Wednesday 10 December 2008
The Day to Celebrate Democracy: Part 2
Part II
This morning, December 10th 2008, five days after the Bangkok International Airports were given back by the PAD, I came across a noteworthy article during my usual morning coffee and I would wish to share with all of you. December 10th has another importance; it is the day of the Universal Declaration of Human Rights since 1948. Since the PAD started its long-winding protest, we all had heard of the phase ‘freedom of assembly/association’, stated in our newly revises Constitution. The following paragraphs, I would have to honour to share a piece of writing by Professor Vitit Muntarbhorn, a Professor of Law at Chulalongkorn University and a Special Rapporteur of the UN, on Thailand current situation, respect of human right, individual freedom, and pluralistic culture on the country.
"(First) there is the key challenge of the linkage between human rights and democracy. That nexus implies that the rights of the majority must be respected, while not overlooking the rights of minorities. While democracy involves more than the electoral process based on rule by the majority, rule by the majority is internationally the rule and not the exception.
The position adopted by some sectors of society that the majority should be sidelined because they are seen as less educated, from a lower economic stratum, and/or from a different geographical area, is contrary to human rights law and international practice.
While some rights such as the right not to be tortured are absolute and cannot by constrained under any circumstances, other rights, including the right to freedom of association/assembly, can be subjected to various limitations. The international human right to demonstrate must be exercised peacefully and it can be constrained, on the basis of the law (and not arbitrarily), when it is necessary to do so, the limitations being proportional top the risk, to be tested against the backdrop of what is permissible in a democratic society. These parameters indicate that while people have a right to be on the streets to demonstrate, they are not entitled to take over key facilities which are the lifeline of the local and international communities.
…December 10 thus provides key opportunity for much needed soul-searching in relation to our values, knowledge-base, attitude and behaviour and our commitment to democracy, peace and human rights”
Happy Democracy Day.
_______________________________
Reference
Bangkok Post 'Human Rights During Times of Turmol" December 10, 2008
The Day to Celebrate Democracy: Part 1
Despite all the chaos and confusions in the past 3 years, and precisely in the past 6 months, Thai democracy has been at one of its richest forms. Since the coming of Thaksin Shinawatara and the leading events to the formation of the People Alliance for Democracy (PAD), no other time 'spectrum of political ideology’ in Thailand has been so prominent. To put it in a glass-half-full perspective, in this time around, Thai democracy has developed into a fuller version of pluralistic institution whereby ideological stand of political citizens i.e. everyone could be located based on his/her socio-economic backgrounds and most of all, residential characteristics. Finally, Thailand looks much similar to a number of long-standing democratic countries: US (with the GOP’s supporters in the US South, compare to the Obama-Party in the North) or Britain (with Tory in the South and the Labour in the North)
Nevertheless, what makes a crucial difference between our beloved country and the countries I used as examples, is that yes, we have Democracy, but we do not fully comprehend what Democracy and its following cultures entail. Here I would like to rewind the clock back to my class at the University of York – Politics A-. Many times when we discuss the idea of democracy, we simply overlook its most crucial component- Pluralism. As far as I can recall, in a world of rational individuals, of various self-preferences, it would not be beyond natural to have a society consists of assorted interests. Interests never need to coincide- in fact, they are much prone to collide. What Pluralism suggests is that everyone must follow a mean to be able express their preferences, gather them and achieve the end-result. By economic theory, this is what is Social Welfare Functions are for. Through this mean, social preferences would be achieved, no need to resort for violent means or the intervening role of benevolent dictatorship. Yes, Politics A class taught me another important lesson- we must learn how to respect opinions of all the others. And if we look hard enough, we would find that many apparatus of Kenneth Arrow or Amartaya Sen would become at great assistant to deliver the social optimal solution without having to disregard people on the opposite side of your political spectrum.
Sunday 26 October 2008
Behavioural Economics: A New Frontier
i) Endowment effect: A hypothesis that people value a good or a service more once their property right to it has been established.
Is there an example of that?: An experiment involved students and coffee mugs. A group of students were given a coffee mug each before entering a lab. After conducting a radio interview as part of the experiment, each student was asked how much they would be willing to accept a in terms of money for the coffee that was given to them an hour earlier. On the other hand, another group of students were not given a coffee mug before the radio interview. However, they were asked afterwards how much are they willing to pay for a coffee mug (the same design as those ones given to the first group of students).
The researchers find that the willingness to accept for the coffee mug is significantly higher than the willingness to pay specified by students in the other group.
