Who Has The Median Vote?

The Democracy Fund Voter Study Group has just released data on 2016 presidential election voters and their political stances from economic and social perspectives. This analyzes two categories of voter sentiments: economic and moral/identity issues. This presents a four-quadrant chart, divvying people up into populist, liberal, conservative, and libertarian political stances. The results of the chart for 2016 Trump voters was a spectrum on conservative moral/identity issues, but fairly centrist economic views.

Applying the Downsian theory of parties formulating policies in order to win elections rather than winning elections in order to formulate policies, Trump was able to transform his policies to appeal to historically populist voters. Trump was able to rally people behind him by transforming the GOP to appeal to its conservative voters who lean only center-right on economics. On the other hand, the Democratic party has not been able to win elections despite homogeneity among liberal voters because the party’s base is too far left to convince persuadable voters. The GOP in 2016 was able to optimally cater to the median voter while the Democratic party held strong among its base. As the country shifts left, the Democratic party is out of touch with median voter, hence it’s inability to win elections.

Facebook Regulation

 For the last several years, parties have called for Facebook and other social media conglomerates to be regulated due to egregious abuses of user data. This has resulted from a lack of supervision. As many representatives do not understand the technology and thus do not know its capabilities. A former Facebook employee turned whistleblower has explained to Congress and the public the actual abuses that need to be dealt with. The regulations being called for deal with the "power to request data from Facebook." These regulations are being suggested in hopes that Facebook must offer complete transparency to its user and regulators. Although Facebook has been the target of data privacy protection regulation, much of it has been done for the benefit of Facebook. For example, one law protects Facebook and other social media sites from being prosecuted over their users' posts. The article further discusses how regulation like section 230 lulls users into a false sense of security regarding their private data; however, it does very little in reality.

This article supports the catch theory and Peltzman model of regulation. A powerful firm such as Facebook was able to acquire regulation designed and operated primarily for its benefit: regulation that protects it from lawsuits regarding its users' views and tricks users into thinking it's being regulated. This shows Stigler's greatest fear: special interest groups becoming too powerful. However, the new regulation being pushed is against the interests of Facebook. This supports the Peltzman model as it is a walk-back of the Stigler theory on regulation. It shows that utility-maximizing representatives will create regulation when special interest groups (users and Facebook whistleblowers) demand it. Stigler previously only thought the demand was great enough when an industry giant was applying the pressure. However, in the Peltzman model, the total satiation point is pushed back due to the decreasing marginal benefit to politicians if they make their constituents unhappy. 

Voting in Fantasy Football Trades

Sitting with a pitiful record of 1-5, my fantasy football team doesn't have a great chance to make the playoffs.  However, I am still interested in my league because of our voting rules about trades.  In my league once a trade is agreed upon, the other teams have 2 days to review it and can vote to approve or veto.  If 4 of the 10 teams vote against the trade, it does not go through.  To me, this threshold seems to balance between decision making costs with external costs, especially since some teams never vote because they are less invested in the league (perhaps because they derive less utility from bragging rights or don't fear the punishment for the last place team).  For example, if one team wanted to trade Tom Brady for a practice squad player, our league could easily rally the numbers to veto and wouldn't need to waste time coming to an obvious decision.  On the other hand, if you make a trade, one or two people can't easily impose an external cost on you by denying it.

This past week was the first time a trade was rejected, and I was surprised.  In my eyes, the trade seemed fair and clearly those involved in the trade did, too, otherwise they would not have agreed in the first place (because trade creates value).  So, I stopped to consider why other teams might veto it.  I noticed that the teams who vetoed were the 4 teams who currently had spots in the playoffs.  It seems to me these four teams did not necessarily vote on if the trade was "fair," but more so on how the trade would potentially affect them.  Although morally questionable, I think voting in this way is completely rational, so I cannot blame the playoff teams for their actions.

Right to Repair and Capture Theory

Right to Repair is a movement that wants consumers to be able to have their products repaired by parties independent from the dealer or manufacturer of a product.  This movement has been growing in popularity in the tractor, medical equipment, and automobile industries, but I will focus on the consumer electronics industry.  To provide an example of the issue, let’s say your MacBook breaks and you need a new charging chip, instead of buying it online and repairing your MacBook yourself or having an independent repair shop do it, you must go to Apple to repair it.

