Wednesday, December 31, 2014

Learning Economics Through Pictures - Minimum Wage and Jack-in-the-Box

On a trip to California last week, this is what I found in a Jack-in-the-Box restaurant.  Putting in a machine like this is a natural response by firms who see minimum wage increases (or threats of minimum wage increases).  The firms will replace low-skilled employees with machinery.  

California increased their minimum wage on July 1, 2014 (to $9.00/hour).  That is terrible news for young and low-skill workers.

My "best of" 2014 ... scholarly articles I published

I have scholarly articles published in 2014. (Yes, it was a good year - although there is a bit of variance in the timing.  I don't think I was less productive in 2013, but things just seemed to get published in 2014.)  Below are the citations and the links to each:

Many countries now require prominent pictorial health warning labels (HWLs) on the front and back of cigarette packages. In the US, pictorial HWLs have been adopted, but tobacco industry litigation has delayed their implementation. This intervention could have value to smokers, if it increases their information and changes their smoking behavior. In this paper we estimate the value of two different health warning labels for cigarette packages relative to the current US labeling policy. Our methodology does not depend on the personal values of policy makers or other individuals, as the value of information estimates we derive are based solely on smokers’ own consumption choices, not any public health or other effects. We introduce an approach to valuing information with a surplus measure that couples willingness-to-pay from non-hypothetical experimental auctions with time-series revealed preference demand estimates. We find that a pictorial HWL has a large value to smokers, and a higher value than a label that only contains text, insofar as changing purchase behavior.


Researchers use practice rounds to familiarize participants with experimental auction mechanisms. We find a positive correlation between practice bids and bids submitted in later rounds. We consider three explanations for this correlation: a behavioral anchoring effect, a tendency for some auction participants to be more free-spending, and misconception of the experimental auction’s demand revealing qualities

3. “Examining the relationship betweenpsychosocial and behavioral proxies for future consumption behavior: self-reportedimpact and bidding behavior in an experimental auction study on cigarettelabeling.”  Health Education Behavior, 29 (2): 183-194.


Experimental and observational research often involves asking consumers to self-report the impact of some proposed option. Because self-reported responses involve no consequence to the respondent for falsely revealing how he or she feels about an issue, self-reports may be subject to social desirability and other influences that bias responses in important ways. In this article, we analyzed data from an experiment on the impact of cigarette packaging and pack warnings, comparing smokers' self-reported impact (four-item scale) and the bids they placed in experimental auctions to estimate differences in demand. The results were consistent across methods; however, the estimated effect size associated with different warning labels was two times greater for the four-item self-reported response scale when compared to the change in demand as indicated by auction bids. Our study provides evidence that self-reported psychosocial responses provide a valid proxy for behavioral change as reflected by experimental auction bidding behavior. More research is needed to better understand the advantages and disadvantages of behavioral economic methods and traditional self-report approaches to evaluating health behavior change interventions.



Epidemiological and toxicological evidence suggests lower risk of smokeless tobacco (ST) products compared to cigarettes. Less is known, however, about consumer perceptions and use of novel forms of ST, including snus and dissolvable tobacco.


In this study, we conducted in-person experimental auctions in Buffalo, NY, Columbia, SC, and Selinsgrove, PA with 571 smokers to test the impact of information and product trials on smokers' preferences. Auctions were conducted between November 2010-November 2011.


We found no evidence of an impact of product trials on demand in our auctions. Anti-ST information increased demand for cigarettes when presented alone, but when presented with pro-ST information it decreased demand for cigarettes. It did not decrease demand for ST products. Anti-smoking information increased demand for ST products, but did not affect cigarette demand.


These findings suggest that credible and effective communications about tobacco harm reduction should reinforce the negative effects of smoking.



To explore how advertising affects demand for cigarettes and potential substitutes, including snus, dissolvable tobacco, and medicinal nicotine.


