Random thoughts of an economist

Generalization based on the sample size of one

Posted in Hong Kong, Statistics/Econometrics, teaching, Water by kafuwong on July 21, 2015

Recently, lead in water has occupied headlines of major newspapers in Hong Kong. Experts are consulted. Some experts appeared to mis-speak carelessly. The most laughable statement was made by a medical doctor, who is a consultant of the “Hong Kong Poison Control Network”. He remarked that lead poisoning can be caused by chewing on a pencil, among many other causes. It was so laughable that it is widely circulated on the internet.

Admit it, most of us do not know why this statement is laughable. OK. It is laughable because pencils (called “lead” pen in Chinese) do not contain any lead in the writing core nowadays. Although the writing core of some early pencils were made of lead, it has since replaced by the non-toxic grahpite. (http://pencils.com/pencil-history/) And, the statement came from a consultant of the “Hong Kong Poison Control Network”.

In fact, at least supposedly so, nowadays even the paint cover of pencils should not contain lead so that most pencils are safe for chewing (not encouraged).

—–

Internet is a powerful tool. A friend appeared excited about the lead poisoning from pencil chewing story that he added a catchy title to his sharing of the news report about the doctor’s statement: “If you cannot trust doctors, who can you trust?”

It is this catchy and exaggerated statement that caught my attention. I have to admit, I like it.

Nevertheless, the statement is clearly too much a generalization based on the sample size of one. That “specific doctor” may not be trustworthy on this specific issue, but it does not mean that “specific doctor” is not trustworthy on other issues. Certainly, it does not mean that other doctors are not trustworthy.

Beware of similar generalization from a small sample of observations.

Repairmen needed to give electrical pencil sharpeners a second life

Posted in Economics, Environment, Hong Kong, Parenting by kafuwong on July 16, 2015

A year ago, the ten-year-old electric pencil sharpener in our office began to fail. It was one of those better electric pencil sharpeners and could stopped automatically on sharpened pencils. Our office had no choice but to dispose the old one and to buy a new one of the same model. I took the old one home to let my son play with it.

The new one malfunctioned within days. As it was under warranty, the office then got a replacement. The newly replaced one worked but lacked the function of automatically stopping on sharpened pencils. My colleagues called the company for a repair. The salesperson said the new one did not have this function of automatic stopping and refused to send anyone to repair it. (Bad salesmanship, and lies as well!) After a year, it failed. Now, as it was no longer under warranty, the office decided to discard it. Again, I took it home to let my son play with it.

Were we successful in resurrecting the two pencil sharpeners? To my colleague’s surprise, we did. (I said “we” because I made substantial contribution.) On the ten-year-old pencil sharpener, we discovered that it just needed some oil — it took us a long time to discover. After applying some oil, it worked like new.

One the one-year-old, the major problem was a mis-alignment of a switch. Not only that we brought it back to life successfully, we also fixed the function of automatically stopping on sharpened pencils.

No, I am not trying to brag about how good we are in repairing the machine.

Here is my observation: Many years ago (when I was younger), a lot of broken electrical appliances were repaired and used for a long period of time. Now, most broken electrical appliances are thrown away. The natural question is WHY!

I think the answer lies in the cost of purchasing new electrical appliances and the labor cost of repairment. The labor cost has gone up substantially in Hong Kong. The cost of buying new electrical appliances is low. When the cost of repairment is higher than the cost of buying new electrical appliances, the decision is not to repair. As more people make similar decisions of not to repair their broken electrical appliances, more broken electrical appliances will end up at landfills.

How to reduce the amount of broken electrical appliances in landfills? We need more rag-and-bone men and repairmen.

Anyone interested in joining me to collect and repair broken electrical pencil sharpeners?

Historic preservation is other people’s job

Posted in Economics, Environment, Historic Preservation, Hong Kong, teaching by kafuwong on May 17, 2014

A historic building near my workplace was being demolished to make room for a residential high rise. Some of my friends were annoyed by such development. They wanted the century old building to be preserved.

