Secret Santa and Risk Aversion

Part of the Christmas Spirit is the Secret Santa game, or known as the “Secret Friend” in other places (such as Venezuela, where I grew up). I guess all of you know how it works, but just for those who don’t here is the main idea: a group of people decide to play the game, and randomly (or pseudo-randomly to be more correct) each individual receives a small piece of paper (or maybe an email if the recruiting is done virtually) with the name of another individual. Now, each person has to give at least one gift to the person that was assigned to him. The only thing that has to be taken care of by the organizers at the first stage is to make sure that no one received his own name.

This whole process is secret, meaning that if I received Juancito’s name in my little paper, then Juancito won’t know that I am his “Secret Santa” until I give him the final gift on a day that is agreed among all of the participants. There can be two ways to play this:

• The game lasts for a couple of weeks, in which people are expected to give “small gifts” constantly, until the last day of the game in which people give the “final gift”, and at that moment they reveal themselves to the “receiver” as their Secret Santa.

• The first stage of the game with the “small gifts” can be skipped, and people only buy one “final gift” revealing their identities as well in that very same moment of handing out their gifts.

Why is this in my blog? Well, first because it is a blog about nothing, so why shouldn’t it be on it? But, second, because this creates an interesting situation in which each individual has to decide how much to spend in the gifts they are buying. So, let’s assume for the simplicity of this post that everybody loves everybody else in the group equal ways, so that you decision on how much to spend is not a function of how close you are to the person you are giving to or how happy will make you give a cooler gift to an specific person. In economic language, let’s assume that everybody has the same utility from receiving the same gift, and everybody has the same utility from giving the same gift to any person in the group. These assumptions don’t change the main results of my post (economists love to say this about their models).

Now the big question is how much will you spend. As we have seen during all these posts, you as a rational consumer will think in the following way: you have to spend some money to buy a gift, and you are going to receive a gift back. Now, we assumed that there is a fixed utility from playing in the game (see previous paragraph), so now what is left is another computation: you will spend as much money in buying a gift for other person such that the utility that you will get from receiving the gift that they are going to buy you is equal or higher than what you could have bought for yourself with the money you are spending. That was long, let me rephrase it. Say that you know with certainty that you will receive a collection car that will raise your utility by 100 units (utility units have no meaning and it is just for the sake of the example). So, the money you will spend will be equal or less than what you need to consume something else that will raise your utility by 100 units or less. Meaning that if you decide to spend $20 dollars, it is because those $20 when you consume them in any other thing (restaurants, movies, etc) it will raise your utility by 100 units or less. Otherwise, you will spend less than $20 in your Secret Santa gift.

This formula becomes more complicated if you don’t know with certainty what the gift you will receive is - which is usually the case – because you don’t know who is buying it. So at this point, you will have to see the distribution across the members of your group, and only then your decision will be based in the expected value of the gift you are going to receive.
How can you know then what is the expected value? Well, if you know the persons you are playing with, then you can think about how wealthy or not they are or how much “givers” they are. If they usually invite you for a drink, or even for lunch once in a while, this means that the expected value of the gift you may receive goes up. If people are not like that, then you will lower the quantity you are willing to spend.

So this scenario involves risk. By buying a gift you are taking the risk that at the end your utility will remain at least at the level it was before entering the game. A very risk averse person will always buy cheap gifts (even below the expected value of the gift he may received), because he prefers to cover his back and not spend too much money since he might get the bad gift. A risk lover person will be happy to play Secret Santa. The interesting issue is that this games appears to be consistent with individuals that show Decreasing Absolute Risk Aversion (DARA) – the wealthier you are, the more you can run the risk of buying a more expensive gift without your utility being hurt so much (if you have a lot of money and you received a bad gift, you can go afterwards to the mall and buy anything else to compensate for that).

So, this situation appears to show a “market” with failures. As any other markets, there have been “regulations” trying to solve the incompleteness of the information:

• One possible regulation is the “small gifts” and “final gift” mode of the game. By making people give small gifts during a couple of weeks before you decide how much to spend in the final gift you may get more information about the expected value of the final gift. However, this system is problematic. Your expected value is being affected by the person who is giving you the small gifts. If, for instance, you are receiving crappy gifts (if any) and you decide to buy a bad final gift you may be punishing a person who gave good gifts along the way. This is not fair. Again, if the game is composed by risk averse individuals, all gifts will be bad.

• A second one is to establish a spending range or limit for the “final gift”. This is clearly an expected value. Is an average in terms of price of what is going to be the gift you are going to receive. Clearly, this helps a lot, but if it is not mandatory it still leaves some space to uncertainty.

As a final takeaway, if you want to play Secret Santa, do it only with Risk Lover persons!

Happy Holidays!

Why don't you recycle?

Let's be honest. Many of us don't do all what is in our hands to help the environment. Why? It is just another 5 minutes? We just need to separate paper and glass from the trash and put it in different containers, and then take the trash to the trash disposal, and the recyclable items downstairs to the entrance of the building... pffff... that sounds like a lot of work if you are in a hurry...

The building I live in asks its residents to recycle. However, we have trash disposals in every floor in the building... but look at the message that its written there:

Ok, so where should I take my recyclabels? Then here is the map of the complex:

Mmmh... alright. So, actually recycling involves some work and some time. But of course, it is worth of doing so, since we will save the environment for us, and the next generations.

But... if everybody is recycling but me, nothing bad is going to happen... My actions, either if I recycle or I don't, are not going to change anything. Well, that is exactly what I believe is the cause of this equilibrium of the majority of the world not recycling. Allow me to explain myself. The marginal contribution of one individual to the environment when he/she do environmental activities such as recycling tends to zero. We can save the environment if ALL of us work together, and the aggregate contribution is quite large.

So, if you are clear that if you recycle you could save the world, maybe you'll do it... but maybe not. Why not? Well, again, this will take you an extra 10 minutes of your day, maybe in average. You'll have to take down the recyclables, and maybe deviate from your routine walk from the elevator to your car or to the exit of the building. But maybe if you are in a hurry one day you won't do it... why? Because your time is valuable!

So let's put together all the components of the equation. First, your marginal contribution - as an individual - from recycling is zero (or almost zero) because you by yourself are not contributing. Moreover, the marginal utility you gain from recycling is almost zero, because the fruits of your work will be enjoyed by the future generations, and probably not by you, so unless you care too much for the future generations (which is not a bad assumption sometimes) you don't have any direct gains from recycling. But even if you care, in some countries you have uncertainty that even if you bring all your recyclables to the right place, they are not going to be recycled, so you just lost your efforts.

On the other hand, the cost of recycling is not zero, you have to invest some time in it, which has costs involved.

Consumer theory explains that you will keep consuming one good every time that the marginal utility from consuming it will be higher than the price that you are paying for it. So if recycling is not bringing you any utility, then there is no sense in recycling, and put your efforts in doing this.

Ok, at this point you are thinking that I am a inhumane person, that don't care about the environment. Not true. I care. The bottom line of my post is not that you don't recycle, but is that there are ways that could increase the rate of recycling among people. How? Incentives!

What can be done so that people will recycle more? Two things: either you increase their marginal utility from recycling, or you reduce the price of recycling. Both can be done.

• The goal of publicity and concientization campaigns are intended to make you understand two things: (1) that your marginal contribution to the environment is more than zero, and (2) that you can have marginal utility from recycling. They argue that things can be done now, and that you will enjoy from a better Earth if you recycle, or put it in another way: you won't suffer from a deteriorated Planet Earth in 30 years time. This is what Al Gore is doing.
• The other posibility is to reduce the cost of recycling. For example, putting in every floor recycle bins, and not ask people to go behind their buildings with 3 bags in the morning when they are in a hurry because they are late for work. Reclycling has to be MORE comfortable than non-recycling. The incentives has to be in place so that people will choose to recycle because is more convenient for them. Otherwise they will waste time.
  

So, for all of you out there, seriously, things are pretty tough, so start recycling!

Happy holidays!

Online Dating and Search Costs

So, what is it about online dating that is sometimes controversial or awkward? Well, I don't know. But sometimes one thinks about online dating as something associated with people for whom is difficult to find a partner through "conventional" methods. And this is sometimes associated with people who is ugly or non-friendly or any combination of both. I will try in this post to convince you that this perception of online dating can be explained through economic theory.

