Quotulatiousness

June 28, 2017

Concert-goers rejoice, for the government is here to help you!

Filed under: Business, Economics, Law — Tags: , , , , — Nicholas @ 05:00

Of course, if you have any experience of the utility of “government help”, you shouldn’t get your hopes up too high, as Chris Selley explains:

The results of an online public consultation were clear, said Naqvi. “One: the current system clearly is not working for fans; and two: Ontarians expect the government to take action.” We should have expected nothing less: ticket rage is a real thing among concertgoers in particular — a mind-boggling 35,000 people completed the online consultation — and besides, the survey didn’t include an option to suggest the government do nothing.

Among other things, Naqvi said, it will be illegal to resell tickets for more than 150 per cent of face value, and it will be illegal to use bots. Soon, he promised, “everyone (will have) a fair shot at getting the tickets they want.” Ontario, he said, will become “a world leader in ticket sales regulation.”

You’re supposed to think that’s both plausible and desirable. You should instead be very, very skeptical. So long as U2, the Tragically Hip and other artists insist on pricing their tickets vastly below what people are willing to pay for them, there will be an enormous incentive to circumvent whatever laws are in place to prevent third parties from reaping those foregone profits. A 150-per-cent cap would reduce the incentive, as Naqvi says — but only if the entire scalping community decided to respect it.

It won’t. It doesn’t. Scalping is illegal in Arkansas. Tickets for the University of Arkansas Razorbacks’ Nov. 24 game against Missouri are going on Stubhub for well over twice face value. Scalping is illegal in Quebec. Stubhub will put you in the third row for Bob Dylan’s show at the Montreal Jazz Festival next month for US$275; face value is $137.50 Canadian. The experiment works in every scalping-restrictive North American jurisdiction I tried. Heck, scalping used to be illegal in Ontario. That sure didn’t deter the gentlemen who prowled around outside Maple Leaf Gardens and SkyDome.

Many Stubhub users aren’t even in Ontario — that’s even more true for the people with the bots. Is the Attorney General really going to prosecute people for the crime of selling tickets at prices people are perfectly willing to pay? People in other countries? That would get awfully old in an awful hurry.

As he points out in the article, this is yet another instance of the Ontario government pandering to the demands of economic illiterates (recent examples include slapping on new rent controls in the middle of a housing crunch and significant increases in the minimum wage as new workforce entrants are already finding it tough to get hired). It’s as though the government is reading the economic textbook upside down … bringing in exactly the wrong “solutions” to every problem they see.

December 22, 2015

Monty’s thumbnail sketch of the economics of scarcity

Filed under: Economics, History — Tags: , , — Nicholas @ 04:00

Okay, it’s perhaps a bit more than just a thumbnail sketch, but it’s still a good introduction:

A basic definition of “economics” is given by Thomas Sowell (PBUH, may he live a thousand years), which I paraphrase here: “Economics is a system of allocating scarce resources which have alternate uses.” The key word I want to focus on here is scarce. It is not abundance but scarcity that lies at the heart of economics. Scarcity of resources is what makes economics a fundamental property of nature. Scarcity is an inherent, inseparable, eternal property of reality. It is not a problem that can be solved — it is bound up in the laws of physics that govern the cosmos.

The necessities of life — water, food, clothing, shelter — are drawn from scarce resources which have alternate uses and thus require a method of allocation. We generally think of systems like “capitalism” or “communism” when we think of economic systems, and there are others (feudalism, for example). But let’s boil down the allocation method to two basic kinds: market-based, where scarce resources are allocated according to supply-and-demand dynamics; and command-based, where a central authority divvies up resources according to some set of (usually arbitrary) rules.

Nearly every variant of market-based and command-based economies has been tried over the centuries, and the market-driven economy has emerged as the best solution we have found so far. It turns out that market-based economies work far better than command-based economies for one simple reason: because of what F. A. Hayek called “the knowledge problem”. Hayek’s insight was that allocating scarce resources is a very complex business in anything other than a trivially small economy, and there’s no way that a centrally-managed economy can hope to understand all the decisions and variables that go into making the production of goods and services possible. There is no way for a centralized body to determine how to allocate scarce resources efficiently across the hugely-complex landscape of a functioning economy. Mis-allocation of resources is almost always the near-term result, with the middle-to-long-term result being economic collapse.

