Chiefs vs Seahawks: A Battle of the Fans

The premise of the expressive voting theory is that both instrumental demand and expressive demand are required to explain why people vote because both aspects of demand contribute to voters' utility. In general, according to microeconomics, the utility derived from expressiveness must be summed with the instrumental demand, which is based upon usefulness, to explain the demand for any good. Some goods, services, and actions, however, such as cheering at a football game, have no instrumental demand. Though when an entire stadium erupts the fans collectively might have the ability to affect the game by making it difficult for teams to communicate and creating an intimidating environment, no individual fan can be heard by the players and thus makes no discernible difference on the outcome of the game. It thus makes no sense to cheer from the perspective of usefulness, and yet people cheer nonetheless. Thus, it can be concluded that people derive a large amount of utility from expressing support for their team.

The Seahawks, who claim to be home of the 12th man due to their particularly raucous stadium, appear to derive the most utility of any fan base from expressiveness. There was a battle for the record of loudest stadium during last season: "Seahawks fans set the record first, then Chiefs fans broke it, then Seahawks fans got the record back," by achieving a sound level of 137.6 decibels, "the equivalent to a military jet taking off from an aircraft carrier." However, fans of the Chiefs are attempting to demonstrate to the world that they indeed receive more utility from expressing support for their team in spite of their individual inability to alter the results of the game; on Monday, "Chiefs fans at Arrowhead Stadium will try and break the world record for loudest stadium." In the NFL, cheering is particularly futile because of the frequent use of silent signal calling; only audible calls - changes made at the line of scrimmage - must be executed verbally, and not all quarterbacks have the authority from coaches to make them.

Michael Jordan: The Underpaid Superstar

It is tough to fathom that Michael Jordan, the first billionaire athlete, was underpaid at any point in his career, however, that is exactly the case when it comes to “His Airness”.  Furthermore, because Jordan was underpaid, he did not play enough during his career.  Of course both of the previous statements are in economic, rather than absolute, terms, as Jordan averaged over 38 minutes per game over 15 seasons, and made $94 million from just his salary during his career.  The reason Michael Jordan did not play enough during his NBA career, when looking at it from an economic perspective, is because Michael Jordan was a positive production externality.  

Jordan earned vast amounts of money for the league and the other owners during his career, yet was only compensated directly for his playing time (production) by his salary with the Chicago Bulls.  As noted in this article in Fortune, Jordan’s career effect on road game gate receipts was $30.5 million and his career effect on the broadcasting revenue received by the NBA was $366 million.  During his time in the league, merchandising revenue also increased for the NBA from $44 million to $3.1 billion.  Although a specific amount of this increase is not attributed to Jordan in the article, it is safe to believe that Jordan contributed a lot this growth, especially since he has the best selling jersey of all time.  Totaling just the increased gate receipts and broadcasting revenue, Jordan was responsible for an increase of $396.5 million in revenue for the NBA and the league owners, and when considering the increased merchandising revenue Jordan brought, this figure is likely well over $400 million.  As can be seen by the increase in revenue generated by Michael Jordan, he was a positive production externality because his playing (production) brought in well over $400 million to the league and its owners, which all of the owners benefited from, while only the Chicago Bulls’ owner had to compensate Jordan any amount for this increased revenue.   

The fact that Michael Jordan was a positive production externality made it so that the private marginal cost (PMC) to the Bulls’ owner was greater than the social marginal cost (SMC), since the league and all of the other owners received an external benefit from having Jordan play, without having to pay for this benefit.  As a result of the SMC being less than the PMC the amount Jordan played, Q^*, was less than the allocatively efficient amount, Q_AE, that Jordan would have played had other owners also paid (allocated more resources to) Jordan to increase his production (have him play more).  Although odd to think about a single person as a positive production externality, this is exactly what Michael Jordan was during his career in the NBA.  This made it so Jordan played too few minutes and as a result was an underpaid superstar.

USA vs. Germany

Often times finding a scenario similar to Game Theory's Prisoner's Dilemma in the real world is difficult. However, this past summer in Brazil, one such scenario arose. As a point of review, the Prisoner's Dilemma is a situation in which a dominant strategy exists for each player and the outcome that is reached is not Pareto efficient. This means that each player, regardless of the other player's move, has a strategy that will maximize their utility. And in the equilibrium reached from these dominant strategies, a change in the equilibrium can make one person better off without the other being made worse off. A situation similar but not identical to this situation occurred in the World Cup.

