Category: economics

The corner Bhelpuri guy

There’s this guy who sells Bhelpuri off a cart that he usually stations at the street corner 100 metres from home. His wife (I think) sells platters of cut fruit from another (taller, and covered) cart stationed next to him.

I don’t have any particular fondness for them. I’ve never bought cut fruit platters, for example (I’m told by multiple people that I’m not part of the target segment for this product). I have occasionally bought bhelpuri from this guy, but it isn’t the best you can find in this part of town. Nevertheless, every afternoon until mid-March he would unfailingly bring his cart to the corner every afternoon and set up shop.

He has since fallen victim to the covid-19 induced lockdown. I have no clue where he is (I don’t know where he lives. Heck, I don’t even know his name). All I know is that he has already suffered a month and half of revenue loss. I don’t know if he has had enough stash to see him through this zero revenue period.

The lockdown, and the way it has been implemented, has resulted in a number of misalignments of incentives. The prime minister’s regular exhortations to businesses to not lay off employees or cut salaries, for example, has turned the lockdown into a capital versus labour issue. Being paid in full despite not going to work, (organised) labour is only happy enough to demand an extension of the lockdown. Capital is running out of money, with zero revenues and having to pay salaries, and wants a reopening.

Our bhelpuri guy, running a one-person business, represents both capital and labour. In fact, he represents the most common way of operating in India – self employment with very limited (and informal) employees. Whether he pays salaries or not doesn’t matter to him (he only has to pay himself). The loss of revenue matters a lot.

The informality of his business means that there is pretty much no way out for him to get any sort of a bailout. He possibly has an Aadhaar card (and other identity cards, such as a voter ID), and maybe even a bank account. Yet, the government (at whatever level) is unlikely to know that he exists as a business. He might have a BPL ration card that might have gotten him some household groceries, but that does nothing to compensate for his loss of business.

If you go by social media, or even comments made by politicians to the media or even to the Prime Minister, the general discourse seems to be to “extend the lockdown until we are completely safe, with the government providing wage subsidies and other support”. All this commentary completely ignores the most popular form of employment in India – informal businesses with a small number of informal employees.

If you think about it, there is no way this set of businesses can really be bailed out. The only way the government can help them is by letting them operate (even that might not help our Bhelpuri guy, since hygiene-conscious customers might think twice before eating off a street cart).

One friend mentioned that the only way these guys can exert political power is through their caste vote banks. However, I’m not sure if these vote banks have a regular enough voice (especially with elections not being nearby).

It may not be that much of a surprise to see some sort of protests or “lockdown disobedience” in case the lockdown gets overextended, especially in places where it’s not really necessary.

PS: I chuckle every time I see commentary (mostly on social media) that we need a lockdown “until we have a vaccine”. It’s like people have internalised the Contagion movie a bit too literally.

Post-Covid Stimulus

There are two ways in which businesses have been adversely affected by the ongoing Covid-19 crisis. Using phrases from my algorithmic trading days, let me call this “temporary impact” and “permanent impact”.

For some businesses, the Covid-19 crisis and the associated lockdown means about three months or so of zero (or near-zero) revenues. There is nothing inherently unsafe about these businesses that makes their sales take a “permanent hit” after the crisis has passed us by. Once the economy opens up again, these businesses can do businesses like they used to before, except that they are staring at a three-odd month revenue hole at the top of their P&L.

The second kind of businesses are going to be “permanently impacted”. They involve stuff that are going to be labelled as “unsafe” even after the crisis is over, and people are going to do less of these.

For example, bars and restaurants are going to see a “permanent impact” because of the crisis – people are not going to relish sitting in a public place with strangers in the next one year, and a large proportion of restaurants will have to go out of business.

Similarly any industry associated with travel – such as transport (airlines, railways, buses), hotels and taxis will see a permanent impact from the crisis. Real estate is also likely to be hit hard by the crisis. For all these sectors (and more), even after the economy is otherwise back in full swing, it will be a very long time before they see the sort of demand seen before the crisis.

Now that distinction is clear (I mean there will always be sectors that will sort of lie in the borderline), but at least we have a classification, we can use this to determine how governments respond to stimulate economies after the crisis.

