Tuesday, December 20, 2011

The Tale of Two Countries (in Three Pictures)

The demise of the North Korean dictator Kim Jong Il, in addition to generating endless internet memes and jokes, has prompted some to remind us about the devastation that his regime (and his father's) brought to the North Korean population. Among those reminders, the following three pictures can illustrate the grim legacy the best.

The first is the following GDP figure of North and South Korea between 1997 and 2003 that shows how massively different the neighboring countries performed in the period. Because yes, GDP is still one of the best summaries of a country's economic performance. (Source is here)

Night lights and economic vitality
The second one, my favorite, is this satellite image of the Korean peninsula at night time. South Korea is brimming with lights, evidence of vibrant economy, while North Korea is almost completely dark. (Source is here).  Why this is important? An economic study by Henderson, Storeygard, and Weil (2010) shows that satellite images of night lights provide a good proxy for measuring economic growth (here's the WSJ version)

The biology
The third figure, while may not look as dramatic as any satellite image actually provides an even starker evidence of the failure of the centrally-planned economy. It is a graph also of a stagnated growth, not of the economy, but of the human population. (Source is here).

The above graph is from a  2004 study by Sunyoun Pak who looks at data on height of adults and children of the neighboring countries. Pioneered by Nobel prize winner Robert Fogel, in the last 3 decades, economists have looked at the relationship between income and health. Among a number of biomarkers, height has proven to be one of the best and most useful indicator of long-term health and well being.

It goes without saying that one could not conduct a typical household survey in North Korea, so the author uses data from North Koreans who escaped to the south between 1999 and 2003. Anthropometric measures were taken of the escapees and compared to those of South Korean population (the author noted that the escapees may be from lower socio-economic background relative of the North Korea society).

The graph clearly shows the difference in heights between the two groups and the difference is larger the younger the cohort. On average, South Korean young adults are 6 cm taller than their Northern counterparts. The author goes as far as to conclude: “In contrast to population of South Korea, as well as to that most of the rest of the world, North Koreans did not experience an increase in physical stature during the second half of the 20th century.”

There you have it.  Two countries sharing similar geography, climate, ethnicity, but different political and economic system, and massively different outcomes.

Suggested readings
1. Demick, Barbara (2009)  "Nothing to Envy: Ordinary Lives in North Korea". Here is the book official website.
2. Pak, Sunyoun (2004), "The Biological Standard of Living in the Two Koreas", Economics and Human Biology 2 (2004) 511-521.
3. Henderson, JV, A. Storeygard, D.N. Weil (2009), "Measuring Growth from Outer Space", NBER Working Paper 15199.

... and a bonus for my fellow Atlantic Monthly reader(s):
The Atlantic's photo essay from earlier this year, "Inside North Korea". Which one is your favorite?

Updates (2/25/2014):
This image and the commentary  from NASA Earth Observatory website have been making rounds. The satellite image taken on Jan 30, 2014 shows an even starker contrast than the one we had in this blog post. Most notably the city lights around Shenyang show how much the Chinese's northeast of commerce and transportation hub has grown in recent years.

The NASA commentary also offers a mindboggling fact behind the image: the per capita power consumption in South Korea is 10,162 kilowatt hours, compared to 739 kilowatt hours in North Korea.

Saturday, November 26, 2011

More On Buying Frenzies

Two things I learned coming home from Thanksgiving dinner this year: i) turkey goes well with gado-gado sauce, especially if you don’t have discerning taste buds for boring white meat, ii) there’s a buying frenzy and then there’s a buying frenzy.

This being a supposedly an economics-minded café, I’ll dwell more on the second. Watching the coverage on the door-busting sale at a neighborhood Best Buy store on the local news, and reading the tweeter feed on the chaotic Blackberry launch in Pacific Place, one looks for explanations. Aco’s post goes a long way in doing so. The people clearly were there for the deep discounts but their decisions to stand in line reflect not only their valuation of the products they’re waiting in line for but also how much they value their own time. Some of them may actually were there because they enjoy experience.

