Rent-seeking Lives Among the Dead

When a family member dies, mourning is usually interrupted by the several decisions one has to make. At the center center of all the questions lies the most important one: how should our loved one be mourned? The “right” answer can vary according to many factors including religious beliefs, household income, social norms, etc. The growing popularity of home funerals during the last couple of years in the United States triggered commercial funeral firms to engage in serious rent-seeking. After all, this is one more industry trying to get the most profit over all the other competing alternatives, just like many other firms in different industries do when they feel challenged.

In the United States, 16 states require that human remains be embalmed or refrigerated usually within 24-48 hours. Virginia is one of the most particular cases. Virginia State Senator Kenneth Alexander proposed a bill that requires the remains to be refrigerated at a temperature of no more than 40 degrees. However, this law has no scientific base. The temperature at which remains must be refrigerated is not strictly that, and cooling via dry ice or other means is perfectly fine, from a biological point of view. This and other similar regulations are supposed to avoid potential health hazards caused by human remains. Nonetheless, science has proved that un-refrigerated human remains don’t really pose significant public health risks. So, what is the real reason authorities are inclined to these regulations that place heavy burdens on families and religious communities that want to take personal care of their deceased relatives? Well, it happens to be that Senator Kenneth Alexander is a funeral director himself who is knowledgeable about this topic, so he has good reasons to impose these regulations… And apparently he has been successfully spreading his advice to other state Senators across the country. 

Who would have said this industry was also an opportunity for entrepreneurs?

Public Policy Negative Externality: Mandatory Helmet Laws

In a recent WSJ article, an argument is made the mandatory bike laws have resulted unintended consequences. When mandatory helmet laws are established, some places see a decline in head injuries in bike crashes. However, the helmet laws result in two different actions. Many bikers stop biking because they don't want to wear a helmet, resulting in a net negative health consequence for them. Additionally, some researchers have found that when a biker wears a helmet the surrounding cars in fact drive closer to the biker (which can lead to more dangerous crashes).

As related back to Friedman and Gruber, the government is faced with an interesting public good problem. The governments, in an act to keep their citizens safe, have enacted a policy that itself causes its own externality. This policy also touches upon a Coasian solution. By mandating bikers to wear helmets, bikers endure the cost of purchasing the helmet to keep themselves safe rather than forcing drivers to drive further from the bikers. The government defaults to putting the cost on the biker, when other alternatives could be considered.

http://www.wsj.com/articles/do-bike-helmet-laws-do-more-harm-than-good-1444662837

StudCo Lowers Students' Costs of Voting

Earlier this semester, Student Council launched numerous initiatives in efforts to increase student voter turnout. Some of these are UVAVotes.com (an online hub where students can locate important registration voter deadlines and locations), transportation to polling places on Election Day, and accesible locations to register on Grounds. StudCo is attempting to make it easier for students to both register beforehand and vote. These efforts and more collectively lower students’ costs of voting (C), the costs an individual expects to incur while participating in a vote. By lowering costs for students, StudCo is affecting the proposed voting equation:

            pB + D > C

Where p is the probability that your vote is decisive, B is the marginal benefit of casting a decisive vote, D is the utility derived from the act of voting itself, and C is the cost of voting.

By decreasing the right side of the equation, C, StudCo is increasing the chance that a student will vote in the election as it would take less for the benefits of voting to outweigh the costs. Indeed, voter registration rates are higher at UVA than in years past. Student groups including StudCo have registered over 3,000 students this year alone. Some part of StudCo’s initiative is taking hold. 

StudCo largely seems to ignore the pB in the above equation, the expected benefit of casting a decisive vote. While this is interesting, it makes sense. There is little that can be done to affect this probability. Virginia is somewhat a swing state, but there is nothing StudCo can do to change this. It is better for them to devote their resources to decrease C. Come Election Day, we will see whether or not StudCo’s initiatives decreased the costs of voting enough for marginal benefits to outweigh marginal costs to convince students to show up the polls.

