4 am.

Outsourcing

2009-07-08T13:50:00.008-04:00

I have recently learned of two interesting outsourcing activities:

McDonald's is outsourcing its drive thru order taking

&

Some Bloomington (and other towns) restaurants are outsourcing their delivery services.

These companies find it unprofitable to hire more people on direct staff to complete these tasks. However at a lower cost created by outsourcing, these services can be provided giving the customers better service and more selection.

Paying the Price to Poo

2009-06-29T21:53:00.003-04:00

On the Freakonomics blog, the question was posed 'if you were made to pay for the bathroom on the plane would you still fly'? Interestingly enough, in the Philippines you had to pay to use the bathroom. Even more mind tingling is that to use the bathroom lightly (number one, if you will..) was normally 3 pesos, while doing your business (number two..) would cost you 5 pesos. This is how most public bathrooms worked, especially ones on the bus route. Sometimes there was someone there who would flush the toilet for you (with a bucket of water). I always wondered what you were paying for: the water, the person, the septic tank space, or the physical upkeep. I honestly would have rather flushed my own toilet, but maybe that would be like using the 'you scan' scanners at the grocery store and denying someone of a job.

My answer is while I would like the price of the toilet to be included in my ticket price as it probably is now, I would not let that sway my decision on whether to fly. As Hamermesh theorizes, I would change my behavior to try not to use the bathroom during flight, but when nature calls....

Some Tools for Work, Some Tools for Play

2009-06-25T22:08:00.005-04:00

I found this tool today while at work. It ranks counties on the ease of doing business based on regulations and enforcement within different business aspects. You can click the tabs at the top and organize the countries based on different variables to find out who has a competitive advantage based on these definitions. Interestingly, the United States tied for first in ease of employing workers. Take a look its pretty interesting.

Creating Value in the Black Market

2009-06-18T22:07:00.006-04:00

The quote from this article that I found from Cafe Hayek's link that is discussing Venezuela's current financial issue:

When they can't get government dollars, many companies turn to dollar-denominated government bonds or to the thriving black market, where the dollar sells for about three times the official exchange rate.

reminded me of a quote from the book 'Stay Alive My Son' by Pin Yathay. The story was a super interesting read about the author, Thay, who lives through the overthrow of the Cambodian government by the communistic Khmer Rouge. In part of the book, a black market is created for goods since the ration of supplies is way below sustaining levels for the masses, but due to some level of corruption there are extras for the ruling class( pg 88). A market is created to exchange the ruling class' food for the mass' physical items they have carried with them that are no longer purchasable in a general market. Thay decides to create a market for dollars since at the time they have no worth (pg 104-105).

Logically I knew the dollars should be worth something for I knew that many people had them. The problem was that there was not enough of them in circulation for them to acquire a fixed value. It was better to spend gold. But gold varied in value according to aesthetic appeal of the object in question. Necklaces for examples fetched one third again as much as bracelets. For anyone who worked things out, as I did, it was clear the system was full of holes. For example, I could theoretically buy a tael of gold for 200 dollars and with that tael of gold buy 40 cans of rice. Yet with that same 200 dollars, if I traded it directly, I could only buy 20 cans of rice. What I had to do therefore, was to create a stable market for dollars.

Here Thay has the right idea, he has to create a market, but the issue does not lie in the fact that dollars are without a fixed value, it is that they have no value at all. When talking about trading of gold and dollars, he is referring to a different time period where dollars had value, whereas in his current situation they have none. You could have a billion barrels of oil in your possession but if all consumers became totally reliant on green energy and found other less expensive materials to create all of the physical items that are made from oil, your barrels would be worth nothing (or at maximum very little). Additionally, the fact that many people have dollars shows that there is a large supply, but no demand. What he needs to do and does is create a demand for the dollar.

First of all I build up stock of about 50 cans worth of rice by exchanging clothing and jewelry. This gave me a margin of safety to put my plan into operation.
Then I went to see a broker, a Chinese who was branded as a New Person along with the rest of us and who had a reputation for making deals extremely quickly.
"My friend do you have dollars?" I asked. "Someone asked me for some."
My question perplexed him. "Why dollars?"
"Don't ask me its for a friend. But if you can find some for me, I will give you rice in exchange."
"But why? Can't you explain?"
"I suppose because dollars will be important if we return to Phnom Phen," I said. "The embassy personnel there uses dollars. It is a strong currency. It is what you need to travel abroad. Overseas only dollars count. When the day comes the dollar will have a high value relative to our new currency. And its stable not like gold. One hundred dollars is always one hundred dollars. Anyways if you can find any, I will exchange them with you, for my friend."
The Chinaman knowing there were plenty of dollars around and having good contacts soon brought me 200 dollars for which I duly gave him 20 cans of rice.
The rumor of our exchange spread quickly through our camp and two or three of the neighboring villages. Suddenly people began to think their dollars might be of immediate rather than long term value.

