To Infinity and… Eh, Maybe Later

Funding for space exploration peaked in the 1960s and has tapered off in decades since. This can be explained by the concept of rational ignorance.

Tied to the fight against Communism, the space program of the 1960s was largely politically motivated. In 1964, it accounted for a staggering 4.31% of the federal budget. At the time, the marginal benefit of continued space exploration was extremely high, as the frontier of space was inextricably linked with Cold War prestige and national security. However, after the Moon landing, the sense of accomplishment diminished the drive for continued space exploration, shifting the marginal benefit curve to the left.

At the same time, marginal costs began to rise. Starting in the 1970s, research and development funding in the U.S. grew rapidly, with competing priorities like health and national defense absorbing more federal resources. This increase in opportunity costs led to a decline in space exploration as a share of federal funding, dropping to current levels of 0.5-1% of the budget. The rise in opportunity costs caused a leftward shift of the marginal cost curve.

The fall in marginal benefits and the rise in marginal costs shifted the level of optimal ignorance about space. At present, it is rational for the United States to remain relatively ignorant about space until there is a shift of the equilibrium that favors increased knowledge.

Prisoners on the Roads

  In class we talked about the prisoner’s dilemma, and how it achieves a completely undesirable Pareto-inefficient outcome by way of a dominant strategy. After our class, I had around an hour to go back to my apartment and make lunch before heading back out to my next class. I had decided to drive that morning, so I got in my car and quickly took off, hoping to efficiently allocate my time. Instead,  I found myself in bumper to bumper traffic for the next 20 minutes. What could have easily been a 15 minute stroll on a beautiful day turned into 20 minutes of me angrily glaring at the rearview mirror, wishing I had just walked.

Everyone on the roads wants to arrive at their destination as soon as possible, and since driving is faster than walking, the dominant strategy for everyone is to drive. However when enough people choose the dominant strategy and drive, a Pareto-inefficiency is created where any one driver could improve everyone’s utility by choosing to walk.

Running Models

Last week as we discussed models, I was reminded of the models used in equating running performances. 

I recently ran my first marathon, and as the race approached, I encountered an issue: How should I pace a distance I had never run before? I had no idea.

Marathon equivalency calculators attempt to predict race time by taking into account a previous race time and applying a formula (most often the Riegel formula). These calculators simplify the calculus, ignoring factors that can contribute significantly to running time-- elevation, slope grade, terrain, temperature-- as well as less obvious factors such an athlete's sleep or fueling. Like running models, economic models frequently rely on historical data to make predictions about the future or examine an issue on a smaller scale and then extrapolate to a larger one. Just as it would be detrimental to race a marathon during training just to learn your race pace, it is often unfeasible to measure economic effects on a macro scale. Instead, economists may focus on individual localities and then extrapolate. In both situations, the model acts as a tool rather than any guarantee, and it is expected that the real world will deviate from prediction when inherently unpredictable outside factors take effect. 

Dad Rock, Fishing Licenses, and Tires: Is the James River Really a Public Good?

The Upper James River appears to satisfy the two characteristics of a public good. There are 12 public access ramps along the 63-mile stretch, which are free to use for the public, making it non-excludable. Combined with free access, the length and size of the river make it non-rivalrous to an extent. Since the river is not infinite in size, it is possible for it to become too crowded. Take, for example, someone nearby is playing dad rock from two massive speakers strapped to their kayak, and you just despise dad rock. If the river was crowded and you couldn't get far away, their addition to the river diminishes your utility gained by the river. However, I would argue that this is a rare occurrence, and unless you hop on the river during a major holiday, I would say it functions as a public good.

Perhaps the largest threat to the non-rivalrous aspect of the river is pollution. For many years, the river has been used as a cost-efficient avenue to get rid of trash and other waste. The negative externalities caused by these actions are obvious - one example of this is the surprisingly large number of tires dumped into the James, which affect water quality and the aesthetics of the river. While there are government regulations against such action, they still happen, and most conservation efforts are headed by local businesses and volunteers (like Twin River Outfitters, who everyone should check out).

Two of my coworkers, Jack and Isaac (left to right) after a successful river cleanup

If you like to fish, then you will be sad to find that there are measures in place to make the classic pastime excludable. In order to fish on the James, you must have a valid fishing license and abide by state regulations set in place by the Virginia DWR. A few years ago, the local Botetourt County community was in an uproar over a proposed boating access and permit fee. If approved, this daily $4 fee would have introduced a barrier to entry to river access and made the river excludable, threatening the sanctity of the James as well as local business operations (thankfully the decision was overturned).

Overall, the James River survives as a public good through local and state government maintenance and regulation, but I argue it is mainly due to the altruistic actions of the local community. 

