Legal Marihuana Market in Oregon?

If Oregon states voters favor the legalization of weed, buying weed in Oregon will cost consumers less than buying the same product in Washington State because these two states share different tax policy. According this article, weed consumers in Washington States “pay a tax burden of 30 – 40 percent when they go to buy a den bag”. (Stuart, 2014) An ounce of weed in Washington states currently costs $500 dollars. On the other hand, if weed is legalized in Oregon State, an ounce of legal retail weed will cost $200 dollars. The fact that Oregon States does not impose sales tax on his consumer significantly lowers legal retails weed.
We can apply the Petlzman's theory to predict what decision will voters in Oregon make. According to his theory of generalization, the probability of opposition of any policy is a function of the tax rate and the spending to mitigate opposition per payer. Keeping constant the spending to mitigate opposition,  a higher tax rate will cause voters to oppose government policy, and therefore a policy will not likely to be passed. The case of Oregon is an opposite scenario. Oregon has no sales taxes, which means that the tax variable proportional to the probability of opposition is very low. As such, the legalization of marihuana in Oregon will face less opposition and this policy will likely to be passed.  

Stigler Capture and Social Costs of Regulation

Although this whole episode of South Park is full of good material, for the sake of space I'll focus on how it makes the point that when interest groups try preventing competition, society looses:

This episode is about a Union trying to eliminate handy-car, a Uber-equivalent service that is eroding their market share. Throughout the episode, Mimsy (an economic-minded character) makes several good points about why anti-competitive practices are troublesome. First he questions why Union-members don't seek self-improvement and compete in the free market (3.45-5.15), then he argues that trying to help incompetent people defeats the role of the market as a natural selection mechanism that rewards the more diligent workers (6.25-6.50). Then he goes on to show how low barriers to entry help streamline the "taxi" services being provided.

Ultimately, we can see that established industries have a vested interest in restricting competition so that they are not forced to constantly improve, and we see that these efforts to restrict competition result in consumers having to settle for inferior products than a free market would provide them with. Therefore, we can see why it makes sense that industry would seek to self-regulate in order to secure a better position for itself, as Stigler shows, and why that's bad for society.

*Because South Park is exploring decreasing competition through breaking peoples' legs and getting them sued, the Stigler notion of regulation is not really explored. The mindset of seeking to decrease competition, however, is very clear. If we accept that industry will want less competition, and we see regulation as legal entry barriers that can benefit industry in its goals, then this episode proves the point nonetheless. 

Freid Chicken and Spatial Location Theory

Looking for some fast, fried chicken in Charlottesville?  A quick trip down Route 29 will both fill your desire and also provide you with an economics lesson on spatial location theory as KFC, Popeye’s, and Cane’s are all located right next to each other.  All three restaurants are providing essentially the same product, fried chicken, and similar to the Sarah and Julia hotdog selling example we used in class, they have all ended up in the same location in order to try and capture the greatest number of customers.  As cited in this news article, back in 2013 Popeye’s moved into this location, despite there surely being many other places for it to build in Charlottesville.  The fact that Popeye’s moved in right next to KFC and Cane’s, and that now all three restaurants are in the same location, is a perfect example of spatial location theory.  Although all three restaurants being located in the same place is not allocatively efficient for the consumer, this is the choice each of the restaurants makes as they all move to “the midpoint” in order to try and capture the greatest number of customers. 

The Case for Laissez-faire Hair Braiding

To many, occupational licensing laws elicit instinctive approval. In their capacity as consumers, people tend to ascribe these regulations to the state’s ostensible concern for the “public interest.” It is all too easy to imagine a society in which incompetent doctors, unscrupulous stockbrokers, and rapist cab drivers are allowed to endanger the safety of their customers. Notwithstanding economic objections to the necessity of occupational licensing – such as the argument that a firm’s interest in its own reputation would compel it to weed out unqualified employees – George Stigler argues that these laws are lobbied for and crafted by entrenched economic interests. Irrespective of its effects on consumer safety, occupational licensing functions as a barrier to entry in those markets subjected to it. Using the coercive might of the state, it imposes non-market costs – typically in the form of onerous bureaucratic procedures and expensive degrees – on prospective entrants. By limiting the supply of entrants into a given market, occupational licensing tends to prevent the supply of that market’s goods from meeting demand. Licensed producers benefit by being able to raise prices above market-clearing rates. Essentially, occupational licensing laws inhibit value formation by prohibiting a class of mutually-advantageous market relationships between producers and consumers. However, they also induce licensed firms to destroy value (i.e. to create deadweight loss) by incentivizing them to expend scarce resources on political influence rather than alternative goods. Thus, these regulations exert quantifiable negative impacts on any sensible definition of the “public interest.”