The economic concept of "search costs" relates to the cost of transaction for buying a good. From my loyal source Wikipedia we have that "Rational consumers will continue to search for a better product or service until the marginal cost of searching exceeds the marginal benefit".

Well, dating - or looking for a partner - has an associated search costs with it. You may think about it as the time you have to invest in going to places where there are people you could date, or investing the energy in thinking in strategies to approach the other person, or even you could think about the drinks and food you'll have to pay in dating until you find the person that you are looking for. All this involves time and money. These are "search costs".

However, we should think in this case - as opposed of the search cost associated with the "good" you want to consume - as a cost that it is associated to the consumer: the person that is looking for a partner. We could assume that search costs are the same for each individual (independently on which girl/boy he or she is searching for), but search costs are not the same across individuals. For instance, Pablito (a fictitious name) always has a hard time trying to invite a girl out - independently of which girl - he is very shy and he is not that handsome. So his search costs are constant. He has to ask 20 girls to go out with 1. He has high search costs. However, Juancito, is very handsome. He doesn't even need to ask a girl out - because they come after him. His search costs are very low.

So the assumption for my "model" is that search costs are a function of your characteristics that are relevant for dating (how good looking and friendly you are, how funny you are, etc).

At this point, let me bring another ingredient. Online shopping (not dating!). What is the good thing about online shopping? Well, it decreases the search costs for each good. If you wanted to buy a computer in the early 90s, you had to go to 5 stores, and spend some time in each one, probably buy some magazines, in order to decide which is the best computer for you. The time and money you spent in doing all this - before you buy the computer - are search costs. So now, Google shopping and Amazon.com do all this for you. Also, online product reviews from buyers also help you with all this. You can fairly do all the 2-weeks research you would have done in the 90s for buying a computer in roughly one day through the internet. Search costs has been reduced sharply.

So, online dating is the same concept. What online dating is doing is that is reducing at some extent the search costs of people who want to date. Why? Well, you go into a website in which everybody else is looking the same as you, and you have all the "options" so that you can "see what suits you better" in only one place. You don't have to go to 10 parties, and 5 social events in two weeks to see if you find one single person that is willing to date you. The search costs has been reduced.

So now, what is left is to understand who has the incentive then to do online dating. Clearly, people who want to reduce their search costs. It can be people who are less likely to find someone to date in their day to day life at the moment. But here I will add other components that affect the outcome of your search costs. Before I only included phisical characteristics and how friendly and nice you are. But there is information involved as well. People who lack of information on where to find other single people with the same interests also have search costs, either because they are new in town, or they are no longer in an enviroment where it is likely to meet new people every day (such as in college or graduate school). These are the people that are likely to join online dating.

People who have already low search cost don't have too much of an incentive to join such a network. Going back to the definition at the top of the post, their marginal cost (the membership fee) exceeds the marginal benefit that they can get from online dating. But it doesn't mean that "pretty" people will not join. Maybe "pretty" people are having a hard time looking for an specific kind of person that they are not able to find in their local environment.

So it might be that in the future, as almost everybody in developed countries have bought at least something over the internet, maybe more and more people will say that they have dated at least one person thanks to the internet. We'll see...

Miami's I-95 Highway

Some of the readers of my previous post about tolls efficiency have commented about a new policy in the I-95 Highway in Miami area that have more or less some similarities with my ideas about efficiency in tolls.

My loyal reader with the nickname "Anonymous" (I still don't know if he choose that nickname or he just lack of nicknames), have commented about this. I publish his comments:

Your main point, if I understand correctly, is that there should be programs that permit people to pay MORE and get through traffic quicker. There are, however, programs that allow people to pay LESS...and get through traffic quicker. E-Z Pass (in NY, NJ, PA)..Sunpass in Florida, among others. There is a time incentive and an economic incentive (not to mention an environmental incentive since)

Another new program, recently implemented in Florida, does precisely what you describe. The 95 Express Program provides 2 lanes over a 7 mile, highly congested are of the freeway, where motorists are guaranteed an average speed of at least 50 MPH. To use these lanes, drivers can either pay a toll (which varies depending on traffic), buy and register a hybrid vehicle, or register a 3+ person carpool. While the details of this program are worth discussing (there are certain incentives to cheat) in general this does what you describe...while also encouraging people to carpool more or buy more eco-friendly cars.

So, first of all, thank you Anonymous for your comments and for your being such a loyal reader. I actually looked at some of the details of this project right at the 95 Express Website and it certainly looks interesting. However, there are some important questions to raise. For instance, the policy guarantees for those who get into the 95 express lanes that their average speed will be at least 50 MPH, and that those who are exempt of paying after registering: hybrids and 3+ car pools (motorcycles and public transportation are exempt from paying but don't have to register), should take out their Sunpass (so that they won't be charged automatically) and they should have a sticker given by the authorities to identify their car as "exempted from pay". However, as soon as they enter the 95 Express the system won't detect the Sunpass and will send an alert to the police or - as they describe in the website: "Drivers without transponders will have their license plates photographed and receive an Unpaid Toll Notice (UTN) for failing to pay a toll. Failure to resolve the UTN will result in a Uniform Traffic Citation (UTC)".

So the question that arises is, is the police able to see every car that didn't pay if (1) they have a sticker? and (2) if they are hybrid and/or they are a carpool of 3+ individuals? All these at 50 MPH. It sounds a bit difficult, doesn't it? If they stop every car that goes by without paying, and it happens that everything is OK with that car, so he wasted 5 or 10 minutes of his time because of this. It doesn't sound terrible. But how many policemen you need in the roads? Or maybe they will stop cars randomly and do an aleatory check?

So, my question is, why instead of using those cameras that they describe in the website to picture the plates, they don't use the cameras to photograph the plate of every car and use another technology to determine how many people are in the car (maybe x-rays or another camera), and then send them the bill by mail. Through the plate they can now if the car was registered as a car pool, if it is hybrid or otherwise he will have to pay the toll... and forget about the Sunpass for this 95 Express Lane.

Thank you Anonymous for your insights!

Traffic Jams and Maximizing Tolls Profits

Thanksgiving weekend is one of the most (if not the one) busiest travel weekend in the year in the United States. This is the main lesson I learned during the first Thanksgiving ever I spent in this country.

Together with my friend MR we drove from Providence to Philadelphia Wednesday night, before thanksgiving began. We hardly found any traffic in our way down there, and we made very good time: around 5 hours. We supposed that if we drive back on Sunday afternoon, we would make at least 10 hours because of the traffic. So Saturday was the best option. Since I wanted to get in time to catch the last train from Providence to Boston at 10pm we decided to leave around 3:30pm.

Everything was fine during the first hour. We went through New Jersey, and even made a stop to grab something to eat. However, after that stop, there was a huge traffic jam waiting for us around New York City. The traffic was because of the George Washington Bridge Toll.

Saturday Nights in New Jersey Turnpike

The toll costs $8. This is very costly for a toll. Of course, the high price should be correlated with the incentive the authorities want to create to reduce traffic in that area. That is the main idea of the expensive tolls to get into Manhattan as well.

However, they can do much better. We spent almost two hours in traffic. Two hours. I would have pay more than $8 to skip the traffic. I guess that the vast majority of the people on the road were willing to do the same. My friend told me (even before I talked about the cost of time in economic models) that his hourly wage is much more than the cost of the toll, and that he was willing to pay more to skip the traffic - even $50!

People's time cost money - either for unemployed people (say, the minimum wage). And this is the main variable that makes people decide between many factors that have to do with time: such as the decision between labor and leisure, or fertility decisions (children cost time and money).

So, the toll system there was totally inefficient - mainly because of two reasons:
1) People were willing to pay more than $8 to avoid the traffic.
2) The excess of carbon dioxide that the cars in the traffic were emitting could have been minimized in the absence of that toll, minimizing as well the costs of the externalities of pollution.

