A Regulated System of Incentives for Kidney Donation—Time for a Trial!

Arthur Matis says the time to test using incentives to encourage people to donate their kidneys has arrived. (JAMA Network, June 2021. FYI, JAMA = Journal of the American Medical Association.) Many states and employers created incentives for people to receive vaccinations against COVID-19, apparently with some success. Why not try the same type of approach for another activity that saves lives?

The minimum wage paradox

A Social Benefits Calculator reveals that an increase in the minimum wage has a small impact on income for many poor people. (Winston Salem Journal, June 2021) Reductions in "social benefits such as food stamps (SNAP benefits) or child care or housing assistance" and increases in taxes reduce the impact of the increase in wages. Here is a money quote.

"Let’s use the calculator and create a hypothetical example: a full-time working parent earning the minimum wage, who is unmarried with two children in subsidized day care. ... after his or her wages more than double from $7.25 an hour to $15 an hour, earnings rise from $1,160 to $2,400, or a $1,240 change.

"... But after subtracting the decrease in benefits and higher taxes, that $1,240 increase erodes to just a $199 net improvement, or just a 16% change.

"... Through multiple scenarios using the CSEM calculator, I have found long ranges of income where work barely pays — what I call “disincentive deserts” in my published research. In some cases, individuals are actually worse off by accepting wage increases because of larger drop-offs in benefits, in what are called 'benefits cliffs.'”

The examples highlight the disincentives to earning more income that many poor people face and may explain why some poor people do not try to "pull themselves up by their bootstraps". Why work more when the tax man takes away much of the gain?

How incentives work in socialist countries

How NOT to motivate physicians: lessons from Cuba

Cuba penalizes physicians for "not meeting quotas" on infant mortality.  How do they respond?

• When pregnancies are deemed risky, doctors have to coerce women to undergo abortion in spite of their wishes. 
•  On top of this, forced sterilization in some cases are an actually documented policy tool. These restrictions do reduce mortality, but they feel like a heavy price for the people. 
•  ...doctors ... lie about the statistics. One thing that is done by the regime is to categorize “infant deaths” as “late fetal deaths” – its basically extending the definition in order to conceal a poorer performance.

What happens when you adjust the infant mortality statistics?

• ...Cuba moves from having an average infant mortality rate ... to having the worst average infant mortality in that dataset – above that of most European and North American countries.

What do poor people think is in their self interest?

If you give the poor cash, they don’t waste it. Direct transfers lead to more spending on children’s food and health—especially when women are in charge.

Incentives matter

http://www.bbc.com/news/blogs-news-from-elsewhere-38208914 reports that visits to nursing homes in China increase when the home pays people to visit.

Is buying a luxury car irrational consumption?

China slapped a whopping tax on super cars. High-end imported cars were already subject to a 35% import tariff. Now an additional 10% tax will be imposed on vehicles costing more than $190,000. It’s part of president Xi Jinping’s drive to promote “rational consumption.”

From qz.com.

Substitution in the construction of houses

With Workers Scarce, More Home Builders Turn to Prefab Construction by: Chris Kirkham Nov 16, 2016 Click here to view the full article on WSJ.com TOPICS: Manufacturing SUMMARY: A persistent shortage of construction workers across the U.S. is prompting some of the nation's largest home builders to experiment with a model they once derided: factory production. CLASSROOM APPLICATION: Students can examine the reasons for factory production of homes : a short supply of skilled construction workers and the introduction of new wired technologies in homes. QUESTIONS:  1. (Advanced) The article notes a shortage of skilled labor in the construction industry. Does a shortage in this sense mean that at the current wages in the industry, the quantity demanded of skilled labor is greater than the quantity supplied? If not, what is the meaning of the term shortage? If quantity demanded of skilled labor is greater than the quantity supplied, do wages adjust? 2. (Advanced) What is the effect of innovations in wired technologies on the home production processes? 3. (Introductory) What are deterrents to construction companies building home modules in factories? Reviewed By: James Dearden, Lehigh University

Outcomes and externalities in the marijuana market

Review & Outlook. A Brave new Weed
by: Editorial Staff
Nov 02, 2016
Click here to view the full article on WSJ.com

TOPICS: Law and Economics

SUMMARY: The costs so far from marijuana legalization are higher than advertised.

