Monday, October 29, 2007

Why Buses in Jakarta Are So Unreliable?

Any of you even sat on a public bus (excluding Busway) in Jakarta would be familiar with the story.

The buses would stop and go slow when we want them to go quicker. They would put too much passenger in side. There is no telling when they will come even though, when you go to the bus terminal at the end of line there are a lot of them (ngetem). Some of the air con are not working properly.

Why can we have a decent and working bus like in our neighboring countries such as Malaysia and Singapore (Manila’s Jeepney is almost as bad as Jakarta) ?

The public and paying customer, supposedly, want comfortable and safe ride to destination. The bus drivers want money. There is nothing wrong with economic motive but where is the invisible hand?

But in Jakarta (I don’t know enough about other city in Indonesia) each bus driver collect money directly from passenger. So their objective function (to use economic jargon) is to maximize revenue with gasoline and (possible) police punishment as constraint.

They would not stop in the middle of the main street for 1 hour, except engine trouble, since doing so would attract costly fine from the police. But if waiting additional 10 minutes on the street side can enhance their passenger/revenue then wait they will.

But police and punishment can only go so far against economic incentive. What we need to do is change the incentive.

Let all bus become Busway. Not that all need special lane, but to pay a bus driver by a fix reasonable wages regardless of the number of passenger they carry. Don’t let passenger pay to drivers (put extra payment compare to buy ticket beforehand should reduce the practice sharply), they need to buy the ticket before get on the bus.

Thus, there is no incentive for the drivers to pack so many people inside the bus and to move incessantly slow. Incentive work at the margin

It doesn’t have to be have to be state owned company, just as long as the bus company care about their reputation and know holding it up will increase their revenue. We need to open the license for new bus company and we also need to get rid of part-time-and-occasional driver (supir tembak) since they care little about reputation (is a series of one shot game for them).

Then we can fix schedule and give bonus to drivers if the bus on time and penalty for being late (at least for departure time at endpoint). Let Jakarta have a decent public busses that we deserved and has been waiting for so long.

It doesn’t have to be like this forever.

Monday, October 22, 2007

So You Don’t Want To Regain the Lost Weight

So you lost some weight during the Ramadhan month and you afraid that the multiple Eid feasts on family and friend’s houses will (or already) bring back some added inches on your waist (and other places)

And there will be some halal bihalal meeting with family, friends and business partners. Such horrors.

What can you do about it? And what a marketing professor from Cornell can tell you?

Brian Wansink focuses his academic life to study how we decide and – and how much – to eat. Its not as silly as it first sound, food and beverages is a multi billion dollar business worldwide. Any cues that can make consumers eat more, and spend more money, mean some additional fat in the company's bottom line (pun intended).

In his book entitled Mindless Eating , some of his wisdoms at the table are to use small spoon, small plate, and don’t let other people clean the remains or refill your plate/glass while you are still at the table.

Those things should not make a different. After all it is the amount of food we put into our mouth that matter. And we as rational human with will power and self control should be able to know when enough is enough. Right?

Apparently not.

In his experimental studies, Wansink found that average subjects eat 15 % more using big spoon and 25 % with big plate. Having the bones of chicken wings cleaned up by waiters while watching a sport match at a bar on average resulted in you eating 28 % more.

The classical rationality argument that using small spoon and small plate resulted in more energy thus making you want to eat more seems not to be working here. It seem that human mind affect by relative as well as the absolute. The more we see empty space (a.k.a plate) the more we want to fill it up, with little regard on actual quantity, while taking every spoon as equal. This mispredictions are robustly repeated an not a one time aberration.

While you are at it. Loose the flower on the table and put food on the table with fewer colors since Wansink found doing the opposite strongly correlate with higher food intake. Apparently having color and smell around at meal time distract human mind and trick us to eat more.

People said we are what we eat. Maybe it’s better to say that we are what we decide to eat with.

Saturday, October 06, 2007

Old Challenges for New IMF Chief

by Berly

One of the old challenges Mr Strauss-Kahn should immediately addresses, ironically, is the mechanism how he received his post. An unwritten rule establishes that the IMF's managing director must be European and that the president of the World Bank must be from the United States. The practice is increasingly questioned since IMF policy affect developing countries significantly more. A developed country in financial crisis can afford not to take IMF advice and loan since their access to financial market are not drying up. IMF usually become the main, sometime the only, source of fund for developing country in crisis and exerted enormous influence.

The voting weight of each IMF members are determined by the amount of money a country provides to the fund relative to the size of its role in the international trading system, but the relative size reflected each economic prowess more for the time IMF was founded than today. Europe is over represented and US practically held a veto with its 17 % vote since major decision require 85 % support. In 2001, China was prevented from increasing its quota to reflect rising share of its economy ensuring it remained at the level of the smallest G7 economy. Under leadership of Rodrigo de Rato, China contribution has been allowed to be increased slightly further.

The second old challenge is the role of IMF. The Great Depression were characterized by bank run caused by panic investors and IMF was supposed to act as lender of the last resort to prevent systemic meltdown at international level. Recent studies (Banerjee, 1992; Lux, 1995) in behavioral finance has shown that herd behavior to sell investment at the first hint of trouble is a self fulfilling prophecy that precipice the crisis it fear.

Each member country entitled to withdraw a percentage of its quota immediately in case of payment problems meaning developing country has quick access to less fund just where the need is greatest. When a member country in need of financial infusion, IMF should act like a central bank in similar situation. Lend freely with penalty, slightly higher interest rate than usual, for a temporary period.

IMF tends to overestimate the ability of high interest rate to attract investment after crisis despite the empirical evidence otherwise (Sach, 2005). The structural adjustment program and fiscal austerity to repay the loan, normally in full value despite principle of share responsibility, typically disproportionably affect the poor population and caused political instability which heighten and prolonged the crisis IMF supposed to ease in the first place.

Evading the policy strait jacket of IMF lead developing countries to accumulate huge amount of reserve, mainly in form of US Treasury bill, to defend their currency in the face of speculative attract. Southeast Asian nations have been developing a regional cooperative to share foreign exchange reserves in the event of a crisis. But developing countries received low return from T-Bill and the opportunity costs are calculated to be 300 billion dollar per year (Stiglitz, 2006). The amount is more than four times the total foreign assistance in the world and could have been used to reduce poverty and increase education/ health expenditure if IMF properly conducts the job it’s designed to do.

As finance minister in Socialist government from 1997 to 1999, Mr Strauss-Kahn challenged his party orthodoxy and cut the public deficit to qualify France for the euro. Let’s hope that he still got the backbone to challenge Washington Consensus orthodoxy as IMF Managing Director. The world certainly need, and deserve, a better IMF.