Industry Plants are Rent Seekers

Industry plants are artists who pretend to have a natural success story but were promoted by industry insiders. This is seen in people such as Lil Nas X (who admitted on twitter to being a plant) who are instantly popular with no explanation. While sometimes just a conspiracy theory or insult, evidence shows many artists are “plants”. I was thinking about this the other day and realized how industry plants are a slight variation on the classic rent seeking model.

When I refer to the music industry, I refer to the 3 major record label companies who control of 80% of the market: Sony BMG, Universal Music Group, and Warner Music Group. With music streaming and advertising, large record labels can easily promote music and garner listens. Without a big label deal, it is almost impossible to overcome this congested market. Thus, a record label deal is equivalent to a tariff or license that gives an artist monopoly power. An obvious example is the artist Billie Eilish. Eilish was offered a deal with Interscope Records (owned by Universal Music Group) when she was very young and her very first song went Platinum. She was promoted by the record company, giving her essentially complete control over her target demographic. Her deal cost her money, but without it she would not have had anywhere near that level of popularity.

With so much competition, new artists sign deals that highly favor the record label: a cost of obtaining monopoly access to the market. To get a deal, artists are constantly . Plants hurt the industry because they crowd out competition and stifle more talented artists. Resources would be better allocated to allow multiple and more talented artists produce their music. A possible solution is regulation requiring record labels to explicitly state when they are paying for advertisements, similar to how political campaigns are regulated. This would make the industry more transparent and encourage independent artists (given the stigmatism around plants). However, for the near future it seems like industry plants and rent seeking is here to stay.

The blue section from 0 to Q_M and from P_E to P_M  represents the total profit that would be gained from monopoly control on a sector of the music market. This isn’t exactly the same as the traditional model because of the nature of the music industry. There isn’t a clear increase in prices, but the important thing is that there is less competition, so revenue and profit are increased. Additionally, it’s not a complete monopoly, but given the vast difference in popularity and revenue, it has many of the same characteristics. The light orange superimposed on top is an estimate of the cost of rent seeking which takes away from that profit. Included in that cost are the excessive royalties paid to the record company in order to receive a record deal in the first place. The yellow triangle represents the deadweight loss that is caused by the resources that are inefficiently allocated towards less talented artists.

Believing in a Religion...Can be Explained by Economics!?

Full disclosure: I am a total nerd that loves the liberal arts. Prepare yourself.

The other day, I was thinking about whether or not being religious is rational, and I thought of Pascal's Wager. Pascal's Wager is an argument for why believing in God is rational. Consider this: we don't actually know if there is a God out there, but we will find out when we die. When we die, and there is not a God, we would only bear a finite benefit or cost, depending on whether we spent our lives believing in God. On the other hand, if there is a God, the costs and benefits are much higher. If there is a God, and we believed that it was so, we have infinite benefit (Heaven); if we didn't believe in God, we have an infinite cost (Hell). The decision, then, to believe or not to believe in God, can be modeled by this decision matrix (adapted from Wikipedia):

	God Exists	God does not Exist
Belief	∞ benefit	finite cost
Disbelief	∞ cost	finite benefit

Pascal's Wager is similar to our discussion of the minimax regret voter theory. Here, instead of the choice of whether or not to vote, we have the choice of whether or not to believe. The biggest regret on this table is the infinite cost associated with disbelief when God exists. However, we have no idea whether or not God exists. Therefore, since disbelief can lead to the highest cost on this table, we should avoid it, Pascal argues, by instead believing. The similarities to the minimax regret voting theory are uncanny: we make choices with the purpose of avoiding the biggest regret instead of pursuing the highest benefit. In this case, making the decision to believe may also bestow the biggest benefit on this table, but since we don't know, it is best to avoid the biggest cost (or, regret). One major difference between believing in God and voting in this model is the probability associated with decision-making. The probability of casting a decisive vote is minimal (we used the number 1 in 10,000,000 in class), whereas here the probability of the existence of God 50%. The possibility of incurring the infinite cost is therefore much more likely than casting a decisive vote. Thus, it makes sense why people act to avoid this infinite cost. The minimax regret theory of voting can be extended to religion, and it can explain why some people practice religion. 

