economics – Jason Carter

For the past year or so I’ve been using Bookmooch, a great free book swapping service. After signing up, you list books you are willing to give away, gaining 0.1 points per book. Once you have a full point, you can spend that point by requesting a book from another member. If you send a book to someone else, you gain a point. You also earn 0.1 points by posting feedback about the swapping experience. Finally, if you send a book to a foreign country, you earn three points (the requester spends two points).

I love the service, but lately it is getting harder to find books to spend my points on. I have a feeling it’s related to the points system, but I’m not sure how to best demonstrate that. Over the long term, the points system doesn’t seem to be sustainable because of inflation. For example, the transaction nets +1.1 points for the giver and -0.9 points for the receiver, for a net gain of 0.2 points; this gain is due to the 0.1 for adding the book and the 0.1 for posting feedback. The foreign country book exchange results in even more inflation, +1.2 for the transaction.

I decided to look through some of the publicly available stats to see if there were any trends to back up my hunch. There were a few metrics I found interesting: total number of points in the system, total # of books saved in wishlists, and total # of books available in the system (inventory). I normalized all these over the total number of users and graphed the result below (x-axis is time from 8/18/06 to today).

What does this imply?

The number of books in wishlists is growing while inventory is falling. With the price of a book fixed at one point, I think this is creating a supply / demand imbalance.
Note that the inventory curve started positive and seemed to outpace the wishlist curve, but then the inventory peaked and started declining. Part of this may be explained by users signing up to check out Bookmooch, but not adding any inventory. I think this relationship also shows that point inflation is taking effect; users are finding themselves with more points and are slowly stripping away inventory in the system.
All the while, points per user is continuing to climb.

What can we expect if we fast-forward a couple of years? Existing users will have a large number of points to spend, dozens (hundreds?) of books in their wishlist, but very little inventory to meet that demand. When a new user joins and posts their valuable inventory, existing users will snap it up very quickly, thanks to wishlist notifications. That new user will find themselves flush with points but very little to spend those points on. They proceed to add dozens of books to the wishlist. The cycle continues.

I don’t even know if the system truly is broken; an economist could do a much better job of analyzing the data and would probably prove me wrong on many points. But, I have a few ideas that may improve the points system.

Eliminate the 0.1 points for adding a new book. Either require new users to give a book before they can receive one, or give them one point for free after signing up to encourage future trading. Or, give the 0.1 point for listing the book and the remaining 0.9 points when the book is mooched.
Likewise, remove the 0.1 points for providing feedback. Users will want to give feedback for free in order to clear out their “Waiting to Receive” listing. This combined with the first idea will help eliminate point inflation.
Continue to reward users for sending books internationally, but give only two points instead of three. For the receiver, continue to deduct two points; I’d consider raising this to three points to create some downward pressure on # of total points.
For wishlist books, introduce the concept of advanced notification for the price of one point. For example, two points will give you the opportunity to view and mooch a wishlist book 24 hours before other users who are willing to spend only one point. As the transaction happens, make that extra point vanish rather than transferring it to the giver. I think reducing the total number of points will help encourage existing users to list more books.
To create a true market without an artificially set price of one point per book, allow users to enter bids for a book. Some of the extra points could be transferred to the giver, but bleed off at least one point per transaction. This type of system would make it nearly impossible for new users to obtain in-demand books, so I don’t think this would match with the founder’s goals for Bookmooch.

My gut tells me there are too many points in the system, with too many users chasing too few books. Removing point inflation and introducing some mechanisms for burning up points may help, but there may be some long term effects that I’m not considering.

As I said before, I love the site and these are just some thoughts about the underlying market dynamics and not criticisms by any means. I’m really interesting if anyone else out there has thought about these issues and would care to refine / correct some of my thoughts.

Update – 9/23/08: As expected, there have been a few discussions on the Bookmooch site about point inflation. This post recognizes that inflation exists in the system and the end result may be that “everyone will eventually end up with a bunch of points they can’t use.” And, this comment captures the inflation issue as well; lots of other good ideas in that thread, including limiting the 0.1 point gain for the first 20 books added.

Update – 9/24/08: John Buckman from Bookmooch posted a comment with some good insights into the system. Based on the feedback in his first point, I’ve updated the chart to normalize all values over total users who have listed books to give, whereas previously the values were over all total users. This method should remove users with inactive accounts, but will ignore those users who are active but have no inventory. Still not perfect, but maybe slightly improved. The total # of points line (blue) is still skewed higher because points of inactive users are still being counted.

Looks like the biggest change is with the inventory / member line, which shows a plateau with gradual decline rather than the peak and drop off in the original graph.

I also added in a new measurement, number of current mooches per 100 users who are listing books to give (green line). This validates point #4, that mooching activity is on the rise, not just in total, but also on a per user basis and contradicts my hypothesis that users are finding less mooching opportunities out there. It will be interesting to see if this line ever crosses the 100 mooches / 100 users mark.

