Matt Nolan

Jawboning productivity?

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Dr Cullen has told businesses to increase productivity. Although this sounds utterly ridiculous, given that businesses will make all profitable investment they can in order to make their output at a lower cost (unless you believe there is a conspiracy to keep wages low 🙂 ) there could possibly be some method to his madness.

Treasury has been working hard on the productivity issue this year, but it is a difficult issue. If we could costlessly increase our productivity then we would have no trade-offs, as output could become un-limited. As a result, the trade-off they have been interested in is the trade-off between current investment in productivity and the future benefits. To make matters even more difficult, the factors lying behind productivity remain somewhat of a black box – a subject where an individuals industry expertise trumps the musings of a whole team of economists.

Given that information regarding productivity is implicitly tied up in businesses and given that the choice of investment in infrastructure and R&D are often subject to positive spillovers, Dr Cullen’s strategy of Jawboning may be ingenious.

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Matt Nolan

A tax free threshold?

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The support for a tax free threshold in New Zealand appears wider than for almost any other policy. The right supports it, the left supports it – then why is it not government policy, and why do I not support it?

A tax free threshold at $9,000 would cost approximately $3.5bn (according to Patrick Nolan’s NZIER tax cut calculator from November 07), and would give everyone earning over $9,000 the same chunk of money (assuming that other tax thresholds remain unchanged).

Lets discuss why the policy may be popular along the political spectrum:

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Matt Nolan

Congestion, carbon, and bus lanes

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Following yesterdays suggestion to lower the speed limit in order to reduce carbon emissions I’ve got to thinking about congestion and carbon.

Firstly, I’ll put down the obvious problems with this scheme. Lowering the speed limit will make congestion problems worse – as in the short run cars will be on the road for longer. In order to solve these congestion problems the government wants to introduce “congestion charging” in urban centres. This will, over time, lead to more urban sprawl, which will increase the distance people drive, canceling out some of the carbon savings.

However, I doubt the scheme is serious – the social cost associated is likely to exceed the paltry reduction in carbon emissions.

Anyway, this scheme is not even the focus of this post. Instead I wish to discuss congestion and why bus lanes could be a useful mechanism in the case of congestion (even though the guys from Top Gear don’t like them).

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Matt Nolan

Discount factors and death

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What is a discount factor? A discount factor tells us the rate of time preferences between periods of time – in other words it gives us a measure for how much “stuff” we are willing to sacrifice in the future in order to consumer now.

Economists often use “exponential discounting“. Furthermore Rauparaha has discussed how hyperbolic discounting more accurately reflecting peoples true time preference at a given point in time. However, there are other issues that influence the way people discount. The one I want to focus on today is death.

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Matt Nolan

What was that about tacit collusion?

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Yesterday when discussing why supermarkets may discount Nurofen during cold season I put to the side the possibility that it was the result of a collapse in tacit collusion between Nurofen providers. My reason for ignoring this explanation was purely selfish – I was tired and that explanation required more thought than I had capacity for 🙂 . However, today I will attempt to shed some light on the tacit collusion explanation, even though my capacity is still extremely limited 😉 .

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Matt Nolan

Why do supermarkets cut the price of medicine when people are getting ill?

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When I was at the supermarket I grabbed some Nurofen for my partner who has a head cold. I seemed to be in luck when I was at the supermarket as there was a half-price special on Nurofen – how convenient.

Then I realised that almost everyone I knew had a cold, and most of these people were likely to take Nurofen so they could keep working through the cold. In this case the demand for Nurofen would increase, and the demand curve is likely to be inelastic at the previous price – as a result, why were they slashing the price of Nurofen?

Here are a couple of possible explanations:

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