There’s a slightly different kind of buying frenzies, though, the like of which we see every time Apple launches a new product. The people standing in line in front of an iBox store are there for a different reason than those standing in front of Macy’s or Best Buy on Black Friday. Most likely, these are the people who like to be first in having everything Apple-related. No deep discounts are necessary for them. In fact they may even be willing to pay a higher price to be first. We know the type. Almost all Apple fanboys fall into this group. A lot of movie fanboys fall in to this, from the Jedi wannabes, the Trekkies, and those standing in line for hours to see Breaking Dawn (yes, you, you, and you).

There’s actually a rather classic paper by deGraba (1995)* discussing this second type of buying frenzy. The idea is that there’s a monopolist who wants to launch a new product of unknown quality. The monopolist has the option to supply enough units for the market to clear, or to deliberately ration the market and create excess demand. Often they do the latter for the following reason.

When a new product is launch, often the quality is not fully known to the potential buyers. For a brand with a fan base, limiting the number of units of the new product on the market will create a buying frenzy where potential buyers will clamor to get their hands on the "new big thing". Any fan worth his salt will try to get his hands on one. The hype is on. Anyone who wants to wait until they have more information about the product will face the threat of not getting any unit available to them. In this case, the monopolist can even set a price higher than a market clearing price. Later when the true quality of the products becomes known to the rest of the market, there’s less room for the monopolist to influence the frenzy.

So which category do people who fight over the Blackberry in Pacific Place fall into? It seems like they’re a combination of both: they put relatively lower value on their time, and they’re also the type who’s willing to take some risks in getting new products of relatively unknown quality. Some of them were probably there for the experience (well, probably not for the stampede).

How about the people standing in long line for those Cr*cs sandals years ago? Well, they clearly fall into the first category since nothing about those sandals are unknown by that time. Everybody knows they’re damn comfortable. And everybody knows they’re ugly.

Next we could discuss why people should go to restaurants with long lines in front of them.

* Patrick deGraba (1995) "Buying Frenzies and seller-induced excess demand", Rand Journal of Economics 26:2.

Friday, November 25, 2011

Economics of queuing, again

I'm in a seminar and I'm bored. So I just checked Twitter and saw some people tweeting about a long queue in some mall in Jakarta. Apparently they are standing in line for the newest Blackberry product or something. Why queue? Wait, let's step back: what is queue? Or more precisely, what does a queue imply? From an economist's point of view, queue is a signal that the good being sold is under-priced (of course, why else do people want to queue?). You see motorists are queuing on a gas station? That's because the price is too low. You see people form a long snake to buy Crocs? Must be because it is being sold in a heavily discounted price.

In other words, queue reflects price distortion - in that case, the price does not tell you correctly the number of goods being sold (i.e. the supply). When the price is lowered, people/consumers will naturally think that the quantity sold is a lot. That's the law of supply: (for normal goods) supply increase will lead to price decrease. When this holds, you don't see queuing. But, because the law is violated - supply does not change (or even: reduced), while the price is cut, then you *should* see some queuing. Those who stand in the queue either think that the goods are many, or are full well that the supply is limited but is driven by a mere .. hype (think about Apple iPad's launching - that's hype*).

So: what do we expect when a good is priced too low contrary to the level it should be (i.e. the one driven by the market)? A queue. Put it another way, what is a queue telling you? That the price of some good is not normal (or that some people are hyped). 

But now let's push it further. Are people so shallow so as not to understand this? Well, actually no: they know it. They are just willing to trade some of their time and energy for the discounted price. If one can factor these in, he or she will actually find that the price is not as cheap as the store declares. What are other hidden costs of distorted price that leads to queuing? Impatience, stampede, quarrel - and even death (remember the story from China in 2007 when somebody died after a brawl over queue-jumping in a gas station?)

Now, why are some people not willing to join the queue? Can be because many things: they value their time more than those standing in the queue do, they know that queue means price distortion and hence an artificial sign that has hidden costs, or simply because they are not affected by some crazy hype. 

