Guinea pig repo markets in everything the culture that is Swiss

by on September 21, 2011 at 2:00 am in Economics | Permalink

Swiss animal lover Priska Küng runs a kind of matchmaking agency — for lonely guinea pigs that have lost their partners. She lives with around 80 of the furry, squeaky little creatures, in addition to six cats, a number of rabbits, hamsters and mice in the village of Hadlikon, some 30 kilometers from Zürich.

Küng, 41, rents out her guinea pigs, a service that has been in high demand in the Alpine nation ever since animal welfare rules were tightened up a few years ago. Switzerland has forbidden people from keeping lone guinea pigs because the animals are sociable and need each other’s company.

As a result, the sudden death of a guinea pig, shocking enough in itself, can also place the hapless owners outside the law if they only had two of the pets.

Here’s the efficiency point, concerning liquidity premia and carrying costs and inventory cycles:

Without her rent-a-guinea pig service, the owner would have to purchase a new, probably younger guinea pig as a companion to the ageing survivor, whose eventual death would force the purchase of yet another guinea pig, locking the owner into an endless cycle of guinea pig purchases in order to adhere to Swiss law — even though he or she may only ever have wanted one guinea pig in the first place.

As you might expect from the Swiss, it’s done through a repo:

She takes 50 Swiss francs (€41) for a castrated male and 60 francs for a female, “as a deposit,” Küng explains. In effect, she sells the animals but pays back half the purchase price when they are returned

Attention all you hedge fund readers: if these people can arbitrage and convexify their guinea pig market, you’d better not bet against their currency peg.

The full story is here and hat tip goes to the excellent Robert Cottrell.

Mike September 21, 2011 at 3:28 am

She’s a guinea pig pimp.

Swiss law REQUIRES guinea pigs to be paired? Some member of the national government actually brought this up and voted on it?

OMG, don’t tell the supervisors in San Francisco.

I thought you were pessimistic about animal treatment. There seems to be a market for being nice to animals, at least in Switzerland where they apparently have the time to debate and vote on guinea pig laws.

How about a law making sure people aren’t lonely? Like kids have to have dinner with mom and dad once a week.

Andrew' September 21, 2011 at 6:53 am

I think it is an experimental law.

Andrew Montgomery September 21, 2011 at 8:13 am

With the ageing population, I’m surprised that there isn’t already a law to force kids to have dinner with their parents once a week (or at least phone them!). In a similar vein, here’s the opposite story from Italy:
BBC News – Italian parents turn to law to evict adult son – http://www.bbc.co.uk/news/world-europe-14995588

David Wright September 21, 2011 at 3:45 am

I think I’m pretty financially savy, but I have no idea what it means to “convexify” a market. Google isn’t helpful. Given the definition of a convex set, I would assume it means something like “for any two available bundles, make available all bundles that linearly interpolate between them, at a monotonicly interpolating price”, but I don’t see how the Guinea pig repo market does that.

Mike September 21, 2011 at 9:23 am

Maybe I don’t understand his use of the word, but I think you’re on the right track. Convexity of consumption bundles is necessary for there to be a unique market clearing price that maximizes utility.

There is an implicit assumption that at least some people would prefer not to have two guinea pigs, but the law forces them to do so. The tradeoff of buying a young guinea is the foregone consumption of other goods. So a person might choose to have no guineas or two or break the law at some risk of getting caught

The problem is dynamic because the replacement guinea will likely outlive the surviving one, creating another inefficient purchase decision.

The repo market gives you the option to consume between zero and two in a dynamic sense, at a price more closely approximating the marginal cost of one plus transaction costs. Think of it as adding the choices of half a guinea and 1.5 guineas, and there is your convexity.

But convexity may already exist if the fine for lonely guineas isn’t too high.