Based on all the commentary going around, it seems like a given that governments and central banks need to do their bit to stimulate the economies. The collapse in both demand and supply thanks to the crisis means that governments will collect less taxes this year than expected. So while to some extent they will be able to possibly borrow more, or monetise deficit, or set aside money from other budgeted items, the funds available for stimulating businesses are likely to be limited.

So what sectors of the economy should the governments (and central banks) choose to spend this precious stimulus on? My take is that they should not bother about businesses that will be permanently impacted by the crisis – at best, the money will go into delaying the inevitable at some of these companies, and if structured in the form of a loan, will be highly unlikely to be unpaid.

Instead, the government should spend to stimulate sections of the economy where the impact of the crisis is temporary – in order to make the crisis “more temporary”. By giving cash to sectors that are going to be fundamentally solvent, this cash can be more assured to “travel around the economy”, thus giving more of the proverbial bang for the buck.

This essentially means that sectors most affected by the current crisis should not get any help from the governments – this might sound counterintuitive, but if the true intention of the government stimulus is to stimulate the economy rather than helping a particular set of companies, this makes eminent sense.

Oh, and in the Indian context, this seems like the perfect time to “let go” of Air India.

Beckerian Disciplines

When Gary Becker was awarded the “Nobel Prize” (or whatever its official name is) for Economics, the award didn’t cite any single work of his. Instead, as Justin Wolfers wrote in his obituary,

He was motivated by the belief that economics, taken seriously, could improve the human condition. He founded so many new fields of inquiry that the Nobel committee was forced to veer from the policy of awarding the prize for a specific piece of work, lauding him instead for “having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including nonmarket behavior.”

Or as Matthew Yglesias put it in his obituary of Becker,

Becker is known not so much for one empirical finding or theoretical conjecture, as for a broad meta-insight that he applied in several areas and that is now so broadly used that many people probably don’t realize that it was invented relatively recently.

Becker’s idea, in essence, was that the basic toolkit of economic modeling could be applied to a wide range of issues beyond the narrow realm of explicitly “economic” behavior. Though many of Becker’s specific claims remain controversial or superseded by subsequent literature, the idea of exploring everyday life through a broadly economic lens has been enormously influential in the economics profession and has altered how other social sciences approach their issues

Essentially Becker sort of pioneered the idea of using economic reasoning for fields outside traditional economics. It wasn’t always popular – for example, his use of economics methods in sociology was controversial, and “traditional sociologists” didn’t like the encroachment into their field.

However, Becker’s ideas endured. It is common nowadays for economists to explore ideas traditionally considered outside the boundaries of “standard economics”.

I think this goes well beyond economics. I think there are several other fields that are prone to “go out of syllabus” – where concepts are generic enough that they can be applied to areas traditionally outside the fields.

One obvious candidate is mathematics – most mathematical problems come from “real life”, and only the purest of mathematicians don’t include an application from “real life” (well outside of mathematics) while writing a mathematical paper. Immediately coming to mind is the famous “Hall’s Marriage Theorem” from Graph Theory.

Speaking of Graph Theory, Computer Science is another candidate (especially the area of algorithms, which I sort of specialised in during my undergrad).  I remember being thoroughly annoyed that papers and theses that would start so interestingly with a real-life problem would soon involve into inscrutable maths by the time you got to the second section. I remember my B.Tech. project (this was taken rather seriously at IIT Madras) being about what I had described as a “Party Hall Problem” (this was in Online Algorithms).

Rather surprisingly (to me), another area whose practitioners are fond of encroaching into other subjects is physics. This old XKCD sums it up

Complex Systems (do you know most complex systems scientists are physicists by training?) is another such field. There are more.

In any case, assuming no one else has done this already, I hereby christen all these fields (whose practitioners are prone to venturing into “out of syllabus matters”) as “Beckerian Disciplines” in honour of Gary Becker (OK I have a economics bias but I’m pretty sure there have been scientists well before Becker who have done this).

And then you have what I now call as “anti-Beckerian Disciplines” – areas that get pissed off that people from other fields are “invading their territory”. In Becker’s own case, the anti-Beckerian Discipline was Sociology.

When all university departments talk about “interdisciplinary research” what they really need is Beckerians. People who are able and willing to step out of the comfort zones of their own disciplines to lend a fresh pair of eyes (and a fresh perspective) to other disciplines.