Or they might be participating in a seminar, albeit bored. 

Thursday, November 24, 2011

Thanksgiving Random Notes

Gee, it's been for awhile that I don't serve anything here. I am a lousy barista, indeed.

So where are we? Well, apparently we, the baristas, here don't seem to believe that a revolution in economics would happen real soon -- which doesn't mean that the field has gone nowhere since the last time you open the textbook. Come to academic seminars, open NBER web or AEA web, and you'll know what I mean.

Psychology/behavioral approach is moving to the mainstream now, to take one direction of progress in micro, and many are talking about (funny shape of) aggregate demand in near zero short term nominal interest rate in macro.

But we're now near Thanksgiving break, so all those seemingly important serving shall wait.

Well, maybe holiday mood and good behavioral economics shall not be contradicted, thanks to Daniel Kahneman.

His latest book, "Thinking, Fast and Slow", is delightful and well-written -- so well that actually you can read it while waiting for your train, cooking the Turkey, or attending the royal wedding (well, maybe not). For such a heavy academic content, it's not an easy to write in popular lingo yet retain the depth of knowledge. Kahneman did it. You don't need to know psychology or economics (god forbid) to digest Kahneman's thought in this book.

In short: you should buy it.

The other thing that you can do during holiday is probably going to your typical movie theater and watch The Muppets and not-so typical theater for Being Elmo.

Happy Thanksgiving, folks

Monday, November 14, 2011

You said you want a revolution?

This week, we had email exchanges with some colleagues about Harvard undergraduate students walked out of Mankiw's introductory economics class. The discussion was not so much about the walk-out (and much less, or nothing, about the reactions, as in here, here and here). The colleagues were talking about limitations of economic theory in explaining many phenomena, the need to give more room for multidisciplinary analytic framework, and to call for a revision for, even revolution in, economic curriculum and to another revolution in economic thinking.

Here's the summary of my response. First, no one would disagree that economic theory is limited. It provides a framework of analysis, not the framework. All economic models are based on certain assumptions. Not that we believe that the assumptions would (should) hold. But it serves as a benchmark condition to argue what would happen if the assumptions hold.

Second, no doubt that multidisciplinary analysis is good. Economists, and economists, would benefit from talking to, or collaborating with, scholars from other disciplines. But multidisciplinary requires each scholar have solid background on his/her own discipline. Imagine two people, an Indonesian an American, discussing their cultures. If the Indonesian doesn't have a solid understanding about Indonesian culture, the dialogue would be a lecture on American culture, not a cross-cultural one.

Third, while the curriculum and teaching methods should always be revisited to reflect current developments, we need to ask how much information we can (should) feed the students. Besides, the purpose of education and teaching is not to provide answers. The purpose is to make students asking the right questions (and find the answers) by providing analytic framework.

I am not sure about how much revisions we could have in microeconomics. It basically tells us that resources are scarce, so we need to make choices, which imply opportunity costs and give us trade-offs. Then there is demand and supply analysis, which, under a certain assumptions of how the market works, will define the prices. But we don't assume that market works all the time, so there is a substantial discussion of market failure in externality, public goods, uncertainty and game theory chapters. That's usually what we covers in 2 semester of microeconomics. There are more applications, such the agricultural household model, different game theoretical analysis and many more, which we usually teach in more advanced classes.

On the other hand, macroeconomics is a very dynamic subject. To be honest, I am not really catching up with the subject. But to catch up with the current state-of-the-art, including to criticize some mainstream theories, still you need to have the solid fundamentals. You can not, for example, argue for divergence in growth without starting from the basic Solow model which implies convergence. To criticize efficient market hypothesis you need to start from the AD-AS, Keynesian-cross and IS-LM models. No short-cut to do that.

Yes, Keynesian was a revolution in economics. Prior to Keynes, economists did not think of national income, and the relationships between money, interest and employment. In short, people never thought economics as a macro system, hence the term macroeconomics. But since then, (macro)economics have evolved, leaving us few rooms for revolutionary thoughts. Even Keynesian was at one time in a crisis, when excessive government's intervention in the economy led to high inflation without growth in production.

