Marketplace worked with me to produce this video about the economics of signalling in the workplace. They did a fantastic job, and you even get to hear my David Attenborough impression. The video is loosely based on one of the Dear Economist letters. Enjoy!

Do waiters in mid-priced restaurants work less than those at high-end ones? If not, shouldn’t their tips be the same (in absolute terms)?
Manoj

Dear Manoj,

I can see where you’re coming from: a 10 per cent tip on a £20 meal is less than a 10 per cent tip on a £100 meal. If it’s the same waiter doing the same job, shouldn’t the tip be, say, £5 for each meal – a 25 per cent tip in one case and a 5 per cent tip in the other?

This is not what happens. According to a survey by the economist Ofer Azar, the absolute size of tips in the US is overwhelmingly dependent on the size of the bill. In Europe, formal service charges often replace tips and the FT’s restaurant insider, Nicholas Lander, tells me that such charges tend to be proportionate to the bill – or if anything, to be a higher percentage in the fanciest restaurants.

I am not sure the puzzle is quite as perplexing as you think, though. First, the connection between what the customer tips and what the waiter gets is far from straightforward. Waiters are not slaves: if tips are too low to attract them, then the restaurant owner will have to add a wage. And if a waiter can earn hundreds of pounds in tips at a top restaurant, the owner will be able to demand a share without running short of staff.

Second, high-priced restaurants tend to have fewer customers per waiter, to ensure attentive service. They receive higher tips, but fewer of them.

Despite these points, it is of course possible that waiters are paid more in better restaurants. But in a capitalist society, skilled workers expect to earn more. I suggest you sample the quality of service at El Bulli or the Fat Duck, and pop into Pizza Hut on the way home. Then tell me again that the waiters should earn the same at each place.

Questions to economist@ft.com

Alex Ritson of Cass Business School interviews me about Dear Undercover Economist.

With the imminent passing of my pet rat I am faced with a lot of grief; he has been a great pet and so I will be more saddened by his passing than if he had been a bad one. My question is: is it possible for the cost (the grief from losing a friend/pet/family member) to outweigh the benefit (the joy gained through time spent with them) and so make the purchase of my pet not worth it, as the net benefit would be negative? Would there be a point where you would say: “I don’t want to get involved because I love X so much that I will be destroyed if I lose him?”
Ilka

Dear Ilka,

Your intriguing problem has not, as far as I know, been explored by economists before, although it has been discussed by artists. Your ailing rat puts me in mind of a departed sparrow, mourned in verse by Catullus. Paul Simon expressed the trade-off more directly in his early song “I Am a Rock”: “If I never loved I never would have cried.”

But poetic speculation gets us nowhere. Let’s head straight to the data. Andrew Oswald, professor of economics at Warwick University, provides the following data points to ponder, based on surveys of life-satisfaction. Relative to never having been married, being married is worth 0.38 “points” of life satisfaction on a scale of 1-7. Being separated is worth -0.24, widowed -0.19 and divorced -0.09.

This is not much to go on, but it is better than nothing. If we incautiously interpret these numbers as causal – in fact they are merely correlations – then we could conclude that 20 years of marriage is compensation for up to 40 years of widowhood. Ten years of marriage more than justifies 40 years as a divorcee.

For human marriages, these odds seem pretty good. For a pet rat, less so: the little darlings hit puberty at six weeks and rarely live past three years. Perhaps you should buy a tortoise next time.

Questions to economist@ft.com

After reading with interest your plan to start exercising last Christmas (by giving to charity if you didn’t meet your goals), I’d be obliged if you could offer an opinion on a similar scheme I have concocted. Wine is the problem. I drink too much of the glorious stuff, and am unable to convince myself that doing so is unhealthy.

Your idea of giving to charity would not work with me. I’m uncharitable, I’m afraid, and would probably rather lie than give my earnings away. Here is my alternative. Each month I will deposit the total amount I would spend on wine in the family joint bank account. If I want a bottle, it must come out of this account, but whatever is left at the end of the month is to be given to my wife and children.

