"However, 73 percent of Ukrainians do not believe any of these promises given by the current presidential hopefuls, while 70 percent are convinced they can make their life better relying only on their own resources."
Wednesday, December 30, 2009
Tuesday, December 29, 2009
New Year Resolutions
New Year is not only a time of holidays and parties, it’s also a time to contemplate the past year, to see what went right and what went wrong, but also, what one achieved and what one didn’t achieve. Such thoughts often then turn into New Year resolutions, plans to improve one’s behavior in the upcoming year.
Making New Year resolutions is popular – a poll in the US found that about half of the survey respondents made New Year resolutions. According to MyGoals.com, last year in the US, the most popular resolutions for 2009 were ‘to lose weight’, followed by ‘to pay back debt’. For 2010, losing weight remains number one and resolutions related to ‘personal growth’, including reading more and spending more time on hobbies, have become increasingly popular. For 2008, 21% of goals set were related to career advancement, but for 2010, only 12% of goals are related to this, indicating that even New Year resolutions seem affected by the economic crisis.
Despite all good intentions, most people have troubles sticking to their promises. The above mentioned survey for example found that about 75% of people never or infrequently are able to keep to their resolutions. Given these statistics, George Bush should probably have been more careful when saying in his December 29, 2007 radio address that his New Year resolution for 2008 was ‘to work with Congress to keep our economy growing …’
If fulfilling New Year resolutions is so difficult, why do people make them? Or, more general, why do people make promises? Economists view promises as commitment devices – by promising ‘to lose weight’ one imposes extra losses on one’s self in case one does not lose weight. Indeed, if one fails to lose weight, one will not only face the consequences of being overweight but also of losing one’s reputation for being trustworthy. Hence, by promising something, one makes not achieving one’s goal more costly, which stimulates the person who makes a promise to put more effort to achieve his/her goals.
That so many people don’t stick to their resolutions seems to suggest that losing reputation is not too powerful a deterrence. To solve this problem, some economics professors have recently started a website, www.stickk.com, a website that allows people to attach money to their promises and in this way, put their money where their mouth is. If they don’t fulfill their promise, they not only lose reputation but also the money committed.
It would be nice if Ukrainian politicians start visiting that website…
Thursday, December 24, 2009
Randomizing the Ballot Order
"The Supreme Administrative Court of Ukraine has ruled in favor of the Central Election Commission and reversed a decision of the Kyiv Administration Court of Appeals that prohibited the CEC from placing numbers next to presidential candidates' names on the ballot."
In fact, the focus here is likely on the wrong thing - rather than whether the number is made explicit, it seems the place itself is important - with candidates being higher up, receiving more votes - one solution is to randomize the order of candidates on the ballot, instead of using an alphabetic ordering.
There is quite some research on the effect of ballot order on voting outcomes, for example
Wednesday, December 23, 2009
The Effect of Replacing a Soccer Coach
"Ukraine have not renewed the contract of coach Olexiy Mykhaylychenko after the national team failed to qualify for next year's World Cup in South Africa."
Teams sometimes hope to improve their performance by replacing their trainer. There's quite some economics research on whether this actually works. One example is
Another
It seems most of this research shows replacing the coach is not improving (nor deteriorating) the sports performance of the football club.
Monday, December 21, 2009
A Bold Forecast
"KYIV, December 21 /UKRINFORM/. At the year start, the hryvnia rate will strengthen from UAH 7.75 at the year start to 7.05 by the year end, such was a forecast of the Dragon Capital Investment Company made public by company Director Tomas Fiala."
Saturday, December 19, 2009
When does Politics Matter
An interesting hypothesis which one regularly hears about Ukraine: when the economy does well, there's no influence of politics on economics, but when things go bad economically, politics can make a difference. It would be interesting to test this and see whether this is just an optical illusion (that is, politics matters always and growth would have been even more positive if politics was done well) or whether there is indeed an asymmetric effect.
Thursday, December 17, 2009
Wednesday, December 16, 2009
The Economics of Shame
The Ukrainian government wants to make public the names of corrupt officials
http://www.ukrinform.ua/eng/order/?id=176595
Privat bank makes public some of the names of its debtors
http://www.ukrinform.ua/eng/order/?id=175269&ulq=bank%20website
One can wonder whether this is helpful in deterring 'crime', that is to what extent shame is an effective weapon in the fight against crime.
In economics, there is some literature on how peer pressure can help to reduce free-riding in groups. See for example the work by Dora Costa and Matthew Kahn
Tuesday, December 15, 2009
Election Probabilities
Place your bets!
"According to bwin Web site, the odds that Yanukovych will become the next president of Ukraine are 1.67/1, while the odds on Tymoshenko are 2.07/1.
This means that chances of the leading candidates are roughly equal, although Yanukovych has a slight lead.
The other leaders of the election race are Arseniy Yatseniuk (23/1), current President Viktor Yuschenko (27/1) and Sergiy Tigipko (30/1)."
This means that chances of the leading candidates are roughly equal, although Yanukovych has a slight lead.
The other leaders of the election race are Arseniy Yatseniuk (23/1), current President Viktor Yuschenko (27/1) and Sergiy Tigipko (30/1)."
Monday, December 14, 2009
Economics Rules
note that five out of ten are economy-related!
Top 10 most strange promises of candidates to President’s post
1. Victor Yanukovych: “My aim is 50 million citizens of Ukraine in year 2020”.
2. Inna Bogoslovska: “Ukraine will make “Kyiv initiative” concerning carrying out in Kyiv the negotiations of the world community on new world order topic”.
