One of the most difficult discussions to hold with conservation-minded people is that markets can be designed to ensure the survival of some endangered species. Most arguments from such conservationists is to adopt the moral arguments about the need to conserve valuable species and ensure that there is proper bio-diversity. My understanding of this is that it is possible to design sensible markets that would ensure that many species that are endangered survive in good numbers and that some appropriate stabilization would follow. I have taken this argument on this blog in respect of tigers which I think are extremely regal animals which should be conserved through commercialization because markets are tiger-friendly.
I rehash the argument because I have read in this small article in the Irish Times about a man who was jailed for having killed and eaten what could have been the last wild Indochinese tiger. So Kang Wannian from Yunnan province of China has been sentenced to a ten-year jail term but one more valuable tiger has disappeared forever. The logic of commercialization suggests that it is possible to save more tigers by assigning property rights through auctions and allowing them to be owned and re-generated in sufficient numbers. The instinctive resistance to any form of commercialization is greater harm to tiger populations and leaves evidence of its futility. Given the scarcity of tigers, they should not end up as steak on a clam-collector's dinner table.
Tuesday, December 22, 2009
Gaza's Underground Economy
One of the enduring lessons that comes from the study of history and economics is that it is extremely difficult to extinguish any market. Guided by political choices that may be legitimate or not, decisions are made that make the operation of markets very difficult but that tends to alter it shape and structure without necessarily extinguishing them. The fascinating example of a market for smuggled goods through the tunnels connecting Egypt and the Palestine through Gaza is one of them.
Harriet Sherwood of the the Guardian reports here that a number of entrepreneurs are taking the risk of constructing tunnels between the two ends in order to transfer tangible goods through. This is interesting to a student of applied economics because the mere political decision to stop trade does not ensure that it disappears. Instead, the ingenuity of the tunnel constructors and their willingness to take risks by conveying motorbikes and other goods is instructive.
To my mind, both the governments of Israel and the Hamas who are in charge of Gaza have created the situation where the smugglers will trade underground if they must. The literal underground economy merely proves that the bans on imports and trade are not well-targeted and they ongoing underground trade shows that there's more to be smuggled than arms. The demand for motorbikes and other goods exists and the tunnels will continue to be expanded in order to satisfy this largely legitimate demand. In the process, a new class of entrepreneurs has emerged and they have little respect for unreasonable laws. Security concerns and safety do not require a wholesale ban on trade. active underground economies prove once more that wholesale bans are a blunt instrument.
Harriet Sherwood of the the Guardian reports here that a number of entrepreneurs are taking the risk of constructing tunnels between the two ends in order to transfer tangible goods through. This is interesting to a student of applied economics because the mere political decision to stop trade does not ensure that it disappears. Instead, the ingenuity of the tunnel constructors and their willingness to take risks by conveying motorbikes and other goods is instructive.
To my mind, both the governments of Israel and the Hamas who are in charge of Gaza have created the situation where the smugglers will trade underground if they must. The literal underground economy merely proves that the bans on imports and trade are not well-targeted and they ongoing underground trade shows that there's more to be smuggled than arms. The demand for motorbikes and other goods exists and the tunnels will continue to be expanded in order to satisfy this largely legitimate demand. In the process, a new class of entrepreneurs has emerged and they have little respect for unreasonable laws. Security concerns and safety do not require a wholesale ban on trade. active underground economies prove once more that wholesale bans are a blunt instrument.
Monday, December 14, 2009
Tiger's Sponsorship Cancellation A Mistake
Notwithstanding the fact that its all in the news, I was determined not to comment on any blog about Tiger Woods' personal affairs as I consider questions of personal behaviour to be important but not the business of anyone but Tiger's family. Looking at the update on the website of Accenture, I am quite appalled at the moral posturing that firms have taken with regard to Tiger Woods' personal affairs. In my view, it is important to have good representatives to base an excellent image upon but it is mere moral posturing to suggest that a sponsorship contract is necessarily threatened by this episode. This is the opportunity to politely assert that the athlete is different from the father and family person and the commercial relationship is all about his athletic ability.