The Economist: The Winning Policy Platform

I happened to stumble upon an article entitled Defining Realignment from The Economist, which analyzes where the American electorate stands on policy choices and priorities alone, freeing them from party labels to see what kind of winning policy platforms might emerge in the future.  When I saw the thesis of the article, I immediately knew that this related to Hotelling & the median-voter theorem as a tool to win an election based on simple majority rule. What this article is doing is the homework on what those winning policy platforms may be so that Candidate X and Y can use this research to attract most votes from a broad electorate. 

A quick summary on Downs and Hotelling in its relation to the class:  Hotelling argues that a rational voter would choose a candidate whose views showed most “proximity” to its own; so, it incentivizes political parties to take positions most likely to convince the voter in the electorate’s ideological middle. 

Researchers from The Economist used an online poll of “over 7,000 registered voters, which asked respondents both to express their preferences on 12 different issues and how much they cared.”  They then multiplied each position by its importance and added them up for all voters.  Using analysis, they can find which party they might support. 

The Conclusion:  Using the candidates’ actual platforms in the 2016 race, the results indicated that 52% of registered voters were closer to Hillary Clinton’s basket of policies than to Donald Trump’s.  Remember that this approach removes the error of any party loyalties.  This means that Hotelling’s median voter sits to the left of the midpoint between the presidential candidates.  The results also matched with Hotelling’s argument that the most ideologically extreme platforms are not worth it because the margins of the median voter theorem curve just don’t garner much votes compared to the middle. 

Implications for the two parties:  The winning coalition, or suggested “secret formula”, could be built around an anti-globalization message.  The Economist argues that “the candidate would have to take centrist positions on abortion, gay marriage and gun control, and alienate business by backing popular but costly government benefits like national health insurance.”  IF you combined this with supporting a border wall, opposing the North American Free Trade Agreement and ignoring climate change, this basket would secure 51.2% of the vote against a more socially liberal platform backing NAFTA and immigration: close enough to maintain a stable two-party system across election cycles.

I think it’s important to remember that Hotelling & Down’s model does fail to account for turnout, since its big assumption is that there are no abstentions.  While this is not a fatal problem - especially if the demographic studies are "likely voters" instead of "eligible voters", it does add a degree of uncertainty and risk - a politician may be deterred from repositioning even if it apparently makes sense if it risks alienating and lowering turnout among the base. This creates a degree of "stickiness" in terms of policy positioning.

Clinton Campaign: Using Illegal Immigrants to appeal to Legal Voters

   A hot topic in this election cycle is illegal immigration and how to reform the laws surrounding it. On June 15, 2012 DACA was established with support from President Obama. DACA stands for Consideration of Deferred Action for Childhood Arrivals and establishes guidelines and procedures for how people who came to the US as immigrants as children should be treated in terms of citizenship and deportation. Some of the guidelines for whether or not a person may request DACA are it they "were under the age of 31 as of June 15, 2012, came to the United States before reaching [their] 16th birthday [and] have not been convicted of a felony." While on the surface the country seems to be divided over this issue, a recent CNN-ORC poll shows that this is not the case. When asked "Thinking about the way the U.S. government deals with the issue of illegal immigration, which of the following policy goals should be the government’s top priority: (RANDOM ORDER)," the results were as follows:
 

These results show that a majority (with a 15% margin) believes that the government should do what it can to help illegal immigrants who are productive members to society become legal citizens. Another question from this poll asks: "Do you think the government should attempt to deport all people currently living in the country illegally or should the government not attempt to do that," with the overwhelming majority (66% of people surveyed) saying that the government should not. These two questions and their subsequent responses show that a majority of Americans feel positively about illegal immigrants living in our country and one day gaining legal status. 