Disclaimer: This model is extremely simplified. It has many criticisms and makes some bold claims. I am not telling you to believe or not to believe in a certain religion. It is a thought experiment that I found very interesting and that is related to our course of study in Public Choice. 

Restaurant Prisoner's Dilemma

I work at a restaurant, and recently, we’ve been having an issue with an unequal distribution of cleaning tasks, especially during the night shifts. The night shifts start at either 4pm or 5pm, and if you start first, you get to leave first. This resulted in an issue where people would arrive at least 20 minutes early for their shift in a race to be the first one "cut" from work. Not only is this inefficient, but hosts get paid hourly, so by arriving early, clocking in, and just sitting around, you’re wasting the restaurant’s money. Further, the nightly cleaning tasks are disproportionately left with the few employees who are cut last. The sheer amount of cleaning work cannot be done by one or two employees, so the restaurant usually is left with tasks unfinished, resulting in more cleaning for the people who work the next day. 

This results in a prisoner’s dilemma where it’s in an employees own personal interest to be cut early and not have to clean up at all. The pareto inefficient dominant strategy results in a dirty restaurant and employees racing to clock in before their co-workers. To get to the pareto efficient outcome, our managers decided to implement a structured protocol regarding cuts and cleaning duties. This informal "contract" between the managers and employees is laminated and is visible to all employees. Now, prior to your shift, you will know whether you're first, second, or third cut so there is no need to race to clock in early to prove that you were there first. Each cut has certain duties assigned such as cleaning the food and server stations, sweeping, taking out the trash, or vacuuming the booths. In order to be cut, you have to demonstrate that you have completed all the tasks required of your “cut order.” For example, if I was second cut, I would have to go to third cut and show them that I have completed all my tasks, so that they are not stuck with the tasks I didn’t complete at the end of the night. Once they approve that I’ve completed all my tasks, I’m allowed to leave. This pareto efficient outcome results in a socially efficient allocation of duties, since we no longer have to worry about arriving to our shifts early and our restaurant is super clean after every night shift. Our managers were aware that we were all just maximizing our own dominant strategy, resulting in a pareto inefficient outcome. Since they implemented this "contract," we have moved to a pareto efficient equilibrium and a more efficient restaurant. The Prisoner's Dilemma below represents a situation with two employees. 

My Confession: I've Been Rent Seeking

No, I don't have a side hustle as a lobbyist in DC (that would be great though). Rather, I have been seeking rent from my favorite establishment on the Corner: The Virginian. To make a long story short, Virg runs a weekly competition to become part of their "elite" group. As part of Virg Elite, members receive benefits through drink deals all day long, free merchandise, and trips to local breweries. To become elite, you must first be nominated on Sunday then compete against your fellow nominees to earn the most points by the end of the week. Points are earned by expending your social capital on Instagram posts, ordering certain drinks, and having your name written on as many checks as possible. To be blunt, you need to spend a ton of money.  It is truly a recipe for disaster when it comes to your bank account. 

Three weeks ago, I had the distinct honor to be nominated for Virg Elite. Unfortunately, my nomination lasted for two weeks because of fall break. And let me tell ya, I sought after some rent. With the help of some good friends, I was lucky enough to be the leader in the clubhouse after the two weeks. My status as Virg Elite was solidified. The total funds spent to first be considered for nomination, combined with the money spent during my nomination weeks, far outweighs the benefits I have received thus far. You could call it a deadweight loss for me at the moment. I am confident throughout the rest of the year that I will come out on the plus side, but I can't say it looks great right now. 

I will acknowledge that my money is not necessarily spent for unproductive reasons. It is a voluntary transaction with the restaurant, which Virg can use for productive purposes. I certainly derived utility from my purchases and reflected my preferences in the process. It isn't really a misallocation of resources either; I likely would have spent most of the money regardless. Finally, Virg isn't the government. In this case, however, they have the power and they wanted some expenditures before they dished it out. I gladly (reluctantly?) obliged. 