Here Thay has created value for the dollar. Since one person decided that the dollar currency is valuable to them and they are willing to pay for it, a market is created. The reason for why he wants the dollar is also important because it expresses to others that the dollar holds value for future goods, above and beyond what it is worth now.

Naturally my broker was the first to cash in on this new market. After a few days he reappeared at my house. He seemed unhappy. "You cheated me, Thay," he said. The others give me 15 cans of rice for one hundred dollars, but you, you only gave me ten."
So already, dollars had risen 50 percent in value. I calmed him by giving him 15 cans of rice for another one hundred dollars. Everything seemed to be working out perfectly . My stock of rice had gone down, but in this tiny, enclosed, artificial economy my dollars had acquired value.
I was soon able to put this development to good use. Over the next few weeks working with the same broker I spend a thousand of my dollars buying one hundred and fifty cans worth of rice. Those purchases which not only enabled us to live reasonably healthy also had other repercussions far beyond anything I could have planned.

As people started trading, a scarcity for dollars was created. More people wanted dollars to hold onto for future spending than were available at 10 cans of rice. Therefore they needed to give up more of their current consumption to entice people to trade their dollars. In times like these, it is especially important that transfers occur. Thay could not eat his one hundred dollar bill and the person in charge has more food than necessary. If that person in charge is willing to forgo ten can of his rice for the hundred dollars by all means trade, and if someone is willing to give up fifteen for one hundred dollars even better. Trade and keep Thay alive!

Matching by Preferences

2009-06-13T06:16:00.005-04:00

I couldn't explain it any better than them:

It seems everyone wants to live in a city with a low crime rate, great schools, a warm sunny climate, affordable housing, and plentiful jobs. But there are always tradeoffs in the real world, and that's where this tool is invaluable.
With our feature, you define your ideal place to live by indicating the importance to you of each category. Our computers then run through thousands of calculations and display a ranking of the cities which best meet your criteria.

I thought, 'Whoah.... now if you could only do this for dating!' And then I realized this is probably exactly what online dating companies do.

Pack Her Up and Move Her Out

2009-06-13T06:14:00.007-04:00

In 2007, The New York Times published a report stating that;

In 2005, 51 percent of women said they were living without a spouse, up from 35 percent in 1950 and 49 percent in 2000.

Sperling's BestPlaces, a research firm, believed that the Times' number was a little high and decided to complete their own study. They restricted their data to single, widowed, and divorced women age 25-64, due to the University of Texas survey finding that the average age of women at their first marriage is 26.

They found that in the 379 metro areas nationwide, 34% of women 25-64 are single. Despite all the attention to this new milestone for single women, the difference between the number of single men and women is not as great as one might think. Nationally, 32% of men are single.

Sperling's BestPlaces went even further and outlined locations with high percentages of singles. They then completed another study highlighting which cities are the best for dating.

From their time and effort, I learned that I need to first move west because, 'San Francisco seems to attract single people like a good pickup line, if there is such a thing.'
Then I need to relocate south with this new boy toy to Austin Tx, since it 'tops the list of best cities to play the dating game.'

Wait a second, does Sperling's BestPlaces have a spin off moving company?

Spam: It Is Not As Bad As You Think

2009-06-12T23:22:00.006-04:00

While doing some research today, I came across one of those annoying spam word puzzles and noticed it was a bit different. In the bottom corner, it displayed a motto "Stop Spam, Read Books." I thought, "Hmmmm... What do they mean? Stop wasting time reading spam emails and use it wisely by reading books?" I decided to take a quick detour to find out what was going on. Here is the story. (A quick definition that may be useful: reCAPTCHA= the spam word puzzle that you have to answer to prove you are not a computerbot sending links, emails etc)

About 200 million CAPTCHAs are solved by humans around the world every day. In each case, roughly ten seconds of human time are being spent. Individually, that's not a lot of time, but in aggregate these little puzzles consume more than 150,000 hours of work each day. What if we could make positive use of this human effort? reCAPTCHA does exactly that by channeling the effort spent solving CAPTCHAs online into "reading" books.

Basically sometimes when you scan books into a digital system, it does not come out readable. So this company uses our brain power to solve the question of,"Hmmm..... What does that say?" But, you may be asking, "How do they know that we are right?" Well, they use group wisdom to answer that riddle.

Each new word that cannot be read correctly by OCR is given to a user in conjunction with another word for which the answer is already known. The user is then asked to read both words. If they solve the one for which the answer is known, the system assumes their answer is correct for the new one. The system then gives the new image to a number of other people to determine, with higher confidence, whether the original answer was correct.

From now on, I will be a little less annoyed when I have to answer the spam word questions.

What's This Guy's Incentive?

2009-05-29T23:17:00.004-04:00

If, in the Philippines, according to the International Narcotics Control Strategy Report (March 2007) by Department of State:

The Comprehensive Dangerous Drug Act prohibits plea-bargaining in exchange for testimony, once a suspect has been charged. There is therefore no incentive for a defendant to plead guilty and offer testimony against superiors in the drug trafficking organization. This makes pursuing conspiracy investigations to the upper levels of the conspiracy very difficult.

