The Cross Bronx Expressway, Externalities, and the Shaping of the Modern Bronx

In 1948, New York City Urban Planner Robert Moses began work on his Cross-Bronx Expressway,  a six-lane highway running East to West across the Bronx that was designed as a means of transportation into the city for commuters that lived in Long Island and New Jersey. The project was controversial at the time and continues to draw criticism today by those who argue that the highway favored a wealthy demographic that could afford cars over the neighborhoods of poor families in the Bronx that were left worse-off because of the externalities created by the expressway. New York City paid families $200 a room to vacate apartments that were in line with the expressway route. While the payment of those displace families ameliorated their displacement to some extent, speaking retrospectively this value does not seem to come near an allocatively efficient solution. First, it did not account for the families and businesses that remained near the expressway and saw their property value drop sharply as the noise from the expressway created a massive externality. Additionally, the wealthier families that previously lived near the highway moved South into Manhattan or were pushed North into Westchester County, leaving many buildings vacant in the South Bronx. The construction of the the Cross Bronx Expressway still has visible affects on the South Bronx, but they likely reached their peak in the 1970s, some building owners chose to burn down their properties to collect the insurance return, realizing that this was not more profitable than expending the resources to maintain largely vacant apartment buildings. The 1960s and 70s also saw the rise of gangs in the South Bronx, a result of the rise of poverty and lack of policing in the post-expressway Bronx. If the Cross Bronx Expressway had been constructed by a private company, there may have been a Coasian solution that came somewhere near an allocatively efficient outcome, perhaps paying neighborhood families enough to negate the externalities and keep them from moving out of the area. Instead, the Bronx was left largely poor and lacking the resources for revitalization.

President Jimmy Carter visiting the South Bronx in the late 70s

1950s construction of the Cross Bronx Exressway

Rent-seeking in Kentucky

In the Kentucky hair-braiding market, there wasn't quite an alliance between Baptists and bootleggers like Professor Elzinga observed in Albemarle Country years ago, but it was similar to the current liquor market in Texas. This ended over the summer, when Kentucky Governor Matt Bevin signed a bill exempting natural hair-braiders from burdensome occupational license regulations. The regulations in Kentucky restricted the entrance of new firms into the market by requiring all hair-braiders take 1,800 hours of irrelevant training to obtain a cosmetology license and legally open a business. This could cost up to $20,000. These regulations didn't serve any rational basis. The natural hair-braiders are primarily West African immigrants who learned this trade from their family members, and according to the Institute of Justice's report (and, presumably, common sense), the hair-braiding profession is perfectly safe. In other words, society's health, safety and morals weren't served by the regulations, but the pockets of some well-connected cosmetologists probably were. This explains why State Representative Hubert Collins -- "whose wife chairs the Kentucky Board of Hairdressers and Cosmetologists" -- attempted to introduce an amendment barring natural hair-braiders from working legally unless they jumped through all of the Board of Hairdressers' hoops. Similar to the five families in Texas using the force of law to keep out competitors in the liquor market, entrenched interests in Kentucky tried to lobby the state government to erect artificial barriers to entry in the cosmetology market. Fortunately their efforts were defeated, so now these people can make an honest living:

 

Free Rider Problem: French Quarter Edition

In February 2015, New Orleans citizen Sidney Torres privately started the French Quarter Task Force an off-duty police patrol in New Orleans, patrolling a four block radius with brightly painted Polaris vehicles (now Smart cars) in the heart of the French Quarter. He independently spent over $300,000 to get the project up and running for four months. Torres had subsequently hoped that businesses in the French Quarter that were benefitting significantly from the additional police force would contribute to his mission to make the French Quarter safer.

However, Torres encountered a version of the prisoner's dilemma we looked at in class on Tuesday. Because the businesses in the area had a dominant strategy to not contribute and would still benefit from Torres' independent efforts, Torres fell into the trap of the free rider problem and couldn't continue to operate the Task Force solely on his own. Thus, he found a role for government. In October, voters in New Orleans approved a quarter cent increase in the sales tax for the French Quarter that allowed the City of New Orleans to take over the Task Force both administratively and financially and it has been operating (mostly) successfully ever since. This is a classic example of the role for government in solving the free rider problem and providing public goods.

Repair or Resettle: Vote With Your Feet!

