Are we moving away from tipping?

by  Tyler Cowen in

A top New York restaurant is replacing tipping with a mandatory twenty percent service charge.  In many other areas, such as hotels, tipping is declining as well.

Most economic analyses of tipping ask why so many customers will give up money for no apparent return.  Put this puzzle aside, and ask why an establishment might move to the fixed charge. 

Ralph Frasca explains the legal difference between a tip and a service charge.  The employer may legally keep the service charge but not the tip.  This suggests at least three hypotheses:

1. A restaurant is using the new service charge to raise prices.  One of the new service charges is set at 20 percent, which is more than most people tip.  (Do note: this one particular New York restaurant claims they wish to redress the distribution of tip money in favor of the kitchen and away from serving staff.  Furthermore the restaurant is fancy, and some customers do tip 20 percent or more there.)

2. The balance of power in labor markets is shifting against workers.  We therefore see owners trying to capture tipping income.  Some of this income will be given back in the form of higher wages, but some of it will be kept by owners.  Perhaps this is the most palatable way of rewriting the implicit labor-management contract.

3. Employers can monitor waiter/waitress quality better than before.  So why leave compensation in the hands of the customers?  Under this hypothesis, employers are not looking to capture tipping income, rather they seek to control it by their own standards.

Here is James Surowiecki on tipping.  Here is a New York Times article on tipping.  Here is my previous post on tipping.  Comments are on, and thanks to Stephen Bainbridge for a pointer and suggestion.

Addendum: One ranting waiter notes: "Experience has shown that customers use verbal praise to supplement a poor monetary reward."

Did government invent the Internet?

by  Tyler Cowen in

Here is a useful corrective:

Back in the mid-1980s the Internet was the sole province of universities and government institutions. Private individuals who just wanted to send e-mail over the Internet would have had a hard time doing so.

But that doesn’t mean there weren’t vibrant computer networks. In fact there were tens of thousands of Bulletin Board Systems around the country that were relatively cheap to join and offered e-mail, files, discussion forums and a whole host of things that are now largely on the web; although some remnants of this BBS culture still exist.

The main problem with the BBS system was a lack of standards for interconnection. As the 1990s approached and computers became more powerful and modems supported more bandwidth there were several competing proposals for graphical interconnection standards, but those were wiped out by the Internet tsunami.

It is interesting, given [Barbara] Ehrenreich’s view that the Internet was an innovation made possible by the government, that prior to the early 1990s almost nobody outside of governments and universities had home access to the Internet while several million had logged on to a BBS at one point or another. What caused the change? Something Ehrenreich and her left/liberal friends usually fight tooth and nail — privatization. The floodgates of the Internet came open only after key resources became privatized and companies and individuals could operate on the Internet. For much of its existence, commercial activity on the Internet had been forbidden. The removal of that barrier is primarily responsible for the Internet we have today, where both anarchists and Abercrombie and Fitch use the web to broadcast their respective messages.

The Internet, in fact, reaffirms the basic free market critique of large government. Here for 30 years the government had an immensely useful protocol for transferring information, TCP/IP, but it languished with almost no added benefit other than to the military and academia. In less than a decade, private concerns have taken that protocol and created one of the most important technological revolutions of the millennia.

So can we interpret the history of the Internet in largely laissez-fiare terms?  Well, uniform standards are useful, the U.S. had better telecommunications policy than most other countries (including a system of managed competition), and local phone calls were set at price zero.  All of these helped the Internet, if you have other interventions in mind add them to the comments.  It is nonetheless correct that private initiative made the Internet what it is.

Here is the link.

African private safety nets

by  Tyler Cowen in

Here is an encouraging development from Africa:

In most of Africa, there is no such help for informal workers like Ms. Sow, who sells ndambe, a hearty bean paste that she mixes with tomatoes and onions and slathers on bread. Across the continent, fewer than 10 percent of working people have health insurance, pension coverage or other forms of social security, according to the International Labor Organization, the United Nations’ oldest specialized agency.

But that is slowly changing, and not just because some African governments are expanding their ailing social security systems, vestiges of the colonial days and geared mostly to the vast number of people on the government payroll.

The bigger push is coming from everyday Africans who are tired of waiting for politicians to address their needs and have begun spinning their own safety nets.

Plans in which neighbors come together and create their own makeshift health coverage are the rage in Africa, particularly in the continent’s west. Here, the plans now have a significant presence in 11 countries and membership has grown beyond 200,000 people.

Some of these mutual health organizations, as they are known, include fewer than 100 beneficiaries. The tiny group negotiates with a local clinic and forges a better price for care. Others have linked dozens of community groups to produce sophisticated plans that cover 10,000 or more people and offer an array of services.

"Every day there’s a new group," said Olivier Louis Dit Guerin, who helps set up these microinsurance plans as part of a program run by the Labor Organization. "They’re growing and growing to fill the big gap."