Market-based economies use competition and pricing to guide the allocation of scarce resources. Supply and demand fluctuate, and the marketplace uses pricing of goods and services as a signaling device for both buyers and sellers. If supply is high but demand is low, prices drop and the resources that go into the low-demand item are diverted to a good or service where demand (thus price) is higher. If demand is high but supply is low, prices will rise and prompt competitors to enter the market at a lower price or (if the resource is inherently limited, as with beach-front property) drive more intense competition among buyers.

All of this is Economics 101, and it doesn’t matter if you’re a red diaper baby Communist or an Ayn-Randian hyper-capitalist, you have no choice but to work under these constraints. You live in a reality constrained by scarce resources that have alternate uses; there is no magical elixir or scientific discovery that will exempt you from it.

September 23, 2015

New libertarian books of interest

Filed under: Books, Economics, Law — Tags: , — Nicholas @ 02:00

In the Washington Post, Ilya Somin draws attention to two new books of interest to libertarians:

Two exciting new books have just come out that are likely to be of great interest to readers interested in libertarianism, and political and legal theory. They are Markets Without Limits: Moral Virtues and Commercial Interests, by Jason Brennan and Peter Jaworski, and Justice at a Distance: Extending Freedom Globally, by Loren Lomasky and Fernando Teson. As the titles imply, both books have a libertarian orientation. But you don’t have to be a libertarian (or close to it) to agree with the authors’ positions on these issues, and even those interested readers who ultimately reject the authors’ conclusions can learn a lot from them.

In Markets Without Limits, Brennan and Jaworski argue that anything you should be allowed to do for free, you should also be allowed to do for money. They do not claim that markets should be completely unconstrained, merely that we should not ban any otherwise permissible transaction solely because money has been exchanged. Thus, for example, they agree that murder for hire should be illegal. But only because it should also be illegal to commit murder for free. Their thesis is also potentially compatible with a wide range of regulations of various markets to prevent fraud, deception, and the like. Nonetheless, their thesis is both radical and important. The world is filled with policies that ban selling of goods and services that can nonetheless be given away for free. Consider such cases as bans on organ markets, prostitution, and ticket-scalping. Perhaps the most notable aspects of the book are that the authors don’t shy away from hard cases (see, e.g., this summary of their discussion of the sale of adoption rights), and that they thoroughly address a wide range of possible objections from both left and right. The issue addressed by the book has enormous practical significance, in addition to its theoretical importance. To take just one example, the ban on organ markets condemns thousands of people to death every year, because it leads to a severe shortage of transplantable kidneys relative to the number of people who need them.

September 13, 2015

Markets in everything, Fan Expo edition

Filed under: Cancon, Economics, Media — Tags: , , , , — Nicholas @ 02:00

At The Walrus, Jonathan Kay explains how Ron Weasley (and the whole Fan Expo celebrity photo “experience”) made him both sad and $300 poorer:

Photo by Jonathan Kay. Click to see full-sized image at The Walrus.

Photo by Jonathan Kay. Click to see full-sized image at The Walrus.

Fans of the TV show Entourage will remember the second-season episode in which Johnny Drama (Kevin Dillon) heads to San Diego’s Comic-Con International, dressed in prop-wardrobe Viking costume. Drama, we learn, had appeared in a (fictional) show called Viking Quest, starring as the warrior Tarvold. On the fan-convention circuit, Drama explained, he could rake in big money by signing autographs, and set conventioneers’ hearts aflutter with Tarvold’s signature cry of “Victory!” On Entourage, this seemed funny. In real life, I recently learned, it’s sad.

On Sunday, I took two of my daughters to the 2015 instalment of Fan Expo Canada, billed as “the largest Comics, Sci-fi, Horror, Anime, and Gaming event in Canada.” More than 100,000 fans show up annually for the four-day exhibition, which now sprawls over both buildings of the massive Metro Toronto Convention Centre. Under one roof, I was able to meet a life-size My Little Pony, compete in a Catan tournament, playtest emerging console video games, commission custom panels from famous cartoonists, pose with life-size Futurama characters, buy a fully functional 3D-chess set, and generally revel in all the various subcultures that the rest of society stigmatizes as dorky and juvenile. My girls and I have been to Fan Expo Canada three years in a row, and we always have a good time.

But my daughters are getting older. This year, for the first time, they were after more than just a Harry Potter wand and a Gryffindor T-shirt: They wanted to meet the real-life Harry Potter movie stars appearing at Fan Expo. Expecting to encounter nothing more than a real-life version of Drama’s Viking Quest subplot, I acquiesced, and we wandered over to celebrity row.

