Thursday, January 3, 2008
My Mint Article on pricing public services
Here is my op-ed piece in Mint about how differential pricing can reduce corruption in public service delivery.
Wednesday, January 2, 2008
Why obesity is more prevalent among the poor?
The NYT reports about a study by University of Washington researchers, which has found that calorie for calorie, unhealthy, energy-dense, junk food is much more cheaper than low calorie vegetables and fruits. This coupled with the fact that junk food prices are less likely to rise as result of inflation, makes the researchers conclude that the poor are more susceptible to obesity.
A survey of 370 foods sold at supermarkets in the Seattle area found that higher-calorie, energy-dense foods are the better bargain for cash-strapped shoppers. Energy-dense munchies cost on average $1.76 per 1,000 calories, compared with $18.16 per 1,000 calories for low-energy but nutritious foods. The survey also showed that low-calorie foods were more likely to increase in price, surging 19.5 percent over the two-year study period. High-calorie foods remained a relative bargain, dropping in price by 1.8 percent. The study also found that a 2,000-calorie diet would cost just $3.52 a day if it consisted of junk food, compared with $36.32 a day for a diet of low-energy dense foods. The average American spends about $7 a day on food, although low-income people spend about $4.
Dr Adam Drewnowski, Director of the Center for Public Health Nutrition at the University of Washington claims in an article, "Diets composed of refined grains, added sugars, and added fats are more affordable than diets based on lean meats, fish, fresh vegetables and fruit. There is an inverse relationship between energy density (kJ/g) and energy cost ($/MJ), such that energy-dense foods also provide the most dietary energy per dollar. Good taste, high convenience, and even more important - the low costs of sweets and fats may indeed lead to over eating and weight gain. Not surprisingly, the highest rates of obesity are found among population groups with the highest poverty rates and least education."
It is easier to overeat junk food, both because it tastes good and because eaters must consume a greater volume in order to feel satisfied. Still, even those who consume twice as much in junk food calories are still spending far less than healthy eaters. Dr. Drewnowski says, "Not only are the empty calories cheaper, but the healthy foods are becoming more and more expensive. Vegetables and fruits are rapidly becoming luxury goods."
There have been numerous arguments made in favor of an obesity tax obesity tax that would penalize such high energy, junk foods. Dr. Drewnowski's studies support the claim and reinforces the socio-economic explanation for obesity. There is a case for using this tax to partially finance food subsidies.
But any imposition of an obesity tax will have to be seen in the light of the impact of the consequent price rise on the poor, given their dependence on such foods. This in turn has to be balanced with the resultant health benefits and savings on health care costs, which will reduce the total cost incurred by the poor.
A survey of 370 foods sold at supermarkets in the Seattle area found that higher-calorie, energy-dense foods are the better bargain for cash-strapped shoppers. Energy-dense munchies cost on average $1.76 per 1,000 calories, compared with $18.16 per 1,000 calories for low-energy but nutritious foods. The survey also showed that low-calorie foods were more likely to increase in price, surging 19.5 percent over the two-year study period. High-calorie foods remained a relative bargain, dropping in price by 1.8 percent. The study also found that a 2,000-calorie diet would cost just $3.52 a day if it consisted of junk food, compared with $36.32 a day for a diet of low-energy dense foods. The average American spends about $7 a day on food, although low-income people spend about $4.
Dr Adam Drewnowski, Director of the Center for Public Health Nutrition at the University of Washington claims in an article, "Diets composed of refined grains, added sugars, and added fats are more affordable than diets based on lean meats, fish, fresh vegetables and fruit. There is an inverse relationship between energy density (kJ/g) and energy cost ($/MJ), such that energy-dense foods also provide the most dietary energy per dollar. Good taste, high convenience, and even more important - the low costs of sweets and fats may indeed lead to over eating and weight gain. Not surprisingly, the highest rates of obesity are found among population groups with the highest poverty rates and least education."
It is easier to overeat junk food, both because it tastes good and because eaters must consume a greater volume in order to feel satisfied. Still, even those who consume twice as much in junk food calories are still spending far less than healthy eaters. Dr. Drewnowski says, "Not only are the empty calories cheaper, but the healthy foods are becoming more and more expensive. Vegetables and fruits are rapidly becoming luxury goods."
