Archive for June 18th, 2013

How Greg Mankiw became an economist?

June 18, 2013

Well, Prof Mankiw’s blog and research followers know he was a math guy first and then moved into econ.

Here is a more elaborate version of what actually happened. He realised he is not good enough in Math as others are and then moved into economics based on what someone in college told him about the subject.

This is part of a commencement lecture he gave recently at a school. He discusses the key moments in his life. He draws four lessons from his life experiences:

(more…)

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How LPG distribution companies have become CBI like and owning LPG gas cylinder a Veblen good…

June 18, 2013

Shifting to Bangalore has been a wake up call on many fronts.  Benefits of labor mobility looks so farcical till one does not figure the transaction costs in shifting places. It is not trivial at all.

One such experience has been with respect to LPG cylinders. I have never really understood this whole business of subsidies anyways. The government first subsidises to  get cheap votes and then rolls it back to show its reform colors. In LPG it is worse as we are neither here nor there with 6/9 subsidsed cylinder per household per annum.

People should pay the right price of the good and especially on energy related goods which are scarce and needs to conserved and used judiciously. But what has happened all these years is just reckless usage and wastage of this scarce resource as govt. subsidised LPG cylinders by a huge amount for a very long time.

Having said that, if one is willing to pay the market price he/she should be able to get LPG connection with minimal fuss. However, it is here where the whole system crumbles. Like Niranjan says the focus is on subsidies and never really building the system. The government heaped huge praise on itself for creating transparency portals of gas connections but is it really needed? What is the government trying to achieve by figuring how many LPG cylinders should a family be consuming? This whole wasteful consumption of LPG cylinders is a result of governemnt’s subsidies at the first place. If it was priced correctly, people would have been more conscious of it right away. You incentivise bad habits and expect good actions? Possible?

The focus should have been on provision of the good. To get a new gas connection is such a headache. Even in transfer cases one just does not get the connection immediately. One is subject to ridiculous things for a gas cylinder like KYC documents (which has become a fancy name/tactic for public harrassment as rowdies manage the game whatever KYC maybe), several proofs etc. Infact one even needs to make a affidavit on stamp paper saying that “I will use this cylinder for household purposes etc etc”. *I thought this was a joke but was told this is serious stuff.

So you have these distribution  agencies becoming like CBI checking whether you are a bonafide citizen so that the subsidised cylinder is used correctly. I mean how ridiculous the whole thing could be. The subsidised gas cylinder has become like a veblen good of sorts and has become neighbour’s envy. So adding on to Siddharth’s piece in Mint we have a case of govt not making private goods as public but also kind of Veblen goods.

This government also loves to centralise policies and systems. LPG is another such case where am told IT systems have been centralised. So if one link goes down, all goes down. There has been such a problem and as a result customers are getting harrassed.

Even more funny is to note a new kind of shortage created by govt- that of LPG cylinder regulators. Lately, I  am told there are no regulators and hence no cylinders. Can anyone beat that?

Compare all this to a private LPG supplier in Bangalore – Jyothi Gas. You make a call, the guy drops the cylinder in 30 mins and you just pay the bill. No harrassment at all. Next time just give your customer no and immediate replacement.

In case of govt. cos just forget it. All people from those booking cylinders to providing it behave as if some favor is being done. The delivery guy also expects a tip per cylinder which is pushed onto all.

Despite much better services, agencies like Jyothi run limited in scope. Why? Thanks to govt subsidies, households still prefer the govt LPG cylinders. The natural (read forced) monopoly also spoils the chances of private sector surviving. Essar and Reliance tried with petrol pumps but as their products were expensive died soon.

So private sector does not have a chance unless you could be as efficient as Jyothi. Perhaps the public sector distribution in Bangalore is terrible for companies like Jyothi to make an impact.

Makes for a very interesting paper…Why private gas companies like Jyothi do well in places like Bangalore ( I am assuming they do well, which itself is a hypthesis) and not in other cities Are public agencies better in other cities? I doubt it but has to be tested..


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