What does standard economic theory predicts?: For the same coffee mug, the willingness to accept and the willingness to pay should be exactly the same.
Who are the leading researchers in this field?: Richard Thaler at Chicago; Dan Ariely at MIT
ii) Loss aversion: The hypothesis that people prefer avoiding losses than aquiring gains.
Is there an example of that?: A sample of randomly selected individuals are asked the following question:
"Imagine that your country is preparing for an outbreak of a disease which is expected to kill 600 people. Given the choice between two vaccination schedules, Program A which will save 200 and Program B which will save all 600 with probability 1/3, which program would you choose?"
If you're like most people, you would probably choose Program A.
However, if we rephrase the question to:
"Imagine that your country is preparing for an outbreak of a disease which is expected to kill 600 people. Given the choice between two vaccination schedules, Program C which will allow 400 people to die and Program D which will let no one die with probability 1/3 and all 600 will die with probability 2/3"
If you're like most people, you would probably choose Program D.
This is an example of loss aversion: The two situations are identical in quantitative terms. However, in the second one the decision maker is losing instead of saving lives, thus setting 0 lives lost as the status quo from which losses are measured, making the sure loss of 400 people more loathsome than the probable loss of 600.
What does standard economic theory predicts?: The decision should be the same if the two situations are identical in quantitative terms.
Who are the leading researchers in this field?: Daniel Kahneman at Princeton
iii) Anchoring (and focusing) effect: A hypothesis that people tend to rely heavily, or "anchor", on one trait or piece of information when making decisions.
Is there an example of that?: When people from California and Midwest are asked "Who do you think are happier - people living in California or people living in the Midwest?", both groups think people living in California are much happier than people in the Midwest. However, when they are asked to respond how happy they are with their life, it turns out that their mean happiness levels are exactly the same.The reason for the misprediction is that when they are asked to make a joint evaluation between California and Midwest, the only salient difference between the two places is the weather. In other words, their attention is focused or anchored on the difference in weather. However, when they are asked about what makes them happy - other things like marriage life, income, job, etc. matter a lot more to them than the weather. Weather, in fact, doesn't enter their well-being function at all.
What does standard economic theory predicts?: Stated preference (a decision utility) should be the same as true preference (an experience utility)Who are the leading researchers in this field?: Daniel Kahneman at Princeton, David Schkade at Rady School, San Diago
Thursday 14 August 2008
The Minimum Wage is not dead (yet)?
I was wrong.
Research on minimum wage has been numerous in the past few decades, so much that I led myself to believe that it was no more room for any young, energetic researchers to put his energy on this topic. Personally, one of the most fascinating papers on Minimum wage was the 1992 paper by Card& Krueger*. However, the eye-raising part of the paper is not the finding result; it is how they studied it. I say it because the result is either Minimum wage does have an effect on employment, or it does not. Graphical analysis with the application of the competitive model of labour market or its monopsony counterpart would reveal the finding. On the other hand, the way they set the investigation was something not so simple, and requires some imagination. The fun thing about their research is that they got to go around a couple of American cities to see how the sudden Minimum Wage law presented its impact on a few fast-food chains. Other succeeding papers followed their quasi-experiment methods and similar results were found. For me, this line of literature needed a revamp.
And then, thank to the fancy tool of Econometrics, the 2002 Di Nardo& Lee paper rescued the Minimum Wage literature once again. The aim of the paper remained the tradition one- find the impact of raising the wage on employment. However, the application of Regression Discontinuity came most handy at the time. Then again, labour economists came to struggle again on how to give a face-lift on Minimum Wage.
As I said, I realize I was wrong. Wrong on the basis that indeed the study of the impact of minimum wage is increasing needed in some economies. Thailand is one of those. How was I enlightened on this fact? With the team of young Thai economists, we got the opportunity to tour to all 4 main regions in the Land of smile to have a forum with practitioners from Ministry of Labour’s provincial offices. And when came the question time, all we got asked was the troubling uncertainty on the issue of Minimum Wage. The question was raised most serious was the explanation of the disparity of the Rate across provinces- theoretically & subjectively.