Elaborated upon in this article from the Wall Street Journal, the US Men's National Team and Germany's National Team reached a situation where a Pareto efficient equilibrium could be reached if they both tie and guarantee an advance to the next round. However, each team could gain from breaking that agreement and winning the game. This outcome would be better off for the individual team who won because of advantages of seeding for the next round. So the dominant strategy for each team is competing and the equilibrium reached is a situation where one team goes through and the other team might go through (depending on the result of the game between the other two teams in the group). This outcome is not Pareto efficient because both teams are not guaranteed a spot in the next round. If each team lay down for 90 minutes and decided to tie, both teams would be guaranteed a spot in the next round.

 

People’s Climate March: Free Riders Start your Engines

Yesterday, September 21, over 300,000 demonstrators took to the streets in NYC to protest rising global levels of Carbon Dioxide (an increase of 2.5 percent in the past year), and the idleness of world governments on environmental issues. This protest took place in other cities, such as Paris and Papua, New Guinea, and was scheduled to display large environmental concern prior to the United Nations Climate Summit that is to take place September 23^th, which India and China stated they would not be attending. The protestors represented a diverse community of people concerned for the future of their planet, including religious groups, politicians, grandmothers, youths, scientists, and topless hippies. This demonstrates the wide concern for the immediate and long-term consequences and costs of global inaction.

Global warming due to carbon dioxide emissions represents one of the largest negative externalities in the world economy, yet is an inevitable outcome in the production process and in a booming economy. The question of how to lessen the negative externality to a quantity that is allocatively efficient for the global society, which is what will be discussed at the UN Climate Summit this Tuesday, is the main concern for politicians and the demonstrators. However, countries like China and India have decided to abstain from the summit meeting and have in the past said they would make an effort to reduce emissions, but lately have been falling short of that promise. China, the largest contributor of carbon dioxide emissions, has not recently taken any steps to reduce emissions, thus increasing the costs of reducing the externality to the allocatively efficient level for everyone else, while also free riding on the benefits from other’s efforts in emissions reduction. The problem the concerned global community faces is that China and India are independent nations, and thus regulations and efforts to reduce emissions mandated from the UN are ineffective if China and India do not want to take part in binding international agreements. They are partly responsible for global warming, but the international community cannot make them liable for damages if China and India do not want to take part in global environmental policies. These nations know that the rest of the world is internalizing externalities and increasing production costs to decrease pollution, so why should they also increase production costs when their growth rate is already slowed and they are still behind the rest of the world in GDP per capita. We will just have to hope that Chinese and Indian corporations feel the pressure from international trading partners to reduce emissions and solve this free rider problem with a Coasian solution, regardless of their governments’ obstinacy. 

Externalities caused by Cultural Norms

As an introvert, I am naturally sympathetic to the view Susan Cain expounds in this TED talk (watch 3:14-9:41 if anything). She expresses a concern for certain individuals and society as a whole arising from cultural norms that look down upon introverted tendencies. She seems to be claiming that individuals' natural favoring of the extrovert over the introvert, normally inadvertently by exercising cultural norms, has actually had negative effects on society. Hence, I will relate this clip to externalities. I wish to show, using her evidence and claim, that the individual exercising current societal norms produces a negative externality.

Susan Cain lists some outcomes of our extrovert-favoring culture: introverts are seen as outliers, work is often done in groups, and extroverts are preferred for leadership positions. And she claims that these outcomes are actually negative to society as a whole. Each type of individual supposedly has a "zone of stimulation" that is right for him/her. For introverts, solitude is often their zone. When an introvert is alone, he is better able to maximize his talents and creativity. Today's culture looks down upon those who spend too much time alone, and hence people are dissuaded from enjoying solitude. Yet, that means that a sizable amount of individuals are not encouraged to maximize their talents and creative nature, something that is terrible for society. Again, we are often encouraged to work in groups nowadays. Yet, as shown above, certain people produce better results when working alone. Finally, the natural tendency to prefer extroverts for leadership positions often deprives us of the skills more unique to introverts, carefulness and respect for subordinates' autonomy, for example.

I think this TED talk shows that individuals exercising today's cultural norms are actually producing a negative externality, harmful to society and introverts. If we had a graph with "extroverted tendencies" measured on the x-axis and "value of extroverted tendencies" on the y-axis, we would see that demand is far too high; private marginal benefit, because the individual gains private fulfillment by encouraging extroversion, it being the cultural norm, would exceed social marginal benefit, introverts not capable of living up to their full potential. Hence, there is an external cost we all bear from each of us exercising cultural norms. If we wish to maximize the utility of more individuals, we should change cultural norms somehow to encourage introversion more than we do now.

