The consumer surplus from Google’s Gmail

Google will be offering its Gmail service for free, but right now supply is limited. Not surprisingly, a market in the accounts has arisen, check out this ebay listing. I have heard that some accounts have gone for as much as $150.

If any of you know of good estimates of the consumer surplus from Google (and related search engines) more generally, please let me know. Here are some interesting magnitudes, comparing Google’s possible market value to various countries.

Thanks to Nicholas Kreisle for the pointer.

Addendum: Here is some speculation on where Google is heading in the longer run.

What is a taxi medallion worth?

New York City just auctioned off some more medallions. What did they go for? About $300,000. What should one cost? Ask Andrew Chamberlain:

…let’s do the math. Given a medallion cost of $300,000, how much does a cabbie have to make to justify buying one? Assuming he’ll use it for 20 years, and assuming a 5 percent discount rate–the forgone return he could’ve earned on a similar investment–he’d need to earn about … $28,300 a year.

That’s not much. So how much do taxi drivers actually earn? According to the New York Times here and here, most drivers pull in about … $30,000 a year.

Chamberlain also questions whether the medallion system makes sense in the first place. My knee-jerk free market reaction is to say no. That being said, it is easy to imagine that a congestion tax on Manhattan taxis is optimal. How close do current quantity restrictions come to such a tax? Hard to say, but at the very least non-Manhattan driving probably does not require medallions. Should we also allow taxis to raise their prices when it is raining? I have heard that Tokyo residents hailing a taxi will hold up two fingers to pay twice the state fare, three fingers to triple it, and so on.

Addendum: Daniel Akst notes that this calculation assumes a very low shadow price for labor. I’ll predict that the immigrant drivers have discount rates higher than five percent a year, as well. That only intensifies the puzzle. On the other side of the equation, you can sell the medallion after twenty years.

Sao Paulo, The Voluntary City?!

The Trotskyist mayor of Sao Paulo is embracing an idea long advocated by free market economists, creating a market in which zoning rights can be bought and sold. Sao Paulo will sell as much as $300 million in legal rights to build above existing height and bulk limits in certain areas. Penn State University professor of real estate, Abdullah Yavas, notes:

This is a first. The city is doing rezoning for payment and by having a secondary market, the city creates a way for the rezoning to be used by the highest bidders – the people who value the space the most.

Eliminating zoning altogether and relying on covenants and other private solutions, as does Houston, is probably best. But in the meantime, William Fischel, Robert Nelson and others have long-argued that its more efficient to price than to forbid. In a pricing system, land would be better allocated to its highest valued use and both the city and builder would be better off. In addition, open, competitive sale of zoning rights is preferable to widespread corruption and bribery which zoning naturally invites. The mayor of Sao Paulo, a rich communist (really), is more interested in revenues than efficiency but that’s often the way reform occurs.

Aside: The information on Sao Paulo comes from an article by Terry Wade in the WSJ, Wed. April 28, A14B, unfortunately the WSJ provides no way to provide a link if one is not a subscriber. For more on these issues see The Voluntary City (I am one of the editors). Here is Tyler on things Brazil is not doing so well.

Who are the hardest workers in the world?

The answer surprised me.

Keep in mind, though, that the figures are for hours per person, not hours per working person. So a country with a low unemployment rate will do relatively well in the rankings, even if it is full of slackers.

That same country has: “one of the strongest levels of economic growth, but donates the fourth-lowest level of official foreign aid per person at $54 a year, and has the highest greenhouse gas emissions per capita.”

McLeod’s Daughters anyone?

Why so Russian women spend so much on make-up?

Galina Vladimirova is a believer in what she calls “the Russian cult of makeup.” Tucked neatly inside her purse one recent day were her latest acquisitions of lipstick and eye shadow, her first Armani purchases. They were more than twice as expensive as any makeup she had ever bought, even for a woman who spends up to $150 a month on cosmetics…

In the beauty boomtown that is Moscow today, she is no exception. Just a generation removed from the time when their mothers and grandmothers resorted to the peasant trick of reddening their cheeks with beets, Russian women today spend twice as much of their income on cosmetics as Western Europeans do — 12 percent of their entire paychecks on average, according to research firm Comcon-Pharma.

