Should You Pay The Ransom?

The recent surge in popularity of “ransom-ware”, along with Islamic State’s penchant for hostage-taking got me thinking about kidnapping & ransom.

In last weekend’s FT, Tim Harford reviewed the work of Reinhard Selten on the ‘Chain Store Paradox’ and it struck me that there was a strong parallel between the rational response of a monopoly chain-store owner to new entrants into the market, and the question of whether an individual should pay the ransom to a kidnapper.

As a parent (of two teenaged sons) I can of course appreciate that on a personal level, if anything happened to anyone in my family I would stop at nothing to get them back safely. Yet in doing so, I would in a small way be perpetuating the ‘business’ of kidnapping. Governments face the same dilemma and there has been much media coverage (e.g. this article in The Guardian) recently of the question as to whether some European governments are compromising US & UK’s harder stance on the issue by paying ransom to get their citizens back.

In Harford’s article he points out that Selten considered two possible extreme responses for the monopoly chain-store owner: either step aside, keep prices high and expect to lose some market share; or alternatively crush the upstart by dropping prices.

It seems to me that to have any chance at all of eradicating hostage-taking, destroying the economic model is the only way to do so. That means firstly governments agreeing not to pay ransom, ever. And perhaps it also means making the paying of ransom by individuals or corporates a criminal offence. This might seem extreme, but I think it’s probably the only way. It’s also pretty unlikely to come to pass unfortunately since even the permanent members of the UN Security Council don’t appear to be able to trust each other to keep their words on this matter.


This article first appeared on LinkedIn 23 September 2014

Dying on Payday

This is from the egalitarian Sweden:

“In this paper, we study the short-run effect of salary receipt on mortality among Swedish public sector employees. By exploiting variation in pay-days across work-places, we completely control for mortality patterns related to, for example, public holidays and other special days or events coinciding with paydays and for general within-month and within-week mortality patterns. We find a dramatic increase in mortality on the day salaries arrive. The increase is especially pronounced for younger workers and for deaths due to activity-related causes such as heart conditions and strokes. Additionally, the effect is entirely driven by an increase in mortality among low income individuals, who are more likely to experience liquidity constraints. All things considered, our results suggest that an increase in general economic activity upon salary receipt is an important cause of the excess mortality.”


This article first appeared on LinkedIn 20 August 2014

Does UK Need More Airports?

Reading the latest document from the Stop Stansted Expansion (which is excellent, and can be downloaded here) it strikes me that although there istechnically debate, nobody seems to be listening to what anyone else is saying.

Two of the graphics in SSE’s latest submission stand out so I’ve included them below. The first shows that UK already has substantially more commercial runways than any of our EU peer group or Japan.

The second shows that, with the exception of Heathrow there would appear to be plenty of spare capacity.

It seems likely that, as with the internet & computer software, airports can benefit from ‘network effects’ and that Heathrow has indeed been the prime beneficiary. So why, when Heathrow has so little growth capacity and other airports have so much, does the Airports Commission refuse to consider the use of Air Passenger Duty (APD) as a policy lever, by setting different rates for different airports? Similar approaches are used in traffic management (e.g. London’s Congestion Charge) and have been successful both in raising revenue and in controlling traffic.

I have to confess to having a personal interest in Stansted: my parents live about 20 minutes northeast of the airport. As I’m sure you can imagine, this can be both a blessing and a curse. Nevertheless, I’m against any expansion at Stansted for the following reasons:

1. It doesn’t seem as though we really need more airport capacity — rather, we need to be using the capacity we already have, better. For example, Southend Airport always seems pretty much deserted whenever I travel through it. SSE also makes an excellent point that in Asia one sees many domestic routes served by 747s or similar large aircraft whereas in UK instead we offer lots of smaller planes.

2. Stansted is really not a great airport:

  • it takes too long to get into London on the train (which is also unreliable and expensive);
  • car drivers cannot drop their passengers right outside the terminal, unlike most other airports (“for security reasons”, ostensibly, but in practice probably to maintain the taxi company’s monopoly);
  • there’s so much glass in the terminal buildings that the IRIS software can’t function;
  • there are no long-haul carriers and 92% of capacity is provider by Ryan Air and EasyJet.

3. Essex has a lot of really nice historic buildings and some lovely countryside, much of which would be under threat from any expansion of the airport.

It probably doesn’t help that all the airports are independently owned, either — after all, as with American politics the person who wins the debate (and the election) will be the one with the biggest bankroll, and in the case of the UK airports, that’s always going to be Heathrow. So the Airports Commission really has a duty of care to the British people to take that into account and attempt (at least) to be a truly unbiased arbiter. Some chance.


