Wednesday, July 27, 2011

Accidental airline tax holiday and Tax Incidence

NY Times article on how an accidental Tax Holiday created by a deadlocked Congress for airlines is entirely absorbed by the airlines. A nice illustration of one of the fundamental principles of public finance on tax incidence, that is the person who is levied the tax is not the one who pays for the tax. You hear evidence of this misunderstanding a lot when people say we should tax oil companies.

Typically its the party with less flexible (elasticity) that bears the burden. In airlines, in the short term, passengers are locked into their travel and firms are not competitive (no flat supply curve) so it makes sense that consumers bear most of the burden.

Friday, July 22, 2011

Carmageddon or More evidence on Downs paradox

So apparently, Carmageddon was supposed to be last weekend in LA when they shut down a highway for the weekend for repairs. And apparently not much happened. The big economics lesson I take away from here is more evidence for the Downs paradox which basically argues that in many cases highway capacity has no effect on travel time. People adjust their driving habits to the amount of highway capacity available. Lots of recent research seems to back this up as well. The marginal effect of building an extra lane of highway on travel time is zero, since more highway capacity just causes more people to use the highway until the same equilibrium travel time is reached.

Wednesday, July 20, 2011

Annoyances with the Apple Pricing Model

Apple MacBook Air MC505LL/A 11.6-Inch LaptopThe new Macbook Air's today reminded me that something always bothered me about the simple transparent pricing schemes Apple uses. I finally figured out why. I suppose the pricing schemes make it more obvious (at least to me) that they are using monopolistic price discrimination, as opposed to what is typical is the highly competitive consumer electronics market which tends to price at cost. This is especially evident in the iPad prices where an extra 48 GB of memory which costs $80 more if you look at SD card prices, leads to a $200 higher price (and apple design always makes it so that consumers cannot upgrade the memory themselves).

Monopolistic pricing basically transfers surplus from consumers to profits for the firm.

I actually don't mind when this is done in other industries like airlines (where I normally defend their pricing) because there I know it increases social welfare, and airlines just use this technique to cover their fixed costs, as they are just barely profitable.

To Apple's credit, I buy their products anyway, which means they create enough surplus through great design that I still choose them over the competitively priced alternatives. (though I still maintain they are not especially reliable products as my macbook pro just broken down after only 11 months, and I have had several iphones die, one melted).

Do supermarkets improve our diets?

From Marginal Revolution: Do supermarkets improve our diets?: "
Maybe not:
Better access to supermarkets — long touted as a way to curb obesity in low-income neighborhoods — doesn’t improve people’s diets, according to new research. The study, which tracked thousands of people in several large cities for 15 years, found that people didn’t eat more fruits and vegetables when they had supermarkets available in their neighborhoods.
Instead, income — and proximity to fast food restaurants — were the strongest factors in food choice.
The original piece (gated) is here."
I have been ranting about this too for a long time. People that say the reason low income people are obese is because the evil market has denied them access to healthy food supermarkets. When in fact, that's the opposite of how markets work. Obese low income people do not have access to healthy food because they don't demand healthy food. You need to change those demands. Vegetables and salads are inherently much cheaper to produce than hamburgers, the only reason they tend to be expensive is because they cater to high income people who demand those things. NPR made a great point a while ago that if you want to see low income people buying cheap produce, just go to chinatown.

Friday, July 15, 2011

The Economist on real chinese food

The economist magazine recently reminded people that most Chinese food you get in say an American Chinese restaurant is mostly American, and only partially Chinese, but that authentic Chinese food which used to be available on the Chinese only menu is becoming more common (one of my main motivations for learning to read Chinese is to be able to order from these menus). Most people are surprised that good real Chinese food is surprisingly hard to get in New York's Chinatown (you used to have to venture to Flushing where my grandmother lives to get the good stuff). Xian famous--as recently profiled by WSJ--is a good example, with the ABC business major son of the owner, helping the noodle stand to ride its feature on Anthony Bourdain's show which brought in people like R- and me, to build a food empire, expanding from its Flushing basement food stall, to shiny new holes in the wall in Chinatown.

Thursday, July 14, 2011

From NYTimes: The Light-Bulb Mandate Endures

For those who don't know, regular lightbulbs will be illegal in the US in the next year or so. For the record, I did my small part to prevent this stupid regulation from being passed back in 2007. It's actually not so bad, it does spur innovation, but it is mostly stupid because the environmental externality from light bulbs is tiny even in aggregate, while the inconveniences of alternatives (high cost, slow turn on, ugly light) are real and palpable.

Thursday, July 07, 2011

Greif et al were all wrong?

Havent thought about Economic history since grad school but I came across this paper arguing that the empirical basis of Milgrom north and weingast and greifs community responsibility system that private order
was the basis of medieval trade was all wrong. This was a bit disturbing as I still talk about how the medieval champagne fairs and private law was the basis of international trade in class and seeing the animatronic law merchants in provins France is still one of my best vacation memories. The authors have another paper trashing greifs magrhibi traders paper. And I have thought of north and weingast (on how parliament's ability to tie the king's hand by forcing the king to pay back its debts allowed England to borrow lots more money and thus win its wars) a lot recently in face of recent sovereign debt defaults and the current debt ceiling silliness but I remember that the empirical basis of their story was wrong too.

I wonder if this is just the normal dialectic of history scholarship or is everything we learned from analytic narratives all wrong?

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