The Economics of Drive-Throughs

A recent article in the Calgary Herald (“Customers are getting fed up over wait times at retail outlets”, August 27 2008) cited a new study finding evidence that "86% (of Canadian consumers) say that least once they have re-shelved their purchases or skipped the coffee and left the store" due to long lines.

Interestingly, the reporter interviewed a customer at Tim Horton’s. (For those not familiar with Tim Horton’s, it’s a very popular chain of Canadian coffee/donut shops. They are famous for something called a "double-double" which is a coffee with two creams and two sugars.) Being a non-Canadian, I find the Tim Horton’s phenomenon amazing: Aside from serving what I think is very bad coffee, every Tim Horton’s seems to have huge line of customers. In MacEwan Hall on the University of Calgary campus, there are at least three coffee places of which Tim Horton’s is the only one with a significant line (sometimes in excess of 25 people).

A new Tim Horton’s recently opened relatively close to my house. It is included with a Shell station and is about two blocks from another Tim Horton’s (located in an Esso station). What is amazing about the new Tim Horton’s (aside form the fact that people actually drink this coffee) is the lineup at the drive-through. My guess is that it averages six cars throughout the day and I’ve counted as many as 22 cars in the morning. This latter amount is so many that it blocks people from getting gas at the Shell station.

This leads me to wonder a bit about the environmental costs of drive-through services. Most of the cars in the lines are idling, which is probably the least efficient use of one's car. Moreover, most of the people in the drive-through are able-bodied and would be able to purchase their double-double from the line inside (where, incidentally, there are multiple servers as opposed to a single server at the drive through).

Due to these environmental costs, some communities have sought to regulate or even ban drive-throughs. I offer my $.02 on this issue: I think it would be wise for businesses offering drive-through services to include a surcharge for these services. Individuals using the drive-through are likely doing so as a matter of convenience and this convenience is something the company can charge for. By increasing costs the drive-through, firms will capitalize on this additional convenience they provide and increase the cost of idling your car in line. Essentially, this is a profit-maximizing way for firms to get individuals internalize the environmental externality they are imposing when waiting in line at the drive through.

Of course, there may be fairness issues regarding those individuals who use the drive-through because they are less mobile (e.g., the elderly, individuals with physical handicaps). I guess this is all simply food for thought (although I wouldn’t recommend Tim Horton’s donuts either).

About Crack and Carseats!

I thought of posting my first with something esoteric - dealing with crack and using child carseats.

The second one is still alien to me and the first one...well lets not get into that so early in the day!

O.K., without anymore unnecessary prologue, lets hear about these two things from an ingenious economist of our time. Just follow the links below and have great fun!



On Crack: http://www.ted.com/index.php/talks/steven_levitt_analyzes_crack_economics.html



On Child Carseats:http://www.ted.com/index.php/talks/steven_levitt_on_child_carseats.html



Best.

Academic Salaries and Research Performance

Some new research has emphasized the relationship between the quality of research and the salaries researchers (particularly economists) receive. For example, from the abstract of Glenn Boyle's "Pay Peanuts, Get Monkeys":

In most countries, academic pay is independent of discipline, thus ignoring differences in labor market opportunities. Using some unique data from a comprehensive research assessment exercise undertaken in one such country -- New Zealand -- this paper examines the impact of discipline-independent pay on research quality. I find that the greater the difference between the value of a discipline's outside opportunities and its New Zealand academic salary, the weaker its research performance in New Zealand universities. The latter apparently get what they pay for: disciplines in which opportunity cost is highest relative to the fixed compensation are least able to recruit high-quality researchers. Paying peanuts attracts mainly monkeys.

The point is that researchers respond to opportunity costs and incentives (as discussed in a previous post). Boyle's finding holds not only in academia, but also in a recent review of the Bank of Canada:

An external management audit on the Bank of Canada's research unit showed the country's central bank could benefit from a staff and officer upgrade.

The review team made up of five leading U.S. economists said the bank's economic researchers are underpaid, focused on micromanagement and investigates irrelevant topics. The bank has 42 staff on its research department.

Reviewer Martin Eichenbaum, an economics professor at the Northwestern University in Illinois, said the Bank of Canada must improve its research capacity for the institution to be able to keep up with the major developments in economics and finance.

"You can't run a good policy without a first-class team... You're talking about decisions that affect people's lives here," Eichenbaum told the Globe and Mail.

Among the body's top recommendation is for the bank to increase the salaries of its PhD economists by $15,000 to $20,000 from their current pay of $90,000 per annum for it to attract the best minds. The $90,000 pay is the equivalent of a professor's pay at a second-tier Canadian university only.

It turned out some of the bank's researchers had no other job offers when they accepted the work at the Bank of Canada, prompting the team to comment, "This salary structure seems like a clear recipe for mediocrity rather than excellence."

The review was completed by the U.S. team in February, but posted in the Bank of Canada's website this month.

Veblen Effects and Status Seeking

Thorstein Veblen argued that individuals have an innate desire to signal their wealth (and thereby obtain social status). In our department, both Curtis Eaton and I have done research on how this type of status seeking can affect behavior and economic outcomes. That said, I don't think either of us thought it would look like this:

Yesterday developer Armin Heinrich posted an iPhone app to the App Store called I Am Rich. The program displays a red gem, has no function but to display your wealth to others through ownership, and costs $1000.

Here's the complete post. (HT to Tyler Cowen.)

New research from the Economic Journal (June 2008)

The recent issue of the Economic Journal has some interesting articles on the effects of regulation on individual behaviors.

First, Sandra Black, Paul Devereux and Kjell Salvanes find that compulsory schooling laws reduce the rate of teenage childbearing. From their abstract:

This article investigates whether increasing mandatory educational attainment through compulsory schooling legislation encourages women to delay childbearing. We use variation induced by changes in compulsory schooling laws in both the US and Norway to estimate the effect in two very different institutional environments. We find evidence that increased compulsory schooling does in fact reduce the incidence of teenage childbearing in both the US and Norway, and these estimates are quite robust to various specification checks. These results suggest that legislation aimed at improving educational outcomes may have spillover effects onto the fertility decisions of teenagers.

Secondly, Thomas Dee finds that the legalization of same-sex marriages helps reduce the incidence of certain sexually transmitted diseases. From his abstract:

One conjectured benefit of a marriage-like legal status for same-sex couples is a reduction in the incidence of sexually transmitted infections (STI). In this study, I discuss how such a policy might influence risky sexual behaviour and STI rates. I also present reduced-form empirical evidence on whether same-sex partnership laws have reduced STI rates, using country-level panel data from Europe. The results suggest that these laws led to statistically significant reductions in syphilis but not in infections that are not sexually transmitted. However, their effects on the incidence of gonorrhoea and HIV were also smaller and statistically imprecise.

In the same issue, there are still some unanswered questions about the gender pay gap. From Alan Manning and Joanna Swaffield's abstract:

In the UK the gender pay gap on entry to the labour market is approximately zero but ten years after labour market entry, there is a gender wage gap of almost 25 log points. This article explores the reason for this gender gap in early-career wage growth, considering three main hypotheses – human capital, job-shopping and 'psychological' theories. Human capital factors can explain about 11 log points, job-shopping about 1.5 log points and the psychological theories up to 4.5 log points depending on the specification. But a substantial unexplained gap remains: women who have continuous full-time employment, have had no children and express no desire to have them earn about 8 log points less than equivalent men after 10 years in the labour market.