Now, how can this be done? Israel has an interesting system of tolls in Itzhak Rabin Highway (Highway 6). There are cameras located at the entrances and exits to the highway which take pictures of the license plate of your car. Then the pictures are processed and they send you the bill by mail with the cost depending on how long was your ride in the highway, what kind of car you have (sedan or truck) and how many individuals were inside the car. The cost can be around $10 for one ride in average.

People decide to go into the highway depending on factors such as how much time they will save (the highway crosses Israel in a straight line, as opposed to other highways), the price of gasoline (you may save gasoline by using that highway), and of course the traffic.

As opposed to Highway 6 in Israel, in the George Washington Birdge toll you have to pay not only cash, but with your wasted time as well, instead of having a more intelligent system. It is a shame that the State of NY could have triplicated the money they did in tolls during this weekend if they would have send bills by mail asking for even $15.

Think about the time you spend in traffic, and how much money will you be willing to pay not to be in traffic during your whole lifetime. I assure you that your answer will depend on your (expected) hourly wage multiplied by the amount of time you expect to be in traffic. I guess that in a city such as Caracas, people would pay thousands of dollars for assuring themselves a traffic-free city. This money could be used to create more efficient roads, and probably people would be better-off... But yes, I know, this is a crazy idea.

By the way, I didn't catch the last train on time, and I spent the night in Providence. We should have gone back the day after.

Maybe one day...

This is a commercial of the 013 Barak Telecommunications company in Israel. I hope you will enjoy it as I did.

PS: The subtitles at the very end mean: "In real life, this is still not possible. But over the internet, links like these are created on a daily basis".

The opposite...

I was talking the other day over the phone with my good friend "A", and he told me how he saw the convoy of the President of the United States passing through the streets around his office. All the streets were closed, and of course, traffic jams were all around.

So, I told him about the story I am about to tell you now, which is related to some interesting concept of how expectations can change themselves and also change behavior, as economic science suggests.

Well, it was around April 2008, and the US President - George W. Bush - came to Jerusalem in an official visit. I was living in Jerusalem then, and along to all the residents in the city, we were "warned" by the police department that a number of streets will be closed during the official visit. The recommendation was to avoid using any kind of transportation, because heavy traffic jams were expected during those days. Well, when the day came, I called my boss and told him I will work from home (lucky I of having that possibility). My office was in Kiriat Gat, a city located some 80 km distance from Jerusalem, and I thought that on my way back - around 6 or 7 pm - all the streets will collapse in traffic jams.

The day came, and what happened? Well, apparently I was not the only one with the same expectations, and the equilibrium around most of the residents of the city was the same - staying home for the day. The streets were EMPTY... It was more than perfect for those who used their cars that day.

Well, this is not the end of the story. A month later, Bush came back to celebrate the 60th Israel's Independence anniversary in May 2008. Again, all of us, Jerusalem residents, were warned: because of security reasons, most of the streets in downtown Jerusalem (where I used to live) were going to be closed during those days. So, what was the outcome? People, thought that the previous equilibrium was stable, and everybody used their cars that day (including me...). It took me about 3 hours to get from the University to my place at 6pm, when the ride usually takes about 15 minutes. It was really crazy. Everybody was in the same situation. The equilibrium was the opposite of the previous one. People expected all the other people to stay home, and take advantage of an "empty" Jerusalem, free of traffic. Expectations were adjusted to the previous outcome, and people behaved according to those expectations.

So, what is the lesson from all of this? I don't know. But what I do know is that this whole story reminds me of George Constanza when he realized that everything he decides to do is wrong, so Jerry advises him to do the following: "If every instinct you have is wrong, then the opposite would have to be right". And indeed, he goes for it, and everything seems to improve for him. Here is a scene from that episode: "The opposite". Enjoy it!

Relationships and Dominant Strategies…

Well, yes, I know what your first thoughts are. There is no way we can explain relationships with economic science. But let me tell you what I think. As in my first post, everybody acts on a rational way, seeing his own set of information, and having their own incentives to achieve a better utility… And so do men and women in relationships.

So, first of all, I want to introduce you the prisoners’ dilemma. This is a classic game theory example, in which we can see that, sometimes, when one’s outcomes are also determined by other individuals, our strategy as individuals won’t necessarily be the ones that will lead us to the highest outcome or utility.

Consider the following situation (Source: Wikipedia):

“Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies ("defects") for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?”

What do you think? The most ‘rational’ thing to do is that both of them remain silent, and they will serve 6 months each, and we are done. However, if prisoner A stays silent, then prisoner B can testify, and he will go free, while A will be sentenced to 10 years in jail. So A cannot take that risk, he will prefer to betray B, even though he will be better off if both A and B remain silent. So the dominant strategy will be ‘mutual betrayal’, and each of them receiving a five-years sentence, which is clearly not the best outcome they could have achieved if they would have agreed beforehand.

This is similar to women and men behaviors in relationships. When a man starts dating a woman, and they happen to like each other, they will probably want, at least at the beginning, to talk over the phone all the time, or see each other all the time. In many cases this indeed happens, and they are a happy couple – the happiest they can be.

However, this is probably not the common case. Why? Well, if the girl starts calling the guy too much, or vice-versa, then they will be giving a signal to the other that they are “easy to catch”. But usually, in relationships you don’t want this to happen. Girls want to be seduced, and see the man working hard to achieve that. Similarly, men don’t want girls to think that they are too crazy about her or that they don’t have other girls that they can invite as well. Both men and women choose a strategy, the "hard to get" strategy, in which they don’t pay too much attention to the other one…

So what does this have to do with game theory? Well, this is a game. Both the man and the woman will be better-off by avoiding all these “hard to get” games. They will be able to save some time, and avoid uncomfortable situations. But in any case, the equilibrium is to play it the hard way.

Why? Imagine player one stops playing the “hard to get” strategy – and say starts calling more or caring more than usual for the other. Then player two can play two strategies. He/She can respond in the same way, and if they both keep playing that strategy without deviating, they might reach a better outcome. However, if player two decides to play back the “cooperative” strategy, but player one in response starts playing the “hard to get” strategy, then player two will look like an idiot… Player two will be calling and inviting player one, while player one will be indifferent and rejecting some of the invitations at a certain rate. Player two will feel bad about it, and will understand that player one is playing “hard to get”. What is the only response to that? Choosing as your optimal strategy the “hard to get” one.

We finally reach an equilibrium in which men and women choose to play a “hard-to-get” strategy being this one the dominant strategy. And sometimes, even though this can have a positive outcome, it won’t be as high as the other equilibrium (both playing the “cooperative” strategy)… at least in terms of time and avoiding uncomfortable moments.

So, you see... people are rational...

Poverty Traps...

Economists often refer to an equilibrium called 'Poverty Trap' - which is an scenario in which people experience poverty because of facts that are out of their control - thus, staying poor forever.

Without getting too much into the economics, I wanted to share with you an 'alternative' explanation of this phenomenon, which I saw in 'Mafalda' - a very popular Argentinian comic strip during the sixties and seventies.



Susanita, the character at the left, says:
-"C'mon! Don't you understand that they are poor because they want to? Use your brain... use your brain!"
Mafalda replies:
-"Ohh, my god!"
Then Susanita talks again:
- "Think about the hovels they live in, the bad and ugly furniture they have, the clothes they use! Don't you understand that if they already earn too little money, and besides that they have the guts of spending it in bad quality products, they will stay poor forever?"
Then when Mafalda leaves she thinks to herself:
-"There is nothing to do with people who don't think enough..."

PS: Just for the record, the purpose is only to understand what a poverty trap is... Not to learn about policy making from Susanita...

No comments...

I found this in JFK Airport in New York City... An automated iPod selling machine...



Believe it or not...

Parking Tickets and Incentives...

When I arrived in Jerusalem in 2004, I was very excited about fulfilling my dream of becoming an Israeli citizen. I even remember one day, I was walking down the streets, and then suddenly, a policewomen approached to me and asked me for my ID. I did not have a clue why did she stop me, but I guess I did not realize that she was about to fine me for jaywalking… yes, can you believe that? Jaywalking!!! Well, it was not a much transited avenue, but a single lane street. Of course, I was so excited of being able to speak in Hebrew that I happily gave her my ID, still without knowing about the ticket. Then she told me that I crossed the street without waiting for the walk signal, and I received a NIS 100 fine (about USD$20 at that time). I was dumb, I could have given her my Venezuelan ID, and speak in Spanish… In any case, while she was writing me the ticket, there were many other people doing the same thing as I did, and were not being punished as I was...