And the idea of Minimum Wage is, to me, no longer simple, at least in Thailand anyway. We used the idea of the Law of One Price as the centrality of our explanation. The ‘equitable’ differences of the Wage happened when there are barriers of factor movement- meaning house prices, family ties and so on. On the other hand, everyone knows that the setting of Minimum wage is in fact not fair! Economists offer the idea of the level of unemployment, the number of firms as proxies indicating what we call ‘the relative bargaining power’ between buyers and sellers of the labour power. In Thailand, the setting of minimum wage is done on a monthly basis, through what is called ‘the tripartite’ with officers from the Ministry of Labour acts as mediator.
At current time, the least of the Wage is 120 baht per day in Chai-yapoom province is roughly 100 baht lower than Bangkok’s. In purchasing power parity term, that could equal to 2 extra dinners for person. And having mentioned the PPP, I then recalled an additional question. Even practitioners in Thailand were not certain how substantial the existence of Minimum Wage as a useful policy. On principle, the Wage is supposedly an additional safety net for the poor. However, the way the level of the Wage is set up, no one had a clue. Basically, the initial baseline of the Wage came from a miracle blackbox and officers at the MoL merely know that this level will be adjusted according to the rate of provincial inflation.
This is a shocking finding, if nothing else about it is sufficiently sexy.
In England, before the National Minimum Wage was introduced, there was a series of serious studies. There were a number of debates, public hearings before when it finally came out. And unlike Thailand, the British government only differentiates the rate between London and the rest.
So how should the Wage ideally be set, for the case of Thailand? Simply, there are two alternative methods to go about. You can either set it based on the employer’s side- meaning that the level of the wage is aligned with the ability of pay of average local employers. By theory, wage should, at least, equal to the marginal productivity of labour. Following the concept, the Wage would be fair, or at least seem as if. Unfortunately, having set the wage this way would not guarantee the standard of living of average, low skilled workers. Thus, the alternative is the Living wage. Minimum wage should base on how much an average person has to spend to live a suitable life in a day.
As far as I know, the literature on minimum wage that seemed abundant previously is not entirely the case in Thailand. There is a serious lack of rigorous studies on the impact of the Wage, the appropriate method to set up, and most importantly the dynamic of the bargaining institution.
Yes, on my flight back from the South, I realise there are still plenty of fun works labour economists in Thailand must attack. Only things you would need are a bit of energy, and a little bit of wild imagination !!!
Wednesday 13 August 2008
Research Assessment Exercise: How Thailand's research in social science should be funded
Thursday 24 July 2008
Joblessness and satisfaction with different areas of life
So, I guess, it's a good thing that I'm only unemployed for 2 months then...
Thursday 10 July 2008
A Telemarketer and My Willingness to Pay
Telemarketer: Hi, this is. . . calling from. . . How are you today?
Me: Good. Thank you.
Telemarketer: Glad to hear that. I have a few questions about your internet service. I am wondering whether you have a cable internet service at home.
Me: Yes, I do.
Telemarketer: Do you get your service from your cable TV company?
Me: Yes.
Telemarketer: Is it. . . or . . .?
I identified the cable TV company I received the cable internet service from.
Telemarketer: They must charge you a lot for your service. Is it $49.99 a month?
Me: No. Not really.
Telemarketer: Oh.. how much are you paying for it then?
Me: Well.. Instead of me telling you how much I'm paying, why don't you tell me what you would offer? What are you offering then?
[Silence. The line is hung up from the other end.]
I was quite stunned. I didn't expect a telemarketer to so easily budge and so quickly hung up on me. A friend of mine and I suspect that the telemarketer might not be accustomed to people being on the offense or aggressively asking questions. I was just too far off her script.
Why didn't I tell her how much I'm paying then? I view this conversation as one in which the phone company would like to know my willingness to pay monthly for internet service. And, if they know my willingness to pay, then they would charge fully up to my willingness to pay and be unwilling to reduce price. They would be able to extract all my joy of paying less than what I am willing to pay. In economics, we term this joy "consumer surplus". Although you don't know what it's called, I'm sure you have experienced it before.
Every girl must remember how good it feels to pay only $19.99 for a blouse which she is willing to pay $39.99. Or, she might find a pair shoes priced at $59.99 and think that the shoes are attractive enough for her to pay $49.99 but not $59.99. One must remember how great it feels to be able to knock $100 off the flight one would have flown anyway. And, remember how victorious it feels to win something on Ebay below the maximum price you are willing to pay?
By the way, I told another friend about this phone call. Knowing that I am an economist in training, he asked what I would have said to the telemarketer, had she not hung up.
My friend: Were you gonna explain to her that you gain more utility staying with the same company?
