On yet another related note, they seem to have done something about the pricing. It’s friggin’ expensive now (70 bucks for a small cappuccino?) but I think they’ve gotten it right. There is obvious value in the restaurant as shown by the long waiting lines that used to be there earlier, and the restaurant is now simply monetizing that value rather than using artificial means (loud music) to chase people away.

As a former revenue management professional (damn; that sounds so corporate whoreish) I’m happy they are doing what a coffee shop like them is supposed to do – providing excellent environment for long conversations and chilled out afternoons, and actually charging for what it’s worth.

The earlier method was so cheap and country – they were clearly underpriced because of which there was overcrowding and they weren’t able to meet demand and had to use other measures such as playing loud godawful music to keep the crowd rotating.

Two thumbs up to Barista’s new pricing and music policy!

Currently I’ve managed to get around this problem by parking my car in some corner of the basement but neighbours are cribbing saying it spoils the “look” of the building (as if the look of the basement matters! ).

Coming back to the problem, I was wondering if there exists a solution. Clearly, the shape and orientation of the basement means that not more than seven cars can be parked there in a non-obstructing manner. Now, since every houseowner here was allotted a slot when the building got built, they are entitled to a slot so it is not feasible to request/tell someone to rent their house to someone who doesn’t own a car (2 bedroom houses with parking slots cost some 2 kilorupees a month more than those without parking slots).

Thinking about it, the only solution I realized is by trading a parking slot among affected parties. For example, the slot of my house (B1) is obstructed by the slot belonging to the C2 house. Now, what if my owner tries to buy out C2′s parking space? He can either buy it out outright or he can pay the owner of C2 a monthly fee in exchange for C2 not letting out his house to someone with a car.

And he gets compensated for this by charging a higher rent from me (note that if my landlord buys out the c2 slot, I effectively get two slots, since both belong to me, there is no obstruction). The key to this, however, is the relative pricing of various parking slot combinations.

The key equation is this: if Pn is the monthly rent of a house in this building with 2 bedrooms and n parking slots, then there is a profitable trade between the owner of my house and the owner of C2 if and only if:

P0 + P2 >= 2 P1

If the above equation doesn’t hold, the amount by which my owner gets compensated (by me) for the second parking slot will not suffice to pay the owner of C2 to not let out his house to someone with a car, so the trade I described above cannot take place.

But then, according to Coase theorem, irrespective of initial allocations (here C2 has a parking slot that blocks B1′s slot) there exists a trade in which each party gets the desired outcome. Is there a contradiction with the equation I’ve written above?

Now, thinking about it, the value of both my house and C2 is not actually P1 but a number P1′ which is less than P1. P1′ takes into account the pain of having an obstructed parking slot (I get pained because I can’t take out my car when I want; C2 gets pained because I disturb him every time I want to take out my car), and so effectively both my house and C2 would be overvalued if we were paying a rent of P1.

And if we take P1′ into consideration rather than P1, I’m sure the following equation holds:

P0 + P2 >= P1′

The only other problem here is that when taking a flat on rent, you are unlikely to check for details such as if your parking space is blocked, so it is likely that the deal will take place at P1 rather than at P1′. However, once you move in, you figure out the pain and the owner of the apartment will feel the pinch when his tenants clear out at a rate faster than he would’ve expected which ends up reducing his long-term average rental income. And the deal I described above will take place if and only if he figures out why the fair value of this apartment is P1′ and not P1.

Now with a large part of the work having been done, the three of us who have been doing the work have decided to put NED and have left it to the other three “freeriders” to complete the rest of the work. As you might expect, the other three continue putting NED and in the last few days not much work has been done.

The question is this – what is the optimal strategy for the three of us who have been so far doing work? We think we’ve done more than enough of our share and so the others should take over now. On the other hand, the more we leave it to the other three, the more procrastination that will happen which might come back to hit all of us in terms of higher rates, etc.

It is dilemmas like this that allow freeriders to freeride – they know that by freeriding, they are not the only ones who are losing out, and that there are people who are more driven than them who will also end up losing out if these guys freeride. And the freeriders know that the driven guys won’t let things drift and will positively do something about it, and that encourages them to freeride further. And so forth.

Is there a solution to this problem? When there is a common objective, how should incentives be structured in order to make the freeriders work, while also not making it obvious that these are artificially tailored incentives?

Now there is a footballing analogy to this – the Jesus Navas style. Those of you who watched either Spain’s game with Honduras or the second half of their loss to Switzerland would’ve noticed that Spain effectively followed two lines of attack. The first was the traditional way – attack down the middle in a series of slow passes and build-up. Five of Spain’s front six players would get involved in this attack down the centre, almost rendering their game one-dimensional. And then there was Navas.