3. Volodymyr Lytvyn: “Key task – is providing correlation of minimal and maximum wage in proportion 1 to 5”.
4. Petro Symonenko: “ The minimum share of salaries in the product prime cost will be set at 60%.
5. V. Yushchenko: “A hryvnia will become the only payment means in Ukraine. There will be no foreign currency transactions and prices in the home market”.
6. Oleg Tyagnybok: “European Ukrainian-centrism – strategic course of the government”.
7. Anatoliy Hrytsenko: “I will make an official to speak with people in the language, he/she is addressed”.
8. Oleksandr Pabat: “The state monopoly on main land resources will be renewed and the state will take the land on long-term lease”.
9. Yulia Tymoshenko: “Immediately after the crisis we will resume a long term housing mortgage loans at 2-4% per annum for 10-30 years”.
10. Lyudmyla Suprun: “The schools will turn to multimedia scientific-cultural centers of education and development of personality”.
Sunday, December 13, 2009
Setting Exchange Rates
"Prime Minister Yulia Tymoshenko promises to increase hryvnia rate to UAH 6-6.50 per one dollar if elected the president.
The prime minister said during a meeting with Ukrprombank's depositors.
"If political row ends successfully, we will set the hryvnia rate at 6 - 6.50 per one dollar," the prime minister said. This is a real and reasonable rate for the Ukrainian currency, she added.
However, the government cannot influence the currency rate since this is National Bank's competence with whom, according to Tymoshenko, she has strained relations.
"I am not only at odds with the National Bank, we do not say hello to each other," Tymoshenko said.
At the same time she mentioned about inadequate policy the National Bank was pursuing.
As Ukrainian News reported, Tymoshenko said in September about a reasonable maximum hryvnia rate of 7-7.5 UAH/USD. "
The prime minister said during a meeting with Ukrprombank's depositors.
"If political row ends successfully, we will set the hryvnia rate at 6 - 6.50 per one dollar," the prime minister said. This is a real and reasonable rate for the Ukrainian currency, she added.
However, the government cannot influence the currency rate since this is National Bank's competence with whom, according to Tymoshenko, she has strained relations.
"I am not only at odds with the National Bank, we do not say hello to each other," Tymoshenko said.
At the same time she mentioned about inadequate policy the National Bank was pursuing.
As Ukrainian News reported, Tymoshenko said in September about a reasonable maximum hryvnia rate of 7-7.5 UAH/USD. "
It's interesting to notice how politicians think it's their task to 'set' the exchange rate and that they think they now what's 'the real and reasonable rate' is.
Saturday, December 12, 2009
Milk
Another article that could use some more economics education
the article indicates that the foreign milk industry is more developed and that the Ukrainian milk industry is outdated, and that therefore the agricultural producers need subsidies.
Two questions are obvious here - first, is it necessary for a country to have a local milk industry - what's wrong with importing milk? I don't see any clear reason why one could not import milk
Second, are subsidies for agricultural producers a good way to help the milk industry if one thinks that it's important to have a good local milk industry? I guess it would make more sense to stimulate investments in the milk industry so it can upgrade its production process.
Thursday, December 10, 2009
The Worst or the Best?
One article claims 'Emirates agency: Kyiv found among greenest cities in Europe'
when you go to the actual data
and the text
you'll see Kyiv does worst of the 30 cities that were evaluated...
Interesting Articles on 20 Years of Transition
The latest Development and Transition Newsletter
has several interesting articles on 20 years of transition.
Wednesday, December 9, 2009
How China Won and Russia Lost
An interesting paper comparing China (Success) to Russia (much less so) - unfortunately, Ukraine resembles Russia more than China...
The Economics of Prizes
Victor Pinchuk has decided to start a prize for young artists
Economists have done quite a lot of work on prizes, f.e.
and my own article
http://student.ulb.ac.be/~tcoupe/prize.pdf
Tuesday, December 8, 2009
Smuggling and Cigarette Taxes
The Ukrainian tobacco companies argued that a tax increase in Ukraine would increase smuggling - in Hungary they seem to have a different view...
"Illegal products have an estimated 10% of the cigarette market. Most smuggled cigarettes come from Ukraine, where lower taxes mean cigarettes are cheaper."
Monday, December 7, 2009
A Testable Hypothesis
Economists have tested many hypotheses about the determinants of football matches - but this hypothesis has so far been neglected:
""It's impossible not to notice these trends. As soon as Yuschenko and Yanukovych appear at the stadium, one can expect misfortune. One should recollect the Ukraine-Greece match when our team lost their place [in the World Cup finals] in South Africa... Why? Because two 'lucky' politicians attended a decisive match and passed their lucky aura to the whole Ukrainian team," she said.
"Metalist Kharkiv is a brilliant team. The guys have played well for the whole year... This might have continued if their dear guests - [Regions Party leader] Viktor Fedorovych [Yanukovych] and [President] Viktor Andriyovych [Yuschenko] - had not once come to see them. The latter, I think, is also a very 'lucky' man. As a result, Metalist lost to Obolon," Tymoshenko said.
"Given this, I have a proposal. I want to ban the state's top-ranking officials and odious politicians from attending football matches, especially decisive ones. Let them stay at home and watch the matches on TV, especially alone, rather than together, and only recorded matches as live broadcasts are also dangerous. Perhaps, 'this' [misfortune] is transmitted via TV," she said.