I was shockingly naive about how this process works. Before Sunday’s celebrity adventure, I’d assumed that one could mingle about and snap pictures with fan-con celebs for free, taking out your wallet only when you wanted a signed photo.

In fact, the best way to describe Fan Expo’s celebrity protocol is as a sort of Chicago Mercantile Exchange for human beings. Instead of live cattle, lean hogs, skimmed milk powder, cash-settled butter, and softwood pulp, this big board (displayed above) lists prices for Billy Dee Williams, Gillian Anderson, Danny Trejo, Neve Campbell, Norman Reedus, Skeet Ulrich, Zach Galligan, and fifty other stars and quasi-stars. The precision of the numbers suggests a fine-tuned demand-driven adjustment process that any commodities trader would recognize. Williams (Lando Calrissian from Star Wars, but you knew that) was listed at $57. Anderson (X-Files): $91. Danny Trejo (Machete): $74. Neve Campbell (Scream): $97. Norman Reedus (The Walking Dead): $130. Skeet Ulrich (Jericho): $68. Zach Galligan (Gremlins): $63. Just my luck: Rupert Grint (Ron Weasley, Harry Potter’s red-haired sidekick) was listed at $142 — highest on the board. I wanted to bail out. But having made the mistake of getting dragged this far, turning back wasn’t going to be a good-dad move.

September 6, 2015

How the Division of Knowledge Saved My Son’s Life (Everyday Economics 3/7)

Filed under: Economics, Health — Tags: , , , — Nicholas @ 03:00

Published on 24 Jun 2014

In this video, Professor Boudreaux explains how the specialization of knowledge helped his two-year old son overcome a life-threatening illness. The science of medicine has enjoyed significant progress since the 19th century thanks to the vast size of the market and demand for health care services. Despite his foresight, Adam Smith never could have imagined the degree of expertise held by some of today’s medical specialists.

June 20, 2015

Prediction Markets

Published on 8 Feb 2015

We’ve discussed how prices are signals that convey information about goods — but can prices also convey information about events and even predict the future? For instance, can we predict Middle East politics based on the price of oil futures? Or predict the consequences of climate change based on the price of flood insurance in coastal cities? Of course, prices in these examples are imperfect predictors as there are many factors that influence the price.

We also take a look at some markets that have been designed to make predictions, like the Iowa Electronic Markets, and a specific example of how it was used to predict the outcome of the 2008 presidential election between John McCain and Barack Obama. What about the Hollywood Stock Exchange, where traders buy and sell shares and options in movies and music? What did the studio learn about its casting choices for the film, “50 Shades of Grey”? We discuss these examples and more in this video.

April 8, 2015

The Equilibrium Price

Filed under: Economics — Tags: , , — Nicholas @ 02:00

Published on 2 Jan 2015

In this lesson, we investigate how prices reach equilibrium and how the market works like an invisible hand coordinating economic activity. At equilibrium, the price is stable and gains from trade are maximized. When the price is not at equilibrium, a shortage or a surplus occurs. The equilibrium price is the result of competition amongst buyers and sellers.

April 3, 2015

The rise and fall of the Beanie Baby bubble

Filed under: Business, Economics, USA — Tags: , , , , — Nicholas @ 03:00

City Journal‘s Laura Vanderkam looks at the amazing and unlikely fad that swept much of North America until the wheels came off:

In the last few years of the twentieth century, speculative mania gripped seemingly normal Americans. People debated prices in online chat rooms. They devoured literature claiming that sound fundamentals, not froth, led to sky-high valuations. The frenzy grew and then, suddenly, the bubble burst. People lost everything.

This describes the dot-com crash, but it also describes a less-remembered mania for adorable plush toys known as Beanie Babies. In The Great Beanie Baby Bubble, journalist Zac Bissonnette blends the unlikely economics of an asset class encompassing Kiwi the Toucan and Happy the Hippo, and the unhappy tale of Ty Warner, the ruthless tycoon behind them, into a saga far more entertaining than a business book deserves to be.

Like many in the toy industry, it turns out, Warner had an unhappy childhood. His father abused his sister; his mentally ill mother would later steal Warner’s car. Perhaps to compensate, Warner developed an obsessive attachment to stuffed animals. After beginning his career as a salesman, he threw himself into getting the details of the animals he designed for his eponymous toy company right. The eyes in particular had to lock on a buyer. He once borrowed an employee’s pearl necklace to be sure the pearlescent color of a product’s fur was correct. He wanted all his toys to be worthy of bearing his name, “Ty,” on the ubiquitous heart-shaped tags.

