Tariffs, Tullock and China

This article from the New York Times discusses a bill passed by the U.S. House of Representatives that would give the Obama Administration greater power to impose tariffs on Chinese imports. The legislation, which passed with a bipartisan majority, is considered retaliation to Chinese currency manipulations. Although such actions might be questioned by the WTO and Treasury Secretary Timothy Geithner, it seems that both political parties are in favor of these measures. The welfare costs of such tariffs though are well known and are represented by the Harberger deadweight loss triangle. As a result of the tariff, Chinese goods become less competitive and the benefits of free trade are lost. Jiang Yu, a Chinese foreign ministry spokesman, seems to have alluded to this overall decrease in consumer surplus as he stated that the US should “resist protectionism so as to refrain from any damage to the interests of both peoples.”

Another critical issue is how these tariffs protections will be allocated. Although the Obama Administration “would not have personal control to turn sanctions on or off,” the legislation would give the Commerce Department discretion to place tariffs on countries that have “fundamentally undervalued” currencies. The issue is that giving the Commerce Department the ability to “place duties on imports” creates incentives for firms to compete for tariff restrictions in their industry. As Gordon Tullock might point out, the fundamental problem with this behavior is that it diverts resources to seeking this “prize” instead of investing into something more productive. If greater tariff powers are granted to representatives, then they could justify pursuing tariffs in favor of certain industries. This gives firms incentive to lobby and contribute financial resources to campaigns which in turn gives politicians an added incentive to create rent! It seems that the repercussions of China undervaluing their currency is that creates “legitimate” reasons for instituting tariffs on their goods which creates a market for campaign contributions in the United States, thereby leading to greater inefficiency and welfare costs.

Stigler and the (Bleeping) FCC

How often do you hear people bemoan the Federal Communications Commission, the national agency designed to regulate, among other things, radio and television? Creative minds in TV and radio grumble frequently about the stiff regulations of thecontent they are, or rather aren't, allowed to broadcast. Shouts of "Don't Censor Us!" are hardly uncommon, and certain shows like South Park and Family Guy (which did a popular musical number slamming the FCC) repeatedly push the threshold of suitability. Some shows have more "Bleeps" per minute than words, it seems, and some stations with laxer restrictions might play up their riskier shows in an attempt to seem edgy. But how badly do they really want these restrictions pulled? According to Peter Funt, son of Allen Funt, creator of Candid Camera, they don't. His theory is quite simple: people find the censored versions or broadcasts more entertaining. As he puts it, "The sizzle has far more appeal than the steak," which I take to imply that people are much more amused when someone curses and they aren't supposed to, leaving it to the audience's imagination to fill in the bleeps, than when someone curses freely. He even says broadcasters have "always been driven more by self-censorship than by the government-mandated kind," and as an example demonstrates how CBS mandated his show 'bleep' any eruptions of "Jesus!", which left "viewers to assume a truly foul word had been spoken." This brings to mind George Stigler's paper, "The Theory of Economic Regulation." Indeed, the circumstances are not identical. Stigler showed that firms often acquire regulation to give them an edge, somehow stifling competition from other entities, often requesting regulation that on the surface seems to harm their business. Funt contends that broadcast companies do something very similar. They play a hypocritical game with the FCC, "begging not to be thrown in the briar patch of censorship, because that’s really where they most want to be." Why else would shows script words they know won't make it past the censors? Because, Funt explains, it gets the audience excited and seems to challenge authority. His father was actually prohibited from censoring non-illicit material as a way to draw laughs, leaving the bleeps for only the really foul stuff. He mentions shows today that take advantage of double-entendre and censorship, including the popular "Unnecessary Censorship" bit in Jimmy Kimmel's talk show, which mimics Funt's father's gimmick of old. As companies plead for regulation on their industries to earn economic profit, so to, Funt asserts, will broadcasters (secretly) desire regulation to keep their audience laughing. There might well be something to this. After all, satellite radio has never taken off as expected, and one of their biggest assets was their claim of no-censorship. Stand-up comedian Mitch Hedberg said that, "there's a reason you can say whatever you want on satellite radio... Nobody is listening." Perhaps Howard Stern was funnier in a regular broadcast, and Funt is right when he declares, "Censorship, it seems, remains one of the most entertaining things on television."

Fill 'er Up: Hotelling and the Gas to Grub Conversion

Any of us that live on JPA will likely have noticed the new Fry's Spring Station restaurant that opened on the corner of Maury Ave earlier this summer. I thought the Service Station-to-Pizzeria was an interesting conversion and was surprised to find out that it is actually a common form of reuse of abandoned stations, as this Dallas-Forth Worth article details.

For this to occur, obviously old stations have to close. The old Fry's Spring Station, which closed early on in my time at UVa, is across the street from an Exxon, across the corner from a convenience store with WoCo gas pumps, and down the street from a BP Station. There were four gasoline sellers within a stone's throw of each other. We know from our discussion of Harold Hotelling's Stability in Competition why these stations cluster as such to try and gain the majority of the market by being slightly closer than the competition. The most curious part of this conversion, is that the new business is furthering the occurrence of this clustering - it is right across Maury Avenue from Anna's Pizza. And so the cycle may begin again.

Stephan Parry has employed the site of a business that possibly succumbed to the price wars that Hotelling posits may begin when merchants sharing a customer base compete strongly. However, he has perhaps unknowingly employed that site to enter into another Hotelling-style conflict in competing with Anna's Pizza.