What is this guy's incentive?

Most drug busts are the results of information from disgruntled insiders who voluntarily give leads to the Philippine authorities.

Maybe this has something to do with it:

Pervasive problems in the law enforcement and criminal justice system such as corruption...

Or maybe he just wants the prevailing drug lords to go to jail so that he can take over the market with a new group. However he better be careful because:

The slow process of prosecuting narcotics cases not only demoralizes law enforcement personnel, but also permits drug dealers to continue their drug business while awaiting court dates. By the time a case gets to trial, witnesses often have disappeared or been persuaded through extortion or bribery to change their testimony.

Substitute for Shabu

2009-05-29T22:56:00.006-04:00

Another quote from International Narcotics Control Strategy Report (March 2007) by Department of State:

"According to law enforcement sources, the shortage of shabu has increased the demand for marijuana, resulting in higher market prices."

Therefore marijuana must be a substitute good for shabu, and the higher market prices will serve as an incentive for more individuals to start growing it. Better just hope the government doesn't find any cash for gas for the helicopters.

Policing Filipino Style

2009-05-29T19:19:00.006-04:00

There are some interesting quotes from the International Narcotics Control Strategy Report (March 2007) by Department of State (USA) about the narcotic situation in the Philippines.

Philippine National Police (PNP) and Philippine Air Force officials express a desire to eradicate marijuana cultivation but lack fuel for helicopters necessary to access remote sites in the mountains of Luzon and Mindanao.

The most crippling operational weakness of PDEA (Philippine Drug Enforcement Agency) is the lack of a functioning laboratory... In addition, lab equipment is outdated and inadequate. Lab chemists can only perform field tests, normally conducted by arresting officers at a crime scene in the U.S

Using manual techniques to eradicate marijuana, government entities claim to have successfully uprooted and destroyed 564,562 plants and seedlings in 2006, compared to 9,677,852 plants and seedlings in 2005.

A severe lack of experienced investigators in PDEA further inhibits investigations.

This, to me, looks like a little extra capital could go a long way in the Filipino drug task force market. (An aside: The report goes on to discuss corruption as an issue, which could be a reason these tools are missing.) The lack of fuel and use of below standard laboratories stunts the effectiveness of the police force. (As another aside: I doubt the drug smugglers are helicoptering out their goods, so there must be another way into this area). Additionally, if the government invested in a machine to remove marijuana plants instead of using manual techniques, they could train those individuals to become the investigators that are cited as being needed. To give PNP credit though, it looks like they are working on educating their officers on narcotics issues:

The Philippine government continues to build the capacity of the PDEA, established by the GRP in 2002, and its first 55 agents are scheduled to graduate in early 2007 from the PDEA Academy.

Days on Earth Scarcity

2009-05-20T11:21:00.008-04:00

To add to the post on the contingent value of life, this morning I was listening to a song on the radio that was talking about seeing life through a perspective of being a gift, not a right. From this, I wondered if different perspectives on life would allocate different values to it.

For example, if you view physical life as a linear path with an end, you then believe there is one life and a limited number of days on Earth creating scarcity. However, if you have a world view which includes reincarnation, you believe in multiple lives and deaths thereby increasing the number of lives and days available to you.

While this is a simplistic version of these two world views, economic theory states that if an item becomes more scarce it should rise in price/value. Therefore does the differing world view perspectives show that someone who believes this is their only opportunity to live may value it more than someone who believes that this is just one of many? This too may make individual days more valuable to the person who does not have a reincarnation view. It would be interesting to see if this played out in their marginal choices in life (as noted in the comment by J. Ross on the first blog post).

Tree Dancing

2009-05-18T16:02:00.020-04:00

While I was home, my parents decided to get a tree cut down. Since they know this is not their area of expertise, they used a local family run business who had cut down another one of our trees about 18 years ago. I was absolutely amazed when this crew came over to cut down our tree (and they thought I was crazy for taking pictures).

I thought it was a perfect example of division of labor, specialization, and increased use of capital. Talking to the founder/owner resulted in some great quotes.

When he began the business he did not have this elaborate equipment and so I asked him if having this new equipment created more profit,

he said "You know, you think it would but it really doesn't since you have more to pay for."
(Highlighting a near zero economic profit in a competitive market)

When I asked him well then why then would you buy the equipment he said " Well, heck I'm getting older and anyways it's easier on the guys. You can't stay in business if you don't have it. No one wants you in their yard for multiple days. Now it only takes a half day to get the job done where before it would take you one or two."

(This shows technology makes jobs more pleasant for the ones who do the job and it increases productivity reducing the hours necessary to complete the task, allowing the workers to do other work with their extra time.)

And he was able to tell us that the tree weighed 8,800 lbs and he made it dance in the air. Thank you, Mr. Mattison, for the econ lesson in my front yard.

Gold Diggin' in Wisconsin

2009-05-16T21:49:00.008-04:00

While shopping today, I looked at a store credit card application and noticed this excerpt:

FOR WISCONSIN RESIDENTS:
If you are married, please contact us immediately upon receipt of this Agreement... and provide us with the name and address of your spouse. We are required to inform your spouse that we have opened a credit account for you.

