Economic Cost of Lack of Sleep

As I am finishing up my last tax returns of the tax season I am finding myself thinking about the effects of sleep deprivation and the economic costs of it.  I got thinking about how much more efficient I may have been if I had only went to bed a little earlier.  How much money and time could I have saved by getting more sleep?

As I started to do some research on the topic I discovered there have been a lot of studies on the subject.  The one thing that they seemed to all have in common is they agreed there is no real measurable data and what they do have is based only on speculations.  I did find one study by Valley Sleep Center that put a dollar amount to the issue.  They estimated the annual cost to employers to be about 63 billion dollars. 

If getting more sleep could save that much money annually, why have we gotten to the point where we do not get the sleep we need to properly function?   What is causing us to sacrifice our precious sleep and what can we do to prioritize our lives to combat this?  What do you think the cost of lack of sleep is and how has it affected your lives?  Let me know what you think.

Solow Growth Model

I read the two articles on a national income growth model (called Solow model www.piketty.pse.ens.fr/files/Solow1956 ) and found some interesting things which I would explain here. The Solow’s growth model emerged in 1956 which showed that higher the rate at which a country saves the richer it will be and this relationship becomes inverse when the population growth is considered for its impact on the national income i.e. per capita (Solow, 1956), this is due to the fact that a larger population would result in a smaller portion of total National income. The article “A Contribution to the Empirics of Economic Growth” has utilized the Solow model to improve the forecasts it makes and provided a better and improved model with inclusion of the human capital in it (N. Greofory Mankiw, MAy, 1992 http://links.jstor.org/sici?sici=0033-5533%28195602%2970%3A1%3C65%3AACTTTO%3E2.0.CO%3B2-M  ). The implications of Mankiw’s article are very useful because it describes the impact of human capital in the growth model which was missing in the original Solow Growth model. The findings of Mankiw suggest that the elasticity in per capita income to the change in physical capital under this augmented model is comparable to the original Solow model which shows that the definition of the physical capital by the textbook Solow model is very much comprehensive and it doesn’t have externalities.

Mankiw improved the Solow model and displays the importance of human capital accumulation and claims that difference in income levels of different countries is due to the difference in education, savings and population growth in those countries. From these factors the original Solow model missed out the human capital accumulation which was found out to be very important in predicting the future income per capita of a country. These findings can be used by the government authorities in determining the direction of their government expenditure and taxation.

The contributions of Mankiw’s article towards the field of study are immense and it adds to the previously established knowledge i.e. Solow Growth Model and asserted that the human capital accumulation is also important in explaining the elasticity in the income per capita level to human capital accumulation which was a lacking point in the textbook Solow model. Moreover, it also provided more accurate convergence period (35 years instead of 17 years) over which the different countries with similar population growth, physical capital accumulation and education might converge in terms per capita income in 35 years. The article has shortcomings besides these factors there are also lot of contributors in the economy which have influence on the income levels like; net exports, different tax systems, different political structures and socio-cultural differences etc. Therefore, these differences can make it hard to validate the results and suggestions of the Mankiw’s Solow growth model in terms of the per capita predictions, convergence period and coefficient of the elasticity between the income per capita and the physical and human capitals.

OPEC and Oil Production in North America

I found two articles regarding the role OPEC plays in the world's oil market. Their role has changed drastically since August 2010 when the United States was importing just over twelve million barrels of crude oil to August 2014 where imports of crude oil has fallen to just over 9 million. A major reason the demand for crude oil has change so drastically is that the United States is producing more oil. Since 2008 the production of oil in America as increased by 90 percent making them the world leader in oil production.

OPEC focused on what is best for oil prices, not what is best for an individual company and with the free market in the United States companies will begin to focus on their individual profits, and not the profits of the oil industry as a whole. This change in focus could change the prices of oil in a good or a bad way for consumers. The supply and demand of oil product will cause the increases and decreases in prices.