From the beginning of his entrepreneurial journey, “his two biggest competitive advantages — obsessive attention to detail and trade-show charisma—outweighed his myriad disadvantages: lack of scale, no advertising budget, a small and not especially competent sales force, a limited product line, and little in the way of a track record with retailers,” Bissonnette writes. Warner would sell only to small stores — a declining market — because he never wanted to see his precious animals end up in a big-box discount bin. Yet the resulting difficulty this created for customers wound up adding to the mystique. People like a hunt. Fortune was kind to Warner for a while, and the limited availability, coupled with strategic “retirements” of desired Beanie Babies, boosted demand. A few collectors started re-selling rare Beanie Babies on eBay. As they made money and told their friends, a mania ensued.

May 15, 2014

Craft brewers face potential hop shortages

Filed under: Business, USA — Tags: , — Nicholas @ 07:55

BBC News has terrible news for craft beer fans:

Hops are hot. Their price in the US has doubled in 10 years. Some even predict the equivalent of Armageddon for beer lovers — a hops shortage.

The reason is craft beer, which has come from nowhere to claim 8% of the US beer market.

Far more hops go into craft beer than the equivalent produced by large corporate brewers — roughly six times more. The brewing revolution has triggered a shift away from bland, high-yield alpha hops to the “aroma” varieties responsible for the striking citrus notes in craft beer. It is a “double whammy” — more hops needed but they are of the varieties that are less productive.

By next year, acreage will be planted 60/40 in favour of aroma varieties, says Ann George, director of Hop Growers of America. It used to be 70/30 the other way. The hop plants take a couple of years to be productive. It’s going to be touch and go. “Craft breweries are opening faster than farmers can grow hops,” reported US online magazine Vox.

Clearly this calls for a blue-ribbon panel to recommend government solutions to the impending doom of higher prices! Let’s set up a bureaucracy to allocate the market so that all current brewers get a fair share … and of course, we must protect the companies already in the market from upstart competitors! We should have the first report in by 2016, which will allow the new organization to be set up by 2018 or so, and by 2020 the market will be fully regulated and operating smoothly under the benevolent guidance of government officials.

Or, y’know, let the market decide. Which it appears to be doing nicely — demand for more aromatic hops is up, so prices have risen to the market-clearing level. Higher prices for hops are signalling to hop producers that they need to produce more, to take advantage of the higher prices. Higher prices are also telling brewers that they need to economize in the short term or raise retail prices for the hoppiest brews to reflect the higher input costs. Knowing that a shortage is possible — signalled by higher prices now — means that brewers will adapt quickly (or, for a few less-well-managed firms, go out of business).

April 2, 2014

Dog adoptions – the economics are trickier than you think

Filed under: Economics — Tags: , , — Nicholas @ 09:01

In the Harvard Business Review, Paul Oyer explains some of the changes in the market for adopting dogs over the last decade or so:

Lots of people are looking for a canine companion to brighten their lives, and there are always plenty of dogs “on the market” at shelters or through breeders. Yet, too many dogs don’t find homes, and they often pay the ultimate price (especially if they are in Sochi). So what stands in the way of dogs and owners finding one another?

For starters, the supply and demand at any given time in any given area is typically thin and random. Thankfully, online pet boards have thickened the market by enabling potential adopters, especially those who want to rescue a dog, to find a broader range of options rather than just settling for what the shelter happens to have the day they go there. Sites such as petfinder.com lead to many adoptions, many of which cross significant geographic territory.

[…]

A second problem — and this is much harder to solve than the thin-market problem — is there are a lot of duds on both sides of the dog adoption market, and it’s hard to tell exactly who they are. A breeder could describe a bad, Cujo-like dog as “good with children” while potential owners like Michael Vicks’ former associates would surely claim they would give a dog a safe home.

Shelters address this issue by thoroughly screening would-be adopters (I have always found it ironic that they give you your baby to take home after it is born with no questions asked, but you have to jump through a lot of hoops to adopt a puppy or kitten that will otherwise be euthanized.) But there is no evidence that these screenings are very effective.

February 10, 2014

The difference between money and wealth

Filed under: Economics — Tags: , , , , — Nicholas @ 11:37

At Ace of Spades HQ, Monty gives an introduction to Say’s Law:

Jean-Baptiste Say, an 18th-century economist and follower of Adam Smith, recognized one of the most fundamental laws in all economics: the entirely common-sense observation that consumption requires production. This axiom is called Say’s Law of Markets.