I haven’t confirmed this stat but in the game and half that he has played Navas has completed more crosses than anyone else in the tournament. He would strike it on his own down the Spanish right flank, hug the touchline, beat the full back and put in crosses. Minute in and minute out. Sometimes with a little help from full back Sergio Ramos, but mostly alone. It was fantastic to watch.

What this ended up doing was to divert the attention of the opposing defenders to cover Navas. If everyone were to have been attacking down the centre, the defending team could’ve just parked their bus in front of their centre and prevented any scoring. Spain letting free this one guy to take a different route meant that the opposition needed to cover that also leading to insufficient cover in the centre (it is another matter that Spain failed to score against Switzerland. But they did get so many more chances after Navas came on).

I’ve always been fascinated by such strategies at work, in business. You have a bunch of guys who try to attack the problem front-on, in the conventional way, working together, passing to each other frequently. And then there is this one guy who has been left out of this clique who attacks the problem “from the flank”. In his own way, without fear of failure. He knows that he is only an auxiliary solver, that he has nothing to lose (Navas lost his place in the XI after the Honduras match but I don’t think he had expected to ever play at all), and he can just go for it. The option value of letting one guy in the team loose in order to search for alternate solutions while everyone else is building up down the middle is immense, I think.

This is similar to Nassim Taleb’s “barbell investment strategy”. Acccording to that, he parks some 90% of his assets in ultra-risk government securities. They don’t give spectacular returns but his money is safe. And the rest of the 10% he uses to punt by buying stuff like out-of-the-money options. If they expire worthlessly, he hasn’t lost much of his wealth. The optionality (here, literally) of that additional 10% is, however, immense, and there is potential for spectacular returns from this strategy. with losses being capped.

Now, after last night’s strategic hand ball by Luis Suarez, people are complaining that the punishment is not enough. Though it was a split-second instinctive decision by Suarez to handball, even if he were to replay the incident in his head and analyze the costs and benefits, I’m sure he would’ve done what he did. This clearly contradicts what I mentioned in the first paragraph.

The main issue here is with the value of a red card  at various stages of a game. The red card has intrinsic value – of being suspended for the next game. In addition to this, the red card leaves the team one short for the rest of the game, and so it is clear that the later a red card is given out, the lesser the disadvantage it causes the team because they’ve to play for lesser time with a man short.

What makes Suarez’s decision more logical is the time value of a one-goal lead. The lesser the time left in the game, the more the value of the one-goal lead since there is lesser time for which it needs to be protected. And in this case, the handball occurred on what might have been the last “kick” in the game, and so the value of the one-goal lead was really high.

The earlier this incident had occurred in the match, the less would’ve been Suarez’s incentive to handball – more time to win back the conceded goal and more time to play a man short if redcarded. At the time when it actually occurred, Suarez would’ve been a fool to NOT handball. The payoffs were heavily loaded in favour of handballing and he did it.

People on twitter are suggesting that rules be changed, that the goal should’ve been awarded anyway instead of the penalty and stuff, but considering that the same punishment costs much more if given out earlier in the game, I think the current punishment is appropriate. The excess of this punishment in earlier stages of the game is compensated by the punishment being too little in the latter stages, and on an average I think it is appropriate.

Let’s continue to keep football simple and not clutter it with Duckworth-Lewis kind of rules. And congrats to Suarez for taking the most logical decision at the moment. It is indeed as great a “sacrifice” as Ballack’s tactical yellow card against Korea in the 2002 semis.

And I feel sad for Asamoah Gyan. But then again, with Ghana being in the knockout stages solely on the merit of two Gyan penalties, it is only appropriate that they are going out nowon the demerit of Gyan’s missed penalty.

Uruguay’s option is clear. Play for a draw. If Mexico go for a win, Uruguay should just sit back and try hit back on the counterattack (and in terms of players and style, they are very well equipped for that). Simple case of getting men behind the ball and putting gaaji.

Mexico’s strategy is not so straightforward. The “greedy” thing to do would be to play for a draw, in which case they will most likely end up facing Argentina in the second round (if you remember, Mexico went out last World Cup by losing to Argentina at the same stage). On the other hand, if Mexico beat Uruguay, they will top Group A and meet a potentially inferior team (Korea or Greece) in the second round.

As mentioned earlier, if Mexico go for a win, Uruguay will simply defend and play a counterattacking game which they are good at, so I don’t know if they are going to go for it.

Thinking about it, it comes down to Mexico’s payoff function. I’m sure their payoff is an increasing function of how far they progress in the tournament. However, we should be able to identify one particular “jump” in payoff – some kind of a discontinuity, where the payoff increases considerably for one additional round of progress in the tournament.