During my senior year at Cornell, I thought it would be a great idea to take an upper-level Econ course about the history of China’s economy. Let me just say that taking this course pass-fail was one of the best decisions I made that year.
This is a little dry, but give it a shot. It’s not as bad as some of the other crap I’ve put on this site,
and there’s a reasonable chance you might learn a little bit.

Jason Carter
Economics 469
December 4, 1997
Topic #2

During the period from 1984 to today, the development of the Chinese economy can be split into two different stages of reform: the new economic model and the socialist market economy. Although both types of reform sought to change the economic structure from planning to markets, the nature and success of the reforms that were implemented varies significantly between the two periods. In general, the reforms of the new economic model failed on many fronts because of difficulties with implementation. The socialist market economy turned these failures into successes through a more complete package of reform based on price rationalization and marketization.

The intent to develop the new economic model was expressed in the Chinese Communist Party document of 1984. The new program called for a wide range of reforms in the agricultural and industrial sectors. In the industrial sector, the state sought to implement similar reforms used in agricultural reform. In order to reduce the level of government control over industrial enterprises, the state allowed the enterprises to retain a greater amount of profit. During the new economic model, this took the form of the tax-for-profit system. This system eliminated firm profit remission to the state and focused on taxation instead. The state also sought to move from mandatory planning to guidance planning during this period. This change meant that the state would give the firms recommended output goals and encourage the firms to adhere to these goals by manipulating the price and tax levels.

Out of the 1989-1991 retrenchment period came another push for reform through the implementation of the socialist market economy. The most important aspect of this period of reform is that the markets are the primary means of resource allocation. The government no longer uses guidance planning or price manipulation to influence the economy. Through major reforms of the price and tax systems, the state lets the markets determine the price levels and establishes a level playing field for all enterprises.

One of the most striking differences between these two periods is the degree of success of price and tax reforms. During the new economic model, the government attempted to implement a wide range of reforms to reduce the state-s control over enterprises. These reforms failed to live up to their potential because the government did not simultaneously reform the price structure. During the socialist market economy, the government made a complete transition to market determination of prices, which enabled other reforms that depended on a rational price system to take effect (such as reform of tax system).

In the new economic model, a majority of the firms fall under the category of guidance planning, not the free market. The government attempted to control the activities of the firms by manipulating prices and taxes. Under the tax-for-profit scheme, the state attempted to move away from profit remittance towards a system of taxation in order to influence the actions of enterprise managers. However, this level of control was implemented without first reforming the price system. During the new economic model, the economy took the form of a dual-track system, with planned and market sectors, and different prices for each sector. This pricing system would cause huge variations in profit rates between firms. These differences in profit rates would result in some firms retaining a huge amount of profit while others would be left with zero profit. In order to decrease the amount of profit retained by certain firms, the state implemented an adjustment tax, which was more or less arbitrary and subject to negotiation. Therefore, the government’s goal to produce a level playing field had failed because the faulty price system created an arbitrary tax system.

During the socialist market economy reform, the government again attempted to reform the tax system. However, the government first set out to change the price system through full implementation of market determined prices. This helped eliminate the dual-track system, which used market prices for outside-plan production and state influenced prices for inside-plan production. The end of the dual-track system led to reforms in the tax system by eliminating wide variations in firm profitability. As a result, tax rates are applied more consistently between firms, and the degree of taxation is no longer subject to negotiation. This reform levels the playing field for all types of firms because taxes are applied evenly to all ownership systems.

Another key difference between the two systems is the varying level of control of the central and local governments. During the tax-for-profit program of the new economic model, taxation authority and tax revenue were divided into central and local portions. Frequently, local governments would have complete control over tax collection and remit a certain amount to the central government. The main goal of this system was to provide incentives for the local governments to improve revenue collection and take a more active role in promoting firm profitability, and therefore increased tax revenue. In contrast to this system, the tax collection system during the socialist market economy is much more centralized, with the central government collecting a majority of the taxes. To accomplish this re-centralization, socialist market economy reformers have to provide incentives to the local government to relinquish their taxation authority. These incentives are often in the form of decreased interference by the central government and increased tax revenue due to a more efficient collection system.

Another key difference between the two reform periods is the level of importance of markets. During the new economic model, markets are only incorporated into certain segments of the economy. Enterprise managers were actually opposed to the reforms because they were used to the planned economy system. The new economic model is a period of transition from a planned system to a market system. As a result, the two economic systems often overlap and conflict with each other, as is the case with the dual-track system. This incomplete switch to a market economy is the main cause of the irrational price structure and arbitrary tax system. The goals of the new economic model failed to be realized because of these problems.

In contrast, the period of the socialist market economy is characterized by a complete switch to a market system. The government first allowed prices to be determined by the market, and as a consequence, reforms in the tax system and an overall leveling of the playing field took place.

The new economic model and socialist market economy reform periods both sought to decrease government intervention through a transition to a market economy. However, a partial transition combined with inadequate reforms of the price and tax structure caused the new economic model to fail and lead to economic retrenchment. The reform efforts of the socialist market economy were more successful because marketization and rationalization of the price system occurred before other reforms were undertaken.

Tag: economics

The Future of Bookmooch

A History of China’s Economy