What Accenture confirms to me is what i have always suspected. The whole set of ideas about building brands becomes high-sounding nonsense. Tiger Woods is still a phenomenon on any golf course and that is what attracted Accenture to him in the first instance. It is a mistake to run at the first sign of trouble because this may be emotionally devastating but unlikely to dim the athlete's capability to work when it is done. I wonder whether Accenture would also fail to offer business advise to clients who face similar transient and personal problems. Tiger woods is not the Pope or a Bishop but a golfer. This hurried reversal is Accenture's loss because Tiger will be back.
What Accenture confirms to me is what i have always suspected. The whole set of ideas about building brands becomes high-sounding nonsense. Tiger Woods is still a phenomenon on any golf course and that is what attracted Accenture to him in the first instance. It is a mistake to run at the first sign of trouble because this may be emotionally devastating but unlikely to dim the athlete's capability to work when it is done. I wonder whether Accenture would also fail to offer business advise to clients who face similar transient and personal problems. Tiger woods is not the Pope or a Bishop but a golfer. This hurried reversal is Accenture's loss because Tiger will be back.
Tribute to Paul Samuelson
I have just read the news that prof. Paul Samuelson died at his home in his home in Belmont yesterday. Which student of economics, or college student who interacts with the students of economics never got to see and perhaps go through a few paragraphs of textbooks written by prof. Samuelson. Awarded the Nobel prize in economic Sciences in 1970, he heralded the rise of US dominance in research and thinking for the discipline. His award reads that he receives the honor "for the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science."
Wednesday, December 09, 2009
Suing Casinos for Lost Bets
Reading the first paragraph of this story in the online version of the Wall Stree Journal, I asked myself the question that I have posed here numerous times. That question is: How come some very wealthy people are extremely gullible and even stupid? In a blog post with similar title here, I was asking why wealthy people allowed themselves to be duped repeatedly and over several years by Bernard Madoff and other crooks.
So reading that Terrance Watanabe lost US$ 127 million over a year through gambling at casinos made me interested in what kind of man he is. From that title alone, one would assume that he is probably a spoilt man who inherited a great fortune from his parents and spends most of his time having fun and burning that cash. To my surprise, his life is so different from that ready stereotype. It is true that he lost that amount of money at gambling and especially by playing the games with the worst odds and sometimes while heavily inebriated. He also spent too much time at a specific casinos in Las Vegas and was even turned away from one because he was losing considerable sums regularly.
Terrance Watanabe is a fascinating person for me because while he received the bequest of a small corporation from his parents, he dedicated himself to work at it that the business had revenues of up to US$ 300 million when he sold it. Having put in that much time and foregone many other things, it is clear to me that he knows the value of money and was probably able to tell that the odds at casinos are tilted against the player and that regular and affluent players would be especially vulnerable to tempting offers from casino managers. In an earlier blog post it was confirmed that one of the casinos has resorted to hiring a professor of economics as a manager. So Terrance Watanabe is certainly not daft but I still find it difficult to understand why a person with such business ability decided to take such bad odds. To my mind, the same amount of money would probably buy a minority stake in the casinos in which he lost a portion of his fortune. His suit against the casino owners will definitely fail and he may face a jail time too. Not a good end for a man who built an impressive business and sold it profitably. Perhaps it is true that any person who takes on casinos probably does not value money.
So reading that Terrance Watanabe lost US$ 127 million over a year through gambling at casinos made me interested in what kind of man he is. From that title alone, one would assume that he is probably a spoilt man who inherited a great fortune from his parents and spends most of his time having fun and burning that cash. To my surprise, his life is so different from that ready stereotype. It is true that he lost that amount of money at gambling and especially by playing the games with the worst odds and sometimes while heavily inebriated. He also spent too much time at a specific casinos in Las Vegas and was even turned away from one because he was losing considerable sums regularly.
