The Cost of AI: Not So Hidden Externalities

Recently, AI data centers have been being built up at an astonishing pace across the country, with extreme negative effects, from pollution to residential problems. In three separate cities this summer, residents filed law suits against data centers for the noise pollution. This noise comes from massive industrial fans that are used to keep the memory chips from melting. It emits a constant, low frequency noise that can be heard and felt by neighbors up to a mile away. The subsequent effects are residents complaining of chronic sleep deprivation, headaches, and internal ear pressure. Furthermore, AI data centers build gas-powered power plants to provide energy for these centers. The New York Times reports that these could produce as much pollution as about half of all passenger vehicles in the United States, alongside a report of plants in Pennsylvania that will burn roughly the same as 15-million gasoline cars in one year. These numbers are staggering, and both the environmental and noise pollution have created extreme negative externalities for residents and the globe.

Looking at this from the Coasian perspective, in theory, it is possible for the residents and the data centers to bargain. Some data centers have begun to build in forests, using the trees as a natural sound buffer. But that comes at the cost of deforestation, habitat loss, and other negative environmental factors. The executive for Hyperscale Data has offered to buy homes at property value and provide a subsidy for the cost of moving, but that comes with the effect of uprooting the lives of hundreds to thousands of people. Unfortunately for residents near data centers, AI data centers have the bargaining power. In the 1980s, Reagan disbanded the EPA's Office of Noise Abatement and Control and local regulation is not built to encapsulate the problem of the noise from data centers. This means that it would likely require the residents of these neighborhoods to collaborate and pay the data center to minimize the noise. Getting so many people, though, to agree, would be nearly impossible. As such, the best possible solution would be to get the government to implement certain regulations, either by having a decibel limit or requiring the data centers to internalize the costs by paying out settlements. 

My Dumplings, Your Problem

As college students rushing between classes, jobs, activities, and (hopefully) a social life, we look for time-saving shortcuts wherever we can. The food we eat is one of many examples. While my fridge boasts empty shelf space, closing my freezer requires a skillful maneuver to prevent packs of dumplings from falling out. When the time comes to eat, I routinely select three-minute microwave meals, rather than an hour-long cooking endeavor. My experience mirrors that of many college-age decision-makers, but it also reflects the broader American public's quest for convenience. The CDC found that “During August 2021–August 2023, the mean percentage of total calories consumed from ultra-processed foods (UPFs) among those age 1 year and older was 55.0%.” UPFs have been found to have a causal effect on obesity and are correlated with higher rates of cardiovascular disease, type 2 diabetes, and all-cause mortality. From an individual perspective, my frozen dumpling habit may seem like a simple tradeoff between increased personal convenience and a higher risk for negative health consequences. 

The problem, however, is that I do not bear the full cost of that decision. In America, healthcare costs are shared through private insurance programs, employer health plans, and taxpayer-funded programs, including Medicare and Medicaid. With these redistributive systems in place, some of the medical costs associated with an individual’s diet-related diseases are borne by other people. This is a classic negative externality in consumption, which leads to overconsumption of UPFs in the unregulated market. Of course, I welcome my classmates to engage in Coasian bargaining with me. I am prepared to dramatically reduce my frozen dumpling consumption if someone (or a group of people) would like to provide me with a private chef. Unfortunately, because the healthcare costs of my dumpling consumption are small, extremely dispersed, and unlikely to arise for at least a decade, I have yet to receive a decent offer.

Maybe the government should consider funding a private chef…. But until then I’ll say a little thanks to all you taxpayers when I microwave my dinner tonight.

The Coase Theorem Heats Up

    The air conditioning in my apartment has been broken for the past week, and as outside temperatures reach nearly 100 degrees, this malfunction has created almost unbearable living conditions. As I sit in the sickening heat waiting for the maintenance crew to come, I have begun to reflect on what a bargaining remedy for this may look like in Coase's world. In this instance, my three roommates and I are the victims of harm and MSCUVA is the producer of harm, and luckily for us, property rights are clearly defined. MSCUVA owns the property that we are paying to reside in, and they are therefore liable for upholding the terms of the lease agreement we signed, which includes a functioning air conditioning unit. In addition, as Coase did, I will assume there are no transaction costs for negotiating this matter.

