Wednesday, 15 October 2014

Various teaching links

1.  As things go a clear definition of R&D from ESA10

Research and development (R&D) is creative work undertaken on a systematic basis to increase the stock of knowledge and use of this stock of knowledge for the purpose of discovering or developing new products, including improved versions or qualities of existing products, or discovering or developing new or more efficient processes of production”.

2. A lovely explanation of intrinsic and extrinsic motivation from  Alex Tabbarrok.




that focuses on the idea that an incentive scheme does not clash with intrinsic motivation, but gives information about the task to the person presented with it.


Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf
Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf



Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf
Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf

Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf

Monday, 6 October 2014

Various teaching links

Some teaching cases taken from this month's CEP Centrepiece magazine.

1. Selling UK citizenship.  We will learn about how markets allocate according to willingness to pay. Here's a proposal to allocate citizenship this way.

2. Complementary goods. If you ban YouTube videos, you might cause sales of music to fall if there are inter-related demands.  Exactly this happens. 

3. Productivity spillovers.  How wikipedia content spills over to benefit others.

Friday, 26 September 2014

John cochrane explains bank capital

http://johnhcochrane.blogspot.pt/2014/09/capital-language.html

Friday, 19 September 2014

Business Survival rates

Interesting data from the ONS, read down the first column.  After 4 years, almost half new businesses have gone.

 Business survivals

The UK five-year survival rate for businesses born in 2007 and still active in 2012 was 44.6%. By region, the highest five-year survival rate was in the South West region at 48.1%, while the lowest was in London at 41.7% which mirrors the churn rate seen in the business birth and death data.  By broad industry, some notably high five-year survival rates include health with a survival rate of 56.1% and education with a survival rate of 54.5%.  Hotels & catering was the lowest with only 37.0% of businesses surviving for five years. There has been an increase in one - year survivals from 2011 births, compared with 2008-2010 births, which reflects improving economic conditions.

Survival rates are available from one-year to five-year in greater geographical and industrial detail via the tables  (1.88 Mb Excel sheet)  published on the Office for National Statistics website.

Table 4: Survival rates of businesses born between 2007 and 2011

  Rate (%)
Births 2007 Births 2008 Births 2009 Births 2010 Births 2011
One year survival 95.4 92.0 90.8 86.7 93.1
Two year survival 81.1 74.0 73.8 72.5 ..
Three year survival 63.0 58.0 59.6 .. ..
Four year survival 52.0 48.9 .. .. ..
Five year survival 44.6

Wednesday, 17 September 2014

Internalised externalities in shopping malls

As we will see in our Economics course, externalities are when actions of one party affect another. Smoking is an example or pollution or global warming.  That's not a problem, Coase taught us, if the parties can negotiate over the problem and so "internalise the externality": ask someone else to stop smoking or pay them not to pollute (global warming seems like a problem here).  But one would expect shopping malls to be able to do this, a question taken up by Gould, Pashigian, Prendergast. REcStat, 2005.

In their shopping mall data, anchor stores are 60% of the floor space. But they pay $4.13 rent per square foot, against $29.37 for the non-anchor stores.  Meanwhile average sales per sq foot are $185.34 adn $317.68.  All this is in table 1 of their paper, below.




Is this sensible?  Let's assume the Mall owners want to maximise total sales in the Mall (they will want to maximise their profits, but suppose they are related to total sales), and they have some spare space.  What would a price discriminating monopolist do?  Answer: equalise marginal revenue in each sub market (for constant marginal costs).  In this context, this means setting rents so that an extra square foot rented to an Anchor generates the same sales to that rented to a non-Anchor.

It looks like they are failing, see Table 1 since the non-Anchors generate much more sales.  So what is happening?  It's like that the presence of the anchors adds demand to the non-Anchors.  So another anchor square foot does not just generate $185 but an additional effect on the non-Anchors.  Their statistical analysis, using variation in sales and presence of different store types, suggests another Anchor square foot generates additional sales for non-Anchors of $116 per sq ft.  Thats a total of 185+116=$301, which is very close to $317.  The externality is internalised.

Price discrimination in the car industry

Here's a fantastic demonstration of price discrimination in the light vehicles industry from  Ana Aizcorbe, Benjamin Bridgman, and Jeremy Nalewai

Prices for light vehicles tend
to fall over their model year, and retrace those declines
when next year’s models are introduced.
Using a new dataset, we document that the
characteristics of car buyers vary significan
tly over the model year as well: as average
prices of vehicles fall over the model year,
so does the average income of the buyers.
Under the assumption that income is negativ
ely correlated with price sensitivity, our
results show that price-insensitive consumer
s buy early in the model year, with more
price-sensitive consumers waiting until prices fall.
This empirical result suggests car de
alers engage in price skimming (i.e.
intertemporal price discrimination), introduci
ng new models at a high price, selling to
those willing to pay top dollar, and then loweri
ng the price to sell to the remaining market
segments.

What do they do?

1.  they have detailed prices for light cars (for example a Honda Accord) in the U.S. from late 1999 to 2003. The price data gives average transaction prices, net of cash rebates and
financing incentives across all buyers in a month (consumers, firms and government).
 
2. this is then matched with data on on the characteristics of car buyers from surveys compiled by market data vendor NOPworld, including income surveys per buyer.
 
3. here's the key diagram.  Prices fall for each model over the year until a new model is introduced. What happens to the buyer type? High income people buy first, price discrimination by income.  Note they check that the early models are not the best appointed etc. so it really is the same car.