Is the Blue Ridge Parkway really a Public Good?

As an avid cyclist, Charlottesville provides me with a fantastic playground for endless adventures on two wheels.  One of my favorite places to ride is on the Blue Ridge Parkway.  The BRP is considered to be a Public Good because it is non-excludable and non-rivalrous in consumption.  As the fall season progresses, people travel from across the country to experience and view the beautiful fall foliage that can be seen along the BRP, all for free because there are no tolls or entrance costs.  

On Wednesday, I found myself riding on the Blue Ridge Parkway; however, this time the BRP felt rivalrous in consumption.  Other BRP visitors zipped past me in cars, motorcycles, and loud groups of people overcrowded the beautiful overlooks.  These negative externalities I faced as a fellow user of the BRP damaged my own consumption.  Upon my exiting the BRP, I noticed the swiveling “road closed” gate, usually used for winter storms.  I thought to myself: if I just closed the gates, I could make the BRP excludable, so that once again I could reap the benefits and enjoy the BRP to the fullest.  Closing the gates would exclude all motorized traffic and tourists from entering, and would only allow the adventurous cyclists and hikers who dare to duck underneath the closed gate.  Alas, I decided the cost of closing the gate, a stern talk and ticket from a park ranger, was greater than the marginal damage that I felt on the overcrowded BRP, so I pointed my two wheels back to UVA, and pedaled home.  

Although my experience makes it seem as though the BRP should not be considered a public good, it rather reinforces Buchanan’s point that public goods fall along a continuum.  Public goods can have a degree of “privateness,” and in this case that privateness can be seen in the overcrowding of the BRP, calling for an optimal level of sharing given by Uⁱ = Uⁱ[(Xⁱ₁, Nⁱ_i), (Xⁱ₂, Nⁱ₂),...,(Xⁱ_n+m, Nⁱ_n+m)]. 

A Good, Old-Fashioned Chore Chart

I live in an apartment with four fantastic roommates. However, some of us are more prompt to clean than others. Last fall, it became apparent that a couple roommates bore the majority of the cleaning duties while the others did very little. But, despite this unequal distribution of duties, every roommate benefitted equally from the clean apartment. Those roommates who acquired the costs of cleaning didn’t reap any more benefit than the ones who didn’t take on cleaning costs.

We were suffering from the classic problem of free riding on a public good! In this situation, the clean apartment can be classified as a public good since it is non-excludable and non-rival in consumption. No roommate can be prevented from enjoying the benefits of a clean apartment and one roommate’s enjoyment of the cleanliness doesn’t detract from another’s enjoyment of it. Essentially, the cleanliness of the apartment provides significant positive externalities. 

Because some cleaned and others failed to participate in cleaning while still enjoying the benefits of the clean apartment, our home was consistently under-cleaned. The amount of cleaning we undertook clearly fell below the allocatively efficient level. The cleanliness level was not socially optimal. 

We scratched our heads, wondering if we’d need to call in the power of the state. Fortunately, my roommate Rachel, who had a slightly higher demand for this public good than the rest of us, decided to develop a private method of combatting our free-rider problem. She hearkened back to the elementary school days of sticker charts, and chose to create our very own chore chart. She listed five cleaning tasks, listed several weekends, and posted this chart in the kitchen. 

Rachel then showed it to us and said that we could sign our initials every time we completed a task. She also specified that each roommate should complete one task a weekend in order to evenly distribute the work. By establishing this system, she unwittingly tapped into the “warm glow” solution Gruber describes in his chapter on public goods. Now, we could see and quantify each person’s contributions. Because of this, we were all incentivized to clean more than we had before. Because we have a small, stable community within our apartment, we were able to mitigate this free rider problem by establishing group mores and exerting positive peer pressure. No need to strain our apartment’s social fabric with outside intervention! Rachel introduced a solution from the inside! 

The Exclusive Kitchen Club

I live with seven other girls in a cozy (ie. cramped) house on the corner of 14th Street and Wertland. In addition to a standard kitchen and dining room, you can walk through my friend Hanna's room to reach a second back kitchen. Generally, a kitchen is a non-rivalrous good. However, it can certainly get crowded at meal times, so Hanna's second kitchen provides a great marginal benefit to everyone. That is, everyone except for Hanna.