Obviously, there is a conflict in opinion of the owner and the public (my friends included) on such historic preservation issues. Lured by the hefty offer, the owner wants to sell the property to the developers. The public want the preservation. The owner would have no objection on the preservation if someone is willing to compensate him for the opportunity (of cashing in). The preservation should be done only if the total willingness to pay (from the public) for the preservation is larger than the best alternative (the value of the property. development). The big question is how much the public are willing to pay to the owner, in total.

Due to the public good nature, such decision and the finance of historic preservation often falls into the hands of the government. And, naturally, the government has to weight the conflicts.

People’s behavior is predictably rational!! If it is my property, I would like to be able to sell to the developers and pocket the money. If it is other people’s property, I would vote to force the owner to keep it as a heritage building. When we do not have to pay a cent, a lot of us will cry “preservation”. Yes! Let the government buy out the property! We tend to say we are willing to pay a lot to see the preservation.

This is a typical example of public good provision. When we do not have to pay for the public good out of our own pocket, we tend to claim we are willing to pay a lot for the public good. That is, an exaggeration of our willingness to pay in order to influence the decision of the government. If we rely on this process, we will have an “over-supply” of historic preservation. Imagine, we create a voting site for every historic preservation in question. Can you guess how many historic preservation projects will be done? In fact, almost all the time, no voting sites are created, no opinion polls are done. Often, we use the media to create a feeling that the public is willing to pay a lot for the reservation.

In the contrary, if we have to pay whatever we claim we are willing to pay, we tend to report less because one person’s understatement will unlikely change the decision of the government (that is approximately based on the total willingness to pay for the preservation and the value of development) and yet an understatement of our willingness to pay can help reduce our payment. When everyone is thinking in the same way, we will have an “under-supply” of historic preservation. Imagine, for every historic preservation in question, we can set up a donation account. Can you guess how many historic preservation projects will be done?

Like many public goods, the optimal supply of historic preservation is non-trivial. The key is to find out how much the public is willing to pay for the preservation. While it is possible to adopt some mechanism (e.g., Clarke-Groves mechanism) to induce people to truly reveal their willingness to pay, the decision of historic preservation often relies on a group of experts, and sometimes political debates.

Why do we rely on a group of experts? Because what the public say may not be as trustworthy as the impartial expert group.

[Additional reading: Handbook on the Economics of Cultural Heritage edited by Ilde Rizzo, Anna Mignosa.]

Should I bring canned food in my next trip to Shanghai?

Posted in Environment, Statistics/Econometrics, teaching, Uncategorized by kafuwong on May 8, 2013

Friends have cautioned me on food safety on my next trip to Shanghai.  Indeed, there are several reports of unsafe food in Shanghai lately.  Dead pigs flowed in the river; rat meats were made into fake muttons.  It is even widely reported by US media, e.g., NPR.

I know some of us do not like the talk of probability.  However, if we are talking about getting contaminated food or fake meat, it  makes sense to talk about conditional probability, conditional on where you  obtain the food.  We need to know that the probability of getting contaminated
food form a 5-star restaurant is much lower than from a street vendor in Shanghai.  I am not
saying that eating at 5-star restaurants is 100 percent safe but is definitely safer.

 

 

Road Pricing

Posted in Economics, Environment, Hong Kong, Regulation, teaching by kafuwong on May 8, 2013

According to the Transport Department of the HKSAR, Hong Kong’s car ownership per length of road has increased by 22 percent in the past 10 years. (Car ownership per 1,000 people rose to 63.4 cars in 2012, 25 per cent up on 2002 figures while the length of road per person for the same 1,000 people rose by only 1.7 per cent for the same period, according to a report by SCMP, May 4, 2013.)

This increase of car ownership per length of road needs not call for government action if Hong Kong has a small number of cars per length of road in 2002, or the additional cars are run on the less congested roads.  Unfortunately, that is not the case.  The roads in Hong Kong are getting more congested.  A couple years back, the government had a debate whether to build the Central-Wan Chai waterfront bypass in order to ease the congestion in the Central and Wan Chai district.  Back then (2007), my colleague Dr. Tim Hau (an expert of transport economics, also my co-author of a teaching case Road Building or Road Pricing?) called for road pricing as an alternative or a parallel measure in the long run.  Of course, as we all know, the bypass is scheduled to open in 2017.