A Not-So-La-La Land Industry

I play bass in the Charlottesville Symphony at UVA, along with peers, music faculty, and community members. There is also the Charlottesville Symphony Society, a non-profit that aims to raise donations for the Symphony and its professionals. In the 2022-2023 season, about 2/3 of total revenue came from donations versus 1/3 ticket sales. However, there was also a deficit of $195,007.

Orchestras face challenges of waning public interest, decreased funding, and high fixed costs. One alternative is to make orchestra concerts like a public good. Multiple people can enjoy the music (non-rival). Many European governments fund orchestras and make tickets more affordable (non-excludability). But this is only efficient if the sum of marginal valuations to consumers is at least the marginal cost of providing orchestra concerts.

That is likely not the case here. It would be a Pareto inefficient outcome if the University funded the orchestra and its professionals. Employees' wages would be redistributed, tuition would be raised upon students, and the orchestra would be a stagnant monopoly. Under the non-profit structure, orchestras act like competitive firms and strategize to increase demand and extract consumer surplus, mainly from donors.

Pops concerts, competitive concerts (two orchestras play in the same concert), and subscriptions can boost demand. There's potential future demand as baby boomers factor in art and entertainment venues for their retirement plans. Moreover, the Symphony Society connects meaningfully with their donors and offers special benefits. Opening receptions, complimentary tickets, VIP parking, dinners, etc. These incentives seem to work as donations increase.

 

For Frank Lloyd Wright's sake!

Gruber presents good landscaping as an example of a positive consumption externality --- neighbors of the home derive utility from well-kept land despite not paying for it. But what if the home or yard is ugly?

I am from Oak Park, Illinois, home of architect Frank Lloyd Wright. Despite not living in a Wright home, I live in the FLW historic district, which has certain guidelines for proposed projects on historic property. Some examples include retaining historic window trimming, siding, and roofing.

One could imagine pretentious Oak Parkers demanding compensation if a neighbor deviates from the Wright style. But with these specific regulations, Oak Park turned to collective action for this negative consumption externality to keep homes' values high. And with 95% of proposals quickly approved, there's evidence that Oak Parkers take pride in their architecture and restoring its historic qualities.

License Plate in China- a new private good

A few years before I was born(I was born in 2003), my parents purchased their first car. At that time cars were still scarce- you could rarely see privately owned cars on the street, mainly buses and bicycles. Undoubtedly, license plates to cars were like ketchup to fries: if you buy the fries, you get the ketchup. Who would have thought that 20 years later, car plates are even more scarce than cars, that even if you buy a car, you are not guaranteed to get a plate?

License plates used to be more like a public good-  it is non-rival and non-excludable. One person getting a plate doesn't limit others from getting one, and no one can exclude other people from getting a plate. Even though technically if a person specifies his plate numbers but this combination is already taken, he/she wouldn't be able to get that specific plate. But overall, plate falls into the category of public good rather than private goods. Ever since the lottery system was released, plates have become a private good-both rivalrous and excludable. Policies differ depending on the cities, but in general, it is hard to get a plate, even if you already have a car, and especially if you already own a plate.

However, an exception holds. To respond to the negative externalities, the acceptance rate to the lottery system is significantly higher if the car you buy is electric. Some cities have the policy that if you buy electric cars, you can automatically get a plate without participating in the lottery system. The logistics behind this policy seems to be straightforward-  gas-powered cars pose negative externalities on the society, such as pollution, but individual drivers don't bear the full cost of it. Therefore, the government is encouraging consumers to switch to a less polluting option.

My takeaway on this public policy is that, by shifting plates into being a private good, the government is trying to correct the negative externalities, and it is working at least to some extent. There's less pollution from what I can see. Also, I am glad that I still don't have a license so that I don't need to compete for this rivalrous and excludable good.

Mutually Assured Destruction: a prisoner's dilemma

In the Cold War era, the United States and the Soviet Union were locked in a cycle of escalating arms production following the development of nuclear weapons. This situation presents a classic prisoner's dilemma. The dominant strategy of either country was to increase stockpiles to maintain a position of deterrence, leading to a pareto-inefficient equilibrium that trapped both countries and heightened the risk of global nuclear annihilation. 

There were two options for a pareto-efficient equilibrium: first, complete destruction of all nuclear weaponry; second, significant reduction of nuclear weaponry. As it is impossible to “close Pandora’s box,” the first option is unrealistic. However, the Nuclear Proliferation Treaty of 1968 represented a pareto-efficient move. It institutionalized an effort for disarmament and represents the situation in which all parties commit to contribute to the common good. 

The issue with the NPT is its lack of a single, powerful enforcement mechanism. No “crazy cousin Jeff” will come to break the knees of a country that doesn’t contribute. This presents a secondary prisoner’s dilemma: to honor the treaty or defect. Smaller enforcement mechanisms such as the UN Security Council and diplomatic pressure exist, but compliance is never guaranteed.