Tag Archives: regulation

12.18.2012 | Unexpected Economics: Hand Washing

Sometimes economics can involve a lot more than money.

My local hospital is engaged in a hand washing campaign. The problem is that physicians ignore the mandate, even more than nurses and other hospital personnel. Yes, a doctor is busy and a sink might not be nearby but studies show that even when hygiene is available, compliance is inadequate.

The economic problem? We have a negative externality. The doctor does not suffer. The parties from whom he acquired the bacteria on his hands were not affected. Instead, as with all negative externalities, uninvolved bystanders are experiencing the cost of the physicians’ behavior.

The economic solution: We have to increase the “cost” (defined economically as sacrifice) of the behavior.

At one LA hospital, it simply was a computer screen-saver on all hospital computers with petri dish pictures of bacteria cultures taken from physicians’ hands. The pictures were described as sufficiently disgusting that many more doctors complied.
A second solution at the LA hospital was to publicly identify non-washers during departmental meetings.
Elsewhere, a sign that read, “Hand Hygiene Prevents Patients from Catching Diseases” increased hand washing.

With all 3 approaches, the “cost” of non-compliance went up. People tend to do less of something when the cost is higher.

What did not work? When a hand washing “posse” randomly gave $10 Starbucks cards to doctors “caught” washing, they willingly accepted the reward but the impact was insufficient. Signs and emails, Purell hand disinfectant everywhere…little success.

Still though, getting people to wash their hands is only half of the hygiene problem. More tomorrow on why drying our hands also matters.

Sources and Resources: Freakonomics had a wonderful podcast on the hand washing problem, they also wrote about it here, and this NY Times article provides more details about relevant academic studies. In addition, I recommend this superb New Yorker article from Atul Gawande on using checklists in hospitals to minimize mistakes.

A Hand Washing Flash Mob

Note: The Title of this post was slightly edited.

Posted by: adminEcon
Tags: Atul Gawande, Cedars-Sinai Hospital, cost, Freakonomics, hand hygiene, hospital bacteria, negative externality, physician hand washing, regulation, sacrifice, The New Yorker
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12.08.2012 | Taxi Tips

Assume you are in a NYC taxi cab. The fare is $12.00. How much of a tip do you leave?

a. $1

b. $2

c. $3

d. $4

Actually, it all depends on whether you use cash or credit.

People who pay in cash tend to leave a 10% tip. Those who use a credit card average 18%. Since NYC mandated a credit card option in Yellow Cabs in 2008, about half the fleet installed tip calculators suggesting $2, $3 or $4 for a fare $15 or less. You can see how even the $2 took the tip above 10%. Now, instead of an amount, cabs recommend a 20%, 25% or 30% gratuity.

And that takes us to our response to a default. More often than not, whether for a mortgage or a health care plan or a tip, we select the default.

And a question: If Starbucks’ mobile phone app has no tip default, are baristas getting less rather than more from a payment swipe? Yes, according to this “Starbucks Gossip” post.

Sources and Resources: For some NYC taxi cab credit card history, this article looks at the early protests while this recent story tells about the results. There are some great pictures of older NYC taxis here and their history since the first taxis in 1907.

A 1929 NYC Taxi. Image Courtesy of NYS Museum

Hat tip: marginalrevolution.com

Posted by: adminEcon
Tags: credit card mandate, default selection, insurance defaults, Mayor Bloomberg, mortgage defaults, NYC Yellow Cabs, regulation, tax cab tips, taxi cab revenue, taxi cabs, tipping
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12.01.2012 | Butter, Health Care and the Spread of Baumol’s Disease

When butter makers had Baumol’s Disease, for centuries, there was no cure.

From the 1700s to 1940, making butter required some cream, a churn and usually a woman with lots of time and energy to crank or plunge a shaft. When, in 1850, someone invented a double chamber thermometer churn that made the cream the optimal temperature, the process remained the same. Even when some churns got bigger, others got smaller and the people at the Dazey Churn & Manufacturing Company used glass instead of wood, still, little changed. As long as butter making remained labor intensive, it was tough to increase productivity.

Similarly, for teaching a class or examining a patient, human energy plays a central role that a machine cannot replace. Centuries ago and now Mozart’s String Quartet in G Minor requires a cellist, 2 violinists, 2 violists. Whether teaching a class, performing a masterpiece or presenting a lecture, it is tough to increase your productivity.

