Rensselaer Adventures

This blog reports events and interesting tidbits from Rensselaer, Indiana and the surrounding area.

Monday, February 20, 2017

Demolition

The demolition of the old Donnelly laundromat building began this morning. It may take a while to complete--the building is very well built.
 The site is the future home of an O'Reilly Auto Parts store.

Update: I heard and saw several flights sandhill cranes flying overhead today.

Saturday, February 18, 2017

Pictures from south of the tracks

The burned Park View Apartment building is mostly gone. On Friday a large truck was being filled with debris.
 There is a lot less rubble than was there at the start of the week but still enough to fill another truck.
 The shell of the new Marathon station south of the tracks is going up very quickly. This was was it looked like on Wednesday afternoon.
On Friday the exterior was being wrapped.

The exterior of the Elza Street apartments is no longer undergoing changes. The windows and doors are installed. The work seems to be in the interior. However, there is new construction on Mattheson where the foundation of a new house was poured this week.
Monday is Presidents Day and the Rensselaer School students have the day off because they did not need it to make up a snow day. We have had a very mild winter.

Friday, February 17, 2017

The discount rate and items about the closing

On Thursday (2/16/2017) Saint Joseph's College hosted an admissions fair for their students. Seventy four schools were listed as attending They filled the ballroom and spilled over into the hallway around the ballroom. The picture below shows about half of the ballroom.
This week I met three people recruiting students who were former faculty members at the College and had a nice chat with each.

Most of the Indiana Colleges were at the fair. DePauw and Notre Dame were among the exceptions. There were also many schools from Illinois, Michigan, Ohio, and Missouri. The University of the Ozarks came from Arkansas and the University of Houston-Victoria came all the way from Texas. I asked the lady at the UHV booth why a student would consider her school. She said that its tuition was low and that SJC students might enjoy the warmer weather.

In other news about the closing, the Alumni Board is trying to raise $20 million by April 1 to keep the school open. Donations will not be kept unless enough money is raised to be successful. Details are on the Involved for Life website.

There is a petition for the state Attorney General to investigate the Board and administration for fraud. Personally I think this is a terrible idea and nothing good can come of it. It reflects the anger stage of grieving. As the saying goes, never attribute to malice that which is adequately explained by stupidity.

(The rest of this post is about the economics of the discount rate, so if economics traumatizes you, you might want to stop here and go to your safe space.)

In the discussions about the suspension of activities at Saint Joseph's College, there has been frequent mention of the discount rate. The College says that its discount rate is about 65%, which means that on average students pay only about 35% of the listed tuition of $31,000. In some of its financial reports the College lists as revenue what it would get as tuition if there was not discount rate and then as an expense the scholarships that it gives.

As an economist this way of treating the matter seems odd. Colleges seen as businesses have a lot in common with airlines, hotels, and cruise ships. They all have large fixed costs, that is, costs that do not depend on the number of consumers, and low marginal costs, that is, the additional cost of adding one more customer. As a result of this cost structure, all these industries find it useful and in many cases necessary to charge different customers different prices.

The easiest way to explain this situation is with a very simple numerical example. Suppose that it will cost a business $100 to offer a product and that the cost does not depend on how many customers (within some range) use the product. Perhaps, to make the example a little more concrete, the product is flying people from Jasper County International Airport to Lafayette. Suppose there are two people who want the service and each are willing to pay $60 for it. In this case any price between $50 and $60 will work to make the business profitable. At a price of $55, for example, the air taxi will collect $110, yielding a profit of $10 and both persons will find that they benefit from buying the product.

However, suppose that one person is willing to pay $80 and a second person is willing to pay no more than $40. The total potential value of the flight remains the same at $120 ($80 + $40), but there is no single price that will yield a profit. Any price above $40 and below $80 will result in one passenger and a loss. To get the second passenger the price must drop to or below $40, but at that price the revenue is still below the cost of the flight.

However, there is a way to solve that problem by charging the two people different prices. If the airline could charge the first person $75 and the second person $35, the total revenue would be $110. The flight would be profitable and both customers would benefit from the flight. The problem, of course, is to figure out a way to charge the higher price to the person who values the flight more and the lower price to the person who values the service less. If this cannot be done, the plane will not fly and everyone will be worse off.

Hotels, cruise ships, airlines, and colleges have found ways to sort people into groups by how much they are willing to pay. The sorting is often crude but even crude sorting can be worthwhile.

What colleges should be trying to do with their scholarship programs is giving aid in just the amount needed to get the student to enroll in the college. Many, many years ago I tried to explain this idea to the director of financial aid. He was insulted at the very thought that scholarships were part of a pricing strategy. At the time there was little interaction between the admissions department and the financial aid department--I wonder how many more students the College could have had it if had known what it was doing. After spending a lot of money on various consultants, the College eventually got the two departments working together.