The problem with this is that they can encounter an anti-Beckerian response from people trying to defend their own turf from “outside invasion”. This doesn’t help the cause of science (or research of any kind) but in general (well, a LOT of exceptions exist), academics can be a prickly and insecure bunch forever playing zero-sum status games.

With the covid-19 virus crisis, one set of anti-Beckerians who have emerged is epidemiologists. Epidemiology is a nice discipline in that it can be studied using graph theory, non-linear dynamics or (as I did earlier today) simple Bayesian maths or so many other frameworks that don’t need a degree in biology or medicine.

And epidemiologists are not happy (I’m not talking about my tweet specifically but this is a more general comment) that their turf is being invaded upon. “Listen to the experts”, they are saying, with the assumption that the experts in question here are them. People are resorting to credentialism. They’re adding “, PhD” to their names on twitter (a particularly shady credentialist practice IMHO). Questioning credentials and locus standi of people producing interesting analysis.

Enough of this rant. Since you’ve come all the way, I leave you with this particularly awesome blogpost by Tyler Cowen, who is a particularly Beckerian economist, about epidemiologists. Sample this:

Now, to close, I have a few rude questions that nobody else seems willing to ask, and I genuinely do not know the answers to these:

a. As a class of scientists, how much are epidemiologists paid?  Is good or bad news better for their salaries?

b. How smart are they?  What are their average GRE scores?

c. Are they hired into thick, liquid academic and institutional markets?  And how meritocratic are those markets?

d. What is their overall track record on predictions, whether before or during this crisis?

e. On average, what is the political orientation of epidemiologists?  And compared to other academics?  Which social welfare function do they use when they make non-trivial recommendations?

Behavioural colour schemes

One of the seminal results of behavioural economics (a field I’m having less and less faith in as the days go by, especially once I learnt about ergodicity) is that by adding a choice to an existing list of choices, you can change people’s preferences.

For example, if you give people a choice between vanilla ice cream for ?70 and vanilla ice cream with chocolate sauce for ?110, most people will go for just the vanilla ice cream. However, when you add a third option, let’s say “vanilla ice cream with double chocolate sauce” for ?150, you will see more people choosing the vanilla ice cream with chocolate sauce (?110) over the plain vanilla ice cream (?70).

That example I pulled out of thin air, but trust me, this is the kind of examples you see in behavioural economics literature. In fact, a lot of behavioural economics research is about getting 24 undergrads to participate in an experiment (which undergrad doesn’t love free ice cream?) and giving them options like above. Then based on how their preferences change when the new option is added, a theory is concocted on how people choose.

The existence of “green jelly beans” (or p-value hunting, also called “p-hacking”) cannot be ruled out in such studies.

Anyway, enough bitching about behavioural economics, because while their methods may not be rigorous, and can sometimes be explained using conventional economics, some of their insights do sometimes apply in real life. Like the one where you add a choice and people start seeing the existing choices in a different way.

The other day, Nitin Pai asked me to product a district-wise map of Karnataka colour coded by the prevalence of Covid-19 (or the “Wuhan virus”) in each district. “We can colour them green, yellow, orange and red”, he said, “based on how quickly cases are growing in each district”.

After a few backs and forths, and using data from the excellent covid19india.org  , we agreed on a formula for how to classify districts by colour. And then I started drawing maps (R now has superb methods to draw maps using ggplot2).

For the first version, I took his colour recommendations at face value, and this is what came out. 

While the data is shown easily, there are two problems with this chart. Firstly, as my father might have put it, “the colours hit the eyes”. There are too many bright colours here and it’s hard to stare at the graph for too long. Secondly, the yellow and the orange appear a bit too similar. Not good.

So I started playing around. As a first step, I replaced “green” with “darkgreen”. I think I got lucky. This is what I got. 

Just this one change (OK i made one more change – made the borders black, so that the borders between contiguous dark green districts can be seen more clearly) made so much of a difference.

Firstly, the addition of the sober dark green (rather the bright green) means that the graph looks so much better on the eye now. The same yellow and orange and red don’t “hit the eyes” like they used to in green’s company.