There have been numerous arguments made in favor of an obesity tax obesity tax that would penalize such high energy, junk foods. Dr. Drewnowski's studies support the claim and reinforces the socio-economic explanation for obesity. There is a case for using this tax to partially finance food subsidies.
But any imposition of an obesity tax will have to be seen in the light of the impact of the consequent price rise on the poor, given their dependence on such foods. This in turn has to be balanced with the resultant health benefits and savings on health care costs, which will reduce the total cost incurred by the poor.
Craze for Indian schools in Japan!
The NYT carries an article about how Indian schools are fast becoming a craze in Japan. The Japanese see India's demanding learning schedule, with its focus on learning more at an earlier age, memorization and cramming, and emphasis on the basics, particularly in math and science, as the reasons behind its success in knowledge-based sectors like software, biotechnology and finance.
Tuesday, January 1, 2008
Rating NGOs
India is home to some of the largest number of NGOs working in social and other charitable causes. It is estimated that there are between 1 to 2 million NGOs operating in diverse fields like education, health, housing, micro-finance, disabled and old aged welfare, agriculture, environment, disaster reilef etc. Most of them are involved in the development arena and are active participants in poverty mitigation and eradication efforts. Though the majority of NGOs are funded by private capital, a significant number of them receive some form of government grants. Except for a few large ones, the overwhelming majority of NGOs are small.
Despite the large number of NGOs working in every sector, there is very little information about the effectiveness of these organizations in achieving their goals. Numerous studies have shown, and I have seen a number of them, that NGOs are not immune from the usual malaise that afflicts government agencies. Further, given their small size and limited reach, NGOs are most effective when they are able to establish successful demonstration examples for effective delivery of a welfare service or a development activity or indulge in awareness creation and capacity building activities. Such experiments senitize local citizens, build awareness and develop demand side pressures, and help Government agencies identify the weaknesses in their delivery channels and systems. Instead we find numerous examples of NGOs trying to replicate the role of Government and compete with Government in delivering development related services and activities, thereby failing to achieve their desired objectives.
It is therefore important that we develop mechanisms to judge the performace of NGOs against their stated objectives. How effective are they? Have their actions had the desired demonstration effect? How scalable are their activities? Have their activities increased the awareness among the target group? What has been the impact of its performance on the effectiveness of Government? How have the outcomes improved in the area and the sector, since the NGO started activities? How much value for money do the NGOs activities deliver? How do charities compare in their spending on administration?
If we have credible enough rating of the performance of NGOs in each area and sector, we could indeed have a market in raising donations for charitable causes. Wealthy and willing donors would not need to scout around before donating their money. In fact, they can choose the location and activity of their choice and be rest assured that their contributions are well spent.
It will also go a long way in generating healthy competition between NGOs and improving the performance of many inefficient NGOs. Such competition will improve the economic efficiency of NGOs and ensure that they spend more of their resources on addressing their main objectives than on administration. The ineffective and inefficient ones will not be able to attract funds and will slowly leave the field, while the effective and well run NGOs will be able to attract more funding and expand their activities. Governments will also find it easier to channel scarce Government grants to the well functioning NGOs. A rating agency will be the first step, but probably the most improtant one, in ensuring proper regulation of the NGO sector.
The NYT carries a story of hedge-fund analysts, Holden Karnofsky and Elie Hassenfeld, who have floated the world's first charities rating agency. GiveWell, with only these two employees, studies charities in particular fields and ranks them on their effectiveness. It is in turn supported by a charity they created, the Clear Fund, which makes grants to charities they recommend in their research.
Do not be surprised if we have in the near future, income tax deductible charity funds, floated by organizations like Clear Fund, with the specific objective of raising philanthropic contributions for a specific cause or a bouquet of charitable causes. How about a Primary Education Fund, floated by Education Foundation, aimed at soliciting philanthropic contributions from those interested in helping improve primary education!
