Subscribe to our RSS feed
EconLife.com connects economics to everyday life, current events and history.

Tag Archives: marginal analysis

popcorn bucket_000018898462XSmall

During an interview at the Nantucket Film Festival last summer, film writer/director Nancy Meyers (It’s Complicated and Something’s Gotta Give) said she was having a tougher time getting scripts approved. It was apparent that she preferred the intuition of one eccentric movie mogul who ran the company. Instead, now she deals with committees that have practical concerns. They focus on possible male (not female) stars more than her story line.

For her newest Sony Pictures movie, Meyers might also be coping with a “script analyst.”

Vinny Bruzzese is a “script analyst” whom the NY Times recently described. A former statistics professor, Bruzzese decomposes successful scripts and movie goer preferences. The stats give him the answers for the 20 or so page reports he gives to film makers. His suggestions include deleting bowling scenes because they won’t grab an audience and adding “guardian” rather than “cursed” superheroes.

Script analysis has become only a part of the quantitative picture. One movie investor said, “You have to think of it as math.” For him, the “math” is a risk assessment algorithm. What is the best weekend for the release? The rating? The star? The genre? He uses more than 10,000 variables. Asked if a movie should include an extra fight scene that will cost $1 million to shoot, he said he replies, “yes” only if box office receipts will go up by more than $1 million. The results? No home run and no big risks. No Matrix and no Waterworld.

As economists, we could say that the math of the movies is all about marginal analysis…all about what we add or subtract. Which actor will make the difference? Do we include a certain scene or delete it? Many of the questions are timeless. The answers though might no longer be intuitive. Instead, they can be reduced to a list of statistics that form a move making algorithm.

Sources and Resources: For some fascinating insight on the math behind the movies, I recommend the NY Times article on script analysis, this indiewire blog that takes it a step further, and Esquire’s piece, “Mathematics of Movie-making.”

Posted by: adminEcon
Tags: , , , ,
Comments (0) Add a Comment

19th Century Urban Transport Was An Environmental Problem

Sometimes green incentives can have unintended consequences.

Our story begins in an airport. About to board a flight, an environmentally concerned individual purchases “carbon offsets.”  Yes, that flight will pollute the air but the offset could be used to fund a project that reduces emissions. The offset purchase is the incentive. It encourages others to pollute less if the payment is more than the reduction costs. Yes?

Maybe not.

Unfortunately, firms that produce air conditioning coolants figured out how to use payments for polluting less to pollute more. Located in countries ranging from India to Mexico, plants producing gases used in air conditioning and refrigeration started making more coolant than they otherwise would have produced. Then, by capturing and destroying harmful waste gases, they could get thousands of “waste gas credits” from the United Nations. Selling the credits made them millions of dollars. Meanwhile the buyer of the credits could now legally pollute. The result? Some of the producers are overproducing the coolant to get huge waste gas credit revenue.

Another air conditioning story that we looked at recently also had unintended consequences. Hoping to reduce pollution, Mexico subsidized low emission air conditioner and refrigerator purchases. Because they were so cheap, though and because electricity was also inexpensive, people ran them longer than the inefficient units they had previously used. The result? More emissions.

But the last chapter of our story has a happy ending. Its unlikely title is the Environmental Kuznets Curve. Connecting more affluence in poor nations to pollution, the curve reflects data showing that as people become richer, first their country pollutes more and then it pollutes less. Why? More affluent households have greater political power. More affluent countries have the resources to lower pollution.  The turn around point seems to be average annual income of $11,000 in 2007 dollars.

In a second happy ending, the European Union has announced that it will prohibit coolant producers from purchasing waste gas credits for manipulated emission reductions. I am concerned, though, that people will outmaneuver whatever solution regulators figure out as a replacement.

This academic paper and this paper tell more about Kuznets Curves. My facts about coolant producers are based on this excellent NY Times article. I also recommend 2 Teaching Company lectures from economist Robert Whaples about pollution.

Posted by: adminEcon
Tags: , , , , , , , , , , ,
Comments (0) Add a Comment

15890_9.15_000004841280XSmall

I just had a Starbucks grande coffee from their $11,000 Clover coffee machine. It was very good. Because the Clover makes individual cups, Starbucks can let the customer choose the bean. More choice, elite beans, and you have a recipe for higher prices. Interesting.

According to a Wired article, when Starbucks’ founder, Howard Schultz experienced the Clover, he said it was, “the best cup of brewed coffee I have ever tasted.” So he bought the company that makes the machine.

How are competitors responding?

The Economic Lesson

I suspect Starbucks is very good at thinking at the margin. They start with their basic tall cup of coffee for the frugal customer. Then though, extras are pricey. Order a red eye (a shot of espresso in the coffee), an extra flavor, or a Clover, and the price pops.

 

Posted by: adminEcon
Tags: , , ,
Comments (0) Add a Comment

15798_8.2_000010449689XSmall

What if peak wind for your wind farm equals peak demand? Good? Not necessarily. The key is timing.

According to a NY Times article, certain wind installations have to “dump energy late at night…” because there is no demand for power at that hour. How to avoid wasting energy? Batteries are one solution. 

Hearing about batteries for wind installations reminded me of ethanol and locovores.  Ethanol fuel can sound ideal. However a closer look at the entire ethanol production process in an MIT study reveals a close call for diminishing GHG (greenhouse gases). Similarly, buying local produce will lower transport emissions. However, what if the type of food we eat has a significantly greater impact on GHG?

You see where this is going. It takes us to cost and benefit. Are wind farm batteries a cost or a benefit? 

The Economic Lesson

As economists, we can assess the success of wind farms (or ethanol or buying local produce) by thinking at the margin. For each extra kilowatt hour of electricity generated by wind turbines, we should look at cost and benefit. Then, when cost equals and moves onward to exceed benefit, we should stop production.

The problem, though, is how to define cost and benefit. In Eastern Oregon, residents are complaining about wind farm noise. Does cost include that noise? Turbine transport? Battery production? Are new jobs a benefit? Do we want to learn more about wind energy by using it? A cost/benefit list could be endless. The bottom line, though, remains cost/benefit analysis. Let’s evaluate green projects at the margin so that we know they are truly effective. 

Posted by: adminEcon
Tags: , , , ,
Comments (0) Add a Comment

15599_4.22_000002544233XSmall

Carbon offset markets are about thinking at the margin. Hoping to become the first carbon neutral state in the world, the Vatican bought carbon offsets. The U.S. House of Representatives funded an $89,000 purchase of carbon offsets. Before boarding, you can buy a carbon offset to compensate for emissions during a plane flight. In each example, someone was paying to create an “extra” environmental benefit (a forest that “inhales carbon dioxide”) in order to compensate for the marginal cost of environmental harm (airplane emissions). 

Yes?

Maybe.

The market in which carbon offsets are sold is unregulated. Consequently, government is not directly checking whether sellers are actually creating the offsets that are purchased nor whether cost and benefit are connected. For example, in a recent Christian Science Monitor article, investigative reporter Phillip Martin found major deficiencies in the carbon offset market. Essentially he discovered that certain offsets never were created. 

The Economic Life

A market is a process through which demand and supply determine price and quantity of a good or a service. A recent paper from the Pew Center on Global Climate Change suggests that oversight of carbon markets should accompany current financial reform.

 

Posted by: adminEcon
Tags: , ,
Comments (1) Add a Comment