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I was given a 30GB iPod about 3 years ago. Sadly, about 6 months ago, it started misbehaving. It took awhile but we eventually took it back to the place we purchased it — an Apple store — to see what could be done. Turns out the problem was the battery and we had two options. Option 1: pay $99 for a new battery or Option 2: Pay $120 and get a new 30GB iPod. Option 2 sounded like a bargaining especially since I thought that meant a brand new 30GB Video iPod; afterall, how could they have new iPods two generations ago?

Well, it turns out that I was wrong and it wasn’t as much of a bargain as we thought. Apparently, they do keep new older model iPods on hand for just this sort of thing; and $120 gives us a clue to the marginal cost of an iPod. I half contemplated keeping it new for its ‘vintage’ value but it wasn’t the absolutely first iPod so that didn’t seem worth it.

So the moral of this story is that for an incremental price your iPod may have a longer life than you think.

[Cross posted on Game Theorist] I am a big fan of Lego and we are big consumers in our household. (Once you decide that you can enjoy children’s toys the sky is the limit on expenditure!)

In my office, I have printouts of Lego sculptures of Escher prints. Their place on the web had been lost but they have reappeared. Click here to view them. You will see that it is all in the angle at which you are viewing.

There is an amusing advertisement towards the end of the May 2006 American Economic Review (click here to view it). It starts off with a joke about the Kauffman Foundation giving out money for research in entrepreneurship. But the ad is from them and as they say:

It’s no joke. Just ask Scott Stern, the first recipient of the Ewing Marion Kauffman Prize Medal for Distinguished Research in Entrepreneurship. This scholar from Northwestern University’s Kellogg School of Management received $50,000 for his pioneering work.

I have asked Scott Stern and I can tell you that was no joke! So take that economists who poke fun at entrepreneurship research. Of course, in Scott’s case, as he didn’t know about the potential prize, his motives when conducting his research were pure. He is a beneficiary of “paying it forward.” For the rest of us, this is a good reason to pay attention to entrepreneurship. Read more

Joshua Hall and Robert Lawson have released a paper describing their use of sony lyrics to teach economics in the classroom (here is the link). As you might expect, it is rare that the songs articulate a subtle piece of economic reasoning and are more social commentary.

Movies are a better bet; especially for game theory. Let me list a few that certainly would top my list:

• The Princess Bride: reputation, common knowledge and bluffing
• House of Games: Signalling
• Dr Strangelove: credible threats
• Indiana Jones and Last Crusade: dominant strategies
• A Beautiful Mind: obviously

And don’t forget the short film, The Highest Bidder, which can be viewed online here. GameTheory.net has some other suggestions.

[From Marginal Revolution] A nice writeup in the Boston Globe today on a paper on hidden pricing by David Laibson and Xavier Gabaix that itself appears in the Quarterly Journal of Economics. The basic idea is that there are some things that we buy for which there are add-on extras that we want. A good example are cartridges for ink-jet printers. When we purchase a printer, most don’t consider the prices of that cartridges and what is worse, often we are unaware that we can buy a cheap alternative to the cartridge with the same brand as the printer. The end result is that competition drives the printer price lower but the real beneficiaries are those who are sophisticated and can avoid the traps. What is more, no firm wants to educate the ‘naives’ and provide different pricing as those customers turn into sophisticates who benefit more from going to firms that exploit naives in their favour. This represents a powerful application of behavioural economics.

My co-author, Scott Stern, visited this week and came up with an interesting activity. He took a random book from my bookshelf, opened it to a page and looked at what it said. Turns out that can be both amusing and interesting. I may do the same exercise on a regular basis. Read more

A few weeks back, the Australian Competition Tribunal released its findings on the treatment of certain costs incurred by Telstra in providing access to other providers of local call and ADSL services. Telstra had argued to place the specific costs it incurs in these services as a large proportion of a monthly charge on each line accessed by entrants. The ACCC had argued that these costs should be spread over a wider base and rejected Telstra’s proposal. The Tribunal agreed with the ACCC and so it is back to the drawing board for Telstra. Read more

Today’s Age contains my op ed with Andrew Leigh, “For some people being dead on time can save taxes.” It describes our death result in the unusual days series and follows up on earlier expositions in the SMH and EV.