Update 1
Peter Singer has this in the Project Syndicate about the difficulty in evaluating charities, "Evaluating charities can be more difficult than making investment decisions. Investors are interested in financial returns, so there is no problem about measuring distinct values – in the end it all comes down to money. It is more difficult to compare the reduction of suffering brought about by correcting a facial deformity with saving a life. There is no single unit of value. "
With about $200bn given away to charities by individual donors, the importance of rating charities is bound to increase.
Update 2
How about rating micro-finance institutions? Especially since Daniel Akst feels that the best way to donate $1 is to give to micro-finance institutions.
Despite the large number of NGOs working in every sector, there is very little information about the effectiveness of these organizations in achieving their goals. Numerous studies have shown, and I have seen a number of them, that NGOs are not immune from the usual malaise that afflicts government agencies. Further, given their small size and limited reach, NGOs are most effective when they are able to establish successful demonstration examples for effective delivery of a welfare service or a development activity or indulge in awareness creation and capacity building activities. Such experiments senitize local citizens, build awareness and develop demand side pressures, and help Government agencies identify the weaknesses in their delivery channels and systems. Instead we find numerous examples of NGOs trying to replicate the role of Government and compete with Government in delivering development related services and activities, thereby failing to achieve their desired objectives.
It is therefore important that we develop mechanisms to judge the performace of NGOs against their stated objectives. How effective are they? Have their actions had the desired demonstration effect? How scalable are their activities? Have their activities increased the awareness among the target group? What has been the impact of its performance on the effectiveness of Government? How have the outcomes improved in the area and the sector, since the NGO started activities? How much value for money do the NGOs activities deliver? How do charities compare in their spending on administration?
If we have credible enough rating of the performance of NGOs in each area and sector, we could indeed have a market in raising donations for charitable causes. Wealthy and willing donors would not need to scout around before donating their money. In fact, they can choose the location and activity of their choice and be rest assured that their contributions are well spent.
It will also go a long way in generating healthy competition between NGOs and improving the performance of many inefficient NGOs. Such competition will improve the economic efficiency of NGOs and ensure that they spend more of their resources on addressing their main objectives than on administration. The ineffective and inefficient ones will not be able to attract funds and will slowly leave the field, while the effective and well run NGOs will be able to attract more funding and expand their activities. Governments will also find it easier to channel scarce Government grants to the well functioning NGOs. A rating agency will be the first step, but probably the most improtant one, in ensuring proper regulation of the NGO sector.
The NYT carries a story of hedge-fund analysts, Holden Karnofsky and Elie Hassenfeld, who have floated the world's first charities rating agency. GiveWell, with only these two employees, studies charities in particular fields and ranks them on their effectiveness. It is in turn supported by a charity they created, the Clear Fund, which makes grants to charities they recommend in their research.
Do not be surprised if we have in the near future, income tax deductible charity funds, floated by organizations like Clear Fund, with the specific objective of raising philanthropic contributions for a specific cause or a bouquet of charitable causes. How about a Primary Education Fund, floated by Education Foundation, aimed at soliciting philanthropic contributions from those interested in helping improve primary education!
Update 1
Peter Singer has this in the Project Syndicate about the difficulty in evaluating charities, "Evaluating charities can be more difficult than making investment decisions. Investors are interested in financial returns, so there is no problem about measuring distinct values – in the end it all comes down to money. It is more difficult to compare the reduction of suffering brought about by correcting a facial deformity with saving a life. There is no single unit of value. "
With about $200bn given away to charities by individual donors, the importance of rating charities is bound to increase.
Update 2
How about rating micro-finance institutions? Especially since Daniel Akst feels that the best way to donate $1 is to give to micro-finance institutions.
Monday, December 31, 2007
New "Shanghai" In South Korea
In what is the largest master planned city anywhere in the world, the New Songdo City is being developed on the western coast of South Korea, 40 miles from Seoul, on 1,500 acres of landfill that just a few years ago was water. The project is being developed by a private entity, New Songdo International City Development, a joint venture of Gale International, based in New York, and Posco Engineering and Construction of South Korea. It is claimed that Songdo will be the first "new" city in the world designed and planned as an international business district, and it could be to northeast Asia what Shanghai is to southeast Asia.
