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.

http://money.cnn.com/infographic/economy/american-oil/?iid=EL

http://money.cnn.com/2015/02/09/investing/oil-prices-shale-opec-end/index.html?iid=EL

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?