This appears to be an excellent solution; in my view, the guilt of taking something away from my beloved wife and children is far greater than taking from myself. Do you agree?
DW

Dear DW,

In classical economic theory, your scheme would be useless. Every pound spent on the demon drink is always a pound unavailable to your wife and children, and it should make no difference which bank account you put it in.

But Richard Thaler, a leading behavioural economist, has a theory of “mental accounting” that supports your plan. We do attach different labels to different pounds: this one is for my pension, that one is slush money. And Thaler has discovered that those labels make a difference to the way we behave.

Your scheme may well work, then. But like all commitment strategies, there is a risk that it will backfire, and you end up with the worst of all worlds. You may find yourself unable to stop drinking, feel more guilty than ever, and demonstrate unambiguously to your family that you love booze more than you love them. You evidently like to live dangerously: good luck.

Send questions to economist@ft.com

For those who haven’t been able to get tickets to my talks at LSE last week or Cass Business School tomorrow, here’s yet another chance! I’m speaking about the ideas in Dear Undercover Economist at One Alfred Place on Thursday, 6.30pm for 7pm.

One Alfred Place is normally members only, but they have agreed to open the talk to non-members.

Should the football authorities put a cap on the total value of players, based on their transfer cost, that can play for a Premier League team in any given match? For example, although a squad might have cost a team £150m, the cap would mean that they could only use players in a match up to a value of £75m. This would create a level playing field and prevent wealthy clubs from “buying” silverware through purchasing the best players.
Keith Bates

Dear Mr Bates,

Your proposal sounds reasonable, but it is muddled on three counts. First, think of the unintended consequences of your rule. It would favour wealthy clubs with expensive established training academies, because they have a stable of young players who carry no transfer price. You would also discourage clubs from trading players if one club’s academy discovers three great goalkeepers. And would music fans be better off if Mick Jagger and Keith Richards were forced to take it in turns to play for the Rolling Stones?

Second, transfer payments are not in fact associated with success on the field. The economist Stefan Szymanski, co-author of Why England Lose, has used a statistical analysis to show that while a club’s wage bill is correlated with success, its transfer spending is not.

Finally, fans do not actually want a level playing field. Arsenal’s “invincibles” season, 2003-2004, saw them win 84 per cent of league matches and lose none. Every game was a sell-out. More rigorously, Szymanski has shown that more unequal seasons attract more fans. And why not? The big clubs have lots of fans and those fans want to see victories.

In short, you have the wrong objective, suggest the wrong rule to achieve it, and are blind to the side-effects. Any banking regulator in the world would be proud to give you a job.

Questions to economist@ft.com

Samantha, my PA, is so very unreliable. For example, she failed to pass on your invitation to feature as a responding correspondent in your recent “Dear Undercover Economist” plug article. However, she does have a fantastic pair of, er … feet. Should I fire her?
Bob Casablanca

Dear Mr Casablanca,

Much depends on your line of business. In Mel Brooks’s masterpiece, The Producers, the crooked Broadway magnate Max Bialystock hires a blonde bombshell, Ulla, whose secretarial skills consist solely of the ability to pick up the telephone and intone, “Bialystock unt Bloom, Good tag por day.” She can, however, dance. Bialystock is happy enough, which is understandable given that the sole aim of his production is to go bankrupt.

It is unlikely that you share Bialystock’s aims, but if you work for a large organisation, you may share his contempt for his shareholders. Your PA’s incompetence largely disadvantages them, while her aesthetic appeal – which an economist might call a “non-pecuniary benefit” – is enjoyed by you alone.

Naturally you have to ensure that your PA’s failings are not so disastrous as to damage your own career, but that should be manageable, especially if you continue blaming her whenever something goes wrong.

If you own a large stake in the business, the trade-off is more painful. Samantha will be costing you money. I cannot advise you as to the right course of action, since I don’t know how much money you have, how much you want, and how “fantastic” she really is. I would simply note that you can always look for other options. You could hire a second PA to work in parallel with Samantha. Or you could seek out a PA who offers the best of everything. It cannot be impossible to find an assistant who is both effective and attractive.

Questions to economist@ft.com