Terrance Watanabe is a fascinating person for me because while he received the bequest of a small corporation from his parents, he dedicated himself to work at it that the business had revenues of up to US$ 300 million when he sold it. Having put in that much time and foregone many other things, it is clear to me that he knows the value of money and was probably able to tell that the odds at casinos are tilted against the player and that regular and affluent players would be especially vulnerable to tempting offers from casino managers. In an earlier blog post it was confirmed that one of the casinos has resorted to hiring a professor of economics as a manager. So Terrance Watanabe is certainly not daft but I still find it difficult to understand why a person with such business ability decided to take such bad odds. To my mind, the same amount of money would probably buy a minority stake in the casinos in which he lost a portion of his fortune. His suit against the casino owners will definitely fail and he may face a jail time too. Not a good end for a man who built an impressive business and sold it profitably. Perhaps it is true that any person who takes on casinos probably does not value money.
DARPA Network Challenge Proves that Prizes Rule
I heard about the challenge posed by the Darpa Network Challenge on a radio programme on the BBC and was intent on checking it out earlier this week. In a nutshell, Defence Advanced Research Projects Agency put of a competition with a prize of US$ 40,000 and a nine day time limit during which teams were expected to identify the precise locations of ten weather balloons randomly placed in public places within the United States.
My interest in this was peaked especially because of an ongoing interest I market design and the use of prizes as an incentive to developing solutions to business or public affairs. While I was sure that the prize would eventually be claimed, I am amazed at how quickly the contest ended. A team of MIT scholars claimed the prize within nine hours of its start and that is really efficient. As this story in the Guardian states, the team utilized incentives by splitting up portions of the prize and promising a windfall of US$ 2000 to anyone who send a verified clue of the location of a balloon. And to ensure that even those who do not directly identify a balloon are motivated to send the information around, there were smaller prizes for guiding the ultimate identifiers to the MIT team's website.
The full results about the organization of the search are not out yet but it definitely has other applications for it is a very clever design. What I find curious is that the team was sufficiently confident that it could share up to 50% of the total prize with the identifiers of the balloon and sit and wait for the correct and accurate information to reach it. making many assumptions, I am thinking that the MIT team could still have applied a reverse auction by inviting identifiers and asking them to auction their information. This would have had interesting results because it is possible that the price for identifiers could possibly have been less than US$ 2000.
My interest in this was peaked especially because of an ongoing interest I market design and the use of prizes as an incentive to developing solutions to business or public affairs. While I was sure that the prize would eventually be claimed, I am amazed at how quickly the contest ended. A team of MIT scholars claimed the prize within nine hours of its start and that is really efficient. As this story in the Guardian states, the team utilized incentives by splitting up portions of the prize and promising a windfall of US$ 2000 to anyone who send a verified clue of the location of a balloon. And to ensure that even those who do not directly identify a balloon are motivated to send the information around, there were smaller prizes for guiding the ultimate identifiers to the MIT team's website.
The full results about the organization of the search are not out yet but it definitely has other applications for it is a very clever design. What I find curious is that the team was sufficiently confident that it could share up to 50% of the total prize with the identifiers of the balloon and sit and wait for the correct and accurate information to reach it. making many assumptions, I am thinking that the MIT team could still have applied a reverse auction by inviting identifiers and asking them to auction their information. This would have had interesting results because it is possible that the price for identifiers could possibly have been less than US$ 2000.
Tuesday, December 08, 2009
Some Effects of the Land Rush
One of the consequences of the commodities boom is the renewed interest in intensifying farming activity throughout the world. This means that the value of agricultural land has gone up considerably with Africa and other developing countries seeing a rush in investment from large agricultural businesses. On the whole, renewed investment in Africa is not only an urgent need but also one of the main ways for fighting the poverty for the people. While written with some bias, this article in the Business week captures some of the difficulties that emerge from the investments related to the purchase or lease of land in parts of Africa. In spite of that, the piece reveals that there are a valid reasons why these investments need to be carefully calibrated due to underlying political and economic issues.