And more importantly (like the behavioural economics theory), the orange and yellow look much more distinct from each other now (my apologies to readers who are colour blind). Rather than trying to change the clashing colours (the other day I’d tried changing yellow to other closer colours but nothing had worked), adding a darker shade alongside meant that the distinctions became much more visible.

Maybe there IS something to behavioural economics, at least when it comes to colour schemes.

The Two Overton Windows

If you want to appear intelligent when discussing something about public policy, you could do worse than uttering the phrase “Overton Window”. The Overton Window, “invented” by one Joseph Overton, suggests that there is a “range of policies acceptable to political mainstream”.

And so you frequently have political commentators talking about the Overton Window “shifting” whenever a new political idea (or person) comes to the fore. This was bandied about much when Modi became Prime Minister of India, or when Trump became President of the US, or when Jeremy Corbyn became the Labour Party leader.

While “shifting Overton window” is something you come across rather often in policy discourse, my argument is that with the rise of subscription media, the Overton window is not shifting as much as it is “splitting”. In other words, we now have not one but two Overton Windows.

Without loss of generality, let us call them the “Jamie Overton Window” and the “Craig Overton Window”. Since both the twins are right arm fast bowlers, it doesn’t matter which brother is associated with which Overton Window.

So how did we get here, and what does it mean for us?

We started with the classic Overton Window. Let’s assume that all politics can be reduced to one axis (if we do a Principal Component Analysis of political views, the principal axis is certain to account for a large share of the variance, so this is not a bad assumption). So the Overton Window can be referred to by a line which the shifts.

As long as the world was “ruled by mainstream media”, this Overton Window kept moving back and forth, expanding and contracting, but it remained united. And then with the start of subscription ad-free media (maybe a decade or decade and half ago), the Overton Window started expanding.

The “left media” (that’s a convenient term isn’t it?) started admitting stuff that was left to the then Overton Window. The “right media” started admitting stuff that was to the right of the then Overton Window. And so over time, the Overton Window started expanding. And things can’t get into the media Overton Window unless they’re part of the mainstream political Overton Window.

The thing is that as the media became subscription-heavy and hence biased, political ideas that were once on the fringe now got a voice. And so the Overton Window got larger and larger.

Until a point when it got so unwieldy that it split, giving rise to Jamie and Craig. The image on the right is an approximate illustration of what happened.

And once the Overton Window split, there was no looking back. They started moving away from each other well-at-a-faster-rate. The Jamies could not come to terms with the policies of the Craigs, and vice versa. Political analysts and commentators started getting associated with the Jamie and Craig camps.

For a while, a few commentators continued to write for both sides, but the extreme fringes, which were getting more and more extreme, started overreacting. “How can we have someone who has written 10 articles for Craigs write for us”, the Jamies asked. “Most of our commentators are Craigs, so we might as well become a Craig newspaper”, the other side reasoned.

And that’s where mainstream media is going. The Overton Window has split down the middle. Crossing this gap is considered a crime worse than crossing the floor in Parliament.

Sadly, it is not just media that is getting Jamie and Craig. Mainstream politics reflects this as well, and so across countries we get political opponents who just cannot talk to each other, since everything one says is outside the Overton Window of the other.

Maybe the only way this can end is by going across axes, or inventing a new axis even. With the current spectrum politics, there is no hope of the two Overton Windows coming to meet.

 

News, Subscription, Advertising, and Bias

Dibyendu Mishra and Joyojeet Pal of the University of Michigan have some very interesting research out on the political bias of Indian news publications. Rather than do complicated gymnastics such as NLP, they’ve simply looked at the share of articles from each news publication that is retweeted by BJP and non-BJP publications, to draw out a measure of their bias (see link above for methodology).

They have made a nice scatter plot (the other axis is how “popular” these news outlets are in terms of the number of articles retweeted), and looking left to right, you can see the understood (by politicians) bias of various Indian news publications. As Helmet pointed out on Twitter, the most “centrist” news outlets seem to be the Times of India and the Economic Times, both from the Bennett, Coleman and Company group, who people crib about for “being too commercial” and “having too many advertisements”.

This reminds me of another piece of analysis that was in the news a few months ago, about how subscription-driven online news has led to news outlets being politically polarising. For example, Zach Goldberg did some analysis of frequency of words/phrases in the New York Times that are associated with the extreme left.

