Category: fundaes

A few random thoughts on statistics and terrorism

In the world of statistics and operations, people usually talk of two kinds of error – omission and commission. For simplicity, they are referred to as “type 1” and “type 2” errors. I can never remember which is which, but after a little bit of googling, I can tell you that type 1 error is the error where a correct hypothesis is rejected, while type 2 is one where we fail to reject an incorrect hypothesis.

The most common example for this is one of a quality control department. Suppose you are in the business of checking the quality of widgets. There are two kinds of errors you can make – you can classify bad widgets as “good”, or you can classify a good widget as “bad”. Which of this is type 1 and type 2 depends upon how you frame the hypothesis. However, let’s not get into those details – they don’t matter. All that matters is that you understand the two ways you can err – which is not hard to understand at all.

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Why fine dining costs so much in Bangalore

Blame the Bangarappa government of 1993, which took a decision to stop issuing more liquor licenses, a decision that still continues today.? According to

[info]themadman

?(who runs the excellent Shiok, currently temproarily closed), the only way one can start a restaurant serving liquor in Bangalore is to buy a permit from someone who is shutting shop. In other words, the number of establishments serving liquor in Bangalore has remained constant for some 15 years now, despite the population growing by a large amount.

Apart from the fact that the supply of licenses is scarce, a bigger problem is in matching buyers and sellers. It is reported that officials in the excise department double up as a clearing house for these licenses, charging usurious commissions up to the tune of 25% of the transaction value. Adding to this the official costs of licensing, transferring license and other sundry costs, a liquor license is estimated to cost approximately about Rs. 30 lakh.

What this means is that existing establishments can continue to overcharge on liquor without the fear of a new competitor who might threaten to lower the prices in the industry. However, given that liquor consumption, especially at restaurants, is highly elastic, there is only so much by which the liquor can be marked up. Thus, for the thousands of entrepreneurs who have started thousands of fine dining restaurants in the last few years, the only way in which they can recover their liquor investment, and make a profit would be to mark up the prices of food items.

Another thing with fine dining is that restaurants that serve liquor vastly outnumber the ones that don’t. This is mainly because of the clientile of these? restaurants, who usually prefer a drink to go with their food. This market (fine dining) is highly elastic to the availability of liquor – restaurants stand to lose considerable business if they don’t serve liquor. What this means is that restaurants serving liquor are dominant in this market, and they are the price setters. So when you have the high-cost players in the industry being the price setters, it is clear as to why prices are on the higher side.

On the other hand, when it comes to fast food, south indian food and south indian – north indian food (north indian food made in south indian style), the presence of restaurants that serve liquor is negligible, almsot non-existent. Hence, the price setters in this market are low-cost players, which explains why they are very reasonable.

Then, in Chennai, the? government has a monopoly over liquor distribution, which means that restaurants aren’t allowed to sell liquor. This makes it okay for a fine dining restaurant to run without serving liquor, and hence the price setters in the market are not high-cost. This probably explains why fine dining is much more reasonable in Chennai compared to Bangalore.

The only missing piece in this puzzle is the Andhra style restaurants – most of them serve liquor and are yet extremely reasonable. Or is it that they serve only beer which has a separate license that is available more freely? Can someone tell my why this is the case?

And interestingly, Bangarappa, who put a freeze on further liquor licenses, belongs to the Idiga community whose traditional occupation is to brew/extract and distribute liquor.

A little more on public transport

There are three factors that affect the choice of mode of transport – cost, time and convenience. You usually make the decision regarding what mode to take by evaluating how much you are willing to “spend” in terms of each of these. For example, if you live in Mumbai, taking the local train would be the most effective in terms of cost and time, but not really so in terms of convenience. Hence, you may sometimes give up time and cost and invest in a taxi so that you travel in better convenience.

This needs to be kept in mind when trying to design an efficient public transport system – the combination of cost, time and convenience needs to be attractive for the user to abandon private transport in favour of public. One mistake that is commonly made is to forget the convenience part, which leads to a large number of people to stick to their private transport. In related stuff, in my first ever post on the IEB, I had argued for segmented public transport so that people can find their own combinations within the public transport system.