Honestly, the room for another revolution is getting much and much smaller now. Most big ideas have been delivered. The frontiers have been pretty much explored. Of course, there are still many unexplored spots in the forest. That is the real call: to fill the missing puzzles through new theoretical and empirical researches.

Thursday, September 08, 2011

Do Companies Have a Duty to Satisfy Their Employees’ Best Interest?

Dear cafe patrons, I'm glad to introduce to you our new guest barista, Pramudya A. Oktavinanda. Pram, as he is called, is a lawyer at a well-known corporate law firm. He blogs too (see here or here). Oh, this "capitalist-lawyer" also tweets as @PramOctavy. Today Pram invites us to think about what is fair in employer-employee relation. Enjoy! - Kate

Do Companies Have a Duty to Satisfy Their Employees’ Best Interest?

by Pramudya A. Oktavinanda


Imagine that you are a worker in a major telecommunication company that has two divisions, one is a land line division, which is getting smaller each year to due to a major decrease in demand, and the other is a mobile phone division, which is getting bigger each year and generating a huge profits for the company. Unfortunately, you work in the land line division.

Suppose that for this financial year, the company generates a net profit of more than US$100 million, and 99% was generated from the mobile phone division. The employees in such division receive a considerable amount of benefits including big bonuses and better salaries compared those in the land line division. In fact, the salaries of the land line division’s employees have not been increased for years - let alone receiving a bonus.
How about the management, i.e. the board of directors and board of commissioners? Since the company has performed so well, the shareholders have agreed to grant a fat remuneration in the total amount of US$10 million to the entire members of the management. So everyone is happy in the company, except for the employees of the land line division.

So, the worker in the land line division plans to conduct a strike, stopping the operation of the land line division until the company agrees to increase their employee benefits. They say it is not fair if the company has generated such a big profit yet only a small fraction of that profit is being used for the benefits of their employees, specifically in the land line division. In their opinion, the company has a duty to satisfy their employees’ best interest, including their well-being. The major question is, do you think the company has such kind of duty?

The Company Does Not Have a Fiduciary Duty to Its Employees

As cruel as it may seem, our law says that a limited liability company does not have any fiduciary duty to employees. Fiduciary duty to a party means a duty to act in good faith for the best interest of such party. In fact, the company management only has fiduciary duty towards the company (yes, not even the shareholders). And what’s the best interest of the company? Its survivability, which can only be maintained when the company is profitable. A management that does not work for the best interest of the company can be sued by the company shareholders for any losses that they or the company may face due to the management’s failure to adhere its duty.

Of course this is troubling to some of us. How can we say that it is fair for the employee in the land line division if the management does not have any duty to improve their well being despite having a large amount of profit? To answer this, I will move on from the legalese, and give you another case to think about.

Let us imagine that now you are acting as an employer to two persons in a small firm that produces cute necklaces. The first person almost contribute nothing to the business while the other one is very productive and has contributed a lot of necklaces that worth selling in the market. What will you do in this case? Will you differentiate the salary of these two guys? Will you give better payment to the more productive one?

Or try imagining other case where you and your two friends invest in a business. You and one friend invest 90% of the total capital while the other one only invest 10%. After the business generates nice profits, will you share more to the one who only invest 10%, or will you distribute them proportionately with the money contributed by each person?
I would assume that in both cases, you would agree that those who contribute more should receive better benefits than those who contribute less. So why don’t we apply that principle to our first case? The law regarding fiduciary duty of the company’s management is in line with the basic rule of efficiency, i.e. resources should be allocated to the ones who are able to put it to the most highly valued use. Wasting money for a non profitable business would be deemed inefficient and the management can be held responsible for that. Sadly, our case involves the lives of many people and this is where the dilemma comes.

Can The Government Intervene?