Me: No. I was gonna explain to her that.. if I give out my willingness to pay, her company will charge me so much that my consumer surplus will be reduced to zero.
My friend: hahahaha.. good for her that she hangs up.
Well.. thank you for read it this far.
Sunday 22 June 2008
"Pay while you fly"
First up for charge is the headphone each passenger has to pay for if they want to enjoy the so-called in-flight entertainment but have not brought their own. Second is food, and they have now charged for the previously free box meal of sandwiches, potato chips, and a cookie. The two most recent ones are, introduced last month by American Airlines, for checked luggage and, just announced last week by U.S. Airways, for non-alcoholic beverages, including bottled water.
True, the “pay-for-what-you-use” model seems economically efficient. Technically, passengers won’t get charged for what they don’t consume, which should make for cheaper ticket prices relative to when food and drinks are included. Airlines will be compensated for something that before they had to provide for virtually all passengers. Moreover, after a while, the airlines would learn how many headsets, carbonated drinks, and so forth have to be brought on board, the knowledge of which could save them some costs. The nickel-and-dime extra charges probably will not drive away many potential fliers (although, short of major overhauling of the industry, the discussion of which I will reserve for another piece, I don’t think the airlines can be saved).
How do I personally feel about these charges? The headset and the food charges have never bothered me too much. The former is because I can always occupy myself with a book, an MP3 player, a laptop (for both work and play) and, for better or worse, a nap. The latter because airlines have never been known for their culinary prowess and I can make do by starving myself for a more appetizing meal at the destination. Baggage and beverage charges trouble me somewhat.
What passengers can be expected to travel without checked luggage? Travelers going on a long trip without their possessions shipped or stored at the destination will be obliged to pay. The already fierce competition for scarce space to store their carry-on bags will become fiercer. Soon enough, more stringent regulations on carry-on bags, possibly including a pricing system to allocate in-flight space, will be imposed.
Or passengers, who would have been on a short flight, might choose to drive instead. Say, I want to travel from Los Angeles to San Francisco. Driving would take me about six hours. Going to the airport, checking-in, going through the security checkpoint, waiting, and flight time could altogether take about the same amount of time, and while driving, I can eat whatever I want, whenever I want, and bring however much stuff I want as long as I can fit them in the trunk. Obvious disadvantages of driving are inconvenience, exhaustion, risk for traffic accident, and the opportunity cost of time that I could have spent while at the airport or on board.
And, what will emerge as the airlines start charging for beverages? With the restriction on the amount and the type of liquid each passenger can carry through the security checkpoint and on board, they might be creating an oligopoly in the beverage market for air travelers. Passengers can now either buy their drinks from food vendors at the airport, who already charge premiums for their products, or from flight attendants. (Of course, U.S. Airways says flight attendants will serve at their discretion beverages to passengers who suffer dehydration or other medical issues, but how distraught do I have to be to get free water?)
American Airlines’ new ad campaign proclaims that they know why we fly. I am not sure the airlines do.
Saturday 14 June 2008
A new approach to awarding compensation in courts
******
From a scientific point of view, this raises a question of whether we can develop a systematic method for calculating a reasonable compensation package that would closely reflect the genuine damages generated by bereavement.
Using the two measures of subjective well-being, we are able to estimate how much happiness can be gained on average by a higher income of X thousand euros, and how much happiness is lost by the death of loved ones. We then calculate the ratio of the two, which will give us a statistical measure of a marginal rate of substitution between the pleasure of money and the pain from the death of a loved one.
Figure 1: Death and the Calculation of Compensatory Damages for Bereavement
Policy Implications
Footnotes
******************
1 Simmons, R.A., and Winson-Geideman, K. (2005). Determining market perceptions of residential property buyers using contingent valuation surveys, Journal of Real Estate Research, 27(2), 193-220.
2 Carson, R.T., Mitchell, R.C., Hanemann, M., Kopp, R.J., Presser, S., and Rudd, P.A. (2003). Contingent valuation and lost passive use: Damages from the Exxon Valdez oil spill, Environmental and Resource Economics, 25(3), 257-286.
3 Oswald, A.J., and Powdthavee, N. (2007). Death, Happiness Equations, and the Calculation of Compensatory Damages. Journal of Legal Studies, forthcoming.
4 See, for example, Diener, E., Suh, E.M., Lucas, R.E., and Smith, H.L. (1999). Subjective Well-Being: Three Decades of Progress. Psychological Bulletin, 125(2), 276-302.
