Tim Harford The Undercover Economist

Articles published in October, 2005

Economists practice safe sex, right?

Dear Economist,

My boyfriend and I have always practised safe sex, but now we’re talking about using just the pill rather than condoms. What concerns me is the risk of catching something. I expect my boyfriend slept with other girls before we started dating, but I feel fairly sure that he wouldn’t have done anything risky.

Am I right?

Cecilia Larson, Bristol

P.S. My boyfriend is an economist.

Dear Cecilia,

Oh dear. It was all looking so promising. Unprotected sex produces a classic negative externality. Someone who decides to have unsafe sex gets to enjoy all the pleasure but only part of the risk: if he contracts an infection, he will suffer from it himself but also risk passing it on to his future partners, and their partners’ partners. The only reason you have been using condoms at all is that you know other people haven’t bothered.

Your boyfriend knows this perfectly well. He may also know that some sexually transmitted diseases, such as chlamydia, have more serious effects in women than in men. Unsafe sex has benefits as well as risks; as an economist, he may well have decided that the personal risks are worth running.

Do not lose hope, though.

As a rational being, your boyfriend will have avoided the most unsafe practices, such as sharing needles and having unprotected intercourse with sex professionals. So your main risk is that he has had unprotected sex with a large number of ordinary women like you. But how likely is this? Such delights are likely to lie well outside his feasible consumption set: there is not usually a queue to jump into bed with economists.

Also published at ft.com.

29th of October, 2005Dear EconomistComments off

New column: The Undercover Economist

As promised, the post below is the first installment of my new column, ‘The Undercover Economist‘. These columns are published in The Financial Times – see the column home-page here.

Why we should be grateful to Granny

The Undercover Economist – FT Magazine, 29 October 2005

Woe betide the supermarket shopper trapped in a queue behind coupon-clipping Granny. As the bundle of coupons, held together with a clothes peg, rises from the handbag, and the negotiation with the checkout boy begins, you know it’s going to be a long wait.

But we should blame those coupons for more than just a few delays, and we should also be grateful to Granny for saving us from our own laziness. Granny plays a vital role in the competitive ecosystem. Unlike her richer, lazier, busier descendants, she actually looks at the price of products and bears it in mind when making her choice. The result is a more competitive retail industry, and the rest of us reap the benefits.

Imagine a town where a Tesco supermarket and a Sainsbury’s supermarket compete for the business of a young, rich, careless generation, with few grannies around to keep them on their toes. If the supermarkets offer similar goods at similar prices, local shoppers will simply split down the middle and go to whichever store is nearest. If one week Tesco offers a sale, the grannies will shuffle over there and the rest of us won’t bother. Sainsbury’s loses a handful of customers that week; Tesco gains a handful but has lower margins. Sainsbury’s managers aren’t likely to worry.

Now imagine a seaside retirement town bursting with grannies. If Sainsbury’s offers a sale around there, they’ll be flooded with bargain-hunting pensioners. Tesco, suddenly deserted, will have to respond with its own price cuts. The “silver savers” keep the supermarkets honest, while the rest of us hardly need to bother.

A little bit of extra competitive pressure can go a long way. If Tesco worries about losing customers and cuts its prices, Sainsbury’s will also want to cut prices in response. If Sainsbury’s cuts prices then Tesco will have to cut prices further. This process doesn’t feed itself forever, but in the right circumstances a few more careful shoppers can substantially cut shopping bills for everyone.

You can guess what comes next, of course: the supermarkets want Granny out of the way. As long as she is roaming the aisles and scouring the shelves for bargains, she forces them to keep their prices low. Without her they could take advantage of our laziness and vacuum the cash out of our wallets.

This is where the coupons come in. Like a whistle that only dogs can hear, the coupon is a special offer to Granny that the rest of us do not notice and scarcely understand. If the supermarkets want to fight a price war over the population of price-sensitive grannies, they can do that perfectly well with their coupons. At the same time they can keep their standard prices high. The rest of us, who were going to ignore any price war anyway, do not notice the coupons and pay through the nose. If you thought the coupon should be blamed only for long lines at the checkout, think again.

In reality, of course, the world does not divide neatly into grannies and the rest. Each of us displays a different degree of price-sensitivity; one that varies from hour to hour. The expert retailer devotes great energy to devising schemes to offer low prices to grannies and high prices to playboys, trophy wives, expense-account holders and anyone else with no sense of the value of money.

Every shopper who wanders around, carelessly waving someone else’s credit card, is softening the competitive environment for the retailers and raising prices for the rest of us. We always knew there was a reason we should hate the playboys, but we should be a little more tolerant of Granny the next time we are stuck behind her at the supermarket checkout.