Regulations were previously passed that allowed these practices often in the name of protecting consumers' data.  There is little merit to this claim however as there is little reason to doubt the trustworthiness of most independent repair shops.  Capture Theory on the other hand, offers a compelling reason why Apple pushed for these regulations.  The regulations are a form of entry control that allows Apple to have a monopoly on the repair of Apple devices which allow Apple to create durable rents.  Its clear the regulation are not pro-consumer however the costs are dispersed across everyone and often not large enough for most people to be too upset by. 

That said, there has been recent pushback recently as consumers have become less ignorant of the issue.  Using the objective function of elected representatives under the Stigler-Peltzman model of regulation, h has been increasing causing a decrease in M meaning elected representatives should be more hesitant in supporting the continuing existence of these regulations as their net votes from supporting the regulations decreases.  So far, the change in M has not been significant enough to alter the voting behavior of elected representatives but that could change if the current trend continues.

Government Regulation: The Cure for Negative Externalities of Drug Use?

     Rhode Island is instituting government controlled sites for the injection of illicit drugs. This is quite an interesting turn of events, instead of enforcing the existing laws, this state is changing its policies to effectively end the use of illicit drugs.

    Currently, drug use is countered with fines and prison time. This action has a very high negative externality for society, as the administrative costs and cost of imprisoning drug users is so high. Also, the use of these drugs has further amplified the HIV/Aids epidemic and crime, costing society even more. 

    As illicit drug use is still rampant, Rhode Island has realized its current policies are not working and are implementing a new way to curb drug use: safe injection sites. These locations will provide safe and clean access to drugs and work to slowly get those addicted off of the substances. This will lower prison and crime rates, as well as drug-related diseases as it will all occur under government regulation. This is an exciting new tactic and I hope it will work as it will greatly reduce negative externalities by reducing crime rates (the drugs are freely available and will not need to be purchased by addicts), and increasing healthy practices (clean needles and sanitized injection sites). 

I think this falls under government as a paternal figure when it comes to justifying government regulation, and as our current efforts have not worked, I am hopeful to see if these new practices will effectively put an end to illicit drug use. 

Example of Creating Social Pressure to Vote

     The other day I came across a very clever ad that well exemplifies social pressure as a cause for people practicing the irrational behavior of voting. Please the 10-second video add a watch here.

    This ad is powerful because it plays on human tribalistic tendencies of group association by creating two distinct groups: those who vote and thus care about the neighborhood and Larry who doesn't vote and thus does not care about the neighborhood. Larry is treated as an outcast being viewed with disdain for not performing the 'good group' behavior of voting. Furthermore when Larry attempts to defend himself by saying "but" he is cut off to neighborhood members judgementally shaking their heads at Larry

    Larry could very well be practicing rational ignorance and not voting because voting is not a utility-maximizing activity to Larry. Larry could have trust that the collective will make a moderate choice due to the rational voter theorem. However, Larry may end up being pressured into voting as a result of ostracization from his neighbors and not because Larry truly finds value in the act of voting.

A Brief Analysis of the French Presidential Election Voting System

The French presidential election voting system is a two-round system.  To be elected president, the candidate must be 1 of the top 2 candidates in the 1^st round of the election, and then the candidate must beat the other top 2 candidate in the 2^nd round.  The 2^nd round only occurs if the top candidate cannot secure an absolute majority in the 1^st round, but this hasn’t occurred since the system’s inception.

The system is said to allow people to vote first with their heart, and then their brain, but this false.  Since it is almost guaranteed the 2^nd round will occur, voters in the 1^st round should vote not for their favorite candidate but instead vote in a way that maximizes their expected utility given expected likelihoods of various candidates defeating others in the 2^nd round and the expected utilities under each presidency.  For example, a voter in the 1^st round may wish compromise and vote for a less favorable candidate if said candidate is more likely to defeat an even less favorable candidate in the 2^nd round than their preferred candidate is able to.  Alternatively, a voter may wish to vote for a candidate they dislike greatly in the 1^st round if it pushes said candidate into the 2^nd round where the disliked candidate is more likely to be defeated by a more favorable candidate than the more favorable candidate is to win against another less disliked candidate.

