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Thank you for visiting this site, I hope you find this blog interesting. I write about microeconomic analysis, specifically the application of incentive analysis to real world problems. I argue that many of the world's social, environmental and economic problems have incentives at the heart of the problem. Hopefully, the discussion on this website can help create solutions for a better world by understanding the incentive dimensions of 'wicked' problems, rather than superficial remedies that only deal with the symptoms. I welcome your comments and views! Please keep comments civil and based on reason and evidence. Thanks for visiting!

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Climate Change is the Biggest Driver of Disruptive Innovation

 

So Australia wants to become innovative. The Lucky Country wants to become the Smart Country. It wants to embrace disruptive innovation, face the future boldly and feed the teeming masses of Asia with our clean and green food. Yet, when the choice was there for Australia’s leaders to either choose to grab the opportunity with both hands or to pretend ‘she’ll be right, mate’, they chose the latter. In fact, they chose the latter with such alacrity that at least three Prime Ministers have fallen over the issue. Yet, now our leaders are telling us that we have to become more ‘risk-taking’, ‘entrepreneurial’ and willing to tolerate failure. All good sentiments, but our leaders have been found wanting on the greatest economic challenge of our time: climate change.

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End of Year News from the Barefoot Economist

Dear Valued Readers,

It has been a while since I’ve written, mostly because I have become busier working on business ideas so I haven’t had the time to blog as much as I used to. I have missed having the opportunity to research economic issues that interest me and you, my readers. But it has been good that something is keeping me off the streets besides blogging. Just in case you’re wondering, no, I haven’t become a genuine barefoot economist, I can still afford to live and eat in relative comfort.

So what have I been doing with my time? I’ve joined two partnerships. One is a drycleaner and the other is a consultancy/investment company partnership. I’ve also been working to setup a financial co-operative to invest and assist social enterprises and other co-ops. I’ve also help planned and gone on a soccer tour to China. In between all that, I managed a side trip to the Sunraysia fruit fly exclusion zone to take my wife to see what a desert looks like.

Read on, if you must find out more about what I’ve been doing.

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Is Sustainable Tourism Possible in Asia? The Case of Indonesia

I have travelled to Asia many times. I have experienced the traditional elegance of Japan, the ferocious hordes of China, eaten yum cha in Hong Kong, seen the defiance of the Vietnamese, tubed on the Mekong, experienced the wonders of Angkor Wat, got lost in Bangkok, marvelled at the efficiency of Singapore and got food poisoning in Malaysia. But one thing I haven’t done, until now, was swim in the beaches of Asia.

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Tram Wreck: What myki Can Teach Us About Big, Expensive IT Projects

 

The Victorian Auditor General’s Office (VAGO) has just tabled a report into the ‘Operational Effectiveness of the myki Ticketing System’. For those of you who are Melburnians or who have visited Melbourne, you will know how much this ticketing system is despised. Even more than Collingwood. Myki was meant to make public transport travel so much easier in Melbourne and the State of Victoria. But it hasn’t turned out that way. The reason myki is so hated my Melburnians is that it is a big, expensive IT project that has gone horribly wrong, yet our Government in their wisdom decides we should live with it despite its many shortcomings and having the opportunity to use a cheaper alternative. Unfortunately, this is a global phenomenon: in the UK there is the NHS computer system and in the US there is healthcare.gov. Some consultants have claimed that 75% of IT projects fail. Why do so many big, expensive IT projects fail to deliver? What can the sorry, sordid tale of myki tell us about why IT projects fail? And what can we learn from it?

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The Economic Case for Reducing Indigenous Disadvantage in Australia

In Australia, the Australian Football League celebrated the contribution of Indigenous Australians to the game. This year’s ‘Indigenous round’ will be remembered for Adam Goodes’ war dance after kicking a goal. It was also reconciliation week, that is the week where Indigenous people were counted in the census and the historic Mabo decision that recognised Native Title. Yet, despite the mainstream acceptance that the past treatment of Indigenous Australians was shameful, there was little discussion that Indigenous Australians are still living with the effects of European colonisation. Indigenous Australians have a 10 years shorter life expectancy than non-Indigenous Australians; they make up 26% of the prison population in 2008 whilst making up 2.5% of total Australian population in 2006; 17% were unemployed in 2011 compared to 3.6% of non-Indigenous population; and Indigenous people account for 9% of homelessness. These social, health and economic indicators have budgetary consequences for both Federal and State governments. While there exists a strong moral case to reduce Indigenous disadvantage, there is also a very strong economic case for Australian governments: reducing Indigenous disadvantage could save both Federal and State governments $450,000per person over their lifetime.

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Nash Equilibrium and the Real World

Prof. John Nash, one of the intellectual parents behind game theory died with his wife in a car accident on the night of 23rd May 2015. Tragically, his death occurred after returning from Norway where he received the Abel Prize, the equivalent of the Nobel Prize in mathematics (fun fact: there is no Nobel Prize for mathematics). He also has a Nobel Prize in Economics. It was for his work in game theory that won him this award, specifically in defining what is now called a ‘Nash Equilibrium’.

Game theory existed before John Nash, but the only equivalent equilibrium concept was the MinMax theorem formulated by John von Neumann (another fun fact: apparently he inspired the mad scientist character in the movie Dr Strangelove). Unlike the MinMax concept, the Nash Equilibrium was a broader solution concept that could be applied outside of zero sum games. For me, what inspired me to study game theory was that it could help explain why we live in an imperfect world. Without the Nash Equilibrium, game theory and economics wouldn’t have the power it has today. We would all believe that somehow we can’t do better than competitive markets. Well, game theory and specifically using the Nash Equilibrium concept allows us to look at the choices that face people, firms, politicians and see whether or not we could have done better. In this article, I want to examine some specific cases that we can all observe. But first, what is the Nash Equilibrium?

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Is Australia’s Health System Financially-Sustainable?

Introduction

One of the great social policy achievements of Australian governments was to establish a health system that is able to deliver world best health outcomes at relatively modest cost to almost all Australians. According to the Organisation of Economic Cooperation and Development (OECD), Australian life expectancy is the 6th highest in the OECD at 82 years at birth in 2014. This cost Australians the relatively modest amount of 9.1% of GDP (21st highest in the OECD), which compares favourably to the OECD average of 9.3% in 2012. As impressive as this success is, is it financially sustainable? Can Australia continue to achieve these impressive health outcomes for a relatively modest amount? Or will Australia’s demographics and emerging health challenges force Australians to spend more of their tax and income on the health system?

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Why More Roads Will Not Reduce Congestion

 

Introduction

I remembered in the good old days when it was a breeze getting around Melbourne, assuming you were driven (by my parents, not a chauffeur). Now, that I often travel by car for meetings, I notice how some of my favourite short cuts are no longer the fail-safe ways of cutting travel time. Even driving in the middle of the day could test the patience of a saint. We are lead to believe that more roads will reduce congestion. But the facts will tell you otherwise.

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Procrastination and Carbon Pricing: the Real Option of a Carbon Price on the Economy

 

Introduction

A couple of weeks ago, after I posted “Was it Worth It? The Benefit-Cost of Air Pollution in China“, I was asked by Ecoscore to think about the benefit-cost of Australia procrastinating on a carbon price.

 

So, using my understanding of Australia’s carbon policy and economics what do I think? Has it been good for Australia? What can the rest of the world learn from Australia?

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Does Tough on Crime Actually Reduce Crime?

 

Introduction

“Do the crime, do the time”, is the common attitude towards criminals. Surely it is reasonable to expect convicted criminals to be punished? Yes, that is certainly a reasonable assumption to show society is serious in punishing anti-social behaviour such as assault, rape, murder and corruption (to name a few). But many of these criminals will be released back into society after “doing the time”. I went to a one-day conference organised by the Lentara UnitingCare to learn about these issues. What struck me was how much resources are being wasted by a reactive approach to crime. In today’s post, I want to explore the economics of a tough on crime policy. What are the benefits and costs on tough on crime? Is there an alternative? If so, is it a more efficient approach to being tough on crime?

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