With OPEC refusing to reduce the amount of crude oil they produce and the Americas producing massive amounts of oil the market is going to become saturated eventually lowering prices. The price reduction seems to be what OPEC wants to happen, because the U.S. and Canada cannot produce oil at the low cost that the OPEC countries can produce at. With recent innovations in oil production in the U.S. and Canada, they are becoming more competitive concerning the cost of production, but are not as cost efficient as OPEC nations.

Essentially OPEC wants to drive the U.S. and Canada out of the market creating the same type of market structure they had in the 70's. This type of market share for OPEC  would let them control the oil prices again. OPEC is using the prior market structure of perfect competition to try to bully out their competitors. I question if this will be good or bad for the price of oil because it may cause the oil prices to drop in the short run, but in the long run the prices of oil through out the world will increase if OPEC succeeds in pushing U.S. and Canada out of the market.



The Customer is Always Right

In the USA there is a general consensus that the government should be responsible for monitoring the wages of low income earners to make sure they are reasonably compensated. Mandatory minimum wages are set to force businesses to treat employees fairly. This article suggests another possible way to control wages; leave it to the market. Many big box stores have begun paying higher wages not because of government regulation, but because it is what customers want.

Customers have significant power when it comes to pushing companies to change. If a customer’s number one priority is to purchase a product at the lowest possible price, they will send that signal to companies who will cut their costs in whatever way they can to lower prices. This often means seeking out the lowest cost for labor. On the other hand, if consumers really desire higher wages for everyone, they must signal that to businesses through their willingness to spend an extra fifty cents on a burger to support a company that pays higher wages to its employees. Consumers have a real power to dictate a business's behavior by choosing to support companies that go along with a desired change.

It is assumed that businesses seek to optimize profits. Adhering to customer demands can result in increased sales, which can outweigh the cost of the increased labor. If the cost of increased labor is greater than the benefit of increased sales, it is probable that the majority of consumers do not feel strongly about the need to increase wages. It is interesting to consider consumers as voters who really have the power to impose their own regulations on businesses. Such consumer imposed regulation could even prove to be more efficient than government regulation.


Water: Is Mother Nature a Supply Shifter?

I wanted to discuss a topic important to me but also one that was important to all of us living in a drought stricken part of the United States.  I was shocked when I skimmed through the blog titles as far back as 2011 and didn’t find anything posted on this topic.  The economics surrounding the water shortages in the Colorado River basin are far reaching and complicated yet fascinating when you consider just the supply and demand aspects of this issue.

The quantity of water demanded continues to increase with population growth and farming needs, even though new technology has helped to use water more efficiently.  During drought years the quantity demanded is higher than the quantity supplied creating a shortage, regardless of price.  The fact that Mother Nature is the one primary supplier of fresh water and it’s difficult to predict her annual supply; I wonder how this affects the various associated economies.  Although I think dams & reservoirs have been societies way of minimizing shifts in the supply curve, with the sustained drought mother nature has become an unpredictable supply shifter.  It’s the supply side of this relationship I find so intriguing although it appears rather simple.

A conference was held in March 2015 in Park City Utah to discuss how managers of water utilities can maintain a healthy bottom line during these times of shortages.  They’re looking at ways of replacing the supply provided by snowpack while others suggest aggressive pricing and new conservation practices.  They mention using block pricing to help sustainability with less water.  I personally wonder if a peak-load pricing strategy might help. 

I’m interested to hear what others have to say about this topic, especially Dr. Tufte because I’m sure this topic is not new in his world of economics.


Free-Riding in the Olympics

As students in higher education, we all have witnessed some form of “free-riding” over the course of our education. Group projects intended to increase productivity and communication between classmates can result in an uneven distribution of the work loads. I think one reason for this stems from the differences in motivation and reward factors among individuals. Students who strive for the highest reward (in this case the highest grade) will present the highest motivation in a group setting. The individuals who are striving / content with a lower grade allow the more motivated individuals to shoulder the work. This inequality can lead to resentment, and foster actions which can be counterproductive. While many students dislike group assignments, many realize these group dynamics will arise in the workplace after graduation. Struggling with this battle is a part of life. Outside of education and business, could this type of free-riding present itself in highly competitive settings such as sports?

