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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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Was it Worth It? The Benefit-Cost of Air Pollution in China

 

Introduction

My brother sent me a link for Under the Dome and asked me what I thought of it. Under the Dome is a brave documentary on how China’s policy of develop at any cost is costing the people it is meant to benefit. It is made by Chai Jing, a former investigative journalist of CCTV (the State-owned TV network), and was originally hosted on the People Daily’s (another State-owned media organ) website until the Chinese Government ordered its removal. What I find most interesting about the documentary is how personal it is: this documentary rams home the point that the cost of environmental pollution is deeply personal, not an ideological preoccupation of the rich, Western global elite.

Environmental impacts have been depicted as a rich world obsession. But we can see in China that the people most affected are ordinary people, not the elite of the business and political cadres. Ultimately, people will suffer the costs of pollution. The costs to people are the result of environmental degradation and should be weighed against the economic benefits of development in public policy analysis. This blog post will ask the question, was all the air pollution worth it?

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Does it Make Sense to Increase Labour Supply to Stimulate Economic Growth?

 

Introduction

The Australian Government recently released the 2015 Intergenerational Report in an effort to educate the Australian public on the challenges facing the government and society by 2055. According to Treasury’s modelling, net debt would increase from 15.2% of GDP to 60% by 2055. Per capita income growth would increase from 1.7% per year to 1.5%. What does the Australian Government propose to do about it? Their answer is to increase participation and productivity – i.e. increase the quantity and quality of inputs used in economic growth. The government seems to mean increasing labour supply and improving labour productivity. But does this policy prescription actually make sense?

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Red Tape and Social Impact

 

Summary

Red tape (i.e. regulatory burden) reduction has been a focus for governments in recent years. However, the focus has been on the private commercial sector and has largely ignored other sectors. In this post I will discuss the red tape imposed on social service organisations. The red tape has implications beyond increasing costs for social service organisations. At worst, it could provide perverse incentives for social service organisations to focus on process and outputs rather than producing and measuring genuine social impact.

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Too Big to Grow

 

Summary

The Bank of International Settlements (BIS) recently released a new report analysing the relationship between the growth of the financial sector and productivity growth. The empirical findings are particularly worrying. The BIS economists estimate that in countries experiencing rapid growth in their financial sector, financially-dependent industries experience 2.5% lower productivity growth than in countries with slower growing financial sector. To put that into perspective, the OECD average of productivity growth was 1.6% during 2009-12. Clearly, this is a disturbing finding for any economic policy-maker. What do the BIS findings tell us are the appropriate macroeconomic policy settings for productivity growth? What does this mean governments can actually do? And what does it mean in terms of winners and losers in an economy?

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Lucky Money and Information Revelation

Happy Lunar New Year! Or if you want to impress your Chinese friends, in Mandarin you could say, xin nian kuai le (新年快乐) Or in Cantonese, gong hei fat choy (恭禧發財). Handy tip: find out what dialect your friend speaks before showing off your cultural expertise (I’m assuming you know they are Chinese). For some of you, you may partake in the celebrations at a family home or in a Chinese restaurant (food is always involved when the Chinese celebrate anything). If so, you may witness the bizarre tradition (to non-Asian people) of older people giving money to the younger generation in red envelopes. You may also witness three generations stuffing their faces with unseemly haste, don’t worry it’s polite in Chinese culture to eat too much and complain afterwards. Some Western people think giving money is a materialistic way of gift-giving since you couldn’t even bother to invest time and effort to get a proper gift. Actually, a lot of thought has gone into it. How much you give reveals private information on what you really think of your younger and unmarried relatives. Here is a useful guide for those of you new to giving ‘Lucky Money’.

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Love: the Biggest Investment You Will Ever Make

 

Valentine’s Day is almost upon us. This is a special day for some of us. It could mark the start of an exciting contractual arrangement to co-invest in each other’s labour productivity and future financial security. It could result in significant future stream of ongoing financial commitments such as mortgage repayments and educating and caring for children. Hopefully, you have thought of all of this as you checked out that hot guy/girl in real life or Tinder. As the passion wears off, you may want to consider conducting a rigorous due diligence process to assess if that person you have nicknamed ‘Snookie’ would be the ideal investment partner in your home, retirement and children. Also, you would want to assess if you would have economic complementarities that can allow both of you to smooth out economic uncertainty such as unemployment, starting new business ventures or looking after your parents. If you’re still not convinced on the value of due diligence, maybe just being happier will make you scrutinise your potential life partner a bit more closely. This article will explain some economic and financial concepts that will be useful in implementing your due diligence. Happy Valentine’s Day!

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Tying the Hands of the King: Impact Investment as a Commitment Device for Governments

Yesterday, I made a pitch to a foundation to fund the development of an adaptation of the Social Impact Bond idea. During the discussion, one of the selection committee asked me, “this bond will lock government in to producing these outcomes for ten years. Do you think that is a good idea?”

I wasn’t expecting such a question, but the role of commitment on the outcomes of government policy has been a concern of mine (see this report for more details). So while I was unprepared, I had definite views on commitment and government policy. So, I replied, “as someone who has worked in government for a while, one of the main problems is that government lacks credible commitment. So, yes, I think it is a good idea for government to be locked in to produce social and environmental outcomes. Otherwise, their priorities will change every three years with a change in government. I think impact investment is a great commitment device. It ties the hands of the King.”

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VIDEO: Sustainable Farming with Wayne Lording (Wrap Up)

In this post, we wrap up our interview with Wayne Lording. Previously, we looked at what Wayne did to reduce his energy bills and water and fertiliser use. See here for an introduction to the series. The key points from the wrap up are:

  • Wayne’s investment helped reduced his costs through lower use of LPG, electricity, fertiliser and water,
  • Other farmers can also reduce their costs by investing in renewables and water reuse,
  • Very easy to install,
  • Can benefit very soon from reduced utility bills, and
  • Can also benefit from freeing up cash to invest in the farm.

Thanks for watching, I hope you enjoyed the series!

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VIDEO: Water Reuse on Wayne Lording’s Farm

This week we consider our series on sustainable farming by talking to Wayne Lording about how he recycles grey- and black-water to replace irrigated water and fertiliser. Key points are:

  • Treated water is used to irrigate and fertilise olive groves.
  • The key technology is a small pump, which is readily available.
  • Water reuse system has a payback period of 18 months.
  • The more water and fertiliser you use, the more you can save from installing a similar water reuse system.
  • Wayne’s water reuse system also has risk-management benefits by providing a hedge against water and fertiliser price increases.

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VIDEO: Solar and Geothermal on Wayne Lording’s Farm

In the second of our series on Sustainable Farming on Wayne Lording’s farm (see here for the introduction), we talk to Wayne about how and why he installed solar and geothermal technologies to replace conventional energy sources. Key points are:

  • Combined solar and geothermal system has a payback period of one year.
  • Geothermal technologies are available and proven in Australia.
  • The key savings are from reducing ongoing energy costs. In Wayne’s case, he saved $5200 per year from reducing the need to use LPG.
  • Because renewable energy technologies require little or no fuel, they provide a useful hedge against electricity or LPG price volatility.

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