    I know that even though MSCUVA is liable, they should only replace our unit if the marginal social cost of doing so is lower than the marginal social benefit. That is, if my roommates and I would be willing to bear the heat in this apartment for a payment lower than the cost of a new air conditioning unit, we could negotiate to receive payment instead of AC, and that would be the socially efficient outcome. According to my research, a central AC unit costs around $16,000, which would be a maximum payment of $4,000 to each roommate if we chose to negotiate instead. While this is a very large sum of money, my roommates and I value functioning AC (especially in Virginia heat) at a much higher price. This means that the cost of replacing our AC is lower than what we would need to be paid to tolerate no AC (MSC<MSB), so they should go through with our replacement request. To extend the Coase Theorem further, I know the efficient solution does not change based on who has property rights. Though the act of spending $4,000 feels quite scary, as I sit in this heat, I can confidently say that if the liability fell onto my roommates and I, I would spend almost any sum of money to get out of this heat. So again, the marginal social benefit of purchasing a new unit is greater than the marginal social cost, and maintenance should hurry up and get here!!

Mining the Boundary Waters; Rising Externalities

This spring, Congress and President Trump passed a resolution to open the areas around the Boundary Waters for mining. Environmentalists are concerned for the health of the ecosystem, as mining is known to create problems in surrounding areas, and Industrialists are happy that this huge supply of copper is available for the market.

Our discussion of Coase had me thinking about this issue from a liability perspective. It seems like for a long while, the "right" to clean land and water was held by the Environmentalists in the sense that no mining was allowed. Suddenly, the right was taken away and handed to Industrialists. 

Likely, there was, and is, opportunity for bargaining. When Environmentalists had the Right, mining companies coveted it, and probably would have been willing to pay for the right to mine above and beyond traditional production costs. The government deemed this transaction too dangerous to occur and raised the bargaining costs to an impossible level. All this time, solar and other battery needs have increasingly boosted demand for the precious materials in the Boundary Waters so that the amount Industrialists were willing to pay increased, as did the externality that Environmentalists were putting on mining companies. The opportunity cost for the government was also rising, as tax dollars were being left uncollected from copper sales. This demonstrates the reciprocal nature of an externality, and one that eventually became too large to bear.

This Right shifted, and suddenly Environmentalists are in the position of having to bargain to prevent the mining companies from polluting the water, as the mining companies own the right to mine. One can see how this might be a issue, as environmental causes often suffer from a Free Rider problem and thus cannot raise money to bargain to the socially optimal quantity. This is an interesting case on property rights being moved around, and them NOT ending up in the same place as Coase's theorem part II would have, as the government, and Free Rider problems, make transactions impossible.

Keeping the “National” in National Parks

As many will know, our national park system has come under recent threat and repeated attacks from the Trump administration and government officials. Attempts to dismantle the park system have taken many different forms. Most recently, bulldozing began in Big Bend National Park, Texas, to make way for President Trump's long-sought-after border wall. This has since been halted amid ongoing legal battles. At the same time, funding for the National Park Service has been cut and redistributed to other bureaucratic agencies, and the agency has faced significant staffing reductions that threaten its ability to properly maintain and protect the parks under its care. It's not just our national parks facing these threats, but other federally protected lands as well. Notably, in Utah, the protections for two national monuments and sacred Native American lands were removed to pave the way for private development. Other similar actions are being examined in Yosemite National Park and parts of Alaska, to give a few concrete examples. You need not go far to find more.