 

   The reason I am discussing this today is because Hillary Clinton's campaign is being helped by "a group of undocumented immigrants [that] is knocking on doors in Northern Virginia" and in other places trying to mobilize voters on their behalf. They are doing this because they are "kind of in limbo, unsure about whether their status would be renewed under a President Trump and concerned that their family members could be deported.” In an earlier campaign this strategy was actually proven to be successful in helping to "stir up anti-Trump sentiments in Prince William County." I find that what this group, called CASA, is doing is very interesting in terms of what we learned in Johnson's writings about voter rational and the costs and benefits associated with voting. He concludes that "it is the rational voter who stays home and refuses to vote and the irrational one who votes,"but what would he say about someone who can't vote but is spending their time convincing others to vote for candidate who's policies are more favorable to them? I feel as though the whole thing is turned on its head as I question, "is it rational for the members of CASA to spend their time incurring large 'costs' with uncertain 'benefits'  (especially since they will not receive the benefit of voting)?" Costs referring to time and gas spent going door to door, etc. Johnson outlines several benefits with one of the biggest being the feeling of having made a difference and voicing ones opinion, but is this what is happening here? In terms of the elements of his equation, I feel like B is non existent and P is not their vote but rather their outreach and V1 and V2 being the biggest determine factors for the members of CASA. I feel as though the uncertainty of how the people with whom CASA members speak to will end up voting and the uncertainty of whether or not Clinton will actually continue the DACA initiative more than outweigh the cost, and I wonder if Johnson would agree with me. I feel as though perhaps CASA would be more efficient if they created a special interest group or worked on a larger scale than door to door knocking. In any event, on November 8th (or is it the 28th?) we will see if they are successful. 

Are Trump and Clinton ~Down~ with Downs's Median Voter Theorem?

This hilarious clip from Saturday Night Live's version of the Final Presidential Debate is remarkably close to what actually happened. Although it started off as a fairly 'normal' debate, with both candidates trying to portray themselves nicely to voters, shots were quickly fired. While I sat there watching the actual debate, I found myself infuriated by many things both sides had to say. I consider myself fairly close to what the median voter might be, so I wondered to myself if either of these candidates were successful in navigating themselves to capture the median voter from Downs's model?

This is an atypical election in that the voter population distribution is so polarized and bimodal that even the median voters are being alienated by candidates who are (supposedly) moving towards the median position! Hotelling would say that in any major election, the candidates function similarly to competitive firms, meaning that there are little -- if any -- distinguishing features between the two in an effort to gain the most votes. This could not be further from the truth this time around! Trump seems to alienate people by simply opening his mouth and pandering mostly to wealthy elites and white supremacists. But this makes at least a little bit of sense since he is not a career politician and therefore may not be well versed in the art of formulating a campaign that suits the voters' preferences instead of his own agenda (which we can debate over the values of this, just maybe in a less extreme candidate). Meanwhile Hillary Clinton, the career politician knows fully the importance of winning the median vote, but has flip-flopped so many times that she has ALSO alienated many voters! The SNL skit goes so far as to say: who do you want, Trump, or the Republican?! Trump is given his own category, meaning according to SNL he hasn't even come close to a platform supported by a median voter. Comparing Clinton to a republican is a testament to her attempts to gain more votes, but her more "moderate" platform may not be enough as she has already alienated people from her constant changes of pace, who's to say she won't change her mind again when she's sworn in?

These are all points that may come into conflict with the Downs's Median Voter Theorem, but it still is not enough to discredit it. If there exist two completely different candidates with voter distributions that do not even overlap AT ALL (which is slightly more extreme than even that of the 2016 election), then it will simply come down to how many voters there are in each of those distributions, and how many people either candidate has alienated within their own distribution. In other words, there will still be a winner, but it probably won't be one the true majority of Americans are genuinely happy about. (I wonder if we had another election system such as the Hare, Coombs, or Borda Count would the election look a bit different?)

Rent-Seeking in Poverty Statistics

It’s no secret that the Official Poverty Measure (OPM) reported by the Census Bureau is practically devoid of meaning. For one, its only measurement of income is pre-tax income. So, it completely ignores the effects of anti-poverty programs, since it doesn’t account for the effects of food stamps, of welfare, of even the Earned Income Tax Credit! If it doesn’t even reflect the measures taken by the government to combat poverty, then what even is its use! This useless tool, though, is the primary measure used by politicians in determining government benefit allocation.