A Web-based experiment randomized 1062 smokers to see advertisements for alternative nicotine products or soft drinks, then complete a series of purchase tasks, which were used to estimate demand elasticity, peak consumption, and cross-price elasticity (CPE) for tobacco products.


Lower demand elasticity and greater peak consumption were seen for cigarettes compared to all alternative products (p < .05). CPE did not differ across the alternative products (p ≤ .03). Seeing relevant advertisements was not significantly related to demand.


These findings suggest significantly lower demand for alternative nicotine sources among smokers than previously revealed.

Tuesday, December 23, 2014

My "best of" 2014 - opeds

Over the next two weeks, I'll go through some of my professional highlights for the year.  Here are excerpts from the four opeds I published in 2014:

1.  Voter ID laws protect voters
There are two key arguments against the voter ID requirement. The first is that voter fraud doesn’t exist, which would mean the law has no benefits. This argument is laughable. Just ask Melowese Richardson, who was sentenced to five-years in prison for voting for Obama multiple times in Ohio.

2. TV show "Suits" shows danger of restricting people from jobs
While I find the show entertaining, it troubles me because these types of situations happen in real life. There are people who would be good at a job, but restrictions make it illegal for them to work. The show raises a good question: If somebody wanted to pay a non-lawyer for legal advice/representation, why should that be illegal?

3. On the gender wage gap
If you insist that the gender wage gap is a result of discrimination against women, here are a few other claims that must be equally true. By the same logic, young men are discriminated against in favor of young women. Women in their 20s without children out-earn men by as much as $1.08 to every dollar, according to some estimates. It must also be true that white men are discriminated against in favor of Asian-American men, who earn over 5 percent more than white men. To claim either of these as discrimination would be ridiculous, though, right? There are differences in job types, education levels, hours worked, and other factors that lead to these wage differentials. But these factors are just as responsible for the overall difference in wages between men and women.

4. Let's eliminate the minimum wage for teenagers 
The minimum wage is a bad law. A high minimum wage prompts many firms to hire fewer teenagers – or none at all. Companies will only hire a teenager if they think that teenager will increase their profits, and a higher wage means less profit. Often workers are replaced with machinery, and if you’ve seen touch-screens at grocery stores or restaurants, you’re familiar with how easily machinery can replace young workers if lawmakers enforce high minimum wages. This hurts most the group that it purports to help – low-wage workers, by making many unemployable.

Saturday, December 20, 2014

Well-written oped on buying local

Link here


For the most part, however, the economic claims of the "buy local" movement are hooey.
Economic impact studies can have some uses. But in the public policy realm, they have become a racket. They hang ridiculously precise numbers on inherently vague and difficult to measure phenomenon.

Friday, December 19, 2014

CBO examines economic impact of fracking

Link Here


A new report from the Congressional Budget Office details exactly how shale drilling technologies have benefited consumers as well as the economy:
  • Without shale gas, natural gas costs in 2040 would be 70 percent higher than they are projected to be.
  • In 2020, GDP will be 0.7 percent higher than it would have been without shale. By 2040, GDP will be 0.9 percent higher than it would have been without shale.
  • The federal government's tax revenues will be $35 billion higher in 2020 due to shale energy than they otherwise would have been.

Many studies are quite biased.  While CBO reports aren't always accurate - this is probably the least biased source to ever conduct a study on the economic impact of fracking.

Thursday, December 18, 2014

Fracking, economic freedom, and David R. Henderson

Fracking, economic freedom, and David R. Henderson.  Those were my thoughts this morning as I read the story on how NY may ban fracking.

The politicians in NY are making the decision that all NY citizens are not allowed to frack - even those who would wish to.  It is a classic case where economic freedom is violated, although politicians will not phrase it that way.   (They will always claim its for the greater good.)

Speaking of economic freedom - please mark your calendars for January 21st.  David R. Henderson will be speaking at Susquehanna University.  He might not address fracking specifically, but he's been on the front lines fighting for freedom for many years.