The motivation behind these latter actions, in particular, is clear: to open up previously protected federal lands to private companies for resource extraction and development. The profit incentive that these swaths of land offer is salivating, and developers are lined up to capitalize on such an unprecedented opportunity. One could argue that while the Trump Administration's actions do indeed present an exceptional opportunity for private profit, they also offer an overall net welfare gain to consumers as well. After all, the resources extracted from these lands would undoubtedly serve to increase supplies of scarce precious metals and minerals, potentially lowering costs and bolstering supply chains starved for resources. I argue, however, that the Trump administration's actions will ultimately result in a net loss in consumer welfare. I strongly believe that the utility consumers derive from our national park system is far greater than the utility a private developer could offer through increased supplies of natural resources like copper or silver. My argument is two fold. On one hand, I believe that the increase in mineral supply caused by these sites would be negligible, with little effect on supply or prices. On the other hand, I'm a firm believer in the less-tangible utility we as consumers derive from our national park system. As Professor Coppock discussed today in class, utility is often misunderstood as being purely monetary in nature. Utility, however, comes from far more than just money. In the case of our national parks, it comes from the natural beauty they have to offer, their vast and rich ecosystems, their carbon sequestration, and much, much more. Utility and welfare are more than money and more than profit. As such, we ought to protect our national parks to preserve the vast amounts of utility they offer.

Here are some of my favorite photos from a road trip out west that my sister and I went on this summer. These photos are my own.

For Crying Out Loud, Another Roller Coaster?

At Universal Studios Hollywood, a new, state of the art roller coaster has just finished construction. While the roller coaster has created a lot of hype for the amusement park, the screams generated from the ride are impacting how neighbors can use their property: a classic externality. As stated in Coase, however, there is a reciprocal nature to the problem. The reduction in sound will impose costs on Universal just as the current screams impose costs on the neighbors. In an attempt to internalize these costs, developers tried to reduce noise by installing “scream screens,” facing the cart away from private residences, and installing a 940-foot sound wall, but these efforts were still not enough to reduce the bloodcurdling screams from impacting neighbors.

When attempting to estimate the actual costs these screams are imposing on neighbors, the housing market of the surrounding area can be a good place to start. If these screams are inhibiting the use of this expensive property, the value of these homes could decrease, a cost that Universal does not bear. Correspondingly, there are other costs that are harder to measure numerically, like impeding on homeowners' ability to concentrate, which can be crucial as seen in Sturges v. Bridgman. On the other hand, if Universal had to drastically alter the ride, there could be lost revenue and angry consumers. It is also important to consider that the estimated $200 million dollar construction budget includes some of the sound prevention methods already considered, indicating that the sound technology is expensive and not a trivial cost.

From a Coasian perspective, Universal Studios Hollywood and the surrounding neighbors could attempt to resolve the issue privately. This could be done by Universal compensating the surrounding neighbors for the loss of home value, or the neighbors could pay Universal to shut down the roller coaster. In both situations, the number of parties creates issues and drives up transaction costs. If the neighbors agree to pay, there will inevitably be free riders who did not pay, but enjoy the quiet, and if Universal pays, there could be a holdout problem. Therefore, it is likely that government intervention will be required, unless Universal internalizes all of the screams independently.

Has the holdout problem doomed plastic waste management?

This week, Busan, South Korea, is hosting final round negotiations over a legally-binding agreement designed to address the issue of plastic pollution across the world. Going into the week, there are still some major issues to be resolved. The primary divide is on how much plastic companies (and countries) are allowed to produce.

A proposal by the ‘High-Ambition Coalition’ (HAC), consisting of the European Union and many African and Asian countries has proposed a holistic look at the problem, placing guardrails and caps on each step of the plastic lifecycle- production, consumption and end-of-life. Some of the most stringent measures include fixed caps on production.

Some of the major holdouts in the process have been countries with fossil-fuel focussed economies, many Middle-Eastern nations, China and the US for example. These countries have expressed concern with the more restrictive measures that would curb the production of the capacities of their economies, arguing that “many countries do not seem themselves represented in [HAC’s proposal].” 

