The Economics of Matchmaking

With the results of the UVA Marriage Pact recently released, there has been a lot of discussion about matches. The Marriage Pact says that it is difficult to meet people during coronavirus, and it wants to help that. I believe there were questions about whether you are single and how much you wanted to meet the person you would potentially be matched with, and these questions were clearly designed to get people to reveal their preferences.

Part of the difficulty of dating is that it can be hard to know what the other person wants, how interested they are, or even what they are really like. And it can be hard to know if you yourself are interested sometimes! Because of all this preference concealment and uncertainty, there is a tremendous amount of resource misallocation in dating. Time, money, thoughts, and decisions are used in ways that can ultimately end up without benefit to you if the relationship does not work out. You could argue that the goal of dating is getting rents similar to the rent policies Tullock describes in his paper on rent seeking. The economic rents here are the returns of a relationship, which are presumably greater than the opportunity costs of attaining them. But there are so many failed attempts at relationships, which are similar to Tullock's deadweight losses. I don’t think failed relationships or attempts at relationships are a complete loss, so the analogy breaks down there, but there are undeniably a lot of wasted resources because of preference concealment and uncertainty. The UVA Marriage Pact tried to overcome that with questions designed to reveal preferences. The thought was that people would want to answer honestly and their preferences would be revealed. Only time will tell whether the Marriage Pact has been successful for the participants. I would say if it helps anyone it will be worth it, because I too think the returns of relationships are greater than the opportunity cost of attainment. I wish everyone the best.

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Woodrow Wilson & George Stigler's Capture Theory

This week, in American Political Economy (PLAP 3400), the class discussed Woodrow Wilson's The New Freedom (1913). We compared Wilson to Theodore Roosevelt and learned about the latter's advocacy for increased government regulation in industry. I immediately thought of George Stigler and enjoyed seeing unexpected overlap between my courses. Stigler's criticism that regulation only leads to the survival of inefficient policies (as "virtue does not always command so high a price,") seemed to directly contradict some of the early-twentieth-century proposals that I read. In addition, having understood from class that one of Stigler's major contributions to public choice theory — the Capture Theory — was published in 1971 in "The Theory of Economic Regulation," I was surprised to see Wilson describe the exact same phenomenon over 50 years prior. 

Wilson wrote: "Our government has been for the past few years under the control of heads of great allied corporations with special interests. It has not controlled these interests and assigned them a proper place in the whole system of business; it has submitted itself to their control ... it is an intolerable thing that the government of the republic should have got so far out of the hands of the people; should have been captured by interests which are special and not general. In the train of capture follow the troops of scandals, wrongs, indecencies, with which our politics swarm."

While Roosevelt advocated regulation and Stigler encouraged domestic production instead, Wilson described yet another idea. According to my professor, Wilson supported "breaking up" large corporations — even using the phrase "Big Business" that is so familiar from progressive rhetoric in recent years. With Roosevelt's commitment to campaign finance reform and improving labor conditions alongside Wilson's shared promise to keep corporations in check — with a passionate declaration that "the old political formulas do not fit the present problems" — it occurred to me how little some policy debates have changed in over one hundred years. On the day prior to the general election, while some commentators lament what the titans of American history would think of our present political woes, I wonder if they would really be surprised in the slightest.     

Senators from dominantly Red or Blue states can better get away with voting on ideology

The discussion we had last Thursday about shirking in the US Senate led me to speculate what sort of factors play into the likelihood that a senator votes with ideology rather than the interests of their constituents. One factor we didn't discuss that occurred to me was that senators who are in firmly Republican states or firmly Democratic states would be less worried about losing reelection, so they may vote against their constituents interests (or "shirk") more often than senators in more contended states. In this blog I would like to assert that this factor is indeed significant when it comes to whether a senator will vote with or across party lines. 

I looked at FiveThirtyEight’s resource, Tracking Congress in the Age of Trump, and confirmed that Senators Rand Paul of Kentucky and Jerry Moran of Kansas are two of Republican senators who deviated most from legislation that Trump supported. In the 116th Congress, Rand Paul has only voted 63.6% in line with Trump’s position, and Jerry Moran only voted 64.1% in line with Trump’s position. Most notably, both of these Senators voted for S.J. Resolution 54 on 9/25/2019, which was an attempt to overturn President Trump’s emergency declaration for border wall funding, while 36 other GOP senators voted against it. Another significant vote was for S.J. Resolution 68 on 2/13/2020, which attempted to restrict President Trump from taking military action against Iran without congressional approval, which 44 other senators voted against. While both of these senators are from states that largely support President Trump and his policies, I believe the fact that these two senators are in states that haven’t had Democratic senators in decades gives them “longer leashes” that allow them to get away with voting against their constituents beliefs and preferences in favor of their own ideologies.

In the Defense of (some) Lobbyists

I am the daughter of a lobbyist so more often than not, my defenses of lobbying come off as biased and empty. It’s hard to make a solid case with all the damning evidence that exists. My case is not made in the defense of lobbyists that lobby for inefficient regulations or to support industries that harm consumers and the environment. But my dad lobbies for places like Special Olympics, Save the Children, Grand Valley State University (along with other schools), NAHC, and companies that work to clean Michigan rivers. 

In “The Theory of Economic Regulation”, Stigler discusses how the state can and does hurt industries or firms through “its power to prohibit or compel [and] to take or give money…” These actions taken by the state affect the allocation of resources - meaning they can move resources away from firms that were being used effectively. The lobbying my dad is doing for his clients is not to snag some regulation that will create barriers to entry or hurt competitors who produce substitutes. He works to ensure that his clients get the funding they deserve and need - this means talking with members of Congress to keep clients at QAE when they could potentially be forced to operate at lower levels of efficiency due to a poor allocation of resources (Q* < QAE). 

This article discusses slashes in budget faced by community health centers in the midst of Covid-19. Operating with the proper allocation of resources, efficiently, and to provide the most social benefit (QAE) would arguably not look like budget cuts in the middle of a global pandemic. In this case, I would categorize the efforts of a lobbyist for community health centers as less of the rent-seeking, sleazy, looking to increase my bottom line behavior and instead, an effort to ensure that resources are not misallocated and that we don’t move away from QAE. Sometimes lobbying is not about coal companies lobbying down green energy legislation or sugar industry lobbyists authoring reports about the inconclusive links between sugar and bad health or NRA lobbyists consistently back laws that weaken gun-control after tragedies like Sandy Hook and Marjory Stoneman. Sometimes - despite bad press - lobbying is about making sure community health centers across the country can stay afloat or granting funding to clean polluted rivers in Detroit or helping Save the Children continues to help underserved kids get a good education.

Ideology vs. Friedman: National Parks

3 years ago I went backpacking Yosemite and 2 years ago I went backpacking in Zion. Even though I probably won’t be back to either park for another few years, I still care deeply about their upkeep & preservation. I don’t solely derive utility from my economic interest & consumption, I also derive utility from the implementation of my ideology. Despite the tax costs of national parks (which hurt me economically), I still prefer that my ideology toward park preservation is upheld.

Friedman discusses National Parks on the basis of excludability. He asserts that national parks could be effectively provided through market channels instead of political channels. Parks could be provided by markets, but they would likely be vastly underproduced. Why? Friedman’s analysis of national parks does not factor in that people value parks beyond their ability to “consume” them. There are 421 national parks in America. I will never go to each park, but I still care that they are preserved. That is: people are willing to (and frequently want to) vote against their economic interest in favor of their ideology towards preservation. Thus, the number of visitors does not represent the total demand for national parks. Market channels would only account for the demand of people visiting.

In market channels, the only people who would substantially pay for parks would be the people who are able to visit them or who feel compelled to donate. I predict that few people would donate as most would be inclined to free-ride. Additionally, people would likely feel that their individual donations don’t make a substantial difference in park preservation. Thus, the parks would receive very little money from those who are unable to visit. The National Park Service (NPS) annual budget is about $3 billion, but a 2016 study estimates that Americans value the parks at $92 billion per year! (Note that, even though citizens value parks beyond what we pay for them, we don’t make enough voluntary donations to bring us to the $92 billion). Through market channels, we (the citizens of the U.S.A.) would find ourselves in a large scale Prisoner’s Dilemma where everyone’s Dominant Strategy would be to not contribute to the parks they don’t visit (due to free-riding and/or feeling that small, individual donations don’t make a substantial impact). A pareto-efficient move would occur if everyone is forced to contribute through taxation.

Although I haven’t been to Yosemite, Zion, and most of the other 400+ parks in many years, I am still happy to pay for their upkeep (though I probably would free-ride if I wasn’t forced to pay through taxes). Friedman’s assertion does not recognize the impact that ideology has on National Park demand.

Underprovision of Brady

 This football season I and so many others like me are suffering from a serious and debilitating underprovision of a good that I deem to be essential. What is this good you might ask. It's Tom GOAT Brady playing for the Patriots. 

