• Everyday economics and the internet in Italy

    Italy and the EU: An Internet Story

    Dec 15 • Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Government, Innovation, Lifestyle, Tech • 348 Views

    Located near the Italian Alps, the 1500 residents of Verrua Savoia live in clusters that dot 20 miles of hills and valleys. Idyllic sounding, the terrain has delayed their access to high speed internet. One resident said buying on eBay was tough because it took too long to send a bid. But bringing fiber optics to their front doors was so costly that the Italian government and private firms had not attempted it. Instead, as an eight year nonprofit project, a local university gave the community their high speed service.

    Actually, in Italy, cost was only one barrier.

    Far below the EU average, 34 percent of individuals in Italy have never even used the internet and only 56 percent are regular users. While more than half of all Italians have access to a high speed connection, only ten percent have even indicated that they are interested.

    EU Connectivity

    One purpose of the EU was to create a larger economic area that would facilitate the movement of labor and capital and now, an information infrastructure. Looking, for example, at the difference between Italy, Germany, Greece, Portugal and Finland, we can hypothesize that EU internet integration has been constrained (or fueled) by the local culture.

    Here is how Italy’s connectivity commitment compares with her sister EU countries:

    Information Infrastructure: Italy and EU

    Having looked at Italy, I got curious about other EU countries.

    Germany:

    Information Infrastructure Germany EU internet

    Greece:

    Information Infrastructure Greece and EU

    Portugal:

    Information Infrastructure Portugal and EU internet

     

    Finland:

    Information Infrastructure Finland and EU.jpg

    Correlation or Causation?

    And finally, looking at GDP Growth Rate, EU area, for 2013:

    GDP growth rate EU map 2013

    GDP growth rate EU legend

    From: Eurostats

     

    Our Bottom Line: Information Infrastructure

    Whether looking at the concrete spread of a transportation infrastructure in the nineteenth century U.S. or a more abstract information infrastructure extending across the EU, we are still talking about how the successful formation of a market depends on connectivity.

     

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  • Everyday economics and The tragedy of the commons explains magazine disappear in doctors' waiting rooms.

    Explaining Why Doctors’ Waiting Rooms Have Old Magazines

    Dec 14 • Behavioral Economics, Demand, Supply, and Markets, Economic Humor, Economic Thinkers, Entertainment, Environment, Lifestyle, Regulation, Thinking Economically • 442 Views

    Through an article on why most magazines in doctors’ waiting rooms are old and uninteresting, the British Medical Journal (BMJ) gave readers some smiles in its Christmas issue.

    Where are we going? To the tragedy of the commons.

    But first…

    The BMJ Waiting Room Study

    As the authors explained, “We searched Medline, Google Scholar, and grey literature for studies on missing magazines and on waiting rooms, but despite finding information on the design of waiting rooms, satisfaction with service based on the waiting room experience, and other waiting room related topics, there was nothing on the disappearance of magazines.”

    Because of the number of complaints and the dearth of research, they believed their topic had sufficient medical significance to render some investigation.

    Their hypothesis? Either the good magazines were not placed in physicians’ waiting rooms or they were disappearing.

    Immediately they concluded that physicians were ordering new and what they called “gossipy” magazines. To see what was happening to them, in one study (their only study), at an Auckland, New Zealand medical office, they divided 87 magazines into three mixed piles of “gossipy” and “non-gossipy” magazines. Their “non-gossipy” magazines included National Geographic and the Economist. While they refused to name the “gossipy” magazines, they said the criteria was five or more celebrity pictures on the cover. The next step was twice a week counts of each pile.

    The Results:

    Gossipy magazines disappeared 14.51 times faster than the “non-gossipies” and on a given day the disappearance rate was 1.32 magazines. After 31 days, even the Economist had disappeared from the waiting room.

    Here they use a “Cox proportional hazard model” (???) to display their results:

    The tragedy of the commons and magazine disappearance

     

    Our Bottom Line: The Tragedy of the Commons

    Disappearing magazines started me thinking about Nobel laureate Elinor Ostrom who researched how we abuse the free goods that we share. Called the tragedy of the commons, in a communal pasture, we overgraze our cows. In a workplace refrigerator, we create a mess. Dr. Ostrom believed though, that when people care about their common pasture or refrigerator, the tragedy of the commons becomes a solvable problem of the commons.

    Telling about a communal pasture in Switzerland, Dr. Ostrom explained how farmers avoided overgrazing by creating voluntary rules. “What we have ignored,” she said after her Nobel Prize was announced, “is what citizens can do . . . as opposed to just having someone in Washington or at a far, far distance make a rule.”

    Perhaps Dr. Ostrom would have seen another problem of the commons in doctors’ waiting rooms.