When Paul Krugman wrote for Slate, he produced a stream of articles that clearly explained economic phenomenon. One of my favourites is this one about the baby sitting coop. Krugman is more politics than economics these days.

David Warsh suggests that Shane Greenstein, a Professor of Strategy at Northwestern University may well fill the gap. Shane writes for IEEE Micro, a magazine of the Institute of Electrical and Electronics Engineers. This is not usually at the top of economics reading lists but his columns have been interesting enough to have been formed into a book: Diamonds are Forever, Computers are Not. My favourite article of Shane’s is this one on platform competition. But there are many others and you can access them here. Read more

FYI, a couple of new posts on Game Theorist today. One on the MS Readathon and the other on Guitar Hero.

In reports in The Age and the Sydney Morning Herald today, doctors (including the Royal Australian and New Zealand College of Obstetricians and Gynaecologists) called for an early start to the rise in the baby bonus:

Dr Andrew Child, director of women’s and children’s health services at Royal Prince Alfred Hospital in Sydney, has also raised concerns. Dr Child, a past president of the college, said it would cost the Government about $5 million to bring the increase date forward to tomorrow, based on 5000 babies a week born in Australia.

“If I were (Health Minister) Tony Abbott, I would think very seriously about that,” Dr Child said. He said $5 million was not much compared with the possible health risks.

I am pleased to see these reports focusing on the key issue of potential disruption. Earlier reports had been more about the amazing facts of 2004.

Update: some more international coverage …

• The Seattle Times (20 June 2006)
• Agence France Presse (23 June 2006)
• New York Times (21 June, 2006, p.6):

Australian hospitals are bracing for a baby boom next month as pregnant women try to delay births to take advantage of a new welfare payment, researchers said. Beginning July 1, a baby bonus paid to the parents for every newborn will increase by $740, to $3,000. Economists said that after the baby bonus was introduced in 2004, about 700 births were delayed by a week to take advantage of the payment.

In our search for unusual days, Andrew Leigh and I have found many that work. Here is one that doesn’t, full moons. Click here to read more.

News today that Darwin’s tortoise has died. The 176 old was purchased by Darwin from the Galapagos Islands in 1835. Obviously he took much better care of his pets that Schrodinger did; well, I guess we will never know on that one! The cat may still be alive.

[Book Review] When I picked up Stumbling on Happiness, a new book by Harvard psychology professor, Daniel Gilbert, all I could think about was Tim and Debbie. You may not recall them but they were the star attraction on Australia, You’re Standing in It (a TV skit show of the 1980s). I remembered (and this is going back 23 years so it has always stuck with me) a particular exchange on “whether the ‘haves’ were really ‘happy’.” Thanks to the wonders of the net and Ross Williams I have the exact exchange: Read more

The Economists’ Voice has just published an accessible write-up of my work with Andrew Leigh on the impact of the removal of estate taxes on deaths. As regular readers know, we found that the abolition of such taxes in Australia in 1979 lead to the delay in the death of about half of eligible payors. The new article is written with the coming abolition of such taxes in the US in 2010 in mind.

Click here to download “Toying with deaths and taxes: Lessons from Down Under.”

This week Uni News, the weekly newspaper from the University of Melbourne, has a front page story headlined “Pest expert to be Dean of LFR.” Professor Richard Roush is coming from the USA to head up the faculty. Sounds like his pest experience makes him uniquely qualified for academic administration so he should have no trouble getting a work visa.

