Regulating Carbon Emissions

In a recent editorial in the New York Times, Eduardo Porter took issue with new energy efficiency standards signed into law by President Obama that will require cars and light trucks to reach 54.5 miles per gallon by 2025. Porter does not take issue with the objective of these regulations, but argues that it could be achieved more efficiently through other means; namely, a higher gas tax:

Consider how a gas tax would work. Because it would make gas more expensive at the pump, we would drive less. When time came to replace the old family S.U.V., we would be more likely to consider a more fuel-efficient option. As more Americans sought gas-sipping hybrids, carmakers would develop more efficient vehicles.

Because the regulations signed by President Obama apply only to new vehicles, they will not have the same immediate effect on consumer behavior that a gas tax would. They are also far more expensive to administer than a gas tax would be, so much so that some economists estimate the costs outweigh the benefits.

The issue at hand is one of a negative consumption externality similar to what we have studied in class. An individual's consumption of oil negatively affects others through the carbon emissions it produces, which can cause asthma, acid rain, and have been linked to global climate change. Both options presented in the article -- the regulations signed by the President and the gas tax advocated by Porter -- involve government intervention; thus, there is no Coasian solution offered that relies purely on the market to resolve the externality. Porter's solution, however, uses government action to alter incentives and then relies on market forces to bring the market to the socially optimal equilibrium. Taxes of this kind that have the aim of reducing a behavior with a negative externality are referred to as Pigovian Taxes, after the economist Arthur Pigou, who developed the concept of externalities. Pigovian taxes may be the most efficient solution to the externality, but, as Porter notes, increased taxation is not feasible in today's political environment, leading us to the second-best solution of externally imposed regulations.

Low Military Absentee Voting Registration

Nearly two thirds of all active-duty military personnel will require absentee ballots in order to vote in the upcoming 2012 presidential election, yet hardly any have requested their ballots. The Pentagon has been trying to increase voter assistance for active military personnel with initiatives such as social media outreach, making call centers available, and establishing more voting assistance offices. The director of the Federal Voting Assistance Program explains that "voting assistance for our absentee military and overseas citizen voters has never been better," yet only 2% of active military personnel from Virginia, for example, have ordered absentee ballots, a far smaller proportion than in previous years.

The marginal cost of voting keeps getting lowered for those in the military who would need absentee ballots, but it hasn't been enough to increase or even hold constant the proportion of military absentee voters. The initiatives, such as adding more voting assistance offices, to make voting easier, have reduced the time and effort one needs to take to request an absentee ballot and vote. If we agree that the marginal cost of voting is decreasing, then since the voting turnout is also decreasing, this must indicate that the perceived marginal benefit of voting is decreasing even more than the marginal cost. This could be the case if active military believe that there is even a smaller probability now than in previous elections of their vote making a difference. Additionally, the marginal benefit could be decreasing if they don't believe there is as much of a potential difference to their future welfare between the two candidates. Alternatively, as an economist might explain the phenomenon, active military personnel may just be starting to think about their vote more logically, now beginning to realize that the marginal cost of casting their vote far outweighs the marginal benefit.

Strict Voter ID Laws' Impact Voting Behavior

In the run up to the 2012 Presidential Election, a few states have controversially tightened voting laws and regulations. Pennsylvania, something of a 'battleground state', is one example. It now requires all voters to present state-issued photo identification in order to vote, not just the usual proof of residency. Critics argue that this new provision is targeted and places an undue burden on specific citizens that will prevent them from voting—those of urban and lower socioeconomic backgrounds, who tend to vote Democratic. This article presents the story of Cheryl Ann Moore, a 54 year-old African American woman who has lived/voted in Philadelphia without any photo ID for years—but due to this new provision, she had to get a photo ID in order to vote come November.

With that, after four hours, Cheryl Ann Moore became the proud owner of a laminated Commonwealth of Pennsylvania Department of State for Voting Purposes Only ID card.  

