Centives

Why do gangs have gang colours? Wouldn’t that just make it easier for the police to identify them? Andrew Mell, an Oxford Economist, decided to find out.

Perhaps the most interesting argument in his paper is that prominent gang colours increase the likelihood that other people will want to do business with them because it makes it more difficult for them to operate. A gang’s success despite their handicap is seen by potential business partners as a signal of their reliability and effectiveness. The author further argues that this would mean that increased penalties for gang activities around certain areas such as school zones might be counter-productive as they might encourage gang activity in those areas because the risk of operating is greater.

Source: University of Oxford

Via: The Wall Street Journal, William Dearden

It’s common for small businesses to pass from parent to child. But what effect does this implicit nepotism have on the performance of the company? One Stanford Economist decided to find out. The ultimate outcome of his analysis was that:

• CEOs that inherit their position generally see a decline in their return on assets, but not their profitability.
• Merit seems to make the largest difference. As the report notes “Family CEOs who attended less selective colleges…account for the entire decline in performance observed by the group of firms that promote family CEOs”

Read more about the details of the study and find a link to the full paper over here.

Source: Freakonomics

Popular business social networking site LinkedIn saw a 120% rise in revenue in the first report it has released as a publicly traded company. Despite this its shares have fallen in value from $100 a share at launch to about $95 now. Analysts still think that that there is a potential social networking bubble in the stock markets. Read more about why, despite this success, LinkedIn still won’t be making a profit over here.

Source: BBC News

It has become popular since the financial crisis to criticize the big 3 credit rating agencies out there: Standard & Poor’s, Moody’s, and Fitch. Yet, no one seems to be doing anything to change the reliance that investors have on them. If they’re really so bad, why do we even keep them around? In an article on Slate, that very question is asked. These three credit rating agencies have become so important since federal regulations on investments often require funds to only purchase bonds and securities above a certain rating to limit their risk. There is now a movement to get rid of all references to these ratings in the regulations. However, many oppose this by pointing out that while these agencies have made mistakes, they at least provide some measure of a bond’s risk. If the agencies were gone, how would investors know whether a bond was any good or not? Everyone would essentially have to do their own research. This seems to be an issue with little consensus, as there seems to be good reasons for both relying on the agencies and ignoring them. In the end, it appears that investors will continue to rely on them as they seem to be the best option in providing a necessary service.

Source: Slate

As the article states, ranking presidents purely by GDP is unfair for many reasons. The president, after all, has limited control over both the economy as a whole and over the government’s policy toward the economy. In addition, every president does much more than simply make decisions on economic policy. Nonetheless, looking at the rankings is rather interesting. These rankings cover all presidents who have entered office after WWII. As you can see, Presidents Kennedy (5.4%) and Johnson (5%) are numbers 1 and 2 on the list, respectively, while Presidents Obama (1.2%) and George W. Bush (1.6%) have posted the lowest GDP growth numbers.

Source: Economix Blog

In this article, the increased safety risk to drivers due to heavier vehicles is assessed. They found that the average weight of vehicles has increased by about 1,000 lbs. since 1980; this increase can largely be attributed to the popularity enjoyed by SUVs. It was found that this extra weight increased the risk of fatality from a car crash by 47%.

Source: Freakonomics Blog

David Cay Johnston at Reuters recently took a look at the economics behind state lotteries in the United States. Some of the findings include:

• Lotteries pay out about 62% of their revenue in winnings. That means lottery tickets are taxed at a rate of 38%.
• Americans spent $50.4 billion on lottery tickets in 2009
• Lottery winnings are taxed…further increasing the tax burden placed upon lottery tickets
• In 11 states the lottery provides more revenue than the state’s income tax

You can read more over here.

Source: Reuters

Via: Gerry Canavan

The latest US census has shown a dramatic drop in the percentage of children who make up the population of the United States. At the same time the percentage of senior citizens in the population has risen dramatically. While there might be a percentage decrease, in the United States as a whole there has been a 1.9 million increase in the number of children. But the number of old people are rising even faster. And in certain states such as Vermont, the absolute number of children has actually fallen. Read more about the consequences that this could have over here.

Source: Time

Foreign Policy featured an article that took a look at “how food explains the world.” Some of the interesting points include:

• China keeps a strategic pork reserve in case there’s ever a shortage.
• Investor Anthony Ward is sometimes called “Willy Wonka” because he controls 7% of the world’s production of cocoa beans. He believes that continued problems in Africa will drive up the price of the key ingredient behind chocolate.
• Israel and Lebanon are locked in a battle that has raged for several years with no end in sight. The battle is for the record for the biggest batch of hummus.
• In South Korea the prime minister was forced to intervene as a threatening financial crisis loomed. Did the government have to bail out the banks? The insurance companies? The auto manufacturers? Nope, in South Korea the government had to bail out the cabbage industry. A dish made with those cabbages is so important that the South Korean space agency thought it was worth their time to launch it into space.

Click here to read more about the role that mobile phones play in the distribution of food aid, the newest diet recommended by the U.N.’s Food and Agriculture Organization, and the (alleged) role that KFC played in the Egyptian uprisings.

Source: Foreign Policy

Via: World’s Strangest