Brandon Fuller at the News for Econ Students blog has provided a thoughtful write-up about the baby bonus. He puts it in the context of policies designed to increase fertility and the demographic issues associated with fiscal management. Of course, in my opinion, the association is an extremely kind one for the Australian government. The baby bonus may be rationalised as some fertility drive although, as I have already noted, it is a dubious one relative to other options. Me thinks all this had much less to do with future demographics than a future election later in 2004.

GearLive shows us a new PC desktop designed to make your screen work just like a real desktop. The whole endeavour is impressive, neat, cool and ultimately, totally useless. The problem with real desktops is that they are messy and hard to organise. The thing about computers is that they allow us to work through this; most notably using search features like Apple’s Spotlight or Google’s Desktop. They allow us to work without a desktop.

Being able to treat our PC desktop like a desktop is a big step backwards. The fact that it is there is already a problem. People may end up installing this new type of interface but they will never organise their files on a desk. The only reason that occurs in reality is time pressure and procrastination. For me, I have quarterly archaeological like excavations of lost documents layers under my desk. I don’t want to have similar expeditions on my computer. Search-based indexing is what we use there. That is what we need for our real desks; if we only had the time.

This week, debate over the industrial relations reform were dominated by the Spotlight case. There the reforms have been used to move away from traditional restrictions on weekend and public holiday work. It is commonly assumed that, as workers have to accept, the new workplace agreements that these provide opportunities for mutual improvements in employee/employer terms.

I don’t want to comment on the Spotlight situation in particular but I do want to note that there can be no economic presumption that workers will be better off if they are given the ‘option’ to bargain away leave. In a competitive labour market, that change may make them worse off if they are the type of person that values leave highly (usually, if they have children). Now sensible employers may make all of this work but in industries where workers are pushed to their alternative options (which may be temporary and longer unemployment), there is no guarantee.

For more on this see my earlier post and an op ed piece by myself and Martin Byford last year.

One of my first blogging ideas (way back when) was the idea of using iTunes song prices rather than Big Mac prices to compare current exchange rates to purchasing power parity. I have posted today a new blog on Aplia which updates that Index (new numbers and more countries).

For Australia, the predictions for current exchange rates differ markedly between the two indexes. For the Big Mac index, the Australian dollar is been continually undervalued over its 20 year life. For the iTunes index, it is over-valued relative to the US dollar. Actually, for that index the US dollar is an anomaly probably because the US iTunes price is anomalous.

Andrew Leigh and I repeat our message about the baby bonus in our own words in a piece in the Australian newspaper.

The radio interviews I have been doing have now tried to solicit my opinion about the policy as a whole. I think my opinion is pretty clear as seen through the eyes of my daughter. But the Treasurer in Question Time yesterday was asked by someone from his own party to report on how effective the policy had been. He acknowledged the ‘press reports’ of some issues around 1st July, 2004, and then extolled the virtues of encouraging fertility and suggested that 2004 and 2005 were years with jumps in the birth rate. He then took credit for all of it!
Read more

[Cross posted at Game Theorist] With all of this baby bonus stuff, I thought I would recount how all this looked to my 7 year old. Back in 2004 (when she was 5), I explained to her that the government was going to give us “$3000 for her baby sister.” I remember that she was horrified. “I don’t think we should give her away for that.” I guess I needed to choose my words more carefully. I tried to explain that they were just giving us the money and we could keep the baby which is why they called it a ‘baby bonus.’

Read more

With all the thoughts about birth timing and such, thought I might mention that Richard Hayes and I have a new piece in the latest Melbourne Review on Australia’s future innovative performance. Here is a press release. This is all related to our continued work on the Innovation Index. The basic message: it is OK but there are worrying signs.

[Update: here is a link to the paper (without cartoons and nice formatting)]

In what might be the first of many, Andrew was contacted this morning by a mother claimed that she was coerced into having a caesarian on the 30th June 2004. Here is the account: Read more

While it may have had some media attention in Australia, the baby bonus paper has also drawn the attention of bloggers. Read more

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