 In this article by the economist, swimmers are examined to understand the difference between relay race lap times and individual race lap times at the London Olympics. It is found on swimmers who swim the first leg of a relay race typically resort to free-riding and their times are about 0.3% worse than if they were swimming in a solo event. Swimmers who swim the first leg know the real pressure of the race rests with the anchor swimmer (the last swimmer in the event). Due to this, team coaches tend to put their best swimmers in not only the last position, but the first as well. Coaches expect this “0.3% loafing” and put one of their best swimmers first - hoping they can minimize the negative impacts, and increase the teams success. 

I found the existence of free-riding in the Olympics very interesting because, in such a public event, I expected athletes would be giving 100% in every race, not 99.7%. What are your thoughts on this article? Where else can we see examples of free-riding?


Bartering Emissions

There is an upcoming climate change summit in Paris. According to a Mashable article about President Obama’s plan for the summit he has announced that before the summit that America is going to increase its commitment to reducing greenhouse gas emissions. If reducing emissions is the source of utility and the nations are colluding to maximize utility, is it possible that the president could be leveraging a first mover advantage?

The president is also encouraging other nations to also announce their commitments before the official negotiations begin. Knowing that the US was planning to reduce emissions may incentivize other nations to rely on the US to make reductions while increasing their own emissions. It appears that the president may have given a second mover advantage to the other nations. Other nations may be reluctant to make large reductions if they can rely on larger American reductions.

The climate change summit in an interesting game theory case.  The convention may not produce a formal treaty. A treaty would have to be passed in congress, and may not be ratified. As pointed out in the article the convention will need “some mechanism” to induce large enough commitments to reach what the UN considers a necessary threshold. Climate change issues seem to constitute an endlessly repeated game or a game with an uncertain ending period. This may help the nations find an equilibrium point with all nations making large reductions.

What are the Economic Effects of Sending a Future Star Player Back to the Minors?

Just recently the Chicago Cubs sent prospect Kris Bryant back to the minors.  This has caused a great deal of controversy amongst fans, agents, the MLBPA and the teams.  The Cubs cite the reason for him being sent back to the minors as he is simply not ready.  Theo Epstein has stated “he has never in 13 years had a rookie start on the major league roster”.  But, is there more to this than he is simply not ready?  Under the current Collective Bargaining Agreement, if the Cubs send him down for at least 12 days they will gain an additional year of control before he can become a free agent.

When looking at the economics of this it is hard to miss the underlying reason for him being sent down.  He is simply worth more in 2021 than he is for 12 days at the beginning of the 2015 season.  And when you factor in Scott Boras as his agent, and the reputation he has for testing the free agent market with his clients, it only adds to the case of sending him down.  Furthermore, the Cubs know his agent rarely accepts extension offers, all but ensuring he will end up as a free agent.

The biggest thing in Bryant’s favor is the extra experience he will have when it comes time for arbitration or to negotiate his next contract.  By delaying his service clock, the Cubs have given him the opportunity to prove himself longer and he will be able to demand a higher price during arbitration.  So while he may have to miss the beginning of the season he is being put into a situation he may benefit more from.

When thinking about the way MLB handles the players, is if fair to the player to be held back a full year from receiving a big contract for only 12 days of service at the beginning of their career?  What options do the players have considering they play in a monopolistic environment where there is no close substitute?  Let me know what you think in the comments below.

Is the Government Optimally Managing Education? Should it?

I recently came across an article in The Economist social class and how social class is a strong determining factor in the level of education achieved by children.  It discusses non-marital birth-rates at varying levels of education along with differing levels of parental involvement based on social class.  Ultimately, the article concludes that children raised in the highest quarter of income level who received low 8th grade test scores were just as likely to graduate from college as those with high test scores in the lowest quarter.

In terms of managerial economics, it's not difficult to connect the populations' level of education to the amount that the government has to pay in social welfare programs.  With that in mind, also note that currently student loans are not subsidized and students are ineligible for food stamps without working 20 hours a week making the decision to return to school more difficult for those with low income.  While there are grants available, they are limited.  My question is this: is the government losing money in the long run by making its education department profitable to the extent that it is?