CLASSROOM APPLICATION: Students can evaluate the economic consequences of the legalization of marijuana, including the price of marijuana, usage rates, and drug cartel behavior.

QUESTIONS: 
1. (Advanced) What is the effect of the legalization of marijuana on the supply of the drug? What is the effect of the celebrity glamorization of marijuana on the demand for the drug? What is the effect of legalization and celebrity glamorization on the equilibrium quantity of the drug?

2. (Advanced) What is the effect of the legalization of marijuana on the arrest rates of black and Hispanic youth? What is the effect of the legalization of the drug on traffic accidents?

3. (Introductory) Has the legalization of marijuana eliminated the illegal market for the drug? How has the legalization of the drug affected drug cartel behavior?

Reviewed By: James Dearden, Lehigh University

What is the opportunity cost of keeping a store open?

Macy's Fix for Department Store Woes: Fewer Stores
by: Suzanne Kapner
Aug 12, 2016
Click here to view the full article on WSJ.com

TOPICS: Microeconomics

SUMMARY: Macy's said it would close 100 stores, admitting that some locations were worth more as real estate than retail outlets as shoppers continue to spend more online and at discount chains.

CLASSROOM APPLICATION: Students can examine Macy's rationale for closing stores, the effect of the closings on Macy's share prices. They can also characterize the opportunity cost of locating Macy's in mall retail space.

QUESTIONS: 
1. (Advanced) What would Macy's announcement that the company is closing stores result in higher share prices? Why would the announcement result in higher share prices of competitors?

2. (Advanced) Does the following statement speak to the opportunity cost of locating Macy's department stores in retail spaces? Does the statement imply that the Macy's being closed are unprofitable in an accounting sense? "Most of these stores are underperformers or in weak locations" but the company also will close a few locations because "desirability as a redevelopment opportunity exceeds their value to us as a retail store," Macy's finance chief, Karen Hoguet, told analysts Thursday.

3. (Introductory) Why is Macy's closing stores? What is the effect of the opportunity to purchase clothes online on the demand for clothes sold at brick and mortar stores?

Reviewed By: James Dearden, Lehigh University

What is the cost of free college?

http://www.bostonglobe.com/opinion/2016/07/12/making-college-free-will-only-make-worse/YVonfawas70nG1CPZy8ctJ/story.html

Using incentives to reduce crime

http://www.newamerica.org/weekly/118/crime-doesnt-pay-but-lowering-it-might/

Is universal basic income a better solution to poverty than a myriad of welfare programs?

http://fivethirtyeight.com/features/universal-basic-income/

Universal basic income let's the individual decide how to spend rather than having a government bureaucrat decide.

It would eliminate all sorts of government programs purported to help poor people and the costs of administering them programs.

Incentives in ObamaCare

http://time.com/4292290/how-obamacare-is-fueling-americas-opioid-epidemic/?xid=homepage

Does the gender of the seller affect the price buyers are willing to pay?

The article says, "Yes": https://www.theguardian.com/science/2016/feb/19/ebay-study-shows-online-shoppers-are-subconsciously-sexist.

Questions.

1. Does the evidence indicate that buyers are irrational? If not, what other explanations exist?
2. How could a savvy buyer take advantage of these differences in price?

Resources on the web for incentives

1. Watch this humorous clip to see Captain Ron use incentives to induce good effort.
2. Watch this humorous clip from Office Space to see how incentives, or the lack of them, affects behavior.
3. Watch this clip from the Stand Up Economist @ 3:15. It mocks the principle that people respond to incentives?

Optional material for Choice

1. Watch this clip.  (The instructor predicts that you will laugh.) Is the monkey that rejects cucumber rational?
2. Watch this clip. It shows a consumer considering whether to pay a higher price to buy American. The marginal benefit is obtaining a US-made product instead of one made in India. The marginal cost is $212. It is a good example of making a decision by comparing the benefit and cost.
3. Watch the 60-second lesson beginning @ 5:30 to learn about Rational Choice Theory
4. Watch this humorous clip from Jerry McGuire. What motivates the football player?
5. Watch this clip from the Stand Up Economist @ 2:35. It mocks the principle that people are rational.