Archive for July, 2008

18th century monarchs can be libertarian paternalists too

July 31, 2008

Frederick the Great of Prussia saw the potato’s potential to help feed his nation and lower the price of bread, but faced the challenge of overcoming the people’s prejudice against the plant. When he issued a 1774 order for his subjects to grow potatoes as protection against famine, the town of Kolberg replied: “The things have neither smell nor taste, not even the dogs will eat them, so what use are they to us?” Trying a less direct approach to encourage his subjects to begin planting potatoes, Frederick used a bit of reverse psychology: he planted a royal field of potato plants and stationed a heavy guard to protect this field from thieves. Nearby peasants naturally assumed that anything worth guarding was worth stealing, and so snuck into the field and snatched the plants for their home gardens. Of course, this was entirely in line with Frederick’s wishes.

From this history of the potato via Rory Sutherland, who submits it as an “interesting example of libertarian paternalism. A worse king would have mandated the consumption of potatoes, or at least their cultivation.” Sutherland will have a nudge for readers on Friday. Check back then.

A description of nudge that we like

July 31, 2008

…”The Harry Potter of the policy world this summer.” (From PIRC)

Hopefully it’s a reference to the book’s popularity and impact, not that it’s a children’s book that can be enjoyed by adults. We invite readers to post their best descriptions of Nudge.

The behavioral economics behind free gas

July 30, 2008

With high gas prices, you might have noticed promotions for free prepaid gas cards when you buy some product. Like a Callaway golf club. A Comfort Inn hotel room stay, a lodge stay on Big Bear Lake, or one booked through Expedia. Or a new Chrysler car with of three years of gas guaranteed at $2.99. Assuming these prepaid cards aren’t coming at a massive wholesale discount, companies could just offer a simple cash reward, or even a free prepaid generic Mastercard  or Visa that would be good anywhere, not just at gas stations. So why play up gas?

It’s a classic mental accounting trick. Most Americans have a transportation budget, which has been blown over the past year by $4 a gallon gas. People have a hard time moving money from one mental account to the other, say from clothing or dining out to gas. The prepaid cards give them a way to restore the solvency of the transportation account without upseting their other budgets. Straight cash would be more fungible physically, but less fungible mentally.

Smile – you’re driving the speed limit

July 30, 2008

Here in the U.S., road signs that flash the driving speed of approaching cars are a common sight, in part because they operate at two percent of the cost of traffic cameras. The clunky acronym for these things are VAS (Vehicle Activated Speed) signs. In the U.K., however, these signs don’t just tell drivers their speed. They smile at cars under the limit, and frown at cars over the limit.

Hat tip to Rory Sutherland for pointing this out in a post on the Spectator blog. You can also read Rory’s earlier piece on why politicians shouldn’t be afraid to learn from marketers, who are, after all, masters of persuasion.

No, the happy chap in the picture above is not Rory. It’s Councillor Michael McCann, the depute (British spelling) leader of South Lanarkshire Council, and member of the Scottish Labour Party.

What’s my motivation?

July 29, 2008

External rewards and punishments are counterproductive when it comes to activities that are meaningful — tasks that telegraph something about a person’s intellectual abilities, generosity, courage or values. People will voluntarily perform intellectually arduous work, for example, because it gives them pleasure to solve a puzzle or win a game of wits.

You could read the rest of Shankar Vedantam’s column on internal and external motivation. And then consider Gary Becker’s provocative idea to charge $50,000 a person for the right to become an American citizen.

Yes, there is a lot of framing in this post.

Larry Summers on Harvard’s green construction inefficiencies

July 29, 2008

Mostly Economics digs up this tidbit from Larry Summers’ speech at a New Delhi think tank:

(When I was President of Harvard), we made no effort in assessing the cost of the buildings to build in the life cycle costs of the buildings, whatever it cost to heat them in the winter or whatever it cost to cool them. So what happened?

People built the buildings in ways that invested as little as possible in insulation so that they could succeed and quite consciously chose to forgo opportunities to invest in energy saving that would pay itself back in three or four years when we were able to change that focus by providing special loans and such we produced a somewhat better outcome.

Mostly Economics uses this admission to propose default rules for economically efficient environmental architecture. Read the post here.

Choose a government program for your tax dollars

July 29, 2008

You can’t choose your tax rate, but what if you could choose a government program to fund with you tax dollars? In an (admittedly somewhat gimmicky) idea similar to the voluntary presidential campaign financing box at the top of every tax form, the government would give you the option of devoting a small amount of your taxes to a program of your choice, including financing public debt. Libertarians might not be able to find anything government does that they approve of, but even a short list of, say, 25 programs could include priorities amenable to liberals and conservatives. The purpose of the initiative would not be to fundamentally change government spending patterns. Rather, it would be to establish an means of direct participation and feeling of active decision making in government. At the end of the year, the government might produce a brief accounting of exactly what program monies were spent on.

The price of a smart energy monitor is falling

July 28, 2008

This fall, a Utah company called Control4 will sell a controller that monitors the energy usage of all appliances in your home, for $495 – $200 cheaper than it is now. (Gadgets and software for programming usage patterns cost extra.) The controller can compare usage over the past few months, and with people in the neighborhood.

Depending on house size and tolerance for wool sweaters and a sweaty brow, at about $500 it would probably take a year or two to recoup an investment in the technology.

According to the Electric Power Research Institute, the average American home has 27 appliances that are always on.

Comparing fuel efficiency gains for a Jeep, a Camry, and a Civic

July 28, 2008

Richard Larrick, who guest blogged for us, points to a graph from The Green Grok showing gas money savings for mpg improvements over 1,000 miles at three fuel efficiency levels. They equate to driving a Jeep SUV (red), a Camry (blue), and a Civic (green). The figure assumes $4 per gallon gas.

You can also watch Larrick and co-author Jack Soll in this spot produced by Duke University.


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