5 Blanchflower, D.G., and Oswald, A.J. (2004). Well-being Over Time in Britain and in the USA, Journal of Public Economics, 88, 1359-1386.
6 Alesina, A., Di Tella, R., MacCulloch, R. (2004). Inequality and Happiness: Are Europeans and Americans Different?, Journal of Public Economics, 88, 2009-2034.
7 Graham, C., and Pettinato, S. (2002). Happiness and Hardship: Opportunity and Insecurity in New Market Economies. Brookings Institution Press, Washington D.C.
8 Powdthavee, N. (2005). Unhappiness and Crime: Evidence from South Africa, Economica, 72, 531-547.
Thursday 22 May 2008
Eric Clapton versus Bob Dylan concert: The Answer
So, if Eric Clapton is the only substitute that night, you wouldn't go and watch him if his ticket costs more than £10.
In other words, the opportunity cost of going to see Eric Clapton is £10.
......
I guess the point I've been trying to make is that, when this question was posed by economists Paul Ferraro and Laura Taylor to a group of 270 economic students, only 7.4% could give the correct answer. Given that there were only 4 multiple choices, there was a 25% chance of getting it right. Yet it does show that some knowledge of economics may be a bad thing if it wasn't taught properly.
We often go into economic classes and see lots of graphs with blue and red swiggly lines that just don't make much sense to us. However, the way Bob Frank teaches - narrative teaching, i.e. bringing real life situation into play and use economics to explain it - can really revolutionalise how the science of economics should be taught!
Tuesday 13 May 2008
Eric Clapton versus Bob Dylan concert: The Question
Monday 5 May 2008
Lesbian as an Identity: Is there a legal entitlement to geographic appellations?
In order not to turn this blog into a romantic discussion, here is a new interesting issue, albeit it still does not depart from the issue of relationship too far, at least in term of definition.
The issue concerns a great legal question regarding the existance of geographic appellations: Is the term "lesbian" something that the residents of Lesbos, Greece have a legal entitlement to prevent others from misusing? The Associate Press has the story:
A Greek court has been asked to draw the line between the natives of the Aegean Sea island of Lesbos and the world's gay women. Three islanders from Lesbos - home of the ancient poet Sappho, who praised love between women - have taken a gay rights group to court for using the word lesbian in its name. One of the plaintiffs said Wednesday that the name of the association, Homosexual and Lesbian Community of Greece, "insults the identity" of the people of Lesbos, who are also known as Lesbians. "My sister can't say she is a Lesbian," said Dimitris Lambrou. "Our geographical designation has been usurped by certain ladies who have no connection whatsoever with Lesbos," he said. The three plaintiffs are seeking to have the group barred from using "lesbian" in its name and filed a lawsuit on April 10.... The Homosexual and Lesbian Community of Greece could not be reached for comment.
Rules regarding name which is linked to the particular geographical regions are common in trade areas. Under intellectual property law, the term ‘Geographical Indicator’ prescribes the extent to which one is entitled to use the name of the specific region which has some connections with the product in question, while at the same time preventing the same product produced outside the particular region from such usage. The most common examples of such GI are ‘Champagne’ and ‘Dijon Mustard’ – even though the latter is becoming a generic name even within the EU nowadays. I have not been aware before that the same concept can be applied to the common term like ‘lesbian’. It is interesting to see how the court will address this but my hint is that the court may decide to introduce some innovative grounds to preliminarily dismiss the case to avoid considering this complex issue.
Friday 2 May 2008
The search for ‘soulmate’ …. with constraints!
My apology for the unromantic title I give to such a romantic subject. In fact, during my writing here, I indeed plan to make an exploration on this topic and transform it to the least romantic analysis possible.
In the job market, if it is a competitive one- meaning that there is a vast number of workers and employers, nobody has the upper hand when it comes to selecting the right match. When every worker is closely homogeneous, the match is arguably rather random, for the fact that an employer is better off whomever they hire. Everybody who find his match is happy.
True, romance cannot be that simple. True, the love-finding market is not at all either that random or perfectly competitive.
However……
One main constraint persists. Even though women benefit from the pills and modern contraception a great deal, they remain the losers in the battle against the biological clock. Therefore, in a love market where men become relative less differentiated, one the one hand, these twentieth century women gain in their bargaining power to find the most perfect match. On the other hand, in the assumed world where everyone has ‘baby’ in their marriage production function, the women’s level of patience in the soulmate search game is decreasing in an increasing rate. Time constraint limits the time for the love search.