A Painfully Funny Look at Representation in the US

A satirical article in the Onion [the site is slightly NSFW] mocks the representative democracy that has come to define the US. Here, the American people apparently have hired a high-powered lobbyist to "help advance their agenda in Congress." Tired of being a "low-priority fringe group," all 310 million Americans have decided to take the big business route to make themselves heard. The article is saturated with irony, making the reader take a good look at how the average citizen's interests have been pushed aside for private ones. Irony aside, some quotes hit too close to home like,

"The goal is to make it seem political advantageous for legislators to keep the American people in mind when making laws," Weldon said. "Lawmakers are going to ask me, 'Why should I care about the American people? What's in it for me?'"

Therein lies the value of satire: constructive social criticism. What is in it for lawmakers to help the average citizen, who does not have the influence or resources of a large corporation? Re-election? Not necessarily. Virtue? Maybe, but Stigler points out, "Unfortunately virtue does not always command so high a price." In a government where we find that money often equals votes, hiring a lobbyist for special interest group "American citizenry" is not as far-fetched as it sounds; looking at how much clout industrial giants and special interest groups hold, it might even be the rational choice. In the article, they're paying the lobbyist $795 an hour; if that were the only cost of organizing, then the latent group could awaken as well. If elected representatives are placing their constituents' concerns last anyway, what's the point of voting?

I think that, given the article's suggested direction that America is heading toward, there are also a lot of implications that need examining. It's no secret that special interest groups are influential, but do they have the potential to uproot our democracy? Does everyone need to be in a special interest group to be counted? How is this new representative system changing the US?

Is the most expenisve public school in the country Pareto Efficent?

This August in a Yahoo News Article, Los Angeles unveiled the most expensive public school in the nation with a price tag of 578 million dollars. The school will house 4,200 students, so that is $137,619.05 dollars per student! The school called the Robert F. Kennedy Community School is built on the same land as the former Ambassador Hotel, where the Robert F. Kennedy was assassinated in 1968. This is the state's third of these "Taj Mahal Schools" which boast price tags of over $100 million dollars. Not everyone is celebrating these schools though. "The buildings are nice but they are a big waste of tax payers money and run by the same people who have given the city a 50 percent dropout rate." says Ben Austin who holds a seat on the California Board of Education. Parents are not fooled either. So while these schools may have all the latest amenities, they are not guaranteeing higher success rates for students, but the arguement for some is that students learn better in more pleasant surroundings. Even so, allocating all of the money to these schools and leaving out other public schools in the Los Angeles area does still indeed make this a Pareto Efficient outcome. The question that determines Pareto efficieny is, is it possible to make someone better off without making anyone else worse off? If the answer is no, the system is efficient. If one group received all of the production of an economy, while a second person received absolutely nothing, most people would agree that this is not fair, but is it Pareto efficient? Well, is it possible to make the second group better off without making the first person worse off? No. The first group will suffer, even if only a little bit, from loss of the extra goods because the state only has a limited amount of resources. It may be true that the loss to the first group is smaller than the gain to the second group, but the fact remains that, to make the second group better off, you must do it at the expense of the first group.

Stigler and Proposition 19

California’s Proposition 19, if passed in the November election, will ‘legalize, tax, and regulate’ the production, sale, and use of recreational marijuana in the state. Regulation will vary between municipalities, but, in general, growers will be able to set up legal businesses, and restrictions on growing for personal recreational use will be lessened. Opponents of the bill can be divided into several groups with different motivations. The law enforcement and prison industry favor the status quo where they receive large amounts of federal funding for the ‘War on Drugs.’ Non-profit ‘public interest’ groups argue that legalization will have negative effects on society. Marijuana’s competitors, the wine, beer, and liquor industries have opposed the proposition and contributed significantly to the campaign against it, because, if passed, it will increase competition for their products.

Two additional groups that oppose Proposition 19 are already in the marijuana business. These are the large (illegal) commercial producers and the legal medical marijuana dispensaries. While this may seem counterintuitive to many people that marijuana producers support prohibition, this is in line with Stigler’s theory that, if possible, industries will seek government regulation that limits entry into their industry, decreasing competition and allowing them to keep prices high. It is difficult for criminal marijuana producers to make a public interest argument, or lobby the government or the public successfully. However the medical marijuana producers have publicly come out in opposition of the bill with the ‘public interest’ argument that the way the bill is currently written will decrease access to medical marijuana for patients who really need it. This article from The Huffington Post argues that the bill will have no affect on the availability of medical marijuana to the sick and elderly, and shows that the language of the bill contains special provisions to prevent it. Some of the more prominent figures opposing Proposition 19, such as Mary Rathburn and Dennis Peron, are same people who wrote and supported Proposition 215 that legalized medical marijuana. They are also the owners of some of the largest medical marijuana dispensaries in the state.

Loudoun School Board Votes for Obesity (ok, maybe not directly)

At home for fall break, I encountered many high school friends. I was shocked when one of my friends informed me that her little brother (now attending our old high school) was required to pay $200 dollars for parking, $86 per AP test, and $100 per sport season. I looked it up online to confirm and found a Loudoun Times Mirror article on the topic. Immediately, all I could think about were resulting externalities. When I graduated from Heritage High School in 2007, parking permits cost $25 per school year and sports and AP exams were funded by the school. This past year there was a $15 million budget cut for the Loudoun School system and that is what has lead to these new fees. Externalities of the 700 percent increase in the parking fee:

• Positive: Encourages carpooling, riding the bus, or walking to school, leading to reduced pollution and traffic
• Negative: Inconveniences parents who have to drive their children as a result

The $86 per AP test also has its externalities:

• Positive: may encourage more students to take AP classes more seriously and better prepare for the exam
• Negative: could act as a barrier for students that cannot financially afford to pay for the exam

The $100 fee per sport played:

• Positive: can’t think of significant ones (maybe you can!?)
• Negative: discourages many students from trying out for the team if they know they won’t be getting significant amounts of playing time.
• Negative: it will become more difficult to get student to try out for the less glamorous JV and freshman teams.
• Negative: reduced participation in after school sports could contribute to drug, alcohol, and obesity problems.

