Shops Should be Opening Soon!

In February I went to the Eastern Economics Association's Annual Conference held in New York City. During the trip, I spent some time in Brooklyn exploring what's going on over in that borough. While walking through the Brooklyn Bridge Park we came across a little shop that was closed for the winter break. Even in a city as big as New York, demand for lemonade on the East River falls enough that it's better for shops to shut down.

The image on the right was from a trip to Niagra Falls at the beginning of November. It was a little chilly when we were there with a light snow, but I was definitely in no mood to purchase an ice cold soda while enjoying the falls. The owner of the Coke machine must have agreed because he unplugged the machine and stuck a sign on it. The candy store it was attached to was also closed for the season!

Revenge of the Nerds

Great new report out by The Economist about earnings for college graduates. It's a great piece to include for an economics program in every university because they break it down by degree area. If your university is heavily weighted to one area than narrow down the results to that degree.

In 1972 a university-educated man aged 25-34 could expect to earn 22% more than a peer without a degree, according to the Urban Institute, a think-tank. Today that premium has risen to 70%.

Here are the result for business/econ majors:

Economics in India

Over Spring Break, I was fortunate enough to travel to Bangalore and Mysore India after being part of Washington State University's Global Case Competition last year. The focus of the case competition was to advise a transnational corporation on doing business in Delhi, India. Unbeknownst to us at the time, our participation in the competition would earn us a sponsored trip to India!

While in India, we visited businesses (Infosys, Wipro, & NextDrop) as well as institutes (India Institute of Management and India Institute of Science). Overall, a thoroughly fantastic journey. If you have any questions, please feel free to comment below!

Now for the economics! While the obvious examples may jump out at you (poverty, income inequality, technology, etc), I love pricing strategies. This shouldn't be a surprise to people who flip through my other posts, but I wanted to share with you three different photos I was able to capture. I'll admit, most of my attention was focused on things other than economics.

On the fourth day of the trip, we ventured into Mysore, India, home of the Mysore Palace. Let's just say that the Royal Family recognizes that foreigners are willing to pay a premium to visit their residence and ride their elephants (see below).

While many of you may not know the Rupee/Dollar exchange rate by memory, I can tell you it's approximately 50 Rupees for 1 US dollar. While not exact, it was the ratio we used to make quick calculations. The shock at the front gate was pretty large because I'm not sure any of us expected to pay five times the price of Indians. While alarming at first, we all begrudgingly handed over our Rupees and realized that about $4 wasn't too shabby after all.

And then some of the people in our group decided to ride elephants, and the Royal Family was ready again, but this time the cost wasn't as drastic. I imagine if it was 200 Rupees, we still would have ridden them!

On the final night of our trip, Rossetti and I ventured to MG Road in Bangalore for some last minute shopping. After spotting a Krispy Kreme on a previous night, we knew a trip to India wouldn't be nearly as fun if we couldn't say we had a donut. Low and behold, Krispy Kreme in India offers rebates for bringing your own bags:

Every time I've seen these implemented, they always appeal to our "green" side, but really it's a cost saving tactic. If companies can convince you to bring your own bag, it lowers the cost of providing bags for you. My understanding is that 4-6 Rupees is a significant price in Bangalore, and equivalent to the 10 cents many US supermarkets offer. It was also a great excuse to share the photo with a former WSU SES grad student who does research in this area.

Don't Forget About Seinfeld!

Last week I was able to meet Linda Ghent at the National Economics Teaching Association Conference in Austin, Tx. Little did I know that Linda was the author of one of my favorite economics sources: YadaYadaYadaEcon.com, which covers Seinfeld if you didn't catch the reference.

If you like economics or you like Seinfeld, please check it out.

Twitter and Economics?

Yes! Of course Twitter is part of economics. Each day there are millions of users supplying content at essentially no cost (granted, some of it is more valuable than others). At the exact same time (unless your Kanye West), there are people you can follow and get updates from. Every fraction of a second, supply and demand factors are occurring right in front of our computer screens. What does this have to do with economics you ask? Who you decide to follow is a choice, and that choice is based on some characteristics of the individual. For the most part, we follow our friends, a few fast food restaurants, and some celebrities.