Hanna was facing a negative consumption externality due to the smell of trash and leftover food creeping into her bedroom. When the kitchen was dirty, this smelly externality caused her social marginal benefit of the kitchen to decrease. While everyone likes the idea of having a clean kitchen, Hanna was the only one whose additional benefit of having a clean kitchen was worth incurring the cost of actually cleaning the kitchen. This led to a free-rider problem in which she would provide a clean kitchen even if no one else contributed towards the cost. As you might guess, Hanna quickly grew sick of this setup.

This Monday, when I walked downstairs to cook breakfast, Hanna's door was locked. When I knocked, she responded that she no longer would publicly provide a clean kitchen to a bunch of free riders (something along those words... perhaps a little less economic and more insulting). Being the rational roommate I am, I explained that we could pay her to compensate for the externality she dealt with when we dirtied up her kitchen. However, she was not into my Coasian solution. Public policy majors, amirite? As I was doing my public choice reading that night, I realized my solution was right in front of me. I rushed down to Hanna's room, and for the small price of taking out the trash, I gained access into the now-excludable back kitchen club. I tipped off another two roommates, and they bought their way in by agreeing to wash dishes. Now, Hanna no longer faces the stinky results of the free rider problem, and each kitchen is shared at an optimal level that allows me to make my meals in peace. Take that, Batten!

Mob Boss Negotiations

This past Wednesday was truly a difficult day for me. Around 7 o'clock last night, I finished the greatest tv show that was ever made, The Sopranos. I still haven't gotten over the fact that I've actually finished the show yet. I can sense a deep void forming in the entertainment compartment of my heart. Also, don't ask me about the final scene. I haven't begun to form even an ounce of an intelligent opinion on the matter. Nevertheless, I found solace in the fact that a scene from the final season has inspired a blog post for our class. Let me set the stage.

Tony Soprano, the boss of the Soprano crime family, enjoys partial ownership in an illegally-run, legal construction business. In true criminal fashion, the business cuts corners whenever possible. They hire cheap illegal labor, fake their permits, and most importantly in this episode, they illegally  dump their demolition waste. With the help of one of the Five Families of New York, the business improperly disposes their waste in the Lupertazzi family dumpsite, while collecting checks from the government for "following" the EPA's regulations on waste management. The operation was tremendously lucrative, that is, until the Boss of the Lupertazzi family learns of the asbestos in the construction waste.

Under this scenario, the social marginal cost of waste production is above the private marginal cost to the Soprano family. The asbestos from the demolition waste creates a negative production externality to the Lupertazzi family and their dumpsite, particularly in regards to the health of their employees. As a result, the Soprano family is producing too much waste and social efficiency is not maximized. In an effort to reach a true Coasian solution, Phil Leotardo - the defacto boss of the Lupertazzi family - offers to let the Soprano family continue to dump their construction waste in exchange for 25% of all construction profits. With the payment, the PMC curve would move up to the SMC curve, and social efficiency is maximized. Tony, however, mulls the offer over, counters with 15% to no avail, and ultimately determines that the 25% cost is not worth it to him. No deal is to be had.

Unable to internalize the externality, we would all expect Tony to find another dumpsite or shutdown the business altogether. Well, he did find another dumpsite (0:16) - and managed to avoid incurring any extra cost.

Quick, Bring in the Farmers!

It sounds like farmers could save the world! Or, at the very least, help the world by reducing carbon emissions. According to The Wall Street Journal, there is a cornfield in Iowa that can bestow wisdom on how to solve market failures. In other words, the farm can help combat climate change. A farmer named Mitchell Hora uses regenerative growing practices, which, besides simply being more efficient at farming, carries a significant benefit: the growing practices eliminate the soil carbon released from burning fossil fuels. Yay for less carbon emissions! This is a positive production externality. Mr. Hora's production leads to a social marginal cost that is below the private marginal cost. In addition, the social optimal quantity is greater than the market equilibrium under a competitive market. Thus, Mr. Hora is underproducing. He needs to farm more (produce more) in order to achieve the optimal allocation of resources.

There may be a Coasian solution to this, which is mentioned in the article. A company called Indigo Ag Inc. is setting up a market for carbon credits. Companies that want to reduce their carbon footprint can go to the marketplace and pay farmers to do it for them. So can other parties, such as environmental interest groups. If these groups decide to pay Mr. Hora the marginal benefit (which is the distance between the SMC and PMC curves), Mr. Hora will produce at the socially optimal level without any government intervention, thus solving the market failure, and (hopefully) making the world a better place.

Yes...the government could pay Mr. Hora to produce more and we'd still get the same optimal allocation of resources (even though Coase would be disappointed). But I like the Coasian solution more. It just...makes me happy.

