The Prisoner's Dilemma Behind The Two-Party System

This weekend I was thinking about how the Republican party is in a bind due to Trump’s refusal to concede the election, with Republicans like Mitt Romney admonishing Trump’s actions, while others like Lindsey Graham vehemently stand by Trump. In casual discussion, one of my roommates asked me what I think the odds are that the Republican party splits. This division would seemingly split the party into a group of more moderate Republicans that want to go back to the pre-Trump Republican party, and a group of Trumpers who focus on pure political power and divisive politics. When contemplating this question, I realized that this might be a good example of a Prisoner’s Dilemma problem in politics.

We’ve seen the Republican party become divided in views/strategies of the two aforementioned groups, but we’ve also seen the democratic party stretching between super-progressive democratic socialists like Bernie Sanders, and more moderate democrats such as President-elect Joe Biden. In this article using Gallup poll data, the author explained that only 38% of Americans feel that the two parties do an adequate job, so a majority of people would support more parties. If both the Republican and Democratic parties split into more moderate and extreme subsets, everyone would feel better represented by their candidate of choice. I don’t believe this would happen though, because if one party splits, the other party instantly benefits from not splitting their party, and keeping a larger number in the caucus than both of the individual opposing parties, and can more-easily win a presidential election. If both parties were to split, both democrats and republicans would be better off than they are now, but if only one party split then the other will hold off and benefit from still being larger. Due to this, the parties are stuck in a dominant strategy prisoner's dilemma, where they don’t reach Pareto efficiency. To simplify, if both parties remain one they have utilities of (10,10). If they both split, they reach Pareto efficient utilities of (20,20). If one party splits but the other doesn’t, they have utilities of (5, 40), respectively. 

Logrolling with Friends

This past summer I went backpacking in Colorado. On the last night of a 4-day hike, my friend Charlie asked me if he could have my freeze-dried lasagna in exchange for his freeze-dried risotto (an objectively worse meal). I initially thought to say no, but I realized that I could give up lasagna (the food I slightly preferred) and trade this favor for something in return that I really prefer. I asked Charlie if he would be willing to clean up the food & cooking area in exchange for the trade in food. He accepted. I did Charlie the favor of eating the worse food and he did me the favor of cleaning up.

As I continued thinking about this moment, I realized that I logroll with friends all the time. Back in Charlottesville, if Charlie cooks dinner, I do more of the dishes. If my other housemate John cleans the bathroom, I take out the trash. We exchange favors all the time without talking about it. Splitting up housework isn’t always easy, but it’s worked well in our house and we exchange favors without even discussing them. Since each favor is: 1. relatively contemporaneous (actions & benefits are immediately noticeable) & 2. held to the customary contract of friendship, there isn’t much favor shirking, two potential problems that Weingast & Marshall foresaw with logrolling. Since these favor trades rarely (if ever) impose costs on others outside of the exchange (there are no negative externalities) and we trade when our benefits exceed costs, I have found logrolling to be a great tool to achieve allocative efficiency.

The Balcony Dilemma

Recently, my friend Bella asked me whether it is worth it to pay an extra $10 rent for the balcony I immediately replied  “I would even give up $50 because the marginal utility of balcony is very high for me”. I think everyone would be willing to bear the $10 cost because the MC of living in an apartment without a balcony outweighs this cost considerably.

Bella is moving to an apartment with her three other friends. She and two of her friends easily agreed to pay the extra ten bucks for the apartment. However, one of her friends, Caroline, refused to pay that cost which makes the situation complicated. This group of four people is really good friends so the MC of excluding Caroline and moving to a three-bedroom apartment is highly costly. Therefore, this is not an option. 

