Don't Tell Kate

that three of her five full-time baristas just have had a rendezvous in a bistro and rather obscured cafe far away from Salemba.

It's labor day, for crying out loud.

Which books?

Dear Kate,

I'm off to Kelapa Gading today. The Gramedia there runs a handsome price discount. Any suggestion on books?

Thank,
Bookbuff @ Karet

Dear Bookbuff,

First, forgive me that I doubt you're a book buff. Book buffs don't ask suggestion on books. They know what they want.

But I'd tell you anyway what I just did in my latest shopping spree. I bought SuperFreakonomics (Levitt-Dubner), Nudge (Thaler-Sunstein), Animal Spirits (Akerlof-Shiller), The Return of the Great Depression (Krugman), and The White Tiger (Adiga). All but Tiger are with econophone, but Tiger is equally entertaining - it's the winner of 2008 Man Booker Prize. My usual formula in bookshopping is 4:1, four econ and one literary work.

Oh, while we're at it, why don't I share with you what I would not buy? Here goes. I don't buy books of authors who put their academic titles on the front cover. They're usually bad bad bad. I don't trust self-help books. And I don't like books with dry title.

Finally, I also judge books by their cover. And sometimes I buy books just for the sake of ridiculing them: John Perkins, Naomi Klein to name two.

Happy shopping,
Kate

Pricing the environment

Dear Kate,

I gather, you took a minor in environmental economics. I once heard that you guys like to value clean air, healthy water, sequestered carbon etc by putting a price on them. How do you do that?

TreeHugger @ Borneo


Dear TreeHugger,

There are many ways to do that. Let me take one here, called hedonic price estimation. You are Foke that governor. Suppose you want to clean the Jakarta's air. Calculating the cost is easy: sum up the prices of labor, equipments, capital, etc. But you would need an estimate of benefit. After all, you can only approve a project when its benefit outweigh the cost - especially because you're using public money from the taxpayers, you would be held accountable. Measuring the benefit of cleaner air is not straightforward, because air is not market good ie it doesn't have a price tag ready like the t-shirt you buy in Plasa Senayan.

This is where hedonics comes into rescue (I'll tell you someday why it is called 'hedonic' approach). It measures the benefit of non-market good via the price of a market good. How? Think about the time when you were about to buy your house. What were your factors of consideration? Of course you would care about its price, its structure, its location, its neighborhood. But you also care about the environment, the air right? With only price and environment vary, other things being the same, which one would you buy: House A, cheaper but with dirtier air, or House B, more expensive with cleaner air? Keep in mind, life is about choosing and tradeoffs.

That is what hedonic approach exploits. It tries to extract the environmental part in your set of consideration when you buy a house. Using an advance econometric approach, you set all variables but price and an environmental proxy unchanged. Then you can see what a change in environmental variable would impact on the house price. Then you multiply this number by the population house in the area. This is the social benefit of having clean air in Jakarta.

You want more? Ahem, hire me :)

Greeny yours,
Kate

Dear Kate: Neoliberal

Dear Kate,

I observe a suddenly-famous term: "neo-lib". What is this "neo-lib" actually about? Why do people seem hate it? Is it some kind of virus?

Best,
Al @ Berge

Dear Al,

To tell you the truth, I don't know. But I got an impression from the media that all those protesters mean by 'neoliberal' is market-friendliness, trade with other countries, and everything American or western.

In other words, neoliberal is an Aunt Sally.

Take care,
Kate