Are Restaurant Chains Recession Proof?

Restaurant chains seem to always be in the headlines, sometimes it's for the fatty foods they serve or the good deeds that they perform. Recently at work I have had the opportunity to go behind the lines at a fast food restaurant chain and learn more about how they operate. While talking to the area manager about a specific store he talked about its weekly revenues and stated that it did not see a drop in sales during the recession and claimed that it was "recession proof." This did seem to make sense to me because people have to eat. Also we as humans like to stay with things we know. For example when I think, "what do I want for lunch" the name of a restaurant chain almost always comes to mind.

When I did more research I found more evidence of what was said, many chain restaurants were "recession proof" during the last recession. Those that did the best evolved their menus to our everyday budgets by offering low cost items. At the same time they increased advertising of these items and others that were on the changing menus. But, not all restaurant chains participated in those activities and at the same time had success. Other chains did not seem to have the same success as others partially due to decreases in advertising or stale menus. My question is, are some restaurant chains built better for a recession? Does management play a role in keeping their restaurant chain recession proof?


Monopoly: What an ugly word!

Why does the word “monopoly” result in such aversion in an average person? Is it because monopolies are “bad”? Surely monopolies only exist to make as much money as possible, right? Think of some of the examples of monopolies (or near monopolies) in our history: AT&T, Standard Oil, US Steel, your local energy company, De Beers, MLB, NFL, etc.  Even oligopolies invite collusive agreements.

Yet, being a monopoly doesn't mean that they are always profitable. The real reason that monopolies are so “bad”, most economists argue, is that monopolies reduce consumer surplus and, therefore, overall economic welfare.

So what do we do about it? Our answer to everything in the United States is to regulate ourselves to death. We pass antitrust regulations. We increase corporate tax to penalize these companies for making lots of money.

Except that increasing taxes and regulation decreases economic output and chases corporations away from states or even countries. Some people have gone too far and have used regulations to limit competition, interfering with potentially good mergers. Think of some possible mergers that could have resulted in a positive economic benefit (especially consider vertical mergers): United Airlines & US Air, Staples & Office Depot, and GE & Honeywell.

Regulation doesn't always lead to the death of monopolies, though. In fact, many monopolies (or near monopolies) are supported by government regulation. Think about the government’s support for agricultural prices, public utilities, or the post office.

So what is the alternative to monopolies? How do we prevent them from occurring? How do we control them? Do we have to? Should we just force public ownership on these companies if they don’t guarantee perfect competition or something like it?


Online Education

I found this article discussing online education's potential in today's higher education system after talking about the topic with a friend. He was considering taking a job with an online university who offered to pay for his graduate degree if he received it from that university.
Web-based education is becoming a popular option for students. It seems like I can't watch a game on TV without seeing advertisements for ten different online schools. While they may be increasing in popularity, I believe employers prefer to see a candidate with a degree from a school like SUU or BYU rather than from the University of Phoenix or Broadview University. The author of this article defines these offerings, made for a variety commitment and ability levels as "Massive Open Online Courses" (MOOCs).

However, universities such as ASU and even Harvard are implementing online classes to aid incoming freshmen as well as to expand their student body. The difference between online universities and ASU/Harvard is the course organization. "Small Private Online Courses" (SPOCs) are designed for elite students and require them to complete a heavy load of homework. By increasing course quality using online systems, these schools can cut costs without diluting quality.

The costs associated with running an institution of higher education are massive due to the construction and maintenance of buildings, failed matriculation, and payroll. By using the internet as a classroom, universities can mitigate these costs. ASU has increased the number of students graduating in four years from one-third to one-half with hopes of continuing this incline.

After looking closer at the job offer, my friend realized that the school was privately accredited and decided to get his degree from an AACSB accredited institution. ASU and other schools are combining the reputation of an accredited institution with the convenience and cost-efficiency of online programs to offer students less expensive alternatives to in-class instruction.