Less tactical voting produced the results of the 2017 elections where Marine Le Pen of the far-right Front National party narrowly defeated François Fillon of the center-right Les Républicains party.  This resulted in Le Pen getting crushed in the 2^nd round by Emmanuel Macron of the centrist La République En Marche! party as the more left-wing parties voted for Macron but Fillon’s votes were split between Macron and Le Pen.  Those who voted for Le Pen in the 1^st round likely should have compromised and voted instead for Fillon as they likely would have been happier under Fillon than Macron and Fillon would have been more likely to win against Macron than Le Pen.  As shown in the previous example, the system encourages centrist parties to form since they are more likely to win in the 2^nd round.

Could the AP Poll employ a better voting method?

 A few weeks ago, I was scrolling through TikTok and got into an argument with a Virginia Tech football fan about their aggravations with the Associated Press College Football power ranking poll (AP Poll). They felt that the poll was not reflective of actual results, and that pre-season perceptions were being given too much weight. This triggered me to look a little further into how the rankings are constructed on a week-to-week basis. After reading about how the voters are chosen and how the votes are totaled, I tried to tell the VT fan they should look into it too, and they responded “I’ll learn it when they get their **** together”.

Thanks to public choice, I get to blog about this interesting application of Borda voting. The AP poll uses the Borda method to rank the top 25 (of 130) college football teams weekly, with first-place votes being worth 25 points, second-place votes being worth 24 points, and so on. Borda voting does not satisfy the Condorcet criterion where the winner of all head-to-head matchups is the winner of the aggregate election. To get an idea of how the Condorcet (head to head) best team may not actually end up in first place in the poll, think back to Mr. Coppock’s example of the Louisiana Gubernatorial election, where the Condorcet winner was knocked out of contention. This example works the exact same way but with more "candidate" teams and more voters. In this respect, I agree with the VT fan that the poll’s method is not perfect, so I will explore some alternatives. 

The VT fan is correct that the poll could be better, and under a ranked pair voting system the weekly victor of the AP Poll would be guaranteed to be the Condorcet winner. The problem with this, however, is that a ranked pair ballot for 130 teams would force sportswriters across the country to consider over 15,000 hypothetical matchups each week, a prohibitively expensive proposition. Other options for the poll would include other single-round non-Condorcet methods, such as ranked-choice. The reason that Borda is preferable to ranked-choice here is that Borda lets voters rank the team they most believe to be the best, and 24 others, rather than all 130. 

For the reasons stated above, I do believe that the Borda Count voting method certainly has its imperfections, but is the best voting method to accomplish the very unique task of ranking college football games each week less than a day after the games happen.

The Nefarious US Government and Domino's Cheese Ring

     I have long awaited this opportunity to share with you all the greatest government scandal you have never heard of, and with the topic of rent-seeking being brought up, the time has finally arrived. So let's jump into it. 

    Allow me to briefly set the scene. It's 2010 in the US of A and life is good. America, although in the midst of an obesity epidemic, is making strides towards being a healthier nation. One small step being made was the shift from whole milk to healthier options like skim or 2% milk. The US government was pushing for a healthier America and it seemed like the tides may have begun to change for the better, or so it seemed...  The problem with 2% and skim milk is that there's a lot of fat leftover (over 98% left to be exact). This wasted whole milk and excess fat may have been good for the society as a whole, but it was not good for farmers and rural economies who the USDA have a vested interest in because of "a Depression-era commitment to use price supports and other tools to maintain the dairy industry as a vital national resource."

    So what does the USDA do? They create an organization named "Dairy Management." This is the organization behind "Got Milk?" which relentlessly pushed milk in schools (despite the evidence discouraging high consumption of high-fat dairy). This is also the organization that sponsored a $12 million marketing campaign for the struggling Domino's Pizza chain to market their collaborative effort of a new line of pizzas with 40% more cheese. Yes, you read that correctly. The United States government teamed up with Domino's Pizza to market a heart attack of a pizza to their own citizens, despite encouragements from the same exact government department to reduce consumption of saturated fats (which are especially present in cheese).

    Rent-seeking is when resources are spent to obtain rents which derive from activities that have negative social value. Rent-seeking is when the US government spends $136 million to get rid of their excess cheese in the form of contributing greatly to the obesity epidemic plaguing their own people. I rest my case and hope you are equally if not more appalled than I am.