On that time, just when I arrived, without a job, paying that ticket was for me a lot of money. The average income for a new immigrant in Israel, who has not been inserted yet in the labor market, is about NIS 20 an hour (minimum wage). So, the fine for me was worth 5 hours of work… a lot…

This is exactly what fines are all about, or should be. Every person has a limited amount of time in which he decides whether to work or not, in order to consume goods, or to have some leisure respectively. But of course, for everyone, the “value” of time varies, depending on your schooling, experience, tenure, etc. So, fines are a punishment for low income people, or more specifically, people that cannot win more by avoiding law (like parking on a prohibited spot for example) than the cost of the fine.

For instance, imagine New York City. Now imagine you are a wealthy business man, who has a meeting that will make you earn about USD$2000, and the meeting is somewhere in Manhattan, where free parking spots are virtually impossible to find. So, you have another 10 minutes for your meeting to start, and you are still going around the block with your car trying to find a place to park it. Well, you have the information that a parking ticket will cost you USD$200… so if you park on the street, on a prohibited spot, then you will be earning $1800 instead of $2000. However, if you don’t park, you are not earning anything. What would you do? Obviously, the parking ticket is not a strong enough incentive to this person not to park where he cannot. It is all about the cost of time.

I was riding in the T (subway) in Boston, MA and I saw a sign which said: “It is prohibited by law to smoke in this train. Anyone who obeys this law will be punished with a fine not higher than $50, imprisonment for no longer than 8 days, or both”. Ok, so let’s analyze this. From my point of view, this is a very good incentive to respect the law. For an individual who has a very high cost of time, he surely doesn’t mind paying the $50, but he cannot take the risk of being 8 days in jail, and having all those foregone earnings while he is not in the office. On the other side, an unemployed individual, in terms of cost of time, being in jail for eight days is not what makes him worse off, but the USD $50 that he has to pay. I think this is a wise signal.

But what can be done with parking tickets? If we start putting in jail everybody who parks his car wherever he wants, then maybe half humanity will be behind bars. Well, I heard that in Finland, parking tickets are given taking into consideration your wages. For higher wages individuals, then your parking ticket will be higher. I don’t know exactly how does this work, and how do they construct the correct incentives so that people won’t try to cheat, but, if I have any Finn reader, please feel free to comment.

In any case, I am sorry for being away for such a long time, and there are more posts coming soon.

These pretzels are making me thirsty!!!

The general equilibrium theory proves - and this is the principle of free market economy - that when each individual maximize his and only his own utility, then the economy will reach prices that will lead it to an equilibrium which is efficient. The exact terminology is "Pareto Efficiency", which means that it is not possible for one individual in the economy to be better-off without causing any other individual to be worse-off...

Ok, so let's be honest with all these stuff. First of all, the theory is based on very specific assumptions, which we don't know for sure if they take place in the real world - such as assuming that our preferences are convex sets... how can I know if my preferences are a convex set? Well, actually that is not such a crazy assumption, but it does not matter now. This is not the point of this post.

The point of this blog is, that we usually meet people all the time in the streets, which are of course maximizing only and only their own utility, and totally ignoring the utility of others... and I am certain that this is not leading to any efficiency whatsoever. During the past two weeks I have experienced some of these situations, and those people are so dumb that their actions deserve to be spread around the world through my blog so that you can join me in thinking how dumb they really are...

The first situation was while driving to the Hebrew University in Agron St. in Jerusalem. There were two jeeps each on one lane, talking to each other (it seems like they were very good friends, and did not talk in a while). The street of course is two lanes wide, and there was a traffic light some meters ahead of the two jeeps. The traffic light was red, but then in turned to be green. These two individuals kept talking to each other (there were no more cars before them), while I am honking constantly behind them, letting them know that (1) the traffic light is already green and they should move on, and (2) that I am pretty upset! I was completely ignored. These guys kept talking about their wives, or their mothers (just as I did inside of my car) and just ignored me and the other cars behind of me honking. In any case, they decided to say goodbye after a minute or so of the light being green, and they accelerated in order to catch the green light. Guess what? When I reached the junction, the traffic light turned red (they actually passed in yellow). Of course, then the taxi driver behind me started yelling at me that I was not agressive enough and he blessed me by saying that I was an idiot... That also pissed me off. What was he expecting me to do?

So now that I mentioned taxi drivers, they are separate species in these kind of stories. Again, a couple of days ago, traffic light turns green, and the taxi cab does not move. That was a wider street and I could move on the side, but, why does he do that? He just doesn't care AT ALL about what is happening behind him... He just stayed there. But this thing of stopping on a green light is common down here. Once I could not pass the traffic light because a guy who was lost stopped on the green light and asked a police woman how to keep going... a police woman! Can you believe it? Then when I got stuck in the red light because of him (he did manage to pass in yellow) I asked the same police woman: "If you give tickets for crossing on red, why don't you give tickets for stopping on green?"... She just laughed and did not replied me.

Another story (I have lots of these). With my two friends M&M we were driving to Mount Scopus in Jerusalem, and at some point the road is only one lane wide, and everybody must pass through a small tunnel. That is exactly on the side of the Old City walls, and there is a space for buses to stop there so that they can drop their passengers. Well, this nice bus driver in front of us did not find a place to stop on the side, because there were many other buses, and he decided to stop in THE MIDDLE OF THE ROAD! He dropped all his 40 passengers, of course, no pressure, the rate of going out of the bus was like a 0.2 passengers/second, meaning a passanger every 5 seconds. He just ignored that there was a line of 30 cars behind him, and that maybe an ambulance could come by, or that there are other people in the world other than himself that can be in a rush and have to get on time to a meeting or class!!!

And this is related to the fact that people sometimes think that they are the only one in a hurry, and others in the world have things much less important to do than themselves. I can feel this specially when going to the doctor. While sitting in the waiting room (everybody made his appointment, and everybody is waiting for his number to be called), then always a guy suddenly comes to you and ask you if he can go before you because he is on a hurry, and he does not have time... What does he think? That I love to come everyday and sit on a waiting room just for fun? What does he want me to answer: "Well, actually I'd love to! I'd love to sit here for another two hours and wait, probably your life is more important than mine, so come over!"... This really annoys me. People really do think that others are less busy... why? That is probably because of the signal you are giving (or not giving) waiting in line. If you are sitting quietly without asking everybody else if you can step in before them, then you are giving a signal that you don't care to wait, and this might be perceived as a consequence of not being busy. But, my question is why he did not think about the fact that he would be busy at that hour when making an appointment that day at that hour?

Now, a third kind of stories. Here in Israel this is very common, or at least that is how I perceive it. You are sitting in front of the bank employee, with the doctor, with the income tax office employee or even with a lecturer (meaning that you already waited in line, and it is your turn) and then, suddenly, a third person comes along, and start talking and asking questions to the person who is receiving you. It can be in person (such as other bank employees that come and talk to the employee you are sitting with to ask him about how to do this and how to do that) or it can be by the phone (the personal phone of these people rings). So, when this happens I am expecting that they will say to their peers or other people: "Hold on sir, I am with a customer"... But no! They answer them and keep talking, and even on the phone! Can you believe it? I am just sitting there as an idiot, and these guys are talking to other people... I think this does not appear to be that annoying, but let me exemplify it. I went to arrange some things at the income tax office (this is a story by its own, coming soon) and I waited in line and I sat in front of the lady who received me. Then, I start explaining her what do I need, and she starts seeing my stuff, and it appears that I was missing one small document. Then she receives a call in her cell phone, god knows from who, but it seems like it was family or something, and she started checking this person's details on the computer (she asked him for his ID number and started to answer questions about income tax). So, I then thought to myself, what is this lady doing? Tell your cousin or your mother (I was thinking about her mother as well inside of my head) to come, wait in line and do their stuff just like I did... or if you want to help them, don't be so insolent, and do that after working hours, or when you are not receiving anyone else. Then I could not stand it and I asked her: "Lady, are you with me or what?", and she started screaming at me: "Wait sir, you don't have all your documents, and I am working, this phone call is work"... of course is work, that is exactly my complain, work, but only with people in front of you, and not with your family that is calling you to give them a hand without coming over here. Of course I shut up, and waited, like an idiot.