The salience of Stigler’s critique and the naiveté of public interest justifications are illustrated eloquently by the documentary, Locked Out: A Mississippi Success Story. Around the 5-minute mark, the Institute for Justice commentator describes how Mississippi cosmetologists lobbied the state legislature to freeze competitors out of the hair braiding market and reaped oligopoly profits as a result. Despite Melony Armstrong’s extensive experience with and demonstrated competence in hair braiding, the Mississippi State Board of Cosmetology required her and her peers to obtain a $10,000, 18-month, and utterly superfluous credential. A credential that almost prevented Armstrong from embracing her entrepreneurial dream. The cosmetologist cronies enjoyed long-lasting success because they presented concentrated benefits and dispersed costs. Statewide, voters base their electoral decisions on the relatively small list of issues that effect them directly (taxation, infrastructure investment, public schooling, etc.) of which the costs of niche services such as hair braiding are generally not included. Thus, the rational ignorance cultivated by democratic majoritarianism enabled politically connected cosmetologists to establish an oligopoly. Armstrong had to solicit the services of a filmmaker and high profile advocacy organizations such as IJ to make her plight visible and inspire sensible policy changes. Nevertheless, dozens of other harmless occupations, from tour guides to dairy farmers to Christmas tree vendors, remain restricted throughout the nation. This moving documentary demonstrates that Stigler’s theory is not an abstract thought experiment founded on unrealistic assumptions. To the contrary, regulatory capture is an all-too real structural flaw of democratic societies which, though harmful to the public as a whole, is especially detrimental to prospective entrepreneurs who lack wealth, influence, and a voice in their supposedly representative governments.  

Cutthroat Regulations

So I am completely addicted to cooking competition shows like Chopped, Guy's Grocery Games, and Cutthroat Kitchen (unfortunately this has not improved my cooking). After talking about rent seeking, the theory of regulation, and how industries can expend huge amount of resources to obtain regulations has make me look at Cutthroat Kitchen (don't watch the whole thing, just the intro) in a completely different light. The gist of the game is that the host offers various sabotages (restrictions) for sale at an auction that can be bought and imposed on other competitors. The catch is that whoever wins the game only wins however much money they didn't spend on the sabotages. Sometimes people walk away with only a couple hundred dollars out of their $25,000 starting money. It does make sense that the competitors want to spend large amounts of money because they only gain anything if they beat everyone else.

It's not exactly like a deadweight loss, but it does seem like a lot of money to "waste" on the sabotages. And spending a large chunk of money on a sabotage doesn't even guarantee that it will knock out a different chef. The competitors are spending huge amount of resources on the possibility that the restrictions will hinder their competitors and reduce competitor output while maintaining their own output. This reminds me of the rent seeking behavior of some firms, that they expend large amount of resources on an increased probability that they might obtain the gain. Some of the sabotages mimic some of the regulations seen in industry like exclusive use of a knife (licensing restrictions). Sometimes competitors even pay to sabotage themselves! Similar to the firms that seek to regulate their own industry. Whatever the restrictions, it seems like an extremely large waste of resources.

Has Albemarle County Reached its Optimal Size?

Albemarle County has a proffer policy in place in which developers pay fees when rezoning is necessary for residential property development.  These fees are intended to raise money for new infrastructure whose consumption increases with population.  Such infrastructure includes schools, roads, and libraries. The concept behind proffers is that as developers build houses, population increases and puts strain on existing infrastructure.  It is this strain that the proffer system attempts to combat.  As of July 2013, Albemarle County requested that developers “proffer” $19, 753 per single-family home, $13,432 per townhome, and $13,996 per multifamily unit.  Essentially, this means that developers that rezone must pay an amount to the county on top of the other costs of building each residence. 

It is possible that the proffer policy is aimed at keeping Albemarle County at an optimal size, a concept explored in Tiebout’s Theory of Local Expenditures.  In his theory, Tiebout assumes that there is an optimal size for communities and these communities make every effort to move to that size.  These efforts by the community can involve policies to encourage or discourage movement into the area.  The proffer program, by imposing additional costs on developers, appears to be a policy aimed at discouraging further movement into certain parts of Albemarle County.  Developers will be less likely to rezone to build housing and will thus build fewer housing units if they expect to pay hundreds of thousands of dollars in proffer costs.  Those developers that choose to rezone despite the proffer expectation will likely attempt to pass off part of the cost to the consumer.  This will result in a higher price of housing, which would likely lead to a decrease in the quantity of housing demanded.  If this occurs, the county will be more likely to remain at the size it believes to be optimal.