The Negative Externality of a Local Police Raid

On Wednesday, August 28 the Virginia State Police raided 311 7th Street SW, just across the street from my house, to execute a search warrant.  The police force arrived with an armored vehicle, and dressed in full tactical gear, and neighbors were outraged and scared by their use of loud flashbang grenades, and assault rifles.  The police raid is an example of a public good because police protection is both non-excludable and non-rivalrous in consumption. 

In this case, however, the use of this public good, the state police force, resulted in a negative production externality felt by residents of neighboring homes; the raid imposed adverse effects on neighbors, without compensating them for the cost of these effects.  The social marginal cost of the raid was higher than the private marginal cost due to the marginal damage that the raid created, which caused a loss in welfare that can be seen in the dead-weight-loss on the graph below. In order to achieve social efficiency, the state police must account for the cost of the negative neighborhood effects, which would move q* → qae.  

I am pleased to say that I was not home while the raid took place, so I did not have to experience these traumatic externalities. 

Self Regulating Scooters

I love electric scooters. Companies like Lime and Bird provide convenient, cheap, and supposedly environmentally friendly transportation. However, they have conspicuous negative consumption externalities as they are often left in the path of walkers or acting as an unsightly blemish on an otherwise scenic location. Several cities have outright banned these scooters for the aforementioned considerations, in addition to safety concerns. Charlottesville seen a different method of dealing with it, with Lime being allowed everywhere but the lawn, and Bird being disallowed in Barracks and the downtown mall. These restrictions are enforced by the companies themselves, a good example of self-regulation by the companies.

Crozet and Biltmore: A Tale of Two Restaurants

Earlier this month, I wanted to spend some time with my friends by breaking bread with them. So we walked over to The Biltmore and had dinner. While we were eating dinner, something seemed off to me. The food tasted good, the company was good, but I felt an imbalance of costs and benefits! But the strange thing was, I didn't miscalculate the cost (I thought of everything from monetary to time costs), but rather, I miscalculated the benefit! All of a sudden I realized that Crozet Pizza–which is located right next to the Biltmore–had booked a live band for that same night. This practice is common at Crozet as bands have been shown to (potentially) be a great financial benefit to a restaurant/bar. Since they were playing outside, I could enjoy the music at Crozet while eating food at Biltmore.

After I remarked how lucky we were to one of my friends, the conversation quickly devolved into an argument. My friend remarked that this remarkable event was a positive externality; I remarked that it was a public good. After having some time to think about things, I realized that we were both right. First I realized that this was a positive consumption externality. "Positive" because my friends and I were benefitting without having to compensate another person and "consumption" because Crozet was not being compensated for consuming live music. If markets were perfect, we (or more accurately, Biltmore) would have been paying some money to Crozet. But this is also a public good because Crozet could not exclude us from using the good nor did their consumption of listening to live music affect our consumption.

After my friend and I finished our discussion on the economics of that night, we moved towards maximizing our utility by spending more time with each other and our friends!

Scott Stadium's New Beverage Policy

Recently, my friends and I were talking about the changes Scott Stadium is making to the 2019 Virginia football season. A notable change includes Virginia Athletics announcing that Scott Stadium will sell alcohol—beer, wine, and cider—during football games to attendees 21 years old and older. At first thought, I considered the many implications of the proximity of of-age Virginia students to a large stash of alcohol in a competitive, high-octane environment. One can argue this announcement introduces a possible negative consumption externality to Virginia football games. Given the psychological and physiological effects of alcohol consumption, consider other attendees who may be bothered by intoxicated Virginia fans who may or may not be rowdy. Thus, a Virginia fan’s private demand and consumption of alcohol, in this case, would directly affect the social marginal benefit, which for simplicity would be the sum of all private marginal benefits of every attendee, reflecting an over-consumption of alcoholic beverages in Scott Stadium. Assuming each of-age attendee enters Scott Stadium sober (because it would deny the possibility of of-age attendees only consuming alcoholic beverages outside Scott Stadium), we can construct a simple economic model detailing the effect of Scott Stadium offering alcoholic beverages for 2019 football games: 

Source

Assuming the marginal damage is $2 for every alcoholic beverage consumed by attendees who have a blood alcohol concentration of 0.05 percent or above (the level where impaired judgment, slurred speech starts) and that attendees over-consume by 2,000 beverages every game, a deadweight welfare loss of $2,000 is created (1/2 of $2 multiplied by 2,000). Predicting this deadweight loss, Scott Stadium has also enacted caps on alcohol consumption for each of-age attendee. Each of-age attendee will get a bracelet allowing them to purchase at most two alcoholic beverages at once and at most four during the course of the game. Further, alcohol cannot be consumed outside specially-designated areas and all alcoholic beverage sales will end once the third quarter ends. So it appears Virginia Athletics and Scott Stadium are opting for a rules-based remedy rather than a market-oriented remedy in attempting to mitigate this negative consumption externality.

A Quick Buck on a Moral Victory

I was one of many who were fooled into attending UVA's condoned celebration of winning the NCAA basketball championship in Scott Stadium. But, I was one of the few who reaped a positive externality of the situation as well.

For those who aren’t familiar with the situation, the football stadium was opened for a few hours, and the attention span of attendants was handed directly to advertisements. City officials spoke, athletics’ partners ads ran on the jumbo-tron, merchandise tents were set up, and of course the snack bars were open. The incentive that was offered prior to this event was a commemorative poster, which cost the University pennies, if that. They made out like bandits economically speaking. For pennies a head, athletics played off of the emotions of the community, creating a captive audience.

Quickly, I determined my opportunity cost of leisure was too high. I then made my escape on a death machine known as a lime. The entire city must have been in the stadium, as the roads were a ghost town at 2pm on a Sunday. Sure, I would have taken the lime and driven precariously between cars over a 30 minute walk back to my apartment, but the lack of traffic created by this “celebration” optimized my travel. My utility increased, as the cost of the ride is measured in time (which decreased), and I was able to make the ride safely using Jefferson Park Avenue, a public good.

I’m curious if other consumers realized the event was a marketing ploy in pursuit of marginal revenue, if they would have also taken a lime scooter home.

Having a roommate in Public Choice

My roommate (also one of my best friends/teammates) is in ECON 3330. He is one of the three Jacks in the class and sits next to me in the front row. Yes, there was definitely a high demand on my part of wanting Jack to be in the class with me. Not only was there high demand, but there was also a high supply in this instance because I have another roommate who is an Econ major that also applied to get into this class, but he did not get into the class :( (still 1/3 roommates in the class). At first, I only thought there would be marginal benefits of having Jack in the class, with no marginal costs, but I was wrong. The negative externalities have already showed themselves within two weeks of classes starting. For starters, Jack and I have many of the same t-shirts. Two out of three days of class so far we have matched. How am I suppose to have any since of originality in my clothing if I am matching with the person who sits besides me. Secondly, and more important, we have basically identical schedules. We have the same practice schedule, four out of five classes together, attend the same church/bible study, and live in the same apartment. Anything that I experience, Jack experiences. This becomes a problem in the blog because we both cannot blog about the same experience. Immediately after class today we talked back and forth with each other about how each one of us has the best idea for a negative externality that we could post on. It turns out that we had the same exact one. Jack called dibs before I could so he took ownership of the idea. I am now realizing that the marginal benefit of Jack being in Econ 3330 is not as high as I thought it was, meaning that I (the consumer of Jack being in the class) am not having as much surplus as I once thought I had. We have yet to decide the solution to this negative externality, but I am sure we will come up with something. I hope to keep the class updated and that my consumer surplus does not effect the rest of the classes social surplus of Jack being in the class.