However, this axiom is often mis-stated as “production creates its own demand”. This is incorrect — production is necessary for consumption to take place, but production anticipates demand, it does not cause it. Production is speculative in this sense. The simple act of producing some good or service does not, in and of itself, create demand for that good or service. (This is true even for basic commodities.)

What Say’s Law really says is that production is the source of wealth. Market-driven production creates value and provides choice to consumers. Inventors and innovators bring new products to market, and as consumers are exposed to these new products, demand rises with the utility or desirability of these new products. New markets are opened by innovators who are able to tap into needs and wants that consumers didn’t even know they had until a new product or service is offered.

And he explains why money is not wealth:

So what is “wealth”, really? (I could write a whole book on the difference between “wealth” and “money”, but I’ll try to boil it down.) Wealth is options. Wealth is choice. Wealth is variety. Wealth is agency — being able to do what you want to do when you want to do it. Wealth is surfeit — having more than the essentials of life. It is comfort, leisure, ease — or at least the agency and option (those words again) to avail oneself of leisure. Simply put, wealth is stored value that can be drawn down in various ways, only some of which involve the exchange of money for goods and services. And how is wealth created? Through production, because production must necessarily precede consumption.

Money correlates with wealth because money is a medium of exchange and a store of value. Rich people have a lot of money because they are wealthy, not the other way around. Wealth allows us to buy a bigger house or better car or nicer furniture. It pays for a nice dinner for two at an upscale restaurant. Note well: wealth buys these things, not money per se. Consumption is the draw-down of wealth, not the simple expenditure of money.

Money is the oil in the machine of an economy, but money is not in and of itself wealth. If I am stranded on a desert island with a thousand gold coins, I am just as poor as if I were a homeless vagrant living in an alleyway somewhere, because I cannot exchange my gold for things I want or need. It does not give me options or variety or comfort. My gold facilitates neither production nor consumption absent a market mechanism that makes use of it.

May 18, 2013

The booming market in pre-owned high fashion clothing

Filed under: Business, Economics — Tags: , , — Nicholas @ 08:14

A market I have to admit I was almost completely ignorant about, but it’s poised to become a very busy, competitive market if it can overcome a few hurdles:

There’s been a digital explosion in the market for pre-owned fashion. In the past year, we’ve seen a veritable land grab in the online consignment and resale space with the number of “re-commerce” sites now exceeding 50 — and many more, no doubt, incubating in Silicon Valley, New York, London and beyond. Several market levels are being addressed: mall/high street (Threadflip, Tradesy), thrift (LikeTwice, NiftyThrifty), upmarket (TheRealReal), haute vintage (Byronesque) and boutique (ReFashioner, my own company).

It may seem like these sites are dealing in a mere by-product of the fashion industry. But no, this is the product. Everything that’s bought becomes pre-owned. A tidal wave is building and it has the power to undermine or even destroy. Indeed, the stockpile of merchandise is overwhelmingly vast. I did the math in 2009 for ReFashioner’s beta, a luxury fashion swap site: $880 billion trapped in closets. And that’s just high-end womenswear in the US.

[. . .]

As with flash sales, this inventory is delimited by the retail market. And it’s wayward. The ROI sucks when every SKU is singular and inventory is locked up — literally — in houses. And there’s something of a standoff between buyer and seller: the non-professional seller, accustomed to seeing 100 percent mark-ups in the real world, wants top dollar for her career basics and contemporary designer wear, while the buyer wants Zappos-like service, Etsy pricing and Net-a-Porter merchandising. There are other issues too: resistance to higher ticket items without fittings, sketchy return policies, knock-off trading.

But there’s more. This merchandise is personal. It’s not just a numbers game, it’s about everything fashion means to us. It’s about honouring the past of the clothes and their place in our lives. If this is going to work, we need to add content and context. Idealistic, maybe. But idealism is how things get changed and idealism can work to the advantage of this category.

H/T to Virginia Postrel for the link.

January 22, 2013

The free (and un-free) markets in water

Filed under: Economics — Tags: , — Nicholas @ 09:58

Water is often described as a “natural monopoly”, because most of us only encounter a water bill from a municipally owned water utility company. But there are other markets for water where the price varies exactly the same way as it does for other commodities:

Earlier this year the Aurora Sentinel reported that the city will sell $9.5 million worth of water to an energy company. Why? Because the company is offering four times the price offered by other customary buyers. Potential profits in oil and gas make the water highly valued by drillers. Of course, this valuation is subject to change along with the prices of oil, crops, and all of the other resources required to produce them. If oil prices decline relative to crop prices, drillers will bid less for the water and farmers more, and water will flow to its most highly valued use. In other words, when markets are allowed to work, it’s a beautiful thing.