With the recent election of President Trump in the United States, America’s position on the issue has been thrown up in the air, with many believing the United States will not sign on to this treaty. With the stance of some of the world’s largest plastic polluters unclear, any hope of a treaty being finalized be doomed due to the holdout problem

No Such Thing as a Free Point

 Every year our teachers ask us to fill out teacher reviews. It seems to be in the best interest of teachers for us to fill these out, as many try to incentivize us to do so. Many teachers go with the straightforward approach: students that fill out the survey will receive an extra point or so added to their final grade. Some teachers get more creative with it, having some threshold of students needing to fill out the survey for everyone to receive an extra point (these teachers are likely not aware of the incentive given here to free ride, my public choice learning warns against this approach). 

I think this represents some solution to the principle-agent problem. Though students are not exactly agents for professors, this is still an effort to align the incentives of the student and the professor. The professor would like for the survey to be filled out, but most students are unlikely to do so if there is nothing in it for them. One thing I do find interesting about this is that this is done in some classes where the final grade is decided by a curve of overall performance in the class, so if everyone were to fill out the survey the point would be meaningless.

One of my teachers this year has decided not to follow the free point model. They instead have informed us that any student that does not fill out the survey will have points taken off of their final grade. From a public choice perspective, this should achieve the same outcome, as for the consideration of the student their grade will be one point higher than otherwise if they decide to fill out the survey. But if I am not thinking from a public choice perspective, I think this is pretty uncool. If any one reading this blog happens to have the opportunity to enforce this same rule for a class of their own, I would warn them that I have recently been reading about the benefits of creating a union...

Bureaucracy Goes to Bat

While watching Moneyball this weekend, I saw parallels between the A’s scouting department and some of the issues seen in bureaucracies we’ve talked about this semester. 

One issue within the scouting department was the measurement problem. Most scouts relied on qualitative characteristics like intangibles and physical attributes, along with traditional stats like batting average to evaluate players. However, these methods failed to capture a player’s actual value, as Peter Brand (who graduated from Yale with an Econ degree) pointed out using sabermetrics. This is similar to how school districts use standardized test scores to evaluate student performance, which we know fails to capture a student’s true academic ability, and can lead to an inefficient allocation of resources. 

In a very loose sense, the A’s scouting department could be collectively viewed as monopoly suppliers of their good: recommendations on which players to sign/draft/trade for. In the traditional model, the only ones fit for the scouting job were those with superior expertise and experience in the sport. This introduced information asymmetry, where management had to trust scouts’ subjective evaluations without an independent way to verify their accuracy. It was then easy for the scouts to blame inefficient outcomes (i.e., losing seasons) on their small budget compared to large-market teams. They argued they simply couldn’t compete without a larger budget. 

Billy Beane and Peter Brand tackled the measurement and supply within their front office by utilizing more tangible units of output (OBP, FIP, WAR, etc.) which gave an alternative source of information separate from the scouting department’s subjective opinions. This led to a more efficient outcome for the A’s (a record-breaking season) and the implementation of analytics-based evaluations across the league.

More Housing, Not that Simple

In Minneapolis, real estate developer Cody Fischer aimed to take down one big house and instead build an energy-efficient, four-story, 32 unit apartment building. He got the main approval to do his project but then had to halt. 

A group of environmentalists sued the Minneapolis government because its housing plan did not undergo environmental review. They believed the increased density would harm the city’s water, air, and ecosystem. Fischer’s proposal was also initially rejected by the planning commission because local neighbors were against it (concentrated interests of a few).

Eventually, the state government stepped in and removed these legal obstacles for cities like Minneapolis that had a detailed housing plan. Fischer and other developers were able to start their projects.

This ties to Becker’s conclusion that no policy that lowers social welfare will be passed. Increasing housing will bring about positive social welfare. The two competing groups were developers (S) and neighbors/environmental group (T). Ultimately the pressure by developers won, implying a larger group size and higher resources per capita. Free riding didn’t break down the group. Additionally, higher level government can be more effective in addressing broader issues like housing. At the local level, private interests (neighbors) can overcome the greater social interest (those who can't find housing).

AI's Water Footprint

A while ago at the beginning of the semester we talked about externalities. Externalities are a cost or benefit that affects a third party who is not directly involved in an economic activity. More recently in class we have talked about the usage of AI platforms such as Chat GPT, and how they so positively impact our everyday lives. However, there is a cost to using AI like Chat GPT that often goes overlooked - the environmental impact.