Note the inflexion point sometime in 2012 or so, around the same time when the NY Times put up its paywall.

David Rozado has a more comprehensive picture (check out his nifty tool here).

The idea is this – when newspapers depended on advertising for most of their funding, they needed to be centrist. Taking political sides meant that large mass-market advertisers wouldn’t want to advertise in this newspaper, and the paper would thus lose revenues. Hence, for the longest time, whatever the quality of the reporting and writing was, news outlets strove to be reasonably politically unbiased – taking sides would mean a loss of money.

Once digital took off, and it became clear that digital advertising wouldn’t really sustain the papers, they started putting their content behind paywalls. And subscription revenues meant two things – news outlets weren’t as beholden to advertisers as they used to be, and it was easier to get paying subscribers if you had a strong ideology. Moreover, online you can provide targeted advertising (rather than mass-market), so you can get away with being biased. And so with the coming of paywalls, newspapers started becoming far more political as the New York Times graph above indicates.

In India, there haven’t been too many publications behind paywalls, but media is evidently getting more and more polarised over time. Papers and channels are branding themselves (implicitly) as being pro or against a particular political party, and that is driving their viewership.

While these media outlets are good for fanbois (and fangirls) of particular ideologies, the ideological bent has meant that it has become harder to get objective news.

And that’s where money, and advertising, comes in.

The positioning of ToI and ET in the middle of the Indian media ideological graph is interesting because they belong to a group that is brazen about commercialisation and revenues (from advertising). And in terms of news objectivity, that’s a good thing. Since ToI and ET are highly money minded, they want to get as much advertising as possible, and in order to attract mass marketers, they need to not be biased.

Taking a political stand means pissing off people belonging to the opposite political persuasion, and that means less readership, which means less advertising revenues. And so if you read the editorials of these newspapers (I read ET everyday), you see that they maintain a careful balance of not appearing too biased in favour or against any party. And you see them raking in the advertisers while more biased (and “ideological”) competitors are forced to request for donations, or put up paywalls restricting their readership.

Putting it another way, there is no surprise that ToI and ET are not biased in their news, and are retweeted by politicians of all persuasions. It is the classic money-driven media model, and that is the one that is capable of providing the most objective news.

Schools and Officers’ Wives

I’m reading this fascinating interview in the Financial Times (possibly paywalled) with my former super^n-boss Lloyd Blankfein. It’s full of interesting nuggets, as well as fodder for people who want to criticise him.

I must admit right up front – I’m a big fan of Lloyd’s. This has nothing to do with the fact that I briefly worked for Goldman when he was CEO (I had even asked him a “planted question” when he had given a talk to the office sometime during my tenure there). In general, I think he says things as they are, and his twitter account is rather entertaining as well.

Anyway, the first statement in the interview that caught my attention was this statement about why the quality of schooling has gone down over the years. “He explains that the schools were only good because the women who staffed them were blocked from jobs in business and industry.” This is complementary to a view that I’ve strongly endorsed for a while.

Let me explain this using examples from India. Long long ago, maybe until the 1940s and 1950s, most school teachers in India were men. Way too few women had the kind of education that would qualify them to teach in schools. Moreover, back then, teaching paid sufficiently to run a (at least lower middle class) family on a single income.

In the 1950s and 1960s, women in India started going to college, and started entering the workforce. Mind that it was still a massively patriarchal society here back then, and women were expected to do their “household duties” in addition to bringing home a secondary income. And this meant that many of them were in the market for jobs that offered good work-life balance.

Teaching in schools offered that sweet spot – it required credentials, and the woman’s degrees would help in that. The hours weren’t too long. There would be ample vacations through the year. Schools were found everywhere, so the job was location-independent to a large extent. This last bit was important since the women’s husbands would frequently be employed in government jobs that were transferable, and the women’s “secondary careers” meant that they would be forced to move along.

And so we saw the rise of a class of teachers that I’ve come to call (not very politically correctly) as “officers’ wives”. These were well educated women, married to well educated men who held good jobs. They were passionate about their jobs, and went about it with a sense of purpose that went well beyond making money. This meant that the standard of teaching overall was raised.