My first response is no. The difficulty lies within the baseline or the original position that we should held when we want the Government to involve in this kind of case. I know that our case can easily attract sympathy. After all, it’s the story about a greedy company/management that does not care about the well being of its employee. But suppose we change the story a bit, suppose we’re talking about a paging business. I am not sure whether there are still many people who remember the success of paging business, but around 10-12 years ago when mobile phones are still expensive, pager is a cheap and quick solution for companies who want to contact their employees whenever and wherever they are. Yet, technological advance and the growing of people’s income enable mobile phone producers to cut their prices significantly to the extent that almost all people can own their own mobile phone. The effect was disastrous for paging business. What started as a profitable business turned out to become a bleak one. And now, I am quite certain that not a single paging company in Indonesia survives the competition with mobile phone. The iron rule of efficiency once again wins.

In this case, since the paging companies were going bankrupt, most of their employees were layed off. Now, does the Government needs to help these poor guys? Do you find similarities with our first case concerning two separate divisions in a telecommunication company? Both types of employees suffer because of technological development, something that can’t be prevented by anyone (or what economists call “creative destruction”).

Indeed, this is what I call as a hard case. To find an all for one solution would be impossible. Asking the Government to force the company in our case to provide better benefits to its land line division would be ludicrous, and it is questionable whether the government should do the same for the other type of victims of creative destruction. If you are in the employer position, would you like to be forced to bear additional inefficient expenses?

But if the Government does not take any action, who will be responsible for all of these employees? Would it suffice to let them follow the flow of the market force? My initial answer is provide a better social security to the citizens but I would love to hear other people comments on this matter.

Wednesday, September 07, 2011

What the plagiarist and his/her host institution should do

Here is how the editor of respectable The Journal Economic Perspective dealt with the issue of cross-publishing by Bruno Frey: they sent a letter to him (in pdf), explaining the case carefully, and demand an apology from him to the related parties (the Journals).

And Bruno Frey humbly replied the letter, acknowledged and apologized for his fault, and did not let the responsibility pass beyond him.

As we all can see, the letter is also open to public, presumably because they believe that public deserve to know it as well as to show how they take it very seriously.

Now we have a plagiarism case here. It remains to be seen if the involved parties will take the same measure.

Nevertheless, the Cafe shares the strong opinion that plagiarism is not only deeply unethical but also a gross academic violation.

Tuesday, June 21, 2011

How to Kill Jakarta Traffic Jam, Economically Speaking (Part 1)

I am now reading an excellent book by Edward Glaeser of Harvard, Triumph of The City . It's about (great) life in cities and it brings me to the work of Gilles Duranton and Matthew Turner as well as William Vickrey.

Let us imagine a typical situation many of us face in Jabotabek. Every morning you ponder if you would drive your car to work. While taking a shower, you make a mental calculation on the benefit of driving your car (for example, comfort) and the cost of it (gas, time, car depreciation, etc). If the net is still higher than taking taxi, bus, or KRL train, off you hit the road by car.

You may feel good about yourself because you think you've done proper marginal benefit and cost analysis? Alas, it's not the case. You miss important point: your decision makes other drivers' cost of driving increase.

As now the road is one car more crowded, time to drive is longer. Your private cost and benefit analysis does not take into account social cost of having one more car, your car, on the road.

Econ 101 calls this a negative externality. It is more evident when we use resources with zero or artificially low price, such as road. Multiply such (private) miscalculation with hundred thousands of Jabotabek car owners, we have all too familiar traffic jam we see every morning in the city.

Jakarta's traffic jam can be maddening indeed. Out of your frustration, you may demand for building more roads. After all, it's just about supply for roads that doesn't meet the demand, so you think.

Alas, this might be not feasible for two reasons. First, there is space limitation in already crowded Jakarta. Second, even if technology can overcome this constraint (tunnels or fly-over, for example), we'll soon come across Duranton and Turner (2010) and their fundamental law of traffic congestion.

The law says that more roads will proportionately increases car's kilometer traveled. Why? Because it increases the current residents' as well as previously-beyond-road-network residents' car use. It also brings more travel intensive production activities in the city. As a result: more roads, same traffic jam.

