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THE UNDERCOVER ECONOMIST This page intentionally left blank THE UNDERCOVER ECONOMIST Exposing Why The Rich Are Rich, The Poor Are Poor— And Why You Can Never Buy A Decent Used Car! Tim Harford 2006 Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education. Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Copyright © 2006 by Tim Harford Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York, 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Harford, Tim, 1973– The undercover economist / Tim Harford. p. cm. ISBN-13: 978-0-19-518977-3 ISBN-10: 0-19-518977-9 1. Economic history, 1990– 2. Economics. 3. Consumer education. I. Title. HC59.15.H35 2005 330.9'0511—dc22 2005010297 1 3 5 7 9 8 6 4 2 Printed in the United States of America on acid-free paper To Deborah Harford, Fran Monks, and Stella Harford—family . . . past, present, and future. This page intentionally left blank Acknowledgments Peter Sinclair got me into economics; Tony Courakis, Simon Cowan, Stan Fischer, Bob Garhart, Paul Klemperer, Brendan McElroy, Elinor Ostrom, Hyun Shin, Bill Sjostrom, and many others helped me along the way. I am grateful to them all. At Shell, Ged Davis let me work part-time while I produced the first draft of the book. I was flattered by his reluctance and grateful for his support. Other colleagues at Shell were inspira- tional, especially Betty-Sue Flowers, Anupam Khanna, Cho Khong, Michael Klein, Doug McKay, and John Robinson. At the Financial Times, Pilita Clark, Andy Davis, Chris Giles, Andrew Gowers, John Kay, John Willman, and Martin Wolf gave me opportunities and then made sure I didn’t waste them. At the World Bank, Michael Klein and Suzanne Smith are wonderful colleagues and every day with them is an education. David Bodanis, Felicity Bryan, Penny Dablin, Moore Flannery, Juri Gabriel, Mark Henstridge, Diana Jackson, Oliver Johnson, John Kay, Cho Khong, Paul Klemperer, Stephen McGroarty, Doug McKay, Fran Monks, Dave Morris, Rafael Ramirez, Jillian Reilly, John Robinson, Tim Savin, Martin Wolf, and Andrew Wright improved the book with their comments. Sally Holloway, my agent, has been superb. Tim Bartlett and Kate Hamill at Oxford University Press infuriated me with their precision and insight—I have been very lucky to work with them. • vii • ACKNOWLEDGMENTS Most importantly, emotional support came from Diana Jack- son, my wife Fran Monks, “Uncle” Dave Morris, and Jillian Reilly. Above all I have to thank Andrew Wright, a genius, without whom the book could never have been finished, and David Bodanis, an inspiration, without whom it would never have been started. • viii • Contents Introduction 1 O N E Who Pays for Your Coffee? 5 T W O What Supermarkets Don’t Want You to Know 31 T H R E E Perfect Markets and the “World of Truth” 61 F O U R Crosstown Traffic 79 F I V E The Inside Story 109 S I X Rational Insanity 137 S E V E N The Men Who Knew the Value of Nothing 155 • ix •
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