Suppose you’re at a mathom party and it turns out that some of the mathoms are popular, and multiple people want to claim the same mathoms. How can you fairly decide who gets each mathom, and ensure the allocation isn’t wasteful?
Well, a standard economic answer is to auction them to the highest bidders, but then the mathoms aren’t really gifts any more. And what if the process of allocating the mathoms could itself be enjoyable? Continue reading Efficient allocation of mathoms in a Bad-Santa-like game
When a library finds that more than one person wants to borrow a particular book, they have to have some way of rationing access to the book — deciding who gets to borrow it first, and for how long. At my local library, they achieve this by lending books for three weeks at a time, and preventing you from renewing the loan if someone else has requested the book. If lots of other people have requested the book, I think they get to borrow the book for up to three weeks each in the order they placed their requests.
But what if the first person to borrow the book reads a few pages, gets bored, and doesn’t look at it again till it’s due back? Perhaps they intend to read the rest of the book, but never get around to it. Everyone else waiting to borrow the book might place a greater value on having earlier access to it than the first borrower places on keeping it for the full three weeks. Could the library arrange for less wasteful rationing of access to their books? Continue reading Rationing for libraries
A while ago, I wrote about transferring money through chains of IOUs. I’ve since discovered that such transfers are now sometimes being called “transitive transactions”.
So, for example, if Alice wants to pay Frank $600, but Frank doesn’t trust Alice’s IOUs, they might find a path through existing trust relationships, so Alice gives Bob an IOU for $600, Bob gives his own IOU to Charles, Charles gives one to Denise, Denise gives one to Edith, and Edith gives one to Frank. Alice has paid $600, Frank has received an IOU for $600 from someone he trusts, and everyone in between has given an IOU for $600 and received an IOU for the same amount from someone they trust.
But Charles will be upset if he thinks the transaction is going ahead, and gives his IOU to Denise, only to discover later that Bob didn’t agree to this transaction; and Denise will be equally upset if Charles then demands his IOU back, but she’s already given hers to Edith. Or, Alice will be upset if she gives her IOU to Bob, but discovers later that Frank never received the money, because Denise, who neither Alice nor Frank know or trust, ran off with the money. So how do all these people coordinate, so that they all agree on whether or not the transaction is going through? Continue reading A responsible transitive transactions protocol
In my first article about funding public goods, I mentioned in passing the Wall Street performer protocol, which involves bonds that pay out when a certain public good is provided. In this article, instead of talking about them as bonds, I’m going to think of them as bets — bets on whether the public good will be provided.
But the curious thing is this: people who want to help fund the public good do so by betting that the good won’t be provided. How does that work? Continue reading Betting against public goods that you want
Public goods in economics are those things that are desirable, but neither rivalrous nor excludable. That is, one person’s enjoyment of the good doesn’t detract from anyone else’s enjoyment of it, and it’s impossible to prevent people who haven’t paid for it from enjoying it.
For the purposes of this article, the main example of public goods I’ll be referring to is that of free cultural works, such as open source software and public domain audiobooks.
Obviously, a lot of these public goods are being produced, sometimes for altruistic reasons, sometimes for fun, and sometimes because it makes economic sense for the producer of the good, even if no-one else who will enjoy the good contributes.
Now, there’s nothing wrong with altruism, but people can only afford a certain amount of it, so perhaps we could have even more public goods if we could figure out an efficient way of funding them. How well can we do? Continue reading Funding public goods
As a side-effect of preparing to investigate the relationship between population density and location value, I’ve produced a map of population density in New Zealand according to the 2006 census: (Click on the map for a slightly larger version; likewise for all the others below.)
Before I get on to explaining this, and what I intend to do with it, I’d better give some credits: Continue reading Population density in New Zealand
The efficient market hypothesis (EMH) seems to have numerous definitions, but the general idea is that the current prices in a market (such as a stock market) reflect all available information, and that, therefore, you can’t make risk-adjusted profits in excess of the (purely theoretical) risk-free rate of return by (for example) analysing the past prices of stocks and anticipating their future movements.
The intuitive idea is this: if anyone could easily predict future prices of stocks, they would do so and attempt to profit by buying stocks that are likely to rise, and selling stocks that are likely to fall. But by doing so, such people would bid up the value of stocks that will rise, and bid down the value of stocks that will fall, moving their prices to the prices they’re predicted to have in future. So the present price should reflect the expected future price.
So if the EMH predicts that expected excess profits are impossible, it certainly predicts that guaranteed excess profits are impossible, which poses a puzzle when considered alongside this surprising guarantee. Continue reading An efficient market from different points of view
When I wrote about how a profit-seeking entrepreneur might establish Jubilee, I ended by wondering where the extra value came from, to give the entrepreneur their profit. Today, I’m revisiting that question, and hope to describe a way in which it might be answered. Continue reading Externalities and location value per capita
You’d heard plenty about Jubilee — the way your cousin Frank enthuses about it, you could hardly have avoided it —, but you hadn’t really thought of moving there until things started getting difficult at work.
Julie, the new girl at work, really winds you up; you’re sure she does it deliberately. You’ve talked to your boss about it, but although she doesn’t exactly take Julie’s side, she doesn’t rein her in, either. She says you ought to be able to cut hair without all this bickering. Continue reading A Jubilee story
Slavery is bad for all sorts of reasons. The most extreme form of slavery is chattel slavery, where one person is considered to be the property of another, and the master can do anything they want with or to the slave.
I want to concentrate on one particular feature of slavery that appears in other contexts. Because it doesn’t involve the full horror of chattel slavery, I’m going to use a different word to distinguish it: servitude. Continue reading Class servitude