Monday, September 24, 2007

Fun With Gender Stereotypes...

As a female who used to have a job that paid pretty decently, I couldn't help but find this article in the NYT interesting. Granted, the article doesn't really bring up a new idea- it talks about the social awkwardness and frustration that can result from situations where women have higher earning power- but it's a concept that is becoming more prevalent over time as women become increasingly career-focused and (financially) successful.

From an economic perspective, what I really found notable was the following set of statistics:

"For the first time, women in their 20s who work full time in several American cities — New York, Chicago, Boston and Minneapolis — are earning higher wages than men in the same age range, according to a recent analysis of 2005 census data by Andrew Beveridge, a sociology professor at Queens College in New York.

For instance, the median income of women age 21 to 30 in New York who are employed full time was 17 percent higher than that of comparable men.

Professor Beveridge said the gap is largely driven by a gulf in education: 53 percent of women employed full time in their 20s were college graduates, compared with 38 percent of men. Women are also more likely to have graduate degrees. `They have more of everything,' Professor Beveridge said."

So there. :-P

P.S. Okay, I wasn't going to get further into this, but I couldn't resist. The current trend, as alluded to in the above quote, is for women on average to be more educated than men in the same age bracket. This is a recent phenomenon, so it applies mostly to current 20-somethings and young 30-somethings. I hope that there will be a (continuing) change in family structure that goes along with this education trend, since it is not an efficient use of educational resources for the more educated women to drop out of the work force in order to raise children. People are entitled to their preferences of course, but the employment issue becomes relevant when one considers that university education is subsidized by various parties, including the government, in the form of financial aid.

Tuesday, September 18, 2007

News Flash!

Even Alan Greenspan is jumping on the behavioral bandwagon! Apparently he too concedes that human beings are more complex (and presumably less focused on pure self-interest) than Adam Smith professed, and he asserts that an understanding of human nature is crucial to developing suitable models of the economy. I certainly agree.

Monday, September 17, 2007

Quote of the Day

From Stephen Colbert, on the Colbert Report:

"As I said before, Al Gore's movie made money, and therefore global warming must be real. The market has spoken."

Obviously Colbert was being sarcastic, but there is something to be said for this. If I put on my pathological (to borrow a description of economists from Greg Mankiw) economist hat for a second, I start thinking about why global warming is problematic in the first place. (I admit that this is a different question than that of whether global warming exists scientifically.) On a basic level, global warming is problematic because it imparts a cost on people. But how much of a cost? If people are sufficiently rational, the cost of global warming can (theoretically) be estimated via the answer to one of the following questions:
-- How much would you be willing to pay to make global warming go away?
-- How much money would you have to be paid in order to be willing to sit back and let global warming take its course?
Unfortunately, there are a number of problems with this. First, people won't always "put their money where their mouths are" in line with their answers to hypothetical questions. Second, people typically don't even give the same estimates in response to the two questions above, even though they are objectively identical to a first approximation. Lastly, funding the problem of global warming has big potential for free-riding, so people may understate their willingness-to-pay under the assumption that others would pick up the slack.

All of that said, the fact that people are expending resources to at least learn more about global warming suggests that it's a materially real problem for a lot of people. Indeed, the market HAS spoken.

Friday, September 07, 2007

Price Discrimination, People...

For those of you that have ever taken economics, the following is merely a recap: Price discrimination occurs when the same product is sold by the same supplier to different people or groups of people at different prices. Now, economists go on to break this idea down into three categories, namely first, second and third-degree price discrimination. As a student, third-degree price discrimination is my favorite since it encompasses the idea of the student discount. With third-degree price discrimination, the idea is that when you can separate your customers into categories of "more price-sensitive" and "less price-sensitive", you (as a seller) can do better than uniform pricing by charging a higher price to the less price-sensitive group. However, this is usually framed as a lower price or a discount to the more price-sensitive group. Taken in the abstract, I doubt that people would get too much up in arms over the fairness of this type of policy.

In the United States, many forms of explicit price discrimination are illegal. However, there are ways to get around this by having the customers self-select into price points- anyone who has paid $800 for a plane ticket only to be sitting next to some guy who paid $200 6 months ago for his ticket knows what I am talking about. It seems as though Apple has taken advantage of this principle in a temporal sense, introducing its iPhone at a high price and then dropping the price by $200 two months later. As an economist, I say smart move, but apparently people are very upset (NYT). In fact, customers have made enough of a fuss that Steve Jobs has extended $100 store credits to the original iPhone owners. What irks me about the situation is that customers seem to be implying that Apple did something underhanded or shady, which is simply not the case. I have two immediate reactions to this:

1. If the iPhone were a high-fashion dress, no one would be batting an eyelash. It is commonly accepted practice in some other industries to pay a premium to get something first, when it is still new and hot rather than wait around until it is no longer new but on sale. If you were willing to pay $600 for a cool new toy, you were getting at least $600 of benefits from having the cool new toy. Get over it- you probably even got the $200 of benefits from people thinking you were cool because you had an iPhone first. Furthermore, Apple seemed to be selling plenty of iPhones at the beginning, so there probably would have been a shortage if it had been introduced at a lower price point. Someone should ask these upset consumers whether they would prefer a $600 iPhone or a waiting list.
2. I think this makes a point to those who think that behavioral economics describes phenomena that are on the fringe, as opposed to being central to "rational" decision-making. Clearly consumers' perceptions of fairness can and do have a big impact on market outcomes. (see Kahneman, Knetsch and Thaler's "Fairness as a Constraint on Profit Seeking: Entitlements in the Market") Behavioral economists would likely conjecture that customers would be less upset if they thought that Apple was reducing the price of the iPhone due to a sales slump.

Lastly, I have to point out my favorite part of the article:

"Ken Dulaney, a vice president at Gartner Research, said that in general starting high and dropping the price slowly was a smart strategy. By starting the price high, manufacturers can gauge early demand and reap greater profit from early adopters who are willing to pay any amount to be the first with a particular device. 'It’s probably a formula taught in business school,' Mr. Dulaney said."

You don't have to graduate from HBS to learn this stuff, all you need is a first-year microeconomics course! That said, I'm going to go ask my iPhone-owning MBA student friend how he views the situation.

Update: Apparently Tyler Cowen agrees with me here. Economists of the world unite!

Tuesday, September 04, 2007

Who Needs Data Anyway?

This is disturbing (from the NYT):

"Just before the break, the House of Representatives passed a bill that would cut $23.6 million from the bureau’s 2008 budget for compiling the nation’s most important economic statistics. A cut of that size would result in the largest loss of source data since the government started keeping the statistics during the Great Depression, impairing the accuracy of figures on economic growth, consumer spending, corporate profits, labor productivity, inflation and other benchmark indicators."

Eh, I suppose I really wanted to be a theory person anyway. Sarcasm aside though, I find it very frustrating that, at a time where economics is becoming more popular (and people increasingly understand the importance of economic analysis) and students and researchers at all levels are learning advanced techniques to analyze economic data, one of the main providers of data is deciding that its collection is declining in priority. My guess is that the government will replace at least some of the cost by giving grants to other institutions to collect such information.