Using Regular Express, a colleague and I have captured demand characteristics for pundits. We evaluate whether a professional prognosticator, like Nate Silver, earns more followers (more demand) whenever they supply confidence or accuracy. We collected tweets from the 2012 MLB playoffs and World Series, the 2013 NFL Super Bowl, and currently combing through the 2013 NCAA March Madness tournament. Our samples are based on demand for professional pundits (verified Twitter accounts), self-proclaimed professionals (based on their Twitter bio), and the general public.

The results might surprise you!

Thank you to WSU News for covering our research. If you're interested in reading the more technical results, they can be found on my colleague's site.

Community Service and Economics

It's no surprised that there is an underwhelming level of community service in our society, even though there are dozens of organizations in need of volunteers. Washington State University even has a designated office on campus to help connect students with volunteer opportunities. Since I started teaching, I knew that integrating community service into my courses was a priority. I really started it last semester with a canned food drive:

For a mere 3 bonus points (0.3% of their final grade), I volunteered to take canned food or toiletries to the CAC Food Bank on their behalf. The results were overwhelming to say the least. The class of 200 students responded by bringing in over 500 cans of food, 68 paper products, and dozens of "other" goods.

The first response I received from fellow faculty members was, "what does this have to do with economics?" I quickly told them nothing, and that I wanted to give them the opportunity to give back to the community. So I took the challenge to implement economics and community service together. Using a GoFundMe All-Or-Nothing Campaign, I challenged my 100 person course to raise a little over $500 to donate to the local YMCA. If the class meets the goal by the deadline, the YMCA will receive $500 and every person in the class (regardless of whether they donate) will receive 15 bonus points, plus some incentives along the way.

Hopefully our well versed economists know what economic theory will suggest, but do you think that will be the actual result? Can the students overcome the theory and reach the socially optimal outcome? I guess we'll find out in 16 days!  Do you have any other ideas on how to link community service with economics? 

Diminishing Marginal Utility with Swiss Cake Rolls

This challenge would have definitely centered around Twinkies, had it not been for their bankruptcy and subsequent disappearance from shelves. Hopefully a deal can be reached to bring back the golden rolls of glory in time for this summer. Until then, Swiss Cake Rolls must suffice.

Early in every semester, I like to engage the class in a "real life" example of some type of economic phenomenon. Too often, instructors jump in with the dull routine of supply vs. demand, and efficiency vs. equity. Instead, I like to grab a few students, make them engulf 10 Swiss Cake Rolls (voluntarily of course), and then ask them how they feel. Luckily for the class, that concept won't be taught for a few weeks, but it at least gets them excited about economics.

For those unfamiliar with diminishing returns, as people employ additional units of inputs, their output increases at a decreasing rate. What does that have to do with Swiss Cake Rolls? Consider our hungry eaters as trying to maximize their utility (output) by consuming the delectable dessert (inputs). They were extremely happy with the first one, but the second one didn't bring them nearly as much satisfaction, nor did the subsequent desserts. On the consumer side, this is referred to as diminishing marginal utility. The video should help show the effects of diminishing returns. Thankfully no one had negative returns:

Rum and Coke: A Case of Complements

During my Fundamentals of Microeconomics class I routinely used alcohol for almost every section of my lessons. Why? College students understand alcohol much better than they do wheat and butter. Almost every chapter can be adapted to include some reference to alcohol, its production, or its consumption.

A fellow Twitter economist (@Patelnomics) posted a nice graphic of complements. I'm not sure where the source originated, but I found it from his, so I'll give him proper credit. Without a doubt, this is a great example of stores bundling complementary goods to reduce the search costs of buyers.

What was your favorite example of complements as an economics student? What did your professors use that you found boring?

Everyday Economics - Bank of America

I've challenged my Principles course to find economics in their everyday life. For the most part, they've all done an excellent job, even if some of them have worked in backwards. To make sure I wasn't asking too much, I tried it myself, and it didn't take long (granted I'm getting a PhD in this, so it's a little easier). As I went to the bank today to withdraw money from the ATM, this note was pinned to the teller window:

Last week we discussed monopolistic competition and how firms try to differentiate themselves from their competitors through various means. One of the results of many monopolistically competitive firms is the excess capacity generated by trying to achieve the lowest average total cost. In the case of Bank of America, it appears that they are attempting to lower their average total cost by discontinuing the drive-thru service. Not long before the date above, a new bank opened in Pullman, implying there must be some short-run profit in the banking industry. Perhaps this is a ploy by BOA to maintain their profits through cost reduction.

