Categories
Economics

[628] Of have we gone passed some kind of second derivative for oil demand fuction?

How high will price be before consumers cut back demand for crude oil? I asked the same question more than a year ago.

It seems that USD70 per barrel is the price. My gut tells me that the prices which demand turned direction is lower due to lag. Probably in the range of USD60 to USD70 per barrel. Even before that, SUV sales had decreased tremendously.

Crude oil prices at the New York Mercantile Exchange for November delivery hover around USD62 per barrel while November Brent lingers at USD59 per barrel. The fall in crude prices started during early September after prices reached USD70 per barrel in last August. The fall is happening in spite of production capacity loss due to Hurricance Katrina.

So, are we going to see continuing fall in prices?

The looming winter in the US and Europe is expected to be colder than usual. Unless prices could cushion its rise during the upcoming winter, I don’t expect this price decrease would continue unabated.

But some innovations might help reduce demand of crude oil just like what happened during oil crisis in the 70s. Malaysia is planning to mix biofuel with gas while hydrid vehicles are hot in the US. Still, we may only know for certain where we are when the northern winter ends in April next year (May for People’s Republic of Ann Arbor).

Whatever it is, a falling demand is a bad thing for OPEC. They do have the incentive to increase production to lower prices a bit. The last time crude oil prices broke some records, oil became really cheap for about two decades because fuel consumption efficiency was forced to increase.

p/s – wow! Deja vu!

Categories
Economics Politics & government

[627] Of where is the anti-corruption agency?

So, Mohamed Isa Abdul Samad has been found guilty of corruption by UMNO disciplinary committee weeks ago. He made an appeal and the committee reduces his penalty.

However, why the case hasn’t been brought up to anti-corruption agency? Am I missing something here? Is federal law inapplicable to a political party’s internal matter?

p/s – two persons won the Prize in Economics for “having enhanced our understanding of conflict and cooperation through game-theory analysis”.

Categories
Economics Kitchen sink

[626] Of PPS economics, free market and market failure

Project Petaling Street is all good and cool but it suffers one complication – how many participants are too many participants? In short, what is its carrying capacity? Will it fail if the limit, if any, is not observed?

Allow me to explain further.

PPS, or to be precise, its ping portal, PPS Pings – hereafter PPS – is a first-in, first-out list (FIFO). The list itself has limited slots.

If there are five slots in a clean list and if person A is the first pinger, he will sit on top of that list. Later, when four other persons ping the list after person A, A will sit at the bottom of the list while the four persons will sit on the top four slots. It follows that if a sixth person pings the list, person A will get the boot. In short, if there are n slots, the person on top of the list will be out of the picture when pinger (n+1) pings.

All this assumes strictly one-to-one relationship; a person leads to a ping and a ping leads to a person. This assumption is not true (enthusiastic posters, as a PPS founder calls them, like Kahsoon and Otis, is a proof) but it definitely simplifies our model. Once we’ve laid out the model, then you and I could relax the restriction considerably.

With FIFO explained, let’s talk about rate. Let’s also assume that each slot receives x visitors per time unit. Here, I don’t think one-to-one assumption is critical but for consistency’s sake, let’s just assume one-to-one relationship.

Assume further that each ping is pinged into the list at a rate of a ping per time unit. Holding time unit constant, the rate is dependent on the number of pings. Subsequently, a ping goes down the list at that rate. Therefore, person on top of the list will be out by the (n+1)th time unit. Also, amount of visitors of that ping will be x(n).

So, imagine that a slot receives 60 visitors per hour and there are five slots. With this setup, a ping will attract 300 visitors throughout its lifetime in the list. Now, what if a ping switches a slot per minute?

That would make each slot a visitor and a total of five visitors throughout the ping’s lifetime. What if, the rate is a ping per second?

Oh, boy. A ping gets a sixtieth of a person; total a twelfth of a person. Ugly.

Ceteris paribus, the rate of which a ping goes down the list depends on the number of pinger. However, the more pingers there are in a timeframe, the greater the rate and as such, less visitors for every ping. The dilemma is, PPS wouldn’t be so successful if it weren’t for all those pingers. I would probably explain how more pingers leads to more visitors later. But I do have a feeling that at first, more pingers leads to more visitors until at one more point, any additional pinger will lead to less visitors.

This brings us back to the question how many participants are too many participants? In short, what is its carrying capacity? And when the carrying capacity is known, should PPS administrator put a cap on number of pinger? Or at least control the rate?

These are normative questions – there is no right or wrong. Nevertheless, by answering this, you might realize where you sit in economic freedom spectrum with controlled economy on the left-hand side and free market on the right-hand side. Of course, basing your political belief on this is absurd but hell, its fun.

So far, PPS Ping rules state that:

PPS will not tolerate ping flooding. Multiple pings within 7 minutes of each other is considered ping flooding, no exceptions, even if you are an “enthusiastic blogger”. It does not matter whether the content is duplicate or different from the previous ping. It is your responsibility to ensure your blog does not multi-ping PPS in consecutive fashion.

This alone is an attempt to control the rate. Does this mean the administrator distrusts free market?

I don’t know but it seems that rule is not strictly enforced.