Rent Seeking: Drug Pricing and the Pharmaceutical Industry

I recently came across this article entitled "Centrist Democrats scramble House drug pricing effort" on how three Democrats in the House’s Energy and Commerce Committee blocked a drug pricing plan that was intended to be part of the Build Back Better Act. For context, these reforms would include such measures as having the government negotiate the Medicare pricing of certain prescription drugs and setting the benchmark for these negotiations to the prices paid for the drugs in other developed countries. At first glance, this appeared to be a reflection of the median voter theorem. If we consider that moderate Democrats likely represent and reflect an ideology closer to the median voter than a more left-leaning Democrat, moderates should cast the deciding votes and determine the outcome of policy. However, there was a line in this article that shifted this thought process.

“‘It is disgusting when politicians who supported Medicare negotiation in the past switch their votes in exchange for pharma cash,’ the group Social Security Works said in a statement Wednesday.” This statement shows how this situation is complicated by the rent-seeking behavior of the pharmaceutical lobby, which has already spent over $171 million dollars in lobbying just this year to deter the full enactment of drug pricing policies. In fact, according to the same source, Rep. Scott Peters (one of the three Democrat holdouts) has received the greatest contributions for the 2022 cycle from the pharmaceutical industry out of any House member or candidate. According to Tullock, rent-seeking is when resources are spent to obtain rent which derive from activities that have negative social value. In this case, the millions spent on lobbyists and campaign contributions instead of, for instance, on producing these medicines or conducting research would constitute a misallocation of resources. Further, the scale of their potential “rent” can be seen by how this drug pricing regulation was projected to have generated $700 billion in savings for the government, as stated in the first article. Thus, it seems likely that the percent dissipation will remain low because the total investment in rent seeking by firms appears to still be lower than the total potential rent, even though pharmaceutical companies have spent the largest amount on lobbying out of any industry in recent decades.

Blast from the Past: Analyzing changes in a blog post from 2012

 Where were you in Fall of 2012? What were you doing? As I walked around the halls of my middle school, braces in my mouth and acne covering my face (I was still cool though, fret not), some students at UVA were analyzing rent seeking in the world around us. Indeed, a post by a student boldly named “Unknown,”  rent-seeking by major tech companies faced tough analysis. Citing an article from 2012 (which still has the user interface of 2002), Mr. Unknown suggests Google and Apple spending more on patents than R&D is a prime example of rent-seeking. I think many of us would be inclined to agree.

I researched to see how see how this rent-seeking has changed by these firms since my friends (not I) have gotten taller since 2012. Funny enough, the change has been nearly minimal. The article I found highlights how top tech firms such as Google has spent countless dollars to fight off patent infringement cases. In fact, in 2020, Google was the defendant in 48 different patent cases. While the exact costs of battling these cases was not mentioned, anyone who has googled the salary of a patent lawyer can appreciate the astronomical costs of this rent-seeking. Similarly, Samsung faced 42 patent lawsuits in 2020. Thus, these combined 90 lawsuits from the two firms alone imposed countless legal costs on the other companies as well as the court system – undoubtedly a suboptimal use of resources due to the rent-seeking behavior. In line with the direct mention of legal costs as a subsection of monopoly costs in class, it is easy to see how easily these costs add up. However, the most interesting piece may be the continuity of these issues over time. Ever since some of us were shoving kids into lockers (or in my case, getting shoved into lockers), these few firms alone have spent countless dollars in an allocatively inefficient way seeking economic profits. 

Milgrom and Wilson’s Monopoly Mitigation

    Last week on October 5th, the Federal Communications Commission initiated spectrum auction 110 with the intention of raising government revenue while dividing up slices of the electromagnetic pie among 33 qualified telecommunications distributors. Current spectrum auctions follow an interesting design pioneered in the early 90s by recently anointed Nobel laureates Robert B. Wilson and Paul Milgrom. The offering entails a Simultaneous Multiple Round Auction (SMRA) format which offers companies the opportunity to bid on various electromagnetic spectrum jurisdictions while gaining insight as to what opponents are bidding on at the conclusion of each round. This means that companies that produce more efficiently within certain sectors (i.e., television, radio, cellular) may be more inclined to bid higher for specific categories. Having a plethora of qualified companies contend has diminished chances for a monopoly to arise; in Auction 110, one undisclosed heavyweight has even backed out (possibly Verizon), likely due to their appetite for broadband being satiated in previous auctions. 