Saturday, December 5, 2009
Small Steps
another 10 years of progress needed....
"Particularly, the agency reported about results of the study on 30 major banks. The results show that, in spite of pessimistic expectations, the index of information transparency of Ukrainian banks grew from 45% to 49% against 2008, S&P says."
see also
Friday, December 4, 2009
Migration Picking Order
"Hayloft Plants director Derek Jarman said: "There is a labour-supply issue. Pre-EU enlargement we used labour from the old Soviet countries Ukraine and Belarus under the Seasonal Agricultural Workers Scheme (SAWS). When the EU enlarged we got SAWS workers from Romania and Bulgaria. The problem as an industry is that, when the economy of Europe picks up and Poles return to Poland, growers will be faced with a potential shortage of labour"
"Concordia and HOPS have links with Ukrainian universities and were supplying 200 to 300 workers a year to the UK until two or three years ago. There are very few coming now because of UK political changes. We were in the Ukraine to tell them 'don't give up'. Concordia still has a scheme bringing in 20 students who spend half the time in a teaching environment and half earning money."
He added: "We're concerned for the future. There is no problem this year and for 2010 for labour but we had a problem three years ago with strawberries left to rot in the fields due to labour shortages. Agriculture and horticulture are the first to suffer because people don't want to work outside. At Hayloft we needed 12 to 16 seasonal workers but could only recruit one locally."
Jarman explained that it was important to maintain links with Ukrainian labour sources. He said: "SAWS brought in 15,000 to 20,000 people from outisde the EU, but in five years' time the eastern European economy may be stronger and they will go back. Then we will need workers from Ukraine again."
Doing Business in Ukraine
The below news is a good example of smth that looks good for some businessmen but bad for the country - buying 1400 buses for a one time event looks silly from a country's perspective, but very profitable nevertheless for some businessmen...
***
According to the Transport and Communications Ministry estimates, Ukraine needs 1.4 thousand passenger buses for transportation services during the Euro-2012 European Football Championship Finals, 850 of those being large-capacity and 350 medium-capacity buses.
This news is positive for the local bus producers after the Customs Tariff Council has dismissed a proposal to import passenger buses for transportation services during the Euro-2012 European Football Championship Finals. One of them is Bogdan Automobile Plant <>. We do not doubt that the presence of the LUAZ owner Mr. Petro Poroshenko in the Cabinet of Ministers will make it easier for this bus manufacturer to get a significant portion of this State order.
Wednesday, December 2, 2009
More on Garlic Prices
"According to reports in China Business News, prices in Jinxiang, China’s garlic-growing capital, have seen a fortyfold increase since March. Further down the supply chain, garlic prices have jumped tenfold on wholesale markets in big cities and fourfold nationwide."
Tuesday, December 1, 2009
2 Kopeks
"Next year the team of [Mayor] Leonid Chernovetsky will initiate a rise in fares for Kyiv public transport, describing as "economically grounded" the following numbers: UAH 2.52 for one trip in the subway, and UAH 1.90 for one trip in above-ground transport," the press service of the BYT faction in Kyiv Council reported.
In have no objections against the price increase as such but an economically grounded price for a metro token should not end on 2 kopeks... The transaction costs of these 2 kopeks in terms of longer queues and confusion by far outweigh the extra value they will generate.
Saturday, November 28, 2009
The Influence of Economics on Politics
Economic crisis is typically bad for the incumbent - there is now some evidence that this is even the case in Ukraine.
"Our findings indicate that, even in a flawed `electoralist' democracy such as Ukraine, repeated parliamentary elections do serve as a mechanism of accountability with respect to economic performance. Disregarding electoral format, political control tends to work through political parties/partisan blocs. Only in the case of single-member district elections, however, is there a statistically significant relationship between economic performance and chances of winning, i.e. when economic performance is poor, voters punish legislators from a pro-presidential groupand reward legislators from the opposition."
This is good news as it gives incentives to politicians to care about their electorate -given the behavior of Ukrainian politicians, one might wonder however whether this incentives is powerful enough...
Wednesday, November 25, 2009
Meat
KYIV, November 25 /UKRINFORM/. In October - November 2009, the consumption of meat in Ukraine dropped by 50%, says Yelyzaveta Sviatkivska, meat expert with the Ukrainian Club of Agrarian Business.
She says the demand slump influenced purchase prices. Particularly, the prices of live cattle of over 400 kilograms reduced over the mid-October - mid-November period from UAH 12 (1 USD - 7.99 UAH) to UAH 10.5 per kilo, the prices of pork from UAH 18 to UAH 15.1 per kilo, and half-carcass chicken from UAH 21 to UAH 20.5 per kilo.
The import of meat also reduced over the period under review, from 45,000 to 35,000 tons against the previous month. "The fall of 10,000 tons is rather essential to Ukraine, which imports the bulk of the meat consumed," Sviatkivska says.
She added the consumption fall owed to the flu epidemic and lower incomes of population.
A drop of 50% in consumption but only a drop of 10% in prices suggests a very inelastic supply curve.
Tuesday, November 24, 2009
Ukrainian Happiness
An interesting article about happiness in Ukraine
the most interesting part about this article is it's creative interpretation of statistics
“We wanted to have something to cheer up our fellow Ukrainians now that we’re living through all such disheartening political and economic events. In fact, our findings indicate that most Ukrainians feel happy despite all problems and worries. For example, 28.5 percent of the respondents stated they feel happy about their daily life; 24.4 percent feel happy several times a week, while 13.6 percent, several times a month. In other words, two-thirds of the respondents are happy at least once a month. One-fifth rejoices on rare occasions, while 12 percent are not sure. This poll proves that there is a direct connection between the small joys of life and happiness; most Ukrainians feel happy about every day of their life."
