Saturday, October 02, 2010

The Income Elasticity of Demand for a High Quality Toliet

Engel curves interest economists.  As we become richer, how much does our probability of buying a car increase by? That's an example of an Engel curve.  Today, the deep question is the relationship between income and the quality of a toliet in your home.  This LA Times Article provides details for China. As China's cities grow richer, household bathrooms are undergoing  a radical improvement.

This article hints that they are a status symbol.  Maybe it is a way to make new friends as they drop by your place to use your toliet?  When I visited Beijing in September 2009,  I thought that the toliets were great.  At Tsinghua University's Real Estate Department, the bathroom had the title "Man Room" -- I liked that. It was manly in there and clean.    There was a guard stationed outside of it. I didn't know what he was doing there but we got on just fine. 

This article speaks to the larger question of how do we "measure progress"?  China's transport infrastucture (roads, subway system),  building infrastructure (housing towers) are all undergoing massive investment.  Beijing's infrastructure looks better than New York City's old infrastructure.  Critics will correctly point out that China's cities are dirtier than U.S cities. But, I predict this is not an equilibrium. Rising income will create a middle class who want their "human capital and health capital" to remain high and they know that pollution causes trouble, this group will push their strong authorities to tackle the pollution problem and just as the "J" curve predicts --- we will see air pollution falling in China's growing cities.  Now, this doesn't mean that greenhouse gas emissions will fall. I'm talking about smog and local pollutants. 

Why am I so confident?  Because, I have read the two papers I have written on this subject;

#1:  http://ideas.repec.org/a/eee/regeco/v40y2010i1p1-10.html

#2:  http://ideas.repec.org/a/eee/juecon/v63y2008i2p743-757.html

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