Monday, November 24, 2008

Economics of dating: Contestable markets, moral hazard, and my stomach.

There was a documentary on SBS a while ago, in which an old, fat Italian lady, sitting like a beached whale on the edge of the South Adriatic, stared at a flock of pert `classical looking' young Italian girls. "Italian women are-a-very-very beautiful," she said, "until dey get-a married."

In Middle Park, Australia, where I work, the married women are less rotund. They drive Audis, and jog. They sometimes stay pretty well past forty.

Two economic concepts go a long way to explaining the disparity in these waistlines. The first is `moral hazard', and the second `contestable market hypothesis'.

Moral hazard is the better know of these two; it states that when someone is certain of an outcome, they will alter their behaviour. So the driver with comprehensive insurance and a layer of pillows over their car will drive slightly worse than my grandmother, while the driver whose steering wheel has a large spike ripe for impaling will drive more cautiously.

Contestable market hypothesis states that a monopolistic firm will behave like a competitive firm if the barriers to entry in the firm's industry are low. So the sole airline flying a certain route will charge a competitive price if there are no barriers to other airlines flying that same route--if it jacks its price up, other airlines will enter, compete, and drive prices down.

Assuming we are talking about monogamous relationships, we can readily apply both of these concepts.

In a secure, long-term relationship, the consequences of `letting yourself go' are less--a loving partner certainly wouldn't dump you over a bit of extra flab, would they? This is classic moral hazard.

At the other end, the men and women who compete with salsa instructors and tennis coaches for their partners' attention are far more likely to keep their bottoms firm and chests proud. Though their partners remain entirely faithful, the sheer prospect of anything unsavoury happening is incentive enough for the morning's push-ups. This is what contestable market hypothesis is all about.

It follows, if one wishes to keep both themselves and their partner in good shape:

-increase the likelihood of a negative outcome from sloppy behaviour. Tell him: "Look honey, I love you, but if you don't stay toned, I will leave you."

-not behave jealously. Jealousy increases the barriers to entry both for the potential suitor of your girlfriend (who is fearful of you thumping him), and barriers to exit for your girlfriend (who is fearful of you thumping her). Competition is key. If you have to compete with her favourite barista, you will keep in better shape. Or, alternatively,

-institute a strong anti-trust policy, encouraging promiscuity for both partners. The additional competition will make them narrower.

Tuesday, November 18, 2008

Kook on wheels.

In Malaysia, I recently came across one of the main obstacles to world peace. Click to get a better look.

Sunday, November 16, 2008

Robert Solow does it again.

If you're keen to spend the next twenty minutes improving, read this article: