Harry Potternomics

I like movies based on reality (an aside: I wonder if this is typical of economists?). I never liked Star Wars, am not into the whole vampire trend that seems to have captivated Hollywood, and can't be bothered to read any of the Lord of the Rings or Harry Potter books. I did see one of the Harry Potter movies, but only because a girl I was interested in wanted to see it.

Although I didn't appreciate the movie at the time, I'm now wondering if the Harry Potter series might be worth a read. Eric Gouvin, a law prof in New England, has published what sounds like a fascinating article about the parallels and differences between the banking system in Harry Potter and the banking system in the real world. According to a description of Gouvin's report, "[W]izards do not manage their money supply the way Muggles do by using the slight of hand of fractional reserve banking to create money out of thin air. Instead, the money supply in the wizard world seems stagnant, creating social problems that emphasize disparities in wealth."

I never knew that Harry Potter was so deep. The article is published as a chapter in The Law and Harry Potter — too bad it's not available at my local library.

Halloween game theory on The Office

You know you think too much like an economist when…

I was watching The Office last night, and I knew Oscar was going to win the Halloween contest as soon as he threw in the towel and traded in his disco dude outfit for a "rational consumer" costume. For those who didn't see the episode, a bunch of employees were competing for the highly coveted Wilkes-Barre/Scranton coupon book in a Halloween costume contest, and some employees were taking things a little too seriously in hopes of snagging the big prize. Oscar decided everyone was getting too carried away, so to show how ridiculous he thought the whole thing was, he took off his costume and put on his normal clothes, claiming to be dressed as a rational consumer.

Freakonomics takes on the Bible

Those of you who have looked at my links to favourite blogs will know I am an avid reader of the Freakonomics blog. They produce a large quantity of posts, many of which I never read (I have yet to understand what the Yale Book of Quotations has to do with "the hidden side of everything"), but they have some very well-respected bloggers and their posts are usually non-technical and high quality.

But I have been puzzling for a few days now over a curious post by Daniel Hamermesh about game theory in the Bible. Maybe someone who is more knowledgeable about religion can help me out with this.

Can a pay cut be pareto improving?

Although I greatly enjoy the competitive balance that the NHL salary cap has created in hockey, it seems to me there is one glaring inefficiency. By limiting the amount of money teams can spend, mediocre players with high salaries who would have a job in the NHL based on merit are instead sent to the minor leagues because given the cap, their salary allocation can best be spent elsewhere.

Several overpaid players have been shipped to the American Hockey League this season so their massive salaries don't count against the salary cap: Wade Redden ($6.5 million), Sheldon Souray ($5.4 million), Michael Nylander ($5.0 million) and Jeff Finger ($3.5 million). The NHL club still has to pay their salary, but it doesn't count against the salary cap.

The case for subsidizing hip-hop

A recent working paper by Swedish economist Per Engström, Bling Bling Taxation and the Fiscal Virtues of Hip Hop, makes the bizarre argument that we should subsidize hip-hop music in the interests of efficiency.

Engström starts with a model of taxing what he calls "diamond goods" —goods that have no value except for their costliness. Taxing these goods ad nauseam is an efficient method of taxation, according to this model, because people value the good more as its after-tax price increases.

Engström focuses his analysis on a specific type of diamond good, "bling bling," which he defines as the following:

…the very extreme kind of ornamentation that hip hop artists often display. It could consist of very heavy gold chains with massive dollar signs (euro signs have lately come in fashion since the late fall in dollar price), diamond encrusted ipods, or surgically removing all your teeth and replacing them with asymmetric chunks of diamond adorned gold.

Behavioural economics in industry

I was delighted to find a hidden gem at the back of the Living section of Saturday's Toronto Star, a story about a behavioural economics book co-written by Hewlett-Packard behavioural economist Kay-Yut Chen (the article does not appear to be available online).

The article itself was not earth-shattering, but I was surprised to see that Hewlett-Packard employs a behavioural economist to conduct experiments that could help improve their business. The workplace is a logical place to run economics experiments, but because it's a fairly new field one doesn't hear about companies running their own experiments very often. Charities are one area that has seen the benefit of experimental economics, with several running experiments in recent years in an attempt to learn how to fundraise more efficiently. But for the most part, economics experiments still take place in academic labs (CIRANO in Quebec is probably Canada's most prominent) rather than in the workplace.

Industry seems like it's slowly starting to see the benefits it can reap from economic research. Google poached respected economist Hal Varian from Berkley in 2007 to help them take better advantage of all the data that Google searchers generate, but he's the only example of a prominent economist in a private-sector research position that I can think of. So I was pleased to see that Hewlett-Packard also has an economist. I'll have to pick up a copy of his book.