New Songdo will cost an estimated $30 billion to build, atop the $10 billion that the city of Incheon and the Korean government are spending on infrastructure projects. This will make it easily the largest private development project anywhere in the world. New Songdo is expected to open its doors in August 2009, when the first phase of construction, including the bridge and city center, is completed. The project is expected to wrap up by 2015.
The Master Plan, designed by world-renown architects Kohn Pedersen Fox (KPF), contains elements of other landmark cities while creating a new, unique blend - a "Synergy City." Cities like Sydney Venice, Paris, New York and London all have served as blueprints of specialized designs that contributed to Songdo's overall structure. A "Synergy City" is one that contains all of the major functions that are needed to support the needs of those who live and work there.
It will have Venice’s canals, New York’s Central Park, the broad tree-lined boulevards of Paris, the colorful shopping bazaar of Marrakesh, Morocco, the pocket gardens of Savannah, Ga., and an opera house like the one in Sydney, Australia. There will also be a seven-mile bridge that will link New Songdo to Incheon International Airport, off the coast.
Water is recycled city wide, energy produced locally, and the Central Park is planted with low-maintenance native plants and trees. There will also be bicycle paths and pedestrian areas, and 40 percent of the city is reserved for parks and green space. The city's plan includes fifty million square feet of office space - including a landmark 65-story Tower and Convention Center, thirty million square feet of Residential Space, ten million square feet of Retail, five million square feet of Hotel Space and ten million square feet of green space.
The South Korean government has designated the area as a free economic zone, a bilingual city (Korean and English) where foreigners can own land and run schools and hospitals and where companies can get relief from Korean taxes and bureaucracy. It is hoped that Songdo will act as the business hub for multinational companies in Northeast Asia.
Though the financing details of the project are not known, it is likely to be one of the most innovative ever financial structuring. It the latest example of those grandiose development projects that have now become the trademark of East Asia.
New Songdo will cost an estimated $30 billion to build, atop the $10 billion that the city of Incheon and the Korean government are spending on infrastructure projects. This will make it easily the largest private development project anywhere in the world. New Songdo is expected to open its doors in August 2009, when the first phase of construction, including the bridge and city center, is completed. The project is expected to wrap up by 2015.
The Master Plan, designed by world-renown architects Kohn Pedersen Fox (KPF), contains elements of other landmark cities while creating a new, unique blend - a "Synergy City." Cities like Sydney Venice, Paris, New York and London all have served as blueprints of specialized designs that contributed to Songdo's overall structure. A "Synergy City" is one that contains all of the major functions that are needed to support the needs of those who live and work there.
It will have Venice’s canals, New York’s Central Park, the broad tree-lined boulevards of Paris, the colorful shopping bazaar of Marrakesh, Morocco, the pocket gardens of Savannah, Ga., and an opera house like the one in Sydney, Australia. There will also be a seven-mile bridge that will link New Songdo to Incheon International Airport, off the coast.
Water is recycled city wide, energy produced locally, and the Central Park is planted with low-maintenance native plants and trees. There will also be bicycle paths and pedestrian areas, and 40 percent of the city is reserved for parks and green space. The city's plan includes fifty million square feet of office space - including a landmark 65-story Tower and Convention Center, thirty million square feet of Residential Space, ten million square feet of Retail, five million square feet of Hotel Space and ten million square feet of green space.
The South Korean government has designated the area as a free economic zone, a bilingual city (Korean and English) where foreigners can own land and run schools and hospitals and where companies can get relief from Korean taxes and bureaucracy. It is hoped that Songdo will act as the business hub for multinational companies in Northeast Asia.
Though the financing details of the project are not known, it is likely to be one of the most innovative ever financial structuring. It the latest example of those grandiose development projects that have now become the trademark of East Asia.