Of the three fees, I am most skeptical with the sports pay-to-play fee. While the parking fee and the AP exam fee truly charge the individuals that are benefiting from parking and taking AP exams, I don’t think the pay-to-play fee does. Like I mentioned above, not all athletes on a team participate equally and arguably should be charged the same fee. Furthermore, playing time is based on a pure comparative measure (if your friend is a better athlete than you are, then he/she gets more playing time), so it is more difficult for the individual to decide his/her fate (unlike the parking permit where you are guaranteed a parking spot). For this reason I think the negative externalities of the pay-to-play fee are much more discouraging and I am interested to see if its costs will eventually outweigh its benefits leading to a reversal of the fee.

Voter Turnout for Primaries Shows Troublesome Trend

According to this article from September 14^th in the New York Times, for the first time since the 1930’s, Republican turnout for primary elections in 2010 has outpaced that of Democrats, with just over 10% of Republicans participating compared to about 8% of Democrats. To some this might sound like an obvious warning to Democrats of potential losses in the upcoming midterm elections, but the article suggests that there is more to these figures than meets the eye.

While it is unclear whether higher levels of Republican primary participation spell doom for the Democrats in November, a closer look at the data shows reasons for leaders of both parties to be concerned — the number of nonvoters continues to outpace voters. In a primary season where the narrative tends to be about partisanship and anger, the statistics through the end of the summer suggest that voter participation remained relatively consistent with the last couple off-year election cycles.

Precisely why fewer voters are voting in primaries is open to debate, but many believe it is because fewer Americans are choosing to identify with a specific party – both Democrats and Republicans are currently seeing fewer and fewer Americans self-identify into their party. With most states holding closed primaries, meaning one must be a registered Republican or Democrat to participate, a lack of party affiliation instantly disqualifies a voter from primary participation.

How might sagging rates of participation be remedied? One state is attempting to take action to reverse the trend of non-participation: simply by giving their voters the option of voting in advance by mail, Colorado’s rate of primary participation more than doubled in 2010 compared to 2006. Colorado follows the same closed-primary system as most other states, yet has managed to significantly boost participation rates just by reducing the opportunity cost to their voters of casting a vote in a primary election.

Were more states to follow Colorado’s example and attempt to make primary voting as quick and easy as possible for their voters, it might be possible to reverse the current trend; it is clear that most voters today need the process to be expedited to consider it worthwhile to participate in primaries.

Deregulation of the Taxi Industry in Ireland

When I lived in Dublin, Ireland last summer, I noticed the large number of taxis for the European capital of only 1 million people. I commented about this to my Irish co-worker who explained to me the recent deregulation of the taxi industry in Ireland. Before deregulation, a shortage of taxis existed in Dublin and getting home from a pub on the weekend often involved waiting for over an hour in a taxi queue. I never had to wait more than a minute to catch a taxi, even in the residential area where I lived in Dublin.

This article from an economist at the University in Dublin written in 2004 describes the history and results of deregulation. Regulation of the taxi industry began in 1978 (due to pressure from incumbent license holders) and made taxi licenses scarce and expensive. The Irish economy boomed in the 1990s and the number of taxi licenses remained at nearly the same level. The average taxi license cost I£80,000 in 1997 and after deregulation in 2000 only cost I£5,000. The number of licensed taxis rose from 2,722 in 2000 to 8,609 in 2002. Taxi drivers protested the deregulation, claiming that their income would decrease, the quality of taxi service would decline, and open entry would encourage criminals and rapists to become cabbies. While the individual income of taxi drivers did decline, the consumer gained from the decreased waiting time. No other signs of decreased quality in taxi service have been observed.

With the meltdown of the Irish economy recently, taxi drivers do have a genuine grievance about their loss of income. Tourism is down and less people can afford to take taxis. Additionally, many illegal immigrants work as taxi drivers. Does Ireland need that many taxi drivers? The joke in Dublin is that anyone with a car is a cabbie. Should entry into the market be made slightly more difficult or is the (nearly) free market the best for Ireland?

So Long ABC Stores

Virginia Governor Bob McDonnell is trying to push legislation to privatize the liquor sales in Virginia. Doing so would end a 76 year Virginia government monopoly on the sale. Governor McDonnell plans auction off 1,000 new licenses to sell liquor to private retailers ranging from local drug stores to grocery stores and even chains like Costco. This auction is expected to provide the government with a much needed initial windfall of money of between $400 and $500 million to be spent immediately on roads and construction. The use of an auction for allocation is a good way to minimize any potential rent seeking by corporations as a liquor sales license is sure to be a very lucrative prize. The auction coupled with the new market for alcohol sales license will ensure that the licenses get into the hands of the companies that want them the most.

Some “public interest” opponents of the bill believe that the Government wants to privatize sales (to the detriment of Virginia Citizens) because it is being influenced by alcohol lobbyists who are asking for less regulation to help their individual sales. This goes against Stigler’s theory that industry actually seeks out regulation to block entry of new competition. If passed, the bill will create a competitive market for alcohol sales which should lower prices slightly and actually provide more brand options for consumers; however, alcohol sales in the state are expected to increase overall, so this argument is definitely complicated. Considering the government will have to make extensive budget cuts to make up for the $47 million per year loss in profits from alcohol sales (which happens to be one of its most profitable sectors during the recession) it is hard to see how this is just being done for the benefit of the government. Governor McDonnell and his supporters are arguing for the bill on the basis of principal (the government should not be involved in the sale of liquor), economics (the competitive market should be allowed to function for this private industry) and for the benefit of consumers (convenience and options).