Financial Times, October 29th

Amazon now shipping ‘The Undercover Economist’

Amazon.com and Amazon.co.uk are now shipping ‘The Undercover Economist’.

28th of October, 2005MarginaliaComments off

‘The Undercover Economist’ on Radioeconomics

James Reese of Radioeconomics has a half-hour ‘podcast’ interview with me about ‘The Undercover Economist’. Radioeconomics has some excellent interviews – Gary Becker, Richard Posner, and Jeff Sachs coming up. To listen to the interview itself, you need to click on the title of the post (or here).

27th of October, 2005MarginaliaComments off

Making money from parents

Dear Economist,

Parents often find that some of their children turn out wealthier than others. Doting but logical parents have been seen to apportion financial help unequally in order to help the least successful of their children at the expense of the wealthier ones.
So is one is better off being lazy and a failure in life in order to maximize the potential help from one’s parents?
Yours truly,
Alexander Ross, London

Dear Mr Ross,
‘Doting but logical’ describes the parents of Robert Barro’s macroeconomic models and Gary Becker’s economic theory of the family. Such parents make sure that all children enjoy equal levels of utility, and achieve this by giving larger transfers to poorer children.

Perhaps you hope that your own parents are Barro-Becker altruists. If so, you could guarantee an increased handout by earning less. Slacking would seem to be, on the face of things, attractive. Think again.

If your parents truly are Barro-Becker altruists, they will ensure that the post-bequest utilities of all children are equalized. This simply means that everyone will get an equal share of the total wealth generated by the parents and all siblings. By slacking, you simply reduce the size of the pie that your parents will eventually divide equally.

Your only hope would be that your parents are naïve and that they will favour you, the loser, without working through the mathematics properly. What are the chances?

Most parents divide bequests equally between children, and unequal bequests are often designed to repay more devoted children. The economists Audrey Light and Kathleen McGarry analysed interviews with over 3000 mothers with at least two adult children. Just one per cent said they planned to make unequal bequests because one child had greater needs than the others. Slack off if you like, but you’re gambling on long odds.

23rd of October, 2005Dear EconomistComments off

Extract from ‘The Undercover Economist’

I’ll try to restrain myself from cross-posting on my other feed, Tim Harford’s writing (http://feeds.feedburner.com/WritingByTimHarford), but I thought that Dear Economist readers would like to know that the Financial Times have published a nice big extract from my new book, The Undercover Economist.

Go Figure – An extract from The Undercover Economist

On a sunny day in London you can purchase a cappuccino and sip away as the capsules on the Eye, the capital’s landmark Ferris wheel, rotate high above you, occasionally passing between you and the sun… one of life’s simple pleasures. Everywhere you look around the Eye you can see vendors with scarce resources, trying to exploit that scarcity. There is only one coffee bar in the immediate area, for instance. There is also a lone souvenir shop doing brisk business. But the most obvious example is the London Eye itself. It towers over the majority of London’s most famous buildings and is the world’s largest observation wheel. The scarcity power is clearly considerable, but it is not unlimited: the Eye may be unique, but it is also optional. People can always choose not to go on it.
Further along the river, the Millennium Dome is similarly unique, ‘the largest fabric structure in the world’, boasts the local authority. Yet the Dome has proved a commercial disaster because uniqueness alone wasn’t enough to persuade people to pay enough to cover the vast costs of its construction. Business with scarcity power cannot force us to pay unlimited prices for their products, but they can choose from a variety of strategies to make us pay more. It’s time for the Undercover Economist to get to work and find out more. Learn More

Go figure… An extract from ‘The Undercover Economist’

The Financial Times have published a generously-sized extract from The Undercover Economist:

On a sunny day in London you can purchase a cappuccino and sip away as the capsules on the Eye, the capital’s landmark Ferris wheel, rotate high above you, occasionally passing between you and the sun… one of life’s simple pleasures. Everywhere you look around the Eye you can see vendors with scarce resources, trying to exploit that scarcity. There is only one coffee bar in the immediate area, for instance. There is also a lone souvenir shop doing brisk business. But the most obvious example is the London Eye itself. It towers over the majority of London’s most famous buildings and is the world’s largest observation wheel. The scarcity power is clearly considerable, but it is not unlimited: the Eye may be unique, but it is also optional. People can always choose not to go on it.

Read the full extract at the Financial Times. (If it goes subscription-only, you can read it here too.)

The Undercover Economist is published in the US on 1 November.

22nd of October, 2005Other WritingComments off

Oxford University Press

Oxford University Press is ‘introducing its brilliant authors to the blogosphere’ at the new OUP blog. Apparently that includes me, but you can also check out Philip Pullman on Paradise Lost, and Kerry Emmanuel has a great Q&A on the links – or otherwise – between hurricanes and global warming.

16th of October, 2005MarginaliaComments off
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