Unfortunately for me, Brady and the Patriots were unable to reach an agreement on Brady's new contract and because of this he left us for the Buccaneers. This may partly be due to the fact that Brady wanted to separate himself from the Pats and prove his worth as an individual and not merely a part of the Pats Legacy. A large part however is most likely due to salary negotiations. Brady was only predicted to make 30 million dollars in the next two years with the Pats. One article reports that Tom Brady gave up anywhere from 60-100 million dollars over the course of his career for the sake of keeping the Patriots competitive. It seems he finally realized what his worth was and sold himself off to the Buccaneers for the sum of $50 million. 

 I propose that we the fans take matters into our own hands and provide the rest of the funding necessary to get Brady back. Statista estimates from data available on Facebook that there are close to 7 million Pats fans. If each of us pitches in a meager $3 we can supplement the salary that the Pats were offering Brady, bringing the grand total to 51 million dollars. Therefore we would make sure Tom is not only indifferent between the Pats and the Bucs but ensuring he would receive more by coming back home.

Sadly this will probably never happen. As fans we are always free riding on the teams decisions and their ability to pay players a decent salary. There has been no incentive for us to contribute to this. Because of this we are now all suffering, having to watch every week as the Pats get pummeled without Brady. Our hopes of a 7th SB win going down the drain. Now all I need to do is find a way to force my fellow Pats fans to conform to my plan.

Gun Control Advocates are Targeting the NRA’s Selective Benefits.

 

The NRA is perhaps the most controversial latent interest group in the country. With millions of members, the NRA is prone to free riding. An individual gun rights advocate has little incentive to pay dues because their failure to contribute will barely affect the NRA’s ability to lobby. Furthermore, an individual will have their gun rights protected regardless if they contribute. To overcome this tendency to free ride, the NRA provides a myriad of selective benefits to dues-paying members. On their website they tout free magazines, free hats, and travel benefits. The NRA also fits Olson’s byproduct theory. Founded in 1871, the group focused on marksmanship classes before entering lobbying in 1975. 

Following the Parkland shooting in 2018, opponents of the NRA sought reduce its influence and push for more stringent gun control legislation. Some even targeted the NRA’s selective benefits. ThinkProgress organized a list of companies that partner with NRA in the hopes of pressuring the corporations to withdraw the discounts they provide to members. According to this list, NRA members receive a wide variety of discounts from 26 companies in total. For instance, NRA members get shipping discounts from FedEx and insurance discounts from Metlife. In response to this list, FedEx announced its intentions to stay with the program while Metlife announced they will withdraw their partnership. 

If Olson is correct about latent interest groups, then ThinkProgress’s public pressure will prove to be an effective tactic to reduce the NRA’s ability to organize. If a latent group loses a significant amount of its selective benefits, its members will have less of an incentive to behave in a group-oriented manner. (Olson 51). Despite the problems facing the NRA from the loss of corporate sponsors, there are still reasons to suspect members will stay around. There are significant ideological motivations that drive people to join the NRA whether or not they receive selective benefits. Additionally, there is likely a lot of social pressure within gun enthusiast circles to join the NRA. Both of these make it easier for the NRA to overcome the problem free riding.

Congress at a Snail's Pace

 People like to complain about how slowly Congress makes decisions. It's popular to pick on partisan politics as the  source of Congress's sluggishness, especially in connection to COVID relief packages. In an article from CNN, the writer does just that, stating "Congress was slow to oversee US response to crisis amid partisan battles."  What the writer does not recognize is that Congress's slow pace is, though frustrating, a feature of its structure that has potential benefits for society. 

According to Weingast and Marshall in "The Industrial Organization of Congress... ", the committee system under which Congress operates makes it durable against opportunistic behavior. That is, while there are many interest groups trying to gain benefits from the COVID relief packages and rapidly changing information as the virus spreads through the US, Congress's resistance to changes in circumstances protect it from individual congressmen trying to secure opportunistic benefits for their constituents among the panic. If Congress were to rush through legislation as is implied by media sources lamenting their delay, it is likely that the legislation would be less allocatively efficient than the current result. 

Farm Subsidies & Theory of Regulation

This year, federal subsidies to famers is predicted to hit $46 billion, more than any other industry. In fact, this is the largest contribution to the farm sector in over 15 years. While the economic slowdown caused by Covid has impacted American farmers, one reason for such a huge influx in spending is to help President Trump secure the rural base in the South and Midwest ahead of this weeks election. Opponents have gone so far as to say these subsidies are a "power grab used to buy political support." Despite the criticism, this strategy seems to be working, as his approval rating among this group is 10 points higher than the national average.