Ranked Nationalities Gets Help From the Toronto Star

I'm on the cusp of submitting my first research article to the Journal of Sports Economics, and came across an article in the Toronto Star from October 28, 2012 regarding the foiled attempt by Major League Soccer to sign Swedish superstar Olof Mellberg. Toronto and Mellberg came to an agreement that the Swedish defender would play for Toronto (one of the least successful teams this year) for $3 million over 2 years. Once submitted to the league, it was rejected because the league is in charge of all player's salaries and felt that it's best to consider the longterm health of the league when signing designated players.

Reporter Cathal Kelly believes that if finical reasons weren't to blame, it had to be for two other possible reasons. Mellberg is a Swede, who appeals to none of MLS's ethnic target markets or because he's a defender and not a flashy forward. The belief still follows that the league must not find Swedish players marketable to the MLS audience, which is exactly the finding I investigated when examining ranked nationalities. Only the top countries in Europe received wage premiums relative to their English counterparts, which suggests that owners/fans prefer (and our willing to pay for) players from England, Germany, Italy, or France for example, but not "lower tiered Europeans" like the Swedes.

What convenient timing for my research and poor timing for Olof.

The Day After Halloween Treats

Talk about supply and demand: Every year following major candy holidays (Valentines Day, Easter, & Halloween) most major retailers mark their candy down by 50% or more! Why though, isn't it the same candy it was the day before?

It's all about supply and demand. Most candy is themed for the particular holiday, or broken into fun size packaging. The demand for this particular type of candy ends the day after the holiday. An decrease in demand will mean lower prices and lower quantities sold. It's no surprise that the stores dump all of their candy from storage out and mark the price in half:

This means HUGE payoffs for people willing to open individual packages to get at their favorite candies. It's not surprising either that chocolate candies are the first to vanish. Think of this as a market with a price ceiling, the store has decided that all candy will be sold at the same price, which results in a shortage of chocolate candy:

Incentives and Cheating

People amaze me when they talk about not understanding why athletes cheat. Many of them think they play for the love of the game (even the beautiful game), but few realize that they are responding to incentives. If undergraduates (and graduate students) are willing to cheat in order to gain 5 extra bonus points, then athletes will surely cheat to gain a few million dollars. Each sport has some economist (myself included) that try to estimate the value of different productivity measures. For soccer, goals and assists are valued heavily (paper forthcoming). In baseball, you may recall the phrase "chicks dig the long ball," and it's true!

So when you hear stories of steroids, blood doping, or oxygenation, just remember it's because sports consumers (you!) value these things. The large tv and incentive based contracts all revolve around a simple 101 lesson: incentives. If you think sports are immune, look around your own life.

Classes Start Soon

My first Fundamentals of Microeconomics starts on Tuesday next week, and I think the best preparation for incoming freshman may be to read this article:

Classroom Etiquette 101

It basically points out classroom etiquette that most instructors notice, but students never come out and say. The best part of this article is that it's written by a student to other students. If you're a college student, please take the time to read this and think about your actions.

It will be interesting to see how the things I've learned from teaching Sports Economics translates into a principles course.

Econ of Sports: Course Evaluations

I taught Sports Economics during the first summer session at Washington State University, and I finally got the comments back from the course evaluations. Overall, I was very happy with how the class ended, so I was really looking forward to the evaluations. Here are some of the comments from the report:

"He was excellent in offering whatever the students needed help or questions about. Always in a good mood and ready [sic] does love teaching this course, it shows in his performance."

"Jadrian was able to explain simple econ concepts in a way that is understandable. This course is a great supplement to econ majors."

"His interaction with the students and wanting them to learn and ask questions. He knew his stuff so if we did have questions he would break it down to make it easier to understand."
 

Olympic Medalists & Their Tax Bill

Little known fact, it turns out that Olympiads returning with a medal will finish the year with an extra bump in their tax burden. Why you might ask? Well, along with the medal, the IOC also awards honorariums depending on how an athlete finishes.  According to one source, the prize for a bronze medal will give the Olympiad a $10,000 bonus, but the government will take its share of 35%.