At first I thought, "No one is going to get away with hidden gold diggin' in Wisconsin", but then I questioned why only WI? On a quick look through some state documents, it appears that Wisconsin is one of nine states who have a community property law. This means that upon marriage if you do not set up an agreement otherwise, your are responsible for 50% of the household's income and debt no matter who obtains it. Due to this system, Wisconsin mandates that the applicant's spouse is notified that a new line of credit is being opened. This informs the non-applicant that s/he is becoming liable for a credit card and purchases that may be forthcoming.

Data Point Comes To Life

2009-05-15T00:00:00.007-04:00

Yesterday I heard the perfect real life example of the Tiebout Hypothesis, which is where you move to a location that has rules that suite your preferences. To give you some background, I live on a border town between PA and NY and a random lady and I were discussing health care policy. This was the her story:

My husband is on dialysis and he will be on it for the rest of his life. We were living in NY and Medicaid only pays 80% of the bill for this procedure. This was therefore costing us $2,000 a month. However PA's Medicaid system pays 100% of the bill and so we bought him a small apartment in PA to qualify him for PA's health care system. However since the housing market is tight right now, we could not sell our home in NY so we are living separately at the current moment.

I thought two things about this conversation:

A. This is the exact data point I was trying to find moving in and out of MA due to the mandatory health care policy. This is important because like this lady, it could mean more people who want the benefits are moving into the state increasing the bill for the state's care.

B. These two are now living in two separate places, losing the financial savings of living together. I wonder if all the excess bills (rent/utilities/food/transportation) equate to the price of his treatments. However, it appears that they are focusing on the long run, so it is possible that once the house is sold cost savings could occur.

Spider Fear Foregone

2009-05-12T22:38:00.006-04:00

In psychological theory, I have learned about two ways to overcome phobias. One is called Flooding and the other is Desensitization. Flooding is when the activity or thing you are afraid of is given to you at high doses until you come to terms with your fear and get over it. Desensitization is the slow introduction to and gradual increase in the stimulus that you are fearful of until you have become familiar with the activity/thing and lose your fear.

Before going into the Peace Corps I hated spiders. I was scared of even the tiniest, wimpiest of spiders. Then when entering the Philippines, I was introduced to a spider that looked like this. I am not sure if this is the exact one (because no one ever told me the real name of it) but it was as big as your whole hand, hairy, and fast! They were in a lot of homes, and they especially liked the bathroom. Imagine getting up in the middle of the night, and turning on the light to only see this guy in the corner of the bathroom waiting for you to sit down so he could run at you.

Now, maybe I did not get the whole experience of flooding. These guys did not run all over my body. Oh no, I would definitely stand on my wooden bed and throw flip flops across the room at them. Maybe if I had given in to them and allowed them to crawl all over me I would not be fearful anymore. Therefore this was more of a case of desensitization, starting in my home with small, little spiders and working up to big, hairy spiders in the Philippines. So while my fears of wispy and tiny spiders have subsided, I would still rather not see the big ones ever again. This either means I should be satisfied with this level of fear, or live with even bigger, scarier spiders. I believe I can live my life with a little bit of fear :)

The Washed Away Worker

2009-05-10T19:46:00.007-04:00

One topic in economics that I was having trouble accepting was that unemployment is seen as a 'good' thing when a technological enhancement replaces workers. It is 'good' because there are now saved resources (labor) to use in other manners since new advancements that are less expensive (use less resources) can be utilized. I was thinking about this topic in a way that finally made sense to me. Maybe this story will help others too.

In the orphanage I worked at in the Philippines, there was this young woman (we'll call her Mary) whose primary job it was to wash the clothes of the shelter managers. Since the shelter did not have much funding, clothes were washed by hand. Mary was a hard worker who did not complain and so this task was given to her. This job would take up two full days of Mary's week from basically sunrise to sunset. Now, on the days she was not washing clothes I was able to see her interact with the children and she was well suited to be social worker. She did not get annoyed with the kids and she was respected by them. Mary tutored the children and made sure they completed their chores. While I was there, a sponsor asked what type of gift they could get the orphanage and the managers requested a washer.

In my previous point of view I may have said "Oh no, technology replacing a worker This is especially devastating in the Philippines where jobs are scarce enough. Just another case of an individual becoming poor and unemployed." However, as you can see Mary has talents that are separate from washing clothes and without this chore she can now pursue them. This enabled her to start school part time and work as a houseparent at the shelter.

Now this is an especially easy situation to see the positive outcome in because Mary had a job waiting for her to step into. It is a more difficult concept to swallow when there is no immediate job opportunity waiting for the worker, however the concept is still the same.

Culture and Baby Making

2009-05-05T09:21:00.011-04:00

In our cost benefit presentations, one of my fellow classmates was discussing the current low birth rate trend occurring in Japan and showed the graph above. Prof. Krutilla asked about the dip in births in 1966. It was explained to us basically that:

"Hinoe-Uma is a calendar event that occurs every 60 years. The last was in 1966 and the next will be in 2026.

