The Blog Poster's Dilemma

I like short blog posts, you like short blog posts, we all like short blog posts. But for some reason, even though we've been told otherwise, there are some long blog posts on this site.  My first thought was just that this obvious error could be explained by members of this class being UVA students. We like to overachieve (even though it's bad for us) and we just can't stand the idea of putting less than our full genius out into the interwebs! That's one thought, but I don't want to live that cynically so I looked for another answer and I found one. It's a prisoner's dilemma!!!!!!

These blog posts factor into our grades through the mid-term and final exam. Studying them takes time, and because we all have limited study time long posts limit the amount of time you can spend studying other things. Because your study time is more spread out, you may do more poorly, which advantages others via the distribution. The prisoner's dilemma I'm about to describe is simplified to only two participants (because I wouldn't know how to do it with 30 but imagine how much worse it is when 30 people are all doing this same thing!!!)

	Short	Long
Short	10/10	4/12
Long	12/4	5/5

If we both post short posts that is ideal because we both only have short posts to study and can do better on the test.  I can make myself better off and you worse off by posting a longer post (you have to study more and you doing worse improves my performance in the distribution). You then have an incentive to post a long post so that you even out the distribution. As a result, we each have the incentive to make long posts no matter what the other person posts, BUT THAT'S THE WORST OUTCOME BECAUSE LONG POSTS TAKE TIME TO STUDY.  Hopefully next year's students read this post and heed my warning.

Radio City Rent Seeking Rockettes

Over Thanksgiving break, I, like many others, watched the Macy's parade. Ever since I was young, I have always watched for one specific performance: the Radio City Rockettes. Famous for their precision dancing, it's safe to say that their annual Christmas Spectacular is a NYC staple. Having danced from a young age, I've done my fair share of research on them and the road to become one of the famous Rockettes. (For clarification purposes, the road ended when I realized that the average height is 5'8 and you need to be 5'6 to even audition).

While finding a job is a difficult and grueling process for most, I was especially reminded of the resources that dancers spend in finding a job as a pro. The very selective nature of the dance industry is a classic example of rent-seeking: dancers spend thousands of dollars and hours over their life in order to audition for a limited number of roles - with costs, of course. (For reference, the average estimated cost of putting a child through 15 years of ballet training is over $120,000). While the Rockettes have contracts that are longer than some (one-off contracts for some dancers can be stressful while they hop between gigs), just getting into a company is incredibly competitive. There are many specific requirements, starting with just physical requirements (such as height), but once you've cleared those, you still have to exhibit the best technique (which comes from training with the best, and training the most, with the best equipment), and have the right connections in order to get to the audition in the first place.

If we think about this like the college admissions process and Katie's post on how the resources spent on applying to college is an example of rent-seeking, perhaps there is a way to address some of the inefficiencies. While the Common App for colleges can reduce some administrative inefficiencies, the dance world lacks a "common" platform for the basic information on dancer training and statistics (maybe even a standard video of their technique?). Of course each company and agency has their own database, but putting out standard requirements for specific auditions can eliminate the dancers who see that they simply don't "make the cut," reducing the resources spent on transportation and audition fees.

In any case, the dancers who do make it have truly expended their resources to get where they are, so that viewers like us can enjoy their work - either live at a theater, or on a TV from the comfort of our own home.

Big Government Cheese

As I was catching up on some of my favorite podcasts this weekend, I learned of the time when President Jimmy Carter decided to help American dairy farmers by buying lots and lots of cheese. The podcast from Planet Money, called Big Government Cheese, details the story of how the government, in order to raise the price of milk, bought tons and tons of storable dairy products like butter and cheese. By offering to buy any amount of cheese at a certain price, the government created a price floor which increased the demand for cheese and, resultantly, the demand for and price of milk. This program, clearly inefficient, cost taxpayers over $2 billion and created a huge problem for the government in terms of storage. Since the government had a huge surplus of stored cheese, they had the equivalent of 2 pounds for every American stored in caves in Kansas, they began giving it to food banks to avoid flooding the market. As a result, millions of Americans began eating “government cheese.”

This story reminded me of many things we’ve talked about in class, but most specifically of externalities. By artificially setting the price for milk through buying cheese, the government manipulated the dairy market and crowded out potential milk drinkers because the price was too high. When the government realized they had created this problem, they paid farmers to stop producing milk to decrease supply and started marketing campaigns like “got milk” to increase demand.  For this reason, the government created a positive consumption externality because the purchasing(consumption) of all this cheese led to the creation of public health campaigns to increase milk consumption which is beneficial to public health.

Stadiums as Public Goods

It is very common for professional sports stadiums to be at least partially funded by taxpayers and the local government.The proponents of this funding argue that stadiums generate jobs as well as income for the area by attracting fans for sporting events and concerts who will in turn support local businesses around the stadiums. Is the decision by local governments to treat these stadiums as public goods  a reasonable choice?

Looking at the two basic characteristics of a public good, it is easy to see that stadiums are definitely not purely public. Every event I have ever been to at a stadium has required a ticket in order to enter the stadium. If you don't have a ticket there is no easy way to get in. This clearly shows that stadiums are excludable. When it comes to whether or not stadiums are non rivalrous it is a little bit trickier. Generally one extra fan watching a game or concert with me does not affect my experience. As the number of other people consuming the event with me increases, however, at some point it starts to negatively affect me when I can no longer see or get a seat. In addition to not satisfying either the non-excludability or the non-rivalry requirements to be deemed a public good, I believe the other arguments for public funding of stadiums are also overstated. Many of the jobs they generate are jobs such as ushers and concession workers at events. These jobs work far less than 40 hours a week and are rarely enough to support someone by themselves. The other benefits that these events bring are largely given directly to the sports team or owners of the stadium and not redirected into the local economy. Fans often spend their money on concessions and at the team store, not in local restaurants and shops as the proponents of the funding would have you believe. The events at the stadium also almost always require increased spending on police for traffic and crowd control as well as increased public transportation. These costs further decrease the benefit of the stadium to the local economy and add even more reasons why I don't believe these stadiums should be treated as a public good.

Confessions of a Rent Seeker

This summer, I worked for the Office of Economic Research in the Small Business Administration’s Office of Advocacy. Whenever other federal agencies create a new regulation, they have to (by law) take the effect on small business into account, and the Office of Advocacy represents those interests in Washington. Coming from a small town brimming with small businesses, I thought my work to promote smart, small-business friendly regulations was noble--that is, until Mr. Coppock’s lecture on rent-seeking a few weeks ago. The Office of Advocacy works to promote regulations that benefit small businesses. In some ways, this is an example of rent-seeking. Rent-seeking is when resources are spent to obtain rents which derive from socially wasteful activities.

This summer, the FCC considered a petition from US Telecom to change a 1996 regulation concerning copper wires. I won’t get into the details here, but we can say that big firms wanted the regulation to change and small firms wanted the regulation to stay the same. At one particular meeting, we had 12 different representatives from 12 different small telecommunications companies present. I imagine that each of those companies flew those representatives out from across the country, put them up in hotels, paid for their meals, etc. On the other side, US Telecom commissioned a study to investigate the effects of the regulation change. I’m sure this study cost thousands of dollars. In short, all the companies involved in this issue spent money that did not create any value. After all those socially wasteful activities, the FCC decided not to change the rule after all. In the future, I hope the Office of Advocacy will focus on creating a healthy, competitive environment, one into which small businesses can freely enter. These kinds of regulations, rather than ones which merely transfer rents from one group to another, will optimize social welfare.