With the monopoly in effect the government currently gets slightly more than 50% of the price of a bottle of liquor. Without the monopoly the prices of bottles are unlikely to decline dramatically (although higher end brands like Grey Goose may be more affected) but the government will only receive about $2 in taxes per bottle with the rest of the markup going to the private sellers. While most would not argue that this redistribution of wealth from “big government” to private sellers is not a bad thing, the fact is that these losses to the government will have to be accounted for in some other form (say higher taxes). With monopolies and market control the problem is that resources are diverted in seeking the rent, not in the rent itself; so is a government monopoly really such a bad thing in this case? It appears as though the money from citizens was just being transferred to the government in the form of alcohol sales (although I suppose an investigation into the government’s relationship with alcohol wholesalers and producers could indicate some rent seeking). Furthermore, even though the plan to allocate licenses by way of auction minimizes rent seeking, with such a lucrative industry one can expect these opportunities to surface in the future.

Sifting Through the Smog

A New York Times article explains the legal action being taken by the state of West Virginia against the Obama administration regarding coal-mining regulations. At the direction of Governor Joe Manchin, the state is claiming that new federal mountaintop mining regulations are unconstitutional and place an unnecessary burden on the coal industry:

"The lawsuit, filed by the state Department of Environmental Protection, accuses U.S. EPA of overstepping its authority and asks the U.S. District Court for the Southern District of West Virginia to throw out the federal agency's new guidelines for issuing Clean Water Act permits for coal mines."

This raises several interesting questions, which do not have clear answers. According to Stigler, firms use the government to craft regulation in their favor. So then, who benefits from these regulations on the coal industry (Environmental groups, the renewable energy industry, local fisheries, etc.)? Could it be that these regulations are actually in the public interest as it is almost always claimed? Or rather is the inefficiency created by this regulation a type of "rent" that firms are seeking to capture for their own benefit?

NRA Endorsement of Perriello

This Daily Progress article discusses the recent acknowledgment that Tom Perriello will most likely be endorsed by the National Rifle Association in the upcoming election. The NRA follows a “friendly incumbent rule” by which they support pro-gun law makers seeking re-election.

"Tom hasn’t been afraid to stand up to members of his own party when it comes to fighting for the Second Amendment, and the NRA’s endorsement will signify to Virginia gun owners that they can continue to count on Tom to represent them,” said a spokeswoman in his campaign. Perriello has a strong history of defending second amendment rights and the NRA supports their friends who have stood by them in the past.

The article got me thinking about our discussion in class of the median voter theorem. If the single dimension policy space is a social conservatism continuum, or even more specifically a continuum of gun policy conservatism, what will this endorsement do for Perriello?

The NRA’s endorsement and Perriello’s pro-gun platform would move him (as a candidate option) along the continuum towards the conservative end. It can be predicted from the theorem that inevitably Perriello may lose the votes of some liberal anti-gun extremists as a result of isolation. Yet, it would also be assumed that he would gain the votes of those super loyal to the NRA in all its decisions Conservatives.

The overall gain Perriello would get from his position in the policy space would be contingent on the location of the median voter. If the median voter is already more conservative it is likely that the NRA’s endorsement and his pro-gun stance will benefit him, but rather if the median voter is more liberal (with respect to second amendment rights) it could do more harm than good in his efforts to win the election. Given that much of the 5^th district is heavily rural, I’d say this is really great for Perriello and could give him a big boost.

I Would Have Named it the Sabre Center

This Washington Post article discusses the enormous cost of building John Paul Jones Arena at our beloved University. Everything about the stadium is state of the art, least of which the price:

The building's total cost of $191 million includes about $130 million to build the center, nearly $14.5 million to outfit the dining, audio-visual and other areas, about $5 million for fundraising costs and $42 million to pay interest on bonds to finance the building over 20 years, according to Virginia executive vice president and chief operating officer Leonard W. Sandridge. Private donations, suite leases and sponsorships will cover all but $9.6 million, which comes from student fees to be paid over the life of the bonds, he said.

Only five percent of the cost is coming from public funding, which is astounding for a public university. A great deal of the cost is being burdened by private donations, even though they are certainly to be in the minority of people using the stadium. What could possibly motivate someone to put forth money when they could wait around and use it for free? Chapter 7 of the Gruber textbook highlights the main reason why someone would do so; the warm glow model:

Individuals care about both the total amount of the public good and their particular contributions as well. Perhaps they get a plaque with their name on it from making contributions, or maybe their contributions are known publicly so that their friends praise them for their generosity, or maybe they get a psychological benefit from knowing they helped a worthy cause.

Certain donor levels did get recognized for their contribution to the project. And for the paltry sum of 35 million dollars, you can have a state of the art basketball stadium named after your father.

Rent-Seeking and Economic Regulation Hurts Those in Mourning in Maryland

This 2006 article from the Baltimore Sun discusses how expensive funeral services are in Maryland (not to mention everywhere else in America) due to an early 20^th century state law that was passed in order to protect consumers from unreliable morticians; the article goes on to reveal that this law is actually popular amongst funeral business owners today in Maryland because they can use it to prevent legitimate funeral service businesses from opening up around them. The author of this article states that “funeral directors couldn't engineer this protection by themselves; they've had help from state lawmakers who have prevented attempts to reform the funeral laws. Few Marylanders are aware that one of Annapolis's more generous political benefactors is the Maryland State Funeral Directors Association.”

With this quote, the problem of rent-seeking within the funeral service business in Annapolis, Maryland becomes obvious. In terms we have discussed in class via Tullock’s chapter on the topic, because of the monetary gains that can be obtained from keeping regulatory state laws in place, there is an incentive for funeral business owners today to give money to the Maryland state government (aka spend resources on rent-seeking expenditures), and thus money is spent away from the natural direction of the market. Funeral home owners have fought innovations in the funeral service business that would lower funeral costs by “working with their politician friends…they have defended and strengthened anti-competitive funeral regulations aimed at stemming the tide of Internet casket sales, the expansion of funeral home chains and the popularity of cremations.”