If this “jump” is for the second round, Mexico can afford to put Ranatunga Principle, get a peaceful draw against Uruguay and claim their “jump reward”.

If the “jump” is for the quarter-finals, however, then Mexico will want to take the risk at this round in order to get themselves easier opponents in the round of 16 (I’m assuming here that Mexico consider Korea or Greece as much easier opponents than Argentina).

If the “jump” occurs further down in the tournament, I think there is way too much randomness about their potential quarterfinal opponents (especially given the fuzzy results in Groups C and D) and opponents as hard as  (or harder than ) Argentina cannot be ruled out. Nevertheless, they would rather face one tough opponent than two (and I’m assuming here that no team is significantly “harder” for Mexico than Argentina) and so they should put fight to avoid Argentina and thus go for a win.

Considering that they have reached the Round of 16 with reasonable regularity in the last few World Cups, I presume that their “payoff jump” will occur later in the tournament. And based on the above reasoning that means they should go for a win against Uruguay, so that they can try avoid Argentina.

And it is on this thin thread that the French are hanging their hopes (though first they need to thulp South Africa, no easy task).

Let us suppose Alice’s liking for Bob is a continuous variable between 0 and 1. However, Alice never directly states to Bob how much she likes him. Instead, Bob will have to infer this based on Alice’s actions. Based on a current state of the relationship (also defined as a continuous variable between 0 and 1) and on Alice’s latest action, Bob infers how much Alice likes him. There are a variety of reasons why Bob might want to use this information, but let us not go into that now. I’m sure you can come up with quite a few yourself.

Now, my hypothesis is that the relationship state (which takes into account all past information regarding Alice’s and Bob’s actions towards each other) can be modelled as an exponentially-smoothed variable of the time series of Alice’s historical liking for Bob. To restate in English, consider the last few occasions when Alice and Bob have interacted, and consider the data of how much Alice actually liked Bob during each of these rounds. What I say is that the “current level” that I defined in the earlier paragraph can be estimated using this data on how much Alice liked Bob in the last few interactions. By exponentially smoothed, I mean that the last interaction has greater weight than the one prior to that which has more weight than the interaction three steps back, and so on.

So essentially Alice’s liking for Bob cannot be determined by her latest action alone. You use the latest action in conjunction with her last few actions in order to determine how much she likes Bob. If you think of inter-personal romantic relationships, I suppose you can appreciate this better.

Now that you’ve taken a moment to think about how my above hypotheses work in the context of human romantic relationships, and having convinced yourself that this is the right model, we can move on. To simplify all that I’ve said so far, the same action by Alice towards Bob can indicate several different things about how much she now likes him. For example, Alice putting her arm around Bob’s waist when they hardly knew each other meant a completely different thing from her putting her arm around his waist now that they have been married for six months. I suppose you get the drift.

So what I’m trying to imply here is that if you are going through a rough patch, you will need to try harder and send stronger signals. When the last few interactions haven’t gone well, the “state function of the relationship” (defined a few paragraphs above) will be at a generally low level, and the other party will have a tendency to under-guess your liking for them based on your greatest actions. What might normally be seen as a statement of immense love might be seen as an apology of an apology when things aren’t so good.

It is just like an economy in depression. If the government sits back claiming business-as-usual it is likely that the economy might just get worse. What the economy needs in terms of depression is a strong Keynesian stimulus. It is similar with bilateral relationships. When the value function is low, and the relationship is effectively going through a depression, you need to give it a strong stimulus. When Alice and Bob’s state function is low, Alice will have to do something really really extraordinary to Bob in order to send out a message that she really likes him.

And just one round of Keynesian stimulus is unlikely to save the economy. There is a danger that given the low state function, the economy might fall back into depression. Similarly when you are trying to get a relationship out of a “depressed” state, you will need to do something awesome in the next few rounds of interaction in order to make an impact. If you, like Little Bo Peep, decide that “leave ‘em alone, they will come home”, you are in danger of becoming like Japan in the 90s when absolute stagnation happened.

Quoting

According to a BBMP official, TDR is an instrument through which the Palike facilitates landlosers to construct additional floor or building in the remaining portion of the property or anywhere in the City.

…

The BBMP would issue a Development Rights Certificate (DRC), which can be either be utilised for personal need or can be sold to anyone who wants to construct an extra floor. The owner gets the right to construct a built up area 1.5 times over and above of that the property acquired for development. For instance, if 600 sq ft built-up area is given up to the BBMP, the property owner will receive a DRC for 900 sq ft built-up area.