Present Prisoner's Dilemma

My roommate Mia and I are both aggressively polite people. Mia is so kind that she accidentally locked herself out of the dorm room and chose to sleep on the floor instead of waking me up. Twice. However, we are not particularly good gift givers. Some economists argue that all gift-giving is inefficient, and I’m convinced I have never delivered a present that could be worth more to her than a transfer of equivalent cash. Still, because we are polite, we’ve forced each other into a prisoner’s dilemma for the past three years. If Mia buys a gift, it is my dominant strategy to buy a gift to avoid the guilt and social cost of being a bad roommate, which gives me 2 more units of utility. However, if Mia does not buy me a gift, it is still my dominant strategy to buy a gift and finally get a win in this terrible war of kindness we are waging. I receive 6 more utils by choosing this option, because she is always more thoughtful than me and quite frankly I am tired of it. Similarly, if I do not buy a gift, Mia is incentivized by a net increase of 5 utils to buy, and if I do buy a gift, she is incentivized by a net gain of 2 to still buy a present. In this way, we are pulled to an equilibrium strategy of both buying a gift, when a Pareto improvement for both of us would be if we did not buy a gift.

We have a mutual friend Kim, who is a perfect candidate for being a governing body. The three of us usually celebrate birthdays together, and if Kim said that she didn’t want to give presents one year, we would probably all breathe a sigh of relief. Unfortunately, Kim will do no such thing, and her last gift just enabled our habits. We could also create a constitution, and promise to use our time for better pursuits. However, after Mia found my sketch of the prisoner’s dilemma on the table and made me explain all of this to her, she just laughed. Unfortunately, it seems like we’ll just have to live in Pareto inefficiency as long as we live together.

Prisoner's Dilemma Driving at Night

While I enjoy the fall and pumpkin spice related items, the earlier sunset made my drive home from the store a little darker than usual. Being a rational actor, I turned on my headlights but was somewhat disappointed by how little they lit up the road. Knowing the high-beam function provides almost daylight-like lighting, I also turned this on. However, when coming across other cars I habitually turned the high-beams off. Thinking back to the tests for both learner's permit and full license, as well as the driver's ed course I took, I don't recall ever hearing any laws about high beams. While I remember my parents telling me to only turn them on when the road ahead is empty, I always thought it was just a courtesy. Thinking more about this, I realized the situation is a typical prisoner's dilemma. Leaving high-beams on improves the visibility of the road to the driver with them on, while negatively impacting other drivers. In the payoff matrix below, the numbers represent visibility as drivers pass one another on a road at night. Let's say 100% is daytime or full visibility. Using high-beams gets a driver close to full visibility (90%) if the other driver is using standard headlights while causing the other driver to hardly see anything (30% visibility). The best position for all drivers to be in is the bottom right, but both drivers could potentially increase their visibility by turning on their high-beams if the other driver doesn't. If both act out of self-interest, they will end up in the top left at 40% visibility, a dangerous position when driving at high speeds.

	Use high-beams	Use standard headlights
Use high-beams	40\40	90\30
Use standard headlights	30\90	80\80

Because of this, a law requiring high beams to be turned off when around other cars would perfectly fit what we learned in class, forcing the two drivers in this game to the bottom right. After some research, I was able to find that all states in the US do have high-beam laws that intend to keep drivers in the bottom right quadrant.

Ranked Choice Voting: Did it Matter in Maine?