Recent flooding throughout Louisiana has raised a massive issue for local and central governments as well as residents effected by the natural disaster. Billions of dollars worth of home cleanup and repairs will be necessary to fully recover from the onslaught of water, but "more than 80% of damaged homes didn't carry flood coverage because they were outside the 100-year flood plain." The governor of Louisiana, John Bel Edwards, has approached the federal government and asked for $2 billion to fund recovery efforts. Because this flood exceeded the 100-year flood plain by massive proportions, local government spending and aid is simply not enough, and people are forced to make the decision to stay in their rotting houses and wait for aid, or leave in search of a new start away from their damaged communities.


According to Gov. Edwards, "the longer it takes to get federal money, more people will decide to leave their homes and communities." The coming weeks will reveal many people's preferences in a typical fashion described by Tiebout. Although many people moved to the areas outside of the flood plain in order to avoid dealing with frequent natural disasters ('voting with their feet' to be out of harm's way), they are now faced with another situation in which they must reveal their preferences over time and either stay and repair their damaged homes and communities, or leave and settle elsewhere for a new start. Additionally, they must consider the revenue-expenditure patterns of the areas in which they live in. If they are settled in one of the areas where FEMA has begun responding as well as where local government has already delegated funds for disaster responses, they are more likely to stay put and allow the government to help them. Whereas if they live in the massive area effected which has no infrastructure to deal with such a natural disaster, they may think twice about whether it is worth staying or leaving for a safer area to settle.

Revealed Preferences in New York Suburbs

Home owners who are looking for certain institutions: a busy downtown, good transportation options, good public schools, and an active community say that Westfield, New Jersey has great appeal to them. Especially to families looking to move out of New York City, there are many smaller towns to chose from while remaining within commuting distance. What sets Westfield apart from the rest of these towns is their local revenue expenditure pattern. Things like the community theatre and huge Westfield Memorial Library, as well as a Westfield sponsored 5k and annual Halloween parade, create the community feel that these families want. The public schools in Westfield have higher than state average test scores and the commute to New York City is only 40 minutes.

Those interviewed from this community demonstrate Tiebout’s model where local revenue expenditure patterns are given and consumers vote by moving. Tiebout would argue that with many services provided locally in this town, consumers are able to reveal their preferences by moving. The town’s popularity as a suburb of New York City would demonstrate the desirability of this local revenue expenditure pattern to consumers. In a region where the number of polities is very large and there is a lot of information about the different towns, consumers are able to reveal their preferences by choosing where they live.

The Road to Externalities

Several years back, many Charlottesville citizens grew increasingly worried or excited over the prospect of a new Western Bypass.  Those in favor saw a positive externality: this road would make travel easier for many people.  However, those opposed- particularly those living close to the possible site of the road- viewed the negative externalities: the road would lower their home values and increase the noise level, disrupting their daily lives.

After taking economics classes, my views on this project have shifted.  Looking at roads in general, if a proposed road were built by a private company, which Friedman suggests is an option if the road were excludable, then the residents around the road could work out a Coasian solution.  Depending on the property rights, the road builder could either pay the residents for the right to build the road near them and cause them discomfort, or the residents could pay the builders to reduce the size of the road or simply not build it.  Under Coase's assumptions, either way would lead to the same outcome. However, in a real world situation such as this, there are not two clear sides.  Instead, some citizens will support the road, and some will not, while other free riders will remain uninvolved and hope that their side wins. Therefore, the transaction costs would be extremely high.

In the case of the Western Bypass, the government ultimately decided the fate of the road.  Although the government's decision is almost certainly not allocatively efficient, nor is it proportionately representative, it provides a solution to the confusion and chaos caused by the real world negotiations a private market Coasian solution would cause.

The Importance of Local and State Power

        For the town of Breckenridge CO state law says it is legal to possess and sell marijuana recreationally according to Amendment 64 passed in November 2012, while Federal law bans its use in all states. On January 1^st, 2014, Breckenridge Cannabis Club (BCC) started selling marijuana for recreational use on Main Street and reaped lucrative profits. After a year of town council votes and deliberation, local residents overwhelmingly voted to keep dispensaries off of the Main Street and forced BCC to move.

         This situation in Breckenridge, CO resembles what Tiebout thinks the role of government should be. Rather than having federal restrictions apply to all people – people with heterogeneous preferences – local laws and regulations allow people to move to the locality that best fits their needs and wants. One important factor that is not included in Tiebout’s model but at work in Breckenridge is the ability for the government to “adapt to the preferences of consumer voters”. For Breckenridge, the town government was able to adapt to the preferences of the people in a way that could never happen at a federal level. Because of heterogeneous preferences, local governments function best because people “vote with their feet” and exert influence on their local government to better meet their preferences. 

