What We Pay

Tuesday, March 8th, 2011

The price of counterfeiting

Those who believe that information must be free argue that free media – like music or movie downloads– will help rather than hinder musicians and moviemakers: by allowing consumers to sample their work free of charge, downloads work like ads, exposing their art to a broader public and increasing potential demand.

There has been little empirical evidence to sustain this proposition. But now data is emerging from an related industry: Chinese counterfeit sneakers. The sneaker story supports the case for free stuff as marketing, up to a point: counterfeits can serve as ads for the real thing. But they can also kill the real thing’s sales.

A recent study (gated) looked at sales of authentic brand-name shoes in China before and after a change in regulation in 1995 that took regulators’ eyes off the bootleg shoe industry. Sales of fake brand-name shoes soared after the policy change. And sales of legitimate brand-name sneakers felt the impact: Continue reading

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Monday, March 7th, 2011

The price of authenticity

For a long time I thought our lust for original, unique objects was a direct consequence of our pursuit of status. The reason Edison’s first light bulb is more valuable than any old light bulb; that people would part with millions for a chunk of rock from the moon, is the same reason that a rich oligarch would pay a record $106.5 million for Picasso’s Nu au Plateau de Sculpteur: because he can.

These unique objects are perfect Veblen goods, whose social purpose is to signal the quality of their owner. The term comes from the 19th century social scientist Thorsten Veblen, who developed the notion of “conspicuous consumption” –the penchant of the rich to dish out large sums of money on pointless artifacts as a way to signal their command over resources and establish their superiority over everybody else. It is waste as proof of power: the more money one pays for the chunk of lunar rock, the better it serves its purpose. Continue reading

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Tuesday, March 1st, 2011

The (falling) price of labor

Something happened about 30 years ago to throw a wrench into the workings of the American labor market.

This chart shows the evolution of the productivity of American workers and what they got paid for their work. The two variables tracked closely from the end of World War 2 to around 1979. But as productivity growth started accelerating in the 1980s, workers’ pay was left behind. In the last decade, productivity —the amount of stuff a worker produces in a day— grew twice as fast as what a worker earns for a day of work. Continue reading

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Friday, February 25th, 2011

An Oscar for our times

The Oscars are upon us! I normally don’t have anything to say about this. But this year I have a candidate for the title of best picture: The King’s Speech.

My choice has nothing to do with the quality of the film. I couldn’t tell you whether it’s any better than the other movies in contention. I understand that, as a rendering of history, it is terminally flawed. But the King’s Speech —about an English King more than 70 years ago— is special because of its power as a cultural marker of the present era. Continue reading

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Thursday, February 24th, 2011

Cheap willpower

Losing weight requires an inordinate amount of willpower. That’s why despite heavy our investments in pills, diets, exercise regimes and even the odd psychic, most of us just keep bulking up. By now, over two thirds of Americans are either obese or overweight.

Recent research suggests a simple way to reduce the effort of dieting simply by manipulating one of our favorite pastimes: watching TV.

An experiment by researchers at Cornell University and Wageningen University in the Netherlands found that people exposed to TV commercials about exercise cut back on their intake of calories by more than a fifth, compared to people who didn’t watch the ads. The effect was particularly intense among people “with higher body mass index levels.”

Perhaps this has to do with exercise aversion —watching the commercials reminds us that overindulging will lead to either obesity or sweat. Maybe it just reminds us of the virtues of a slim, athletic lifestyle.

Unfortunately, exposing people to exercise ads is unlikely to work for long. After a few weeks people will probably tune out, disengage from the message and reach for the twinkies. And the new therapy will go the way of every other weight-loss program.

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Thursday, February 24th, 2011

The Price of Everything in college

Joshua Kim from Dartmouth College recommends The Price of Everything for a College introductory economics course, “something to give some life to the textbooks and the supply and demand curves.” He adds, however, “The Price of Everything should be read more widely than by economists and their students.”

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Wednesday, February 23rd, 2011

The right price for houses?

Any economist who still claims that financial bubbles do not exist (many tend to roam the Chicago area) should look at these charts. There is no way to tell the “right” price of a home.  But by any measure, home prices haven’t been right for a long time.

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Wednesday, February 23rd, 2011

Building Stonehenge on the cheap

What would Ikea furniture look like in the stone age?

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Thursday, February 17th, 2011

The price of an (American) life

The value of Americans is rising, reporte The New York Times. The Environmental Protection Agency increased the price it puts on a life to $9.1 million, from about $7.5 million in 2009. The Food and Drug Administration bumped up its valuation to $7.9 million, from $5 million in 2008.

Businesses tend to dislike this kind of vital inflation because higher prices justify imposing more costly standards.  For instance, regulators will assume that a new safety rule that will save 1,000 lives must be implemented if it costs no more than the value saved through the intervention.

The process of assigning a price tag to life is fraught with other complication. Should the life of an old person be worth less than the life of a child? If both lives are worth the same, it means that each remaining year of life of the elderly would be worth much more. Polls suggest saving a life from a terrorist attack was worth more than saving a life from, say, a natural disaster. 

And the way we value human life today, assessing the risks people are willing to take in order to make or save money,  inevitably finds that the rich are worth more than the poor. Thomas Schelling, the Nobel Prize-winning economist noted to this effect: ” Just as the rich will pay more to avoid wasting an hour in traffic or five hours on a train, it is worth more to them to reduce the risk of their own death or the death of somebody they care about. It is worth more because they are richer than the poor.”

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Wednesday, February 16th, 2011

The price of regret

We have always suspected that people will forego material gain in order to avoid regretting their choices. For instance, experiments have repeatedly found that people who are given lottery ticket will be reluctant to change it for another ticket for the same lottery, even if they are offered a bonus for doing so.

Now, a study by two social psychologists in The Netherlands suggests that the reason for this reluctance is likely to be the anticipation of regret. They conclude this from two slightly different versions of the lottery ticket experiment. In the first, they put the first ticket in a sealed envelope, so that the recipient couldn’t see its number. In the second, they told recipients the number of the second ticket they would be exchanging their original one for. In both cases, subjects were much more likely to exchange their tickets.

The explanation is pretty straightforward: people who did not know the number of their original lottery ticket could not possibly regret having traded it because they would never know what number it was and thus whether it won or not. So they took up the offer of a bonus and traded. Similarly, knowing the number of the second ticket opened the door for them to regret not having traded —if the second ticket won. So again, they took the bonus offer and traded away.

Thanks for the pointer to Freakonomics.

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