Tim Harford The Undercover Economist

Articles published in April, 2005

Parliamentarian swap

Dear Economist,

I would like to be able to judge whether my MP has done a good job over the past few years. Can you suggest criteria by which this can be done objectively?
— Steven Slaughter, Henfield, Sussex

Dear Mr Slaughter,
In the internet age, there is no shortage of data. Check www.publicwhip.org.uk for your ex-MP, Howard Flight’s, voting record and www.theyworkforyou.com for details on anything from his ski chalet in France to the likelihood that he will respond to a fax within a fortnight (76 per cent). But since he has just been sacked by his own party, go easy on him.

What about a table ranking all MPs on such criteria? The trouble is that the table will omit important variables. Is it fair to condemn Alex Salmond for attending fewer debates than Martin Linton, since Salmond lives in Scotland and Linton in London? Diane Abbott seems slower at answering faxes than Ann Widdecombe – is this laziness or are the problems of Abbott’s inner-city constituents more intractable than those in sleepy Maidstone?

Fortunately, economists from the Massachusetts Institute of Technology’s Poverty Action Lab have pioneered the technique of randomised trials. New drugs have long been tested this way; now we can apply the technique to policies, organisations, and even MPs.

After the election, what we need to do is mix MPs up at random. Abbott might go to Maidstone, Widdecombe to Scotland, and Salmond can see how Scottish nationalism goes down in London. Labour will represent the rural shires and the Conservatives can try Sheffield. At that point a simple regression analysis should untangle geographical effects from your MP’s personal characteristics, unmasking the slackers.

All we need now is the reality television show. “Parliamentarian Swap”, anyone?

First published at ft.com.

30th of April, 2005Dear EconomistComments off

Odd Numbers: Steven Levitt has lunch with the FT

At first, Steven Levitt is not sure where we should go for lunch. We’re meeting in his home city of Chicago, a place I’ve never visited, so I haven’t a clue what to suggest. He says he will get some advice and eventually comes up with the South Water Kitchen, a downtown bar and restaurant a few miles from his office at the University of Chicago.And so here, over a can of coke and an $11 hamburger, I meet the surprisingly uncontroversial looking Steven D. Levitt. Surprising because, despite his average hair, his average height and his very average shirt and chinos, the 37-year-old Levitt is one of the most notorious economists of our age.

Some critics compare him to Joseph Goebbels. Others say that he is a rabid liberal. His peers say that he has the most brilliant mind of his generation. The publishers of his first book describe him as a “rogue economist”. Learn More

23rd of April, 2005HighlightsOther WritingComments off

Share and share alike?

Dear Economist,

From time to time, I go out with friends to a restaurant. Frequently, someone suggests: “Why don’t we order a number of different dishes and share them?” I do not like this idea (because it is messy and it dilutes the pleasure of choosing), but once the suggestion is made, it seems churlish and anti-social to object. How can I break this cycle, while retaining my friends?
— Mr K., Dublin

Dear Mr K.

I feel the same way. Why should I be obliged to trade my rare steak for some fool’s chicken Kiev? Still, there is more to this than simply finding a polite way to object.

The difficulty – insoluble at first sight – is that while you dislike the fuss, other people enjoy having their meals chopped up like baby food. Sharing should occur if your irritation at the practice is outweighed by their delight; and should not occur otherwise. Who is to make this judgment?

Fortunately, the Coase theorem, developed by the revered economist Ronald Coase, predicts a happy outcome if property rights are clearly specified. Rather than refuse outright, you should insist that each person holds ownership rights over the dish they order. Mutually agreed trades are of course permissible. This should ensure that splitting dishes occurs only when socially efficient, and you will not be obliged to participate, although an excellent offer of compensation may persuade you to do so.

According to the Coase theorem, your problem until now has been that property rights over dishes have been vague.

I should caution you that the theorem does not hold if the costs of holding discussions are high. Economists often fret that “It’s not easy to get all the negotiators around the table.” Given the context, that should be the least of your worries.

First published at ft.com.

23rd of April, 2005Dear EconomistComments off

Dear Economist rare and unreleased (almost)

Some Dear Economist columns were published in FT Magazine but never made it to the ft.com website. You can read a selection of the older ones here, and no subscription is required.

17th of April, 2005Dear EconomistComments off

Corruption at the FT?

Dear Economist,
I am a regular reader but have found some of your recent choices a bit weak. If you are suffering a dearth of interesting questions, the price of bribing you to publish something boring should currently be falling. What is your current price?
— Paul Palley, by e-mail

Dear Mr Palley,

Your observation is so charming that I decided to publish it for nothing. If only your letter contained any insight, I would be tempted to bribe you to send more. Sadly, it does not.

In the absence of bribes I would select only the most stimulating readers’ contributions, so bribery should push the quality of published contributions down, not up. If you have found recent letters insipid, perhaps the explanation is that they came packaged with offers I found difficult to refuse.