While this politically motivated act may be shocking and upsetting to many people, I think it makes total sense when looked at through the view of Stigler's Theory of Economic Regulation. In Stigler's model,  Trump is a representative seeking job security through re-election. Because the average voter displays rational ignorance and no incentive to vote, politicians will focus on winning support from special interest groups. Stigler says that if an incumbent denies large interest groups their subsidies, they will likely lose their seat ("the stakes are that important"). In this case, agricultural and related industries account for 5.2% of the GDP and 10.9% of American jobs. Clearly, this is an important industry to have support from, so if Trump has to secure a few billion in additional subsidies to win their support, then he is willing to do that to protect his job.

Perhaps if Trump really wanted to secure the support from agriculture, he would push legislation that would create more barriers to entry in the industry. According to Stigler, this is what interest groups want most, as it is the most effective way to get long term economic profit. If Trump is attempting to fully win the agricultural sectors vote, he should give them the policy that will benefit their profit the most. 

LeBron James: The GOAT Externality?

    When LeBron James is talked about, it generally has to do with his greatness on the basketball court.  The debate over whether LeBron James vs Michael Jordan is the GOAT, greatest of all time, is covered ad nauseam.  However, when I hear LeBron’s name, I think of all the benefits he has brought to the people and communities in the cities he has played in.  When he returned to his hometown team, the Cleveland Cavaliers, people besides die hard Cavalier fans profited greatly.

    The local media and official TV station of the Cavaliers, Fox Sports Ohio, experienced record viewership.  With increased eyes on their product, the TV channel can then charge more for advertisements and increase their revenues.  During LeBron James’ first tenure with the Cavaliers, Fox Sports Ohio had “...ratings that were between 45% and 215%...” ahead of their normal viewership during the 2013-2014 season.  Those increases provided a huge increase in revenue to the TV station.  The Cavaliers also benefited from LeBron James on and off the court.  When Fox Sports Ohio signed on again to be the flagship station of the Cavaliers, the Cavaliers brought in an exorbitant amount of money.  The most recent TV contract between these two parties just ended this season, and it was worth between $35 million and $38 million per year, one of the highest in the entire NBA.  Cleveland is considered a medium sized market if not a small one so these numbers are eye popping.  LeBron James brought the city of Cleveland their only NBA title ever as well as a slew of positive externalities along with him.  Even though he has moved onto the Lakers, Cleveland is still reaping the benefits of a generational type player like LeBron playing in its city.

Principal-Agent Problem with Managing Sororities During COVID

When we discussed principal-agent issues this past week in class, I realized that I constantly find myself dealing with this problem being the Vice President of my sorority. In this situation, I am the agent, helping to act on behalf of two principals, the members of the sorority and “Nationals,” the national sorority organization. Due to COVID, this year has been especially difficult when trying to assist our President and other executive leaders in managing the sorority. I constantly find myself facing conflicting interests and incentives between Nationals, friends in my sorority that are not on the executive board, and myself. 

As a VP, I try to please and fulfill the wants and needs of Nationals, as well as all the members, myself included. Everyone wanted our dues to be significantly less this year due the lack of in-person activities and benefits we would be receiving from the organization because of COVID-19. Many other organizations at other universities cut back on semester and yearly dues too, but a lot of the conflicting interests lie in how significant these reductions in dues should be. Of course, I wanted the same as most members in my sorority and thought the only logical answer was to significantly decrease dues during this pandemic and economic crisis. Yet, Nationals made this incredibly difficult, as they have their own economic interests quite different from ours. Additionally, I am able to shirk with Nationals without many consequences. Nationals does not have any control over our elections, instead our own members elect our own executive board members, so this has made me inclined to focus on the incentives of the members more so than National’s incentives. These are the people who elected me, not Nationals. That being said, I am not running for reelection once my term ends in the Spring since I am graduating, so I have the option to shirk with my fellow members too, but I have not wanted to do this that much thus far. The executive board has worked hard to bring the dues down for everyone as much as possible, and I have made my friends interests a priority quite a lot. I have been frustrated with Nationals, as I think they need to be more understanding about the current situation, and therefore have found that my amount of slack has increased and that my incentives as an agent are not directly aligned with those of the other principal in this situation, “Nationals.” 

