Ask the grumpies: Why are firms so short-sighted?

Leah asks:

Why do so many companies make decisions based primarily on short term economics and not long-term health of the company? Is it just the stock market, or is there more going on than that?

I am sure that people really do know the answer to this one in terms of how systems and laws and so on have changed to favor short-term over long-term… and I do know that a lot of that has to do with how bonuses and CEO compensation has radically increased over time, meaning short term gambles pay off a ton more than they used to.  So some of it is the stock market, but some of it is also how compensation and tax structures have changed.  This is really outside of my knowledge area though– my knowledge basically comes from skimming paper abstracts of general interest journals and working papers.

My short answer is that even though companies are supposed to be risk neutral, and are supposed to be trying for immortality, they are run by people.  And people are short-sighted.  If the rewards are for the short term and not for the long term, then that’s the direction they’ll go.

Ask the grumpies: How to subvert the Tragedy of the Commons

Leah asks:

Is there any way to subvert the tragedy of the commons, or are we doomed to that fate? I seem to remember learning some examples way back when I took environmental economics but they all escape me . . .

I just happen to teach a class on this!

The first way we learn about is with government setting property rights and facilitating costless Coasian bargaining.  In the canonical example, there’s a river and a factory and a fisherperson.  The factory pollutes the river which kills some fish.  If the factory owner owns the river, then the fisher can pay it to pollute less.  If the fisher owns the river, then the factory owner can pay them to allow some pollution.  There’s problems with this solution when there’s not costless bargaining, when there’s multiple fishers (that can cause a holdout problem) or multiple factory owners (and they don’t know which ones are causing the pollution), but that’s the “preferred” government intervention when it works because it leads to the least amount of deadweight loss.

Fancier versions of this solution include things like the government setting a specific number of pollution credits and allowing firms to bargain over them.  That’s the idea behind Cap and Trade.

When the Coasian solution is difficult to implement, generally because of bargaining problems or informational aysmmetry, the government can step in a bigger way.

First:  The government can mandate that firms not be allowed to pollute more than a certain amount or fish more than a certain amount or hunt more than a certain amount.  Associations can also take the role of government in order to say, prevent over-fishing, though it’s often harder for a non governmental association to enforce these kinds of mandates.  Mandates are most enforceable when there’s jailtime associated (not just a shell company going bankrupt), though that tends to be unpopular.

Second:  The government can tax things like pollution or things that cause pollution.  Think gasoline taxes or hunting fees.

Third:  The government can subsidize companies to not pollute or to not fish etc.  This option tends to be the most popular with industry.

All of these methods have situations in which they work better or worse than the other solutions.  With nuclear waste, you want a mandate because even a little bit of waste is bad.  With air pollution you might want a tax or subsidy or cap and trade system.  The government can make money with taxes or by selling property rights in a Coasian situation.  Companies tend to lobby for subsidies which makes them more politically feasible.

So the short answer is:  yes, government can subvert the tragedy of the commons.  Market failure is why there is an economic role for government and the tragedy of the commons is one of the causes of a main source of market failure (negative spillovers).  But we need political will for it to work.

Ask the grumpies: If you could only sit on one piece of furniture for a year…

Leah asks:

If you could pick one of the following pieces of furniture to be the only one you sit in for a year, which would you choose? Rocking chair, chaise lounge, office chair, glider, or wingback

Given how much time I spent at the computer, it would have to be the office chair.

Is bed an option?  I like beds…

Grumpy Nation, what would you pick?

Ask the grumpies: What is your favorite travel destination?

Leah asks:

What is your favorite travel destination?

#1:  This may seem kind of weak, but if I’m being completely honest, I think my current favorite travel destination is West LA.  I love the weather.  I love the hotels I stay in.  I LOVE LOVE LOVE the food.  I wish I had more West coast conferences and fewer East coast ones (though thankfully the food has gotten better in the main place I go on the East Coast).  LA just makes me happy.  And West LA is surprisingly walkable.  I’m sure there are places in Europe that are lovely, but I have not presented at several overseas conferences because I just don’t want to spend all that time on the plane.  Flights to LA are much more reasonable.  Plus my favorite bakery in the part of Northern California where I conference the most went out of business.  :(

#2:  Italy

Grumpy nation, where you do like to travel best?

Ask the grumpies: Feelings about decluttering

Leah asks:

How do you feel about decluttering? Is it easy or challenging for you?

Is it easy or challenging?  Who knows?  We haven’t tried!  I mean, we’re already hitting where our budget constraint hits our utility curves, so why would we want to mess with that?

More seriously:  I try to not let stuff in the house to begin with.  So when we get gifts we don’t want, they go in our goodwill cabinet (or gift closet for unopened children’s gifts) straight away.  The only actual “decluttering” I do is when DC2 outgrows clothing and I hand them down to a colleague which was something people did before it got called decluttering.  Most of the stuff that leaves our house leaves it because it is broken or worn out or used up or outgrown at the point it is no longer useful.  We don’t systematically clean things out or have any sort of targeted decluttering.

Update:  DC2 recently went through hir room and closet and got rid of a lot of stuff zie had outgrown.  I guess that’s technically decluttering, though the questions were more “have you grown out of this/do you want this” than “does this spark joy.”  When zie did that, the goodwill cabinet (where we put things we don’t want until we decide to deal with them) got full, so we took multiple loads to goodwill, three of my colleagues with younger kids got bags full of clothing and toys, and we have a bag of new with tags stuff (gifts that never got worn) ready to go to a refugee center in the city.  So I guess we declutter but don’t think of it as decluttering.

What about the rest of Grumpy Nation?  Do you declutter?

Ask the grumpies: Favorite apps for fun?

Leah asks:

Do you have any sort of favorite apps you use for fun?

#2 doesn’t have a cell phone.  Like not even a flip phone.

#1 doesn’t use apps for fun because she has major problems with time management and internet addiction.  Still, she does use Yelp a lot.  And she watches Youtube a lot, but doesn’t use an app for it.  I use the Apple Podcast app in the car.

DH and the kids like all sorts of games (DH is currently playing Hyper Light Drifter).  DH uses the Netflix app a lot and Amazon PrimeTime.  He listens to Audible.

What are your favorite apps for fun, Grumpy Nation?

Ask the grumpies: When is the movie better than the book?

Leah asks:

When is the movie better than the book?

Rarely.  Bad books aren’t usually made into movies!

#2 Didn’t like the book version of the Princess Bride as much as the movie, but #1 liked the book version more.

I guess there are several versions of Brewster’s Millions that are better than the original source material.  There’s a lot of Gutenberg material out there that has extremely cringey racial/ethnic stereotypes which don’t make it into the movie versions (or at least not into the movie remakes).

Peter Pan is a much better movie– terrifying book.  Similarly Pinocchio.  Fox and the Hound.  That era of Disney picked some pretty awful source material.  Even Mary Poppins is dramatically different (though one can argue which version is better).

We’ve heard that 50 Shades of Grey was a better movie than book, but we’ve got no desire to watch either one(!)

Grumpy Nation, help Leah out, have you seen movies that were better than their books?