    This might not sound all that revolutionary, but when digging deeper into the past methods of spectrum distribution by the government, it is evident that SMRA is wholly superior to our previous alternatives, especially when it comes to monopoly mitigation. Previous forms of auctioning include ‘administrative licensing,’ a form in which major contenders would show off their efficiency in hopes of being awarded licenses. This was followed by a lottery system of distribution. Both methods were inefficient: administrative licensing begged for monopolies via favoritism, and lotteries deployed rights to inefficient producers. There are advantages and disadvantages to any form of auction, but Milgrom and Wilson’s SMRA design has held up (for the most part), and fostered an atmosphere of competition. With the 5G revolution having companies vie for supremacy in the cellular market space, their work has once again proven effective in denying the possibility for monopolies to take hold.

Inefficient Equilibria & Antitrust Law

 In our discussion of contract curves, we showed how any point on a contract curve is an equilibrium. Therefore, any movement from elsewhere towards the contract curve is a Pareto efficient move, but once you get to this line, you’re effectively stuck. Because every point on the contract curve is an equilibrium, any proposed movement along the line will be vetoed since you cannot make any party better off without hurting another. This means that the first equilibrium you reach is the one that you will stay at, at least under the rule of unanimity. The situation described can be illustrated as seen below - 

Recent lectures in my Antitrust class have reminded me of this contract curve phenomenon. We have been studying the potential anticompetitive effects of mergers, and the way the Clayton Act attempts to reduce these harmful consequences. We read Brown Shoe Co. v. United States, a case in which the court blocked a merger between two shoe manufacturing companies. The court stepped in to block this merger, though the companies both had relatively small market shares, because they saw a trend towards concentration in the market that they felt the need to reverse “in its incipiency.” This forward-looking statute is unusual, since it requires that courts estimate the potential dangers of a merger and make decisions based on these predictions, rather than certainties. The reason courts will accept this level of uncertainty has to do with this phenomenon of getting stuck at an equilibrium. Once markets become concentrated, existing law gives the FTC very little power to un-concentrate them. In fact, efforts to try to reintroduce competition into oligopolistic markets have been blocked by the courts, as in Dupont & Ethyl v. FTC. Because of the FTC’s lack of power in this area, once the markets reach an oligopolistic equilibrium, they are effectively stuck there, like A and B got stuck at S1 in the earlier example. Though the situations described here differ - since in the first, market parties are blocking each other’s movement, while in the second, a regulatory agency is unable to force movement of market parties - the phenomenon underlying them is the same.

Saturday Night Live and Rent-Seeking

When I was in high school, one of my bucket-list items was to see an episode of Saturday Night Live in person. I recently remembered this old dream of mine and looked into how one goes about getting tickets to SNL, and came to a realization: this is a prime example of rent-seeking. One cannot simply purchase a ticket to see the comedy show – your best bet is to win a ticket from the standby line that starts to form on Fridays. In this example, the rent that people seek are the free tickets to the live show or dress rehearsal, and they divert their resources to increase their chances of winning by camping out in the standby line. If someone wants to increase their odds of winning a ticket, they must get to the line earlier and wait for a longer period of time (which diverts even more time/resources). 

Here, resources are not allocated efficiently because many people wait in line to increase their odds of winning, but never actually make it into the show. Tickets could be distributed more efficiently by auction or sale, since they would go to those who value them the most; also, people would not divert their resources at a chance to win seats, only to come out empty-handed. So, why would Saturday Night Live distribute tickets like this instead of just allowing the purchase of tickets? One could argue that making show-goers seek tickets by waiting outside the studio is valuable advertising that increases the "hype" surrounding the show. After all, it quite literally demonstrates to onlookers how many people are willing to wait overnight just for a chance to see the show in person. 

The External and Decision Making Costs of the Voting Game

Last weekend, my friends and I played “The Voting Game” for two hours straight. The basis of the game is to pick a description card, for example: “who talks about their ex the most?” and each player individually votes on who in the group best fits the card. In order to win the round, a simple majority has to occur, and whoever collects 6 question cards wins the game. This game concept is a popular one, and taps into the complications that can arise from majority vote in the simplest of settings.