Monday, December 15, 2014

The minimum wage is stifling the American dream

Link here

Most troublingly, these low-skilled workers saw “significant declines in economic mobility,” as these workers were 5 percentage points less likely to reach lower middle-class earnings in the medium-term. The authors provide a possible explanation: the minimum wage increases reduced these workers’ “short-run access to opportunities for accumulating experience and developing skills.”

For those who want to climb from a lower income level to a higher income level, nothing is more crucial than job experience. That is the single top thing that a poor person should do if he/she does not wish to remain poor.

While my family wasn't poor, I was from a working-class family of five where the main breadwinner was a US postal carrier. I worked paper routes for about 2 years and then at fast food restaurants for another 2 years, all before I was 16-years old. Those jobs taught me to work hard along with some skills that were valuable to other employers and in life (e.g., how to deal with people). That helped enable me to get higher paying jobs as an older teenager and in college and beyond.

If the minimum wage was higher, those opportunities would not have happened for me. Unfortunately, with the minimum wage as high as it is right now, there are millions of Americans who won't have the opportunities I had. The current (high) minimum wage is stifling the American dream.

Thursday, December 11, 2014

Learning economics through pictures - free market innovation

This chart shows the price of a GB of data.

Source here

I don't have much else to say here - except that this type of incredible innovation that has cut the costs so dramatically only happens with free markets.

This raises a good question: Has the price of any government product dropped over time?

Wednesday, December 10, 2014

Learning Economics Through Pictures - NFL Ticket Prices and Demand

This screenshot was taken of  It shows prices to five different NFL games, all played this past Sunday.

This is a good illustration of how demand for a product affects its price.  These stadiums aren't dramatically different in size - all can hold tens of thousands of customers.  By December, however, some teams are no longer in playoff contention, while others are.  Three teams contending for playoff spots, the Dolphins, Bengals, and Lions, all have minimum ticket prices of about $50 while a fourth, Cleveland, has a minimum price of $31.

The two teams that aren't in playoff contention that are hosting games are the Jaguars and the Redskins.  Their minimum ticket prices are $25 and $6.

With a higher demand and a fixed supply, the price should increase to ensure an equilibrium.  That appears to be happening in the market for sports tickets.

Another note - given that many tickets are purchased months in advance, this equilibrium can only occur when there are legal markets that allow tickets to be resold.

Wednesday, December 3, 2014

David R. Henderson is visiting Susquehanna University!

A fascinating economic impact study

Link to story about the economic impact of cover-up businesses

The chair is dedicated to conducting research on the economic and social impact of Tasatur (providing cover for expatriates to illegally run their own business activities) on the Saudi society and ways to combat the phenomenon.
According to Prof. Diyab, “the phenomenon of cover-up businesses has created unhealthy competition in the local market.” He said that the Saudi government has attempted to combat this problem but has been unsuccessful so far with the practice having increased lately. He noted that the government is aware of the negative economic, social, legal and political impact the illegal businesses are having on the society.

I don't know what's meant by "unhealthy competition", but it sounds like these "cover-up" businesses are providing services that people like, and that established businesses don't like them.  I couldn't find an actual academic study on this issue, but am curious what an study attempting to quantify this impact would look like.

Tuesday, December 2, 2014

Incentives to admit climate change?


As you study economics, you realize incentives are everywhere.  Unfortunately, the incentives aren't always positive.  For those who receive funding to study climate change - the incentives are skewed to encourage findings that say there is climate change.  If it is suddenly discovered that climate change will not be damaging, that would destroy the careers of thousands of researchers.

Because of these bad incentives, any rational person should harbor at least some doubts about the possible impact or likelihood of climate change.  As an economist, I find this especially true since projections of climate change are often based on theoretical models.  Those in economics, more than in almost any field, should understand that just because there is consensus on an issue, doesn't mean the model is correct. (Mortgage crisis, anyone?)