relationship between temperature readings in Europe and the number of witch trials. It appears that as the average temperature becomes extremely low, witch trials spikes. She relates this to agricultural outcomes, when the weather is abnormally cold, crops fail and sources of food become more scarce, thus more incentive to blame certain segments of society.

An interesting tidbit in this study was that in Tanzania, a researcher has observed that supposed witches (often the oldest female household member) were executed not by the village, but by family members. These executions are also correlated with downturns in food production, which makes one think that it might be an attempt to eliminate the least productive member of the family with the accusation of witchcraft as cover.

Homo Politicus

Politicians of all shapes and sizes are different forms of animals from the rest of us. I once met a campus politician around here, that was exactly one meeting. I run into him 4 more times after that and he still remembers me, my name, and what I'm doing. If that's not a gift you tell me. These political types have some comparative advantage over us non-political types, they are naturally people person and are trained to listen to anybody, and all points of view from all disciplines. I guess their talent is being able to insert themselves in all sorts of situations and fancy themselves as facilitator. The compromise consultant if you will. I think we need them, otherwise they wont exist, they lower transactions costs between parties of opposite sides of an argument. For the most part the end result of a compromise agreement is not satisfactory to both parties. That's where politician's usefulness comes again, we get to blame them.

Power Play

I got a letter today from my power company with a new offer. They computed my total consumption of electricity last year and divided it by 11 and they said that this was going to be my monthly payment if I signed up for this new free service. Of course on the 12th month they said we will settle things up if I paid too much, I get a refund or if I paid too little I have to pay up the excess. How is this good for a customer? Of course at best this is a breakeven move for the company or a profit enhancing one, it's never in any company's interest to give away money for nothing. Suppose there is only one customer, and 3 periods. The consumer's total consumption for three periods let's say is $300, the power company's offer is pay $150 each in the first 2 periods and settle whatever's left in the 3rd period. Company just increased its cash flow in the earlier period from an average of $100 to $150 and of course they can put this money to profitable use. In fact if interest rate was 5% (per period), the present value of the company's revenue from the offer is $292, while if you refuse the offer the present value of the company's revenue from you is $285.7

A simple graph and thought experiment would also show that producer/sellers are better off when prices are stable, on the other side of the coin, consumers/buyers are ahead when prices fluctuates. The power company's offer looks similar to what the first President Bush offered to tax payers, no monthly tax deductions but as tax month comes you still need to come up with the money for Uncle Sam. They thought this way people would be encouraged to spend more money and stimulate the economy. They guessed wrong. I wonder how many people would sign the power company's offer and get fooled into using more electricity.

The last TA class

I just got my teaching evaluations back this afternoon. Since last Spring was my last time doing the TA gig I was hoping the evaluations would cap off what turned out to be a very good experience for me. My students didn't disappoint as they wrote some really nice evaluations on my behalf. A sign of changing times and the language evolution was the comment: "I heart him" It's been a while since I tuned in on MTV so it took me a while to decipher that :)

I have always enjoyed interacting with students and found it satisfying when I sense the imaginary light bulb powering up above their heads. I'm going to miss it. I wish them all good luck with their other classes.

Inside the sausage factory

I've been disecting a couple of papers that I'm heavily citing for a working paper I'm trying to finish. Thanks to google and other academic literature databases, it is now easy to trace the linkages and cross citations of papers. One would discover that an earlier paper of an author has a life cycle. Once a method of analysis is learned and the techniques developed and results get published in a major journal, the same technique and approach is then applied to a somewhat similar problem and in a different setting, these results are then published in second tier journal and so on. No surprise the ad hoc procedures used in the early papers are perpetuated as if an ad hoc procedure that was left to slide in an earlier article was a license to do it again. Some of the best social science papers I think are those whose procedures and results could be replicated by anyone in the discipline with ease. Unlike in hard science were replication of results is encouraged as a check of the validity of the approach, in the social sciences this is not a tradition.

Echoes of spring

The university is not quite the same with all the students out. There is this two week deadtime right after the spring semester and right before the summer session begins. Everything is crawling to a slow pace. Short business hours for the cafeteria, the library and even for some professors around here. The only one left are those trying to finish some academic requirements. The graduate students mostly inherit the campus in the two weeks of interregnum. It used to be that around this time a number of international students newly arrive for a fall semester not yet to begin, start to wander around the campus. The INS has put a stop to that with the stricter rules. Sometimes when you sit in one of the benches on campus and you concentrate hard enough, you can hear the leaves moving to the breeze of summer...

Dead man walking

Yeh, that's the man who knows his fate months or days into the future as he sits in death row. That's kinda like a PhD candidate I guess :) You and everybody else know what's gonna be in store for you. When I walk around the department building now there is alway that comment "you are almost finished right?" I wanted to reply "if you only know what i know" :) Of course no use scaring other students. Definitely the pressure starts to build once you are done with all the classes and qualifying exams, and of course the department looks at you as the budget equivalent of another student they could admit the next cycle. That's when you know you got to keep walking...

Terror Alerts and Crime

The question of how the amount of policing affects the crime rate is often asked and investigated. The main problem of course is that the two variables of police levels and crime rates are determined simultaneously so one would naturally have a hard time disentangling the direction of causation. Do more police lower the crime rate or do more police increase the crime rate (since we observe more police in places with higher crime rates).

A recent article from the Journal of Law and Economics estimates the impact of police presence without having to suffer the problem of simultaneity. What the authors did was exploit the natural experiment provided by changing terror alert levels and they concentrated on one city which is Washington DC. The higher terror alert levels (a variable that is not related to everyday crime rates) leads to more police presence especially in the National Mall area of Washington DC this increased police presence it turns out leads to 2.6 less crimes per day in the National Mall area. So there, a clearer evidence that increase police activity lowers crime.

Tax Free Stripping

Based on this news release, it appears that stripping is now VAT (value added tax) free in Norway. The argument was stripping can also be classified as art together with opera, ballet, and theater performances. I guess art really comes in many forms and shapes :)

Winter's Grip

Looks like winter is not ready yet to let go, a quick glance at the weather channel shows a sprinkling of low temperature across the state. What's happening here? I'm supposed to be able to wear shorts now. I suppose the same trend is observed elsewhere, I hope summer and the warm weather would likewise be extended.

Philippine Crime Rates II

I've been thinking about the Philippine crime rate trend from the earlier post and trying to think of ways to explain it. I wonder how much of it is due to reduction in crimes in the city or Metro Manila in particular. The growth rate in the economy seems like a convenient explanation but I don't want to limit it to that effect yet. If that was true crime should have spiked up after the 1997 Asian crisis. I wonder how much of it is due to increasing use of private security services it is said that in Metro Manila alone there are 136,256 private security guards. The business district of Makati alone has 4,500 of these guards. To put this Makati security guards numbers in perspective, there are only 560 policemen in the Makati Police department. Here is my main source for these numbers.