To consider the external costs of the game, it is useful to analyze it from a situation where only one person is required to pick the winner of a round. This can be decided at any moment, and their decision is final. This would have significant external costs on the players, where the enjoyment of all voting on a player and debating the outcome after the round would be diminished. At the current rule, simple majority lowers these external costs by lowering the number of decisions that the individual expects to run contrary to his own desires, which would be to pick a player he didn’t vote for. With unanimous agreement, each player in the game unknowingly picks the same person for a descriptor card. This is rare, but ideal for the most humorous version of the game. In this case, external costs on the individual would be zero as everyone is satisfied with the outcome and it aligns with their preferences.

The decision making costs of the game in a scenario where only one person can decide the winner of a round, on the other hand, is very small. There is no need for the group to spend time debating the outcome in hopes of an overturned decision. When a simple majority is required, the time and effort to secure agreement is introduced. In the aftermath of the round, each person has to reveal who they voted for and why. Sometimes there are such split answers that the majority seems ineffective at fitting a card to a player, and the game turns into a heated debate on who should win. This increases the decision making costs of the game significantly, where the chance of hurt feelings and wasted time is more likely. 

My Friends and Restaurants

 When my two best friends and I are faced with the decision of where to eat dinner, we all shy away from choosing. We all just want to go with the flow, and let someone else decide. None of us are very picky eaters, and we like a lot of the same places, so we all end up pretty happy no matter where we go. But if we all have to decide together, it becomes super hard to agree because we all want to default to what the other people want to do. “No, let's go to Roots because it’s your favorite!” is followed by “No, let's go to Guad, it's your favorite!” and we all go back and forth until someone can finally stand to agree to go to their favorite place. 

In Public Choice, I learned more about this predicament. Collective action has two kinds of costs: external costs and decision-making costs. External costs are costs one is expected to incur as a result of actions. In this case an external cost would be how upset I get when we choose to go with my friend's choice for dinner, which is very little. Decision-making costs are costs one is expected to incur during the whole set of decisions associated with a single activity. The back-and-forth we must endure are the decision-making costs in this scenario. Because none of us mind if someone else gets to choose where to eat and it is very hard to agree, our external cost and decision-making cost graph gets completely skewed. A simple majority is not the best way for us to decide where to eat; it is the most efficient for us to let just one person decide. 

Dominion Energy's Rent-Seeking Activities

    Dominion Energy holds government-granted monopoly power over electricity in Virginia - allowing the company to earn 1.1 billion dollars of profit over the past four years. This translates to the corporation earning economic profit, or in other words, rent (returns greater than opportunity cost). Despite public frustration with increased producer surplus (and thereby reduced consumer surplus), Tullock would argue that the rent itself is allocatively efficient. Dominion Energy's monopoly power is redistributing resources from consumers to producers. While this may be considered normatively bad, it is still economically efficient. However, the rent-seeking activities that Dominion Energy engages in in order to retain monopoly power are allocatively inefficient. 

    Virginia Public Media reports that Dominion Energy spent over 2,872,817 dollars over the past four years in rent-seeking activities. This results in a misallocation of resources in order to pursue economic profit and is where the economic problem lies. Instead of spending resources on producing electricity, Dominion Energy is using resources to pay Gordon Morse to write favorable articles about the company in the Virginian-Pilot. Additionally, they are paying lawmakers such as GOP delegate John H. Rust Jr. and former Senator John Watkins. Finally, the report found lobbying happening within the UVA Center for Politics based on payment one of the professors received from Dominion Energy. In engaging in these rent-seeking activities, Dominion is straying from their comparative advantage and misallocating resources. Rent-seeking activities such as these highlight the issues surrounding government-granted monopolies. 

Are South Dakotans Cheaters, Free Riders, or Just Smart Economists?

On October 3, the International Consortium of Investigative Journalists (ICIJ) began releasing a trove of documents collectively known as the Pandora Papers. The ICIJ describes their findings as exposing "a shadow financial system that benefits the world’s most rich and powerful." A surprisingly large player in this story is South Dakota, the 5th smallest state in the US by population. Of the US-based trusts exposed by the Papers, 81 were located in South Dakota, easily surpassing Florida's 37 and Delaware's 35. One such trust highlighted by the Washington Post held millions of dollars from a Dominican sugar company linked to a former president and accused of mistreating its workers. Dozens of other US-based trusts hold assets "linked to people or companies accused of fraud, bribery or human rights abuses." So why does South Dakota allow such activity? They, along with legislators elsewhere in the US, are seeking an economic boost derived from the increased investment in their respective states.