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Potato Chips to Pregnancy

    Dec 13 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Education, Gender Issues, Government, Innovation, Money and Monetary Policy • 345 Views

    Our Posts Roundup

    Everyday economics for food research and development is important for the GDP.  Sunday 12.07.14 Innovative potato stories…more

     

    Everyday economics for the Supreme Court and Pregnancy Monday 12.08.14 The pregnant UPS lady who sued her boss…more

     

    Everyday economics: Looking at the CPI and beyond, there are many ways to calculate the inflation rate. Tuesday 12.09.14 Measuring inflation can be tough…more

     

    Everyday economics creates uncertainty through government Wednesday 12.10.14 Why Congress creates economic uncertainty…more

     

    Everyday day economics and economists' political bias could be affecting government policy. Thursday 12.11.14 The ways that economists reveal their bias…more

     

    Renewable energy and conventional energy at oddsFriday 12.12.14 How different people pay a different price for the same thing…more

    Ideas Roundup

    • R&D
    • innovation
    • human capital
    • gender issues
    • COLAs
    • inflation
    • federal budget
    • federal deficit
    • confirmation bias
    • economic analysis
    • dynamic pricing power
    • monopoly

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  • Renewable energy and conventional energy at odds

    Dynamic Pricing: How To Lower Your Electric Bill

    Dec 12 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Thinkers, Environment, Innovation, Labor, Lifestyle, Media, Regulation, Thinking Economically • 391 Views

    Just like the person next to you on the airplane might have paid a different fare and on the road, pays a different toll, so too might your electricity rates differ from your neighbors. You just need a smart meter…and maybe a smart dishwasher also.

    A household with a smart meter does not need a human meter reader. Instead, talking directly with the electric company, the meter sends data on that household’s usage. Receiving the data, the electric company can then send information back to the user.

    Where are we going? To dynamic pricing.

    How Dynamic Pricing Saves You Money

    Keeping an eye on their smart meter app, homeowners can learn real-time changes in electricity rates. Smart meter advocates hope that knowledge of rates will reshape electricity usage. If rates fall at 3 am because of less demand, then perhaps more homes will run dishwashers at that hour. Some people will have to arise at 3 am to save the money, others might have a timer starting the appliance and a third group could just have the smart meter tell the smart dishwasher to start.

    For everyone, except the meter reader, advocates say it is win win. The user has a lower bill. The utility can spend less on capital because it no longer needs peak usage capability. The environmental impact diminishes.

    But still dynamic pricing for electricity bills has not been popular.

    The supply side has been slow. After all, they need a radically different infrastructure through which they eliminate meter readers, convey information about compatible appliances, design and implement new smart meter installations, and figure out organizational and grid capacity for the practicalities and implications of real-time pricing. (If you look at recovery.gov, you can see that grants as large as $57 million from 2009 still have been minimally spent on smart grid installation.)

    On the demand side, some people are resisting what they say is an invasive technology while many others are just not interested in figuring the whole thing out. One explanation for consumer reluctance was that utility companies needed clearer directions and better consumer education. (Perhaps instead they just needed Steve Jobs.)

    We can forget the clear directions when behavioral economics enter the picture. In Nudge, Sunstein and Thaler describe the “Orb,” a device that glows red when energy use spikes and green when people use less. Whereas emails and texts from utility companies had little impact, the Orb appears to have cut energy use during peak by 40 percent.

    Our Bottom Line: Pricing Power

    As a near monopoly, an electric utility has the ability to determine dynamic pricing because it is a price maker. But still, it has to recognize consumers’ demand elasticity.

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  • Everyday day economics and economists' political bias could be affecting government policy.

    Is Your Favorite Economist Biased?

    Dec 11 • Behavioral Economics, Economic Debates, Economic Thinkers, Government, Macroeconomic Measurement, Regulation, Thinking Economically • 400 Views

    Economics avoids a liberal or conservative bias because it is grounded in timeless established principles and the objectivity of math.

    Yes?

    No.

    In a recent study, researchers sought to see if the content of academic papers from economists indicated their political preference. Starting with 53,000 economists, 62,888 research articles and 17,503 working papers, the data was voluminous. Oversimplifying what they describe in a 60+ page paper, we can just know that they first created a list of partisan words generated from a control group of 2,000 economists. With those words they developed an algorithm that was then applied to a new group of economists’ papers.  The goal was to see if the terms signified the political bias of the writer.

    And yes, 74.1 percent of the time, the algorithm accurately identified an economist’s politics. Those politics, though had an effect beyond writing bias. They also shaped where a person specialized. To the right, we would find the macroeconomists, financial economists and business school professors. On the left, meanwhile, are the labor economists.

    These are some of the words left-and right-leaning economists use when writing about macroeconomics:

     

    Confirmation bias displayed in economic research.

    From: fivethirteight.com

     

    Timeless Bias

    Long ago, both applying the same basic theory of rent, Thomas Malthus and David Ricardo sent Parliament conflicting advisory letters on the Corn Laws of 1815. With Malthus supporting more domestic production and Ricardo advocating free trade, each gentleman used seemingly objective economic analysis. Each though echoed his political preference.

    Similarly, today, when economists provide expert counsel to politicians, their substantiating data and recommendations could reflect their bias. As the authors of “Political Language in Economics” state, “…with predicted liberals reporting elasticities that imply policies consistent with more interventionist ideology” and the reverse for predicted conservatives, economic advice reflects political bias.

    Didn’t liberal economists name a much higher spending multiplier than conservative economists when debating the potential impact of Great Recession stimulus spending?

    Our Bottom Line: Confirmation Bias

    When economic experts or investment analysts or pharmaceutical researchers generate conclusions with data that supports what they already believe, we can ask whether they are displaying confirmation bias.

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