But these people get pretty upset when you complain about these things. Also, once in the bank I was waiting in line, and there were lots of people, and I was called and it seems like the manager was also receiving people in line to help her piers. So I sat with her, and as expected, every 2 minutes another employee of the bank came and ask her what to do, how to do it, when to do it, etc. I also told her: "I am sorry, but why can't you concentrate on me for a second, I feel it is disrespectful"... Well, she did not scream, but she told me: "Look, I do not receive people usually, and I am making you a favor that I received you now...". Why does she think she was making me a favor? Maybe she is making a favor to the other employees, but not to me. I would have prefer sitting with anybody that can do my stuff without interrupting me every 2 minutes. Moreover, if she knows that she has to assist her staff constantly, why did she start to receive people from the beginning?

In sum, these are the things in life that make you think, what the hell are they teaching me at school? Here everybody is trying to maximize his utility and, no way, this is not efficiency. But what I have learned, and sadly I agree, that in these situations one can only take a deep breath and say to yourself: "These pretzels are making me thirsty!!!"

Cuba - Day 4 (Finally!)

The plan for this last day was mostly open. I decided to start walking in direction to the building of the Synagogue and Jewish Community to say goodbye to my friend W that worked there. I found all the workers outside the building because Health Ministry workers came to fumigate all the buildings in the area against dengue fever. W told me that it seems like there is an epidemic, but the Cuban government is very careful not to declare that officially in order not to affect tourism.

I then walked to Havana University. A beautiful campus. The Union of Communist Youth (UJC) is very active in campus, and you can see their offices and fliers all around. Many UJC fliers contained pictures of Che Guevara, Simon Bolivar and Abraham Lincoln. In the middle of the campus there was a tank as a tribute to the Cuban Revolution of 1959. I managed to reach the Social Science Faculty, and I stood on the hallway, and heard what looked like an economics class. They were talking about capital gain and exploitation... was it pure coincidence? Maybe...

Main Entrance to University of Havana

I went to the bookstore to buy some books. One of them showed in the front a huge demonstration of Cubans wearing red shirts. I asked my friend W about those demonstrations, and how come they are so crowded even at mid day (when people are working). He told me that he remembered that some times in the University classes were canceled and there were buses outside in order to let people reach the demonstration. Sometimes, you even had to sign that you reached the place. It seems like there is a lot of control inside the university. The student bodies are well connected to other state intelligence organisms. Avoiding these demonstrations could cause you trouble in the future.

From there I went walking to Jose Marti Memorial building, which is a 70 stories building from where you can have a panoramic view of Havana. There I met a group of 30 elementary school students, who were somehow amazed when they found out that I was there (not for me being me, but for me being a tourist). It is a beautiful place. I managed to payed the lowest price (the one in Cuban pesos) by saying that I am a Venezuelan student in Cuba, making an ophthalmology course. Before you say I am cheap, I did this not that much because of the money, but in order to see whether that 'sympathy' towards Venezuelan was real or only rumors. Here are some pictures of Havana seeing from this tower:

Panoramic view of Havana

House of the Communist Party in Havana

I spent the rest of the day walking and watching, watching and walking. I ate dinner with Roberto and his family, and I also met again S and M to say goodbye. I sat for a while in Malecon to see the sunset, and went to ask a taxi cab to pick me up at night for going back to the airport. Please enjoy as I did from a seeing the Malecon in the late afternoon:


Lastly, from all the things I learned in Cuba, there was one phrase that I saw in Roberto's place, that really helped me to somehow summarize what I have learned from Cuba and from Cubans. Here it comes:

"Good, please grant me with

SERENITY to accept the things that I cannot change,

COURAGE to change those I do can, and

WISDOM to identify the difference between these two things "

Let's hope God will give Cuban people these three elements...

Cuba - Day 3 (Cont.)

Last post was extremely large, so I divided it into two parts... so this is the second one. So, before you start, go back and read the previous post. And the one before that. And the one before, and the previous one also... so, go and read all the posts before going forward!

Well, one of the questions I had on my mind during my visit to Cuba was about the cars. I told several times that most of the cars are very old (very very old!)... But the question is who can buy a car? Why are some Cubans "allowed" to own cars, while others not (in this socialist regime)?

Well, I talked about that with M at her place and she explained that cars are divided in several categories:

• Blue license plates are state-owned cars to be used by ministries employees and other government workers. They must report mileage status after using them, and cannot be used for personal issues.
• Maroon license plates are also state owned cars, but for white collar functionaries, such as ministers for example. Those were newer cars, and it seems like they do not have to justify their use with mileage reports.
• Green license plates are owned by the FAR, which is the acronym for Fuerzas Armadas Revolucionarias - the Cuban army.
  
• License plates with a T in them are rented cars for tourists. Nice and newer cars.
• Yellow license plates are usually in the oldest cars, and this is the private cars category. The taxis that can be payed in Cuban pesos are of this category also.
  

Individuals in the past could have received a private car as a recognition for being a good worker or even by buying it. Today, one who seeks to own a car must buy it, since the economy does not have enough resources to recognize its workers. However, M says, the bright side of this is that there won't be corruption in giving cars to workers who don't really deserve them.

At that point, M's father came home, and I met him. He was a CDR's activist, and he told me about the "CDRs day" which was actually that very same day. All around the island, at night, people prepared food in large pots in the streets, and danced until midnight. M's father was in his way to the party in the street. M told me that almost all neighbors contribute to the event donating 20 cuban pesos for the happening. This could be a lot of money for Cubans...

However, it seems like they do have money from abroad. They must... otherwise they cannot survive. But there are at least a few families who don't have family abroad that can send them money. And I these people must figure out other ways to survive, like exploiting their abilities. For example, I was very impressed to see in downtown Havana some stands that were selling (in foreign currency of course) cars figures made out of soda cans.

In any case, back to political issues, I also talked with M about the Cuban constitution. I showed her the one I bought in the morning in downtown Havana for 40 Cuban pesos. She showed me a updated version of it, and we talked about one of the emends that eliminates an article which allowed Cubans to form a new political party by recollecting ten thousand signatures. A few years back, the position leader did recollect ten thousand signatures, but afterward the Cuban assembly advances this emend having at least 3 million signatures supporting it. This way was completely eliminated the existence of another political party other than the Communist party in the Island. I asked her if she thinks this is democratic, and she said that it was clear to her that the emend was supported by much more people than the new political party request... What do you think?

This lead us to talk about the political repression in the island. M claims that the political inmate are people who really are a threat to security and stability in the Island, and many of them were involved in terrorist attacks. However, she argues that the opposition leader lives in his home without having any repression against him, and he is not in jail.

But repression is all over the Island, and it is easily perceivable. S told me her own story. She was then 18 years old, and she is a very nice and happy girl. She told me that in Cuba, for higher education, studying what you really want is not that simple. S wants to be an actress. That is why she applied to complete her senior high school requirements at an special arts institute. This instituted is very limited in capacity, and they admit some 5 Cubans every year out of a pool of 400. She made it to the last round with another 15 candidates. It was clear that all of them, if they reached that point of the process, were very good actors. Finally, five were admitted, and S was ranked in the seventh place. Coincidentally, the first five were family of famous actors in Cuba. The story does not end here. She was offered to join a new "program sponsored by the revolution" in which she will learn acting, and she would be able also to teach acting. This was when she was still in high school, at age 15. She accepted the offer, and to be accepted she had to sign a contract in which she committed to teach acting for 8 years in schools anywhere in the island after finishing her studies. Well, three years passed since, and she just realized that she does not want to teach acting. She does not want either to study how to teach. She wants to act. Then she decided to drop out from the program. After a few months, she saw that the salary she received from acting in another group (not related to school) was not the same one as she always received. When she asked for an explanation, they told her that she has received compensation payments, and that she was no longer working there. She became a deserter of the revolution because she drop out of the acting program. S was only 15 when she signed a contract committing herself what to do the next eight years of her life. Do anyone of you knew with certainty what you wanted to do when you were 15 years old? I certainly don't.