So why haven’t politicians started using a better measure? Not for a lack of alternate measures, there are plenty. One explanation is rent-seeking. Changing the poverty measure results in winners and losers. A new poverty measure would mean a reallocation of benefits. So, if the new poverty measure reported a lower poverty rate for a certain group, then that group would get less benefits from the government. And so, that group would fight a change in the poverty measure. That group would rent seek. Since, as Mueller guesses, losers are (irrationally) more strongly motivated to fight against a policy change than winners are to fight for it, the losers dominate in their rent-seeking efforts.

However, taking a turn from typical rent-seeking groups, some of the biggest winners and losers are states and their state politicians. So, it’s likely that fewer resources would be spent rent-seeking since the federal politicians already have a pretty strong incentive to align with their home state’s interests, and thus don't need additional financial motivation. But, some states might be unaffected by a change in poverty measure, and so other states might put resources in fighting for the unaffected states’ federal representatives’ votes.

There are plenty of reasons outside of rent-seeking that the OPM still holds so much sway. For one, it's a partisan issue since with the OPM Republicans can claim that anti-poverty efforts aren't working and Democrats can claim we aren't doing enough. And, as previously discussed, this has a lot of elements of a politician-pursuing-votes issue. Still, rent-seeking is likely a fair part of it. And still, it's concerning that even something as supposedly impartial as government-reported statistics has a politics of its own.

Rahm Emanuel meets Tiebout

For the city of Chicago, 2016 has been a tough year thus far. By March of 2016 Chicago had seen their murder rate rise 72% and shootings surge 88% from the preceding year. With 141 murders and 677 shootings, Mayor Rahm Emanuel received significant criticism for not keeping his city safe. The problem was promulgated by the growing national debate over Police relations. Problems continued through the summer for Chicago as the number of shootings passed 3,000 in early September; in 2015 there were roughly 2900 shooting in the entire year.

This trend has been devastating for the citizens of Chicago and it's reputation across the nation. The most recent census report shows Chicago population dropping by about 10,000 people from 2014 to 2015. Furthermore, Chicago Tribune reporter, William Lee, attributes the population decline in part to "violence and lack of community interest".

Approximately a month ago, Police Superintendent, Eddie Johnson, alongside Mayor Emanuel announced a program that would increase the Chicago Police force by nearly 1,000 officers. Emanuel hopes the initiative will be incorporated into the 2017 budget.

Economist Charles Tiebout's theory of local expenditures explains the behavior above. Individuals have widely differing preferences - heterogeneity. If we view the revenue expenditure patterns of localities as a product, then we will see citizens sorting themselves into the localities that suit their preferences best. In the eyes of many Chicago citizens, the revenue expenditure pattern of Chicago was less desirable than other localities. So they moved. The city of Chicago in turn altered its revenue expenditure pattern, by adding more police, in order attract more individuals and maintain the ones living their now. In the end, this example and Tiebout's theory help solve the problem of preference revelation and increases efficient allocation by keeping power at the local level.

Occupational Licenses and Rent Seeking

Many jobs that require an occupational license do so because they have high consequences if the job is done poorly. I want to know that my doctor, accountant, or surgeon has completed appropriate training before trusting them to take care of my health, manage my money, or operate on my body. It would be too costly to investigate each doctor's background and competitively compare them. A medical license ensures that a person has certain knowledge of what they are doing because the job has high consequences. In cases where the consequence of a job is serious, an occupational license not only serves as a barrier to entry for that industry, but also as an appropriate screening mechanism in the interest of the general public.