Recently, Maine adopted Ranked-Choice Voting (RCV) by ballot measure. With this voting method, voters rank their favorite candidate #1, their second choice #2, and so on as long as they please. If no candidate receives an outright majority, the candidate with the fewest first place votes is eliminated, and the next highest choice of voters who picked that candidate first are applied. This continues until someone acquires a majority. Though our reading in Mueller did not refer to RCV by name, this aligns with the Hare method. Mueller even acknowledged that though the original method called for multiple rounds of voting, one ballot where voters rank all of their candidates is a more realistic way to use this system in practice.
Maine switched to RCV after our unpopular governor won both of his terms with pluralities and not majorities. The intended goal was to encourage voters to engage with candidates outside of the two major parties without causing the "spoiler effect" that occurs when votes for third party candidates allow someone else to win without majority approval. In public choice terms, we wanted a Condorcet winner.
We can see the effects of RCV in the 2018 District 2 House Election between incumbent Bruce Poliquin, Democratic challenger Jared Golden, and two independents. As shown by the NYT table below, Golden was eventually able to receive a 50.5% majority once the two independent candidates were eliminated. He was the RCV winner, but Bruce would have been the plurality winner (with 46.3 % of the first round votes to Golden's 45.6%. Poliquin then condemned RCV, completely because he cares about the constitutional rights of voters and not because he is a sore loser. Soon, a federal judge struck down his suit, and Golden became the first federal lawmaker elected by RCV. It should be interesting to see how RCV plays out in elections where there are more than two high-polling contenders (like potentially the presidential primaries in March). Even so, our first major election with RCV showed that changing the voting method can drastically alter the outcome.

Should UVA Really Have Instituted the New Curriculum?

On October 18th, 2019, the political process failed UVA. It was on this date that the faculty at UVA voted 260-253 (I think those were the numbers Professor Coppock told us; can't find the actual vote count) to make it mandatory for all incoming students in the College of Arts and Science to enroll in the New Curriculum; only a simply majority was needed for this measure to pass. For anyone unaware, the requirements of the New Curriculum include four 2 credit classes called engagements, 6 credits in Rhetoric for the 21st Century (think first and second writing requirement), 6 credits in Quantification, Computation and Data Analysis, the regular foreign language requirement, and 3 credits in 7 different disciplines: Artistic, Interpretive, and Philosophical Inquiry, The Chemical, Mathematical, and Physical Universe, Cultures and Societies of the World, Historical Perspectives, Living Systems, Social and Economic Systems, and Science and Society.

This post is not my opinion on the New Curriculum, but the facts on why this decision should not have passed. Currently, there are 1,900 students enrolled in the New Curriculum. UVA's College of Arts and Sciences has about 12,000 undergraduates but only 6,000 who had the choice to choose the New Curriculum. That means that 68% of students who could have chosen to enroll didn't. Many students choose not to enroll because for them, the marginal cost exceeded the marginal benefit. By requiring all students to enroll, there is a high external cost. When comparing external costs and decision making costs, it is obvious that more than a simple majority should have been required. Congratulations UVA, we now have an inefficient allocation of resources!

Trash Economics

A recurring theme in this class’s blog posts is roommate issues solved with public choice inspired solutions. It seems that rationally acting young adults with defined preferences living with peers for the first time in their lives creates occasional conflicts of interest. One of my significant experiences with this occurred a year ago, when my roommates and I were deciding on the color for a new large kitchen trash can. Once we began articulating our preferences for trash can color, a problem became clear; while a couple of us preferred the color Mocha to the alternatives (Stone, Brown, White, and Black), Mocha was strongly opposed by a roommate initialed AW, who hated the color. It became clear that Mocha would win a majority of the votes, despite AW’s strong negative sentiment towards the color. Our solution was to rank the colors and assign points to each color based on how it finished in everyone’s rankings. Each color would receive four points for a first place vote, three points for a second place vote, and so on. We didn’t realize it at the time, but this technique is known as the Borda Count method. The rankings were as follows:

vs

Despite Mocha winning a majority and being the Condorcet Winner, Stone surprisingly won using the Borda Count method, with 16 points to Mocha’s 15 points. To this day, we have a Stone trash can in our kitchen. Essentially, the decision to use Borda count instead of simple majority came down to the philosophy of what we wanted in the winning trash can color. With the Borda Count method, we chose Stone, a trash can color that was consistently liked and not as loved or hated as Mocha. Considering our intended role for the trash can, this method was appropriate. If we were deciding on something planned to be more attention grabbing, like a wall poster, a more polarizing choice might have been more fun and memorable. Instead, we wanted the trash can to pleasantly blend in to the kitchen and avoid attention. The Borda Method was successful at picking a less controversial and more consistently rated trash can color by accounting for votes below first place. With that problem solved, we just need a public choice solution to assign roommates to clean the kitchen and we’re all set.