As with the astrological birth signs of the West, the Japanese use a modification of Chinese astrology; a twelve year cycle of astrological beasts. 1966 was the Year of the Horse, but it was a special kind of rather nasty horse; a Fire Horse, or hinoe-uma in Japanese.

Girls born in that year became known as 'Fire Horse Women' and are reputed to be dangerous, headstrong and generally bad luck for any husband. In 1966, a baby's sex could not be reliably detected before birth; hence there was a large increase of induced abortions and a sharp decrease in the birth rate in 1966. "

Here is from the world health organization (pg 3 - 1.3.2), and there have been many articles written about it.

I think it is an interesting display of how much culture influences life and decision making.

'Salary Reduction Agreement'

2009-05-01T05:54:00.006-04:00

Massachusetts mandates that all residents have health insurance. To help facilitate this, they also make employers offer (at a minimum) a Section 125 plan.

A Section 125 “premium-only plan” allows an employee to pay their health care coverage premiums on a pre-tax basis, thus lowering their taxable income and, consequently, their tax liability. An employee’s election to pay for benefits on a pre-tax basis is made by entering into a salary reduction agreement with the employer. Under a salary reduction agreement, an employee elects to reduce his/her compensation by a stated amount on a pre-tax basis and those amounts are considered by the IRS to be employer contributions. In effect, it is as if the employee has given up the right to receive that part of his/her salary before actually becoming entitled to it. Therefore, the employee’s salary reduction contributions are not actually received by the employee, and thus, are neither considered wages for state and federal income tax purposes nor subject to FICA withholding

I had been told that employers reduced wages in return for providing health insurance however, until I read this I was not fully convinced. This outline of the Section 125 plan gives a pretty good description of the situation that is normally more covert. Also it was in 1954, when the IRS tax law changed and health insurance became a business expense deductible that employers started (for the most part) offering this benefit to employees.

Formation of Suggestions

2009-04-16T06:33:00.011-04:00

Today I am trying to think through and make suggestions for a presentation on the Massachusetts health care system. Here are the major relevant issues:
1. By mandating the purchase of health insurance the uninsured rates went from 6% (2006) to 2.6% (2008).
2. This increase in coverage happened at all income levels because of subsidies to purchasers between 150-400% of the poverty level.
3. This reduced government spending on unpaid medical bills (from 661 -441 million)
4. The government used private insurance companies as vehicles and put pressure on them to reduce premiums significantly lowering these prices.
5. Currently the is approval rating is near 70%
However: the government authority in charge of this operation went 150 million over budget last year.

There are many possible routes:
1. Mandate only catastrophic care. You never know when cancer may be invading your system. (But then what about preventive care that will reduce costly medical issues from occurring in the future? How freedom limiting are mandates? Remember, by mandating they are using private insurance agencies instead of government production.)

2. Forgo any mandates and entice individuals to enter through reduced mandated benefits on insurance premiums, and development of high and low risk pricing. This could also be enhanced by providing low interest rate medical loans for people who end up in a catastrophe they did not expect. (Reducing benefits is only predicted to reduce premium prices by 1-6% and may create more underinsured people. High and low premiums would allow insurance companies to create two pricing schemes dependent upon future expected usage of the policy which is currently not available in MA who uses community rating rules. This doesn't sound too much different than our current system. )

3. Support the individual mandate and offer medical nurse teleconferencing to help people decide whether they need medical care for their ailment. (This would reduce congestion within a hospital and mitigate some volume of higher demand - which would increase scarcity and therefore increase price)

Three other interesting points that I want to put on the table is that:
1. In 2007, only 5% of Americans actually purchased their own insurance. 55% was given through an employer, 25% through the government and 15% were uninsured. So really the only group that is consciously choosing to purchase insurance is 5% of the population, it would be important to see how many people would chose this option if it was not given to them as a fringe benefit.
2. Many hospitals charge high rates for items because it is a base price for which insurance companies then bargain below. Medicare/Medicaid tells the country they will pay 50% of the hospital rates and no higher than X amount for certain procedures. Then other insurance agencies come in and say they would be willing to pay 150% of Medicare prices. Then everyone is paying a reduced price except for the individual who has no insurance and then is stuck paying the sticker price since they have no bargaining power.
3. It has been shown that while not having insurance will make people more reluctant to go to the hospital, it does not have any effect on their purchases once they enter the door.

Not All Myths Are Created Equal

2009-04-09T19:57:00.007-04:00

On The Perfect Substitute blog, there is a lively conversation on the book, 'Human Action', by Mises. If anyone wants to join in on some summer reading, please do. The following quote goes well with a story I wanted to tell:

"There may be certainty because of the insufficient information provided by the sources available."-pg 55

One day I was at a friend's house in the Philippines chatting with her parents and we started talking about myths. One is that of the Aswang which is a creature who lives in a tree and eats fetuses of pregnant women and one of the Nuno which are dwarfs who if you step on (and of course you do not know you have) you will get sick (as a side bar - I have no qualms with quoting Wikipedia for these myths, as far as I know they are relatively accurate although many people do still believe in them although people from Manila would rather you think otherwise).