However, I’m content to say that this is an attempt to prevent abuse and maybe, even market failure. The current DoS attack is similar to market failure there where is too many pings that visitors for each slot goes down to zero, albeit PPS fails due to bandwidth flight (capital flight? LOL!) first before market failure actually takes place.

Categories
Economics Environment Sports This blog

[620] Of raw economic model on fresh water conservation

Dams around Klang Valley are running low on water. Despite that, I see some people water their plants during a rainy day while others wash their vehicles as if fresh water is unlimited commodity. Disgusted by the indifference shown by those people, I sat on a corner one day and tried to think what could make them care before water actually ran out and subsequently, the need of rationing. It didn’t take me long before I realized that the answer a mere basic supply and demand model.

Currently, at least in Kuala Lumpur, consumers face tiered-pricing scheme. The first 20 cubic meter cost RM0.57 per cubic meter. The next 15 cost RM0.91 per cubic meter and anything extra costs RM1.70 per cubic meter. Now, because the prices are fixed regardless of supply level — assuming ceteris paribus of course! — consumers really don’t have the incentive to conserve whenever there’s a shortage.

If we could somehow float the water price according to abundance, perhaps the flexible price or prices itself could give an appropriate signal to consumers. To put it bluntly, whenever there’s unreasonable scarcity, the price would say “hey bitch, conserve for fuck’s sake”. After all, efficient pricing theory suggests that in free market, without asymmetrical information, all information is expressed in prices. Yes, only in economics where all information could be compressed into a number…

Those that are unable and unwilling to conserve will be forced to pay more. Just imagine how high water prices should be right now in Kuala Lumpur. Note too that water supply is not an easily tradable commodity. So, as an example, if there is a water shortage in Kuala Lumpur, we really can’t just import it from, say, Singapore even if water is cheaper there. Hell, I don’t know why we want to import water from Singapore. But I trust you get the idea.

However, since water is a basic necessity of life, and the poor might be able to afford a high priced water, perhaps we should impose a price ceiling up to a certain amount (or even some quota per person in an average household) — an amount sufficient enough to sustain a non-wasteful lifestyle — something similar to the original first-20-cubic-meter-cost-57-cent (or sen) scheme. Anything higher than that amount should be charged at equilibrium price. Or, maybe even at equilibrium price plus any loss incurred due to the price ceiling. Since it should be very expensive in real term, conservation is almost guaranteed.

Four paragraphs to describe supply side; one paragraph for demand side. One paragraph to rule them all. Ack! Imagine the same thing but diametrically. Price will be higher due to low supply and high demand.

With exorbitant price, demand should decrease (assuming demand elasticity allows a decrease) and bring about a state where rates of water discharge at various dams are lower than replenishing rates. Thus, making an increase of supply possible. And greater supply lowers water price. With this regime, it’s obvious that water price will sway a lot but it will be at a dynamic equilibrium and more importantly, it’s an efficient and sustainable pricing. At the same time, it will combat Kuala Lumpur and Klang Valley’s problem.

And if demand outstrips supply, perhaps the reality of ridiculously high water price would actually rally local masses to demand certain somebody to finish up a project that connects Pahang’s water cache to Selangor’s. I wonder who is that certain somebody is…?

p/s — I’ve installed WordPress on my server. It’s here. Still need to import Blogger’s stuff into WordPress. I’m not sure about using WordPress right now. I kind of have this sense of loyalty to Blogger. But having a complete control of everything is tempting.

pp/s — na na na na na, na na na na na, na-na-na na-na-na na-na-na na, Let’s Go Blue! The Wolverines defeated the Spartans in OT again!

Categories
Economics Photography

[618] Of budget day, competitiveness ranking and cats in washing machine!

Malaysian 2006 national bajet budget is fast approaching. One of few things that I wish is that the government won’t run populist policies, like preventing fuel prices hike for instance. In fact, I do hope, however unlikely it might be, an introduction of floating fuel prices regime in the end future. Gradually, of course.

Worry about inflation? Let the government worry about fiscal-side and let the central bank worry about monetary policies. It’s time we differentiate the two institutions clearly. By differentiate, I do mean an independent central bank. There are proofs that countries with independent central bank have significantly lower inflation.

Worry about unemployment due to lower inflation? Ah, that’s another problem. Rest assured however that in the long run, both inflation and unemployment don’t matter!

While some of us are nervously wondering what awaits us in that Pandora’s box, we must realize that there is more than one way to skin a cat or cats. One way is to wash them rigorously in a washing machine.

Another wish is total elimination of income tax and introduction of consumption tax. (wait, we’ll have both income tax and consumption tax in 2007! Somebody is cheating us!) In short, full cost accounting. Heh, a green’s wet dream.

A not-so-bad news in the eve of budget day is the recently released World Economic Forum’s competitiveness ranking. Malaysia’s ranked 24th out of 117, up seven rungs from last year.

And, erm, no cat was harmed in any whatsoever way.

Inconvenienced? Well, the mother cat was pretty mad. Very.

p/s – cool stuff! KoRn with World of Warcraft!

pp/s – added Primate Noise to my blogroll.

ppp/s – Santa is real! Be afraid. Be very afraid because the Danish Air Force learned about Santa the hard way.