And most importantly, this increased standard of teaching came without a corresponding increase in cost. The marginal utility to the family of this secondary source of income wasn’t particularly high, so this class of teachers didn’t demand very highly in terms of wages. In any case, they were doing their job out of passion rather than for the money, and would be willing to accept below-market wages to go about their jobs.

Then, two things happened. Firstly, the presence of employees who weren’t in it solely for the money pushed down average wages, and teachers for whom teaching was the sole source of family income started getting crowded out of the market. Secondly, with liberalisation in the 1990s, the nature of the job market itself suddenly changed.

One reason why the “officers’ wives” took to teaching was that it was hard to find other employment that was commensurate to their education that gave them the flexibility they desired (if you’re a secondary income earner you need that flexibility). With the market opening up, there was suddenly a number of options available to these people that matched their skill and flexibility needs. For example, my 11th standard physics teacher quit the school midway through the year to take up a job as a software tester at Wipro (this was in 1998-99).

So, rather suddenly, the opportunity cost of teaching shot up since the teachers suddenly many more options. It wasn’t possible for schools to jack up fees at the same time to be able to continue to afford the same teachers. And so, supply of quality teachers dropped. And consequently, the average quality of teachers (holding the schools constant) dropped as well.

Putting it in another way, schools nowadays need to compete with a much larger and much more diverse set of employers for their teachers. Many of them, for the sort of fees they charge, are simply unable to do so. The “passionate bunch” has found other avenues to exhibit their passion.

And the problem continues. And from what Lloyd says, it isn’t only India that is seeing this drop in quality of teaching – the US sees that as well. It was a sort of repressed larger market that had artificially pushed up the quality of school teachers, and the drop in repression has meant that the quality of teaching has dropped.

I will leave you with the concept of Baumol’s Cost Disease.

Afcon in winter

As well as Liverpool is doing this season, there are already clouds on how good next season could be. The reason is the moving of the African Cup of Nations (AFCON) to January-February, which means Liverpool will be without three key players (Mo Salah, Sadio Mane and Naby Keita) for over six weeks of the season.

When asked about it at a press conference last week, manager Jurgen Klopp went off on a massive rant (paywalled) about scheduling, and FIFA and UEFA and everything.

The other thing is it doesn’t help African players. We will not sell Sadio, Mo or Naby now because they have a tournament in January and February — of course not — but if you have to make a decision about bringing in a player it is a massive one because before the season you know for four weeks you don’t have them. That’s a normal process and as a club you have to think about these things. It doesn’t help the players, for sure.

This is a very valid second-order impact of having the African Cup of Nations in the middle of the European season. As the timing of the AFCON gets regularised in winter, European clubs will be loathe to hire Africans into their leagues. And that is bad news for African footballers.

While elite players such as Salah or Mane might never be in the need for a job, the problem with the unavailability mid-season is that clubs will start accounting for that while making decisions on recruitment.

The marginal African player playing in the second or third division in a major European footballing country will find it marginally more difficult to get a next good contract. The marginal African player at the top of his country’s league will find it marginally more difficult to get recruited to a (nowadays coveted) European club.

And as African players play less for European clubs (this will happen in due course), there will be fewer African role models. Because of which fewer African kids will want to take up football. Because of which the overall level of football in African countries will go down.

This is the problem with dependence on external factors, like African football does with European football. That the best African footballers want to play in Europe means that the wishes of Europe will automatically have an impact on football in Africa. This means that Africa cannot schedule its continental tournament at the time of the year that is most convenient to it without impacting its own players.

This is a rather common problem. A quick analogy I can think of is the impossible trinity of macroeconomics – an independent monetary policy, free capital flows and a fixed exchange rate. The moment you peg your currency to another, what happens in the other currency automatically starts affecting you.

So what should African Football do? Clearly, climatic conditions mean that for most of Africa it’s optimal to host the tournament in (the northern hemisphere) winter. Clearly, there is no point of hosting such a tournament if the best African footballers don’t take part. But doing so will marginally jeopardise the marginal African footballer. And that is not good for African football.

There are no easy answers to this puzzle.

Gap in giveaways and disposal

There is a gap in the market between second hand sales and garbage disposal, and I’m not sure what’s a good way to address it.