As a group, we were discussing what is real and what is not and they decided that maybe the dwarfs' story is unreal. They themselves have never seen dwarfs and maybe there are other reasons people become sick. However, then the father said, well maybe the Aswang then is fake too. The mother snapped at him, you know so and so's daughter (a rhetorical question), the Aswang killed her baby. There is your proof, she claimed! And so with the sources available, the legend lives on.

The Case of the Uninsured Pinoy

2009-04-09T16:57:00.008-04:00

Some economists like Kling and Cogan either explicitly or implicitly promote a heath care system without the financial buffer of medical insurance (except for maybe catastrophic care). They theorize that without insurance a customer (the sick person) would be financially conscious and chose alternatives based on both benefits and costs of medical procedures. This would put pressure on hospitals to be more efficient and develop technological advancements that are not only more scientifically beneficial, but also more cost effective.

Thinking on this rational today, I remembered that most individuals in the Philippines do not have health insurance to cover their medical costs. One interesting outcome of this is that many hospitals require their patients to purchase medical supplies themselves. Since a high percentage of the population is relatively poor, hospitals are leary of providing materials that may not be paid for. Therefore, sick individuals need a kasama (friend who stays with them) to be available to go to the pharmacy located either inside the facility or outside the grounds (and most times both). This has spurred medical supply businesses to establish themselves near hospitals. I held the respected position of a kasama multiple times and had to purchase items like IV fluid, medication, needles etc. It is true that the customer feels the financial impact of these items right then and there, which may spark a conversation about lower cost options (which is what the economists above are promoting). However another question is, if a doctor tells you that you need this medication, will the price tag change your purchasing decision? You may purchase the generic medication, you may look for the lowest priced substitute, but when it's your loved ones you're going to purchase the item (if possible) in some form. This also raises the question of whether this will change the development of technology. Since the Philippines (as far as I know) does not provide medical advancements to the world, will the cost savings practices in this country effect medical research in other countries?

Keepin' It Local

2009-04-07T05:10:00.012-04:00

Ithaca, NY and a few other cities have created their own currency. Ithaca termed their denominations, Ithaca Hours. It appears that this is nothing more than purchasing a gift certificate for the Ithaca community (which makes sense since money is just a claim on future goods and services). This would be like saying Walmart created its own currency when it started creating gift cards. An interesting part about this system though is while you can purchase almost everything at Walmart, people would be protesting if this company started paying their employees with gift cards. While Walmart would benefit from its employees spending their paycheck in the store, this employer gives cash benefits to their employees leaving it up to the employees to chose where and how they want to spend their income. However Ithaca's system is advocating that employees should be paid with Ithaca Hours currency. But the question arises, what happens though when participating members want to go on vacation in an area beyond Ithaca's borders? (I know who would ever want to do that... but the winters are extremely cold!!) What if they wanted to purchase a car that is not created in Ithaca and therefore does not accept Ithaca Hours as trading power? What if a neighboring community has higher quality products or lower prices on equal goods? Since they only have claims on Ithaca items, they must forgo all of these other goods that would be available to them. Or they trade in their Ithaca Hours realizing they cannot/should not purchase everything within the Ithaca Community.

-Thanks Bob Witmer for the info.
- A good followup podcast (Thanks to Prof. Ross for showing us this in class)

Economics of Mate Selection

2009-04-01T19:31:00.010-04:00

Today we were discussing Hedonic pricing in Prof. Krutilla's cost benefit analysis class. We were talking about how items like homes come with a pre-packaged set of characteristics that one must choose between and how this situation creates a breakdown in linking marginal benefits with marginal costs of these characteristics. This discussion reminded me of dating.

Here is a situation where different individuals have different preferences for characteristics in a mate. I have strong preferences for intelligence, energy, and an interest in life, whereas another person may strongly value humor, financial security, and calmness. If it were up to me, I could create the 'perfect man' who has all of the characteristics I like in just the right increments (he can be intelligent, but not belittling). While another girl would make a different 'perfect' individual with increments of characteristics at her marginal trade off values in accordance with her personal preferences. However this is not the situation we are in and therefore when selecting a mate I need to take into consideration the whole package. He may be a little too demanding and not quite energetic enough, but the question remains: Is this the closest combination I am going to be able to find?

Everyone needs a Dr. Mom

2009-03-27T17:02:00.005-04:00

While at a lecture by Professor Eric Wright of IUPUI on the topic of Health Care Reform, one idea (out of many) that he discussed was this idea of a medical/health care home which is basically having someone that checks up on you and that can field your medical questions. I also heard this idea on a podcast by Arnold Kling. The more I think about this idea, I know it is not the total savior of health care problems in the US, but it is an important aspect to get people who need care into the hospital and those who do not out. My mom and one of my brothers are nurses and it is great to be able to call "Dr. Mom" and ask her if a symptom is a big enough issue to go to the hospital for. She has saved me a lot of money and has freed up countless hours of doctor's time by telling me to take a Tylenol Cold and wait it out. If the US health care was to move to any type of full coverage, some type of barrier system would have to occur to make sure the people who need services are not crowed out by individuals who don't.