This story was really scary for me. The system has this large list of "deserters" that they pass it from place to place, creating incentives for you to repair what you did wrong (by firing you for example...). Being in that list can prevent you from traveling abroad, buying foreign currency and many other things which are for sure related to one owns freedom.

Now S joined another institute in which she studies pantomime and other scenic arts. She is not sure however that she will receive her degree because her name is still in that list.

The Cuban government constantly say that the Cuban people might not be rich, but they live with dignity... Is this dignity???

Cuba - Day 3

I went out and started walking along the coast in order to reach the US Interests Section in Havana. In front of it, there a square full of black flags, each one with one white star on it. There were 168 flags in total, and the monument was founded in 2006. The 168 flags represent the number of Cuban victims as a result of "American terrorism" (this is what they say - not me), and as for 2006, the number coincided with the total years of the "struggle against imperialism" counting since Cuba's independence war in 1838. All over the place there are posters with anti-American propaganda. On the other hand, the building of the Interests Section has a big electronic board in which they transmit contra-revolutionary messages sometimes at night. This is the closest to the cold war I've been to...

The US Interests Section Building in Havana, and the "Flags Square"

The next stop was Copelia Square. There stands "Copelia Ice Creams", in which Cubans can buy ice creams with Cuban pesos (this is the same place where the movie "Fresas y Chocolate" was filmed). This place is administered by the government, and the employees who serve the ice cream are state employees. I did not eat ice cream, and the place was quite empty in the morning. However, when I passed by again in the afternoon, it was full of Cubans, who were standing in line to get into the square (there was some maximum capacity). For those wondering what was the price of the ice cream, it was 5 Cuban pesos for four scopes.

I then decided to go to Habana Vieja, which is the name of downtown Havana. So I went again to the street where the American Cars passes by, and I raised my hand giving a signal to the next one to stop. My Cuban friends told me that the only thing I have to say is "Capitolio", which was my final destination. Speaking more than that could expose my real identity (being a tourist). I shared the cab with another 5 Cubans. I reached my destination, and payed 10 pesos to the driver as everybody else did.

Downtown Havana is a sample of an old city of the nineteenth century. Narrow streets, lots of squares and colonial houses. The "Capitolio" is an almost exact architectonic copy of the American Capitol building. It was constructed when the Cuban government was highly influenced by the US (before the revolution of course), and it was the home of the national assembly. Today it is the building of the science museum of Havana. Behind the Capitol the cigars factory - Partagas - can be seen. In its surroundings, many Cubans were trying to sell me boxes of cigars at lower prices, probably false or stolen from the factory. I did not buy any, not because I really didn't want them, but because my flight back to Israel was through the USA, where Cuban cigars are forbidden by law.

The Capitol building, today the Science Museum

One of the narrow streets in Habana Vieja

In front of the Capitol is the Central Square. There stands the statue of Jose Marti from which the gold stick was stolen (read Day 2 of these series). In the square there were many Cubans senior citizens discussing out loud about last night baseball game. In the surroundings there were many stores, but only in a few of them received Cuban pesos as payment - the rest received only foreign currency.

It was close to noon, so I sat on the stairs to the Capitol to wait for S, a nice young girl who I met the night before at the Jewish community event. She came together with her friend M. They came to show me around the city. The first thing we did is going to the Museum of the Revolution. S and M bought the tickets for the three of us at low prices (for Cubans). The exhibition presents the history of the revolution, starting from Cuba's independence from Spain.

"Che" Guevara, Camilo Cienfuegos and me in the Revolution Museum

Afterward, we went for a walk around downtown but we decided to go back to the Vedado area. So we took the bus. This was an incredible experience. The "guagua", that is how they call buses in Cuba, had 3 workers: the driver, the guy who check that everyone has a ticket and another guy standing at the back entrance checking that nobody will step inside the bus without paying. Three workers for one bus... Is this the reason that Cuba's unemployment rates are significantly lower than the continent average? Also, take into the consideration that each person pays 0.2 Cuban pesos for his bus ticket, so I haven't seen numbers, but at first sight it seems like a very non-profitable business... Of course, public transportation - and specially in Cuba - is not intended to be profitable.

M invited me over to have dinner at her house. After taking a shower I went to her house. She lives in a two stories apartment, and the apartment and furniture in it was well above my expectations. M's room was big enough, a queen size bed, TV, VCR, bookshelves full of books about Communism, Cuba, Che Guevara and even Chavez (all of them with C), and a wall full of pictures of Che and Fidel in the begging of the revolution.

The apartment, which was in the highest floor of the building, was property of her family before the "triumph of the revolution", and they are still the owners. Regarding rented flats before the revolution, the government expropriated the apartment from the real owners, and transferred the ownership to the tenants who were living there at that time. In Cuba tenants are the owners of their home, and it is forbidden to own more than one residence. The houses cannot be bought or sold, but can be exchanged between two families who are wiling to do so.

M is 17 years old, and she is the Chairwoman of the union of senior high school students in La Habana province. She is a supporter of Fidel and the revolution. She praises Fidel and Chavez. However, there are some issues which she dislikes about Cuba - and she does not hide that - specially in issues concerning to liberty rights. She does not like the difficulties to travel abroad, o how people are labeled as "anti-revolutionary" or deserter because of issues which are not that serious. He is against of demonstrations in which people burn flags and pictures of the President of the USA. She thinks that is immoral, even thought she dislikes President Bush policies very much. She is very idealist and very bright at her young age. We also talked about Israel, Zionism, constraints, political prisoners, the opposition, the government, Fidel and Raul, the economy, etc. Her mother also explained to me about the rationing booklet. With this booklet, Cubans can buy food in local currency at subsidized prices. However, she said, it is not possible to satisfy all the needs of family only with the food provided by the government. The products that families buy with the booklet are rice, beans, pork meat, salt, pepper, oil (every three weeks) and other very basic goods. To buy almost everything else Cubans have to pay with CUCs.

The economic situation of Cuba has been deteriorating significantly since the fall of Soviet Union. This is when Cuba entered the "special period" as denominated by the government. The perceivable feeling is that the economy might collapse in any particular moment, however, the political repression is keeping it alive.

Cuba - Day 2

Ok... so to ALL of you who were anxiously waiting for the second part of these series of posts (yeah right...) here it goes. My second day in my 4-day long visit to La Habana Cuba.

I woke up at about 8:30am, and ate a cracker I brought with me from Venezuela. It was Tuesday, September 26th, 2006. After Roberto and I finished all the details about the payment, I decided to go out for a walk. Habana seemed like a very quiet city compared to other capital cities I've been to. This might be a reflection of the kind of economy of the Island.

As a tourist who has been always hearing bad things about Cuba, it was not clear what are the things I should not do in the street... I also tried to wear clothes which did not make me appear as a tourist at first sight, and I don't have an explanation for that, since - of course - my non-cubanness is impossible to hide.

Well, I started to walk across Paseo Avenue. This is one of the main roads of the city, which goes through the middle of Vedado zone, and starts in the "Malecon" (pier) and extends to the Plaza de la Revolución (The Revolution Square). Well, first thing that you can see clearly in the streets: no Coca-Cola and Pepsi commercial posts... not even beer. Nothing. Nada. Instead of that there was political propaganda. There were plenty of people wandering around the streets. Some of them looked like they had nothing to do.