Viewed as a pricing strategy, financial aid is not an expense. Rather the revenue is the tuition that the college actually collects so there is no need to deduct aid as an expense. Different students are charged different prices for college education because they are willing and able to pay different amounts. A question that the situation of Saint Joseph's College raises is was there a way to charge prices that would have made the institution viable but the College never found it, or was the demand for their product such that no winning pricing strategy was possible.

Here are some links to videos that explain or illustrate price discrimination, the term that economists use for charging different prices to different people. The first is an explanation of the sort you find in an economics textbook and uses pricing of drugs as its example.
http://www.mruniversity.com/courses/principles-economics-microeconomics/price-discrimination-examples-airlines-arbitrage

The second is a continuation of the first. It ends with an explanation of how colleges can sort potential students by willingness to pay.
http://www.mruniversity.com/courses/principles-economics-microeconomics/price-discrimination-social-welfare

There are two videos linked on this page that illustrate pricing strategies for several products.
http://ingrimayne.com/econ/Monopoly/videos15mi.htm

The second video on this page is a bit of British humor in which the seller tries to figure out how much the customer will pay and then asks for that amount.
http://ingrimayne.com/econ//TheFirm/videos09i.htm.

Thursday, February 16, 2017

Commissioners meeting Feb 13 2017

The Commissioners meeting on Monday lasted almost three hours. The highlight came early with an unexpected appearance by Judge Potter while the Wabash Valley representatives were making their presentation, a presentation that was very similar to that given at the County Council meeting last month.

Judge Potter stopped in to tell the Commissioners that two tiles had fallen off the roof of the Court House. When he was asked if he had any questions about Wabash Valley, he was amazingly blunt in saying that the judicial system and law enforcement did not have a good relationship with Wabash Valley, that they avoided using them when there were other options. He said that Wabash Valley was understaffed and it could take weeks or months to get an appointment. The people from Wabash Valley acknowledged that they were understaffed but said that it was hard to recruit therapists to the community.

Wabash Valley gets about $200,000 from the County and the Commissioners approved the expenditure.

Almost all Commissioners meetings talk a bit about the Frost Law, but this one had more than the usual discussion. A citizen who is a trucker but was speaking as a private citizen said that he thought the law as presently enforced was unfair. He noted that some heavy trucks could use the roads but others that were identical in size and weight could not. He suggested that a permitting system be established, that the county class some roads as primary and others a secondary with different frost-law requirements, and that the law take into account weight per axle. He even volunteered to help in formulating these changes.

Later in the meeting the Sheriff was asked about these suggestions. He thought the permits would be a good idea. It would allow for flexibility and would also be a way to designate truck routes. The goal of the county is to have trucks use county roads as little as possible during the time when the frost law is in effect. By designating routes the trucks would be required to use state highways, which are built to withstand the effects of the frost thawing, for as much of the route as possible even if it meant that the truck traveled a few extra miles. Also, many other counties both in Indiana and in other states have permits so the County would have their experience to use in drawing up a system.

When the Commissioners instituted the Frost Law last year they knew that they would have to make changes as experience revealed problems. I suspect that by next year the Frost Law will have a permit system built into it.

There were many other items on the agenda. A couple citizens wanted the County to vacate right-of-ways for alleys or roads that had never been developed. The Commissioners pointed them to the proper procedures needed to do what they wanted. (Notification of neighbors and a public meeting are needed before any action by the Commissioners.) The Commissioners discussed with NITCO what they would like in future requests to install cable. The Commissioners prefer installation be done by boring. Trenching is acceptable but they do not like plowing. (I am not sure what the difference is between trenching and plowing.) They also want installers to record what other utilities or tiles they encounter and give those records to the County. (The County does not know about many of the private tiles that are installed.)

The Sheriff gave a short report. He said that in 2016 the jail had an average census of 80 and during the year 84,000 meals were served. Bids were opened for repair of the northern annex. The only completed bid was from Hamstra for $22,750.

NIPSCO reported on an extensive project to provide natural gas to about 170 customers in the Georgetown subdivision. It will be a three-month project and will use an outside contractor.

In the afternoon the Drainage Board met. It did not have the agenda posted outside the room and I have never been able to find their agenda on the Internet so I had a hard time following the discussion. They heard the drainage plans for another robotic dairy--I think it was for the Herrema Dairy, which was approved last year by the BZA. Construction will begin very soon and milking should begin in July. The time from start to milk is only five months.

The Christmas tree that I have enjoyed photographing as it underwent changing decorations to match the season has been removed from the second floor of the Court House. According to a lady in the auditors office, it was deteriorating. New on the second floor is one of the bicentennial torches, shown below with a reflection of Jasper the Bison, also on display on the second floor.
Indiana has many interesting Court Houses. The blog post here has pictures of them.