International Interest

2009-02-28T05:10:00.005-05:00

A Chinese student told me this fable yesterday:

There were two grandmothers sitting and talking to their grandchildren. The American grandmother says, "I have spent all my life paying back loan payments of the house that I lived in and raised all my children in. However today I finished the last payments and finally I own the house." Alternatively, the Chinese grandmother tells her grandchildren, "I have spent my whole life saving money and now I can finally buy a house and live my last few days in it."

In this she was trying to highlight the cultural lending differences and how they affect quality of life. For her to study, her parents needed to save all of her tuition bill before she could enter college, because as she explained, there is no institution that will allow her to pay back her current expenses for the paybacks it will offer her in the future. I am not an expert in Chinese lending practices, but it is interesting to note her view of lending. To her, moving future funds into the present is not a viable option, while Americans use this theory to make many financial decisions.

Pinoy Banking

2009-02-19T19:17:00.004-05:00

While in the Philippines I had a situation happen that really perplexed me (well, actually one of many.). At the time I just said, huh... that's odd and kept on moving, but now with the confidence of being home I decided to explore the topic. This was the situation:

I went to the ATM of my bank Philippine National Bank (PNB) and tried to take out 500 pesos. Instead I hit the 0 one too many times and took out 5,000 pesos. A little more money than I felt comfortable having around. So, I walked into the bank and tried to deposit the extra 4,500 pesos. The teller told me I was going to be charge 100 pesos to deposit the money. I told her that PNB was my bank and she said it is a service charge. This is the point where my head is thinking.... wait isn't this in the contract of you being my bank? What is the service that is being provided above and beyond normal banking? I now have to pay you to hold/use my money? And the next thought is.... if I start this argument, it is going to be a very long day waiting to get a real answer. Doing the calculations paying two dollars to not deal with a headache is a trade I was willing to make.

Now, being home and more curious I checked the PNB website to find out what the rationale is behind this charge. I came out empty handed. I then emailed customer service and asked what the deal was. After about 5 email exchanges I got my answer:

Hi, Ms Suzanne,

Per our bank's policy,we charge P100 for interbranch deposit, if your account is maintained here in Manila, and you make a deposit transaction to any of our provinical branches, the receiving branch shall charge you P100.00.
Thank you.

Since Peace Corps opened my account in Manila, I was not allowed to deposit at other branches of the same bank in the Philippines.

Things that make you go hmmmm.....

Food Stamp Participation Rates

2009-02-14T17:02:00.010-05:00

While looking at information from the Food Stamp program, I found that the USDA is concerned that all eligible individuals are not participating.("One important measure of a program’s performance is its ability to reach its target population, as indicated by the fraction of people eligible for benefits who actually participate.")This issue has been researched and has found:

There are many reasons why people eligible for benefits might not apply. Five of the most common reasons cited in the research literature are (1) lack of information about eligibility, (2) a sense that benefits are not needed, (3) dissatisfaction with the size of the benefit, (4) the complexity of the application process, and (5) the stigma attached to participation.

Four out of the five issues appear to remove individuals who do not extremely need the support. Number 1 is an actual programmatic issue that needs to be resolved. The lack of information dispersal is an issue which the USDA is trying to eliminate by funding an outreach program to inform the eligible participants of the program and how to enroll. For number 2 and 3, if a household decides the benefits are not needed, then why would we want to force them to participate? (And why are they eligible for assistance if they do not believe they need it?) For number 4, if the participant feels as though his time and effort needed to complete the process is not worth the benefits of the program, then he did not need the benefits anyways. (For example, I would personally take the time to fill out complicated scholarship forms because the time I devote to the process is equal to or less than the possible scholarship award, however someone who is better off financially or feels their time is worth more than the scholarship will not go through that process. This weeds out the people who do not necessarily need/want the benefits). Number 5 is a social issue, which the program has tried to reduce by offering electronic cards. However, if a person truly needed food, they would not allow stigmatizing to defer them from the benefits.

The USDA states that:

Most non-participants (69 percent) would apply for food stamp benefits if they knew that they were eligible. Nevertheless, 27 percent would not apply even if they knew they were eligible. The vast majority (91 percent) of these households who would not apply most often cite a desire for personal independence as their reason.