The merits and demerits aside of such deals aside, many people in Kenya and other parts of Africa are very uncomfortable with them since these investment deals are often negotiated between governments on the one side and investment firms that are taking possession of land on the other. So Dominion Farm's investments are definitely required but its managers are wrong to think that having a lease approved by government is sufficient because they find out that they are viewed with suspicion and even resentment. That is not good for investor relations and it shows very poor analysis on political risks and how it affects the longer-term viability of their investments.
I also think that to ensure success, these agreements ought to be as transparent as possible because land is still a political issue in most of Africa. There is still the tension between private ownership and communal ownership but on the whole, the western Kenya belt where Dominion Farms is based is completely adjudicated and therefore its people are largely comfortable with private ownership. This means that Dominion ought to have sought to negotiate directly with individual farms owners and should publish whatever the undertakings from either side are. I find it suspicious that Mr. Burgess claims to have negotiated with tribal chiefs when nobody bears such powers to negotiate over another’s land. So the piece is either incorrect on this or someone has made this up.
As stated in the piece and reiterated by the its response here, some of the targets that were established for Dominion Farms are altogether unrealistic. My thinking is that transition from homestead agriculture is necessary for significant welfare enhancement because there are too many people farming non-viable pieces of land in Africa. So it must be expected that enhanced farming techniques would lead to fewer farmers producing more to enable productivity gains to occur. So the leases should not come with promises for a target number of jobs and so Dominion Farms was at fault for accepting such a compromise. It should insist that it is purely an investment and not a welfare scheme and that's the reason I am unimpressed with claims that it intends to build hospitals and all that.
My assessment of the land lease phenomenon is that many investors in Africa and developing countries have failed to realize that the ability of governments to coerce citizens is surely fading. This means that investment deals cannot be based on the 1960s templates involving sweeteners to local officials, undertakings to establish infrastructure and then all would be fine. While I agree that land is an economic good too, these investors ought to be clear that their missionary zeal and sermons alone will neither ensure that they are admired nor that they get good returns. Contest for land ownership in Kenya, as in most of Africa, is particularly intense and any foreigner who enters that contest banking on government support alone is unlikely to be successful. Proper political risk analysis and how it affects investment viability is required for most of the land rushing corporations. I see that many of these projects will be difficult and possibly end in grief for investors.
The merits and demerits aside of such deals aside, many people in Kenya and other parts of Africa are very uncomfortable with them since these investment deals are often negotiated between governments on the one side and investment firms that are taking possession of land on the other. So Dominion Farm's investments are definitely required but its managers are wrong to think that having a lease approved by government is sufficient because they find out that they are viewed with suspicion and even resentment. That is not good for investor relations and it shows very poor analysis on political risks and how it affects the longer-term viability of their investments.
I also think that to ensure success, these agreements ought to be as transparent as possible because land is still a political issue in most of Africa. There is still the tension between private ownership and communal ownership but on the whole, the western Kenya belt where Dominion Farms is based is completely adjudicated and therefore its people are largely comfortable with private ownership. This means that Dominion ought to have sought to negotiate directly with individual farms owners and should publish whatever the undertakings from either side are. I find it suspicious that Mr. Burgess claims to have negotiated with tribal chiefs when nobody bears such powers to negotiate over another’s land. So the piece is either incorrect on this or someone has made this up.
As stated in the piece and reiterated by the its response here, some of the targets that were established for Dominion Farms are altogether unrealistic. My thinking is that transition from homestead agriculture is necessary for significant welfare enhancement because there are too many people farming non-viable pieces of land in Africa. So it must be expected that enhanced farming techniques would lead to fewer farmers producing more to enable productivity gains to occur. So the leases should not come with promises for a target number of jobs and so Dominion Farms was at fault for accepting such a compromise. It should insist that it is purely an investment and not a welfare scheme and that's the reason I am unimpressed with claims that it intends to build hospitals and all that.