Public Schools & Home Prices

Do school districts affect home prices? True to Tiebout's model, many economists have found that home buyers are often willing to pay a premium to live in districts with the "right" schools. High quality public schools may signal everything home buyers want for their children: safe learning environments, positive peer effects, fewer delinquents, etc.

What if a locality's revenue-expenditure patterns perfectly satisfy a home buyer's preferences in everything but public education? Private suppliers would meet unmet demand, and home buyers that value high quality education would send their child to a private school.

However, if school districts do affect home prices, the consumer of the public good is not the customer. This means there is no way for the citizen-voter (parent-customer) to have full information on the quality of the public good - only the child-consumer does after having attended the school. (Of course, this is addressed in the model's assumptions.) This also means that consumer preferences may not be taken into account when the customer-parent is voting with their feet. (Though Friedman would probably say that the child-consumer is not yet a responsible individual so paternalism is necessary).

Regardless, this typical Tiebout model application tells us a lot about the benefits of locally-provided public goods. Oh the choices!

Trouble Brewing

Them city folks up in Alexandria have got a real Coasian quandary on their hands.  In the community of Del Ray, a man named Gaver Nichols is building a big garage two feet from the home of his next-door neighbors (the Linehans), blocking the view from their kitchen window.  As you can see from the picture below, Mr. Nichols seems to have other locations for the garage on his property but he is diggin in his heals and puttin it right next to the neighbor's house! Peaches and gravy!

Maybe this is the allocatively efficient quantity of garage but them durn Linehans ain't happy.  What would Ronald do?  Well, old Gus think this is a clear cut example of a negative externality.  It is complicated because there is a dispute about the property rights. Mr. Nichols got a permit to build the garage (which seems clear to old Gus), but them durn Linehans are challenging that.  Once they get that sorted out, they will also need to somehow overcome the very significant transactions costs that accompany the big pot of pure hate that is brewing.

In the end, if they work out the property rights and somehow reduce the transactions costs, the garage will be built in that spot only if Mr. Nichols values that garage in that spot more than the Nichols enjoy the old view from their kitchen window.  Porckchops and turnips, this is not going to be easy!

AirBnB and Externalities in New Orleans

     In the past couple of weeks, the city of New Orleans has continued the debate over the benefits and problems of short term rental services such as AirBnB. In fact, on August 9th, the New Orleans City Planning Commission voted to recommend the outlawing, officially, of whole home rentals. Whole home, or whole apartment, rentals were illegal before this vote, but it allowed city officials to make clear delineations in the laws concerning short-term rentals. Now, whole home rentals are recommended to be legal if the entire home or apartment is rented for 30 days or less out of the year and one-room rentals are recommended to be legal full time, as long as there is a limited number of one-room rental per block. The city officials hope this will be a compromise that everyone involved in the situation can live with and that will benefit the city financially, enabling them to track and fine AirBnb and other short term rentals not in compliance in New Orleans.
     A classic example of a negative externality is a sewage plant located near a neighborhood or plot of land that reduces the value of that plot of land or land in the neighborhood due to its location near the sewage plant (most likely cause: the smell). AirBnb and other short term rental companies in New Orleans have had an opposite effect for landowners. In neighborhoods where AirBnbs have become quite popular, including the Marigny and Bywater districts in particular, land values have increased significantly. This is a positive externality of neighbors using AirBnB for the land owners currently living in those neighborhoods.
     However, this has been a significant problem for the full time renters in the area, thus the spirited debates that have been taking place during open meetings of the New Orleans City Council and Planning Commission over the course of the recent rise of short term rentals.  Long term renters in the areas have seen their rent increase significantly as the land values have increased significantly, which is resulting in difficulties for the renting residents of these neighborhoods. In addition, long term renters and residents of the areas have been complaining about the lack of maintenance of short term rentals leading to a more negative living experience in neighborhoods with large numbers of short term rentals. While a Coasian solution would involve a case by case deliberation consisting of those individuals affected by each short term rental, the New Orleans Planning Commission has taken matters into their own hands and hope that their solution will balance the negative externalities experienced by the long term renters and residents and the positive externalities to landowners, groups which can and do overlap with each other, to create what they believe to be the best solution for their constituents and the city coffers.