In this rent-seeking case in Maryland, resources were wasted trying to obtain the “rent” of regulation to entry in the funeral service business. Therefore, I also felt as though this article was interesting because it provided a real life example that tied Tullock’s article on rent-seeking to Stigler’s article on economic regulation. The author of this article states that “people usually think that businesses dislike regulation. But businesses often find it profitable to have regulations crafted to impede would-be competitors. This allows politically well-connected businesses to charge higher prices and manipulate consumers' choices.” With this quote, Stigler’s argument of how businesses like government regulation because it gives them market power and control is proven. The funeral business owners give money to the government (rent-seeking) in order to make sure that it is hard for new funeral service businesses to open up and therefore their prices can stay high (theory of economic regulation).

My question after reading this article is, how will this cycle of rent-seeking and unnecessary regulation over entry into a market be fixed? Or will people in Maryland just always have to pay more for their funeral services?

The Economics Behind 'The Bachelor Pad'

Of the many hours I wasted watching the Bachelor Pad, I have found a way to gain some value from it—blog about it. This show relies on the economics of public choice in order to create unpredictability and drama. For those of you that are not familiar with it, it’s a TV show in which past bachelors and bachelorettes (From the TV shows of The Bachelor or The Bachelorette) compete for $250,000 and a chance of finding love along the way. At the end of each week an elimination ceremony takes place where all of the women vote individually on the man they would like to eliminate and the men do the same for the women. .

Right off the bat, the contestants divided into the “insiders” (contestants that knew each other before the show) and the “outsiders”. As a result, the women of the insider group would collaborate with the men on the insider group in order to see which man they should voted off. In return for granting the insider-men their wish, the men would place their vote based on what the insider-women requested. The outsider’s did the same. I think this is a great example of logrolling. These mutual agreements lead to both sides (men and women) gaining a better chance at achieving their preferences. Furthermore, just as Mueller describes it in Chapter 5.9, the bluffing problem certainly made its appearance on the Bachelor Pad, creating a good amount of drama. .

Mueller also mentions the problem that occurs when voting is done in sequence, as was the case on the Bachelor Pad. The holdout problem proved to be a very popular strategy for some contestants. Many times right before the last contestant was going to place his/her vote, the contestant most worried about being voted off would strike deals with the last voter. For example, Kip was on the verge of being sent home and Nikki was the last women to vote leaving Kips fate in her hands. Kip bargained with here by promising his loyalty to her in the future—a benefit Nikki only received because she was the last voter.

Finally, at the end of the show only one woman (Natalie) and one man (Dave) were left standing. Natalie and Dave were sent into separate rooms and were given the decision to either share the money or to keep it all to themselves. Who would receive the money was decided in the following manner:

• If both Natalie and Dave decided to keep the money, neither would receive it and the quarter million dollars would be divided among all other Bachelor Pad contestants.

• If one of them decided to share and the other decided to keep the money, the person that chose ‘keep’ would receive the whole $250,000.

• If both decided to share the money, each would receive half of the $250,000.

This is a typical prisoner’s dilemma. In class we discussed that the dominant strategy would be for both of them to decide to keep the money, which would leave both with nothing. However, if there are other convincing incentives put in place (like an inmate breaking the leg of the person who confesses) then this may be avoided. So the burning question the show left its viewers with was whether “love” was enough of an incentive for both Natalie and Dave to decide to share the money. I’ll leave it at that…

Tobacco ban in Britain

Tobacco advertising was to be banned in Britain by the end of 2002. This initiative, called the Tobacco Advertising and Promotion Act, also prohibits the promotion of tobacco products through free gifts, coupons, and spam mail. The government predicted the ban would have saved 3,000 lives a year and reduce National Health Service bills by £340m.

However, there is no evidence of a clear connection between tobacco advertising and numbers of smokers :

Conservative health spokesman Tim Loughton argued a clear link between advertising and smoking numbers had not been proved." Nobody is disputing that smoking is harmful - it is, it's a filthy habit, we hate it, we would like it to be rather less prevalent among the population, particularly the young," he said. Tim Lord, chief executive of the Tobacco Manufacturers Association said: "We have always believed that banning all forms of tobacco advertising will not achieve the Government's aim of reducing smoking. "We are particularly disheartened that we will lose the right to talk to our adult consumers." Our main focus is now to co-operate with the Government and officials to ensure that the regulations governing implementation of the Bill are as practical and workable as possible, particularly from the point of view of retailers."

From the social point of view, ban for advertising in such industry as tobacco can be easily justified. It is a bad habit that most smokers want to get rid of, and it is even harmful to nonsmokers. But are the acts of bureaucrats driven only by the desire to stop smoking? As we found in class, this is not the case. In such an oligopolic industry as tobacco, major firms might invest resources to induce the government (income of the government officials is often supplemented by bribes and gifts) to grant them market power through promotion of the advertising ban. This prevents other firms from breaking into the market, which drives prices up and creates rent for the major firms.

What a difference the rules make

Every spring University students head to the polls to decide on referenda and elect officials for a variety of organizations, such as Student Council, the Honor Committee, the University Judiciary Committee, class councils, and school councils. The University Board of Elections (UBE) is tasked with overseeing the elections, and as stated in its Rules and Regulations, UBE elections use an instant runoff process.

The process, which is based off the Hare system, requires voters to rank the candidates for each office from most preferred to least preferred. When the UBE tallies the votes, if no candidate has received a majority of the vote, the person who received the least number of votes is eliminated. The eliminated candidate’s supporters then have their votes redistributed to their second-choice candidate, and the process repeats until one candidate has received a majority of the vote, who is then declared the winner.