OK, what about, you say, more public transportation in Jakarta?

It will reduce traffic jam only if substantial number of car owners shift to public transportation. But, you know that if I leave my car at home and take bus, road will be less congested and travel by car will be more pleasant.

The catch-22 is that I know it well, too. As a result, nobody gives up his/her car. After all, who wants to takes trouble by taking bus only to allow more pleasant travel of other car owners? Public transportation will just reach more non-car owners previously outside public transportation network to enter Jakarta.

We again may end up with more public transportation, same traffic jam.

So, what’s the solution? To know it, we need to see the late William Vickrey and his work on road congestion problem. But it has to wait for another blog posting.

Stay tuned.

Monday, May 23, 2011

So You Think You Can Dance Know What The Poor Wants?

Think again.

Let's say we provide the poor with cash money transfer, what do you think the poor would spend that money for? I bet that many of us would think that the poor would buy more basic staple food, like rice, or perhaps to pay for education fee for their kids, because, rightly so, the poor has low calorie and nutrition intake and low education status.

But suppose we found out that the money is spent for buying more cell-phone card credit, pulsa HP, what would you think?

Some, or perhaps many, of you would get mad and deem this act as unacceptable. The poor must buy more food or basic education, you insist, because it would help them out of poverty.

Let me take different view nonetheless. First, perhaps they're not as starving or badly in need for education as you think. Second, even if they indeed have low calorie intake and education status, in their calculation, ability to communicate with friends and relatives using cell-phone gives them more pleasures and utilities.

And I am OK with this. I believe that the poor knows what they're doing.

As simple as it may seems, you probably could not easily share this view -- you think you know what the poor has to do more than they do. Or even, you think the poor folks don’t know what needs to be done with that additional money.

In this interesting article, Abhijit Banerjee and Esther Duflo of MIT, with their extensive experience on poverty researches around the world suggests that such oversimplifying and paternalistic view on the poor is probably of little use. So is any well-intended poverty reduction reform based on that standpoint.

Yes, more nutrition and education would eventually lead to better productivity, hence income, and less poverty. But probably the poor has different expectation. There is one paragraph in that article that I would love to quote in full.
…We often see the world of the poor as a land of missed opportunities and wonder why they don't invest in what would really make their lives better. But the poor may well be more skeptical about supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible and celebrating when occasion demands it… (Bold is mine)
Granted, their decision to buy more cell-phone credits, or TV set to watch infotainment, or to carry out lavish traditional and/or religious party is perfectly understandable.

Econ 101 tells you that if you want to maximize the recipient's utilities, you should not set any conditions on your money transfer -- and let them decide to buy whatever gives them higher utilities. But if the objective is to maximize your utility (as the giver), you can impose specific conditions for the recipient to get the money to make sure you get what you want – e.g you demand the poor spend the money to buy rice because it satisfies your belief that more calorie is what the poor needs.

Now a million dollar question would be which one matters more -- your utility or their utility?

Tuesday, April 26, 2011

Wednesday, April 20, 2011

ACFTA again

Ten, fifteen days in a row - maybe more - the media is filled with heavy mercantilism again. It's about ACFTA. They say, Indonesian market is being flooded with Chinese cheap products: from textile to fruit to toys. All these destroy Indonesian producers. Not good.

Interestingly, no one mentions about the benefits to consumers: cheap prices are good. One article in Kompas (17/4) rightly quotes a small orange trader saying that Chinese oranges are good, the supply is reliable, and the quality is better - all with cheaper price than local oranges. So yes, some local businesses are benefited, too.

But they are rotten, say the complainers. Really? According to a news (also Kompas 17/4, same page), the Chinese exporters have started to adopt Indonesian National Standard. So?

A few note that the increase in Indonesia's trade deficit against China has a lot to do with yuan's and rupiah's appreciation against dollar. And because rupiah appreciation is relatively stronger than yuan appreciation, Chinese products become relatively cheaper to Indonesian importers than the other way around. So, this is not just between Indonesia and China. It also involves US. And all other countries, for that matter. You want to block China? Block everyone else too. Good luck with that.

