Sing for the moment

I'm not forgetting it





For Sachin, 100th 100 in front of home crowd in what may be his last one-day international. Imagine that. Good luck Sachin, you've given us a lot.

giggle

"Main toh khud ko gale lagaun
Kisi aur ki mujhko zaroorat kya
Main toh khud se pyaar jataun"

yes her name is sheila...!

Shor Bazaar

"Irreverent": characterized by a lightly pert and exuberant quality; Lacking proper respect or seriousness; sarcastic; Disrespectful, cynical, caviling, querulous, or vulgar, where one's own feelings, or especially deference to the feelings of others, customarily command silence, discretion, and circumspection

grey markets

why not sell people the right to sell tickets later at a price they choose?

I'm seeing reports of all these tickets for the India Pakistan world cup semi-final being sold on the black market at several times what their price was...this is probably construed as being "bad" or "wrong" and is deemed illegal.

But it isn't quite so clear to me what exactly is wrong about this. Surely if one is talking about say dal or onions or salt then such behaviour is clearly going to harm a whole lot of people and benefit a select few so on balance this is not very good.

In this case, however, there is a legitimate trade that can be carried out. If some student wants to pay 5000R instead of 250R (the mandated price), well why not let him or her? In this case the entire costs of the exchange are being internalized by the participating parties. The whole reason why a "black" market exists is because re-sale isn't possible. But why prohibit re-sale if the seller and the buyer enter into a trade such that the buyer's value exceeds the seller's cost?

However, there is a potential problem in that this may encourage a few to buy every single ticket and then sell it at an inflated price. As long as it is mandated that every ticket sold is mapped to one and only one individual - i.e two tickets cannot belong to the same individual - I don't quite see the problem here either. Let's say you fine someone who ends up holding on to two tickets, for instance, a monetary equivalent of the earlier price of the ticket. Now, the person who chooses to mass buy will for sure internalize the probable fine, and we will get revenues that are better reflective of the willingness to pay for the ticket.

In this instance, everyone wins - the spectators who have essentially carried out something like an auction and allocated tickets according to willingness to pay; the administrators who will make more money; and the players too because the more passionate fans are in the stadium.

Of course, it would require some knowledge of how tickets are actually sold to see if this is a sensible idea or not.

number one!

since this blog is basically become a writing pad for research topics

I guess you got to say

I like this s***!

let us agree to disagree and bow down to our collective bounded rationality

leave the contract incomplete in the face of this eternal asymmetry

for haggling costs are great

to coordinate

our trade and the actions we take

when information is costly and there is specificity and complexity

we must draw our boundaries with the least amount of haste

Amitabh Bachchan, Deewar, and the Hold Up Problem

In the film Deewar, Amitabh Bachchan (AB) plays a coolie whose origins draw from a childhood born of homelessness and poverty.

In one of the first few scenes of the film, AB opposes the illegal extraction of wages (earned by AB and his co-coolies) by some local goons. Seeing this, a rich dude in a car pulls up next to AB a few days later and impressed by this opposition enlists AB to land some gold (probably illegally) for him.

Now, apparently, when AB was a child, he used to shine shoes to make money and had shined the shoes of this rich dude. So post-enlisting, rich dude throws some money on the table as payment, where AB states "You may remember a kid who refused to pick up money thrown at him. I still don't pick up money thrown at me..."

This sets up a double-cross later on, when AB gives out details of the landing of the gold to some other rich dude who is probably the first rich dude's competitor. (By the way it's interesting that such a negative action is being carried out by the main hero, but this theme has probably been written about till its death).

On the completion of the double-cross, the other rich dude takes out a gun and states "You've given me the gold, now what if I refuse to pay you". The gun is an explicit threat to back up the refusal.

To which AB replies with a story of the guy who killed the golden goose. The other rich dude laughs, and the two - other rich dude and AB - decide to enter into a long term relationship. Or, at least, that's the impression one gets from the line "It will be a pleasure to work with you" that the other rich dude utters as a means of settling the bargain.

This is essentially a resolution of an (ex-post) hold-up problem. The hold-up is that the buyer (other rich dude) may refuse to honour payment to the seller (AB), but because AB carries great human asset specificity (his value to the buyer in his present use - carrying out double cross i.e. working as informant - is much lesser than in any other use - death or no use at all - which is conveyed to the buyer by AB telling the story of the golden goose) it is better to enter into a long term relationship. This will protect the value of the trade - influenced in this story almost entirely by AB's asset specificity - and minimize haggling ex-post.

Essentially they sign a contract to certify this expectation, although this is a verbal one. The buyer fears that he will lose out on an increased value of trade - which arises from the seller's asset specificity- and costs this will impose on him. The seller fears the buyer may be out to screw him. The contract between the two is therefore understood as attempting to minimize these fears- ex-post haggling costs - with the result that trade of higher value (than would be possible without a contract) occurs. At this point, my brain is jumping with ideas about how cheap talk influences the process of getting into a contract, but this is a separate idea.

So contractual decisions are understood as a response to minimizing opportunistic behaviour and result in efficient trade. It should be evident that the focus of this Williamson inspired view (on why a long term contract is signed) is explicitly on adaptation problems that occur in a strictly ex-post sense. Notice that the hold-up can arise from both the buyer and supplier's side. (In fact it seems more intuitive that the seller should be the one attempt to engage in ex-post haggling.) So the optimal contract really ought to protect both parties interests against this eventuality.

Also notice that without asset specificity, this theory will not work. Ex-post haggling is costly because of the asset specificity. After all if there were a lot of AB's in the market, the buyer could just let AB go without payment and replace without hassle. But if there are few AB's then the costs of finding a replacement are very high. The relationship specific investment by AB - finding out information - makes AB a very specific asset, which then is used to convince the buyer that a long term relationship will make both parties better off.

Two points are important - one, if we find long term relationships without any specificity involved what is going on? Two, clearly, by this example, it is evident that the role of talking is important. Although the buyer knows of AB's specificity his attempt at expropriating some of the gains from trade are frustrated because AB's utterance makes AB's specificity common knowledge. Real research idea here, this hasn't really been worked on.

To the first point then: the recent theory by Patrick Bajari and Steven Tadelis attempts to rescue this basic notion - that contractual decisions are best understood as a result of minimizing ex-post haggling costs - by the notion that ex-post haggling can arise from factors external to the buyer-supplier relationship. Specifically, the complexity of the transaction can influence ex-post haggling costs. This theory is what I seek to test as my dissertation, and so far, it does seem to work.

Krugman (slight return)

Paul Krugman once wrote a paper on the economics of interstellar space travel.

The idea being, I guess, that the faster you travel the slower time goes, so that would alter your interest rate, which would impact consumption and investment decisions.

The same idea can be applied to figuring out whether we can get complete contracts in outer space. One of the reasons for an incomplete contract is that we cannot predict perfectly or even very well what will happen in the future, thus it makes sense to leave some wriggle room. The more we expect the unexpected, the more incomplete the contract.

However what may be more important is how can we adjust to unexpected changes. If time slows down slowly enough, can you almost see the unexpected coming along and then perform your adjustment? Even if you cannot do this, since time is moving slowly, adjustment might be better informed.

The other way to look at this in terms of a (Williamsonian) notion of haggling costs. More complete contracts are likely to also involve more haggling if something unexpected arises. However more complete contracts get chosen when the probability of something unexpected is low. If time slows down enough might we reach agreement quicker...because our discount of the future is now lower so we can cooperate more? This then might make for more complete contracts in outerspace?

*grin*

not a bad idea, eh?