Rent-seeking in Kentucky

In the Kentucky hair-braiding market, there wasn't quite an alliance between Baptists and bootleggers like Professor Elzinga observed in Albemarle Country years ago, but it was similar to the current liquor market in Texas. This ended over the summer, when Kentucky Governor Matt Bevin signed a bill exempting natural hair-braiders from burdensome occupational license regulations. The regulations in Kentucky restricted the entrance of new firms into the market by requiring all hair-braiders take 1,800 hours of irrelevant training to obtain a cosmetology license and legally open a business. This could cost up to $20,000. These regulations didn't serve any rational basis. The natural hair-braiders are primarily West African immigrants who learned this trade from their family members, and according to the Institute of Justice's report (and, presumably, common sense), the hair-braiding profession is perfectly safe. In other words, society's health, safety and morals weren't served by the regulations, but the pockets of some well-connected cosmetologists probably were. This explains why State Representative Hubert Collins -- "whose wife chairs the Kentucky Board of Hairdressers and Cosmetologists" -- attempted to introduce an amendment barring natural hair-braiders from working legally unless they jumped through all of the Board of Hairdressers' hoops. Similar to the five families in Texas using the force of law to keep out competitors in the liquor market, entrenched interests in Kentucky tried to lobby the state government to erect artificial barriers to entry in the cosmetology market. Fortunately their efforts were defeated, so now these people can make an honest living:

 

Free Rider Problem: French Quarter Edition

In February 2015, New Orleans citizen Sidney Torres privately started the French Quarter Task Force an off-duty police patrol in New Orleans, patrolling a four block radius with brightly painted Polaris vehicles (now Smart cars) in the heart of the French Quarter. He independently spent over $300,000 to get the project up and running for four months. Torres had subsequently hoped that businesses in the French Quarter that were benefitting significantly from the additional police force would contribute to his mission to make the French Quarter safer.

However, Torres encountered a version of the prisoner's dilemma we looked at in class on Tuesday. Because the businesses in the area had a dominant strategy to not contribute and would still benefit from Torres' independent efforts, Torres fell into the trap of the free rider problem and couldn't continue to operate the Task Force solely on his own. Thus, he found a role for government. In October, voters in New Orleans approved a quarter cent increase in the sales tax for the French Quarter that allowed the City of New Orleans to take over the Task Force both administratively and financially and it has been operating (mostly) successfully ever since. This is a classic example of the role for government in solving the free rider problem and providing public goods.

Repair or Resettle: Vote With Your Feet!

Recent flooding throughout Louisiana has raised a massive issue for local and central governments as well as residents effected by the natural disaster. Billions of dollars worth of home cleanup and repairs will be necessary to fully recover from the onslaught of water, but "more than 80% of damaged homes didn't carry flood coverage because they were outside the 100-year flood plain." The governor of Louisiana, John Bel Edwards, has approached the federal government and asked for $2 billion to fund recovery efforts. Because this flood exceeded the 100-year flood plain by massive proportions, local government spending and aid is simply not enough, and people are forced to make the decision to stay in their rotting houses and wait for aid, or leave in search of a new start away from their damaged communities.


According to Gov. Edwards, "the longer it takes to get federal money, more people will decide to leave their homes and communities." The coming weeks will reveal many people's preferences in a typical fashion described by Tiebout. Although many people moved to the areas outside of the flood plain in order to avoid dealing with frequent natural disasters ('voting with their feet' to be out of harm's way), they are now faced with another situation in which they must reveal their preferences over time and either stay and repair their damaged homes and communities, or leave and settle elsewhere for a new start. Additionally, they must consider the revenue-expenditure patterns of the areas in which they live in. If they are settled in one of the areas where FEMA has begun responding as well as where local government has already delegated funds for disaster responses, they are more likely to stay put and allow the government to help them. Whereas if they live in the massive area effected which has no infrastructure to deal with such a natural disaster, they may think twice about whether it is worth staying or leaving for a safer area to settle.

Revealed Preferences in New York Suburbs

Home owners who are looking for certain institutions: a busy downtown, good transportation options, good public schools, and an active community say that Westfield, New Jersey has great appeal to them. Especially to families looking to move out of New York City, there are many smaller towns to chose from while remaining within commuting distance. What sets Westfield apart from the rest of these towns is their local revenue expenditure pattern. Things like the community theatre and huge Westfield Memorial Library, as well as a Westfield sponsored 5k and annual Halloween parade, create the community feel that these families want. The public schools in Westfield have higher than state average test scores and the commute to New York City is only 40 minutes.

Those interviewed from this community demonstrate Tiebout’s model where local revenue expenditure patterns are given and consumers vote by moving. Tiebout would argue that with many services provided locally in this town, consumers are able to reveal their preferences by moving. The town’s popularity as a suburb of New York City would demonstrate the desirability of this local revenue expenditure pattern to consumers. In a region where the number of polities is very large and there is a lot of information about the different towns, consumers are able to reveal their preferences by choosing where they live.

The Road to Externalities

Several years back, many Charlottesville citizens grew increasingly worried or excited over the prospect of a new Western Bypass.  Those in favor saw a positive externality: this road would make travel easier for many people.  However, those opposed- particularly those living close to the possible site of the road- viewed the negative externalities: the road would lower their home values and increase the noise level, disrupting their daily lives.

After taking economics classes, my views on this project have shifted.  Looking at roads in general, if a proposed road were built by a private company, which Friedman suggests is an option if the road were excludable, then the residents around the road could work out a Coasian solution.  Depending on the property rights, the road builder could either pay the residents for the right to build the road near them and cause them discomfort, or the residents could pay the builders to reduce the size of the road or simply not build it.  Under Coase's assumptions, either way would lead to the same outcome. However, in a real world situation such as this, there are not two clear sides.  Instead, some citizens will support the road, and some will not, while other free riders will remain uninvolved and hope that their side wins. Therefore, the transaction costs would be extremely high.

In the case of the Western Bypass, the government ultimately decided the fate of the road.  Although the government's decision is almost certainly not allocatively efficient, nor is it proportionately representative, it provides a solution to the confusion and chaos caused by the real world negotiations a private market Coasian solution would cause.

The Importance of Local and State Power

        For the town of Breckenridge CO state law says it is legal to possess and sell marijuana recreationally according to Amendment 64 passed in November 2012, while Federal law bans its use in all states. On January 1^st, 2014, Breckenridge Cannabis Club (BCC) started selling marijuana for recreational use on Main Street and reaped lucrative profits. After a year of town council votes and deliberation, local residents overwhelmingly voted to keep dispensaries off of the Main Street and forced BCC to move.

         This situation in Breckenridge, CO resembles what Tiebout thinks the role of government should be. Rather than having federal restrictions apply to all people – people with heterogeneous preferences – local laws and regulations allow people to move to the locality that best fits their needs and wants. One important factor that is not included in Tiebout’s model but at work in Breckenridge is the ability for the government to “adapt to the preferences of consumer voters”. For Breckenridge, the town government was able to adapt to the preferences of the people in a way that could never happen at a federal level. Because of heterogeneous preferences, local governments function best because people “vote with their feet” and exert influence on their local government to better meet their preferences.