Economics

The Return of the Jitney

by on June 20, 2017 at 7:27 am in Economics, Travel | Permalink

Lyft’s new service, Lyft Shuttle, works on a fixed route for a fixed fee during commute hours. Salon mocks this as a “glorified city bus with fewer poor people.” In fact, Lyft Shuttle and Uber Pool, which is moving in a similar direction, are an improved form of jitney. Jitneys were very popular in the early history of the automobile because they were cheaper, safer and more flexible than public transit but the transit companies lobbied to have them made illegal or burdened with heavy costs.

In many less developed economies, however, jitneys remain a popular form of transit. In New York City, jitneys never quite went away but have continued to operate, mostly illegally, under the name jitneys or shared taxis or dollar vans. Moreover, contrary to Salon, the jitney has always been a form of transit appreciated by the poor. Here’s wikipedia on New York City’s dollar vans:

Dollar vans are typically modified passenger van, and often operate in urban neighborhoods that are under-served by public mass transit or taxis. Some of the dollar vans are licensed and regulated, while others operate illegally. Passengers may board them at designated stops along their route or hail them as share taxis….Dollar vans are often owned and used by members of inner-city communities, such as African/Caribbean American, Latino, and Asian-American populations.

The transit companies did have a legitimate beef with the jitneys. The jitneys would often free-ride on the market making of the transit companies by swooping in just before a bus’s scheduled arrival. Without passengers the transit company wasn’t profitable but without a transit company to ease coordination the jitneys weren’t as profitable or as efficient as they might be–jitneys were subject to what Al Roth calls market unraveling which led in turn to market thinness.

Klein, Moore and Reja came up with a clever solution to the unraveling problem, curb rights (see also my book Entrepreneurial Economics). Curb rights are rights to pickup passengers allocated by curb location and hour.

Will the new form of jitneys be subject to unraveling? Will curb rights be necessary? Probably not. Lyft has moved the location of coordination from the unowned streets to owned cyberspace. Thus the privatization of coordination has solved a market thinning problem that has plagued jitneys for over a hundred years.

Public transit still has useful features, especially the economies of scale available with subways. Economies of scale also make subways, as of yet, a natural monopoly for which regulation may be useful. It’s difficult to see, however, what market failure exists in the market for road transit. We might want to subsidize people but there’s little reason to subsidize buses or other forms of road transit.

Efficient markets?

by on June 19, 2017 at 9:25 pm in Economics | Permalink

From Morgan Housel on twitter.

What’s bad for [the now trade-restricted] K-pop is excellent for Chinese musicians, who are seizing on the opportunity. One group skyrocketing in popularity in the absence of K-pop “idols” is SNH48, a Shanghai-based girl band that has a rotating cast of members—somewhere around 220, depending how you count the generations—and just raised more than $150 million from investors last month. If the idea of girl-band investors seems odd, you should know that SNH48, whose performers are voted in and out by fans, is far more of a corporate business than a music group. Per the Financial Times (paywall):

“Unlike western pop, which trades on authenticity and the idea of performers singing from the heart, SNH48 is run more like a tech start-up than a musical group. Taking its inspiration from Japanese group AKB48, instead of a core group it runs on teams of interchangeable singers—a strategy managers hope will allow it to build generations of young female stars and longer-lasting revenue streams.”

Fans use a mobile app to track their favorite singers, send notes to them, and watch their livestreams. The band’s managers carefully curate new teams of performers every year, which is similar to how South Korea’s massive K-pop factory is run.

Here is the full story, by Amy X. Wang, via George Chen.

Ben Thompson writes:

…you can see the outline of similar efforts in logistics: Amazon is building out a delivery network with itself as the first-and-best customer; in the long run it seems obvious said logistics services will be exposed as a platform.

This, though, is what was missing from Amazon’s grocery efforts: there was no first-and-best customer. Absent that, and given all the limitations of groceries, AmazonFresh was doomed to be eternally sub-scale.

WHOLE FOODS: CUSTOMER, NOT RETAILER

This is the key to understanding the purchase of Whole Foods: to the outside it may seem that Amazon is buying a retailer. The truth, though, is that Amazon is buying a customer — the first-and-best customer that will instantly bring its grocery efforts to scale.

Today, all of the logistics that go into a Whole Foods store are for the purpose of stocking physical shelves: the entire operation is integrated. What I expect Amazon to do over the next few years is transform the Whole Foods supply chain into a service architecture based on primitives: meat, fruit, vegetables, baked goods, non-perishables (Whole Foods’ outsized reliance on store brands is something that I’m sure was very attractive to Amazon). What will make this massive investment worth it, though, is that there will be a guaranteed customer: Whole Foods Markets.

…At its core Amazon is a services provider enabled — and protected — by scale.

Here is the full piece, with many more background and points.

Here is his long post, here is the opening entry:

Development

Pranab Bardhan, The Economic Theory of Agrarian Institutions. There was a time when development took theory seriously, and this book came out of that time. This book is a bit uneven (it’s an edited volume), but the introductory chapter by Joseph Stiglitz is probably the single, most important statement peasants in developing countries as rational human beings. In short: Whenever you find yourself thinking that some behavior you observe in a developing country is stupid, think again. People behave the way they do because they are rational. and If you think they are stupid, it’s because you have failed to recognize a fundamental feature of their economic environment.