There is a negative externality in production associated with the provision of AI tools that is accelerating the loss of our scarcest natural resource: water. Companies that provide these AI tools have drastically increased their water usage over the past few years as their technological reach has expanded. The massive water consumption stems from a need to maintain optimal temperatures for densely packed servers and computing hardware racks so as to not overheat these components crucial to providing the technology used in AI. 

While there are currently no comprehensive regulations targeting this water usage, there are a few public-choice backed ways regulation could be implemented. 

1. A tax on water usage past a certain level (though this does not incentivize corporations to innovate)

2. A market for permits for additional water past the permitted level 

3. Or, as Coppock once said “Shut the bastards down” 

A Complete and Thorough Review of Abigail Spanberger

My congresswoman (Yes, I know who it is, Professor Coppock) is Abigail Spanberger. Congresswoman Spanberger has represented VA-7 for the past five years, and I have always thought she has done a terrific job. However, after our class last week, I realized I might not be doing a great job of holding my representative accountable for her votes in Congress.

As a result of my rational ignorance (I mean, I have econometrics to study—why would I keep track of her voting record?), I’ve come to understand that I may have inadvertently contributed to the slack that allows my representative to vote according to her own ideology without much consequence from the electorate. This excess slack creates more opportunities for shirking, enabling representatives, like Abigail Spanberger, to avoid fulfilling their full duties to their constituents.

To combat this problem single-handedly, I decided to conduct my own analysis to see how satisfied I truly am with my congresswoman’s actions. As it turns out, you can find a record of every congressperson’s voting history and ideological score on GovTrack. Here are some surprising facts I discovered:

• She was one of the only Democrats to vote no on the Protecting American Lungs and Reversing the Youth Tobacco Epidemic Act of 2020 (potentially influenced by her constituent Altria).
• She was one of seven Democrats to vote against the Freedom for Health Care Workers Act, which repealed the COVID vaccine mandate for hospital workers.
• She was one of four Democrats to vote in favor of making the assault of a law enforcement officer a deportable offense.

I was surprised to learn that Spanberger is one of the most moderate Democrats in terms of her ideology and voting score. While I may not be thrilled with some of her votes, I am still proud to have her as my congresswoman. Perhaps in the future, I’ll pay closer attention to ensure she isn’t shirking her responsibilities—especially if she becomes our future governor.

What a Waste! (Literally)

 After class today, I remembered hearing something a couple years ago that the military would have aircraft fly in circles for hours just to burn fuel and keep costs high. Under the pretense of training, pilots acted in the best interests of the "Senior Bureaucrat". After googling for a little while trying to find evidence about what I remembered, I came across an article that said during Reagan's Presidency, the Pentagon bought $640 toilet seats and $7,600 coffee makers. After the news broke, some members of Congress spoke out about the ridiculous purchases, yet nothing was done.

This is a clear example of the 5th assumption of Niskanen's model - where bureaucrats will exhaust their budget to ensure they receive as much benefit as they can in the future. Additionally, this example is indicative of how bureaucrats will overproduce beyond an ideal Q*. The marginal benefit for these purchases is extremely small - a few hundred dollars combined for the two would certainly suffice. With thousands of dollars spent, it is clear that the marginal cost exceeded the marginal benefit for these purchases, reinforcing the idea that bureaucrats are not efficiently allocating their budgets.

Will Politicians ever change?

 Earlier this week, I attended a talk on geopolitics by Noah Rothman, organized by the Blue Ridge Center. Noah's main argument can be summarized thusly: tensions are rising all over the world and most foreign powers, at least those that are not allied to the U.S., share a common goal: ridding the world of U.S. hegemony. He proposes that we cannot simply expect to have peace without a cost, and we need to drastically increase our military spending and foreign aid (to countries such as Ukraine, Israel, Philippines etc.), otherwise, Russia, China, Iran, and other long term U.S. adversaries, will work in unison to dethrone the United States as the world's leading superpower. 