Of course I'm not saying everything China is good. But when you find smuggle or illegal products, impose the correct punishment, not to burn the whole ship. Otherwise, you'll just be used by them inefficient, rent-seeking, protection-loving domestic producers. At the cost of consumers. And all the rest.

Wednesday, April 06, 2011

Law for Sale -- Revised Proposal

Pramudya Octavinanda has very interesting ideas on how to design anti-corruption policy in response to my earlier posting here. Let me start with his points that I agree with.

First, the main objective of penal sanction system should be to recover the state's assets corruptors stole as much as possible. Second, it also has to prevent corruptors to buy (il)legal protection and political position that allows them to steal in the first place and afterward. In other words, it should make bad guys miserably poor.

Yet, what I don't really agree with is the idea to link two or more anti-corruption agencies for the sake of efficiency. If you let this happen, what we would likely have is an anti-corruption monopolist. This monopolist can sell their services either to corruptor or to the state whichever pays higher price. So if you want them to work in favor of the state and arrest the corruptor, the state has to pay or provide incentive more than what corruptor can do. This is expensive.

So I think I'd still opt for competition amongst anti-corruption agencies.

Now let's discuss Pram's objection on this competition. He said that without (formal) case transferability, competition won't work. But this is actually the very basic premise of my proposal for more competition -- that is to increase transferability. In my idea of transferability, bad guys can not rely on one agency to get protected, because other agencies can still arrest them legally. Competition would remove privilege of one agency over another; and with this, a case can be "transferred" to any agency willing to arrest the bad guy.

As for incentive for these competing agencies, as also asked by Mova in his comment, I'm thinking to incorporate Pram's insight on making corruptors poor and maximizing state's stolen assets recovery in incentive structure as follows.

Let's make the state (say President, or the Ministry of Finance) determine how much money they want to see back to state's coffer. If there is 100 bn IDR state's loss in a corruption case, they can set, say, 90 bn IDR recovery target and announce this to the competing anti-corruption agencies. Any agency taking this offer has to provide 90 bn IDR to the state but can take the remaining receipt, i.e 5 bn IDR if the agency can make the bad guy repay 95 bn IDR to the state.

So the state doesn't need to add more resources (higher salaries, bonus, etc) to anti-corruption agency, but any residual outcome belongs to the winning agency.

Do you think it will work?

Thursday, March 24, 2011

Law for Sale -- or Corruptor's Revealed Preference

I think it is good to have competition amongst anti-corruption squads or law enforcers. Think this way: a corruptor can bribe the police, but, in competition, the general attorney office or KPK will still be more than willing to arrest him/her - and vice versa.

Now you may want to say: what if the corruptor bribe them all? It's possible, but at least it is now more expensive to do so than with single anti-corruption office. The competition raises the corruptor's cost of wrongdoing and make anti-corruption more efficient.

Better yet if we can somehow set an competitive auction mechanism in which police, general attorney office, and KPK can bid to arrest a corruptor and force this corruptor repay the certain amount of the state's loss, and the office proposing lowest operational budget would win.

Who's afraid of such competition (a.k.a the loser)? First, the one from less efficient office. Second, and the foremost, the operation target, that is the corruptor him/herself. The non-corruptor would have no objection about this.

Now, if you know someone fiercely takes troubles and makes a lot of fuss on this competition among anti-corruption agencies, you may ask yourself and be suspicious if he/she is either from the less efficient agency or Mr/Ms Corruptor him/herself.

We economist call it his/her revealed preference -- regardless her/his stated preference as self-proclaimed anti-corruption bravados.

Sunday, March 13, 2011

Kate Goes Randian

It's always nice to meet up Cafe's regular patrons outside the cafe itself and last I just met with a self-declared green-line youths, named after one of subway line here -- although some actually came from places way beyond regular subway system.