This system of voting made headlines due to the spring 2010 election for Third-Year Council Vice President. As this article in The Cavalier Daily shows, the race had four candidates: Abebe Kebede, Natalia Mercado, Chris Mullen, and Nitya Reddy. After the initial round of voting nobody had a majority, so Chris Mullen, the last-place candidate, was eliminated and his votes were redistributed. Still, nobody had a majority, so the next candidate with the fewest votes, Nitya Reddy, was eliminated and her votes were redistributed. The final round pitted Kebede against Mercado, and Mercado emerged as the victor by one vote – 664 to 663.

After the results were released Kebede considered challenging the results, particularly because in early rounds of the runoff process he had a plurality of the vote but he did not have a majority. Once candidates were eliminated and their votes were redistributed, however, Mercado had a majority and was declared the winner, even though it was only by one vote. Ultimately, with the UBE standing by the process and its results, Kebede conceded the race to Mercado.

The article’s ending does an excellent job summarizing this election’s lessons. One of the biggest problems with this electoral system is voters do not understand it in detail, which opens the door to skewed results. Moreover, Mercado believes that the system is “the most fair type of elections that we have at the University.” Is this really the case? Should the UBE consider switching to a different system?

New Vegas Hotel Comes Equipped With Death Ray

One of Las Vegas’s newest resorts, the Vdara is an architectural marvel that towers 57 stories over the famed Strip. Located within mere blocks of some of the world’s best-known casinos, the Vdara was built as part of the new CityCenter development project that many hope will provide a boost to a sagging Vegas economy. Envisioned as a straight luxury resort without a theme, a nightclub, or a casino, the Vdara was built with a unique concave design and highly reflective bluish windows that give it a distinctive look. Each of its 1,495 luxurious suites and condos come fully equipped with their own gourmet kitchen, there is a fabulous spa that adjoins the Strip, and the building is fully outfitted with its very own death ray.

What?

Despite what Vdara's bartenders, pool attendants and visitors mockingly call it, the problem is technically known as "solar convergence." The sun's heat is amplified as it reflects off the curved building, creating areas of increased heat that, during a midday Monday visit by AOL News, made the metal parts of some chairs dangerous to touch.

The Vdara’s curved architecture and highly reflective windows actually have a similar effect to a magnifying glass when exposed to the sun’s rays – the building creates areas of extreme heat that are unsafe for hotel patrons to inhabit. Naturally, hotel patrons are less than pleased.

"It was fine here a little while ago, but then all of a sudden I felt like I was frying," said pool patron Danielle Civello, visiting from Dallas. "That's weird."

This seems like a somewhat large oversight that has the potential to impose large external costs on the patrons of the Vdara as well as anyone unfortunate enough to wander into the death ray’s danger zone. Despite the fact that solar convergence is a well-known phenomenon in architectural circles, currently circulating documents have confirmed that while MGM Resorts International was aware of the potential problem, they decided to go ahead with the Vdara’s construction and even turned down offers from architectural firms to coat the windows with anti-reflective film. Now that the hotel’s construction is complete and it is open for business, the problem is proving to be exceedingly difficult to fix due to the danger zone’s propensity to migrate throughout the day. This means that for the foreseeable future, visitors to the Strip might want to be mindful of the potential of 57-story death rays to ruin their day.

The Rise of the Middle

By now most people are aware of the Tea Party movement to represent the extremes but most have not hear of the new political group that is beginning to make noise called the “Militant Middle.” This group is made up of disillusioned independents and moderates who feel that current government policies are being dominated by the extremes. The “Militant Middle” has even found a vocal supporter in Jon Stewart:

Stewart tells his devoted audience, "We live in troubled times with real people facing very real problems; problems that have real if imperfect solutions that I believe 70 to 80 percent of our population could agree to try and could ultimately live with. Unfortunately the conversation and process is controlled by the other 15 to 20 percent."

Political scientists say that the Republican and Democrats are picking more extremely partisan candidates because it is easier for them to get funding within the party in the initial stages and it is easier to distinguish them from other candidates in their campaign. Voters who would normally steer towards the middle are being forced to pick polarized candidates (because those are their only options—something that could help this is allowing people other than registered party members vote in primaries) so voters appear to be more partisan than they actually are.

Advocates of the middle seem to suggest that Downs’ Median Voter Theorem is actually not working. The “Militant Middle” is arguing that the Democrats and Republicans and their candidates are actually not moving towards the middle but rather forcing the middle to choose a side (like making you walk that extra mile to get a hotdog instead of competing for your business). Even though parties are fully informed of the middle’s preferences, they are simply not conforming to them. One interesting thing to note is the complaints by some contributors that President Obama promised policies that suggested a movement towards the middle after winning the primaries (like the theory predicts might happen) but they feel that he has not delivered on these.

Even if this movement fails to bring any real candidates to the political forefront, the party can serve the same purpose as the aforementioned Green Party by putting partisan Republicans and Democrats on notice in an attempt to bring the extremes back to the middle.

Take the Green Out of Blue and You Get Red

There was much ado about the hanging chad in the 2000 Election, but another costly reason Al Gore lost Florida had to do with Ralph Nader running on the Green Party Platform.

Nader was the Green Party nominee again in 2000. He actively campaigned and raised money, and was supported by several high-profile celebrities. He significantly increased his national vote total, receiving 2,882,955 votes, or 2.74 percent. But it was the 97,488 votes Nader received in Florida that brought him the wrath of Democrats once Gore lost the state and the election.