While walking, a guy, who was wearing the traditional "guayabera" shirt, and who was a few steps in front of me dropped his keys. I picked them up for him, and we started talkking. Jose is a ophthalmology technician (do you write this like that in english??? Katherine help!). Well, he appears to be a nice guy, and he told me that he has a couple of Venezuelan patients (yes, my Venezuelan accent revealed my origin). Venezuelans nowadays are welcomed in the Island. I guess it was always like that. Venezuela and Cuba always had good relationships, and many things in common: Salsa, baseball, food... But I guess that Chavez policies towards Cuba and against USA are being seen with good eyes among the average cuban, and this makes them respect even more their venezuelan tourists. Well, I asked Jose where can I but the local press. He told me to follow him, he will take me to a kiosk nearby. In the meanwhile we started to talk a little bit about politics, and about how Jose loves so much Fidel and thanks the revolution. However, just before saying goodbye he asked me if I can give him 2 C.U.C (this is 2 convertible pesos), which is a bit more than USD $4. He told me he need the money to buy milk to his little daughter. I had no Cuban money with me and it was a very embarassing situation. I gave him some cents which I had in my pocket from yesterday's change, and he left. At that point I understood two things: (1) he was not that happy with the regime and (2) that he probably droped his keys intentionally. Ahhh... just for the record: there was no kiosk in the area.

The "Comités de Defensa de la Revolución" or CDR (committees for the defense of the revolution) are everywhere. In every wall, they have their motto and official graffiti. Messages such as: "Revolution for every neighborhood!", "Alert and combative!", etc. The CDR's are groups organized in some sort of hierarchy at levels ranging from streets to neighborhoods, municipalities and cities. I think that the original idea was to give some sort of soberany to the people and influence easilly to the upper levels. The CDRs are in charge of local issues, and it is composed by the neighbors themselves. Outside of Cuba, the CDRs are also known as having some sort of intelligence role, by using the same infrastructure to spy on the neighbors that might be involved in any kind of contra-revolutionary activity.

CDRs presence in La Habana

The monetary system is almost impossible to understand. There are basically two currencies in Cuba. The Cuban Peso, which by that time its value was 24 pesos per dollar. The average Cuban worker earns about 400 cuban pesos per month. There is also the convertible unit (CUC), which is the money for tourists. The exchange rate is basically 0.9 CUC per one dollar, and it is fixed. What does that mean? That the CUC is a dollar, but the government takes a comission of 10 cents for each dollar exchanged. This is a lot of money people. Specially because not only tourists use this currency, but cubans themselves. My next task was to inquire further about the currency...

I went to 18 and B street to buy some fruit, as Roberto suggested. The place is a fruit market in cuban currency (pesos). There were several stands, each one of them selling fruits, vegetables and even plastic bags (for sale). In the surroundings there were "juguerias" - natural juices stands - which also included lunch for sale for about 20 pesos (less than a dollar). The interesting thing was that the lunch did not came with fork and knife, so people improvise some sort of fork with using paper, or either bring a spoon from their place. I keep walking along 17th street. By coincidence, I saw the building of the Jewish Sepharadic congregation of Cuba. I got in and introduced myself to Raquel, who was the director general of the congregation. She showed me around, and we talked a little bit about the difficulties of the Jewish community in Cuba. I asked her also where can I buy a toothbrush? I forgot mine in Venezuela (so that morning I had to improvised a new technique on brushing my teeth without a toothbrush). She opened a drawer, and offered to give me one toothbrush. There were many other things in the drawer that the congregation gives to its members regularly. I of course thanked the offer, but refused to accept it. Raquel, a physician, showed me the synagogue, and a Sefer Torah which is 3 centuries old. The synagogue was in very good state. I thanked Raquel and went back walking around the city.

In the streets I noticed several brahnces of CADECA - the official currency exchange organism in Cuba. There I saw Cubans - not only tourists - geting CUC (or "chavitos") in exchange for dolars. The economy lives in CUCs. Cubans receive dolars from their families abroad, and they change them to the local currency to buy things. Of course, they can buy with their dolars either CUCs or Cuban pesos. Most of them buy CUCs. The reason is that the supply of products in Cuban pesos is scarce, and most places sell things in CUC (which is very very expensive for Cubans, since the prices are similar to prices everywere else). I then entered to a subterranean place which was a warehouse full of electric appliances. It seems like Cubans were allowed to change electronic appliances for newer ones to overcome the energetic crisis of the island (newer electronic appliances save more on energy). I did not understand how did they pay for them (in what currency) and did not want to ask, because Roberto told me not to ask too much, since someone could come to me and say that I am "getting out of the touristic context".

It was already passed the afternoon, and I went back to my room, since I was supposed to visit that night the other Jewish Community located in Patronato, which organizes each tuesday an encounter between young adults. After taking a shower, Roberto's son waited for me and together we had a ride with the president of the sepharadic community in his old car from the decade of the thirties. There I meet some Cuban friends I met before in the year 2003 in Guatemala and other friends I met in Israel. That night I went with two friends to Habana Vieja (downtown Habana) to have something to drink and eat.

To go to Habana Vieja we traveled on an "American Car", which is a shared taxi that goes along the same route all the time (very old cars of course). My friends told me to shut up, since tourists usually don't take these cars, and they shoudl travel in taxis which charge you in CUCs. The American Car charges each passanger 10 cuban pesos. There in the Habana Vieja I invited them to have something to eat, and we walked around a bit. They took me to the Hotel Raquel. It is a hotel with lot of Jewish things in the decoration. I asked them about why do Cubans cannot stay in hotels (actually now, in 2008, Raul Castro already changed the laws so that Cubans are allowed to stay in Hotels). The answer was very simple: while some Cubans can afford staying at a hotel, others cannot, and this could alter the levels of socio-economic inequality in the Island. But, it is a fact that Cubans can enter Hotels, and can eat at places which are 'meant' for tourists (meaning places in which you pay with CUCs). I got in to such places with them. But they usually don't go because it is very expensive for them.

Me with my two Cuban friends in a pub that produces its own beer.

I asked them also: where do people get money from? How can they have CUCs? Well, as I thought: most of them get the money from families in the 'exile'. The government allows this because they earn 10 cents for each dollar. All cubans find somehow a way to survive. Either by receiving money from abroad (most of the cubans have someone in the exile), or by making their own business for which they have to pay very high taxes (as a counter incentive not to open a business) - like the one Roberto has. There is also crime: one of my friends told me how a gold stake in Jose Marti's statue was stolen, similarly to a diamond in Cuban's old parlament building.

Already late at night, American Cars are not available anymore, and we got no other option than to take a 'tourists' taxi: most of them Lada models from the nineties. I went back to my room exahusted, and thanked my two friends for their time...

Cuba - Day 1

It is time to write a little bit about socialism... isn't it?

Well, this post is based on writings I made on my trip to La Habana in September 2006. While visiting my family in Venezuela, I decided to pack my stuff, and have a 4-days long visit to La Habana Cuba. Since there are lots of things to write about, I will divide this in several parts, each part describing each day of my visit.

Well, many people asked me "What the hell are you going to do in Cuba?, go any other place!, don't leave your money to Fidel!"... I think this argument is a little bit silly. I can assure that most of the people that told me this - if not all of them - buy many products made in China per year, helping the Chinese economy... I remember to all of you, that China declares itself as a communist country. However, my reason to go to Cuba is not that I have sympathy to communist regimes, but I have what I call "historic curiosity". I want to see and understand historic processes, which don't seem that are going to be there forever, with my own eyes. Unfortunately, it is impossible to visit Moscow of the eighties... and did not want to miss the opportunity of seeing Cuba (while Fidel was still El Presidente).

Everything started from the plane when I arrived to Habana close to midnight. I could hardly see light over the island. Closer to Habana I could see more light, but still much less than any capital city of another Latin American country. The airport was almost empty at midnight. Many flags hang on the main hall of the airport, and surprisingly USA and Israel among them.

The main hall of Habana's International Airport

The immigration process was kind of weird I must say. The immigration officer asked me to show her my ticket out of Cuba... maybe she suspected that my intentions were to stay in Cuba as a foreign illegal worker forever. In any case, I gently asked her not to seal my passport, to which she answered me quite angry:

-"We do not stamp passports sir, why do you ask?"
-"Well, they told me that I have to ask in immigration not to stamp it", I said
-"Ahhh... so they told you...", she replied with a "I understand you are influenced by the empire" tone.

In any case, she let me in and I arrived to the customs area. All the passengers, without exceptions, went through an X-rays machine and a manual body check with metal detectors. Our hand bags went through the same process. It was a typical airport routine, but with one difference: in other airports the check is before boarding the plane, and not when arriving to the country.