When Bella asked me how to resolve this situation, Coase’s theory came to my mind. When I asked her how much she would be willing to pay to get the balcony, I got the answer of “as far as $20”. Thus the situation would be easily solved if Bella would be willing to cover Caroline’s balcony fee as well. Unfortunately, this situation was not that simple. The reason why Caroline didn’t agree to move to an apartment with a balcony was stemming from her fear of heights which is much more costly than the $10 fee. As a result, the MC of Caroline is higher than the MB of Bella and her two friends. Hence, they end up moving to an apartment without a balcony and bear the cost caused by Caroline out of their love for her (which may not be valued by any currency). 

Avoiding externalities during Thanksgiving

 Thanksgiving is a very traditional holiday. Most people typically celebrate it the same way every year, and for a majority of Americans that means traveling to visit family. This year, there are significant externalities to travel regarding the pandemic. A large number of college students around the nation like myself, will be heading home for Thanksgiving, and many of them will not return to school until late January or February. However, the tight window for travel from essentially today to next Wednesday presents an enormous opportunity to spread COVID-19 which will present negative externalities for every American for the foreseeable future. To avoid this externality, and personal harm, many families (especially older members) are choosing not to gather this year.

This is not the only avoided externality that occurs as a result of not gathering for the November holiday. Every year, millions of Americans suffer during Thanksgiving because one or more of their extended relatives is vegan. Creating an edible and enjoyable Thanksgiving meal is a near impossible task for anyone who has a vegan in their family. Now, don't get me wrong, I have absolutely no problem with people choosing to follow a rigorous diet of any form. However, in order to make family feel comfortable around each other during the festive meal, lots of families want to make sure that everyone eats the same thing. This results in significantly less enjoyment of the meal for most non-vegans in the family who are forced to eat the food with no animal products. This year promises hope for those Americans, a year of meat, gravy and a proper pumpkin pie.

Biden's Struggles with Inefficient Bureaucracies, Barriers, and Trump

As we sit back and watch anything but a usual presidential election and transition happen, I started thinking more specifically about the repercussions of Trump not formally conceding the election. Biden and the rest of his transition team face a significant number of barriers to entry as they try to prepare for Biden taking office in January. For example, Biden and the rest of his transition-team are being locked out of crucial Covid-19 pandemic data and government agency contacts, leaving the Biden team with a major lack of crucial information and potentially an even more delayed response to the surging pandemic. Once again, inefficient federal bureaucracies are delaying key processes and getting in the way of what we need, when we need it.

Since a formal transition cannot begin until Trump concedes the election, Biden is not allowed to meet with any federal agencies, such as the Department of Health and Human Services, to start working on the country’s next steps. The initiation of the official transition itself is inefficient – the General Services Administration (GSA), which is led by a Trump appointee, has to sign off on the election and will not do so since Trump has not conceded. Time after time again bureaucracies are slowing down crucial processes. A major source of slack/insulation in this situation is that the bureaucracies that Biden wishes he could talk and work with right now are monopoly suppliers of information, as they are the only ones with the government specific insider information. This leaves Biden with no alternatives and these agencies with no incentive or reason to act differently, since there is no competition for efficiency or information. For now, we just have to wait and see how this transition plays out and hope that with time it doesn’t become even messier than it already is. 

A Public Choice Explanation for What's Up with the USPS

As we wrap up this semester, I thought it would be interesting to evaluate one issue using different methods and theories we've discussed over the past few months. Over the course of this semester, the USPS has gotten a lot of attention for its issues with funding and its public status. Despite being a massive bureaucracy (they employ over half a million people), the USPS has a big funding problem, causing some to reconsider its role as a government entity. 

The USPS and public choice first crossed my mind when we read Friedman, who argued that the USPS, a government monopoly, should be privatized to stimulate competition. Allowing new entrants into the mail delivery industry in his opinion would result in the industry being "revolutionized." However, I believe Friedman's thinking is narrow, as there are other benefits to the USPS that are very important. For example, having postal services as a public good benefits rural communities, who most likely would lose access to postal services under a private system because of the lack of profitability in those regions. 