UVA Sports: Logrolling for Attendance

This morning, one of our coaches sent an email stating that our team is required to attend the volleyball game this upcoming Sunday, October 20th. In return of the wrestling teams attendance at the volleyball game, the volleyball team will attend our home matches. At first, I was a little upset because the volleyball game is at 1 pm (right when NFL games start for the day) and I love lounging on my couch, watching NFL Redzone on Sundays. With my attendance of the volleyball game, I will not be able to take part in my regular Sunday routine, which will bring down my overall utility levels.

Now I am currently sitting at Shenandoah Joes with my good friend Jack and he just brought up how he wants to do a blog post about bagels or something, but that is when it hit me. Our coaches and the volleyball coaches have decided to enter into a logrolling agreement for attendance. While I can hope that both coaching staffs calculated the social marginal costs and social marginal benefits before making the trade, they probably did not. So I will do it on my own:

	Volleyball	Wrestling	Social Net Benefit
Wrestling team attends volleyball game	10	-2	8
Volleyball team attends wrestling match	-2	10	8

As you can see, the Social Net Benefit is well above the costs of attending each others matches, making both of these UVA sports teams better off than if there was no logrolling. Go hoos.

The Minimax Regret of Bodos vs. Cutting Weight

Now that November is right around the corner, I am going to have to start cutting weight soon. With cutting weight I eat the same thing every day and only eat these things: waffle in the morning, a wheat sandwich with ham and cheese for lunch, and chicken and broccoli for dinner. However, every time I pass Bodos whether I am walking or driving, I feel my stomach start to rumble at the smell of an everything bagel. I stop, take in the smell, and make the decision of whether or not I get a loaded bagel. In order to make this decision I use the minimax regret model.

The marginal cost of eating this bagel would be that I would have to run for about 30 minutes to burn it all off and have the possibility of not making my weight. On the other hand the marginal benefit from an everything bagel with sausage, egg, provolone cheese, and avocado, is very high with the joy that my taste buds would get from it.

The regret would come from not eating the bagel and still making weight, missing out on all of the joy that the bagel brings. However, the marginal cost of missing weight and my coach possibly killing me deters me from eating the bagel almost every time.

Ranked Voting in Medieval England

In Monty Python and the Holy Grail, King Arthur ventures out into the far reaches of 10^th century England to find knights for his Round Table when he stumbles upon an “anarcho-syndicalist commune” created to redistribute power to the working classes and create economic equality within their domain. He specifically encounters some very forward-thinking Middle-Age peasants, Dennis and his mother, who explain to a confused Arthur the problems of the economic and social state preserved within Medieval England.

This commune doesn’t have a lord. Instead of having a one leader living in a castle, this group of Britons takes turns as executive officer each week, and every decision has to be ratified by all the people through means of a simple majority in some cases and a two-thirds majority in more complex situations.

Is this the best way the commune can vote though? Are simple majority and two-thirds majority the best voting methods for the commune?

Whoever sets up a vote at the biweekly meeting can influence the outcome. The executive office chosen at random, which isn’t the smartest way to choose a leader, can influence policy simply by asking the right questions in the right order. Considering the voting systems described by Dennis, a simple majority and a two-thirds majority, a Condorcet winner may not be chosen frequently.

How can this commune improve their outcome?

Changing the voting system to a Borda count, or at the least a ranked vote of some kind, could offer a Condorcet winner with much higher frequency. While modern day Americans might have less incentive to put in the effort required for a ranked vote due to the unlikelihood of affecting election outcomes, each individual within the commune has a much higher chance of being a decisive voter; the population of England during the 10^th century is estimated to be roughly two million people, and the commune only represents a small portion of the nation’s population. The number of people in the commune is relatively small. Because each individual’s vote counts more and the commune is seeking to bring about well-thought social and economic change, the commune should consider changing their voting system to a Borda count for improved efficiency.