Those one hundred thousand votes came almost solely from Democratic voters, greatly damaging Gore's chances in Florida, which he lost be an astonishingly close 537 votes. Nader's platform called for far greater emphasis placed upon environmental issues, especially as related to greenhouse gas emissions. While Nader claims he was running under the hope of actually winning the election, it is clear that he was mostly intending to get the issues of the Green Party on to the national forum, and in turn, allow the Gore the option of regaining Nader's voters in return for adopting a more 'Green' party line. However, Gore ignored this option, which is clearly defined in Downs' work An Economic Theory of Democracy.Downs spells out this theory on page 131:

When one of the parties in a two-party system has drifted away from the extreme nearest it toward the moderate center, its extremist supporters may form a new party to pull the policies of the old one back toward them [...] This party cannot possibly win itself, but it can throw the election to the opponent by diverting extremists votes from the moderate party. To get rid of this menace, the moderate party must adopt some of the extremists' policies, thus moving back from the center.

Gore chose to more or less ignore the Green Party, resulting in scenario one (throwing the election to the opponent). Had he co-opted the Green Party from the start, he would have had the advantage of accruing those votes and likely winning the Presidency.

Of course Nader cannot be the only source of blame for Gore's defeat. His inability to win his own home state amongst other blunders all contributed to George W Bush winning he election. But maybe if Gore had a keener understanding on simple majority in the two party system, he would have used Nader to his advantage and kept the Presidency under the Democrats for (at least) 4 more years.

O' What A Game

A recent Washington Post article illustrates a perfect example of the spatial location theory in the realm of sports franchises. Washington recently received a new baseball team, the Nationals, after the Baltimore Orioles had the only team in the area for several years, effectively breaking the local baseball monopoly. The two teams now compete for fans from the affluent suburbs of Maryland and Northern Virginia, a battle that the Nationals appear to be winning.

"Since the Nats came to town, they've wrestled with the O's for undecided voters, especially in wealthy suburbs in Maryland between the two ballparks. This season has finally done the trick."

The Nationals and the Orioles are located in efficient points where in an ideal world they would offer the lowest costs to consumers meaning that they are located close enough to fans in their respective areas. Fans from Northern Virginia no longer have to travel long distances to Maryland to go see a baseball game when they can just cross the border over to DC. This theoretical equilibrium is thrown off however because the two teams are not selling identical products. For one, the Nationals are a much better team with a brand new stadium which is preferred by some to the older Baltimore stadium. Also, the rich suburbs of Virginia are expanding rapidly giving the nationals a wealthier fan base than the one in the surrounding Baltimore area. Would it make sense for the Orioles to move their team to gain better access to customers, or would simply improving their product be a more cost effective move?

How Tiebout is true in NYC

This article was published in the spring of 2009, and it focuses on various New Yorkers’ approach to their children’s education in the wake of the Great Recession that started in the fall of 2008. The article discusses how there has been an increase in interest and in applications for public schools in certain New York City areas because some families can no longer afford to pay private school tuition for their children. The areas mentioned in the article are ones that are typically thought of to be inhabited by wealthier families (like the Upper East Side and Upper West Side of Manhattan). The article also shows how some couples without children (but who plan on having them in the future) are now looking to buy/rent apartments in areas with established public school systems because the education of their future children is very important to them, and they do not know if the economy will have turned around by the time their future children reach school-age.

I felt as though this article tied in well with our discussion of Charles Tiebout’s “A Pure Theory of Local Expenditures” and the concept of “voting with one’s feet.” The article provides several examples of people who had purchased apartments in an area of New York before the recession hit, and their education preferences were not factored in to their apartment location because they assumed that they would send their children to private school. However, the recession is causing these families to alter their preferences to include their children’s public school education, as private school is no longer economically feasible. Many of the families mentioned in the article are either trying to sell/sublet their current apartment and move in/rent a new apartment located in a better public school zone. Although not all of the assumptions of Tiebout’s model hold in this article (some of the people interviewed mention the high costs associated with moving), Tiebout’s overall conclusion that people reveal their true preferences by their location is realized.

After reading this article, I was curious to see if the local government of New York responded to the changing preferences of these New York families. Not surprisingly, I found another article (which was published after the first one) about the opening of a new public middle school (the first new public school building built on the Upper East Side in almost 50 years!) in one of the areas mentioned in the first article that had seen an increase in public school applications. As Tiebout suggested, local provision and adjusting was done within the public school district by the voter based on where they live; the government saw both the movement of families to a certain area and the increase in public school applications in that area and responded by allowing a new public school to be built in said area. A pretty good real-life example of Tiebout’s argument in my opinion!

Minimax Regret and Pascal's Wager

Why do people vote and why do people believe in God? The Minimax Regret argument and Pascal's Wager offer similar logic to answer those questions.

The Minimax Regret theory offered by Ferejohn and Fiorina (1974) creates two states and two alternatives. A vote is decisive or not decisive, and an individual either votes or does not. According to the logic of the argument, an individual wants to minimize the maximum regret he or she will have in the future. Therefore, the individual will always vote because casting a decisive vote provides a benefit greater than 1) the cost of voting and 2) the regret of not voting when it would have been decisive. Even though the probably of casting a decisive vote may be small, the risk of incurring the regret from not voting when it would have been decisive supposedly gives people an incentive to vote.

The French philosopher Pascal offered a similar argument in the 17^th century to justify belief in God. The argument presents two states: God exists or God does not exist. It also has two alternatives: live as if God exists or live as if God does not exist. If God does not exist, the individual gains and loses nothing. If God does exist and the individual lives as if God exists, he or she gains “positive infinity” in going to heaven. If God exists and the individual lives as if God does not exist, he or she gains “negative infinity” in going to hell. Therefore, a rational individual would choose to live as if God exists because he or she has everything to gain and nothing to lose.