The next time I though of the USPS was when we were discussing the Niskanen model in class a few weeks ago. Niskanen's model helped explain why USPS faces more budget issues than other government bureaucracy. Consumers elasticity of demand is fairly high for the USPS, as there are many substitutes. Higher elasticity results in less room for the senior bureaucrat to increase the budget. Moreover, during the past few decades, the elasticity of demand has gotten even more elastic, as new substitutes like Amazon, UPS, and e-mail have grown in popularity, making it so the USPS has even less power to expand their budget. This is because there is less sponsors surplus they can try to take when expanding the budget than more inelastic agencies, like Defense or Homeland Security.

A Free Rider Friendsgiving

Last year, a group of friends and I from several houses gathered for a "Friendsgiving" celebration at UVA. We had a Google sheet to sign up to bring different classic Thanksgiving dishes, and we had everything from turkey and cranberry sauce to sweet potato casserole to green beans to cider to pumpkin pie. Because of our number, we of course faced the classic economics problem: free-riding. No one discussed it then, but looking back now I can clearly see why several of us did not contribute. When there is a large number of people receiving a group benefit, individual members are incentivized not to contribute. By my estimation, there were about four people or so who brought nothing. I myself was added onto the signup sheet with two of my housemates without my knowledge, an easy opportunity not to help out. However, feeling it to be my obligation, I duly contributed to a wonderful evening.

To overcome this problem, the key is restricted benefits. Our hosts could have easily prevented anyone from entering who had no contribution to the meal, or made them pay to enter. But that is not how friends treat each other, and tempers could have flared. We did have enough food for everyone and all the food groups were covered, but this could have easily not been the case. In fact, it might have been better if we had had fewer people, since there would have been less temptation to free ride as each person would know Friendsgiving would not happen if they did not contribute. Instead, we had several free riders. And that was ok, because we loved them, and we were happy to show them grace.

(But also next time, pandemic permitting, I will be guarding the door.)

Some Interesting Benefits of Ranked-Choice Voting

During and after the election I monitored the results of Maine’s ranked-choice voting Senate race because, after we discussed it in class, I was interested in the effect it might have on the results. It was cool watching the news anchors on election night discuss Susan Collins’ need to obtain 50% of the vote so that the ranked-choice aspect of the election didn’t kick in. I’ll admit, I really wanted Susan Collins to miss the threshold so that we could see the effect of transferred votes, but unfortunately that didn’t happen. Since the election I have done some more reading and was interested to learn of a few more benefits to this different voting method. 

I found a cool opinion article in USA Today, written by Andrew Yang and Bill Weld, that discussed the effect ranked choice voting might have on campaign strategies. They said that due to a candidate’s goal of winning second-choice votes in addition to first-choice votes, that candidates would shy away from negative ads as to not sour the impressions of the opponents’ supporters. Ranked-choice voting then has the effect of more respectful and polite elections, something I believe all would appreciate especially in this day and age. Another interesting effect ranked choice voting has, according to an article on FairVote.org, is that it is more likely for women and minorities to not only run for office, but win their elections as well. One way ranked-choice voting can increase representation is due to the decreased effect of two similar candidates “splitting the vote”. Say for example (in an egregious oversimplification) that two women are on the ballot against one man: if almost all women support a female candidate, and most men support the male candidate, the female candidates might split supporters, but as long as the male candidate doesn’t win a simple majority, one of the women should gain the supporters of the other and the effect of this split is diminished greatly. Obviously this example is an oversimplification, but I thought the research data about how ranked-choice voting could directly lead to more representation was fascinating, and makes me curious about what other positive effects it could have.

How Uber and Lyft Flipped an Election

One of the most interesting amendments to appear on the ballot this November 3rd was Proposition 22 in California. Proposition 22 would change the law so that app-based transportation and delivery drivers could remain defined as independent contractors and adopt labor and wage policies specific to their line of work. This would allow Uber and Lyft to be exempt from the current California labor law, AB5 or the "gig worker bill," which requires companies that hire independent contractors to reclassify them as employees. Classification as an employee means that drivers would receive employer-sponsored benefits, but also retain less flexibility in their working choices. 