I don't see much reasons to be happy with the fact that 'two-thirds are happy at least once a month'.
Most studies on Ukrainian happiness come to the conclusion that Ukrainians aren't that happy (which would also be my conclusion based on the above data).
A nice analysis on life satisfaction in Ukraine can be found here
And The Winner Is
Ukraine...
Ukraine beats Argentina to have the highest 5 year cumulative probability of sovereign default
Sunday, November 22, 2009
Some Economics of Football
The most recent game of the Ukrainian national football wasn’t a particular success on the pitch for Ukraine but Mr Akhmetov and Mr Surkis’s pre-match confrontation on ticket prices might well bring Ukrainian football to economics class rooms all around the world. The ticket price discussion indeed makes an excellent case study, illustrating many economic principles.
That a match organizer fixes a price that is too high to get a full stadium is not a surprise – the organizer is a monopolist (he’s the only one to organize that specific match) who will aim to maximize profit, not to maximize attendance. By restricting the demand somewhat, a monopolist will be able to charge a higher price, resulting in a higher profit overall. In fact, very few matches in Ukraine’s national competition, including Shaktar’s home matches at the Donbass Arena are completely sold out. If match organizers would be interested in maximizing audience, they clearly should put very low or even zero UAH prices.
It’s also not surprising that a stadium owner will be interested in having more spectators than the match organizer. Indeed, some research on US sports found that a spectator spends about as much on the ticket to the event as on consumption of drinks, food and souvenirs in the stadium.
A social planner, who has the good of the whole society in mind, also would opt to fill the stadium completely as once the event takes place, the more people can attend the better.
Economists also can understand Mr Akhmetov’s concern about the size of the audience as there is some research that shows that the size of the audience does influence the outcome of football games. It’s indeed a well established fact that there is a ‘home advantage’ in football, that is, everything else equal , the home team is much more likely to win a game. One explanation for this home advantage is the presence of the home fans. One thus could argue, though there is little scientific evidence for this, that the home players will play better if there is a larger audience who cheers them on. A second explanation, for which there is some scientific evidence, goes through the effect of crowd size on the referee – larger crowd sizes make it more likely that the referee will make decisions in favor of the home team. Given Mr Akhmetov’s recent warning to referees, referring to his past as a boxer, it’s likely Mr Akhmetov was thinking about this second explanation.
With Euro 2012 coming up, the issue of the right level of ticket prices is likely to resurface in the future. To minimize future discussions, I would advice to Mr Akhmetov and Mr Surkis to start thinking about dynamic pricing – given it’s hard to know the demand for a match beforehand, rather than setting fixed prices, it would make sense to vary prices over time, increasing them when demand for tickets is high and decreasing prices when prices seem to be too high, not unlike airline companies are doing now. In the US, some sports teams have already started to experiment with dynamic pricing and companies have been founded that specialize in helping sport venues to optimize their pricing strategy. Maybe Mr Akhmetov and Mr Surkis could start a joint venture to professionalize ticket pricing in Europe?
Friday, November 20, 2009
Fertilizer Industry
KYIV, November 20 /UKRINFORM/. The Ukragroconsulting analytical center notes that the Ukrainian chemical fertilizer market has started reviving gradually following its fall in early 2009.
In 2009, a drop in production of nitrogenous fertilizers made up over 30%.
Ukragroconsulting forecasts production of 3.2 million tons of carbamide in 2009, production of other fertilizers will be cut.
A reason for the increase in production of salpeter that was unprofitable till now by Ukrainian plants is reduction of imports and a rise in prices on Ukraine's domestic market. Presently, the export prices are less than that of on the domestic market.
The last sentence is interesting: export prices are now less than the domestic market - so the government has intervened in the market so that the local consumer pays more than the world market price.
Monday, November 16, 2009
The Economics of Football Ticket Prices
What's the optimal price of a football ticket? And interesting discussion between 2 Ukrainian 'tycoons'
"Most tickets for the decisive match to be played in Donetsk, following a Saturday 0-0 draw in Athens, cost between 24 and 98 dollars - roughly a week's salary for an employed middle-class Ukrainian. VIP seating tops out at nearly 1,000 dollars a spot...
Shakhtar Donetsk is prepared to donate 1.5 million dollars to the FFU, if all 50,000 seats to the game could be sold at one-tenth of face value, giving the FFU a total income similar to a typical UEFA match, according to the text of the Akhmetov letter.
"This is nothing more than loud black public relations," Surkis said. "If he (Akhmetov) wishes to subsidise a benefit game, then he can purchase all the tickets at their face price, and then do with them what he pleases."
As far as i am aware Akhmetov owns the stadium, the football association 'owns' the match and thus probably rents the stadium. So why didn't they agree beforehand about prices of tickets?
In any case, it's time for economists to find a mechanism that would and give maximum profit to the football association and result in a full stadium!
Saturday, November 14, 2009
Greece vs Ukraine and the Second Leg Home Advantage
Today Ukraine plays Greece in the first leg of the qualification for the World Cup - Recent research shows Ukraine has an advantage by playing away first, and home second.