In addition to its intrinsic interest, this post is a good meta-reflection of what actually influences the thinking of economists, or not.

India, Modernity, and the Great Divergence: Mysore and Gujarat (17th to 19th C.) is exactly what the title promises.  This 700 pp. or so book by Kaveh Yazdani, teaching in South Africa, is not published within the traditional network of outlets.  Yet from my perusal of the first 100 pp. or so it seemed quite promising, plus it has excellent endorsements, for instance:

“Yazdani has made a great addition to scholarship on the Great Divergence. His analysis of military, economic, technical, and political advances in Mysore and Gujarat – two of the most commercially advanced areas of 17th and 18th century India – sheds new light on the nature and complexity of the differences between contemporary Indian and European states. No analysis of the Great Divergence will be credible without taking Yazdani’s research, and Indian developments, into account.”
– Jack A. Goldstone, Hazel Professor of Public Policy, George Mason University, Fairfax

Recommended, to some of you, let’s hope it gets a broader circulation.  We do indeed live in a golden age for economic history.

Via Marc Canal Noguer:

Taking My Talents to South Beach (and Back)

Shoag, Daniel, and Stan Veuger. “Taking My Talents to South Beach (and Back).” HKS Faculty Research Working Paper Series RWP17-019, May 2017.

Abstract

We study the local economic spillovers generated by LeBron James’ presence on a team in the National Basketball Association. Mr. James, the first overall pick of the 2003 NBA draft, spent the first seven seasons of his career at the Cleveland Cavaliers, and then moved to the Miami Heat in 2010, only to return to Cleveland in 2014. Long considered one of the NBA’s superstars, he has received the league’s MVP award four times, won three NBA championships, and been a part of two victorious US teams at the Olympics. We trace the impact a star of Mr. James’ caliber can have on economic activity by analyzing the impact his departures and arrivals had on business activity close to the Cleveland Cavaliers and Miami Heat stadiums. We find that Mr. James has a statistically and economically significant positive effect on both the number of restaurants and other eating and drinking establishments near the stadium where he is based, and on aggregate employment at those establishments. Specifically, his presence increases the number of such establishments within one mile of the stadium by about 13%, and employment by about 23.5%. These effects are very local, in that they decay rapidly as one moves farther from the stadium.

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Link to the page

CHJ Automotive have not released official images yet of the car, but showed CNBC some of the initial designs of the ultra-compact vehicle. The car is 2.5 meters long and 1 meter wide. It runs on two batteries which are swappable, meaning that the car won’t need to stop for too long at a charging station to re-juice. Google’s in-car operating system called Android Auto is equipped in the vehicle

It will be priced at between 7,000 euros ($7,824) and 8,000 euros.

While it may seem like a small vehicle, Shen explained the target market the company is after in China.

“In China, there are 340 million people (who) daily commute with e-scooters, but there is a strong demand for them to upgrade to something,” Shen told CNBC in a TV interview on Friday.

“But we cannot imagine all of them driving cars, so we want to give them something else, which is an ultra-compact car.”

The product might be used for ride-sharing in Europe as well.  Here is the article, forgive the noisy music at the link, via Ray Kwong.

He has a new paper on that topic, here is the abstract:

During the Neolithic Revolution, seven populations independently invented agriculture. In this paper, I argue that this innovation was a response to a large increase in climatic seasonality. Hunter-gatherers in the most affected regions became sedentary in order to store food and smooth their consumption. I present a model capturing the key incentives for adopting agriculture, and I test the resulting predictions against a global panel dataset of climate conditions and Neolithic adoption dates. I find that invention and adoption were both systematically more likely in places with higher seasonality. The findings of this paper imply that seasonality patterns 10,000 years ago were amongst the major determinants of the present day global distribution of crop productivities, ethnic groups, cultural traditions, and political institutions.

The pointer is from Jesus Alfaro.  And via Kevin Lewis, here is an interesting paper “Geography, Transparency, and Institutions,” by Mayshar, Moav, and Neeman:

We propose a theory in which geographic attributes explain cross-regional institutional differences in (1) the scale of the state, (2) the distribution of power within state hierarchy, and (3) property rights to land. In this theory, geography and technology affect the transparency of farming, and transparency, in turn, affects the elite’s ability to appropriate revenue from the farming sector, thus affecting institutions. We apply the theory to explain differences between the institutions of ancient Egypt, southern Mesopotamia, and northern Mesopotamia, and also discuss its relevance to modern phenomena.

All of a sudden we are seeing ongoing advances, admittedly connected to speculative hypotheses, in our understanding of this era.