Six weeks prior to election day, the proposition had only garnered the support of about 39% of the constituency, with another 25% remaining undecided. However, on election day, a whopping 58% of voters supported the amendment - how did this massive surge in support occur? 

The approval of the proposition can be attributed solely to the efforts of Uber, Lyft, DoorDash, and other gig economy companies in a perfect representation of capture theory. Capture theory is Stigler's theory that regulation is acquired by an industry and is designed and operated primarily for its benefit. In this case the gig economy industry, lead by its key players, spent over $200M to acquire "yes" votes on the ballot for the initiative. They argued that as their businesses currently remain unprofitable, this exemption from having to pay for employee benefits is crucial to their future health. The firms employed TV and digital marketing in order to reach a wide range of constituents, and utilized in-app advertising to reach gig economy workers and customers. Additionally, Uber and Lyft threatened to leave California, raise prices, and/or cut jobs if they were required to reclassify their drivers as employees and modify their business model. This threat likely scared many voters into defaulting to the safe, status-quo vote of "yes." The most impressive results from their efforts were the significant numbers of drivers and minorities who supported the proposition. Going forward, this approved proposition will be operated and enforced to the benefit of Uber, Lyft, and other firms within the industry who will retain their market shares and current business models. 

Splitting Checks & Principal Agent Problems

 I was recently out to dinner with a group of my friends. We were having a great time until the check came. The restaurant informed us that in groups larger than 6 they just split the check evenly for as many people were in the group. Some members of my group were very angry because they had intentionally ordered cheaper items and were now having to pay for those who had opted for more expensive items. 

Splitting the check evenly raises an instance of the principal agent problem.  If looking from the viewpoint of someone on a budget (the principal) then the agent (the more affluent friend) did not have their interests aligned with the principal in terms of keeping spending low. This leads the friend trying to save money to have to pay a much higher price than the actual cost of their food. I myself am quite the eater so I feel like I am part of the problem, but I wish restaurants were able to split more evenly so I didn't feel as much guilt in these instances. 

It Was a Fun Idea in the Moment

 In class the other day I made a passing joke about holding out on signing Professor Coppock's release form. Professor Coppock responded with a thinly veiled comment that being a holdout 'might' affect my final grade come the end of the semester. This got me thinking about how things would actually play out if I decided to holdout on signing the form and whether or not it was really worth it. 

The first question to ask is what is there to gain. Several articles I have found estimate that authors of textbooks make 12% in royalties from sales. Professor Coppock is a co-author so let's assume he makes 6%. Each textbook of the third edition of Principle of Economics sells for $95. Professor Coppock has 1,000 students in ECON 2020 on average each semester. Therefore, we can assume he makes $5,700 from sales of his textbook each semester. As the release form stipulates that my likeness can be used in any subsequent versions of the textbook then it looks like Professor Coppock will be making a comfortable amount of money from the use of my face. I think he could spare a couple hundred dollars in compensation for me.

The easiest way to go about being a holdout in this situation is to simply refuse to sign the form. This would make most or all of the footage that Professor Coppock has unusable. I'm sure he would want to avoid this so it's hopeful that he would agree to any demands I make. However, Professor Coppock holds some power over me because he can disincentivize me by threatening me with a bad grade. If he did take that course of action then I could appeal to the University. Professor Coppock is undoubtedly more trusted and valued by the University than I am so they might side with him. My next step would be to call on my fellow students as witnesses as I'm sure some of them heard our exchange in class. But then my fellow students might be holdouts and ask for part of the money that I receive from Professor Coppock in exchange for testifying. Then this brings up issues of making them keep their word. If I give them the money before they testify then they might renege on our agreement ex post facto. That way they would get the money but still remain in the Professor's good graces. If they testified before I had to give them the money then I could just renege on our agreement. 