"The home advantage is a widely acknowledged sporting phenomenon, especially in association football. Here, we examine the second leg home advantage, an effect that is discussed in the public domain but which has received very little scientific attention. The second leg home advantage effect occurs when on average teams are more likely to win a two-stage knock-out
competition when they play at home in the second leg. That is, both teams have a home advantage but this advantage is significantly greater for the team that plays at home second. Examining data from three different European Cup football competitions spanning 51 years, we show that the second leg home advantage is a real phenomenon. The second leg home
team has more than a 50% probability to qualify for the next round in the competition even after controlling for extra time and team ability as possible alternative explanations. The second leg home advantage appears, however, to have decreased significantly over the past decade. Possible reasons for its existence and subsequent decline are presented."
More on Tobacco Taxes
An excellent detailed analysis of the Tobacco Tax in Ukraine can be found here
While this analysis was sponsored by an anti-tobacco initiative, it's very comprehensive and a very good starting point for a rational discussion on the optimal tobacco tax (obviously one can have different beliefs on the elasticities used in this report) - both Tymochenko and Yushchenko (and their advisors and speech writers) would benefit a lot from reading this kind of materials and making their decisions based on a detailed analysis, rather than based on the need for budget funding or the wish to inflict political damage on an opponent.
Friday, November 13, 2009
Watch Out For Value Destroying Christmas Gifts
"According to the survey, an average Ukrainian will spend about Hr 1, 200 to buy gifts, about Hr 850 on food, and Hr 450 on entertainment."
In these crisis times, the deadweight loss of Christmas presents becomes even more important to avoid:
Imagine the following: some days before Christmas, you go shopping to buy some Christmas gifts for your family. In one of the shops, you notice an interesting book. You browse through the book, find it interesting and consider buying the book – you decide that you will buy it if it costs not more than 50 UAH. You ask the shop lady for the price and she tells you the book costs 100 UAH. Given that the cost of the book (100 UAH) is higher than your valuation of the book (50 UAH) you decide not to buy the book.
Imagine now that your uncle had bought you another book that costs 50 UAH and that you also value at 50 UAH. If he had given this book to you on Christmas Eve, you would have been excited since you would have gotten a book that you valued at 50 UAH, for free. And your uncle would also have been happy seeing that you liked the gift. The only difference with the first scenario is that in the current scenario your uncle still has 50 UAH left which he can either save or use to buy a gift for your aunt (or an additional gift for you!). In that way, more people would have been happy (or you would have been happier receiving two gifts rather than one). Hence, by giving you a present that costs more than you value it, your uncle clearly did not make the best choice.
Thursday, November 12, 2009
Tobacco (Industry) Rules
President Yushchenko refuses to sign a law that would increase taxes on cigarettes. One can (should) debate whether or not the taxes on cigarettes today are at their ideal level. The arguments used by the presidents against this law, however, seem like written by the Tobacco Industry.
"Yushchenko said in his proposals that he cannot sign the law, as the increase in excise rates for tobacco products creates the risk of tobacco smuggling to Ukraine. He said that according to calculations, after the increase in tobacco excise rates, marketable cigarette brands in Ukraine would cost 1.5 times higher than in Russia.
Moreover, the introduction of new (higher) excise rates for tobacco products may lead to the reduction in output, and, consequently, to the fall in cigarette sales.
Yushchenko also said that the fall in the production of tobacco products could bring the reduction of jobs in the industry."
A more independent argument would compare the loss of jobs and the loss of tax income (it would be nice to see some elasticities) against the benefits of having less smoking.
The argument Yushchenko makes apply to any tax increase and in fact, could be used to argue that the taxes on cigarettes (and other products) should be decreased to zero.
Wednesday, November 11, 2009
On Lemons, Garlic and Onions
[ forthcoming in the Ukrainian Press]
The recent flu panic in Ukraine has shown itself in many interesting ways – there are the confusing declarations of politicians, there are the rumors and conspiracy theories, there are the masks (the newest status symbol) and now there are the prices of lemons, garlic and onions.
According to several media sources, the prices of lemons, garlic and onions has increased dramatically, making people unhappy, making politicians protest and even provoking the Anti Monopoly Committee of Ukraine into starting legal action.
That sellers of lemons, garlic and onions increased prices, however, should not come as a big surprise: if demand suddenly goes up, prices go up. This increase in prices signals to the suppliers they should supply more and once the extra supply arrives (or the extra demand stops), prices will go down again. It’s the same mechanism that explains the increased price of real estate and the increased level of wages during the economic boom period.
Increased prices will thus make it more likely that lemons, garlic and onions will come to Ukraine rather than other countries where there is no panic, and within Ukraine, will make it more likely that the lemons, garlic and onions are used by those who want them for their alleged health qualities, rather than for those who’d buy them simply for taste or decoration. In short, forcing prices to stay fixed at their pre-crisis level would not be smart as those lemons, garlic and onions available would not be used optimally, and the shortage of these products would last longer.
That people, who typically don’t mind when their wages increase, aren’t happy with these price increases doesn’t come to a surprise either – research by Daniel Kahneman, the 2002 Nobel laureate in Economics, and his coauthors showed already in the eighties that most people think that it is unfair for sellers to suddenly increase their prices if there’s a demand shock. Hence, a competitive market will provide a mechanism against excessive price increases: sellers, especially those that want to keep the loyalty of their customers, will have an incentive not to increase the price by too much, out of fear of losing their customers.
