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YouTube of Tyler Cowen speaking at Google, about Google
I was supposed to speak on Discover Your Inner Economist, but this was the morning after Google announced its backing of the lunar landing prize. They asked me about that, and here is what they got for an answer.
Thanks to Hakan A for the pointer.
Posted by Tyler Cowen on September 25, 2007 at 01:46 PM in Web/Tech | Permalink
Comments
Great talk.
That thing about "exploitation coffee" I don't fully understand. It seems pretty thorny..
- Companies only offer fair trade coffee if they make a profit: i.e., the benefit (premium extracted from consumers) is larger than the cost (the extra cost of treating workers better). But consumers don't care if the coffee company makes a profit, so shouldn't consumers shun this choice, buy cheaper coffee and give money to the workers directly through charity? Then you're not giving extra money to the coffee company.
- I understand that creating a tiered system ("good treatment" coffee vs. "exploitation" coffee) may at equilibrium be worse for the lower tier workers. So as a consumer you may want to "discourage" the tiered system. But how do you do this? You have to buy coffee from somewhere. Is buying fair trade coffee in the context of the tiered market really a bad option? Or are you proposing that at least buying the cheaper coffee bids up its price and undermines the tiered system?
Should I feel bad for exploiting the workers or should I feel good for bidding up the price? Should I register my protest that the worker treatment is too shoddy by buying the product so as to bid up the price? Or should I only buy "fairer" coffee to increase the profitability of treating people well?
Perhaps in the end, it's best to ignore these issues and use direct philanthropy?
Posted by: mk at Sep 25, 2007 4:39:44 PM
"Or should I only buy "fairer" coffee to increase the profitability of treating people well?"
That is the ticket!
I fail to see how not sending producers incentive signals to improve how they treat workers is supposed to help anybody?
In practical terms I doubt that there would be much of a down side for the badly treated workers. Given how globalized the coffee bean market is I suspect that if there is room for 10% of production to be fair trade in one country, markets in other countries will also react to this potential spreading the worker benefits of the fair trade beans market. And as more people buy fair trade the more there will be to go around for the workers.
Posted by: aaron_m at Sep 25, 2007 5:11:15 PM
About the fair trade coffee - I'd look at it from a price discrimination perspective, nothing more. There are consumers who are willing to pay upwards of 4$ for a cup of coffee (they don't particularly care for the small change, you know). How would Star Bucks or whoever else try to make them pay the fullest amount they are willing to pay? answer is to come up with some slogan and give those consumers a reason to pay say 5$ and they will, in all their eagerness.
I think the question of fair trade actually helping the low end coffee workers in South America or not, or by how much, is really besides the point.
Posted by: vikatakavi at Sep 25, 2007 6:06:42 PM
vik
All the fair trade products I know of are certified by an independent and non-profit organization that brings the trust aspect to the table. Why not actually check out some of these organizations to see how they do it.
This is necessary because consumers in this market are not as dumb as you assume. Unfortunately this also means that you are not as smart as your originally supposed.
Posted by: aaron_m at Sep 25, 2007 6:32:23 PM
aaron
I think that is a bit unfair on nik. I have very mixed feelings about "fair coffee" and nik has a point. Price discrimination plays a role for sure. Yes, the fair coffee organisations are credible and clearly have sincere motivations. But at the same time a lot of the premium on a cup of fair coffee goes directly from the cash register to the retailers bank account - they take a premium on the premium. There is really no way around this for the fair coffee suppliers I suppose. The argument is, the way I see it, that the buying of fair coffee gives incentives to the "explotation coffee" producers to move to fair coffee pratices. My view is that price is too big a motivating factor for consumers for it to work (though i hope i'm wrong).
In the same way that i don't avoid explotation food, shoes, (insert any number of consumer items)I still buy based on value for money regardless of where it comes from. Am I evil?
Posted by: clinton m at Sep 25, 2007 7:13:07 PM
Is that the correct pronunciation? I always assumed it was pronounced to rhyme with "cow".
Posted by: Shiraz Allidina at Sep 25, 2007 7:19:01 PM
clinton,
Your point on premiums is correct although I do not think I was unfair to vik, "I'd look at it from a price discrimination perspective, nothing more."
Evil no, but in general I think we tend to be morally lazy in many areas because we can get away with it. But that is not going to last forever...
Posted by: aaron_m at Sep 25, 2007 7:44:49 PM
"Cowen," as in milk from the cow...
Posted by: Tyler Cowen at Sep 25, 2007 8:11:41 PM
aaron
You're right. It was unfair of me to call your comments unfair. Clearly there is more to it than price discrimination alone. In this case I don't think I am being morally lazy (I think I mentioned that I had mixed feelings about it). I just don't think buying fair trade coffee necassarily helps (there are other reasons to buy it apart from a sincere beleif of helping the exploited). What would they be doing if they weren't being "exploited" growing coffee? Something even less attractive in the short term i'll bet. And shouldn't what money I do spend on coffee go towards the exploited? This is one case where regulation can (at least in the short to medium) and has helped in the past by orchestrating supply. I'm not firm in my thinking either way and it is a more difficult question than most people like to admit.
Posted by: clinton m at Sep 25, 2007 9:45:58 PM
I wish you would have addressed philanthropy for profit. Why is it that people insist that to do good you have to give stuff away. Philanthropy doesn't necessitate freebies, just helping others.
Look at microlending by Muhammad Yunus or Clinton's new thing. These efforts help individuals, society, and the philanthropist. So why do people have such a problem? The money the philanthropist skims is well offset by the good that wasn't previously happening. Not to mention the influence it has on other organizations interested in sustainability.
Regarding direct philanthropy: it definitely has a lower overhead, but it would be very hard to argue that is more effective than (competent) foundations. Buffet obvious felt that the Gates foundation could affect more change than he could alone - that is not too different than the average joe's rationale to give to the united way.
Posted by: Eric Hansen at Sep 25, 2007 10:42:51 PM
Prizes must be mega
I was pleased to see you arguing in favour of prizes to stimulate innovation. I've made the same point in relation to medicine, to supplement the existing incentives of grants and patents:
http://medicalhypotheses.blogspot.com/2007/07/mega-prizes-in-medicine.html
but people neglect the point that prizes must be *mega*-prizes, if we really want them to be effective incentives - to compensate for the risks. Most prizes I have seen are an order of magnitude too small to be really-effective incentives.
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I really loved this talk.
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