This article first appeared on LinkedIn 29 July 2014

Why Isn’t Software Regulated?

Great swathes of the economy are already subject to government oversight: finance is the most obvious, but of course there’s also healthcare, air travel, car safety, workplace-related legislation, food safety, building regulations, telecommunications and so forth. The list is pretty much endless.

At a recent lecture I heard that something like five times as many Americans are subject to some sort of permitting in their job as was the case in 1950s (I’ve tried to track down the statistic but can’t find it — if you have it please provide a link).

So in some sense it feels like something of an aberration that something as pervasive as software would have no regulation attached to it.

There are not many activities where software does not in some way impinge on our lives these days, after all. And while it may not matter to anyone if some random little game App downloaded from iTunes doesn’t work properly when you reach level 50, there are other situations where the performance of software is of very great importance.

In the UK, several banks have experienced partial or total crashes in their ATM networks (see here, for example, and here). Whilst I’m sure that the banks’ regulators would have required them to perform extensive testing of the software, and to have all sorts of complicated business continuity planning in place, I doubt the software vendors themselves have left the door open to any form of claim against them for shoddy workmanship (almost all the licence agreements one has to click in order to install software contain some sort of “no warranty” or “as is” clause which would not cut any ice if you tried the same thing when selling a car).

According to Wikipedia’s article on software bugs there have been some other pretty major problems caused by poor software, including large-scale power outages, incorrect social security payments, aircraft crashes and security breaches (most recently, Heartbleed for example).

Now, perhaps with open source software one could take the view that, “you get what you pay for”. I work in financial services, and even if I were to give my advice away free to anyone who wanted it, there are countries where the local regulator would wish me to submit to their jurisdiction (sometimes there are carve-outs, for example in USA if you have very few clients and don’t manage much money you’re not subject to as much regulation by NFA as a big institution). Not that it would be easy to regulate open source software, anyway, but even something as pervasive as Linux has attracted for-profit companies such as Red Hat which seek to package up the open source operating system and provide useful support and add-ons to make it a more ‘corporate’ product. Under that same model it would be possible to imagine Red Hat’s version of Linux, for example, coming with many more warranties about its performance in specific business environments than the plain-old ‘free’ version would have, in much the same way that one can buy any number of (unregulated) magazines which will tell you what stocks to purchase whereas regulated advice will generally cost you more but come with some additional protections (such as the prospect of making a claim against the advisor in the event the advice is inappropriate).

Don’t get me wrong — I’m really not in favour of wholesale regulation of the global economy; regulation is a dead-weight cost and there seems currently to be a tendency amongst both politicians and the general public to want to regulate as many aspects of life as possible. What we need is smarter regulation, not necessarily more.

Nevertheless, every time I use a bit of software — normally paid-for stuff like Microsoft Windows, Office, Google Apps for Business — and it doesn’t work properly, I wonder if perhaps the world has a little bit of a blindspot about software compared with what consumers (both retail and business) demand in other products.

This article first appeared on LinkedIn 28 July 2014

The Trouble With Trains

I am a big believer in railways as a way of moving people & freight around a country quickly, efficiently and cheaply. It may well be the case that part of Japan’s post-War expansion was thanks to an extensive network of railways.

So I have given quite a bit of thought to UK’s HighSpeed projects, particularly HS2.

Here’s why I don’t think it can work — not to say it won’t get built, but rather than it won’t have the impact the government and its proponents claim.

I took my 17-year-old son to an Open Day at Sheffield University for the day yesterday. Before going, we looked at travel alternatives from London. The cheapest ticket by rail, purchased a week in advance, is about £76 per person return if you take very specific trains (i.e. no flexibility). The ‘standard’ flexible return ticket is more than twice that. By car, it’s a little longer journey but we did it on less than a tank of gasoline, probably for less than £50. So if the existing low-speed rail network can’t compete with a single traveller in a car (let alone two, or a car-full) how can HS2 possibly imagine it will attract anyone?

Presumably whoever has done the forecasts has assumed that all travellers are business-people who value their time over everything else. Even if this were the case (and it patently isn’t), many businesses would probably prefer their staff to spend a little longer getting there if it’s less than half the price. And that’s before considering that in a car I can leave when I like, stop for lunch somewhere that serves edible food, and so on.

Realistically, for HS2 to work either the government has to change road pricing so dramatically that the cost of going up the M1 doubles (tolls, gasoline taxes etc) orthey will have to subsidise HS2 hugely. Or the trains will be empty.


This article first appeared on LinkedIn 12 July 2014.