Is South Dakota a cheater? In encouraging admittedly shady investment, South Dakota is not breaking any laws or otherwise cheating or reneging on any agreement. US federal law is very lax in regards to the use of states as tax havens for foreign funds. In fact, the Financial Secrecy Index ranked the US as the second most secretive jurisdiction of the 133 it ranked. It is clear that South Dakota is not failing to abide by any agreements here. What about being a free rider? The state is also not receiving any free rider benefits; other states are not paying any price that South Dakota is not paying, the other states are simply not gaining the benefits that South Dakota is gaining. Perhaps the best argument one could make is that South Dakota is free riding on the strong financial reputation of the US, but this is tenuous at best. Thus we can see that the state is neither a cheater nor a free rider, leaving only one possibility: South Dakota is behaving as a smart, albeit immoral, economist would. The secret trust system operates under standard market dynamics, and by offering the lowest price (in this case zero capital gains and income tax) South Dakota has seen a surge in demand. Unless and until it is determined that prohibiting shady enterprises from storing money in the US is in the public interest, and said determination is codified in state or federal law, there is no rational reason for South Dakota (or any other tax haven for that matter) to change their modus operandi. 

Thank Goodness Grit Doesn't Consider Consumer Surplus

    I'm a huge fan of coffee. Huge fan. I wake up every day excited to craft some sort of oat milk espresso concoction. On days when I need a serotonin boost, I treat myself to a quality Grit coffee. Although pricey, I consider the drink worth the money because the final product is so delicious and guaranteed to keep me alert in class. My go-to drink at Grit, large iced red eye with oat milk and honey, costs about $4.50. Most days, my demand for that drink is roughly at that market price and my consumer surplus is zero. Yet on days when I don’t get as much sleep, my demand is higher, and I’d be willing to pay much more for that same drink. Around finals week when I’m especially sleep and serotonin deprived, I’d probably pay upwards of $9 for the drink, increasing my consumer surplus to around $4.50. All I can say is I am so happy my barista has not taken Public Choice. 

            The reasoning behind this statement is that if the barista had taken Public Choice, he or she would fully understand the concept of consumer surplus. Consumer surplus is defined as “the difference between the consumers' willingness to pay for a commodity and the actual price paid”. During average weeks, Grit should charge the market price for their drinks. Yet during weeks when Grit know students are getting less sleep and thus place a higher dollar value on their drinks, the cafe should increase their prices to meet the new demand and increase revenue. Sleep deprived students are more in need of caffeine and are willing to pay more for the drinks. In economic terms, their demand curves have shifted out and the market price has increased. For me, a relatively broke, utility-maximizing, caffeine-dependent college student, I’m quite happy Grit does not employ this pricing strategy. 

Majorities and the 316 Slush Fund

           

         316 is both the name and the address of my college house just off grounds behind the corner. A house passed down since the 90s, certain traditions have been maintained for generations, such as the living room stadium seating. A less public house tradition is how the finances of 316 handled. Every housemate, 18 strong, pay a fixed rate for "rent" every month. This amount is set above the monthly lease payment to also cover utilities. Some months, however, the amount owed for the utilities is less than the extra amount paid. Rather than refunding each person, the money is then placed into a "slush fund". This fund is used to pay for everything from house functions to toilet paper. Because everyone has equally payed into the fund, however, we encounter a collective action predicament in deciding how to spend the money.

       Debating this at our first house meeting in August, we concluded that a simple majority of 10 affirmative votes to make a slush fund purchase was insufficient, as nearly half the house could be against any decision. This directly correlates with principles laid out by Buchanan and Tullock in Chapter 6, where the number of the population (n) needed to agree for action increases as the external costs and importance of the decision increases. The number of needed yes votes we settled on is 12, or a 2/3rds majority. We thought this protected from the fund being used recklessly by any internal interest group, such as the house sports bettors, while also allowing for the functioning of the fund in the face of stingy dissenters. Even a 2/3rds majority still leaves room for housemate discontentment, as a slush-financed Walmart trip highlighted last year. Because of this, the types of purchases the slush fund can be used for has been more explicitly defined, further reducing the potential cost to individuals. Altogether, the system has been maintained as the benefit of acting collectively to pay for events and entertainment outweighs the potential external cost of the majority choosing to spend the slush fund in a way one disapproves.