Changing Regulation by the FAA

For years, airplane passengers have been told to turn off all their electronic devices while the plane is taking off or landing, as required by the Federal Aviation Administration (FAA). However, an announcement this week by the FAA, as outlined in this WSJ article, indicates that passengers will be able to use their electronic devices at ANY altitude, as long as the cell signal is turned off. The only requirement to offer this service is passing a five-step safety process proving that electronic signals will not affect the aircraft.

Building off of what we learned in class and from the Stigler paper, this apparent reduction in legislation could actually be viewed as additional legislation, acquired and most likely designed by the airline industry itself. The article seems to confirm this, as it mentions the FAA made its decision after "embracing recent recommendations by a high-level advisory group," no doubt made up of many airline executives.

The ability to offer better service to passengers, and the "costs" of going through the safety process, will most likely allow the airlines to justify higher prices to their customers. The additional safety guidelines relating to electronic devices, including the costs of setting up effective Wi-fi in the air, will also deter new airlines from entering the industry due to the higher costs. Thus, this new regulation will allow airlines to raise their prices and deter new entrants at the same time.

Sober Santa

In the United States, the alcohol industry has self-regulatory bodies that determine appropriate standards of advertising.  Large alcohol companies avoid government regulation by agreeing to abide by a set of strict rules they impose on each other.  One of the largest self-regulating bodies is called DISCUS, The Distilled Spirits Council of the United States.  Their website lists all members which include Bacardi, Moet Hennessy, and Patrón.  The organization represents 70% of all distilled spirit brands sold in the US. 

As a part of my summer internship at a marketing firm, I had to research the rules on alcoholic beverage advertising in the United States.  Their “Code of Responsible Practices” is exhaustive.  I found one rule particularly comical; “Beverage alcohol advertising and marketing materials should not contain the name of or depict Santa Claus.”  No one wants his or her child to see Santa Claus boozing it up on a commercial during family time. 

Alcohol companies are content with society believing these rules are for the “public good.”  However, the Stigler article we read suggests that regulation can be beneficial for already established companies because it strengthens barrier to entry.  If the “Code of Responsible Practices” makes it difficult or near impossible for emerging companies to advertise, then companies will have more difficultly selling their products and entering the market.  Large and previously established companies love these regulations because they reduce competition.  I guess Santa Claus will just have to stick to milk and cookies this Christmas.

Regulations to Blame for HeathCare.gov Failure?

      Ever since the HealthCare.gov website went live there has been a never-ending string of frustrations and complaints with the website’s inability to perform its job.  This article highlights this was not really a surprising outcome as “94 percent of large federal information technology projects over the past 10 years were unsuccessful.” The article credits the HealthCare.gov’s and other government technologies’ failures to the regulation surrounding the bid process for contracting out these jobs.

            Of the types of regulation discussed in class, the article blames entry restrictions on rivals as the cause of government technologies failures.  With over 1,800 pages of legal code the article points to the Federal Acquisition Regulation as the main regulatory barrier claiming it “all but ensure(s) that the companies that win government contracts… are those that can navigate the regulations best, but not necessarily do the best job.”

            Basically, this regulatory code prevents smaller firms from entering the contract award process because they cannot sift through all the regulation despite their ability to build better technologies. The regulation serves as a barrier to the government information-technology sector, ensuring the large firms who support the regulation continue to win contracts, collect profits, and create poor systems while new firms cannot break in to win contracts.

Will Madagascar's New President be a Condorcet Winner?

Madagascar is waiting on the results of the 2013 presidential election, the first after four years of political deadlock. Since president Marc Ravalomanana was ousted in 2009, Madagascar has been in a state of political turmoil and there have been severe social, environmental and economic costs as a result of this crisis. This article explains the progress of the current election. Over the next few days, results will continue to trickle in but as of right now, “Richard Jean-Louis Robinson has about 30% of the votes so far, while his main rival Hery Martial Rakotoarimanana Rajaonarimampianina has just over 15%.” Only a small portion of the polling stations has released results as of today. The article then goes on to explain that if no candidate receives 50% of the votes, a runoff election will be held.

            The use of a runoff election in democracy is discussed in Mueller Chapter 7 along with other alternatives to the simple majority rule. In majority rule with a runoff, if no candidate receives a majority, the top two candidates with the most votes compete to reach a majority. The importance of the runoff method lies in that it is decisive and picks a winner. This winner might not always be a Condorcet winner, but studies have shown that when there are two candidates, the probability of a Condorcet winner is 100% and given a high number of candidates, runoff elections result in a Condorcet winner still around 60% of the time. In this election, there are around 30 approved candidates in the running, which means that even if there are two front-runners, votes given to the other candidates could be enough to warrant a runoff. Because of the reliability of a majority rule with a runoff, hopefully a Condorcet winner can restore political stability to Madagascar.

Externalities and Rent Seeking caused by Fracking

     This article describes how in recent years the development of new drilling methods (i.e. fracking) have allowed oil companies to tap into places never thought possible.  While this has brought increased profits to companies, it has brought negative externalities (stemming from production) to neighboring landowners who have to deal with the hazards and annoyances of oil wells.  

     The Coase theorem (or some application of it) appears to have been used in cases where landowners also own mineral rights and can thereby demand royalties from the oil companies.  However, in many cases, landowners do not own the mineral rights, and so they do not receive royalty payments.  In cases where landowners lack mineral rights, Coase might suggest paying the oil companies not to drill or to at least put up sound barriers.   

     Interestingly, the article mentions a nonprofit group (i.e. a special interest group) that looks to "preserve quality of life and protect the environment while helping the economy." Those affected by the externality and without mineral rights could have much to gain from an interest group like this one.  Rent seeking could result from this situation if disgruntled landowners begin going head to head with oil companies by spending money on this or other interest groups in an effort to lobby local and state governments for a share of the profit.