TCA Srinivasa Raghavan

Dr Subbarao’s haircuts

T.C.A. Srinivasa Raghavan Chennai | Updated on November 16, 2017 Published on July 18, 2012

Dr D. Subbarao, Governor, RBI

The economics of haircutting is the last frontier of economics.

Dr D. Subbarao, Governor of the Reserve Bank of India, has hit a creative streak. Within the last week, he has come up with three very interesting questions.

The first was old wine in a new bottle, really: the relationship between the Government and the RBI, and its wards, the banks. If the former wanted the banks to do something, said Dr Subbarao, it should go through the board where the RBI too has a voice.

He followed that up with the demand for a producers’ price index, which again is not quite new. It does, however, show that Dr Subbarao is rebelling against the established order of things.

Marshallian puzzle

But to me it is his puzzlement over the price of his haircuts that is of truly great importance. After all, it is the only thing that affects only the common man.

As a young man with a lot of hair, said the Governor recently, he paid about a tenth of what he pays now as a bald or almost-bald man.

Therein lies an economic question of Marshallian proportions: what determines the price of haircuts — the amount of work that the barber must do or something else?

Like Dr Subbarao who is a late comer to the puzzle, I have always been fascinated by the economics of haircutting, not least because quality is invariant to price.

At a 5-star saloon, you can pay as much as Rs 1,500 for a haircut of indifferent quality whereas a fellow under the tree — one or two whom I have tried — can give you a superb cut and make you feel great for just Rs 15.

Clearly, skills don’t come into it at all, and it is only overheads that create the ambience that matter.

Cutting questions

Having studied location theory under the great Mrinal Dutta-Chaudhuri, the location of barber-shops has also been a matter of great interest to me. How do barbers decide where they will locate their shops?

Many markets have none at all and others have as many as two or three. The differentiator, of course, is the ambience: a/c, non-a/c, fancy chair, wooden chair, clean towels, dirty towels and so on.

There are many other mysteries. For example:

 Why are barbers’ shops not more widely dispersed, say, like ice-cream vendors on a beach who, except when there are three of them, will locate at equal distances from each other?

 Also, surely, if, with population growth, the demand for everything else is going up why is the supply of barbers not keeping pace? (The price of a haircut would not increase if it was keeping pace).

 How does a barber decide on the optimum number of chairs in his saloon? Does he provide for peak loading on a weekend or only for off-peak loading on weekdays?

 How many barbers should be on duty on weekends and weekdays?

 Is mechanised cutting better than the old fashioned way with scissors and comb?

 How much time does mechanisation save per chair?

 Why does a haircut cost only a quarter of a head massage or shampoo?

 Why does a mere trim cost the same as a crew-cut?

The RBI has a large research department which can breach this, the last frontier of economics. And I can think of just the researcher there who can bring home the crown, as it were.

Published on July 18, 2012
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