Our Bottom Line: When an industry–especially one based on labor rather than technology– experiences rising costs because it cannot keep up with productivity increases elsewhere, it is afflicted with Baumol’s cost disease. So, when you say that the US healthcare system is sick, now you can add that it is suffering from a case of Baumol’s disease that many say is incurable.

An interesting quote: Senator Daniel Moynihan (1927-2003) was quoted by Dr, Baumol as having said, “You have now explained to me why the Democratic Party is called the party of tax and spend, because we are financing all the things that are affected by the cost disease and Republicans want to short-change them.”

Sources and Resources: For an enjoyable read about Baumol’s Disease, I recommend this New Yorker column while for an academic perspective, this paper provides analysis. My facts about butter came from slate.com and to consider the speed and spread of contemporary innovation, you could look at Tyler Cowen’s The Great Stagnation through an inexpensive ($3.99) Kindle download and his TED talk. Finally, superbly, this NY Times column explains the connection between Baumol’s disease and our health care challenges.

Posted by: adminEcon
Tags: Baumol's cost disease, churning butter, cost of production, education, fiscal policy, labor intensive industries, regulation, rising cost of health care, technology
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08.03.2012 | Ford Déjà Vu

Responding to very different incentives, in 1908 and in 2012 Ford designed a lighter car.

The first Model-T had a unique chassis. Made of a steel alloy that no other US car maker used, the Model-T was inexpensive, relatively powerful, sturdy and user friendly. At a Florida car race, Henry Ford had seen a French racing car that was made from a vanadium steel alloy. Copying the idea in his own steel mill, he developed a durable chassis that was stronger and lighter than any on the market.

Fast forward to 2012. Ford will again market a lighter car. By using aluminum in their F-150, they expect the pickup to lose 700 pounds. The goal? Use less gasoline and maybe even a smaller engine. The reason? New fuel economy standards from the federal government. The downside? The car is more expensive and trickier to produce.

A graphic from WSJ.com estimates the weight savings:

Hood and fenders: 32 lbs.
Control arms and steering knuckles: 92 lbs.
Cab/passenger compartment: 190 lbs.
Cargo box: 114 lbs.
Doors and tailgate: 118 lbs.

Responding to the market, Henry Ford designed an affordable car that weighed less. Reacting to regulation, Ford has made a lighter F-150 pickup.

Your opinion of each incentive and the response?

Perfect for a discussion of opportunity cost, this WSJ.com article presents a wonderfully detailed discussion of Ford’s switch to aluminum for its F-150 pickups and the above mentioned graphic. And you can go here for more about Henry Ford’s cost saving innovations.

The content of this post has been slightly edited.

Posted by: adminEcon
Tags: CAFE, Ford F-150 pickups, Ford Motor, fuel economy standards, Henry Ford, innovation, Model T, regulation, vanadium steel
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07.02.2012 | Are You a Follower?

This sign in Arizona’s Petrified Forest was having little impact:

“Your heritage is being vandalized every day by theft losses of petrified wood of 14 tons a year, mostly a small piece at a time.”

However, after some sign experimentation, they understood why. Researchers tried out 2 kinds of signs.

Paired with a picture of visitors admiring and photographing a piece of wood, the sign asked people to leave wood in the forest.
Paired with a picture of a person taking wood, the sign asked people not to remove wood.

Their conclusion? Because the signs conveyed different social norms, the first one was more successful than the second in generating desirable behavior.

Similarly, the same researchers looked into why a group of homeowners had not reduced energy usage when asked either 1) to reduce resource use, 2) help future generations, or 3) save money. However, they did respond more proactively when told, “The majority of your neighbors are regularly undertaking efforts to reduce energy. Please do it too.”

Again, the same conclusion. The key is establishing a social norm. People seem to engage in a requested behavior when they find out that everyone else is doing the same thing.

Where does all of this take us? Flip an issue to the positive side to get the behavior you want. Say that most people pay taxes, a lot of us conserve energy, and many individuals vote to get more people to do the “right” thing. Also, econlife looks at how a health insurance mandate and social norms could be connected.

In “Following the Herd,” Chapter 3 from Nudge and in this Freakonomics podcast, you can hear more about how social norms shape our behavior. And, for a more academic discussion about the Petrified Forest experiment and others, you might enjoy this paper written by a group led by Robert Cialdini.

Finally, are you a follower? When asked, participants in social norm experiments emphatically said no. And yet, the data in the experiments indicated the opposite.

Posted by: adminEcon
Tags: Freakonomics, herd behavior, Nudge, peer pressure, Petrified Forest National Park, regulation, Robert Cialdini, signage, social norm, taxes
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