Incentives to Join a Union

The summer after high school, my friend and I took jobs as manual labor for a masonry company. We were outsiders, since we were only going to be there for the summer, but were still encouraged by the workers to join the Union. Becoming a mason (not the secret society version) requires practice - training takes around 2 years, so having a union helps to bargain for higher wages. As a manual laborer, I knew I was fairly easy to replace so did not think it was worthwhile to join. The Union of Bricklayers and Allied Craftworkers's, BAC, main goals appear (based on their website) to be pension plans and health benefits, though it's an affiliate of AFL-CIO, whose primary mission is to improve workplace conditions through legislation.

Two of the benefits that were advertised to me throughout the summer were classes on the weekend to increase hourly pay and being paid by the Union for commuting in some cases. Two masons I met over the summer said they were commuting two hours each way to work, but were being paid gas as well as their hourly wages by the Union to make this trip. I suppose the Union helps coordinate employment with worksites, with shortages requiring masons to be brought in from far away. To make it worthwhile, those filling positions far away get paid to commute by the Union. While I can see this being very beneficial to workers that are unable to find projects in their area, other union member dues are supporting their commutes, which might not be that much longer than other workers. The Union of Bricklayers and Allied Craftworker's main output is not lobbying, though their parent organization, the AFL-CIO, mainly acts to write legislation at the national level.

Midterm Rational Voting

Last week in my Transition to Higher Math class, my professor was trying to get our input on midterm scheduling, between two dates: November 6th and November 13th. This was her attempt to get us to reveal both preferences and intensity, as only people with previously scheduled exams conflicting would bother raising their hand, as the cost of having to actually justify your excuse to her was otherwise too high. However, since the class initially seemed pretty split, she then turned to a simple majority vote between the two, with 11 voters favoring November 6th and 10 voters favoring the 13th, as well as nine abstentions (myself included). While this is a 52% margin, she didn’t want to decide by only one person’s whim. To better the odds, we then voted between November 4th, 6th, 8th, and the 13th.

However, because the class realized that the race very well could be decided by one person, we understood that the marginal cost of voting was much higher than in most government elections. For me personally, without any other midterms on the horizon, the expected value of each day of studying can best be calculated by how many hours I will call out of work in order to hit the library. Any additional day of studying might then be worth about $40 to me. The expected benefit of voting was then the chance of breaking a tie in a 30 person class (0.03) * 40 = $1.33. Now that no verbal explanations were necessary, the cost of voting was just the effort of raising my hand, which I would not pay more than $0.10 to avoid. Therefore, it would be irrational for me to continue abstaining, risking a $1.23 net benefit for every day voted earlier than the 13th (for example, the 4th would cost $11.07 more than the 13th). Others were similarly recalculating their utility functions, and participation rose to 100%. 
November 8th won out of the four options, but the difference between it and the next highest choice, the 6th, was still one vote. We then had a run-off election using the Hare method, removing the two options with the fewest first place votes (4th and 6th, which received only 2 and 3 votes respectively). Finally, November 8th was again chosen, now with a difference of two votes rather than one. We chose the Condorcet winner, as November 8th was preferred to all pairwise elections. While I did not end up being the tie breaking vote in the final election, it was worth it to participate in the democratic process as a rational voter.

Common Interest vs. Individual Interests in Cycling

Professional cycling is a complicated sport, and oftentimes it can be difficult to explain to people how much of a team sport cycling really is.  Doesn’t the strongest rider just ride away and win, you might ask?  In fact, it is not nearly that simple. Due to tactics based around aerodynamic drag, cycling turns into a bit of a chess match on two wheels, and thus the winner of a race is extremely dependent on the cohesion and coordination of his team.  

The group incentive, the defining characteristic of why cycling teams exist, is to put their “team leader” on the top step of the podium.  With the help of a team, the probability of success rises significantly, and the entire team will benefit if their team leader wins. 

It can be very easy, however, for one rider to abandon the common team interest in order to maximize his own utility by seeking his individual interest of winning the race himself.  Due to the competitive fight for contracts in pro cycling, this is more common you might think; team Movistar has recently received a lot of press and criticism for this conflict of interests.  If a rider succeeds in winning, he will be better off himself, with a race win on his resume; however, the probability that he, or one of his teammates will win, falls tremendously when he abandons the team strategy and thus the common interest of the team.  A possible solution to this problem could be adding selective incentives in the form of a metric riders could put on their resume that quantifies “enhancing team performance” similar to an “assist” in soccer.  This would allow individual interests to align more closely with common team interest. 

A License (or Four) to Shine Shoes

What do shoe shiners in DC, pet groomers in New York and New Jersey, and Antler Dealers in Nevada all have in common? They all need occupational licenses to practice their trades. A couple years ago, a family friend told me a story of a man shining shoes in DC, who was forced to stop shining shoes and to obtain four different licenses costing a total of $337 before resuming work. At the time, this struck me as crazy. Now, thanks to Public Choice, I’m better able to explain both why these licenses are harmful and why they must have been instituted in the first place.

Jobs that require a great level of skill or entail substantial risk reasonably require licenses. It would be dangerous for the public if anyone could become a surgeon, a criminal defendant, or a policeman without a license. In these cases, licenses protect both the consumer and the supplier of the service. But, jobs such as shoe-shining or pet grooming pose little public threat. Licensing these jobs increases prices for consumers, discourages entrepreneurship, keeps people from working, and “disproportionately burdens low-wage and young workers, minorities, and immigrants.”