And, man, they're such a bunch of smart people. They know stuff that baristas could only wish to know - from Warkop to game theory to Mathematica to what's hot in Newbury street. What is initially a plan for simple dinner turned out a lively discussions on various stuff, including whether the illustration for Nash equilibrium in the Beautiful Minds film is really a Nash equilibrium -- it is not.

And of course on Emma Watson - and her plan to take 9 months leave from her study - and Natalie Portman. Alright, ladies, James Franco, too.

But after the Vietnamese spring rolls and main dishes were almost finished, they revealed their true motive for coming all the way to see yours truly in the last day before spring break. A classic question: "Who is Kate Salemba?"

I almost burst into laughter. Apparently they love you, Kate. And don't worry, quoting Aco's tweet, you remain discreet and elusive as we all knew it.

Monday, February 28, 2011

Unimportant Update

Uhm, hello.

It feels a bit awkward since it's been quite some times that I don't blog. The reason? I don't know. You may want to say Twitter, but I don't twit as many as other twitteratis do. Let us just say that I am busy doing something else -- or it is more costly to blog lately.

What is the "something else"? One of them, by default, is working on something economics. Like getting back to drawing board and trying to digest more on the financial crisis, both from micro and macro approach. The micro part is on theories for banking and financial market instrument, including strategic portfolio management. The macro part is on information problem and business cycle -- at this point, it's on how to model self-fulfilling proficiency and move from multiple to single equilibrium commonly found in the model of financial crisis.

And the more I learn about those stuff, the more I feel how stupid and slow I am.

The other thing is to enjoy an extended winter up here. More to come.

Saturday, February 19, 2011

Unintended consequence #258

(Warning: subjective judgment ahead)

This is funny. Arguably the most popular twitter application in Indonesia -UberTwitter just got spanked by the duke, Twitter. Why?

Before speculating on that, let's first establish the claim above, namely "UberTwitter is the most popular twitter app in Indonesia". How's that so? Maybe because most people who mobile-tweet use BlackBerry and this BB is arguably the most popular smartphone for those who tweet (or those who want to use its network scale advantage: it has a free and secure chat service, so many people use it or 'forced-by-peers-to-use-it'. Then came twitter frenzy and UberTwitter happened to be right there in the corner). Yes this sounds like an endogeneity problem, but who cares.

OK back to the Twitter's spanking on UberTwitter. According to some friends (yes, I'm that lazy to do fact-check to the official source, why should I?), it's because UT 'monetizes' its service while carrying Twitter's name. Others say Twitter doesn't like the fact that UT's name is half Twitter's (and the child becomes more popular than the parent, no?). Whatever the reason is, let's move on to the unintended consequence(s).

First, this is like a happy day for SocialScope - that's another app but less famous than UT (at least until yesterday). Now that Twitter had punished UT, people started to find a good replacement. Some tried the Twitter-for-BB. My verdict: "It's OK but not so impressive, in my opinion. Next!" So next came SocialScope. Hey, this feels cool. And I just noticed, many, so many, of my friends migrated from UT to SS, passing the endorsed-by-the-duke Twitter-for-BB. Ah, sorry TfBB.

Then the next round of unintended consequence. Some people have been using SS for quite some time (esp those with iPhones, no?). Not that many but sufficient enough to form some kind of elite-group (I don't know how to put this, but you know that feeling when only a handful of persons including you use some cool stuff? Snob or whatever, it feels good, weird good, but you got my point). Now, suddenly the demand for SS is shooting up. Back then it took days (even weeks) to use it (it requires you to beg to become its user -wtf?). But now, you can use within 4 minutes since first download of the app. And it's cool.

So what's the implication? The snobs are now seeing the price of their eliteness is falling steadily! Like "damn it, now we're not so special anymore". Ha, sorry dudes.

Now what's the last, possible unintended consequence? The emergence of other applications, obviously. I've been using Twitellator for iPad and I love it. Maybe it's time for them guys there to hit BB market. If they are willing to give it out for free, unlike that on iPad.

OK, my coffee is getting cold.