Restraining parents

Steve Levitt of Freakonomics fame wrote an interesting paper recently that strongly suggested that car seats did not assist in preventing child fatalities in car crashes any more than seat belts. A link to his article and related findings is here.

Now when I proudly brought this excellent piece of econometric research home as evidence as to how we could free up space in the car, I was informed that our household behaviour would not be changing. Car seats all around until they are well beyond 6 years old. Well, we had the seats anyway (4 or 5 by last count between various cars and ages and a total expenditure of $1000).

I suspect that reaction will be similar. Give parents and option and suggest that it will have a marginal improvement in safety and they will demand it in droves. Get some government regulations and it is entrenched forever.

But one wonders how far this might go. Suppose I developed a cocoon type restraint whereby you took said children, put them in a coffin like structure with a little window to look out of and staked them neatly in the boot of the car or SUV. Now I am pretty sure I could get some engineer to demonstate their safety properties. Coupled with an alluring idea of having the kids out of sight while driving (whine free!) and I think this is a winning product.

Parental demand for safety (subject to wealth constraints) seems to me to be unlimited and as close to inelastic as we are ever going to find. Although against this is the fact that we are yet to see the ‘Safe and Silent Cocoon.’ Nonetheless, an issue of public policy makers interested in consumer protection is how to restrain parental purchases of unnecessary equipment. I for one could use some restraint.

Playing the new IR game

In this week’s BRW, David James considers how the game between employers and employees will change under the new industrial relations regime. He quotes yours truely: “Employers can celebrate, but employees shouldn’t have families.” I apparently go on …

When you change who gets what, it will change people’s lives. Take someone who has four weeks leave, and can take two of those and buy it back. The claim is: ‘You don’t have to buy it back, so how can you be worse off?’ But if I am an employer who sees a benefit in having people work for 50 weeks a year instead of 48, who am I going to hire? I am going to hire the people who sell back the two weeks at a good rate, which basically means people without families. That is going to change the work culture of Australia. I find it ironic that a government committed to family values is enacting this kind of legislation.

You might wonder where to find the game theoretical model underlying these views. For this I need to thank a diligent PhD student of mine — Martin Byford — who worked out the bargaining model to analyse the impact of allowing entitlements to be traded. His paper is available here. Utilising an economic model of bargaining (similar to that in my textbook, Core Economics for Managers), he finds that competition in the labour market can mean that these reforms will leave some workers worse off. More importantly, when coupled with minimum wage laws, these reforms may reduce overall efficiency as well. Sadly and perhaps surprisingly, the trade union movement hasn’t shown much interest in these ideas even if the business press has (another irony!).

Martin and I published an op ed piece in The Age last year on this topic (for the non-economist, it is an easier read than the technical paper).

Externalities happen

My Principles of Microeonomics textbook (with Stephen King and Greg Mankiw) uses a dog ‘mess’ example to illustrate the concept of negative externalities. No solution is proposed.

Click here to see the Freakonomics solution. Costly but perhaps effective.

Rembrandts in the playroom

Last year, in a piece for The Age, I wrote about what appeared to be a change at the Lego company as to how they received user innovations.

That article talked about the Lego Factory concept that had users design new lego sets for a share of the royalties. This was a good example of user-based innovation as described by MIT’s Eric von Hippel in his book Democratizing Innovation.

It turns out that that was just the tip of the iceberg according to February’s Wired. User-based innovation has appeared to have infiltrated the whole innovation process at Lego.

News for Econ Students

News for Econ Students

Just to show that I ain’t that evil, here is another blog with interesting exam ideas and other information for economics students.

I particularly liked this post on price discrimination at Starbucks. I’ll have to ask for a ‘secret’ cappucino the next time I am there.

Solving the email game

This morning’s news reported intentions by AOL and Yahoo! to provide certain delivery of email for the price of stamp.

We all know the current situation that email sent may not be delivered or may be delivered into a spam filter. As Ariel Rubinstein identified almost two decades ago, this presents real problems for reliable coordination. (His paper is conveniently available on-line).

The problem is simple: if you and I need to coordinate our activities and a lack of coordination is really costly, then if communication between us is even slightly unreliable, we may shy away from such activities altogether. Moreover, doing simple things such as acknowledging the receipt of email can’t help (and indeed may make things worse!) if the acknowledgment cannot be reliably sent.

What this means is that AOL and Yahoo!’s solution is going to have to be perfect if it is going to provide real value.

Is this a joke?

On the way to Melbourne airport there was a billboard for Villa and Hut. If you just glance at it (as you do when you are driving) you will notice that they claim to be “voted the best homewear store in the world.”

Sounds impressive but drop your eyes down and you will see in much smaller print a qualification “by internal staff poll.” Not that that is bad — if it wasn’t true that might be a problem. But really, isn’t this just a tad misleading? The homepage of their website says the same thing and much as I have tried I haven’t seen a hint that this is all tounge-in-cheek.