There are, however, many jobs that require occupational licenses where the stakes aren't so high -- such as a barber, librarian, or interior designer. In order to get a license to be a barber in Nevada, it takes over two and a half years for the appropriate training. If you want to become an interior designer in NV, LA, FL, or DC it will cost you $400 and six years to get a license. While there is a clear argument for why a license is required to practice law or medicine, the same can not be said for more inconsequential professions such as interior decorators and barbers. The license requirements for these jobs are a result of rent seeking behavior. Existing merchants divert funds from their business in order to pay lobbyists to influence legislation. The funds directed toward influencing legislation are inefficiently used because they don't create anything "new" in the economy while hurting competition. Although this form of rent seeking is a huge inefficiency, Tullock brilliantly points out that the biggest inefficiency of all might come from merchants who were unsuccessful in their lobbying efforts. Perhaps its not the 2.5 years of training to become a barber that is most inefficient, but what this license requirement represents. The notion that the government is willing to promote an anticompetitive market for barbers in NV. And if it can be done in NV, why should other companies not try the same thing in their industry?

Will You Say Anything to get Elected?

During the first Democratic debate of this election cycle, Anderson Cooper "confronted Hillary Clinton with a laundry list of issues where her position has shifted."  Over a 25 year career, it appears that Clinton's values have changed drastically on many major issues (Keystone XL, Iraq War, War on Drugs).  On the other side of the aisle, Donald Trump appears to have crammed that same amount of policy change in a year of campaigning for the presidency. While their time in the political arena contrast vastly, the criticism from each candidates' opponents is almost the same.  For Clinton, the perception is "will you say anything to get elected?" For Trump, it's sifting through his statements to find "the most elusive presidential platform in modern history," Different candidates, Different levels of political experience, the same criticism of inconsistency in values.

Does this line up with Hotelling and Downs models? In both theories, the shifting of policies in order to gain voters is generally encouraged. Hotelling argues that it is in this competition that true stability among political parties is found. There is no limit to the number of changes a candidate can make in order to grab votes while also not alienating their supporters.  The main takeaway of each model is that eventually, whether in the political spectrum or grocery stores, the two opposing parties will end up as close as possible to the midpoint to gain the most voters and shoppers as possible. If Downs' assumptions hold, the "voters have as their goal the attainment of a government responsive to their wants" (Downs, 12). Using this statement, wouldn't it be beneficial for the voters when Clinton and Trump change their policies based on the perceived desires and values of the electorate?

Perhaps there needs to be further examination of the Downs' model. If it takes many changes in policy to reach the median, will the number of alienated voters increase due to the perception that the candidate is more concerned with "political expediency" than the values of the people? Furthermore, could this new metric of measuring alienation influence the deterministic voting model presented by Mueller if the candidate moves too far from their position on the political spectrum? In essence, would the perception that the candidate does not take into account the wishes of the people cause more alienation among voters so that they abstain.  If this is true, it makes sense that their opponents would accuse them of "political expediency" regardless of their time in office.

The Olympics & Rent-Seeking

The 2018 Winter Olympic Games will be held in Pyeongchang. The Republic of Korea (RoK) sees this as an honor and opportunity to boost its economy via tourism, the latter which can be seen as potential rents for their economy.

Stakes were high in 2009. By then, the RoK had already lost bids to host the 2010 and 2014 Winter games. The resources it had taken to submit appealing bids to the IOC could not be recovered. Thus, before the bidding process to host the 2018 Winter Olympics had begun, the RoK President pardoned former Samsung chairman, Lee Kun-hee, who had been convicted of tax evasion and breach of trust, and accused of bribery. This was so Lee Kun-hee could resume his activities at the IOC and "boost the country's chances of hosting the 2018 Winter Olympics". In the end, Pyeongchang won 63 of the 95 first round votes securing the bid. Since Samsung had sponsored the IOC since 1997, Lee Kun-hee's role as a lobbyist was undoubtedly essential in securing the bid.

Rent-seeking has resulted in the expenditure of resources to (1) convince IOC voters to vote for Pyeongchang, and (2) restore the damaged perception of RoK's rule of law after pardoning Mr. Lee. Both are significant costs to society. Now, we can only hope that the rent value will exceed the costs of rent-seeking that have already been incurred.

Food for thought: Research has shown that "Hosting the Olympics is a terrible investment". In past Olympics, host countries have well exceeded their budgets in preparing to host the games. This calculation likely does not consider the rent-seeking costs that have been incurred by businesses to win contracts to build Olympic stadiums.