	God exists	God does not exist
Live as if God exists	Gain all (+∞)	Status Quo
Live as if God does not exist	Misery (-∞)	Status Quo

Unlike a good economist, Pascal fails to recognize the cost of living as if God exists. He does not take into account the cost of time spent praying, attending church services, and performing good deeds. There is a fiscal cost of giving money to a church and to the poor. Finally, by leading a morally upright life, an individual faces a high opportunity cost for all the sinful and immoral activities he or she is no longer experiencing. For a present-oriented individual who completely discounts the future, the cost of living as if God exists is not worth the benefit. The rational hedonist would therefore choose to live as if God does not exist.

Screaming children NOT tolerated

This video that I came across on cnn.com describes how a restaurant in North Carolina instituted a policy that doesn’t allow screaming children; the sign at the entrance states, “screaming children will not be tolerated.” Brenda Armes, the restaurant’s owner, says she is tired of customers complaining about the screaming children; in other words, she believes that screaming children impose external costs on customers that are attempting to have a meal in peace. One could object to this policy by saying that it also keeps a lot of customers away. One example would be a mother of two toddlers that was also interviewed. She vehemently expressed her disapproval and said that “personally, if I saw that I wouldn’t come in your restaurant.” Mrs. Armes though claims that it has “brought in more customers that it’s ever kept away.” [How would she measure this?]

In order to deal with this negative externality in consumption (of the restaurant’s services/property/goods) the restaurant erected this harsh rule. Perhaps an alternative solution to this dilemma would be a voluntary agreement between the restaurant owners and customers with screaming children. This contract would involve having customers pay for the external cost produced by their screaming kids so that it would compensate the restaurant’s loss. A price could be determined at a point at which the marginal cost of screaming children on the restaurant’s revenue equals the marginal benefit that customers enjoy while eating at the restaurant. One problem with this solution is that it would be difficult to determine the exact cost of having screaming children at the restaurant. So should Mrs. Armes reconsider her policy? Or should she also be allowed to reject people that smell bad?

Are Long Weekends always a good thing?

Friday's Cavalier Daily held a column reporting on a proposition for Virginia state employees - obviously of concern for the University. Associate Editor Rebecca Rubin tells us that the Virginia state government is reviewing a proposal to place many government workers under a four-day work week of 10-hour days, maintaining forty hours per week. The idea, according to Isaac Wood of the Centre for Politics, is to save possibly more than $3 million in energy costs.

Wood apparently ignores the social costs or externalities of the proposal, calling the cuts "really painless" before he asks "do the benefits to the state outweigh the costs?" Rubin is more economically astute and (though without calling them such) assesses some negative externalities that the proposal could inflict. She highlights the inability of the public to work with the affected agencies for the additional day each week. Are there more externalities hidden here, positive or negative?

The Effect of Education on Global Health

This recent Washington Post article details the effect that a mother’s education level has on her child’s health. The article claims that an increase in women’s education indirectly leads to improved care for children because mothers are more likely to take their children to health clinics when sick and they are more aware of treatments and disease prevention methods. Increased schooling of women also results in these women having fewer children and children who are more widely spaced in age. The effects of women’s education have been seen in poor and wealthy countries alike and show that investments in education seem to be just as important as direct investments in health care. Here the author discusses the magnitude of the results:

Half the reduction in child mortality over the past 40 years can be attributed to the better education of women, according to the analysis published in the journal Lancet. For every one-year increase in the average education of reproductive-age women, a country experienced a 9.5 percent decrease in the child deaths.

This article provides further evidence that education has many positive externalities in consumption, something that economists have long been saying. A young girl can have a positive effect on the future of her family and the world by obtaining an education. Of course, the article does not provide a “threshold” level of education at which the biggest effects may be seen and in poorer countries, where the benefits of increased education would presumably be highest, obtaining even low levels of education is surely difficult. One final point from this article is that developing countries have options to improve their health prospects aside from simply investing in medical resources. The positive effect of education shows that investment in other public goods like clean water and roads should also have a profound effect on global health.

Student Financial Binds Eased By Honor Loans

The Ivey F. Lewis Honor Loan Endowment is a stand-alone fund established to aid full-time University students in meeting their small, short-term financial needs by issuing interest-free loans for a maximum of $600. The Honor Loan program began in 1939 and is completely student run. To qualify for the Honor Loan, students must simply be enrolled as full-time undergraduate or graduate students and must be in good standing with the University.

This school year, I am privileged enough to be the Ivey F. Lewis Loan Officer. I hold ten office hours a week in the Office of the Dean of Students and meet with graduate and undergraduate students in need of emergency aid. My job is to analyze the financial situation of students and ensure that they meet the loan criteria. The University allocates about $100,000 for this fund. Because the loans are interest fee, the University does not make any profit from issuing these loans. The fund is simply there to be used as a “public good” for all University of Virginia students. It is not a purely public good because the only students who have access to this fund are University of Virginia students. The theory of clubs would apply when classifying this loan fund as a good because exclusion is possible. Something along the lines of federal student aid through the U.S. Department of Education would be a better example of a purely public good because all US citizens are open to apply for that type of aid, but as Buchanan stated in his Economic Theory of Clubs, “The range of ‘publicness’ is infinite.” This loan fund also has a characteristics of a public good in that it is non-rivalrous.

The Cavalier Daily published an article dated March 20, 1969 about the loan fund, which was then located in the Rotunda. The maximum loan value then was $25 and the value now is $600. Even taking inflation into account inflation, the amount of money available to students has greatly increased, and the money the fund has available has increased as well. The loan fund has enough money to meet the student demand for loans, and has many positive externalities, with little or no negative externalities. Negative externalities would occur if a student did not pay back the loan in the time-frame agreed upon, but that is expected to happen a few times. Overall it is a great program. So if you are a full-time student in need of emergency aid, come to the Office of the Dean of Students and take advantage of this good that is available to you.