Unfortunately, that would be true if the Olympiad was already at the highest tax bracket (such as the USA Men's Basketball Team), but for true amateurs participating in the sport (say, Judo?), they will unlikely be forced to pay the full tax rate. When I was a student on an assistantship, I had made a whopping $16,000 one year, with an effective tax rate of 2%. Needless to say, most Olympic athletes are not paying the full 35%.

But wait, there's a savior in this "mess." Florida senator Marco Rubio (R), who's really a Tea Party candidate disguised with an (R) after his name, has made remarks of having this tax removed from Olympiads' tax bill. While it sounds all fair and well, it's highly illogical, and purely political. For the true amateurs, they aren't paying the full burden, and most likely have other jobs and/or sponsorships to help cover this costs. For the professional athletes at the Olympics (cough, Lebron James), they need less reasons to pay taxes. For those who complain about the tax code being too complicated (which Rubio also admits), this is just one more article in that hefty 73,608 book.

Economics of the Olympics

Many people around the world are jumping for joy at the proceedings of the 30th Olympiad, and for good reason! This marks the first time in Olympic history that every country participating has sent at least one female representative, as well as the first time that females outnumber the male participates for the USA (LA TIMES). These countries include Brunei, Qatar, and Saudi Arabia. In my mind, it's still interesting that Qatar bid for the 2016 Olympics considering that women would need to compete and the country is only just now sending female participants.

But I digress. If you're interested in seeing the effects of the Olympics on countries' GDP, most would be surprised to find that it either has no effect or negative effects. Why you ask? Well, government spending increases substantially prior to the actual games with the building of stadiums, road improvements, and even security. However, once the games are over, the government cuts back substantially. This shock sometimes sends countries into a frenzy. For an interesting look at the "Post Olympic Effect," check out this piece by the Federal Reserve Bank of San Francisco (PDF). Oh, and Go Team USA!

Why Would the Rams Give Up A Home Game?

You hear about it in college sports all the time. The reason the power house conference schools (Texas A&M, LSU, Ohio State, Stanford) schedule schools from the FCS is for an additional home game. But why, you ask? Well, these schools often pay the FCS teams in the neighborhood of $125,000-$400,000 to come play at their FBS stadium. Teams wouldn't do that unless they thought there were economic rents to be captured.

FBS teams are saying, we can pay this FCS school $250,000 to come play us at home, where we'll sell at least 40,000 tickets at $20-$60 each, concession stands sales, parking passes, and suites. FBS schools don't want to give up home games because it means it will cost them money.

But what about in the NFL, is the same thing true? Check out this article by Yahoo! Sports:
Rams to Play NFL games in London for 3 years
So why would a professional sports team give up a home game for 3 years to play overseas? The same reason FCS teams give up a home game to go play FBS schools for a paycheck. It's all about the money.

It's no surprise that St. Louis ranks 31st (out of 32) in league attendance this past year, drawing an average of roughly 56,000 fans, which fills only about 85% of the Edward Jones Dome. The 5 games that have been played in London have drawn roughly 82,000 fans, and that's regardless of the teams playing, since they change each year. The fact is, more NFL fans in London would rather show up and watch ANY two teams play then the fans in St. Louis who actually have a home team.

While the details are not clear of the financial payout for the Rams for going over to London instead of hosting a home game, you can bet that a 3 year deal to be the home team means they're making more money playing a home game in Europe than they do playing a home game in St. Louis. At the end of the day, sports are still a business, and the dollar still matters more.

Does Defense Win Championships?

A great post from the guys over at Freakonomics:

http://www.freakonomics.com/2012/01/20/does-defense-really-win-championships/

The answer may surprise you!

Sports Economics

What a growing field! The field has emerged as a fast growing discipline, and has a unique group of followers who love to answer questions related to human's favorite pastime, sports. While very few universities offer a degree in sports economics, most offer at least a class, where common theories related to economics are applied to the sports world.

Is there an advantage to playing at home?

Are referees biased toward foreign players

What factors influence salaries


These questions and more are explored in the world of sports economics. So what's the purpose of this blog? It's purpose is to bring you both academic and real-world reporting of sports economics. If an academic paper pops up that isn't heavy in econometrics, we'll pass it along. If a news article discusses economic related issues in an article about sports, it'll be posted here.

Feel free to comment and recommend articles as you find them. Together, we'll grow a large collection of sports related papers. If you have questions about graduate degrees in sports economics, we'll try to help pass along important information!

Cheers!