The Liberal Order

Incentives Matter: Call Center Edition

It's often difficult for people to understand how profit-making by self-interested entrepreneurs and employees creates the incentive to serve the interests of others. For example, too many people believe oil company executives and owners are greedy profiteers (they certainly may be) whose price gouging makes customers worse off (it doesn't, try going without gas if you don't like the price). But the incentives of a firm and its customers aren't always properly aligned. This Dilbert comic provides a great example.

Call centers have the worst reputations for customer complaints, but that's because call centers are the first contact disgruntled customers have to voice their complaints. But it's also the case that the incentives of customers and call center employees are not always aligned.

 

Is Health Care "Insurance" Really Insurance?

John Cochrane has an excellent op-ed in the Wall Street Journal. It's regarding the mandate that all employer-provided health care insurance covers prescription contraceptives, but Cochrane does an outstanding job of explaining why health care coverage for foreseen expenses is a bad bet, including this great example.

The minute pills are "free," under insurance, the incentive for drug companies to come up with cheaper versions vanishes. So does their incentive to develop safer, more convenient, male- centered or nonprescription birth control. And by making pills free but not condoms, the government may inadvertently be contributing to an increase in sexually transmitted diseases.

 

Private Property and Incentives

Alex Tabarrok has an outstanding post regarding the effect of property rights changes in China before, during, and after the Great Leap Forward (Backward). 

The question is, what is the tipping point? Are the marginal effects prevalent throughout the range of confiscation of private property, or is there a paradigm shift where a critical mass just stops producing and lives off the work of others? (But of course, nobody works, so there is mass starvation.) How big must your public sector get before that critical mass kicks in?

Reinvented to give you "everything you could possibly want."

Check out the ad below, which is to air (supposedly) during the Super Bowl. Isn't this the beauty of capitalism? Complete strangers - the investors, the managers, the contractors, the labor, and more - toil to give me "everything I could possibly want" in a car. I don't even know these people. A tear rolls down my cheek. 

Reinvented from DTan on Vimeo.

 

Thriving Global Black Markets Are Ubiquitous

What happens when the formal economy becomes corrupted by rent-seekers and government officials? People turn to the informal economy to avoid the graft and corruption.

It is estimated that more than $1 trillion, or 8.3% of the U.S. economy is black market exchanges. Isn't this evidence that income inequality is not necessarily as bad as it's made out to be?

The total global trade in black markets is estimated to be $10 trillion. Following the collapse of the former Soviet Union, it was revealed that the economic data that came out of the USSR was totally fabricated - made up. Things were worse than the rest of the world was led to believe. But then it was revealed that there was a thriving black market that even members of the Soviet politburo turned to to satisfy their desires. Maybe things weren't as bad.

Proctor and Gamble provides its goods to these markets around the world. It is revealed in the video that black market sellers are responsible for about 20% of P&G's total global sales, an amount that exceeds even Wal-Mart's contribution to P&G's total global sales.

 

 

 

What to know about IPOs.

It's not the greatest explanation, but for students wanting to know more, here is some information.

Economics for Dummies . . . or Clowns

A pretty good comic illustration of what economists believe and what macroeconomics is all about. Again, it's a comic, don't expect deep philosophical insight.

HT: Carolyn S.

Should you short the stock of Costco and Target?

I was in Barnes and Noble two weeks ago and noticed that though there were quite a few people mulling around in the store, I didn't see anyone purchase anything other than coffee or some other refreshment from the café. In fact, about half the people in the store were in the café using the wi-fi. I ended up purchasing a remainder book for $6. 

These big-box retailers are struggling and the end of big box retailing is near. Internet retailing is reducing the revenue per square foot for bricks-and-mortar retailers. Stores like Barnes and Noble, much like Borders before them, also struggle with space dedicated to near-obsolete media - DVDs and music CDs.

Megan McArdle has more about how survival of big-box retailers will depend on niche products. Still a long shot.

Now, short BKS stock?

 

Strict Liability v. Negligence - An Example of the Latter

Watch the video below. (Caution: Language) It looks like a couple of joy riders or some suicidal person with a death wish. I'll say more after the video jump.

 

 

Apparently it's a woman who suffered problems with a diabetic attack. Now, had she ventured onto oncoming traffic and killed someone, would she suffer civil lebal liability? It depends.

Had she struggled with this problem in the past, it was then a foreseeable hazard for her to be driving. If, however, this was a first occurrence, and more importantly if she didn't even know she had diabetes, then the potential for accident was not foreseeable and she would likely not be held liable. That may be a tough burden to prove in either direction.

In the end, some enterprising lawyer would have devised some reason to sue the car company and the state for not removing snow from the median. Fortunately, she did not hit anyone.

HOAs and State Legislation

What differentiates a local, state, or national government from a homeowner's association (HOA)? Given the limited scope of the HOA, as well as the incentives of developers to provide an efficient mix of public goods (i.e., landscaping, garbage and lawn debris removal, pools, etc.), as Don Boudreaux and Randall Holcombe point out, HOAs tend to be less controversial. The HOA agreement is an ex-ante contract that you agree to prior to buying your home. 

So HOAs ought to be viewed more favorably than typical forms of government, thought they still are governments. Consequently, there has to be some means of residents petitioning and challenging their HOAs without having to run for office.

North Carolina's state legislature is considering limits on HOAs that intrude on homeowners' rights. 

Another hot-button issue was the ability of HOAs to foreclose on homeowners that don't pay their dues and assessments.

Tammy Neal, a real estate broker and former appraiser who lives in Union County, said she ran across an HOA board that foreclosed on a homeowner who owed $50. She called it "a travesty."

I agree, that sounds heavy-handed, but is it any less egregious than current asset seizure forfeiture laws? 

HOAs need to find more resident-friendly means of addressing delinquent residents and those who refuse to comply with guidelines. Yes, some residents are simply malcontents, who then need prodding by formal public institutions to hold them accountable. But such action should be a last resort. 

From my experience, I've seen too many people who sit on HOA boards who are control freaks that relish in exercising their authority and pushing people around. But it's also the case that HOAs cannot selectively enforce regulations, leaving them little room when it comes to enforcing what appear to be minor infractions.

For example, if the HOA agreement stipulates no commercial vehicles are permitted in a homeowner's driveway for more than ten consecutive days (this provides leeway for a homeowner having commercial work done on their home), then by allowing a resident to park a car in her driveway emblazoned with logos on the side of the college where she works, it makes the HOA susceptible to a lawsuit if it then denies the right of the homeowner who owns a moving business to park his moving truck in his driveway.