The FISA court, and the Bureaucratic View

One place where we might still prefer the Traditional view of bureaucracy is the FISA court. These courts operate completely in secret, with only the intelligence community having any real access. This court oversees all federal wiretaps. The reasons that judges have enough slack such that, even in an era where voters (and therefore congressmen) are wary of surveillance, are several. First of all, already sitting federal judges are appointed to the court to serve short terms that are non-renewable, so the judge will never have to justify past action to their subcommittees, and have no incentive to reform (they'll never be up for this job again). Second of all, the cases are not public, so oversight is virtually impossible. The only way to measure the court's output is in the number of wiretaps granted, but since organizations can withdraw beforehand, and modify their requests to be more legal, judges can reasonably argue that the wiretaps were acceptable, and we have no reason not to accept what they say. A good avenue for reform would be the appointment of specific judges to serve just on this court, who can have their terms renewed. With this, there would be incentives for justices to act with more transparency.

Shaking up the FCC

With Republicans taking over congress and the senate new changes are expected, including how the FCC believes that it should act. Switching from Democrat to Republican power in the committee that watch over the FCC Commissioner O'rielly is already planning ahead to how to appease these new overseers, before they have even taken power. He has talked about focusing more on market place competitiveness and changes in stricter oversight. He gathers these views from the past , when in 1996  a republican congress passed the Telecom Act.

This will be an interesting issue to watch progress. It seems that by expecting "tougher scrutiny" and greater reviews of their workings, the republican congress will take more of a congressional control oversight of the FCC than it did with the democratic congress which used a more "deference" way of controlling the FCC. The deference method is tied closely with the bureaucratic discretion because is a way of respecting the committees goals without being directly told what to do. From the start it seems like the congressional control is already working better as before the republicans have even come into their positions of power, the FCC is trying to figure out what they want and how to implement them. However, because they are mobilizing so soon expecting the congressional control method, it doesn't mean that that's the better alternative. It could be because the democrats did not bring the hammer down hard enough to keep them inline, even when they were split on the net neutrality issue. Meanwhile with the new republican congress they are already expecting more oversight on their hearings and closer examination of their efforts, leading them to rewrite  everything that they have on the table. Overall it will be interesting to see if this scared tactic works out to bring the agency and the committee into the better alignment that it seems to be moving toward.

Ambassadorial Nominations and the Weingast Theories

Obama’s ambassadorial nominees to Hungary and Argentina will likely be voted on after Thanksgiving.  The vote for these two nominees has been delayed because both performed poorly during their Senate confirmation hearings.  These delays, as Weingast and Moran/Marshal emphasize, are not typical Congressional behavior when dealing with presidential nominees.  Rather, as Weingast and Moran argue, the president wants to appoint people who are likely to be confirmed.  Thus, the President sends his nominees to Congress prior to their nomination in order to gauge Congress’s reaction.  Weingast and Marshall’s interpretation of “perfunctory confirmations” is different because they posit that nominees are typically confirmed in a rubber stamp fashion. 

          

The nominees are clearly not being approved in a rubber stamp fashion since their confirmations were delayed.  Further, since the nominees are having issues in the formal hearing portion of the confirmation process, it appears that they passed the pre-nomination informal meetings with Congressmen.  This means that Obama likely expected the two nominees to be confirmed when he nominated them.  The situation does not clearly fit within either of the Weingast theories since both assume “perfunctory confirmation.”  It is possible that this case is simply an outlier and serves as a counterexample to the theories put forth by Weingast and Moran/Marshall. 

Weingast and Moran – The Narrative Continues

The IRS, a prominent bureaucracy, has been notoriously featured over the past few years because of its recent alleged practice of unjustly targeting conservative groups. This article by the Associated Press covers updates about the House Oversight and Government Committee investigating the IRS. Recently, the Republican-dominated committee retrieved thousands of emails to advance their investigation, perhaps leading to the prosecution of leading bureaucrats in the IRS for allowing and maybe even leading the targeting. A few years ago when presumably many of the conservative groups were targeted, the 111^th Congress (from January 1, 2009 to January 1, 2011) was in session, and the Democrats held the majority in the House Oversight and Government Committee. This scenario parallels Weingast and Moran’s example about the FTC in the 1970s, in which they argue for the congressional dominance approach. In this case, though, the congressmen on the House Oversight and Government Committee possessed “sufficient rewards and sanctions to create an incentive system” to influence the IRS. When the Democrats controlled the committee, the IRS assumed more power and harnessed it against conservatives. However when the Republicans took control, they favored a less powerful IRS and soon discovered the corrupt practices of unfair targeting of specific political groups. Just as scandal erupted in the 1970s after the FTC had overstepped its authority and new congressmen favoring a less activist FTC took control of the Senate Commerce Committee, scandal erupted at the IRS after Republicans took control of the House Oversight and Government Committee in the 112^th and 113^th Congresses.