Stuck in the Mud: Tiebout and Labor Market Mobility

In his famous 1954 paper "A Theory of Local Expenditures," economist Charles Tiebout proposes a novel solution to the problem of providing adequate amounts of public goods. The situation, as economists see it, is this: finding the equilibrium quantity of a public good and providing the Pareto optimal amount depend on the government's ability to gauge each individual's demand for a public good—a very difficult feat to accomplish. Tiebout devises a model that would force individuals reveal their preferences: in a world in which there were many different localities, each with different "revenue-expenditure" packages (and therefore different levels of public good provision), citizen-voters can move to whichever locale precisely matches the levels of taxation and public good provision they desire. They can, in essence, vote with their feet. In this way, each individual in the nation receives precisely the amount of public goods he desires, and Pareto efficiency is achieved.

Models are useful in helping us to understand how complex systems work; however, as the assumptions that underpin a model become more unrealistic, the explanatory or normative power of the model significantly decreases. Tiebout's model relies on a number of such assumptions. One of these assumptions is that citizens have no employment commitments that will keep them from freely moving whenever they desire (and another is that there are no costs—financial, social, or emotional—associated with moving). One can see intuitively that such an assumption is impractical; but what do the national data say?

This article from The Economist, "Move over," shows that mobility has been steadily falling in the United States since the early 1990s, from close to 3% of Americans moving across state lines every year to around 1.5%. That is, Americans are staying put in increasing numbers. The authors point to two trends, one of which weakens Tiebout's model, the other of which may serve to strengthen it. The first is that 98% of job growth between 1991–2008 was in "non-tradable" industries—that is, jobs that are necessary in every community and are not traded across long distances (dentists, educators, health-care workers). This trend makes it increasingly difficult and undesirable to find jobs in other states, and so the employment-based "cost" of moving has risen in the past two decades—a hit to Tiebout's model. The other trend, however, is that the availability of information has dramatically increased, such that people can learn about different communities (the weather, the cost of living, the abundance of public parks, etc.) without having to actually move there. In short, people can find the right job in the right city with fewer moves than before. This explanation serves to rescue Tiebout's model, as low mobility rates could merely indicate that people found their ideal revenue-expenditure packages quicker and easier than before. Although unrealistic as a model for a polity, Tiebout's idea may yet retain some of its persuasive power.

Vote with Your Feet....For Chickens!

A great war is currently being waged in Staunton, Virginia; a war for chickens! Currently it is illegal in Staunton for residents to keep live chickens for any purpose, however keeping chickens is legal in many of the surrounding counties and even in the city of Charlottesville. Yet city officials continue to refuse to change the laws. There are many arguments for and against the keeping of chickens in the city, most of which revolve around the externalities that would be experienced by neighbors. Perhaps externalities aren't the only driving force, and city officials are encouraging their consumer-voters to "vote with their feet."

When I heard about the current laws in Staunton I thought "there's no way I would ever move there!" That is simply because I derive so much utility from my chickens, and why I'm glad I live in Fluvanna. In leaving the current laws intact, city officials could be doing two things. Staunton is now the perfect haven for people with Alektorophobia, or for people with a general dislike of adorable cuddly fowl, and these people could be given incentive to move to (or remain in) Staunton. On the other hand, those who currently live in Staunton that believe their utility could be greatly increased by keeping our fine feathered friends have a strong incentive to vote with their feet and move out of Staunton. Since many of the nearby counties are chicken friendly alternatives are certainly available. If Tiebout's perfect mobility assumption held true I know of several people that would no longer reside in Staunton. Maybe even with the imposition of reality some people will still choose to vote with their feet. Or maybe I just get an abnormally large amount of utility from chickens.

Interdependent Utility Functions, Johnson, and Scotland's referendum

Last Thursday's referendum in Scotland to decide whether the nation would break its 300 year old tie with the United Kingdom broke the record for the highest voter turnout in a U.K. election history, with 84.5% of registered voters casting ballots on the decision.  The new record-- beating out the general election turnout in 1950-- got me thinking about the Rational Abstention piece of Johnson's argument presented in "Voting, Rational Abstention, and Rational Ignorance".

 At its most basic, the Rational Abstention argument states that it is rational for citizens not to vote in an election because the expected  benefit for doing so will be smaller than the  cost of voting.  Johnson's argument is that expected benefit for a specific voter is equal to the probability that that voter's vote decides the election multiplied by the difference in the voter's utility between election outcomes.  The expected benefit of voting is often so low because of the large quantity of voters in a given election; even an individual that highly values one election result over the other will not have a high expected marginal utility if there is a large number of voters to reduce the probability that his / her vote will have an impact on the election.