In a job market, facing the parallel constraint of time, workers thus settle for the job that maybe not perfectly fit but satisfies their reservation wage.
Reference
S. Levitt& S. Dubner: Freakonomics (2005)
Gary Becker: The Theory of Marriage (1973)
Tim Harford: The Logic of Life
Carrie Bradshaw :"Sex and the City"
Soulmates: made or found?
If it is unlikely that you would find your soulmate and it is not easy to prove whether you have actually found one, how can people claim so?
I believe that there’s a group of people* – not just one – whom you get along with or relate yourself to more conveniently than the rest of the world. To quote a friend of mine, it is a group of people who “operate at the same wavelength.” But, no matter how well you and the other person suit each other, there’s no perfect fit. There are times when adjustments are needed, sacrifices made, and deals negotiated. Through these adjustments and negotiations, a partnership is formed and tightened until the two people accepts each other and cannot imagine adjusting or sacrificing to anyone else.
The making of soulmates might not sound as romantic as the finding of one but it sure is more likely to happen and can be proved by induction. You work with one person until you can conclude whether he or she is your soulmate.
Soulmates are made, not found.
(*The size of such group depends on one’s specifications. A Brad Pitt or an Angelina Jolie is rarer to come by. If you want someone with an MBA degree, I have recently read that there are about 500,000 of them on earth.)
P.S. I was writing the first draft of this essay right before a friend of mine announced to me that she’s getting married to someone she believes is the right one for her. I would like to dedicate this essay to the couple.
Thursday 1 May 2008
What's luxury for?
When people visit me in Los Angeles, one of the attractions I take them to is Rodeo Drive, the center of all luxurious brand names in Beverly Hills. (For movie buffs, the street has been parodied in Shrek II, and it’s where Julia Roberts was refused service in Pretty Woman.) Few of my guests actually spend money there; most of them just walk around for spectacular window displays and, if they are curious enough to walk into the stores, touches of luxury. A friend of mine, with no real intention of buying, went into the Versace store and was astonished by a $3000 jacket – costing more than two months of my rent. He asked me for an economic explanation of how a jacket that doesn’t seem very special can be so highly priced. At the time, I told him that the name Versace, even though is not shown on the jacket, is enough to differentiate it from a seemingly similar $100 jacket at Gap.
A few weeks ago, however, I had a pleasure of speaking to a freelance stylist who has worked at several photo shoots in Thailand. The topic of luxury goods again came up. He insisted that a $500 Prada shirt is superior to other regular shirts. It is made of better fabric – some fashion houses sign contracts with textile manufacturers for exclusive use of particular textiles. Prada’s craftsmanship and quality are well-regarded; with Prada’s reputation, you know that the shirt is perfection. True, but one can look pretty good in a tailor-made shirt in Bangkok for $40 or a $60 Banana Republic shirt without having to worry whether the perfect shirt would be damaged from the next imperfect laundry.
Wednesday 30 April 2008
Women's liberation: What's in it for men?
Here's an excerpt from their innovative paper:
"...from a man’s perspective, there is a tradeoff between the rights of his own wife versus the rights of other men’s wives. Improvements in married women’s legal rights increase women’s bargaining power relative to their husbands within the household. Since husbands have nothing to gain from an increase in their wives’ bargaining power at their own expense, men ideally want their own wives to have no rights. But men might stand to gain from other women having rights.
We focus on two channels that give men a stake in the rights of other men’s wives. First, men are altruistic towards their own children, half of which are daughters. Men prefer their daughters to have a strong bargaining position vis-`a-vis their sons-in-law...
Second, in our model an improved bargaining position for wives translates, among other things, into increased investments in children’s human capital. A father prefers his children to find high-quality mates, and therefore stands to gain from increasing the power of his children’s future mothers-in-law.
We argue that this tradeoff between the rights of a man’s own wife versus those of other men’s wives has shifted over time, because of a changing role of human capital. When the return to education increases, finding well-educated spouses for one’s children becomes a more important concern. Similarly, a rising return to education also increases fathers’ concern about the rights of their daughters, because the daughter’s marital bargaining power matters for the grandchildren’s education. According to our theory, the ultimate cause of the expansion of women’s was technological change that increased the demand for human capital. This change elevated the importance of children’s education, it increased men’s incentives to expand women’s bargaining power, and it ultimately induced men to voluntarily extend rights to
women rights."
Clever sausages!!!