Perhaps no other cosmetics market in the world is as hot as Russia’s, which has quintupled in size over the past four years and is forecast by industry analysts to triple again, to $18 billion, by 2010…Never mind the mystifying economics of it, how a $20 tube of lipstick wouldn’t seem to make sense as a mass-market proposition in a country where average salaries have only just now hit $200 a month.

Here is the full story.

Women will compete for male attention most intensely when it matters what is to be won. So the naive Darwinian economist would expect make-up to be most popular in countries with high income inequality and few social barriers. Russia fits both descriptions. Since many poor Russian women receive an excellent education, they can at least hope to marry well if they catch male attention.

Western Europe has lower rates of income inequality and women there wear less make-up. In Brazil, and Latin America more generally, women take special care with their appearances. This is not a general theory, just some scattered observations on a small number of variables.

Facts about dollar stores

Perhaps you think that dollar stores were a quaint anachronism, surviving only through sales to immigrants. In reality dollar stores are the fastest growing retailers in America. Here are a few facts:

1. More than 4000 new dollar stores have opened in the last three years, an increase of thirty-four percent.

2. The dollar store sector accounts for $16 billion a year, larger than the recorded music industry.

3. Dollar General, a very large chain, will add 625 stores this year.

4. Dollar stores compete on price and convenience, most of all parking and easy access to the goods. The “big box” superstore is proving vulnerable to dollar stores, just as centralized shopping malls are proving vulnerable to the big boxes.

5. Dollar stores offer no frills and spend nothing on marketing.

6. Families earning $70,000 and above are the fastest-growing group of customers for dollar stores. Dollar stores are beginning to lose their dowdy image.

7. Dollar stores are starting to attract name brands on the shelves.

8. Wal-Mart, feeling the competitive heat, is experimenting with “dollar store” sub-sections in some of their superstores.

My take: For me it is all about easy parking. I am starting to get the hang of dollar stores, it is the easiest way to replenish a dwindling supply of toothpaste.

The above facts are from the 10 May issue of Business Week, “Out-Discounting the Discounter.”

Facts about Sweden

1. No new net jobs have been produced in the Swedish private sector since 1950.

2. “None of top 50 companies on the Stockholm stock exchange has been started since 1970.”

3. “…well over 1 million people out of a work force of around four million did not work in 2003 but lived on various kinds of public welfare programs, such as, pre-pension schemes, unemployment benefits, sick-leave programs, etc.”

4. “Sweden has dropped from fourth to 14th place in 2002 among the OECD countries (i.e., affluent industrialized countries) in terms of GDP per capita since 1970.”

Here is a more complete summary. Here is the paper itself. Here is Nils Karlson, the author of the relevant essay. Here is some debate on whether Sweden is richer than Mississippi and Alabama. Admittedly Sweden has a higher quality of public goods and offers more leisure time.

My take: I’m willing to take the Swedish model seriously. I’ve been to Stockholm several times and loved it. That being said, how attractive will this model remain when it offers only half of the per capita income of the United States?

This is a real question, not a rhetorical one. On one hand, freer societies will reap especially high benefits in an era of rapid technological change. On the other hand, the innovations of the United States, and other countries, indirectly subsidize Swedish government spending.

Sports economics puzzle of the day

I very much enjoyed my visit this week to the University of Western Ontario. I had an especially good time trading micro puzzles with one of my hosts John Palmer. John is an economist, an artist, and founder of the Philistine Liberation Organization.

We quickly hit upon the old sports chestnut: why is soccer not a major professional sport in America?

It seems easy enough to add commercials when the ball goes out of bounds. And we have plenty of land for soccer fields. Maybe soccer is too boring on television, but hey (no brickbats please) what about baseball? Could it be that soccer is too hard to describe on radio, noting that this medium drove the initial popularity of baseball?
I have the vague intuition that soccer is too “working class” for the non-unionized United States, but it is hard to go far with this hypothesis.

My best shot at an answer was the following: Americans prefer professional sports where they know (or feel) that they are the best in the world. This applies to baseball, football, and basketball, the major professional sports in the United States. At tennis we are no joke. Chess became massively popular, but only briefly, when Bobby Fischer defeated Boris Spassky.

The implicit prediction, of course, is that basketball will decline in popularity.

Addendum: Perhaps a country can only fit so many sports. Thanks to Scott Cunningham for the pointer. In another direction, Bob Crosby writes the following:

“Both soccer and hockey have problems gaining US audiences for similar reasons.