He addressed this briefly in his speech, but I think there is a very pressing issue in our political system that will prevent this from happening. The reality is, our representatives are vote maximizers and the vast majority of politicians' constituents would certainly not support a further increase in the United States' foreign war efforts. Having said this, we have analyzed that politicians also act out of their own ideological beliefs, not just the preferences of their constituents. So, it certainly is possible that if a representative had such a strong conviction to propose an increase in military spending, it could outweigh their desire to appeal to their constituents. Nevertheless, it is my belief that this is unlikely to happen and even if politicians agreed with Noah's viewpoint, their desire to retain power would surely trump their willingness to forgo their political career for the sake of such a policy. 

The Ultimatum Game

 Earlier in the year we talked about pareto equilibriums with decision making. In one situation we had a triangle with each point representing different peoples preferences. In that situation there was no equilibrium because the preferences moved around the triangle. According to professor Coppock agent A should accept agent B's proposal so long as it didn't negatively affect agent A. I however disagree with this statement because I'm not accenting any proposals that benefit someone else and not me. Ted brought up a real life example of this which is a variation of the Ultimatum Game. Let's say there are two people with an equal claim to 100 dollars and both have different roles. One decides how to divvy up the money and the other has the power to accept or reject the proposal. If agent b rejects agent a's offer then neither gets the money but if they accept then the money is divided up according to the proposal. Ted said he would accept any amount of money so long as the money went straight to his bank. I refuse to accept any amount of money less than 20 dollars. If I am a rational consumer I should accept any amount of money because I get some utility even it it's only a penny. I will not reward the greedy bum who offers me less than 20 dollars because the utility gained from the money is less than the utility gained from spiting the other person.

Free Speech in Academia

Today in class I couldn’t help but chuckle to myself a little as Mr. Coppock started discussing Detroit Lion “ism” and how his mood can depend on the extent to which the world around him aligns with his ideology (i.e., whether the Lions’ performance during the season reflects his belief they are the best). It was reminiscent of a conversation I had with one of my roommates last night.

A firm supporter of empiricism and medical science, my normally soft-spoken roommate had a vehement reaction to her professor's "promotion" of home births. “She was saying that despite literature supporting home births most women still give birth in the hospital. Obviously the hospital is safer!”

Proponents of home births point to literature supporting lower maternal morbidity rates and higher reported satisfaction levels. My own belief in modern medicine makes me agree with my roommate; in the case of a medical emergency, you are almost certainly better off in a hospital than at home. I would imagine most expecting parents would prioritize newborn safety above cost or comfort. 

Not unlike politicians, ideologies professors hold can affect their actions and curriculum. While not elected, faculty review and academic oversight of professors can similarly act as a “check,” limiting slack. The tenure system itself was created in part to protect slack, allowing professors to speak freely without fear of punishment by their university. Just as politicians have been shown to best reflect the interests of their constituents when closer to reelection, I would imagine professors are likely to express more mainstream and “safe” views while they are being considered for tenure. 

Entry Regulation on the Pro Tennis Tour

Tennis governance is fundamentally broken, with the four most prestigious tournaments- the Grand Slams- each having their own organizational bodies, and the second most-prestigious tournaments- the ATP/WTA 1000-level competitions being organized by the ATP/WTA respectively.

In late 2023, with growing fears of a Saudi- backed breakaway tour, the ATP began to lobby hard for the introduction of a new 1000-level event that would take place at the start of the calendar year in Saudi Arabia, seemingly to placate PIF -backed bidders looking to get involved in the sport. The move would further congest the tennis calendar by adding to the already draining tennis season. The proposal was quickly condemned by the Grand Slams, who pitched their own ‘premium tour’ that would compose of the 4 Grand Slams and the 9 1000-level events to create an F1 style calendar that the top 100 players would compete in. While on the face of it, it may seem like an initiative designed to reduce the burden on the best athletes in the sport, it quickly became clear that this was also an initiative to block the entry of a new Saudi-based 1000-level event. Tennis Australia, the Australian Open’s organizing body, has taken the lead in this proposal of the new ‘premium tour’. With the proposed Saudi Arabia tournament being pitched for a January spot in the calendar (when the weather would make an outdoor competition feasible), Tennis Australia’s annual ‘Summer of Tennis’ tournaments would be slashed in half, with virtually all the smaller tune-up tournaments in Australia/NZ being overlooked by athletes.