Tuesday 22 April 2008
Daughter, Father, and Voting Behaviour
Are our behaviours the reflection mirror of our parents'? Does the causality only run one way (i.e. from parents to children)? Or can there be a reversed causality that runs from us to our parents?
There are now two interesting studies on how having daughters can significantly affect parents' voting behaviours (one by Ebonya Washington - recently published in the American Economic Review) and the other was by me and Andrew Oswald of the University of Warwick.
More generally, our papers found that having more daughters make you more leftwing in your political stance.
Why is that?
The gist is this. First, men earn more than women, on average. In other words, there's pay discrimination by gender in the world. On the other hand, women by nature would prefer more public goods (i.e. streetlights after dark, better healthcare system, etc.) than men do.
Imagine there are only two political parties in the world.
- One is a rightwing party ("Because I'm conservative, I'll give you less of public goods but in return I'll also ask for less taxes from you").
- The other is a leftwing party ("Because I'm liberal, pay me lots of taxes and in return I'll provide you with lots of public goods").
However, by having daughter the man is likely to take his daughter's best interests into account ("I don't want my daughters to grow up in an unfair world!") and as a result shift his political stance from right to left.
I doubt that this case will apply generally in countries where popularism rather than right versus left dominates (like in Thailand, for example)...
Tuesday 8 April 2008
Would you be happier if you were richer?
Monday 31 March 2008
Has the most important sector been ignored by economists?
During my usual morning routine of newspaper reading and coffee sipping on the way to work, I came across an interesting article and it got me curious. Noeleen Heyzer, the UN Under-Secretary-General and Executive Secretary for UN-ESCAP put forward the point that “over these past decades, agriculture has been neglected” by policy makers in East Asia & the Pacific region. (Bangkok Post, March 28) Her arguments are founded as followed. Despite being the sector that embraces a very large chunk of the employment of many countries’ economy, the macroeconomic & growth policies, especially the ones aiming to eradicate poverty, has not given the attention to the agriculture sector as it really deserves. Her main statement is that for the development policies to work, big men sitting in the Cabinet & academia should come together and give “Agriculture” a revolutionary facelift.
So, why did I become curious? I began to wonder if indeed Agriculture has been neglected by people at the Top, does the same phenomenon persist at the bottom. And by bottom, I mean students of Economics discipline and academia working in the field of Economics. I set 2 assumptions for this brief investigation of mine. First, surrounding circumstance& current trends in everyday life play quite a strong part in students’ choice of academic interests. They tend to select degree, programme or study options based on what are ‘in’ at the time. Second, the supply of education i.e. the availability of courses and books is demand-driven.
Has Agriculture also been ignored by economists and economic students in this sense? My quick finding shows some results.
A quick visit to amazon.com gives me some fascinating stats. First, there are not as many books on Agricultural Economics available in the online market. In the past 2 decades, books on Agricultural Economics published during these periods has not only been the fewest, but also declining in quantity. However, a quick page-flip in a book on Development Economics will show that, Agricultural Economics is reduced to become an integrated chapter on Rural Economics. So, perhaps, one should congratulate the current popularity of Development Economics as a good sign for the revival of Agricultural Economics? That, I would not argue.
Thursday 27 March 2008
Punitive Damages in private suit: justice or injustice?
In order not to get into a hot debate on the newly decided US Supreme Court case on Medellin regarding a long dispute in US’s violation to provide consular access to foreigners and a relationship between domestic court and ICJ (lots of discussion can be found on http://www.opiniojuris.org/), I have found something of interesting and, of course, less controversial.
In 1985, Kurt Parrott, a 15-year old, was thrown from his motorcycle in Opelika, Alabama. The buckle of his helmet failed, and he died when his bare head hit the pavement. Mr. Parrott’s mother sued the Italian company that made the helmet, and an Alabama court awarded her 1$ million!
Of course, the company refused to pay thus the Parrott family sought to collect the damage in Italy. However, their attempt was rejected by the Italian Supreme Court.
The court reasoned its decision that the notion of punitive damages within a common law country is so offensive to Italian notions of justice that it would not in any circumstance enforce the Alabama judgment. Moreover as the court further explained, private lawsuits brought by injured people should have only one goal – compensation for an actual loss. Allowing separate awards meant to punish the defendant is a terrible idea. The idea of punishment should be dealt only by the criminal justice system, which has elaborate due process protections and disinterested prosecutors.