You must also remember that the price of bribing me would rise if space in the Financial Times was more limited. That’s easy to arrange: it is in my interests to invent fictional letters to generate artificial scarcity and drive up prices.

But your analysis contains still deeper flaws. It is actually very difficult for me to take a decent-sized bribe. Economists realise that corruption in public life is not just a matter of criminal temperament but of opportunity. The economist Robert Klitgaard famously proposed a formula for bribery: corruption equals monopoly, plus discretion, minus accountability.

Klitgaard’s formula clearly predicts that my actions in writing the Dear Economist column are squeaky clean. Admittedly, I have the discretion to choose dull letters if bribed to do so. But my monopoly power is severely limited: the FT’s editors would sell their own grandmothers, so if a tempting bribe was ever offered, you can be sure they would undercut me.

First published at ft.com.

16th of April, 2005Dear EconomistComments off

The demand for loans: governments restructure their debt

by Facundo Martin, Tim Harford, and Michael Klein

More than ever, governments in developing countries have access to capital markets, but most are not using it. Instead, they have restructured their debt portfolios, cutting the share of private sector debt and increasing the share of longer-term multilateral debt. While some argue that this increase in official debt is alarming, the evidence suggests that most governments are sensibly taking advantage of their menu of financing options—extending maturities to lessen their vulnerability to the “rollover risk” posed by shorter-term debt and reducing their overall debt ratios.

http://rru.worldbank.org/PublicPolicyJournal/Summary.aspx?id=289

Part of the series on The Market for Aid: http://rru.worldbank.org/Themes/AidEffectiveness/

12th of April, 2005Other WritingComments off

Owing to a subsequent engagement…

Dear Economist,
I receive vastly more invitations to speak than I can manage. Some will be very lucrative, some will be very interesting and some will be easy to do. Many, however, will be neither lucrative nor interesting nor easy to do. Invitations start arriving up to a year and a half beforehand and then with increasing frequency almost right up to the last moment. What is the optimal response strategy, assuming that I never pull out of engagements once accepted?
— A prominent economist, London

Dear Sir or Madam,
Although you cannot guarantee that you will never regret accepting an invitation, you can optimise your diary simply enough.
First, combine ease, interest and your speaker’s fee into a single measure of what makes an attractive invitation. If you later find yourself impoverished, overworked or under stimulated, adjust that combination accordingly.
Then treat each slot on your calendar as a separate optimal experimentation problem. When an invitation arrives you will know from experience how attractive the invitation is and how many others are likely to materialise between now and the speaking date. If the answer is four, only accept an invitation that experience shows is in the top quartile: on balance, it’s likely to be the best you get. The closer you get to the speaking date, the lower you should set your standards for acceptance.
You should also maintain a “reservation price” below which you prefer free time – especially, I suggest, on your wedding anniversary… Continued on ft.com – subscription necessary.

9th of April, 2005Dear EconomistComments off

A Market for Aid? Discussion

I am running an online discussion on the future of the aid industry, and how competition between aid agencies might be made more productive. Some leading development thinkers have already contributed – why not read what they have to say and add your own thoughts?

http://rru.worldbank.org/Discussions/topics/topic62.aspx – open until April 25th.

6th of April, 2005Other WritingComments off

Diversifying the family

Dear Economist,
I have twin sons. One gets cheap beer and cigarettes as a soldier in the army but he is teetotal and does not smoke. The other is a milkman who drinks too much beer and smokes like a trooper. Should I tell them to swap jobs?
— S.M., Sheffield

Dear S.M.,

I can’t believe that the milkman’s bills for booze and fags would fall by enough to justify retraining for the army, unless a soldier’s life has always appealed to him for other reasons.

Still, you are onto something here. Soldiering is a dangerous activity, and so is smoking and excessive drinking. You should be asking yourself whether your portfolio of sons is appropriately diversified.
Let’s say that soldiers have a 5 per cent chance of dying in their 30s, while boozy smokers have a 20 per cent chance of dying in their 40s. (Both figures are illustrative only.) For simpler maths, also assume that your sons are otherwise indestructible

As the situation currently stands, your chance of losing both sons is 5 per cent times 20 per cent, or 1 per cent. The chance of both surviving to the age of 50 is 95 per cent times 80 per cent, or 76 per cent.

Imagine you persuaded the solder to quit and the milkman to take his place. Now your teetotal son will certainly make it to 50. The chance of losing one of your sons has not increased, since your dissolute son will only get the chance to drink himself to death if he survives army life.

This is a rare thing: a genuine free lunch for you as a parent.

By getting your sons to swap jobs you eliminate the chance of losing both without raising the chance of losing one. How you plan to persuade your sons to play along is quite another matter.
Imagine you persuaded the solder to quit and the milkman to take his place. Now your teetotal son will certainly make it to 50. The chance of losing one of your sons has not increased, since your dissolute son will only get the chance to drink himself to death if he survives army life…

First published on ft.com.

2nd of April, 2005Dear EconomistComments off

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