Frustrated, aren’t we?  To economists, the market will adjust itself if we allow the commodity to trade in the market freely.  Shortage will almost never happen.  When there is an increase in demand, the price will rise.  The increase in price will cause the suppliers to supply more.  If the supply cannot response to the change in price, we simply have the price to increase by enough so that there will be no shortage.  In short, price is the key!  The beauty is when market functions, we do not need the government intervention.

Roads are different because the usage of roads causes externality.  My use of a road potentially causes an increase in your travel time on the same road. When everyone considers their own cost and benefit in making their decisions whether to drive on a road (not considering the impact on others), we end up doing too much of the activities from the social perspective, economists have discussed how to solve similar problem of externalities.  A simple solution is to tax the usage of roads, a higher tax during more congested times and on more congested roads.  Taxing the usage of roads is not new.  Tunnel and highway tolls are examples.  When tolls are set appropriately, we do not see too much of congestion and there will be saving of resources (our precious and productive time, among other things), from the social perspectives.  Of course, if we can save more resources, we can always think about redistributing them to make everyone happier.

Road pricing is not that different from highway tolls.  Take the highway tolls to the extreme and imagine all roads in Hong Kong are connections of many (potentially infinite) segments of roads.  Each segment has its own toll.  The toll will also change the condition of congestion.  For the uncongested segments, the tolls will be zero.  When the congestion reach a certain threshold, a higher toll will kick in.  We can have many such thresholds corresponding to different toll for the same segment.  Many years ago, while conceivable to economists, such implementation of different tolls on different segments of roads and different congestion situations would be un-imaginable to lawmakers.  The advancement of technology has made road pricing quite feasible.

Various form of road pricing has been adopted in other cities that are as congested as Hong Kong (Singapore, London and New York).   I strongly believe that it is time for Hong Kong to think about it.

 

The evil of air-conditioning

Posted in Economics, Environment, teaching by kafuwong on July 6, 2012

A friend of mine reminded me of a hot summer we spent together last year.  At the  tail end of last summer’s hot spell , her neighbors came by and gave her the room air-conditioning.  We were so thankful to this good neighbor. 

Air-conditioning is one of the biggest invention in the world, I would say.  However, my friend really don’t like air-conditioning because it makes her feel so confined.  I don’t like air-conditioning, either.   As long as I can bear the heat, I would like to keep my door and windows open.   I value my relationship with my neighbors.

My relatioinship with my neighbors is destroyed by air-conditioning. In order to enjoy air-conditioning, each of us has to close our doors and windows. A difficult choice: cool air or good neighbors.  My decision whether to turn on air-conditioning depends on the decision of my neighbors.  As soon as my neighbors shut their doors and windows, and turn on their air-conditioners, I know that I have to do the same.  Not because I cannot bear the normal heat, but their air-conditioning will heat up the air — my air!   That is unbearable!

At the end, our behavior reinforces each other’s.  Now the new buildings in Hong Kong are designed to encourage the installation and use of air-conditioning, and hence alienation from our neighbors.  How sad?  But so true!

Flies-targeting

Posted in China, Environment, Parenting, Regulation, teaching by kafuwong on May 24, 2012

The recent standard set by Beijing’s Municipal Commission of City Administration and Environment might appear laughable at first glance.  According to a BBC report(http://www.bbc.co.uk/news/world-asia-china-18170693), 

Authorities in the Chinese capital have set new standards for public toilets, including a stipulation that they should contain no more than two flies.

I am sure the authority must have thought about it carefully.  Hmm …  Our objective is to ensure cleanliness of public toilets.   Suppose that cleanliness will be ensured if the washroom cleaning workers work hard enough.   Then, we just have to ensure that the washroom cleaning workers exert their effort.   Monitoring one’s effort is not easy.   Why not use some indicators?  Possible indicators include smell, germs, etc.  Smell and germs are difficult to measure objectively without some “advanced” tools.   Luckily, we know that flies are attracted to dirty toilets and flies can be counted by visual inspection.  It may not be easy to meet the standard of no flies.  A small number of flies should be acceptable.  Any number bigger than three is often interpreted as “several”.  Perhaps “two” is right as “two” is not yet in the range of “several”. 

