Are Supermarkets a public good?

Currently and unfortunately a common word that the media uses to describe Venezuela is “chaos”. Even though it is my beloved home country, I agree the root of such chaos is heavily due to severe market failures that continue to go unnoticed. There is a lack of medicine, food and toilet paper; you name it and Venezuela does not have it…. or does it? It has come to my family’s attention that even though the majority of the population is lacking means to purchase necessary supplies at regular supermarkets, there are government sponsored supermarkets that have products but are only open to Carnet de la Patria or the Homeland Card (HC) holders. For this reason, I ask myself and my peers, “Are supermarkets a public good?”

A single trip to the supermarket in Venezuela means spending 50-70% of minimum wage… this is monthly minimum wage that was actually increased 5X in August 2018 and it is still not enough. I would think that supermarkets in general are an example of a semi-public good, meaning they are non-rival and non-excludable. Similar to a highway which is open to all cars in spite of traffic, it is quite rare that a supermarket will keep out customers, thus it is non-excludable. Supermarkets are semi-non rival given that they stock large amounts of a single product where it is likely for two individuals to purchase same products. In Venezuela however, the public good trait of supermarkets is being challenged, where supermarkets with accessible foods are becoming excludable and semi rival.    

Now days in order to be part of the lucky individuals that can obtain food at reasonable prices, you MUST get the HC. This unique card grants you access to special “Clap Bags” in government supermarkets that contain everyday products at almost one tenth of regular priced items. These are only limited to those who have the HC and they tend to run out pretty fast. Having the HC not only means this privilege, but you are also automatically registered to vote for the United Socialist Party of Venezuela. So basically if you are a person living in Venezuela and want food at accessible prices, you need the magic HC. I thought that supermarkets were public goods, but now I have realized that the Venezuelan government has strategically linked politics with the need to eat, making them semi-rival and excludable.

A Prisoner's Dilemma in the 5th District

On Friday, I attended the Batten school debate between 5th district congressional candidates Leslie Cockburn and Denver Riggleman. While they discussed a wide range of issues, one issue in particular stood out to me as a prisoner’s dilemma: the deficit. Riggleman accused Cockburn’s proposed healthcare policy (adding Medicare to the healthcare exchange) of greatly increasing the deficit. Throughout the debate, Cockburn brought up the 2017 Republican tax bill that is expected to add more than $1 trillion to the deficit over the next decade, as well as high military spending in the Republican budget. Let’s say that Democrats in Congress are Party A and Republicans in Congress are Party B. Each party wants to benefit electorally from decreasing the deficit. Party A could try to resolve the deficit issue on its own, gaining votes for Party A and costing votes for Party B. Party B could also try to resolve the deficit issue on its own, gaining votes for Party B and costing votes for Party A. Both parties could cooperate to decrease or at least maintain the deficit, resulting in some electoral gains, but fewer gains for each party than Party A or Party B trying to resolve it on its own. Finally, both parties could defect from cooperation, acting independently and potentially harming the economy from a government shutdown, for example. While each party would benefit most from decreasing the deficit on its own, both parties continue to act cooperatively to maintain a high deficit, preventing effective action. Given the resolution of this prisoner's dilemma, the Democratic and Republican parties continue to propose and enact policies that increase the deficit.

The UVA Housing Dilemma

          As most first year students can attest, the off-grounds housing situation at the University of Virginia is extremely stressful. Within the first month of school, there is already a frenzy surrounding the housing situation for the following year. As a first year, this is most likely well before you have even met the people you will truly be friends with the next year. Making a decision about your life 12 months in advanced is a daunting task for anyone. Year after year students complain. So why hasn’t the situation changed?

It may be due to the fact that this situation contains the defining characteristic of a Prisoner’s Dilemma. All student’s in the UVA community have a dominant-strategy to sign their lease earlier than all of the rest, to make sure they secure their optimal apartment complex, while everyone would be better off if we pushed the “frenzy” back to spring semester. As most leases commence in July, signing in the spring is still early. Singing in the spring would give student’s more time to figure out their friend and financial situation, give them more opportunities to research apartment complexes before signing a lease, and have a smoother adjustment for their first semester of the school year. However, if only a few students decide to wait for spring semester to come around, they will have significantly less choices and will be much worse off than if they had just decided to sign in October. If everyone waits until spring semester except for one student, that student has all options available to them and no competition for apartment complexes, they are also much better off signing in October.  

 For this example, we are going to assume that the prices of the apartments are constant throughout the year, that the benefits of signing later apply to all students equally, and that only UVA students are participating in this apartment renting situation. In the situation given, the matrix below represents the dilemma along with numbers representing utility (Student A/Other UVA Students). Student A’s optimal choice is to rent in October regardless of what the other UVA Student’s choose. The same is true for Other UVA Students. In this situation, all players signing in October is the dominant-strategy equilibrium, but it is also a Pareto inefficient equilibrium. At least one, in fact all other participants can be made better off without making another player worse off.

Student A --> Other UVA Students	Wait until 2nd Semester	Sign Lease in October
Wait until 2nd Semester	(10, 10)	(12, 3)
Sign Lease in October	(3, 12)	(7, 7)

 Perhaps we should all decide to hire a thug to break the leg of every student who tries to rent an apartment before the spring semester in order to push us away from this Pareto inefficient equilibrium.