Public utility customers aren’t used to, and don’t really understand, how a free market works when it comes to water. Because a local water utility is seen by most economists as a natural monopoly, retail costs are fixed at low levels despite potential fluctuations in supply and demand. These low costs are accomplished not only through price fixing, but also through rationing (i.e., the public utility regulates when and how much water can be used, rather than consumers responding to true prices).

Water rationing usually affects what the utility considers a low-value use of the good, such as lawn watering. You are permitted to water your lawn only during certain hours, on certain days, and for a certain amount of time. Even if you have a prize-winning English garden in the middle of a desert and would gladly pay more for water, you aren’t given that opportunity. The guy next door with the dandelion lawn, whose sprinkler spends more time spraying the sidewalk than the grass, has no incentive to be more careful with his water, except when he’s forced to follow the directive of the local authority and water his sidewalk on Tuesdays and Thursdays between the hours of 6 and 8 p.m.

Because there is no price incentive for the average public utility water customer to respond to, there are very few creative conservationists. Instead, public utilities resort to ridiculous advertising campaigns aimed at persuading their customers to use less of their products. You’ve probably received the flyers or seen TV ads sponsored by your water and electric utilities offering tips on how to use less. A more direct way to economize on water and energy use might be to let prices fluctuate for public utility customers like they do for customers in the wholesale market.

December 23, 2012

Goldbugs, behold the CombiBar

Filed under: Business, Economics, Europe, Germany — Tags: , , , , , — Nicholas @ 10:48

If you’re a big gold fan, you might want to look at the CombiBar, which is a gold wafer that can easily be broken down into one-gram portions:

Private investors in Switzerland, Austria and Germany are lining up to buy gold bars the size of a credit card that can easily be broken into one gram pieces and used as payment in an emergency.

Now Swiss refinery Valcambi, a unit of U.S. mining giant Newmont, wants to bring its “CombiBar” to market in the United States and build up its sales presence India — the world’s largest consumer of gold where the precious metal has long served as a parallel currency.

Investors worried that inflation and financial market turmoil will wipe out the value of their cash have poured money into gold over the past decade. Prices have gained almost 500 percent since 2001 compared to a 12 percent increase in MSCI’s world equity index.

[. . .]

The CombiBar is particularly popular among grandparents who want to give their grandchildren a strip of gold rather than a coin, said Andreas Habluetzel head of the Swiss business of Degussa, a gold trading company.

Other customers buy gold for security reasons.

“Demand is rising every week,” Habluetzel said. “Particularly in Germany, people buying gold fear that the euro will break apart or that banks will run into problems.”

H/T to Tyler Cowen for the link.

April 7, 2012

Rationing is not the optimal solution to shortages

Tim Harford on the recently imposed “hosepipe bans” in parts of southern England:

But it was chucking down with rain this week. It was snowing, too. How can we be talking about drought?

Water isn’t like electricity: it can be stored, within limits. You don’t get a water shortage if you have a dry week and you don’t cure a water shortage with a few April showers. You get water shortages after a couple of years of low rainfall.

And how do you cure water shortages?

Hosepipe bans, apparently.

Is that a good idea?

Probably not. It’s appealing for the water companies because the revenue they receive is capped by the regulator. They can’t make more money by supplying as much water as possible to as many joyful customers as they can reach. It’s easier to just yell at customers to stop watering their lawns. It might be annoying but the water companies don’t lose much as a result.

[. . .]

You’re not suggesting a “flushing the toilet ban”?

I am not suggesting any kind of ban. It’s the idea of the ban that’s problematic. A new article by economists Jeremy Bulow and Paul Klemperer analyses the advantages to consumers of rationing schemes rather than simply raising the marginal price. The bottom line: the advantages are typically illusory. Rationing reduces supply, relative to what could be provided if prices were higher. It also misallocates resources — there’s no reason to expect that the people who get the scarce product are the ones who value it most. And rationing encourages all kinds of fun and games to try to get around the rules.

So you just want water to become more expensive.

I hope water will become cheaper, on average. But I certainly want it to be expensive to use lots of water at a time of shortage. We want everyone to have an incentive to save some water and the obvious way to do this is through water metering.

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