California redwoods like to be grouped too. Their roots intertwined allowing them to grow taller than they could alone. The law considers the Redwood a nuisance tree because it blocks peoples view, so you can’t plant one. But the law also considers it a protected tree, so you can’t cut one down. And they need to be in groups to thrive. So the laws create some difficult personal decisions

Marked2Market September 21, 2011 at 10:13 pm

To answer your question, convexity in a financial context typically refers (somewhat imprecisely IMO) to non-linear behavior in asset prices in response to some input to a pricing function (of a derivative, for example, options prices are convex with respect to standard black-scholes pricing parameters). The usage comes from bonds (google-able). To “convexify” most often means adding non-linear behavior. I don’t know if this is the context Tyler intended, but it was what came to my mind given the “repo” reference. Without claiming to speak for him, I believe Tyler is using it somewhat humorously here. However, I admit that the total number of guinea pigs one owns in a lifetime could be seen to display “convex” behavior under this law!

joshua September 21, 2011 at 5:42 am

Does this regulation raise the cost of owning a guinea pig in Switzerland and thus lower guinea pig comsumption from what it would have been in an unregulated Swiss guinea pig economy?

Alex Poterack September 21, 2011 at 8:25 am

No. The regulation increases the demand at every price level, leading to a higher price but also a higher quantity demanded, because the initial obese in demand occurred for a non-price reason.

Thanks for asking, though; I have to do a 101 discussion section today, I might bring this up as an example.

Alex Poterack September 21, 2011 at 8:26 am

*initial increase, not obese. Swype can be a harsh mistress.

joshua September 21, 2011 at 1:37 pm

But what if there are people who would have a demand for one guinea pig but not two? Wouldn’t they then be forced out of the market? Or are we assuming that the demand for guinea pigs is inelastic enough (is that the right lingo?) that more of these folks will upgrade to two guinea pigs, along with the future costs of maintaining the number at two, than the ones who will get none at all?

liberalarts September 21, 2011 at 7:31 am

Probably some sneaky govt regs on animal imports and exports that will support this operation. Otherwise some guy in China could mail one in for 25 SF. Even repo markets can be competitive.

MattF September 21, 2011 at 8:43 am

@Mike

Actually, the article claims specifically that this is not guinea pig prostitution. According to Küng, “..It’s important that none of the rental guinea pigs just keep getting passed on. If an animal has been hired out once, it either stays with me for the rest of its life or it moves somewhere else for good.”

Mike September 21, 2011 at 9:24 am

Guinea pig mail order bride?

Clevo September 21, 2011 at 9:48 am

Thank you all. As a devoted cavy (scientific name) lover I found this quite entertaining. The Swiss are probably overreacting-with regular human interaction our piggy is contented. It could be worse-in Andean nations they are a delicacy.

NAME REDACTED September 21, 2011 at 9:59 am

The swiss have very strict laws about animal treatment (and now plant treatment as well).

ChacoKevy September 21, 2011 at 10:48 am

“in Andean nations they are a delicacy.”
Indeed it is, and with good reason! Guinea pigs ARE delicious.
Travelers’ Tip: When you buy guinea pig at the market, make sure you get them with the claws still attached. That’s how you know you aren’t being sold a rat.

zbicyclist September 21, 2011 at 11:21 pm

Thanks. I wonder if that tip is in Lonely Planet?

mobile September 21, 2011 at 11:48 am

Attention all you global investors: if these people think the number of guinea pigs in your home is a proper area for management by the state,
then expect another country to fall in the economic freedom indices in the coming decade.

ad*m September 21, 2011 at 2:20 pm

The most telling signal in the post is this:
“all you hedge fund readers: if these people can arbitrage and convexify their guinea pig market”
(my italics)
1. these people are the people of Switzerland
2. imply that
people from other countries do not know how to arbitrage smartly, including Americans, whose currency after all has been sliding
3. imply that hedge fund readers are smarter than those people
4. imply that the poster is not part of those people

and with one stroke Tyler has signaled that he is part of the transnational elite and also, above those dumb Americans, like Palin, who don’t understand macroeconomics, and you can therefore go short against.

ech September 21, 2011 at 12:29 pm

I suggest that the Swiss confer with the Andean countries in S. America on proper cavy breeding techniques. And they can get recipes as well.

Cavy is a part of the diet there, and it is a traditional “good luck” dish for the bride and groom in Peru. My daughter is in a vet tech training program and covered cavy “ranching” in her small animal care course.

Floccina September 21, 2011 at 4:54 pm

You know they eat them in Peru.

I am so far from the modern animal lover. My mother used to quite “Cats and dogs belong out side with the rest of live stock.” To me there is a great morally important difference between people and animals. I am shocked when I hear what people spend on their pets.

Ronald Brak September 21, 2011 at 11:15 pm

I sense an opportunity here. It’s time to go to my lab and develop a robotic partner for guinea pigs.

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