Erie and Tariffs

My mother's side of the family is from Erie, Pennsylvania. It was once a booming manufacturing city on the Great Lakes. For about a century beginning in the late 19th century, my family had called this city their home. When I discovered a family reunion invitation list from the 1930's (containing addresses of the entire extended family), I noticed that everyone invited had an Erie address. This was shocking to me because the majority of my mom's family currently lives scattered throughout the country. Why did this happen?

Over the summer, I visited my Nana who still lives in Erie. For the first time in my life, I noticed the decaying quality of the roads and infrastructure as I was driving around. The buildings that once housed the companies that employed my family were abandoned and left for a slow, painful destruction. With the disappearance of industrial strongholds from the Great Lakes region, the jobs have evaporated as well.

The fact that Pennsylvania made a significant flip in the last election could be attributed to the fact of Trump's strong position on tariffs intended to strengthen our manufacturing sector of the economy. This could be evidence of the residents of Erie preferring the gains from the larger producer surplus rectangle over the losses experienced in the small triangles of DWL in our tariff model. The people of Erie and the rest of rural PA want their cities and towns to be vibrant once again. After experiencing the rust belt in my mom's hometown, I can understand why Erie County switched from a democratic majority in 2012 to securing a majority for Donald Trump with trade protections in mind. I believe that this happened throughout the state of Pennsylvania, which had a part in finally breaking down the "Blue Wall"

Wyoming, the State of Art Lovers?

As we were learning about capture theory in class, I was reminded of the funny threads on twitter enumerating ridiculous laws that appeared to serve no purpose. 10 year old me just chalked this up to not understanding "politics" and thinking lawmakers must have done this to be funny. I now realize that legislators would never enact a law without either a concrete benefit to their constituency or for the public good, especially since every piece of legislation requires an immense amount of time and effort. On average, a bill takes 263 days to become a law.

In Wyoming, article 16-6-802 states that any construction of a new building that costs over $100,000 must dedicate 1% of the budget towards art for the building. On the surface, this law is justified by the government desiring to spread arts for the public good. While this may be partially true, the enactment of this law can be directly attributed to pressure from the NASAA - the National Assembly of State Arts Agencies. This situation is a perfect example of Stigler's capture theory. Capture theory is the idea that regulation is acquired by the industry and is designed and operated primarily for its benefit. In this case, the "industry" is artists and art sellers who profit from this mandatory increase in art sales. Without this regulation, those constructing new buildings (given the choice) would likely choose to spend significantly less than 1% of the budget on the purchase of art. This sets a quantity minimum on art sales that is directly proportional to the construction of new buildings. 

When industries seek regulation, there is a hole that the private sector cannot fill for the firms. The solution for the industry lies in the fact that the government "can ordain physical movements of resources and the economic decisions of firms without their consent" (Stigler 4). The NASAA states that they lobby for governmental regulation in the arts because the private sector falls short in several ways. Firstly, philanthropic giving to the arts is geographically disproportional, favoring urban art communities and neglecting rural ones. Additionally, the goals of corporations in purchasing art may be worthy, but they might not address the broad art community needs. Less "basic" artists are often neglected, forcing artists to focus only on art that will be commercially successful rather than committing to the integrity of their work. This regulation would increase the overall profits flowing into the art community of Wyoming, as well as, increasing the focus on art. 

Football Resource Misallocation

 In football the measure of success is the number of wins in a season. The economic strategy that athletic departments apparently take is that the more money spent on coaches, the more wins they will have. This has lead to significant inflation of university coaches salaries- as evidence by the multimillion dollar coaching salaries throughout the power 5 conferences. In fact the average head coach salary for a power 5  exceeds four million dollars. 

The concept that paying coaches leads to more wins is dependent on other teams not paying their coaches more. This is similar to the example given by Tullock where the value of a lock is dependent on the investment the thief makes towards their lock picking. All else equal, School A increasing a coach’s salary increases the average cost of a win in the market since the number of overall wins is static.  If no other school follows suit, School A will win X more games while all other schools will collectively lose X more games. Conversely, if all other schools increase coach’s salaries the same amount, School A will not win more games since all schools are now simply paying more to maintain the current number of wins.

Regardless of how “other” schools respond, School A increasing the coach’s salary can be seen as a misallocation of resources because the sole final result is an increase of the cost of the win. Bottom line, there is incremental cost yet it creates no value (once again, because the number of wins in the total market remains the same).  The win is more expensive, yet it is not more valuable. It is also a “never ending cycle” since all schools want to increase the number of wins, which is not possible.