These are things that you own that might be useful for someone, but you don’t know who it might be useful for. If one such person is located, you are willing to give the stuff away for free, but you don’t want to make any effort or spend anything to dispose it.

The part of London I used to live in had evolved a simple way of achieving this – people would simply leave stuff out in their front yards very close to the footpath (the compounds didn’t have gates). People walking past were free to pick up whatever they wanted, and after things had been left out for a sufficient period of time, the council would be called and they would pick it up as “garbage”.

Unfortunately when I moved out of London earlier this year, the house we were living in was on the main road (right next to Ealing Broadway station), and this method of disposal of unwanted things wasn’t available to us. And we had to incur significant cost to dispose of some of our stuff.

The wife put up some of them on the UK equivalent of OLX, and managed to sell off a lot of our stuff for not very high amounts (though I think we got more for our mixie than what we’d paid for it 10 years ago). We made money, yes, but it possibly wasn’t significant enough to cover the cost of my wife’s time.

And then there were the books – there were no second hand bookshops available that would pay anything reasonable for the books. So I had to actually cart all the books to the local Oxfam centre to be given away to charity (apart from stuff friends picked up).

Clothes, similarly, had to be dropped off at a charity centre (there was a Cancer Research UK shop right across the road from our house, so that helped). Again, I don’t know if everything we left there was used, but that was the lowest cost way for us to dispose of them.

Coming back, this gap in the market exists in India as well. The market is a bit better here because you have house cleaners and cooks and drivers you interact with on a regular basis, who are happy to take your unwanted stuff off you and dispose it. The problem is that they are picky on what they take and dispose – they have transaction costs, just like us, and don’t want to take on stuff that they will find it hard to move on.

And what makes matters worse is that even putting it in the trash is not a proper solution here – the municipal trash collectors ask for a bribe to take these things off you!

In some sense, this is a classic market design problem – where the transaction cost of the sale overwhelms the value of items being bought and sold. The things we want to dispose of have value to someone, for which they might be willing to pay, but the costs of finding these people are so high that you end up paying to dispose them.

Basically what we need is a service where someone comes and picks up all your “semi-trash”, sorts through it to find stuff that might be useful for someone else and then transfer it to markets where it can reach people who want it. And things that aren’t useful to anyone will go into garbage.

The problem with this service is that there is a natural upper bound on what people will be willing to pay for this service – zero. And when you factor in the market for lemons here (people might use this to dispose of absolute garbage rather than semi-trash that might be useful for someone), you know why “solution doesn’t exist”.

Bad signalling

About a month or two back, a new set of traffic lights came up on the way from home to my daughter’s school. It’s among the least effective set of lights I’ve seen.

For starters, the signal cycles are too long to justify the traffic, so if everyone decides to follow the lights, the traffic will only get worse.

Then, on two sides of the signal (the east and west approach roads) the lights aren’t displayed properly. There are lights on the left side of the road just before the signal, but no corresponding lights at a height across the intersection. So if someone is too close to the intersection they can’t see the lights.

Most importantly there has been no attempt at all so far to enforce the lights. There wasn’t even a cop standing there in the days leading up to the installation of the lights. The intersection was never really that crowded to necessitate a signal (ok I have limited data on this). And one day suddenly the lights went up and it was expected that people will follow.

People, for the most part, haven’t, and that’s a good thing considering the signal cycle. The east and west sides (who don’t have lights on the opposite side of the intersection to reinforce the signal) started the jumping first. The north and south sides joined.

I usually approach it from the south side, and the only times I stop at the signal is if someone in front of me has decided to obey the signal and doesn’t let me past. And I suppose that as people hit the signal multiple times they too make an independent judgment that everyone is jumping the signal, and that’s the optimal strategy.

I see this as a case of failed mechanism design. A set of traffic lights is good if and only if everyone has an incentive to follow it, or is made to follow it. For example, once a set of lights go up, having a cop stationed at the intersection for a few weeks means that most regular commuters across the intersection will get used to the lights, and start following it. And once you have a critical mass of commuters following the signal, the rest simply obey.

As things stand now, I’m happy that nobody really follows these lights – for if people did, it would only slow things down!

These lights, by the way, are at the intersection of 26th main and 39th cross roads in Jayanagar 9th Block.