I was sent an email asking what I myself thought of the recent Jeff Bezos charity query, and that email contained a number of questions.  I’m not at liberty to reproduce it, but with some minor edits I think you will be able to make sense of my responses, as given here:

  1. Since the marginal value of extra consumption by him (or even far less wealthy people) is essentially zero, there are many “good enough” charitable ventures.
  2. The rate of abandonment is high for charitable support.
  3. Often the key is for a super-productive person, with lots of stimulating opportunities at his or her disposal (if only running the status quo businesses, or say meeting other famous people), is to find something charitable that will hold his or her interest.  But how can it possibly be as fun as the earlier successes and extending them?
  4. I disagree with your descriptions of the philanthropic strategies offered in your email.  I suspect that most or all are attempted examples of my #3, namely what is actually short-run thinking.
  5. They are all super short-term strategies, once the attention constraint is measured.
  6. In this regard, there is nothing strange about Bezos’s plea and expressed desire to do some good in the short term, except its transparency.
  7. Perhaps earlier philanthropists, such as Carnegie, had many fewer opportunities for fun, if only because their times were so primitive and backward. That made it easier for them to keep up enthusiasm for truly long-term projects.
  8. I still think the real opportunities are for *true* long-run thinking, admittedly subject to the constraint that it keeps one’s short-term interest up.
  9. Cultivating one’s own weirdness, or having a lot of it in the first place, is one way to ease the congruence I mention in #8.
  10. Even truly smart and wise people often “give to people” rather than to projects.  This is for one thing a strategy for keeping one’s own interest up.

So to tie this all back in to Jeff Bezos, I don’t know what he should do.  I don’t know him personally, nor do I even have an especially strong knowledge of the second-hand sources about him.

But I think he is exactly on the right track to be thinking about what motivates him personally, and what is likely to hold his attention.  And I don’t think his approach is any more “short term” than most of the other philanthropy of the super-rich.

Here is the tweet link, here is the text:

This tweet is a request for ideas.  I’m thinking about a philanthropy strategy that is the opposite of how I mostly spend my time — working for the long term.  For philanthropy, I find I’m drawn to the other end of the spectrum: the right now.  As one example, I’m very inspired and moved by the work done at Mary’s Place here in Seattle.  I like long-term — it’s a huge lever: Blue Origin, Amazon, Washington Post — all of these are contributing to society and civilization in their own ways.  But I’m thinking I want much of my philanthropic activity to be helping people in the here and now — short-term — at the intersection of urgent need and lasting impact.  If you have ideas, just reply to this tweet with the idea (and if you think this approach is wrong, would love to hear that too).

Thanks!

Jeff

After I see what you all come up with, and after I edit out the most brilliant ideas, I’ll tweet back your responses to him.  I’ll come up with something of my own as well.

A new paper by Ronald Q. Doeswijk, Trevin Lam, and Laurentius (Laurens) Adrianus Petrus Swinkels addresses exactly this question:

Using a newly constructed unique dataset, this study is the first to document returns of the market portfolio for a long period and with a high level of detail. Our market portfolio basically contains all assets in which financial investors have invested. We analyze nominal, real, and excess return and risk characteristics of this global multi-asset market portfolio and the asset categories over the period 1960 to 2015. The global market portfolio realizes a compounded real return of 4.38% with a standard deviation of 11.6% from 1960 until 2015. In the inflationary period from 1960 to 1979, the compounded real return of the GMP is 2.27%, while this is 5.57% in the disinflationary period from 1980 to 2015. The reward for the average investor is a compounded return of 3.24%-points above the saver’s. We also compare the performance of an investor who holds the market portfolio with an investor who uses simple heuristics for the portfolio allocation. Our results suggest that the market portfolio is close to the mean-variance frontier, but our heuristic allocations achieve a significantly higher reward for risk.

Do note that is for many countries, not just the United States.  For the pointer I thank Samir Varma.

Indifference Curves!

by on June 14, 2017 at 10:54 am in Economics, Education | Permalink

The latest video in our Principles of Microeconomics course at MRUniversity is on indifference curves (earlier videos covered marginal utility and budget constraints). In at least one way this video is better than any we have previously done.

As always, these videos go great with our beautiful textbook Modern Principles of Economics.

Hong Kong fact of the day

by on June 14, 2017 at 7:33 am in Economics | Permalink

Hong Kong just set another property-price record. This time, it was for a parking space.

A 188-square-foot space on Hong Kong island sold for HK$5.18 million ($664,300), or HK$27,500 a square foot, last month, newspaper Ming Pao reported Wednesday, citing land registration records.

The car park cost more than some Hong Kong homes: Centaline Property data shows a HK$4.2 million sale of a 284-square-foot, two-bedroom home in Sha Tin, in the New Territories, in April.

That is from Fion Li at Bloomberg.

Your Next Government

by on June 13, 2017 at 7:25 am in Books, Economics | Permalink

Private governments can learn from the commercial corporate world, where intense competition has driven the evolution of institutions capable of supporting large, complex, and consent-rich communities. Your next government might thus resemble a city-sized corporation, with you and other residents buying shares, electing the board of directors, and so forth. Think of it as residential co-op, upgraded for the big leagues.

Read Tom W. Bell for more, including his intriguing idea for “double democracy” and a generous appreciation of dominant assurance contracts.