This post is about the time aspect. The thing with a system based on buses is that you can do little about the time factor – unless you decide to create specific bus lanes, which aren’t too feasible currently in a place like Bangalore, you need to use the general road space. However, this is only as far as traveling time goes. What can, and should, be improved is waiting time.

Last week, while I was on my way to the M G Road area to meet sudheernarayan for the unofficial photowalk, I purchased a daily pass (for Rs. 30 you can travel on any bus from anywhere to anywhere else on that day). Though there exist direct buses from my place to MG Road, I figured out that it would be faster if I changed buses. Basic assumption was monotonicity – if bus A and bus B both go from point X to point Y, and if A reaches X before B, then A will reach Y before B. And that every time I went forward a small distance, that would increase my chances of getting a bus to the final destination.

So I take a random bus from my place to Banashankari – which improves the chances of getting a bus to MG Road by a factor of three. Then another 2 buses to fourth block – increases probability of getting bus by about 50%. By probability I mean the expected value of getting a bus to your destination in the next one second (I mean, assume Poisson distribution, etc.). I took four buses to get to M G Road but spent a total of five minutes waiting.

Now that the story is out of the way, the key to a good bus system would be to decrease waiting time. Right now, it’s quite horrible in Bangalore on a number of routes, as frequency of direct buses is low and changing is also quite difficult. And as for changing buses, there should be a system which makes interchanges easier – typically you should be able to switch buses by standing at the same bus stop.

Right now I need to go down to watch football, so I’ll write the second part of this post tomorrow. In that I’ll talk about how the network can be redesigned so as to decrease average waiting time for commuters. Of course, given the volumes and the fleet in operation today, one will need to introduce several more buses before the “convenience” bit becomes better.

Water Privatization revisited

I first wrote about water privatization on this blog back in 2006. I had written that bit as part of a term paper for an infrastructure course at IIMB, and it seemed like we didn’t do too well as far as the term paper went.

I revisited the topic sometime last year when i talked about water privatization in Kundapur. I cross posted that on the Indian Economy Blog also.

My main argument there was that privatization of water would ensure an OPTION for everyone to access clean piped drinking water, and this option value would offset the higher prices faced by those who already have the connection – who are mainly the reasonably well to do.

The latest to comment on this matter is Tyler Cowen. Writing in the Forbes, he calls for unregulated privatization of water supply in developing countries. And he mentions precisely the same reasons as I did in my earlier posts.

I hope Prof. Ranga, who didn’t give us enough credit for our term paper back then, is reading this.

In the name of equality

In temple towns such as Horanadu and Sringeri, the temple has a virtual monopoly over accommodation for tourists. There have been a few private lodges springing up in both places of late, but indifferent quality means these are places of last resort for tourists. The temple accommodation, however, is well maintained and clean, and most importantly comes cheap. The undifferentiated twin bed room goes for about Rs. 100 per night in both places.

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Letting Bear fail

This is a tubelight post. Was supposed to have written this two months back.

I sometimes wonder if the US Fed did the right thing by encouraging JP Morgan to buy out Bear Stearns rather than to just let the latter fail. I know letting it fail would have had significant negative impact on the already struggling financial sector. But wouldn’t it have sent out a nice message for the longer term? That nobody was too big to fail? Wouldn’t this have significantly improved the quality of derivatives contracts in the long term?

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Opportunity Costs

The concept of opportunity costs seems to be non-trivial, in the sense that most people don’t seem to get it. When I first learnt it as part of my Economics course at IIT Madras, I thought it was fairly common sense. However, looking around at a variety of people, it doesn’t seem to be that common.

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Oily predictions

I propose a new business model. Make a seemingly outrageous long-range prediction. It could just be anything, but you might want to stick to the financial world. Once you have decided on the prediction to make, think up of about six possible reasons why this prediction could come true. Given that the prediction in itself is outrageous, it shouldn’t be hard for you to come up with six outrageous reasons to support the same.

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More on petrol pricing

In a recent piece in the Indian Express, Atanu Dey argues that keeping fuel prices low is effectively delivering subsidy to the rich, by subsidising the cost of car transport. In response to this, he says there should be an annual fuel surcharge imposed per-car. This way, he says, fuel price hikes can be prevented for buses, scooters and trucks, which are common man’s vehicles, and burden only the rich.

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