“I feel good!” she said. She grinned, kissed the card, put it inside a compartment in her knockoff Louis Vuitton purse and zippered it shut.

The economic approach to voting behavior states that people vote only if their marginal benefit of voting is greater than or equal to the marginal costs associated with casting a ballot. As we see from Ms. Moore's experience, the marginal costs of getting this identification are quite high--in terms of time, energy, money, and missed work. Though for Ms. Moore the marginal benefit that she derives from voting must be incredibly high, if not infinite, since she willingly spent the entire day wading through long lines and red tape to get this new ID. Her tirelessly positive attitude at the end of the day just goes to show that her marginal benefits of voting did indeed outweigh the costs--though we can't necessarily pinpoint the precise nature of her benefit. Economic theorists like Johnson would predict that many voters have lower marginal benefits than Ms. Moore, and in this situation would forfeit their right to vote simply because the marginal costs have increased dramatically, likely well beyond their level of marginal benefit derived from voting. An individual voter realistically has little impact on the outcome of the election, and many would rather spend a day doing something other than waiting around the DMV for an ID card. The actual impact on the turnout of the affected Pennsylvania voters remains to be seen, but I personally hope that many people will be like Ms. Moore and highly value the priceless right to vote over whatever obstacles the state puts in the way. 
 
Note: I am including the time spent getting the ID under her marginal costs of voting—even if she hasn’t voted yet—because I assume for argument's sake that she will vote since she took the time to comply.

NBA Prisoner's Dilemma

A little less than a year ago, the National Basketball Association was involved in an epic dispute between the players and the owners.  The owners wanted to impose a salary cap on the players in order to make their salaries more reasonable.  Before the dispute, the players had received more than 50% of the total income earned through basketball.  As the negotiations progressed, that number steadily decreased but did not descries enough for the owners to be satisfied.  The two sides could not reach an agreement in time to start the 2011-2012 season.  As a result, the first few weeks of the season were canceled and a lot of money was lost.  If the players and the owners had come to an agreement earlier, they would have been better off.  Yet both sides persisted and were adamant about keep that 2-3% of the money that was to be split between them.  This lockout was one of the worst in NBA history, as Mark Medina points out, mainly because of how stubborn the two sides were.

"If the owners honestly wanted to give a fair deal, they would've been satisfied with the $3 billion the players union already gave back through a 10-year period. If the union was honest with its negotiating power, it would've realized earlier that any further offers will only worsen."  

Both sides were trying to wait out the other, while coming to a mutual agreement would have been in their best interests.  This is an example of a prisoner's dilemma, the owners and the players being the two prisoners.  Both players in this game were trying to play their dominant strategy, resulting in a suboptimal outcome.  Although the players and owners eventually worked the 2011-2012 lockout out, it is foreseeable that this kind of dispute could happen again.  This situation justifies a constitution like document for the NBA, seeing as the two sides had such a difficult time coming to a voluntary arrangement.

The Noisy City

Recently Charlottesville has passed a new noise ordinance making the violations pricey for student organizations. The permanent residents of Charlottesville argued that they were experiencing large negative externalities because of student parties. The primary externality was noise pollution, however Erica Goldfarb also emphasizes an ironically understated externality "Police have more important crimes to worry about on the weekends, they can't always be running around to fraternity or house parties trying to quiet the students down," Goldfarb says.

I believe that Erica Goldfarb has just pinpointed a more severe negative externality that is stemmed from the new noise ordinance. Just as donut shops will attract police, new noise violations will also attract police activity, furthering more police away from the actual crimes and leading them on goose chases through student housing.

If Erica Goldfarb and other neighborhood alliances had employed the Coase Theorem, I think all negative externalities could have been diminished without government intervention. The neighborhood alliances could have dealt with student unions, or the University itself, working out a non-government induced allocative efficient situation, such as less parties on weeknights, or earlier curfews.