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.