The Terrible Neighbors

As a resident of an apartment building on Wertland Street, I was prepared for the parties and loud noises that they bring. However, I did not expect to be living next to people who probably party as hard as the 1990s Miami Hurricane football team. Our neighbors, apart of a certain UVa sports team which I will not name, party all the time. It has been two years and the music has not stopped. Ever. There is music every night, every morning, and even during finals.

These people are living their party lives to the fullest, but our apartment struggles to study, watch movies, and sleep. Not only is there a negative externality on us, but also on them. Last year was the worst year in this team's history and it is not surprising that the star players happen to be our neighbors. Living in this apartment complex, the social marginal benefit goes down even though it is in a great location. Our demand for wanting to pay goes down.

Regardless of our noise complaints, lodged to our landlord, the music continued to play. One of my roommates ran into them the other day and the neighbors were actually pretty chill. In fact, they said that if we ever had a problem with them playing music too loud then we can just knock on the door and ask them to politely turn it down and they would do so. Ever since, the music has been turned down and I have actually started becoming friends with one of them.

The Negative Externality of Loud Garbage Trucks

I’ve lived at The Flats for over a year now, and it’s a great place to live. But one of the big issues for residents including myself is the noise imposed from the train, and specifically for me, the beeping, crunching, screeching sounds of the garbage truck outside my window early in the mornings. Although I’m usually awake during the weekdays when the garbage truck comes, I do like to catch up on rest just a bit on the weekends. Low and behold, I am prevented from doing so because of the beep beep screech beep outside.

This annoying way to wake up definitely imposes a negative production externally on me, and I’m sure it’s imposed on others in the area. Students including myself work ourselves hard during the week, and need that extra sleep on the weekends. My potential marginal benefit of each extra minute of sleep is curtailed without my choice when I’m woken up by the garbage truck. The social marginal cost includes the private marginal cost imposed on the garbage truck, plus the negative externality, thus the social marginal cost exceeds the private marginal cost. The equilibrium point of allocative efficiency is not being met. A Coasian solution to this problem would be to negotiate with the garbage company to convince them to alter their routes so they would come down Main Street at a later time of day, but I would probably have to pool funds from many people who have this problem in order for the company to agree to changing their operations. If the marginal benefit to the garbage company is less than the dollar amount of damages imposed on those who are sleep disturbed, the garbage company would agree to this negotiation.

One of the problems with this Coasian negotiation would be arranging the negotiation in the first place and assigning damage. Measuring how much damage to our sleep this garbage truck is doing, determining how many people in the area have experienced disturbance of sleep due to this garbage truck, and equating lack of sleep to a dollar amount, resulting in total damages, would be an extremely difficult feat. I would also run into free rider problem. What about the people who aren't paying or contributing, yet still benefit from no sleep disturbance that they were not able to achieve before? This would lead those who agree to contribute to potentially see the deal as unfair and withdraw from the negotiation. Another solution would be to assign the damage in monetary terms and have both The Flats and The Standard add an extra fee to everyone's rent. Yet, some individuals may refuse to comply with this new provision, or argue that they do not experience sleep disturbance from the garbage trucks, so the apartment complexes are unlikely to include this fee. As one can see, a Coasian solution to this problem would be extremely difficult to pull off, therefore I must accept that I will be woken up by the beep screech crunch beep sounds every week and wait until I move out of the apartment to achieve some peaceful sleep.

I'm Not Sucking Up to Professor Coppock, I'm Just Still Surprised I Got Into This Class

It is no secret that getting accepted into Public Choice is a difficult feat. It is a highly recommended course that hundreds of people apply to take, but only about 25 to 30 students actually make the cut. I and everyone else in this class are lucky to be here — something I try to remind myself of when my alarm rings every Tuesday and Thursday morning to remind me that I have to trek all the way to Ruffner and make it to class by 9:30 *sharp* (as Professor Coppock would say).

Many people I know, specifically those studying economics here at UVA, also know how lucky I am, and often express to me how they tried to get into ECON 3330 but were not accepted. To try to make them feel better, I tell them about the material that's being covered in class — from concepts we've been discussing in lecture to specific readings that Professor Coppock assigns to us — so they aren't completely missing out on the class. Because of my being enrolled in ECON 3330 which allows me to spread the joy that is Public Choice course material, a positive consumption externality is created. By my taking the class, I am personally benefitting by learning about a topic that interests me, therefore this constitutes as the private marginal benefit (PMB) of my being in this course. However, because I then share what I have learned with others who are not in the class, the people I'm sharing this information with are receiving an external benefit from my consumption of taking the course because they are gaining knowledge that they want without having to pay for it in ways that I do, such as waking up early to go to Ruffner or pretending to laugh at Professor Coppock's jokes (I'm kidding!). This external benefit of the education that I am consuming through taking Public Choice is added to the PMB, and the sum of the two then equal the social marginal benefit (SMB) of my taking ECON 3330, making SMB > PMB and thus constituting a positive consumption externality (note: when clicking the link, look specifically at the first bullet about education).