After that we went to pick up our luggage. Each bag also was meticulously inspected by custom officers before reaching the luggage carousel. Frequently, customs officers put aside one bag without letting it reaching the passengers. I never understood what happened with those bags.

Many of the Cubans that were in my very same flight brought from Panama electrical appliances, hinting two things: (1) that they have money to buy them, and (2) it was a very common thing, as the customs officers appeared to be indifferent to that.

After giving my customs declarations to the officers standing at the exit, one taxi driver offered me to take me to my destination for USD $20. On the way we talked about the city, and he talked about how much he admires president Chavez. He also praised Chavez's speech at the Generaly Assemly of the UN only a couple of days before that (the one in which he said that the General Assembly hall smells like sulphur because the Devil - Bush - was there yesterday).

The road to the city appeared to be relatively short. It was full of factories and old industries, which seemed to be completely deserted. There were very few cars in the streets, all of them very old. I saw also a few people in the streets (it was already about 1am) talking and walking, which is not a common phenomenon in Latin cities, or at least not in Caracas.

We reached my destination, street E 104 between Calzada and 5ta, and we waited long time until we woke Roberto up, thanks to our loud calls and me ringing the bell several times. Roberto rents a room in his house for tourists, and this is a legally established business in Cuba. My friend Enrique suggested me to stay there, and the payment was much cheaper than a hotel - USD $25 per night. The conditions, I must say, were very good. Much better than I imagined. Well, even thought I called Roberto some days before, he was expecting me to come earlier, therefore he was not awake. He opened the door and give me the keys to my room.

Exahusted from the trip, I went to sleep...

On ultraorthodox jews and ancient tribes in Africa

I was talking to my ex-boss a couple of weeks ago about economic development. We talked about how the west tries to promote public policies that induce economic growth and a better "quality of life" on the less developed regions.

He told me "You know, I saw a poll the other day about happiness, and the Jewish ultra-orthodox sector (in Israel) was the happiest one... So why do you want them to go and study, or to go and participate in the labor force? They are happy just the way they are". Well, two things should be taken into consideration:
1) My ex-boss is himself a religious guy (not an ultra-orthodox, but of course that he has some kind of sympathy towards them).
2) I am not a big believer of polls. Moreover, I am not a believer of polls when they try to measure something that is unmeasurable, like happiness.

What is happiness? How do you measure it? Ultra-orthodox Jews, together with Israeli Arabs, are the poorest sectors of society in Israel. Not only in terms of money, but also in terms of education. So, how come they are happy??? But on the other side, if they are that happy, why do they need political parties that promote laws for their sector. But this is an issue for another debate.

Well, economists are aware of the difference between wealth and happiness. People are not better-off by how much money they make, but how much utility they have from consumption, leisure, human capital, having children, etc. However, our mistake is that we think that the utility function of most human beings are similar in their components. For example, everybody enjoy consumption. Is this a fact? I am not sure.

Another example is the one that came up in a conversation with two fellow students: M and R. They are very bright, so they deserve to be immortalized in the web pages of my blog. Take for example a lost tribe in Africa. Maybe they have higher utility than any average new yorker well positioned family. Who says that if we introduce to that tribe schools, hospitals and more efficient markets they will be better-off?

Well, there are some possibles answers. First, the tribe is happier in terms of what they know. Is this so? For example, let's assume that the well positioned family can afford living as the tribe. Why don't they do that? Maybe this means, by revealed preferences (see the previous post) that living near central park with 2 BMW's is making them better-off. On the other hand, the tribe cannot afford living in Manhattan, probably. So, in terms of what they have they are the happiest, but because they don't know that they could have a better quality of life.

However, maybe if we give the tribe air tickets to New York and a place to stay in Manhattan, they will probably ask us to go back to their little place after a while.

So here we are talking about culture. The quality of life that we are used to have in the west also affects the culture we live in and the same happens the other way around: culture affects the quality of life. So the debate turns to be more difficult. What culture is better? How do you measure 'culture efficiency' or whatever?

I think there is no way to do so.... And probably given their culture, the tribe in Africa and the ultra-orthodox Jews are the happiest. But, maybe (as my friend M said yesterday), the incentive to induce a change in these societies is not necessarily for their sake, but for ours. If ultra-orthodox Jews will increase their labor supply, and will have better schooling indicators, this will have a positive impact on the economic indicators of Israel. Although they won't be necessarily better-off, we will. And if the society as a whole will be, is it worth to induce the changes in these societies?

This is already not a dilemma for economists... or at least not for me.

In the meanwhile, I will start thinking about the next topic...

The Kibbutz

I just came from the festive dinner marking the last day of the 19th summer school in economic theory at the Hebrew University. I saw Kenneth Arrow, an economics Nobel price laureate, and one of the most brilliant minds of the world, being called by the waiter to serve the rice... well, he actually did not serve it, but he opened the large pot. In any case, I never thought that I could be having dinner with seven Nobel price laureates and talk about nothing...

In any case, things that one never thought that could be happening, can actually happen. As the pioneers who came to Israel in the fifties and founded the kibbutzim, it was not possible seeing the kibbutz falling apart as they are today (or at least most of them).

Well, it is not my intention to explain why kibbutzim are falling apart, but here is an interesting story. Last Friday, I went to a Kibbutz near Jerusalem to have dinner at my neighbor's family. I became very good friends with my neighbor who is a very nice girl who also studies at the Hebrew U.

The kibbutz has been almost fully privatized. I don't know exactly how is the income from the kibbutz activities distributed, but I do know that the kibbutz members keep their wages as they are (either if they work inside or outside of the kibbutz).

One of the decisions is that the kibbutz land will be divided among its members. Also, they are transferring the ownership of the houses from the kibbutz to the families. Since houses are on land (duh!), families that receive ownership on their house, are receiving also ownership on the land below it. Ok, so problem solved you may think. Let's give to everybody their house and their little garden so that they can seed tomatoes in it.

Well, guess what? There are some houses with two stories, and two families living there - one on each floor. So, what can we do there? We can give ownership per floor, but each family will receive half of the land that belongs to them.

So I have a solution. Let's cut the house in two, and wait for the immediate response of the families. The first that says "NO! GIVE THE HOUSE TO THE OTHER FAMILY, WE PREFER THE HOUSE NOT BEING DESTROYED" are the winners! They keep the house.

Ok, this won't work. Actually, also the strategy of King Solomon wasn't perfect. Maybe the fake mother is also a good human being, and prefer that the child will stay alive, and she was also faster in her response. It is not that we go on the street and we are totally indifferent to murderers who kill everybody but our sons...

In any case, the question is: which family is keeping the house? The one who lives in the upper floor or the other one? How do you take a fair decision?

Well, the decision was based on kibbutz tenure. The family who has been a member of the kibbutz for a longer period of time, is the one keeping the house. The other family will receive land to with a new house.

Total justice or total catastrophe? Maybe the second. Families (of course those who are not keeping the house) are going to the court to sue the kibbutz for the decision. Even though they are receiving a new place, most of them prefer to stay in their current house, which is located in a better spot. So look at the irony. The kibbutz: the big, strong, happy and indivisible family... this is what happening 60 years later. The own members who founded the kibbutz are suing the same kibbutz, because of private property issues...

The kibutztroika is an unavoidable process. Since kibbutz members know about quality of life outside the kibbutz, does this mean that they are revealing their preferences? Economic theory explains about the revealed preference. If you have 5 bucks, and you can buy either a cup of coffee or a cup of tee, and you decide for the coffee, then I can understand from that behavior that you prefer a cup of coffee over a cup of tea, and that actually, the coffee makes you happier than the tea.

If kibbutz members can still maintain their lives inside of the kibbutz but they have decided to have an "out of the kibbutz" life... Is this a reason to think that the free market is better than the socialism of the kibbutz? Or maybe they can't maintain the kibbutzim as they are? Is it because that the rate of return to agriculture has significantly dropped since these kind of jobs do not require high levels of human capital? Who knows... I can't answer this question, and probably neither can you, but this could be a nice discussion.

In any case, as I just told Prof. Arrow walking out of the restaurant: "Thanks! The rice was wonderful!"

Here you can see a small report on the kibbutz: