Tim Harford The Undercover Economist

Articles published in July, 2010

How can I break the affection monopoly?

Dear Economist,

I announce the General Theory of Affection Monopoly, and, like Keynes, I place the emphasis on the prefix “general”. Individual producers can collude and earn monopoly profits; Opec is the popular example. On a microeconomic level, individuals can collude to enhance “profits”. The General Theory of Affection Monopoly explains that women collude in an attempt to maximise profits.

In a monopoly, the producer restricts supply to maximise profit. By far, women in aggregate are the largest producers of affection for men. Therefore, women collude and restrict the supply of their affection to extract profit.

Are men hopeless consumers, like the western world with its oil requirement? How do we engage in a productive counter-policy to mitigate this threat?

Mike, New York

Dear Mike,

You may be right. This would certainly help to explain why women who flout this tacit agreement tend to be popular with men and unpopular with women. Some of them even enjoy financial rewards in exchange for their generous supplies of “affection”. Imagine!

However, your general theory is missing a key element: this is a bilateral monopoly. Women may be the largest producers of affection for men but men are also the largest producers of affection for women. You need an explanation for the undeniable fact that men seem to be on the financially disadvantageous end of this market. As an example: economist Lena Edlund has found that young women tend to live disproportionately in areas of Sweden where average male incomes are highest.

As for countering the cartel … Move to Alaska? Drill in protected wetlands? I’m not sure I wish to contemplate any further parallels. I suggest instead that you find a renewable source of affection: buy a tortoise.

Also published at ft.com.

3rd of July, 2010Dear EconomistComments off

A healthy dose of competition will help the NHS pull through

Thanks to everyone who sent good wishes after my last “cancer scan” column, which described the year-long process of waiting for a precautionary test. I think that all is well with me, although it is hard to be sure: as I write, the scan still hasn’t happened.

This time the fault was with the paperwork. I showed up, having carefully followed the preparatory instructions I’d been sent, only to be told rather sniffily that I’d followed the wrong ones. “I’ve followed the instructions you sent!” “I didn’t send them.” “Well, I certainly didn’t send them.” Back to square one.

Under the circumstances, I hope you’ll forgive me if I have become strangely obsessed with NHS management.

A fascinating new study by Nick Bloom, Stephan Seiler and John Van Reenen of the London School of Economic’s Centre for Economic Performance (CEP), and Carol Propper of the University of Bristol’s Centre for Market and Public Organisation, attempts to measure the quality of that management. The researchers recruited a team of interviewers who quizzed doctors and managers at 100 hospitals, accounting for 60 per cent of the acute hospitals in England.

They asked open-ended questions about the way the hospital was run. A wonderfully shocking example: “Do staff sometimes end up doing the wrong sort of work for their skills?” “You mean the doctors doing nurses’ jobs, and nurses doing porter jobs? Yeah, all the time. Last week we had to get the healthier patients to push around the beds for the sicker patients.”

The researchers concluded that better hospital management was correlated with better outcomes for patients – modestly so, but in an organisation the size of the NHS hundreds of lives appear to be being lost because of poor management. Bloom and his colleagues also conclude – tentatively, because the comparison is hard – that NHS managers seem to be incompetent compared with managers in the private sector.

It would be nice, then, to figure out what could be done to sharpen up the NHS’s managers and encourage its administrative staff to attach the right instructions to each appointment. One possibility is to bring in lots of those clever private-sector types, but that’s probably a mistake. The evidence suggests that former doctors make good managers, perhaps because they’re better able to communicate with the doctors on their own staff.

A better diagnosis is not that the NHS is missing some elusive quality of private sector-iness, but that it is missing any sort of competitive pressure, the sort of competitive pressure that most businesses (outside banking) have to cope with every day.

The NHS isn’t set up to be a fiercely competitive institution, but the last government did attempt to introduce elements of market reform. Hospitals stand to lose patients or, at the very least staff, to nearby hospitals that are managed more professionally. Isolated hospitals need not worry. As John Hicks once wrote: “The best of all monopoly profits is a quiet life.”

Recognising the iron law of British politics that nobody ever closes down a hospital in a marginal seat, the researchers used constituency boundaries to conduct a kind of natural experiment exploring whether more competition raises management standards.

It seems that it does, a finding that accords with the CEP’s research into private sector management quality, and with new research studying the school system in Florida. Competition raises standards – something that should be music to the new government’s ears.

Also published at ft.com.

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