Ultimately the time, money, and effort that I would have to put into being a holdout far outweighs the benefits that I could receive. I guess I should've known better than to trifle with an expert in economics. 

Congressional Control and Scott Pruitt's EPA

 

The discussion of the competing theories of bureaucratic discretion and Congressional control made me want to find a modern example to see how each theory holds up. Given the prominence of the EPA as well as the controversy surrounding Scott Pruitt's tenure it seems like a compelling example. In 2017, Trump’s appointed EPA head, Scott Pruitt, began a drastic rollback of environmental protections that were pursued under the Obama administration. He loosened Obama-era fuel standards for cars and light-duty trucks, convinced Trump to exit the Paris Climate Accord, and repealed the Clean Power Plan.

The case of the EPA seems to confirm much of Weingast and Moran’s findings; both the Senate and the President exerted control as the principle in Pruitt’s one-year tenure. For instance, Pruitt’s decision to repeal the Clean Power Plan was prompted by an executive order from Trump. Additionally, his confirmation was no rubber stamp. Senate Democrats attempted to delay his confirmation vote by dragging out the debate. He was ultimately confirmed by a narrow 52-46 margin. Most surprisingly, Pruitt even advocated to restrict the budget of his own agency, arguing the EPA had become bloated. From the perspective of Niskanen, in which the agency head seeks to maximize their agency’s power, this choice is incomprehensible. Finally, when Pruitt’s tenure became mired in corruption scandals, the legislature exercised its ability to institute sanctions. Various oversight bodies launched a total of 15 investigations into his actions, including a Republican-led one from House Oversight committee. These ultimately led to Pruitt’s resignation in 2018. 

Principal-Agent Problem in Soccer

As a big soccer fan, I was thinking about why the best soccer players in the world would end up playing in Turkish teams later in their careers. Even though they get offers from much better leagues like Premier and La Liga they somehow end up getting retired in one of the teams in the Turkish League. 

This situation is a great example of the principal-agent problem stemming from different interests among coaches and players. Coaches (principal) transfer star players (agent) to their teams according to the players’ former stats and performances. Thus, the coaches don’t really make biased decisions because they receive adequate information regarding the transferred players. The main difference between what the European teams and Turkish teams offer star players is not the salary, it is the length of the contract. Turkish teams generally offer much more longer-term contracts to those players than European teams. Long-term contracts are very compelling offers especially for star players over 30 years since they can enjoy big salaries without worrying about getting fired if they show low performances. Hence, they don’t feel much economic pressure to perform which makes them more risk-averse. They don’t take risks which can lead to injury or hurt their stats because they act in their individual interests rather than in the principal’s interest.

How Primary Elections Are Cheating the Median Voter

 In Johnson’s “Voting, Rational Abstention, and Rational Ignorance” we learned that primary elections have the potential to prevent a single mode electorate and contribute to the ambiguity of candidate’s platforms. Individuals who are active voters in primary elections tend to be more partisan in their beliefs, or in terms related to the median voter theorem, on the far right or far left of the spectrum. Because these individuals are more inclined to participate, the candidates in the general election will most likely vehemently oppose one another on close to every issue. This forces voters in the middle to either abstain from voting or choose a candidate that represents the extreme.

More often than not, in districts where one party historically dominates, the general election is secondary to the battle in the primary. For example, Representative Alexandria Ocasio-Cortez’s (NY-14) win in the 2018 democratic primary essentially decided the general election, and her toughest battle was against the Democrat incumbent Joseph Crowley. When the real competition is in the primary, candidates are more likely to shift closer towards the ends of the electoral spectrum and therefore produce policies favored by their voting base who adhere to extreme ends of the spectrum. This of course only leads to further partisanship in congress with most candidates representing extreme ends of conservatism and liberalism leaving little room to compromise for the median, and moderate, American voter.