The Patent Paradox

Patents are extremely prevalent entities in today’s markets, resulting in 346,152 patents being issued in 2023, with the US Patent and Trademark office estimating that $3.7billion is spent on patent fees alone. This number does not include the research and development, grants or other means of funding, or lobbying for the product incurred by the patent-seeker. Patents are fundamentally rent-seeking. The patent process involves a federal government agency vetting a product and granting an inventor exclusive rights to their unique product for a set period of time, typically around 20 years. While these inventions are still governed by anti-trust laws, these patented products can and often do create quasi-monopolies, pushing other companies out of a market due to greater efficiency and/or lower costs of the product. However, because of patents’ temporary nature, they do not guarantee monopolies but can create enough of a buffer to establish oneself as the giant in an industry. 

Patents are crucial to incentivize innovation and fuel capitalism in the US, pushing inventors to constantly improve their products for financial gain and increase in national GDP. Key technology patents alone are the cause of roughly 2.85 trillion USD in GDP per year in the US. These patents however come at a societal deadweight loss. Approximately 90% of patents are rejected at least once, incurring more expenses like forgoing the endeavor or investing more resources to secure the legal rights of the product. In turn, a series of government agencies has to be funded to grant patents, monitor them, and enforce them, and consumers have to pay more taxes and more for the products or services in stores and online.

Elon Musk Makes Economists :(

Recently, Elon Musk said he will hand out $1 million dollars a day to a random voter in Pennsylvania (a swing state) who votes Republican. Obviously, there are serious concerns that this is very illegal (vote buying), but nonetheless it is his plan. By doing this in a crucial swing state for both Harris and Trump, Musk hopes that his actions will tip the scales in favor of Trump, who ideally will limit regulations and provide contracts to Elon.

There are two ways I can take this: Elon rent seeking from the government, or individuals rent-seeking from Elon. I find Elon's relationship with the government more interesting, so I will go with that. For the government, if they wanted to hand out rents, there are a few ways they could go about it: they could give it to those who provide the most value to society (which makes us happy), they can use a lottery (which makes us indifferent), or provide to those who lobby the most effectively (which makes us sad). Trump would allocate by this final method, instead of giving it to those who benefit society the most. If the government instead provided rents to the most worthy of them, in the case of SpaceX and its competitors, this may mean giving rent to companies that have the least carbon emissions, or even the closest to sending a mission to Mars. By doing this, there is no negative societal impact on the government giving out rents.

Drowning in Amenities

Universities are meant to be havens of academia, with professors conducting research and students cultivating their knowledge. Recently, however, a trend has emerged where universities offer luxury amenities to attract students, a departure from their academic pursuits. This can be seen as rent-seeking behavior. 

Take, for example, Louisiana State University's lazy river in the shape of “LSU.” A premier research university, LSU officially states that their mission is to “the generation, preservation, dissemination, and application of knowledge” and the development of students for “lifelong success.” How does a lazy river help achieve this goal? It doesn’t.

This is a clear misallocation of resources that should be invested in academics. Instead, funds are diverted to “perks” designed to draw in students, resulting in increased tuition. More rent is extracted from enrolled students with no change in academic results.

There is a significant negative social impact. Higher tuition increases the burden of debt and exacerbates unequal access to education. The shift of focus erodes the academic values of universities, trapping them in a race to attract more students through sparkly benefits rather than educating. Universities need to re-examine their priorities and question whether these changes add real value to society or if they only benefit individual universities.

Rent Seeking, Literally

In an episode of the TV show Friends, Ross is looking for a new apartment and finds that “ugly naked guy” is moving out of his apartment across the street. It’s Ross’s dream apartment so when he finds out that “ugly naked guy” is subletting the apartment himself, he sends him a gift to try and sway his decision. Unfortunately for Ross, many other applicants have the same idea and send over lavish gifts to try and win the apartment. 

This “auction” for the apartment is an open competition. This leads to rent seeking behaviors to try and get the prize of the apartment. The outcome in this case is allocatively inefficient because applicants are using resources to buy bribes instead of using those resources in more efficient ways. For example, one applicant buys “ugly naked guy” a mountain bike. This expensive gift may not even generate utility for the recipient depending on whether or not he bikes or already owns a bike. Ross even spends time lobbying “ugly naked guy” in person. Hence, the time and money used to bribe him for the apartment are used in an allocatively inefficient way. Additionally, this situation is akin to an all pay auction. Ross cannot get back his $12 basket of mini muffins even if he does not win the apartment. This literal rent seeking is socially wasteful.

Mission (Statement) Failed

My club ultimate frisbee team held a players' meeting to brainstorm a mission statement, which details the core values of an organization. Small groups created and nominated a mission statement, followed by a vote. However, the team lost interest, and we ended up with a short, uninspiring mission statement.

After reading Buchanan and Tullock's analysis on external and decision-making costs, I now understand why things turned south. Despite my excitement about it, the mission statement had little external costs on our players. Even if you disagreed with the values, it wouldn't immediately affect our organization. Furthermore, there were higher decision-making costs than I expected; players wanted to get home at 9pm on a Wednesday. 

