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Managerial Econ

Managerial Econ is hosted by a group of economists who have written a managerial economics book together called Managerial Economics. This blog add an economic analysis to quirky topical news like why uber drivers are more efficient than taxi drivers.

Good metaphor for Equity/Efficiency tradeoff

To communicate ideas, we need metaphors.  Greg Mankiw has a good one in this mornings NY Times, Can America Afford to Become a Major Welfare State?Providing a social safety net is like using a leaky bucket to redistribute water among people with different amounts. While bringing water to the thirstiest may be noble, it is also costly as some water is lost in transit.In the real world, this leakage occurs because higher taxes distort incentives and impede economic growth. And those taxes...

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Hidden Costs of Software Migration

Like many universities, some researchers at mine have sensitive data. Since a data breach would be calamitous, all university computers, laptops and desktops, must be encrypted. We just changed vendors for our encryption software. The new vendor requires a new version of the operating system. This requires backing up all of the data on a computer, installing the new OS and encryption functionality, and then reinstalling the backed up data (more on this in a later post). The process requires...

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The paradox of ESG investing

ESG definition: Environment. What kind of impact does a company have on the environment? Social. How does the company improve its social impact?Governance. How does the company’s board and management drive positive change? John Cochrane has a good post on how it effects change: The point of ESG investing is to lower the stock price and raise the cost of capital of disfavored industries, and therefore slow down their investment. If it works, it raises the cost of capital to non-ESG...

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Price discriminating against brides seems profitable

The wedding industry is notorious for sticking it to brides.   But whether this is due to price discrimination or higher costs (brides can be demanding) is still a matter of debate.  But here is an example that seems clear: As I wrote in the column, part of the reason that retailers can get away with charging higher prices for wedding-related services is that spouses-to-be probably have stronger preferences for their “special day” than consumers shopping for other kinds of events do. That...

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Jeff Bezos does HR

Reading Amazon Unbound by Brad Stone, his second bio of Jeff Bezos and Amazon, which picks up where The Everything Store leaves off.  It is amazing how much Bezos involves himself in the details of running the company.  For the many of problems that Amazon faced--Kindle, Alexa, expansion into India, Mexico, and Brazil, or even HR--Bezos would form a team, give them an insane deadline, and dive into the details himself.  Most significantly, Bezos is not afraid to make mistakes.  He initially...

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Differences-in-DIfferences explained, albeit with a macroeconomics example

[embedded content]Another great video from MRU.  Teaches students how to "create" natural experiments using non-experimental data.  To complement this video, try the "Hidden Causality" and "Spurious Correlation" exercises for this free web app described in A Simple Way to Teach Regression.Froeb, Luke M., A Simple Way to Teach Regression (August 05, 2021). Vanderbilt Owen Graduate School of Management Research Paper, Available at...

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Costco’s profit comes mostly from membership fees

 In 2018, Costco's profit was equal to its membership fees.  In 2020 membership fees were 87% of profit.  These barely profitable prices (only 30¢ out of every $100 in sales is profit) increase demand for Costco membership.   In other words, people pay to become Costco members because they get very good prices, on average.  HT:  Merle Hazard

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