Both games make it very difficult for the best players to fully exploit their skills. Put differently, they are games where the difference between the great players and the mediocre players is minimized.

In hockey, (a) the unwillingness of the refs to call hooking, slashing and holding penalties and (b) the ridiculously small size of modern rinks mean that the value of speed and skill is reduced. The wide disparities in skill levels that naturally exist are reduced or eliminated.

In soccer, the off-sides rule has the same effect. It acts as a speed break. And speed breaks help slower, less talented players.

In short, the difference between the best players and the worst players is structurally minimized in those sports.

Football, basketball, baseball or golf do not have similar problems. In those sports, wide disparities in talent are encouraged and immediately and easily discernable by fans.”

No free speech on the Metro

A couple of years ago it was discovered that the Office of National Drug Control Policy was secretly paying television producers to insert anti-drug messages into shows like ER, Chicago Hope and Bevery Hills 90210.

MJNow we learn that not only do the Feds want to put people in jail for using marijuana, they also want to stop people from talking about reforming the marijuana laws.

Change the Climate, a group advocating reform, wants to place the ad at right on the Washington Metro. The Metro accepts all kinds of political ads but if it accepts any ad arguing against drug prohibition it, or any other transit authority, will lose all of its Federal funds.

In one way or another, the Federal government has its hand in everything, including the schools, the universities, and the airwaves. If the government can withdraw its funds from anything associated with arguments it doesn’t like then free speech will be very expensive.

Is the EU a tax cartel?

Germany yesterday threw cold water on the festive mood ahead of this week’s European Union enlargement by telling its eastern neighbours that low corporate tax rates used to attract foreign investment were unacceptable.

Speaking only days before 10 new member states join the EU on May 1, most of them from eastern Europe, Chancellor Gerhard Schröder said tax rates, often less than half those in Germany, were “not the way forward” in a united Europe.

Here is the full story. Here is a good article on the European tax cartel.

Germany does have a valid complaint that it sends subsidies to these lower-tax nations. Would any of you care to guess my vision of “the way forward”?

What’s in a name?

Not much, if you are the small island of Tuvalu, population 11,000. The country planned to get rich by selling Internet domain addresses. It was thought that the “.tv” suffix would prove immensely appealing, most of all to entertainment companies:

Tuvalu had a 12-year contract to share revenue from .tv registrations to be marketed by a start-up company called DotTV, which was backed by $50 million from California high-tech incubator Idealab. Now you can buy one here.

Tuvalu expected a windfall. DotTV predicted every entertainment company would want a .tv address. At the time, its executives cited examples such as sony.tv, nbc.tv and zee.tv – the last for India’s Zee TV network.

This being the era when people talked of initial public stock offerings before a company’s bathroom needed its first replacement roll of toilet paper, DotTV anticipated a big IPO. The company even said it would create a .tv portal.

Of course, in 2000 the dot-com bubble blew apart, and the value of Web addresses dove like a pelican after a fish. No .tv boom ever happened. Today, nbc.tv is a dead end, sony.tv is for sale, and zee.tv bounces to sheeraz.com, the Web site of Southeast Asian television entrepreneur Sheeraz Hasan.

Are you shocked to discover that the CIA thought the domain address sales would turn the island’s economy around?

And how do things look now?

1. Despite the “.tv” suffix, the island has no broadcast TV station.

2. The prime minister works in a two-bedroom house.

3. Subsistence fishing and farming are the major economic activities.

4. One thousand Tuvaluans are guest workers in the neighboring island of Nauru, which is going bankrupt.

5. The islands are fifteen feet above sea level and are expected to vanish under the sea in a few decades’ time. Tuvalu, however, will remain a sovereign nation under international law. It will retain its rights to all domain names.

By the way, here is the most popular “.tv” website currently in existence.

The most dangerous jobs

Timber cutters come in first place, here is the longer list. Being a timber cutter is 26 times more dangerous than the average American job (the link has wage data as well). Here is one morbid description of a timber accident; here is another detailed account.

By the way, delivering pizzas is one of the most dangerous occupations as well. Being an Alaskan pilot is especially hazardous although it does not count as a separate occupation. In a thirty year career you have a one in eight chance of dying; flying into a mountain during bad weather is the most common boo-boo. If you look at absolute numbers only, more truck drivers die on the job (808, in 2002) than any other occupation.

Thanks to Eugene Volokh for the original pointer.