Here is the story.

1491

by  Tyler Cowen in

At the DNA level, all the major cereals — wheat, rice, maize, millet, barley, and so on — are surprisingly alike.  But despite their genetic similarity, maize looks and acts different from the rest.  It is like the one redheaded early riser in a family of dark-haired night owls.  Left untended, other cereals are capable of propagating themselves.  Because maize kernels are wrapped inside a tough husk, human beings must sow the species — it cannot reproduce on its own…no wild maize ancestor has ever been found, despite decades of search.  Maize’s closest relative is a mountain grass called teosinte that looks nothing like it…And teosinte, unlike wild wheat and rice, is not a practical food source; its "ears" are scarcely an inch long and consist of seven to twelve hard, woody seeds.  An entire ear of teosinte has less nutritional value than a single kernel of modern maize…

…the modern species [of maize] had to have been consciously developed by a small group of breeders who hunted through teosinte strands for plants with desired traits.  Geneticists from Rutgers University…estimated in 1998 that determined, aggressive, plan breeders — which Indians certainly were — might have been able to breed maize in as little as a decade…modern maize was the outcome of a bold act of conscious biological manipulation — "arguably man’s first, and perhaps his greatest, feat of genetic engineering," [Nina Federoff]…"To get corn out of teosinte is so — you couldn’t get a grant to do that now, because it would sound so crazy…Somebody who did that today would get a Nobel Prize!  If their lab didn’t get shut down by Greenpeace, I mean."

That is from 1491: New Revelations of the Americas Before Columbus, by Charles C. Mann.  I loved this book, which also tells you why Norte Chico, at its peak, may have been as advanced as the Sumerians.  The book covers much of the New World, and the evidence in this area is in general muddy.  So the text is virtually certain to contain mistakes.  But the judgments are generally well-reasoned, the author is remarkably well-read, and the area I know best — the Nahua culture of early Mexico — is presented in a sober and balanced manner.

UHaul Pricing

by  Alex Tabarrok in

I’m not convinced by his example but Andrew Roth (a former student of mine) has a found a nice source of data that could be used to discuss demand and supply, the difficulties of identifying price discrimination, and why it’s efficient to have "women enter free" nights at clubs. 

Some high income earners are leaving
California because of its punitive tax rates. Could low- and
middle-income workers be leaving as well? One crude measure is to
examine the one-way rental rates for U-Haul vans. Using U-Haul’s website, I queried a one-way rental for a 10-foot van for October 1st, 2005.

   

   

   

   

   

   

One-Way Trip Price
Los Angeles to Las Vegas $454.00
Las Vegas to Los Angeles $119.00

Hattip to E. Frank Stephenson at Division of Labor.

Cool underwater products

by  Tyler Cowen in

Here is a general listing, with photos, and sometimes prices.  Here is the most advanced "tourist submarine" available.  You can buy this "acrylic viewport globe" — modeled by an Italian designer — for only a few million.  Nor should you ignore this aquatic home, which remains unpriced and perhaps does not yet exist.  Here is evidence that the company is for real; see here also.  The film industry is one of their customers.  Here is their rationale for price discrimination.

Many thanks to Catherine for the pointer.

No Pain Relief for Tort Sufferers

by  Alex Tabarrok in

James Hamilton takes a look at one of the key studies on Vioxx and heart attacks.  He is not greatly impressed.

I took a look at one of the studies on which the decision was
justified, written by Dr. David Graham and co-authors and published in Lancet
in February. This study looked at 8,143 Kaiser Permanente patients who
had suffered a heart attack and had also at some point taken a
nonsteroidal anti-inflammatory drug (NSAID), of which Vioxx (rofecoxib)
is one. Of these patients, 68 were taking rofecoxib while 4,658 were
receiving no medication at the time of their heart attack, a ratio of
(68/4658) = 1.46%. For comparison, the study looked at 31,496 other
patients who had also at some point taken an NSAID, matched for
characteristics like age and gender with the first group, but who
didn’t have a heart attack. The ratio of rofecoxib users to those with
no current medication was slightly lower (1.05%) in this second group,
which one might summarize as a (1.46/1.05) = 1.39-fold increase risk of
heart attack from taking rofecoxib compared to no NSAID. Is that
statistically significant, in other words, can you rule out that you’d
see a difference of that size just by chance? Yes, the study claimed,
but just barely.

On the other hand, this was not a controlled experiment, in which
you give the rofecoxib randomly to some patients and not others in
order to see what happens. Rather, something about either these
patients or their doctors led some of them to be using rofecoxib and
others not. Dr. Graham and co-authors looked at a variety of indicators
that suggested that the rofecoxib patients already had slightly
elevated risk factors for coronary heart disease. Once they controlled
for these with a logistic regression, their study found an elevated
risk factor of heart attack for rofecoxib takers of 1.34, which was not
statistically significantly distinguishable from 1.0.