In Defense of Procrastination

Consider a class at the University of Virginia. In this hypothetical class, the hypothetical professor carries out a strict anti-technology policy. In fact, on the first day of class, the professor accurately stated that the use of computers in class distracts classmates (see point #2 in the link), imposing a negative consumption externality on those sitting in the vicinity of the laptop user. I intend to show, however, that such a ban on technology usage is allocatively inefficient and, indeed, unjust. But before I continue, let me reaffirm that the class of interest here is a theoretical one, and is in no way intended to represent any one class. Especially not ECON 3330: Public Choice. Please don't hurt my grade.

In this class, consider two students, whom we may call Student A and Student B. Student A gets a certain amount of utility from using his or her laptop in class in order to avoid paying attention to Professor Copp - I mean, the hypothetical professor's lectures (personally, I think Student A should be paying attention, but who am I to judge someone else's utility curve?). As mentioned earlier, this creates a negative externality, as Student B is then distracted from the course material. But according to Coase's theorem, Student B may simply offer to pay Student A to refrain from using a laptop during class, and this free market transfer will inevitably lead to the socially optimal level of laptop usage.

In this case, both Student A and Student B are better off -- everyone is happy. Student A made a few bucks, and Student B is now able to pay attention in class. The professor's only role should be to determine that technology users are liable for the damages they inflict, allowing the invisible hand to bring us to the allocatively efficient level of output.

Again though -- and I can't stress this enough -- this is a generic exercise talking about a generic class, and I am definitely not Student A.

Wikipedia: The Wonderful Public Good

While I was reading Iliad for my Greek history class, I went to Wikipedia to get a rundown on a character, Menelaus. To do so, I went to a sourced, monitored, free, online encyclopedia, which I was told by my 3rd grade teacher that I should never, ever use. Sorry Ms. Lapinski. In the process, I turned from my $85 textbook to a free and expeditious resource, yet I didn't pay a penny.

With this in mind, I wondered how close Wikipedia is to a pure public good. The closer it is, the more of a cheapskate free-rider I am. Is Wikipedia non-rivalrous? Absolutely. By searching Menelaus on Wikipedia, I will never prevent another user from reading about Menelaus' rival, Paris. Is Wikipedia non-excludable? Based on its own format, yes. At its core, Wikipedia is open-source, meaning it would lose its very character by limiting its user population. I imagine it would have failed already without benefitting from the unlimited fact-checking and potential donor population. Furthermore, even when Wikipedia begs for money, it does so at the top of the page so you can still see your content.

Wikipedia seems very close to a perfect public good, so I must admit that I am one of many free-riders. Even so, Wikipedia stands the test of time, probably due to behavior that fits outside the free-rider problem. Many altruistic people donate freely, or voluntarily write entries, provide sources, and fact check others. One might argue that, since it resembles a pure public good, Wikipedia fails to meet the socially optimal allocation of resources, yet the fact remains that Wikipedia has come to dominate private encyclopedias. Optimal or not, it beats a $85 textbook.

Free lattes at Hot Cakes - an optimal club?

Currently Hot Cakes in Barracks is running their biannual promotion of two weeks of daily free lattes to UVA faculty, students, and staff. Free coffee and wifi, no questions asked. However, this is not a purely public good, as it is restricted to those affiliated with the University. As Buchanan notes, traditional economic analysis only distinguishes between private and public goods, and not clubs that not everyone has the opportunity to be a part of. The key to determining the optimality of a club is whether the marginal rate of substitution (MRS) of consuming the good is equal to the MRS of producing the good. My utility from consuming the free coffee and wifi is very high - this is one of my favorite times of the year. However, for Hot Cakes this does not seem to be a profitable venture. They get free advertising, but I don't know of many people that regularly visit Hot Cakes year round. They get lots of people in their store, but no one that I know regularly buys additional items from Hot Cakes. Conversely, this is provided at presumably great cost to Hot Cakes. The costs and benefits do not seem to be in line with each other, which makes for a sub-optimal club according to Buchanan.