My teammates' rush to finish the process, even if no statement received a simple majority (K/N<0.5), is a rational choice to minimize the sum of the external and decision-making costs. 

Fantasy Football Logrolling

 A couple weeks ago we talked about logrolling. Logrolling is a method used by politicians to get their bills passed in the form of an IOU. If one votes for the bill then the issuing party agrees to vote for the other. This can obviously be beneficial to both parties as they have the chance of their bills being passed. While advantageous there could be some moral dilemmas.

I was presented with such an offer a couple weeks back by my roommate,Teddy, in our  house fantasy football league. Fantasy football is a game where you draft a team of football players and earn points as they perform. The league is compiled of people who watch football and others live in the house and wanted to play. Teddy being somewhat knowledgable in football wanted to scam the ones who didn't know anything. He came to me and proposed that I convince people his trades were good and he would do the same for me. I saw no reason for this because I had a good team and found it distasteful.

When Tutoring Pays Off for Everyone

As an economics major who is arguably bad at math, I am shocked I've made it this far. When looking back at my economics career here at the University, I wondered what got me to this point successfully. My professors? Sure, they've been pretty good, but that's not it. Myself and my drive for economics? No. This happens to be my first blog post.....anyways. My peers? Yes. My peers have helped me through almost every single economics class I have ever taken - willing and able to answer every minuscule question I might have, support me in understanding challenging concepts, and being a shoulder to cry on. While I probably should have invested in a tutoring service instead of bombarding my friends, I didn't, because they could end up helping me get to the correct answer just as efficiently, without affecting my bank account. 

This got me thinking about tutoring acting as a positive externality in consumption. Tutoring offers immense value to not only the students getting tutored, but their free-riding friends who reap the benefits as well (me). When one of my peers pays for and receives tutoring services , the clarification they received gets extended beyond completion of a problem set, but in making a clearer exam study guide, organizing notes, and explaining difficult concepts to friends. So, when I get clarifying answers from a peer who has paid for a tutoring service, I am also benefiting from my friends consumption of tutoring, exemplifying a positive externality in consumption. 

As noted in the link, the cost of a graduate economics tutor here at UVA ranges between $40-$80, reflecting the value that is provided directly to the student who signs up for tutoring. However, I wonder if the knowledge-sharing aspect of tutoring is captured in this fee (possibly, because these tutors are obviously well versed in economics, but for the sake of my blog post, it is not). Assuming it is not, the total societal benefits of tutoring are greater than the private monetary benefit to the tutor, leading to underconsumption in tutoring services - demonstrating an example of a positive externality in consumption. 

Awkward Conversations: The True Transaction Cost of Coasian Solutions

 Though we have not discussed Coase in class recently, thinking back, his ideas made me wonder as to why we do not see Coasian solutions to externalities occur more often in reality. It seems like such a good idea in theory - being able to come up with a market solution to a negative (or positive) externality conundrum. In particular, I was reminded of Coase when I was on the Amtrak from Charlottesville to Trenton, New Jersey for fall break. It was a very crowded train, as one might expect on that date, and in front of me, two people were chatting rather loudly. At first, this did not bother me; after all, what's wrong with two friends reconnecting on a good old train ride?

But when we were approaching the fifth hour of this journey and the clock struck midnight, the frankly incessant talking had begun to wear me down: a negative externality was being imposed on me. Coase would have encouraged me to negotiate a solution with these people to stop them from talking; perhaps $20 or so would be a fair arrangement. But herein lies the problem; even if both parties would be content with that payment, I would never actually propose this solution, for fear of social embarrassment. This is why, I believe, Coasian solutions are seldom seen in practice - there is a rather large transaction cost to ask somebody you don't know to stop what they are doing, and thus imply that they are negatively impacting society. 

Better Read the Terms and Conditions

 Dr. Kanokporn Tangsuan died of an allergic reaction after consuming food at a restaurant in Disney World on October 5, 2023. She died even despite the server's assurance that her allergies could be accommodated. Her surviving husband, Jeffrey Piccolo, sued Disney parks, but Disney argued the lawsuit should be dismissed and resolved through arbitration since the couple agreed to the terms and conditions of the Disney+ service and the Walt Disney Parks website. Disney, facing immense media and public backlash, eventually dropped the effort to dismiss the lawsuit. 

Similarly, a couple that was involved in a major car accident while in an Uber ride in March 2022 sued Uber for damages, but Uber argued that the couple had agreed to arbitration by accepting the terms and conditions of both the Uber Eats and Uber Rides apps. The plaintiffs argued that it was their young daughter who had clicked "agree" to the terms and conditions, but an appellate court still sided with Uber and ruled that the plaintiffs cannot take Uber to jury trial. 

Not thoroughly reading through the terms and conditions for every account you open, app you download, or website you visit is a clear example of rational ignorance. There are simply high marginal costs to reading the super long, complex, and obscure terms and conditions for minimal marginal benefit in return. However, I also agree with the general public backlash that it is outrageous for companies to take advantage of this rational ignorance.