My assessment of the land lease phenomenon is that many investors in Africa and developing countries have failed to realize that the ability of governments to coerce citizens is surely fading. This means that investment deals cannot be based on the 1960s templates involving sweeteners to local officials, undertakings to establish infrastructure and then all would be fine. While I agree that land is an economic good too, these investors ought to be clear that their missionary zeal and sermons alone will neither ensure that they are admired nor that they get good returns. Contest for land ownership in Kenya, as in most of Africa, is particularly intense and any foreigner who enters that contest banking on government support alone is unlikely to be successful. Proper political risk analysis and how it affects investment viability is required for most of the land rushing corporations. I see that many of these projects will be difficult and possibly end in grief for investors.
Friday, December 04, 2009
Dubai's Crisis
Hindsight is always 20-20 so it is obvious that anyone claiming to have known all along that the Dubai's fast growth was bound to come to an end says nothing that is useful. A full year after the international financial crisis and the chastening lessons that it delivered to business forecasters and those who claim to know where the next boom will rise, the magic of Dubai seems to be fading too. Reading Daniel Gross in Slate magazine here, he argues that Dubai is more akin to Lehman Brothers than many realize or admit. Among the reasons for stating this similarity is the fact the leaders of both the principality and the corporation have been accorded great wisdom in financial management but this myth is now unravelling in a moment of crisis.
Adding my thinking to all this, Dubai was built on the sound premise that natural resources were not necessary to create prosperity for its people. However, unlike many who have maintained the chorus of platitudes about Dubai, I found its aim of growing pretty fast to be incompatible with serious curbs on individual freedom and the rights of immigrant workers providing labour at the construction sites. Sooner than later, there was going to be a formidable clash between the quest to grow quickly and the maintenance of a police state. Secondly, it is now clear that one of the main lessons of the financial crisis last year and the Asian Crisis of a decade ago are so difficult for many business professionals to grasp that they are repeated regularly. And that lesson is that a financial services hub cannot be created by executive fiat and also that real estate construction and investment is dependent on realizable demand. Huge investments in commercial real estate are effective ways of flaunting short-term prosperity but the debts that finance them should be carefully reviewed. I would guess that a significant proportion of the money lent for commercial construction in Dubai has been lost.
Now, these conclusions do not mean that Dubai is not capable of great growth in the future. Instead, it means that the sources for its growth will have to be diversified and that there will be a real estate overhang for a long time even after the city state recovers its growth. Building the world's tallest building for its sake can guarantee prestige for a while but it could turn out to have been a waste of resources and an effective destruction of wealth.
Adding my thinking to all this, Dubai was built on the sound premise that natural resources were not necessary to create prosperity for its people. However, unlike many who have maintained the chorus of platitudes about Dubai, I found its aim of growing pretty fast to be incompatible with serious curbs on individual freedom and the rights of immigrant workers providing labour at the construction sites. Sooner than later, there was going to be a formidable clash between the quest to grow quickly and the maintenance of a police state. Secondly, it is now clear that one of the main lessons of the financial crisis last year and the Asian Crisis of a decade ago are so difficult for many business professionals to grasp that they are repeated regularly. And that lesson is that a financial services hub cannot be created by executive fiat and also that real estate construction and investment is dependent on realizable demand. Huge investments in commercial real estate are effective ways of flaunting short-term prosperity but the debts that finance them should be carefully reviewed. I would guess that a significant proportion of the money lent for commercial construction in Dubai has been lost.
Now, these conclusions do not mean that Dubai is not capable of great growth in the future. Instead, it means that the sources for its growth will have to be diversified and that there will be a real estate overhang for a long time even after the city state recovers its growth. Building the world's tallest building for its sake can guarantee prestige for a while but it could turn out to have been a waste of resources and an effective destruction of wealth.
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