Still, governments, not only in Ukraine, often think they need to intervene. Many US states for example have anti-gouging laws that allow people to sue businesses that exploit disasters by increasing prices. While government intervention can be useful, for example, when business collude to artificially keep prices high, or by facilitating the import of the scarce goods, it’s probably not a good idea to restrict price increases that are demand driven. While market prices are sometimes imperfect, it’s hard to see how, especially in Ukraine, politically determined prices would do a better job. After all, most people probably prefer to buy at a high price rather than not be able to buy at all.
Tuesday, November 10, 2009
State vs Private Sector
An interesting article on the idea to have state run drugstores.
" “We will do everything possible to establish the necessary state-run network of drugstores in Ukraine. We are studying this question at the moment,” Prime Minister Yulia Tymoshenko said."
I don't see how having state run drugstores will solve shortages of medicines... They would make it easier for the government to control prices (see also the recent attempts to regulate/fix prices of medecines).
As an alternative the government might want to study how to make the market more competitive - that too should keep prices in check. Indeed, regulation often keeps prices higher than they should be:
From some open ed I once wrote but never published:
"Several studies have shown that in many cases, deregulation does not only make doing business easier, it also decreases prices because it stimulates competition. In Finland, regulations not only used to limit the sales of nicotine replacement products to pharmacies, regulation also fixed the prices and retail mark-ups of these products. Liberalization in 2006 led to a 15% decrease in the average price. Another nice example of how deregulation can lower prices can be found in the airline sector, where deregulation, allowed a low cost airline, Southwest, which initially was only allowed to fly in Texas, to start operating in other US states. A study on the effect of the entrance of Southwest on the US market estimated passengers’ savings, because of Southwest cheaper tickets, to be about 3.4 billion $. An additional 9.5 billion $ savings for passengers was realized because the competitors of Southwest decreased their prices as Southwest entered the market. Similar savings are likely to occur in Ukraine - the entry of the low-cost airline Wizz Air will not only offer the Ukrainian consumer low Wizz Air tickets, it will also force Wizz Air’s rivals to lower their own prices."
Monday, November 9, 2009
Ukrainians Make Good Migrants
Some people think Ukrainians make good migrants
"Unemployment hit 10.2% as the demand-driven retail sector cut jobs. If you want more jobs, you need more demand, and for that you need more people--especially immigrants on a mission to live better through higher materialism. It might be best to recruit immigrants from Ukraine and Russia, because they like to shop in SoHo."
It's an interesting thought - there are already research papers on whether FDI from some countries is better than FDI from others - it should be possible to estimate whether migrants from some countries are more beneficial for the home economy than from other countries - though I'm sure some people would claim such research to be politically incorrect.
Politics and Economics
A clear example of how politics can negatively affect economics:
"The International Monetary Fund said on Saturday it would resume work with Ukraine only after January elections, after a move to hike wages pushed its $16.4 billion bailout "off-track." "
The IMF now does what many Ukrainian and foreign investors are doing - delay everything until after the elections.
At the same time, given the choice of presidential candidates, it's unclear that much will change after the elections...
Saturday, November 7, 2009
Superstition
[an article probably forthcoming next week]
Superstition is relatively widespread in Eastern Europe – one international comparative study showed that compared to Western Europeans, people in Eastern Europe are more likely to believe in the importance of good luck charms, star signs and horoscopes, and are more likely to believe in the forecasting skills of fortune tellers. Ukraine is no exception with its beliefs about the bad effects of whistling indoors, the ban on giving an even number of flowers (except on funerals that is) and the unmarried girls who shouldn’t sit at the corner of a table.
While seemingly harmless, superstition does affect how people behave, and hence has many important consequences. Take, for example, the belief that marriages that took place in leap years are more likely to be unhappy marriages and to end in divorce. In his 2007 MA thesis, Yuri Strilets, one of the KSE students, showed that in Ukraine there are less marriages in leap years compared to the year before and the year after the leap year, suggesting that Ukrainian couples indeed try to avoid marrying during a leap year. He further showed that, statistically, marriages that started in leap years are not more likely to end up in divorce, suggesting there is no ground to the belief that leap year marriages are bound to fail.
Similarly, many Asians believe that children born in the ‘Year of the Dragon’ will be especially fortunate, will perform well at school, and will have overall a better life. A recent study has found evidence that this superstition has a substantial effect on reproductive behavior: in many Asian countries, there was a baby boom in 1976 which was a ‘Year of the Dragon’, in Taiwan there was even a 15% increase compared to 1975. They further showed that Asian immigrants in the US who were born in 1976 indeed were more educated compared to those from non-Dragon years, but also that the mothers of these Dragon year babies tend to be richer and more educated themselves, making the superstition a self fulfilling prophecy ‘since the demographic characteristics associated with parents who are more able to adjust their birthing strategies to have Dragon children are also correlated with greater investment in their human capital.’
Even business is affected by superstition. One study analyzed license plates auctioned in Hong Kong and found that even the price of a product can be affected by superstition – plates with 8, a sign of prosperity in Cantonese-speaking societies have higher prices while plates with 4, a sign for death have lower prices. Another study found that eclipses, which in many societies are considered bad omens, go together with lower stock market trading volumes and lower stock returns, about 10 basis points less per day over a three day window around the eclipse. These lower returns are then reversed and off set in the subsequent days after the eclipse.