The 84.5% turnout in Scotland's recent election in light of Johnson's theory is interesting.  With over 3.6 million total votes, the probability that an individual's vote would decide an election is 0.00000028.  An individual who values either leaving the U.K. or staying in the U.K. over the option by $1,000,000 would expect the benefit of voting to be around 28 cents.  Even those who value the election at 10 million dollars would only expect to receive a benefit of $2.80-- almost certainly higher than the cost of voting.  So why such a high turnout?

I have 2 ideas that work within Johnson's theory.  The first is one we discussed in class: individuals receive utility from voting that is not affected by the number of voters.  Utility from guilt aversion, feelings of civic duty, etc will be gleaned by the voter regardless of the probability that voter's vote actually matters in the election's outcome.  The Scottish referendum was a highly covered, globally important election, and the normal utility categories unaffected by the election outcome will be amplified.  The other idea has to do with our discussion of interdependent utility functions.  Because the decision to leave the United Kingdom would have enormous long-term historical, economic and political effects for Scotland, it is not unreasonable to expect that strong national pride could create interdependent utility between voters and their country.  In this case, voters would value one election result over the other not just in terms of personal gain, but the potential gain or loss to be had by fellow countrymen and the reputation of their country itself.  Many voters, then, could be expected to value one election result over the other at values that would make B greater than the cost of voting.  These dollar values would have to be quite large, and I could not see this happening in a normal vote for an elected official, but I do not think this is unreasonable in elections with enormously significant consequences like Scotland's recent election.

Scottish Teens Face Voting Pressure

This past week, Scotland voted on an independence referendum. This election was the first in which 16 and 17 year olds were allowed to vote, and more than 90% of the eligible teenagersregistered to do so. In class, we discussed the marginal costs and benefits of voting and the rationale for not voting. Given that an individual’s vote will decide an election is miniscule, it makes sense not to waste time and money that they would rather spend elsewhere. It seems that in the case of Scotland’s teenagers, they get extra utility from the act of voting itself.

In “Voting, Rational Abstention, and Rational Ignorance,” Johnson claims “individuals simply have no incentive to invest their time and other resources in obtaining and sorting out information on public sector issues in order to make a more informed decision.” However, since the topic of independence was so prevalent, Scottish voters were subjected to social pressure. This encouraged them to take part and to gain knowledge on the subject. One teen says, “suddenly everyone knew everything about politics. Everyone researched it, because they wanted to know what was going on” and another that “it blew up so big, especially on social media – you can't not get involved, because it's everywhere.” With everyone at school talking about the election before and after it happened, teens wanted to avoid any social costs of not voting.

Highways as Club Goods

One innovative method of reducing excess congestion on highways is the addition of All Electronic Tolling (AET) lanes. Unlike general-purpose lanes which give cars (or in the case of HOV lanes, only high occupancy cars) free access, AET lanes charge users a toll that varies based on the current number of other users. Each vehicle that passes under the electronic toll-collector reduces the total cost of the highway’s maintenance. However, the rate at which tolls are collected slows as congestion increases and, from the consumers’ perspective, as total benefit decreases. Pegging tolls to real-time congestion, therefore, allows the profit-maximizing toll operator to optimize the number of “members” in its “club” by discouraging prospective members from overcrowding.

The proliferation of AET lanes on major U.S. highways demonstrates the applicability of Buchanan’s theory of clubs to real-world problems. Whereas Samuelson viewed non-rivalry as the defining characteristic of public goods, Buchanan focused on their non-excludability. To the extent that surveillance technology allows operators to identify and report free riders, AET lanes are less than fully public goods and, thus, feasible as private operations. Additionally, Buchanan observed that such “club goods” are only partially non-rival because “as more persons are allowed to share in the enjoyment of the facility, of given size, the benefit evaluation that the individual places on the good will, after some point, decline (Buchanan, 1965).” Roads, though not perfectly rival, are clearly subject to this constraint. While an individual motorist would never use a road if he was liable for its full costs, sharing those costs with an infinite number of other motorists would totally eradicate the road’s value. AET congestion-based pricing resolves this dilemma by communicating the true marginal cost of lane use that an additional user would impose on current users. By removing the mirage of perfect non-rivalry, such pricing forces prospective users to balance these costs with the benefits they expect to derive from consumption. By transmitting these real-time cost fluctuations, AET lanes can reduce their congestion to levels approaching N*.