The Grand Slams (acting as a cartel in this scenario) have effectively tried to leverage their position as the biggest draws (for players and fans alike) in the sport to place the entry controls on the sport, and block a proposed Saudi Arabian 1000-level competition. While this issue is far from being resolved, and both proposals remain on the table, it will be interesting to see how the situation develops in the next few months with the Australian Open right around the corner. 

The Carbon Hustle

Amid all of the post-election analysis, I’ve heard a lot of talk about climate change and the future of the energy industry in the U.S. under a second Trump administration, particularly concerning the Inflation Reduction Act signed into law by President Biden in 2022. A prominent feature of the IRA was the creation and expansion of tax incentives and subsidies for clean energy projects, which has benefited oil and gas giants who have the resources to invest in new green technology. 

There are a multitude of opinions on how to deal with the climate issue. Trump has made it clear that he wants to dismantle the IRA’s climate policies and green energy initiatives, and even members of his own party don’t wholeheartedly agree with that decision, but what’s caught my eye as a public choice student has been the response from the energy industry. 

ExxonMobil CEO Darren Woods went on the record pushing against Trump’s ideas for the IRA (ExxonMobil has been heavily investing in carbon capture technology, and the IRA provides large sources of funding for these long-term projects with its tax incentives) and instead offered another solution–more regulation on carbon. Why in the world would the CEO of one of the largest oil companies want more regulation? If you ask him, it’s because the climate crisis needs to be addressed, and more oil production would harm the domestic oil industry. I think Stigler would say, “regulation is a friend of the incumbent.” Regulation of carbon intensity could potentially create barriers to entry for foreign competitors and smaller domestic firms. Large, established firms like Exxon have the ability to, and already have been, strategically adapting to the changes in climate policies. It seems to me that special interests are pushing to retain the regulation they have already captured and are seeking more in the new market for green energy. 

RFK and Capture Theory

This week, President-elect Donald Trump nominated Robert F. Kennedy Jr. as his choice to run the Department of Health and Human Services. While RFK does not have much of a history with anything health related, he has a track-record of speaking out against large corporations, and if his nomination is confirmed, he seeks to “stop the revolving door between industry and government”. 

To us as public choice students, it should not come as a surprise that “Washington’s lobbyists are stunned Trump chose RFK Jr” given what we know about the Stigler-Peltzman capture theory we discussed in class. Within the context of RFK’s nomination, the Stigler-Peltzman theory predicts that the Senate may block this nomination in favor of the industries that RFK’s policies would restrict. 

Capture occurs here since RFK is proposing policy that would impose significant costs on industries like processed food manufacturers and fast-food chains. Due to these proposed policies, these sectors actively invest in lobbying because they have a strong incentive to safeguard their narrow financial interests and exert political pressure on the government by potentially withholding campaign contributions or endorsements for re-election. In this case, acquiring a block against RFK by the Senate ensures profit for the firms.

So, given this knowledge on public choice, I am intrigued to see whether the Senate will block RFK, or if Trump will be able to navigate around the Senate's approval.

Slack in universities?

Earlier this week my friend was complaining to me about a class which is about the topic she likes a lot, but she said the professor always seems to come a bit unprepared, and the lectures are a little disorganized. I am not making the argument that the professor is shirking but the word slack we learned in class quickly came to mind. Unsuprsingly, Tenured faculty has a much lower termination rate when targeted for sanctions than fixed-term faculties(16 percent v. 53 percent). It's also universally agreed that it's quite hard to get fired as a tenured professor. So I thought, in the rare case when a tenured professor really is shirking, can we avoid it? I thought about it, and the conclusion I reached was no.