Thursday, November 5, 2009
By Far The Best Article on the Flu Panic in Ukraine
This week's Kyiv Post has excellent coverage of the flu panic in Ukraine - especially the article below:
"If you correlate the number of those who got sick (and multiply by two because only a half of people come to the doctor), and the number of those who have died, it becomes a confirmed fact that there is no especially heavy viral disease in Ukraine. According to the data available by the morning of Nov. 2, officially 200, 000 people got sick, 60 died. The mortality rate is lower than from regular flu.
Pneumonia is the main reason for death of many people in many countries in all times. It can develop as a complication of many other diseases and traumas. If all of these deaths are reported by the media massively, nothing good will come out of it.
It’s very unlucky that so many factors have come together: crisis, election, autumn and flu. But we have to remember that a viral respiratory infection is one of the most common and light diseases. It requires calm and concrete, elementary actions, that any person can afford.
I understand perfectly well what stress a mother has and what she is capable of when every day she hears about a deadly disease going around, and then she suddenly discovers that her child has a runny nose. The only thing I don’t understand is why they’re doing it to our people."
Wednesday, November 4, 2009
Panic and Prices - Part II - the Return of the Anti Monopoly Committee
In Ukraine, the task of the Anti Monopoly Committee seems to be to investigate prices that politicians think are too high. Some time ago it was university tuition, now it's the prices of garlic, onions and lemons.
Where's the monopoly here?
"The Antimonopoly Committee of Ukraine (AMCU) has filed a suit concerning unreasonable rises in the prices of some foodstuffs, in particular, garlic, onion, and lemons.
"Using the situation that occurred as a result of the outbreak of flu and the fact the Ukrainian families have started to consume garlic, onion, and lemons, they [trade enterprises] have sharply raised prices of these goods…I have taken a decision to file a suit concerning the unreasonable, illegal rise in the prices of garlic, onion, and lemons on the territory of Ukraine," acting head of the Antimonopoly Committee said.
According to him, an investigation group was formed and a relevant meeting with the participation of the AMCU leadership was held.
"The whole system of agencies of the Antimonopoly committee was charged with conducting the corresponding investigations," Melnychenko said.
Melnychenko also said that he spoke with the head of the State Customs Service, who had supported these actions. In particular, this concerns lemon imports to Ukraine.
That's why, as Melnychenko said, "we will know which subjects of the economy are abusing their market position."
Tuesday, November 3, 2009
Cemetery Bribes
an interesting article on the costs of dying in Kyiv
"But for a bribe anybody can be buried in a historic cemetery. According to different sources, a bribe can be anywhere from US $5,000 to $50,000."
Monday, November 2, 2009
Ukrainians are less positive about democracy than18 years ago
A recent Pew Survey compares the opinion of people in the former Soviet Union in 1991 and now. Ukrainians are especially disappointed in democracy.
Approval of Change to Democracy
% Approve of change to Multiparty
1991 2009 Change
East Germany 91 85 -6
Czech Rep. 80 80 0
Slovakia 70 71 +1
Poland 66 70 +4
Hungary 74 56 -18
Lithuania 75 55 -20
Russia 61 53 -8
Bulgaria 76 52 -24
Ukraine 72 30 -42
It's not hard to guess why that could be... and explains why several of the current presidential candidates try to position themselves as strong leaders
More No Comments
"Ukraine is in a panic about swine flu, with officials closing schools, imposing travel restrictions and limiting public gatherings. Yet many suspect that politics, not health issues, are behind the uproar.
The World Health Organization said Monday there is no evidence that Ukraine's outbreak is particularly severe, leading some political analysts to say Ukraine's politicians are using the swine flu scare to earn political points ahead of the country's presidential election in January."
The World Health Organization said Monday there is no evidence that Ukraine's outbreak is particularly severe, leading some political analysts to say Ukraine's politicians are using the swine flu scare to earn political points ahead of the country's presidential election in January."
"The World Health Organisation says there is no evidence to suggest that Ukraine had a bad outbreak of swine flu, but it has agreed to send a team there to help the country cope.
...
"The main players are using the flu in their propaganda war," he adds"
Sunday, November 1, 2009
Panic and Prices
"Lemons, a traditional anti-flu remedy, sold out at markets in Lviv while supermarkets were selling them at double price."
"Tymoshenko said the government won't tolerate higher prices of medicines at drug stores during the A(H1N1) flu epidemic.
'We won't allow pillage on those troubles Ukraine faces now. The owners of drug stores, and drug stores engaged in the pillage will be immediately deprived licenses for good," the prime minister said."
'We won't allow pillage on those troubles Ukraine faces now. The owners of drug stores, and drug stores engaged in the pillage will be immediately deprived licenses for good," the prime minister said."
Update:
"The State Tax Administration (STA) of Ukraine has registered 1,872 violations by drugstores following two days of checks on the availability of medicines at drugstores and the formation of prices for them, STA Chairman Serhiy Buriak has said."
"Black market prices of some flu remedies, particularly Tamiflu, had rocketed to as much as 10 times normal retail value, Tymoshenko said."
Friday, October 30, 2009
No Comment
"Prime Minister Yulia Tymoshenko on Friday ordered a three-week closure of Ukraine's schools and cinemas in the toughest measures adopted yet to combat the swine flu virus in Europe.
...
The prime minister on Saturday held a mass outdoor rally in the center of Kiev attended by tens of thousands of people to mark her party's confirmation of her candidacy in the presidential race.
President Viktor Yushchenko, Tymoshenko's political arch-rival who is also standing in the elections, was due to hold his own rally on Sunday but it is now unclear whether this can go ahead."
and also
"
The virus is spreading across Eastern Europe, but it was not clear why Ms. Tymoshenko chose to undertake stronger moves, like closing schools nationwide, than her counterparts in Russia and Poland.