The strongest evidence from this study was a claimed dose-effect
relation. Of these 68 rofecoxib-using heart-attack patients, 10 of them
were taking doses above 25 mg per day. Only 8 patients in the much
larger control group were taking so high a dose, implying an elevated
risk factor of 5 to 1 for high-dose patients. Again observable risk
factors could explain some of this, with the conditional logistic
regression analysis bringing the implied drug-induced risk down to 3 to
1. According to the study, this elevated risk factor was still
statistically significant, even though the inference is based on the
experience of just 10 patients.

The obvious question here is whether in fact the authors were able
to observe all the relevant risk factors. The study openly acknowledged
that it did not, missing such important information as smoking and
family history of myocardial infarction.

…[E]ven if
there actually is an elevated risk of the magnitude the studies suggest
but can’t prove, the question is whether I might want to accept a 1 in 4,000 risk of dying from a heart attack in order to get the only medication timt makes my pain bearable and a mobile life livable.  And if I say no to the Vioxx, I may end up taking something that is less effective for my pain but has risks of its own.

…. How did we arrive at a
system in which 12 random Texans are assigned responsibility for
evaluating the scientific merits of statistical evidence of this type,
weighing the costs and benefits, and potentially sending a productive blue-chip American company into bankruptcy protection?

See also my op-ed Bringing the Consumer Revolution to the FDA.

Not since Mark Twain

by  Alex Tabarrok in

Jon Stewart destroyed Christopher Hitchens on Friday’s Daily Show.  Hitchens tried to take the line that people against the war in Iraq were capitulationist, blame America-firsters.  Here’s part of the transcript:

Stewart: The people who say we shouldn’t fight in Iraq
aren’t saying it’s our fault. That is the conflation that is the
most disturbing to me.
Hitch: Don’t you hear people saying that we made them nasty. . .
Stewart: I hear people saying a lot of stupid
[bleep]. . . But there is reasonable dissent in this country
about the way this war has been conducted, that has nothing to do with
people believing that we should cut and run from the terrorists, or that we
should show weakness in the face of terrorism, or that we believe that
we have in some way brought this upon ourselves.  They believe that this war is being conducted without transparency, without credibility, and without competence…
Hitch: I’m sorry, sunshine.  I just watched you ridicule the president for saying he wouldn’t give a timetable…
Stewart: No, you misunderstood why. . . .What I ridiculed the president [about] was [that] he refuses to answer questions from
adults as though we were adults and falls back upon platitudes and
phrases and talking points; that does a disservice to the goals that he
himself shares with the very people he himself needs to convince.

Hitchens knows he has been beat and can hardly wait to escape at the close (watch the video here). 

Unintended consequences

by  Tyler Cowen in

The September 11, 2001, terrorist attacks are increasingly viewed in the oil-rich Arab countries of the Persian Gulf as the catalyst for an economic boom when Arabs divested from America and reinvested at home.
    Arab investors pulled tens of billions of dollars out of the United States. They were angered by perceived American hostility toward Arabs. They worried their assets would be frozen by U.S. counter-terrorism measures. And U.S. markets happened to be plummeting while economies in the Persian Gulf were on the upswing, buoyed by rising oil prices.
    The results have been spectacular.
    Since late 2001, economies in the six Gulf Cooperation Council countries — Bahrain, United Arab Emirates, Kuwait, Oman, Qatar and Saudi Arabia — have soared, with stock markets up a collective 400 percent. The Standard & Poor’s 500 rose 24 percent over that period.

It is noted that rising oil prices have not hurt either; here is the story.  Dubai has probably been the biggest beneficiary.

Teaching students to *do* economics

by  Tyler Cowen in

Doing Economics, buy it here.  This book is based on the novel premise that undergraduate instruction should be based on teaching practical skills.  Imagine chapters like "Overview of the Research Process in Economics," "What is Research?", "Critical Reading or How to Make Sense of Published Research," and "Locating (and Collecting) Economic Data."  It is more mechanical and less incisive than I would like, but every serious undergraduate economics major should be familiar with this book.

By the way, here is what undergraduates actually do, courtesy of one anthropologist; thanks to the readers who sent in the link.

Judith Polgar will compete for the world’s chess championship

by  Tyler Cowen in

That is in Argentina, an eight-person double round robin tournament, coming this October.  Kasparov has retired and Kramnik is no longer formidable, so the winner of this tournament will be regarded as the world champion of chess.  Does Judith have a chance?  Here is an interview with her.  Note that the old stereotypes of female chess players no longer hold.  Here is a complete directory of photos, totally safe for work.  (Call me sick, but I find these pictures more fun than "real" pornography; there is at least an element of surprise each time you click.  Plus they make you doubt the predictive capacity of evolutionary biology)  Nor could Bobby Fischer beat Judith at "knight odds" and, these days, he probably could not beat her at all.