“Trapped” in Rental Contracts | Organizations and Markets
17 Aug 2014 Leave a comment
in applied price theory, Armen Alchian, comparative institutional analysis, entrepreneurship, industrial organisation, Ronald Coase, survivor principle, theory of the firm Tags: long-term contracts, mutual dependency, relationship dependent assets, transaction costs, vertical integration
- Mercedes and BMW drivers trapped in lease contracts, rather than buying their cars with cash or credit
- Individuals trapped in wage and salary contracts, rather than raising the capital, arranging the inputs, and bearing the uncertainties to be sole proprietors
- Companies trapped in outsourcing agreements, rather than owning all upstream and downstream production processes directly, as vertically integrated firms
- Vacationers trapped in resort hotels, rather than owning their own vacation condos or timeshares
- Readers trapped by downloading and reading books on their Kindles, essentially “renting” them from Amazon, rather than buying physical books
- Movie fans trapped in DVD rental agreements with Netflix, rather than owning massive DVD libraries
via “Trapped” in Rental Contracts | Organizations and Markets.
The importance of Baumol’s cost disease in school cost trends
16 Aug 2014 Leave a comment
in applied price theory, economics of education, human capital, labour economics, labour supply, occupational choice Tags: Baumol's disease
Baumol’s cost disease is a phenomenon described by William J. Baumol in the 1960s. It involves a rise of wages in jobs that have experienced no increase of labour productivity in response to rising wages in other jobs which did experience such labour productivity growth.
The rise of wages in jobs without productivity gains is required to compete for employees with jobs that did experience gains and can naturally pay higher wages.
The original study was conducted for the performing arts. Baumol pointed out that the same number of musicians is needed to play a Beethoven string quartet today as was needed in the 19th century: the productivity of classical music performance has not increased, but real wages of musicians (as well as in all other professions) have increased greatly since the 19th century.
In labour-intensive sectors that rely heavily on human interaction such as nursing, education, or the performing arts, there is little or no growth in productivity over time. These sectors must pay more to stay competitive in the labour market. These jobs will survive as long as consumers are willing to pay these wage increases. Entrepreneurs react to Baumol’s disease in several ways:
- Decrease quantity/supply
- Decrease quality
- Increase price
- Increase total factor productivity
Baumol’s cost disease in the education sector would be reinforced by reductions in class sizes, more specialised teaching, and the increase in the higher education premium throughout the economy.
All of these effects would require the schooling sector to pay because would be teachers have many more options than in the past. In days gone by, outside of the professions, teaching was one of the few jobs available to a university graduate. Indeed, in days gone by, many teachers were either teachers college graduates such is the case with the sister or they learnt on-the-job as my mother was going to do.
What is your evidence?
15 Aug 2014 Leave a comment
in applied price theory, environmental economics, health economics Tags: methodology of economics
Marvellously simple explanation of the beauty and power of the market process
15 Aug 2014 Leave a comment
The blame everybody else sociology of the vision of the anointed – Thomas Sowell
14 Aug 2014 Leave a comment
Ludwig von Mises on how people will sacrifice intellect before they will give up their political dreams
14 Aug 2014 Leave a comment
Zealots cannot countenance trade-offs and diminishing returns – Thomas Sowell
13 Aug 2014 Leave a comment
Suicide Rates After a Change of Policy Reducing Access to Firearms in Adolescents
13 Aug 2014 1 Comment
in applied price theory Tags: suicide prevention
The Israeli Defense Forces stopped allowing young conscripts to take their guns home on the week-end in the hope of reducing the number of suicides:
- Following the policy change, suicide rates decreased significantly by 40%;
- Most of this decrease was due to decrease in suicide using firearms over the weekend; and
- There were no significant changes in rates of suicide during weekdays.
Decreasing access to firearms significantly decreases rates of suicide among adolescents.
Many suicides are the products of transitory moments of despair. Helping people through this dark shadow can save lives.
Interviews with survivors of suicide attempts often say their decision was spontaneous and they typically go on to live long lives.
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