This is interesting on several counts. Firstly, do you realize that what the BBMP is paying for the land is effectively an option? A TDR is nothing but an OPTION to construct more than what would normally have been permitted. The valuation of this option hinges upon the fact that current building laws are highly restrictive (in terms of the built up area as a proportion of the site area) and so the option of constructing more will actually be valuable.

It would be interesting to see how these options get valued. You can trust that there will be a lot of litigation concerning this since you can expect most people to have problem with the valuation. First of all valuation of financial options is itself so tough, you can imagine how hard valuing these TDRs can be.

Then, there is the whole supply aspect. The whole model of these TDRs will hinge upon the unwritten promise that more such rights will not be given away any time in the near future, since that will cause the value of existing TDRs to drop sharply. Given that there is one single agency (the BBMP) that controls the supply of such rights, and that the potential supply of such rights is infinite, there is a chance that valuation of these rights might be depressed.

One important thing the BBMP needs to take into account while issuing these rights is to make sure there are no transaction costs for trading these rights. The “transferable” bit needs to be emphasized in order for the value of these rights to be truly unlocked. I can see a large number of individuals who will be compensated with these rights who will want to trade them away, since they are unlikely to possess another site to utilize them. And given the number of big buildings coming up on small sites, I can foresee there being a decent demand for it.

I do hope that investment banks (or their equivalent) come forward in order to make markets in these rights. I’m sure banks won’t miss opportunity to step in here, but the important thing is for regulation that will enable such intermediation. It is in the interests of the BBMP to keep these transaction costs low, since that is going to have a positive impact on the valuation of these rights, and eventually less such rights can be given.

Postscript: It would be interesting to study the impact of these rights on bribery rates of BBMP officials. I’m sure that currently a lot of money is made in illegally granting rights for buildings that don’t conform to regulations. Since there will now be a legal way of getting similar favours (I’m told that the Akrama-Sakrama scheme has similar intentions) it would be useful to see if bribes do drop.

The thing with religion is anyone who is mildly religious will try to follow as much of the traditions and customs are possible. However, if one puts way too many restrictions, there is the chance that the follower might “do a ramanamurthy” * and just snap and decide to not any of the customs. AS long as you keep things reasonable, though, there is a good chance that the follower will continue to follow.

Now that the context has been set, I reiterate my question as to whether there isn’t a law of diminishing returns for fatwas. Things I suppose were fine when the fatwa was a rare entity. For example, twenty years ago when someone issued a fatwa to kill Salman Rushdie, it was a rare event (the fatwa) and hence got taken seriously and Rushdie has to go into hiding.

But look at the kind of fatwas that are being issued nowadays and I would be really surprised if these are getting taken seroiusly. For example, read this article (HT: Nitin Pai). There is a fatwa against buying insurance. There is a fatwa against working in banks. There is a fatwa against families accepting income earned by female members. And so forth.

Don’t the ulema understand that there exists a law of diminishing returns, and so people are not likely to take fatwas seriously if too many of them are put in place? Ok I suppose they don’t teach economics in Madrassas. Or is it that Islamic society is still in the part of the curve where slope is significantly positive ? (imagine a curve with the total “degree of acceptance” on the y axis and “number of religious restrictions” on the X axis. You would expect that the curve initially rises and then flattens out, and if you stretch things too far maybe even bend downwards).

All religions and all sects of all religions have their share of loonies. People who come up with random fundaes and then claim it’s part of the teaching of that particular religion and everyone should follow it. But I suppose that most other religions are decentralized enough that loonies are treated as just that, and people go on leading their lives without taking cognizance of the loonies.

PS: Check out this hilarious essay from The Dawn about this bunch of guys who tried to take along a Maulvi to Afghanistan to fight Russians.

I’m just trying to illustrate this concept from another angle. Let’s say you donate Rs. 10000 to a charity that has gives a “100% tax free” receipt. So effectively your taxable income goes down by Rs. 10000. And considering a 10% marginal tax rate (ignoring cess, surcharges, etc.) your tax payable comes down by Rs. 3000. So effectively, you have donated ONLY Rs. 7000 to this charity and forced the government to pay the balance Rs. 3000.

Do you see the catch in this tax-break scheme? Essentially the government is forced to pay money to charity at the behest of a single citizen! By granting this “tax free status” to a charitable organization, the government is making itself liable to commit unlimited funds to this particular charity (of course I suppose that it isn’t easy to get such breaks for your organization, and considerable greasing of palms is involved. But considering that a small charity run by my extended family gets 50% tax break it may not be very hard after all).

So yeah, I’m sure the numbers will be available somewhere but i’m too lazy to find it. But I’m interested in finding out the aggregate deduction sought by all taxpayers put together under this section 80G (the one where you get tax exemption for donations). And then see where the government’s forced charity is headed!