There were indications, however, that the government’s response was being influenced by electoral politics. Ms. Tymoshenko, one of the leading candidates, and her bitter rival, President Viktor A. Yushchenko, who is far behind in polls in his bid for re-election, both sought to make clear that they were aggressively addressing the outbreak."
"Campaigning for the hotly contested presidential contest in January has also been put off. Observers said the far sweeping moves to combat the flu are partly rooted in the political rivalry between Victor Yushchenko, president, and Yulia Tymoshenko, his prime minister, with each trying to outdo the other and be seen assertively handling the outbreak."
Thursday, October 29, 2009
IMF vs the Ukrainian Parliament - part II
An politically cunning, but economically disappointing move of the president...
"KIEV, Oct. 28 – President Viktor Yushchenko indicated Wednesday he will sign a controversial bill that dramatically increases social spending less than three months before the next presidential election.
The move, seen as politically motivated, will most likely force the International Monetary Fund to postpone its $3.4 billion Standby loan installment to Ukraine, scheduled for this year, reducing chances for Prime Minister Yulia Tymoshenko to win the presidency."
Wednesday, October 28, 2009
Ukraine's UFO database!
"The Ukrainian Ufologic Club (UFODOS) has released and placed on the Internet (ufobua.org.ua) a national archive of UFO evidences.
It was complied based on people's evidences about strange flying objects over Ukraine. The 'secret files' comprise about 500 eyewitnesses' testimonies who saw UFO in Ukraine starting from the 17th century. According to UFODOS chief Yaroslav Sochka, the materials were collected from various sources, basically, Hydrometeorological Center of Ukraine Air Force and public ufological organizations. In August 2009, the UK National Archives released new UFO files containing a wide range of UFO-related documents covering the years 1981-1996 and describing more than 800 UFO cases."
This makes excellent research material - f.e. one could estimate the determinants of UFO sightings!
Tuesday, October 27, 2009
Competition in the Retail Sector
If confirmed and they actually enter, this should be good news:
"German retailer Schwarz is mulling the launch of its Kaufland and Lidl hypermarkets in the Ukraine."
for some economic studies on this:
"Consumers often benefit from increased competition in differentiated product settings. In this paper we consider consumer benefits from increased competition in a differentiated product setting: the spread of non-traditional retail outlets. In this paper we estimate consumer benefits from supercenter entry and expansion into markets for food. We estimate a discrete choice model for household shopping choice of supercenters and traditional outlets for food. We have panel data for households so we can follow their shopping patterns over time and allow for a fixed effect in their shopping behavior. We find the benefits to be substantial, both in terms of food expenditure and in terms of overall consumer expenditure. Low income households benefit the most."
and
"This paper uses a case study approach to explore the effects of NAFTA and GATT membership on innovation and trade in the Mexican soaps, detergents and surfactants (SDS) industry. Several basic findings emerge. First, the most fundamental effect of NAFTA and the GATT on the SDS industry was to help induce Wal-Mart to enter Mexico. Once there, Walmex fundamentally changed the retail sector, forcing SDS firms to cut their profit margins and/or innovate. Those unable to respond to this new environment tended to lose market share and, in some cases, disappear altogether. Second, partly in response to Walmex, many Mexican producers logged impressive efficiency gains during the previous decade. "
IMF requirement nr II
"The International Monetary Fund (IMF) will demand the Ukrainian authorities refuse from financing of UEFA EURO 2012 preparations through using UAH 9.8 billion (USD 1 - UAH 7.99) revenues of the National Bank of Ukraine (NBU), as they believe this will cause a groundless emission, says the Information Center 'Ukraine - UEFA EURO 2012'."
Monday, October 26, 2009
IFC on Ukraine's Business Environment
The IFC has a new report on Ukraine's business environment - it's conclusion
"Implementation of key 2005 and 2007 laws on permits and inspection�s remains limited. Where implementation has progressed, the results are positive and entrepreneurs need less time in which to comply with regulations, such as permits and inspections. Nonetheless, a burdensome and
overly prescriptive regulatory system remains a problem for Ukrainian businesses. The slow pace of reforms threatens the ability of Ukraine’s businesses to compete in the international marketplace and to cope with the ongoing crisis."
The IFC has been doing this survey for many years now - and unfortunately, is not willing to share its dataset with outsiders. An example of over-regulation if you'd ask me...
Sunday, October 25, 2009
IMF vs the Ukrainian Parliament
"The International Monetary Fund asked Ukraine on Sunday to veto wage and pension increases that were approved by parliament last week before it decides whether to disburse further funds."
It's not too late yet for the IMF to start thinking about the hint I gave here
Saturday, October 24, 2009
Daylight Saving Time
One more hour of sleep this night!
Like the Kyiv Post, many people believe that 'The winter time is aimed at more efficient use of daylight and saving energy.'
There are several studies that are skeptic about whether this policy works, for example
"Our main finding is that—contrary to the policy's intent—DST increases residential electricity demand. Estimates of the overall increase are approximately 1 percent, but we find that the effect is not constant throughout the DST period. DST causes the greatest increase in electricity consumption in the fall, when estimates range between 2 and 4 percent. These findings are consistent with simulation results that point to a tradeoff between reducing demand for
lighting and increasing demand for heating and cooling."
At least, there's no impact on the stock market, according to this study:
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