In class, we talked about how to avoid employees from shirking. 1. monitor(have the knowledge of whats going on). 2. well-defined objectives)single dimension output) 3. frequent performance reviews. 4. secure many alternatives. Based on this metric, it seems to me that it's quite hard to avoid tenured professors from shirking, for the reason that 1. Monitor: It is often difficult to monitor the daily activities of tenured professors since there are various forms of academic work (teaching, research, etc) and can be private. 2. 2. well-defined objectives: Unlike many roles, teaching and research outputs are difficult to quantify consistently, and success in these domains is often subjective. 3. frequent reviews: Tenured professors have limited performance reviews compared to non-tenured faculty. 4. Alternatives: Yes, there may be some alternatives, but universities have limited options to replace tenured professors, given that tenure is a form of job security that makes dismissal challenging unless there is a serious misconduct.

If You Don't Like It, Take Your City And Leave!

About three years ago in Atlanta, I started seeing "Buckhead City" signs in the yards of some of my neighbors, as well as around some of the local businesses in the area. After looking it up, I discovered that these signs were referring to a movement for Buckhead, the northern part of Atlanta, to leave Atlanta and become its own city. Many people were frustrated with the leadership in Atlanta, and felt like they did not have the adequate representation they were entitled to based on the taxes they paid. They felt like the Atlanta government was acting against what they believed to be their own self interest, and they felt a new smaller city could more accurately word towards these interests.

I think in some way this would be an example of Tiebout's concept of voting with your feet. In this case the people would not actually be moving (their feet would not be very involved), but they would be leaving one city to join another where government actions line up more with the things they want. Further, the existing city of Atlanta would have seen real changes in their spending habits from this, as they would have been losing a large source of their tax revenue. Atlanta would have had to then make adjustments to raise its population after losing this significant chunk, according to Tiebout's claims.

To this point, the Buckhead City movement have not come to fruition, and likely wont. Part of this was that creating a new city would have been very costly, and would have required Buckhead to completely recreate many existing and working functions of the city of Atlanta. But another part of this was that the new mayor of Atlanta, Andre Dickens, knew this would have consequences for the city of Atlanta, and acted to make sure Buckhead residents felt heard.  In his Inaugural Address, Dickens argued for "Atlanta Unity", saying "We don't need separate cities. We must be one city with one bright future." 

I think this move from Dickens proves that Tiebout is onto something. To prevent the move from happening Atlanta had to make itself more attractive for people that would prefer to be elsewhere, to avoid severe population and tax revenue loss. In here we can see economic incentives truly do drive the formation and transformation of cities. 

Plastic Bags and Externalities: How Cities Use Taxes to Address Pollution

        As the effects of pollution and climate change become increasingly visible, governments around the world are taking action. On January 1st of last year, the City of Charlottesville implemented a five-cent ($0.05) tax on disposable plastic bags provided to customers at checkout in grocery stores, convenience stores, and drugstores within City limits. Essentially, this tax aims to limit the negative pollution externalities by disincentivizing individuals from using single-use plastic bags and incentivizing individuals to use reusable alternatives. As said on the City of Charlottesville Government website, 

“While this does not eliminate the use of plastic bags altogether, it incentivizes the use of reusable materials like bags, boxes, and baskets to transport purchased items. An important provision of the ordinance requires that the revenue from the 5-cent tax be funneled into environmental education, pollution clean-up, and providing reusable bags for SNAP and WIC recipients.”

Therefore, through collective action allowing for government intervention, the negative pollution externalities of plastic bags can be internalized through a market-based solution. 
        As explained by Ronald Coase in “The Problem of Social Cost,” if property rights are well-defined and transaction costs are low, private parties can negotiate and reach efficient outcomes without the need for government intervention. However, in this case, property rights over the use of plastic bags (the right to pollute) are not well defined, and the transaction costs in negotiating compensation for this widespread pollution are high, making a private solution impractical. Therefore, government intervention is needed to manage this externality efficiently. Overall, a tax on plastic bags is an efficient solution, as it internalizes the external costs while creating an economic incentive for both producers and consumers to reduce their plastic bag consumption.