Sunday, December 30, 2007
REITs in India
Last week SEBI announced that Real Estate Investment Trusts (REITs) would be permitted in India from early next year. REITs are mutual funds investing in real estate, and whose values are dependent on the values of the property it holds. As per the draft regulations unveiled, the REIT should be in the form of a trust created under the Indian Trusts Act, and the trustees should be either a scheduled bank, trust company of a scheduled bank, public financial institution, insurance company, or a corporate body. Every REIT launched should appoint an independent property valuer who will value all the real estate under the scheme, after field verification. They will all be closed-ended schemes, and will be listed on the stock exchanges.
Apart from giving a big boost to construction activity, broadening the real estate market, and making real estate a more organized business activity, REITs may have two major long term consequences
1. It will be a major step in bringing the actual market rates of property in line with the registration basic values. Presently land registrations are done at rates which are much below the actual transaction value. This differential, which comes from and goes into the black economy, is large proportion of the undercover economy. REITs will be a major step in rolling back this market.
2. By listing in the stock exchanges and with valuations reflecting the actual market values, REITs will facilitate market based price discovery for properties and the cost of financing home purchases. Presently there are no means of arriving at the market prices and financing rates.
Apart from giving a big boost to construction activity, broadening the real estate market, and making real estate a more organized business activity, REITs may have two major long term consequences
1. It will be a major step in bringing the actual market rates of property in line with the registration basic values. Presently land registrations are done at rates which are much below the actual transaction value. This differential, which comes from and goes into the black economy, is large proportion of the undercover economy. REITs will be a major step in rolling back this market.
2. By listing in the stock exchanges and with valuations reflecting the actual market values, REITs will facilitate market based price discovery for properties and the cost of financing home purchases. Presently there are no means of arriving at the market prices and financing rates.
Sport telecast rights
The Economic Times reports that the introduction of pay-and-view format in China for the English Premier League (EPL) football games, has resulted in a precipitious decline of viewership from 30 million to a mere 20000. The Broadcaster, WinTV, which bought telecast rights to the hitherto free EPL matches for a period of three years, are charging $80 (or 588 yuan) every year for each connection. The huge fall in viewership has not only hit WinTV, but also affected the EPL clubs themselves, who had spent millions in courting the massive Chinese market for EPL merchandise.
This is an excellent example of how monopoly pricing has almost wiped out a very vibrant and huge market. It is also an object lesson for sports administrators across the world to be not blinded by the huge telecast rights offered, which may like the aforementioned example, kill the goose that lays the golden eggs. A sporting event without viewership is something similar to a classroom without students.
There may be lesson to be learned for sports administrators from the example of online newspapers and magazine, which increasingly offer all their content free and rely on online advertisements for revenue. There is a very strong case for adopting a similar model for telecasting sporting events. In any case the proportion of money from viewership susbscription is small when compared to the potential advertisement revenues. As numerous studies have repeatedly shown, the critical determinant in the success of any advertising campaign is to get a captive viewership for the advertisement. It is therefore in the interest of any company to pay more for an advertisement platform that is able to capture a big viewership. Popular team sports are one of the best examples of such platforms. Pay-and-view format defeats this objective.
The case becomes all the more compelling for very popular team sport like cricket in India, Football in China and Europe, Baseball and Basketball in the US.
This is an excellent example of how monopoly pricing has almost wiped out a very vibrant and huge market. It is also an object lesson for sports administrators across the world to be not blinded by the huge telecast rights offered, which may like the aforementioned example, kill the goose that lays the golden eggs. A sporting event without viewership is something similar to a classroom without students.
There may be lesson to be learned for sports administrators from the example of online newspapers and magazine, which increasingly offer all their content free and rely on online advertisements for revenue. There is a very strong case for adopting a similar model for telecasting sporting events. In any case the proportion of money from viewership susbscription is small when compared to the potential advertisement revenues. As numerous studies have repeatedly shown, the critical determinant in the success of any advertising campaign is to get a captive viewership for the advertisement. It is therefore in the interest of any company to pay more for an advertisement platform that is able to capture a big viewership. Popular team sports are one of the best examples of such platforms. Pay-and-view format defeats this objective.
The case becomes all the more compelling for very popular team sport like cricket in India, Football in China and Europe, Baseball and Basketball in the US.
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