It appears that there is an informational problem, which will hopefully be eliminated. However the more interesting point to this quote, in my mind, is that 91% of people who choose not to sign up indicate that this is due to the desire to rely on themselves, not the government, to provide for their household. I think that is a statistic that the program should be proud of, not cite as a problem. This personal independence is what the social systems are trying to ensure for families. Therefore, as long as the informational problem is corrected, a low participation rate in the Food Stamps/SNAP program may not necessarily be a negative thing.

economic value of life and nationality

2009-02-11T08:16:00.006-05:00

With the ever increasing use of mathematical techniques to aid us in decision making, there are some assumptions or general models that need to be made in calculating values. These values will allow the benefits of happiness or the value of saving a life to be added into the calculations. This is important to ensure that these social costs/benefits receive equal footing as other items that have a market value in decision making calculations.

However on a review of some of these techniques, I wonder if a general number is calculated and used as a guide for all individuals in the world or whether different accounting domains create different numbers. Many of the techniques I have learned about so far allow for a price of life to be derived from market behavior about the worth of a life. What happens if these market values are deceiving based on the amount of money someone has to spend.

This is better seen through examples.

One way to find out the value of someone's life is to just plainly ask them. This however is not a very reliable source. Today my life is worth $ 50,000,000 to me, however tomorrow if I get a date maybe I will deem my worth to be $100,000,000. Moreover, if my date stands me up maybe my life is only worth $1,000 to me. By just asking a theoretical question, you are bound to get an unrealistic answer. In terms of different nationalities, people have different qualities of what large numbers are. For example a million dollars to me is a lot of money, however to a millionaire this is a less large number. Therefore another individual may think of $50,000 as a inconceivable amount of money. Does that mean that because our numbers vary that we all do not share the belief that our life is more important to us than a ridiculously large amount of money (no matter what the actual denomination is?)

Another way is to find the value of life is to calculate the price of safety people surround their lives with. This could mean safety at work, or safety at play. Does this mean that people in other countries that take jobs without safety regulations do not value their life as much as developed nation individuals? What about car safety? Living in developing countries is a safety hazard. Overcrowding vehicles without safety precautions increases the probability of death, but alternative options are not always available. Does that mean that while I lived in the Philippines that I valued my life less than I do while living in the USA or do I value it equally I just have different options to express that value depending on my situation?

The last way I will look at economic value of a human life is through what an individual's calculated future income is. This highlights the financial capability of an individual in a market. How much is this product (human) worth? Again, does that mean a doctor in the USA has a different life value than a street kid in Mexico?

These are interesting thoughts and difficult conclusions to find. A question I pose is, if someone is valuing two projects, one in a developing country that saves 100,000 lives vs. one that saves the same amount of lives in the USA, will these two groups of benefits (lives saved) be equal or because of the tools used above to calculate value of life, will the Americans' lives hold a higher value and therefore have a higher benefit costs ratio (making the project more beneficial in the USA)?

MA Health Care Coercion

2009-02-07T20:35:00.011-05:00

While looking for a regulation to critique for one of my classes I found information on the mandated health insurance regulation in Massachusetts. Here an except:

The purpose of this “Individual Mandate” is to strengthen and stabilize the functioning of health insurance risk pools by making sure they include healthy people (who, if not offered employer-sponsored and -paid insurance, are more likely to take the risk of not having insurance) as well as people who know they need regular health care services (and therefore are more likely to go to great lengths, and expense, to obtain insurance.) ... Experience and research has shown that voluntary measures aren’t enough. Regardless of the price of insurance, some people choose to hedge their bets on health insurance by going without. By requiring everyone to have coverage, those who are healthy and currently uninsured will enter the insurance risk pool and thus help to stabilize the cost of premiums for the currently insured.

Adverse Selection: People with a higher probability of needing a service will buy the service. This is the game, only people who think they will gain something (whether it is the safety of knowing if tragedy occurs they will be safe, or if they are sick and know they will use the hospital) will purchase the medical coverage. Just like I would only purchase a meal if I knew I would eat it (and as a vegetarian, if it had meat in it, I'm not purchasing it). This is difficult for the insurance company because they cannot always tell exactly how much each client will cost them in bills. However, there are some savvy individuals who calculate premium prices, even with this incomplete information, in order to keep medical insurance as a functioning business. By "stabilizing the cost of premiums,' it appears healthy individuals will be reducing premium prices for individuals who are currently paying high rates based on their probability of needing medical care.

Not only will Massachusetts' citizens to pay for the population's medical services through health insurance premiums, but they will also contribute through taxes.

The financing of the bill is based on redirecting some of the public funds we currently spend on “free care” provided through hospitals, to provide subsidized health insurance to the uninsured.

Now individuals who are healthy and would choose not to purchase insurance are mandated to buy insurance, which feeds money into the insurance system to pay for the bills of the expensive insured. And in addition, part of their taxes are going to subsidize individuals into the health insurance system.

If an individual decided not to purchase health insurance, they would incur a penalty connected to their income taxes that would amount "to a portion of what an individual would have paid toward an affordable premium."

Therefore a Massachusetts resident's choices are: to buy insurance, pay for an insurance premium without the benefits of being insured(the income tax penalty), change her state of residency, or find some other way to not file Massachusetts income taxes. None of which seem especially beneficial if she does not want health insurance in the first place.

http://www.mass.gov/legis/summary.pdf