Note that the flies targeting is only among the several measures.  Among the measures include that the waste be collected within half an hour (http://www.chinadaily.com.cn/cndy/2012-05/24/content_15372766.htm).  Of course, the two-flies standard is widely reported because it appears so laughable to most of us. 

For those who laughed at the two-files standard, may I challenge you to come up with a proposal to improve the cleanliness of public toilets in mainland China as if you were the authority?

 One possibility is to measure the effort of the washroom cleaning worker.

Another perspective about the debate of electricity tariff adjustment

Posted in Economics, Environment, Hong Kong by kafuwong on December 31, 2011

Seen a letter ot editor in SCMP (December 31, 2011, “Tariff rises would power greener city” by Y.K. Leung, Chai Wan). 

I cannot fathom why Secretary for the Environmental Edward Yau Tang-Wah has spoken publicly against an increase in electricity prices.  Mr Yau’s prime responsibilities are environmental protection and energy conservation to make Hong Kong a greener city.  Surely increases in energy costs would lead to lower energy consumption, thereby brining about a cleaner environment in Hong Kong. 

As environment secretary, Mr Yau should argue for a hefty government levy on electricity consumption so as to deter people from wasting this valuable (and still very cheap) resource.”

Score one for Y.K.!   He brought us a perspective that is different from the mainstream debate of the tariff rises in Hong Kong.  Most people have focussed on how an increase in electricity tariff would hurt the well-being of consumers.  Y.K. has made a very good point.  Hong Kong electricity is cheap compared to other developed countries/regions.  (http://www.legco.gov.hk/yr08-09/english/panels/edev/papers/edev1124cb1-257-1-e.pdf)  While we should be happy that we can produce electricity at a lower cost (and hence lower tariff) than other developed countries, we should be aware of the encouragement of cheap tariff on electricity consumption, and hence an adverse effect on the environment. 

Of course, one must be aware that our environment secretary is part of the government.  His stance of negotiation with the electricity companies is a balance of the environmental concern and the well-being of the public. 

In essence, environmental improvement is costly.  We need to constantly ask ourselves how much we are willing to pay for a given improvement in our environment.

Reclaimed water

Posted in Economics, Environment, Hong Kong, Water by kafuwong on May 2, 2011

Stopped at Ngong Ping after six hours of hiking (the first three sections of Lantau Trail, http://en.wikipedia.org/wiki/Lantau_Trail).  Visited one of the cleanest and environmental friendly toilets in Hong Kong.  The toilet uses “reclaimed water”. 

According to the Hong Kong Government (http://www.gov.hk/en/residents/environment/water/usereclaimedwater.htm), “most sewage is treated to a certain standard before discharging into receiving water body – usually a river or the sea. In contrast, reclaimed water is more highly treated to make it clear in appearance, odourless and safe for reuse, and it forms part of the water supply.”  In fact, such reclaimed water is drinkable. 

I asked my friends whether they would be willing to drink reclaimed water.  They all said NO.  Yes, I agree that some of us may have trouble drinking reclaimed water as reclaimed water is linked to sewage.  However, like any other decision we make, the decision of “not to drink reclaimed water” is of course economic.  If there were no fresh water supply from mainland China and you were facing the choice of $1 per liter of reclaimed water versus $1000 per liter of mineral water, would you be willing to drink reclaimed water.  I would have taken the reclaimed water.  With such perspective, we can easily understand why in Singapore, we can buy bottled reclaimed water under the label of NEWater (http://www.adb.org/Water/Champions/2009/harry-seah.asp). 

Thanks God.  Cheap water supply is almost guaranteed by our motherland (mainland China).   However, if we are able to reclaim water from sewage at a reasonable price, we can use the water for purposes other than drinking.  Consequently, our reliance on the water from mainland will be reduced.  Our brothers and sisters in mainland will be able to enjoy more fresh water.

Take shorter showers, please!

Posted in Environment by kafuwong on January 24, 2011

When we take a hot shower, do we ever keep track of how much energy is consumed?  Imagine we bike to generate energy for the one person taking the shower.  How much man and woman bikers does it take to provide enough energy for a 5-minute shower? 

What would come to mind if I were one of the bikers: “Get done with the shower as soon as possible, please!”