The Externalities of Dancing

Two weekends ago, I traveled up to New York City for a music festival. The decision to make a 11-hour round trip at the end of the first week of classes was probably unwise, but I was able to see the magic of the Coase theorem in action. Though attending concerts is fun and is correlated with good health, attendees do not always have the greatest time. This is because of the externalities generated from the production of something that usually makes music quite enjoyable: dancing. According to concert etiquette, people should be mindful of those around them when they decide to bust some moves, as their aggressive motions can block the views of others or make them physically uncomfortable. This is quite problematic, as excited concertgoers frequently fail to consider how their dancing might negatively affect other people. As a result, the private marginal cost of dancing is less than the social marginal cost of its production and, thus, people dance more wildly than is socially optimal.

Such was the case during one of the performances that I witnessed at the festival. During the set, a man in my part of the crowd was very aggressively jumping up and down and waving his arms, much to the annoyance of the strangers next to him. The people around him asked a security guard to tell him to calm down, but the staff member insisted that the dancing man was not liable for any damage because he was not physically touching anyone near him and, therefore, had a right to continue his dancing.

Luckily, the power of economics was enough to rectify the situation and avoid any sort of major confrontation. After about a half hour of being annoyed, one of the people near the dancing man offered to buy him a beer in exchange for him controlling his movements. With the cost of this beverage now internalized, the dancing man's private cost of producing his moves increased. He, then, determined that his marginal benefit of wildly dancing was not greater than the cost of dancing plus the cost of a forgone beer and calmed himself down. Thus, just as Coase theorized, with rights clearly established, even without public intervention (from the concert staff), a socially optimal level of dancing was able to be reached.

Popeye's Chicken Sandwich

In a surprising move, Popeye’s Louisiana Chicken recently added a chicken sandwich to their menu. To try it, I recently went to the Popeye’s on Emmet St. with a few friends and we were greeted with a long line of cars. After finally getting through the line, we were politely told that they were all out of the sandwiches and wouldn’t have any more until the following week. We of course left, because fried chicken without a brioche bun just wasn’t going to cut it. As we left, we again made our way through the thick traffic going in and out of Popeye’s. My friend mentioned how the new sandwich must have increased the demand for Popeye’s. After getting home, a quick Google search showed that our experience was not unique.

         Along with the expected increase in demand for Popeye’s, there has been a significant increase in traffic around their locations: a negative consumption externality. While we initially assumed this was included in the cost borne by consumers, further research found that some people have no interest in Popeye’s chicken sandwiches and even more striking, some people don’t even like friend chicken. Thus, the increase in traffic means the social marginal benefit curve is less than the consumer marginal benefit curve. There is no Coasian solution to this, because the large majority of these roads are public roads and have no enforceable property rights. A possible solution would be a government tax or regulation on these chicken sandwiches to lower demand to the optimal level. This measure would account for the total value of these sandwiches to society and the cost of the traffic. However, to know this, we would need to do a lot more research on the exact statistics and more importantly, we need to taste the sandwich (when its back in stock).

Externalities of Neighbor's Trash

Living with a group of friends in a house is generally a good time. However, most student houses, including mine, belong to a neighborhood of other student homes. In these houses, areas such as the kitchen, living room, and yard are not "owned" by any one resident, leading residents to free ride on the cleaning actions of their roommates, or wait longer to address issues than they would if the house was entirely theirs, in hopes that someone else will take care of the issue. This behavior is typically not that bad in areas such as the kitchen, where it results in dishes piling up, but not much else. However, for the neighbors of my house, this problem manifests itself in their backyard; they have trash overflowing from their bins. Because of this, I have seen rats more than once around my house, which is a negative production externality of their trash generation. Charlottesville's downtown mall seems to have an underreported rat problem, which likely effects the corner as well.

In this negative production externality, the generation of trash has a lower private marginal cost than the social marginal cost (there's a high cost for seeing rats). I've drawn the SMC equal to the PMC for when trash is contained in the bin, but once trash is outside of the bin, costs go up for all, especially others in the area, hence the higher SMC. The demand curve (Private Marginal Benefit) in my graph is for trash removal - the price willing to be paid decreases the more trash has been removed. The simplest solution to reach qae in my mind is to have stricter regulations on all trash being contained in sealed bins, reducing the number of rats present. Although, if transaction costs were zero, I would accept being paid by the neighbors for their rat problem.