Occupational licenses are a type of entry barrier: the most important and durable form of regulation Stigler identifies. Licensing provides concentrated benefits to those already established in the industry, but imposes costs both to consumers and to new entrants. Licensing is often put in place because already established firms lobby the government for protection. For example, established shoe shiners in DC and pet groomers in New York might recognize the benefits that would accrue to them if they could block new entrants. Seeing this, they may lobby their state and local governments to require licenses. If successful, these firms help themselves, but hurt consumers and individuals seeking to start new businesses. 

In an attempt to mitigate the harmful effects of unnecessary barriers to entry, US senators Mike Lee and Ben Sasse proposed the ALLOW Act in 2015. The ALLOW (Alternatives to Licensing that Lower Obstacles to Work) Act aimed to limit occupational licensing, to promote less restrictive licensing requirements, and to substitute certification for certain types of licensing in DC. Though the bill didn’t pass, it provides an example of how a state might prevent unnecessary licensing, which harms more people than it helps. 

The "A" Jar

In my sorority at UVA, we have a fantastic tradition of the "A" jar. When our place fell the year before last on the ISC’s ranking of GPAs, our Vice President of Academic Excellence wanted to again call our attention to the importance of scholarly pursuit. Wisely, this did not occur without incentive. So, in order to promote intellectual prowess at our weekly meetings we now pull a submitted name out of a jar of one member who has received an A on an assignment and they in turn are given a gift card to a local coffee shop, restaurant, etc.

Interestingly, there used to exist a prisoner’s dilemma with the A Jar in which people were motivated to submit their own names (and more than once), whether or not other members did this as well and this resulted in more than one person attempting to use this method to secure the gift card. Public shame was enough to end that problem, but the economic inefficiencies of the jar have not been entirely erased. One of my good friends recently joked with me about her excessive efforts to get multiple other people to put her name in the jar for her. She has even gone so far as to buy coffee for one of the other members who she was meeting to study in exchange for their submission.

Clearly, this has taken her time and her money, as well as her effort, which could have been diverted to actually studying. Furthermore, it will not be the case that she always receives the gift card unless she dedicates more and more of her time, as the likelihood that she gets a few people to vouch for her would at first only result in a few slips of paper are competing against others dropped in by the over 100 girls in the sorority. A great way to stop this issue would be to only allow each girl’s name to carry the weight of one vote, so the odds of it going to any member who received an A that week would be the same. Though it has become somewhat of a running joke, I truly would like to see my friend expend less effort on this for her own sake, and I am likely to suggest this solution next week.

Deciding Where to Eat

When it comes to making group decisions, my friends and I are the worst, especially when deciding where to eat. I kid-you-not when I say that my friends and I have argued for over TWO hours trying to decide what pizza restaurant to order food from. These group decisions are costly in time and effort because everyone has different preferences and dietary restrictions; however, these decisions are made as a group because there is a higher cost imposed on the individual when deciding where to eat on his own because the individual forgoes the community aspect of eating together. The decision-making costs of this scenario between my friends and I are extremely high because we struggle immensely to get people to come to an agreement on where to eat, and the external costs are high to each individual because many of us are stubborn and hold strong food preferences that drive up the cost of each individual not agreeing with the decision made by the group. Usually, we decide on where to eat by a majority rules basis, but according to Buchanan and Tullock, my friends and I suffer from an insufficient allocation of resources because we don’t operate at the cost minimizing threshold.

Sick Season: A Prisoner's Dilemma

My housemate Claire came home the other day with an interesting take on the flu shot. Her boyfriend had told her the previous night that getting the flu vaccine does not actually prevent you from getting the flu. Instead, the flu vaccine keeps you from passing the virus on if you have the unfortunate luck of getting the flu. According to Claire, "If it doesn't actively keep me from getting sick, there's no way that I'm getting a flu shot!" 

Though we usually only discuss the flu shot in Economics when looking for an example of a positive consumption externality, Claire's exclamation at the end of our conversation lends itself perfectly to another economic situation. If everyone shares Claire's opposition to getting a flu shot, we might be in a world of sickly trouble. Let's look at this situation through an economic lense by limiting the world to two people: Person 1 and Person 2. Each person has two options: get a flu shot or do not get a flu shot. If both individuals get a flu shot, neither will get sick because they will not pass the flu on to one another. Both people getting the flu shot is the Pareto optimal outcome. However, in order to optimize his own utility, Person 1 would prefer to not get the flu shot. The costs of getting a flu shot--including money, pain, and time--outweigh the benefit of keeping Person 2 from getting the flu. Additionally, if Person 2 goes and gets a flu shot, Person 1 will not get sick. Therefore, Person 1 has greater utility if he doesn't get his flu shot and Person 2 does. Unfortunately, rational Person 2 is also looking to optimize his utility. If Person 2 went and got the flu shot, his costs would be greater than the benefit of keeping Person 1 from getting sick. Therefore, Person 2 would also prefer to not get the flu shot while Person 1 does. In the end, neither Person 1 nor Person 2 will go to get their flu shot, leaving society as a whole worse off at the dominant strategy equilibrium instead of the Pareto-Efficient equilibrium.

Many solutions to this prisoner's dilemma exist in the real world. For example, it is mandatory for many healthcare professionals to receive the flu vaccine in order to work their jobs. Mandating flu shots shifts the outcome of this prisoner's dilemma from the dominant strategy equilibrium to the Pareto-Efficient equilibrium.