Spice Girls cut short world tour ...

"... owing to the phenomenal demand for tickets".

[source: BBC News]

In a competitive market, with variable prices, high demand pushes up the price which then triggers further supply. In a closed market, with fixed prices, high demand may have the paradoxical effect of reducing supply.

If the Spice Girls earn more than they expected from the first few concerts, this might have motivated them to put on even more concerts. On the other hand, it might mean they can't be bothered even to complete the concerts that were on the schedule.

And of course we should always question the data. What exactly is meant by the word "phenomenal"? Does it mean surprisingly high ... or surprisingly low? Here's what Wikipedia has to say on the subject of Anomalous Phenomena.

"Purported phenomena with explanations considered to be outside the scope of conventional science can be classified as paranormal phenomena. Because these anomalies are difficult to explain in terms of science, their existence is often challenged by skeptics."

Quite.


cross-posted to POSIWID blog

Market Forces and Effort

In a rational world, we might expect people to work harder when there is more demand for their labour, and take a rest when there is less demand. A recent study focused on taxi drivers because they have considerable autonomy over the number of hours they work. (Many other workers have rather less autonomy, and so their preferences are less easy to discern from their behaviour.)

We may suppose there is more demand for taxis when it is raining. Although taxi fares are fixed, economic theory still predicts some rebalancing of supply and demand. The total cost of a taxi ride to the passenger is higher when it is raining. This is because it takes longer to find a taxi, and it takes longer for the taxi to reach your destination (because of other traffic). The taxi-driver earns more money in an hour, because the cab is occupied most of the time. (On a sunny day he might drive around empty while people prefer to walk.) We should expect supply to go up, as taxi drivers work longer hours to take advantage of the higher demand. We might also expect taxi drivers to find leisure a more attractive option when the weather is good.

But this is not how taxi drivers behave. Many set themselves a daily revenue target, and they work until they have reached this target. On a rainy day, they reach this target more quickly and therefore go home earlier. They actually work longer hours on sunny days when business is slow.

source: BBC Radio Four
The Economy on the Couch
(December 2nd, 2004)

We can draw several important lessons from this.

1. People's behaviour cannot always be explained by economic theory. (Empirical observation of people and organizations may produce surprising results.)


2. In particular, economic incentives to work harder are not always effective. (Arguments for higher remuneration are almost always based on moral persuasion or political power rather than rational economics. This applies equally to executive pay and to shopfloor pay.)
   
   
3. The behaviour of a system may depend critically on the policies by which people choose to govern their behaviour. (In our example, the daily revenue target acts as a personal policy for each driver.)