The court even emphasized that it is not fair for the defendant to obtain a windfall award beyond what they actually have lost. Furthermore, the system of ad hoc jury is even considered a poor substitute for the considered judgments of government safety regulators. (Source: New York Times)
This judgment seems to directly attack the basic root of the notion of punitive damage in a private suit. Of course, punitive damages have deep roots in American and English common law even though their nature has changed over time. Justice Stevens of the US Supreme Court wrote in 2001: “Until well into the 19th century, punitive damages frequently operated to compensate for intangible injuries like pain and suffering or emotional distress”. These days, it has been used to send out messages to large corporations, and to reward successful plaintiffs with all the costs they have lost – including all court fees.
Still, the possibility of a court awarding a huge amount of punitive awards consistently scares anyone. In 1995, a Mississippi court awarded $400 million punitive award against a Canadian company headlined newspapers and spurred huge tensions between Canada and the US for years.
Given that the decision as to the amount of the punitive damage award is entirely discretional – specific to each case and context, could there be any line to be drawn between a proper legitimate amount and an out-of-reality award?
At least, this sort of question seems heartless to Ms. Glebosky, Kurt’s mother. “A million-dollar award is really nothing. It is really not enough punish any large company in this day and age, and it certainly does not bring back Kurt.”
Tuesday 18 March 2008
The Economics of Irrationality: Relativism
He was very sharp – not surprisingly for an Alfred P. Sloan Professor of Behavioural Economics at MIT – and witty, and I thoroughly enjoyed his presentation (it was primarily an account of how his scar still has an attentional impact on his experiences today). And I was pleasantly surprised to find out just last week that he has recently published a book on the economics of irrationality, which he elegantly called Predictably Irrational: The Hidden Forces that Shape Our Decisions.
There are many interesting topics in this book, including the Cost of Social Norms, the Cost of Zero Cost, and even the Influence of Arousal. But what I find most interesting in Dan’s book is the role of ‘anything relative’ on our seemingly rational decisions. To give Dan’s own example, imagine that we want to subscribe to the Economist magazine. There are three subscription options we could choose from, and these are:
1) $55 – online version
2) $125 – print version
3) $125 – online and print version
So, which of these options would you choose?
If you’re like most of Dan’s students, you would have picked the 3rd option ($125 – online and print version). Some of you will probably choose option one ($55 – online version). But I would bet any money that none of you would have gone for the 2nd option ($125 – online and print version). Now, you might think that’s a rational thing to do, and you’re probably right – given the three options. You’ve probably thought in your head that comparing between the three the third option seems like the best option as it is definitely better than the 2nd option (who in their right mind would pay $125 to get a print version when you can pay exactly the same amount to get both!). The 1st option may seem good too for some, but it’s still quite difficult to compare it with the 2nd option (online only versus print only, hmm…). Given the price difference, it is also difficult to compare between the 1st option and the 3rd option – we are just not sure whether one option is better than the other. All we definitely know for certain is that the 3rd option is a better option than the 2nd option, and so it seems like a good reason to think that a $125 for online and print version is the best overall.
Is this a rational decision? You might think so. Economic theory would have suggested that if the 3rd option is preferred to the 2nd and the 1st, then that preference will always remain in that order, all else equal. But what happen if the Economist decides to remove the 2nd option from your choice together? Well, that’s what Dan did with his second class of students – he removed the 2nd option, or the option that he called the decoy option.
Now, an amazing thing happens. Almost 70% of his students prefer the ‘$55 – online only version’ than the ‘$125 – online and print version’ (this compares to the 84% who preferred the online and print version than the online version only when there is a decoy option present). That doesn’t seem very rational to me.
And what’s more amazing is that this kind of phenomenal keeps appearing everywhere in our daily lives. We go to restaurants and find that we don’t normally buy the most expensive food on the menu (that is, if you’re not one to always splash your cash unnecessarily) but more likely to buy the second most expensive food on the menu. We go into a mall to find many shops displaying ridiculously expensive set of clothes that we would never buy, but we go in anyway to buy the cheaper ones in the shop. We go to nightclubs and find ourselves much more attracted to somebody who comes with a slightly uglier version of himself or herself than somebody who’s equally attractive but alone. We vote (well, actually, don’t get me started there)…
The truth is it is not a rational decision, but it is a predictable one at that. The problem is all the market people also know this (hence, putting up very expensive food to drive up sales for the 2nd most expensive one, etc.) and most of us would happily go along with that. I’ll let you decide, however, how massive this problem it actually is.