Covid-19: The 2020 Election's Voter Subsidy.

    We are all familiar with the with the formula that ultimately decides whether or not a citizen exercises their Civic Duty and votes: P*B+D-C. This formula holds that if P*B+D > C, the rational voter will cast a vote in the election. 

    The 2020 Michigan turnout for the presidential election proves that the effects of and methods used to mitigate the risks of voting during the 2020 election greatly decreased the cost of voting, causing the highest voter turnout in decades. This election was just as controversial as the 2016 election in regards to the candidates selected, yet Michigan had a 14% increase in voter participation in 2020 when compared the 2016 election. 

    This is a direct result of Covid-19. People were stuck at home, out of work, or with a much more flexible schedule thanks to new work at home methods. These effects of the Covid-19 pandemic greatly decreased the cost of voting. This is best seen in the widespread use of absentee voting, where a ballot is dropped off at ones home and sent off to the polls from their mailbox. Fifty Seven percent of votes casted in the 2020 election in Michigan were from absentee ballots, a time and cost effective way to exercise one's political voice. 

    Covid-19 did the impossible and made voting more affordable. If we can learn anything from the Pandemic and Michigan's story, it is that allowing easier voting access significantly increases voter participation. This is a fact that should not be ignored by politicians devoting their life to increase civic participation!

Tiebout and the current Congress

With the new $1-3.5 trillion infrastructure bill being debated in congress, I thought back to Tiebout’s theory of local expenditures, as well as the political science theory of devolution, which similarly to Tiebout theorizes that governments make better decisions, both with expenditure and legislation, the more proximal they are to the people they affect. This theory would suggest moving government power from the Federal government to states, and from states to localities.

Knowing the tendencies of the current Congress and the Biden administration, it would be reasonable to conclude that localizing expenditure is not one of their priorities, but I would like to contrast the infrastructure bill with another bill that was passed into law in may that does focus on local expenditures.

This bill grants $315 Billion to states and localities in order for them to help remedy their communities’ issues coming out of the COVID pandemic and recession. I believe that Congress and the Biden administration were forced to realize the merits of Tiebout and Devolution in this issue, as the vast different localities all across our country need to spend money in different ways in order to for Federal assistance to succeed in its goal of repairing localities and local economies.

The last point I would like to make is to contrast the amounts that Congress and the President allocated to localized relief vs a federally administered infrastructure package which all proponents will be pointing to on the campaign trail to get themselves re-elected. Setting aside the issues at hand in each of these bills, I conclude that our current politicians only care a fraction as much about Tiebout’s useful theory as they do about being able to take credit for solving problems rather than passing the credit down to Government actors at a lower level.

Beach house and median voter

Recently me and my friends decided to go to Virginia Beach for fall break. When we were picking AirBnbs, disagreements arose. After eliminating some less preferred options, we came down to two options: one beach house that comes with a hot tub and a swimming pool at a 240$ per person 2-day rate, and a cheaper option in Norfolk at a 150$ per person 2-day rate. 6 kids with higher monthly allowances strong rooted for the more expensive option, whereas 5 of us voted for the cheaper option. The 6 people who clearly preferred the option A stated their reasonings very straight-forwardly, while people with weaker financial capabilities barely spoke up (they quietly voted for option B and took no further actions) out of embarrassment. Few moments after the voting took place, one person who voted for option B dropped out of the trip (abstention) because he felt alienated, as the group policy preference was clearly left-leaning (illustrated in the graph). Feeling also very strongly about option B, I first decided to mobilize right-leaning group members to speak up about their financial challenges and I thought maybe the left-voters will be empathetic and change their vote. But since I just learned about voting behavior in Econ 3330, I thought to myself: maybe I should instead find the median voter, and we can potentially come up with an option that is priced in between while also having some perks that may satisfy voters from both sides. I then went to talk to some people in the friends group that appeared to be more neutral on their decision, and surprisingly found out that 2 option A voters and 1 option B voter actually did not care much about about which house we end up choosing. 

That became the turning point of this vote. The median voter, one of the three people I talked to, took the initiative of speaking up in the group chat, saying that we should try harder to find a middle option, otherwise she's gonna drop out too. We will then have less people to split the cost and the price per person will be even higher and nobody wants to see that happen. We did, in the end, find one that falls just in between at a price of $200, that is in closer proximity to the beach than the previous option B, comes with one self-heating swimming pool, however has 1 less room than option A. People from both sides ended up cooperating, and reached an consensus on this new housing option under a simple majority. This experience reinforced what i learned in this class that, the median voter's vote is decisive in many instances when majority vote is decisive, the policy space is single-issued, and individual preferences are single-peaked. 

A Downs’ Perspective on the 2021 German Election

For the first time in decades, three parties will be needed to form a governing coalition in Germany. The country falls under Downs’ classification of a coalition government, where each party receives proportional representation in the Bundestag, the large legislative power of the German government. The top two parties, the C.D.U and the S.P.D, received only 24.1% and 25.7% of the majority vote, with the remainder split between four additional parties.

According to Downs’ analysis of multi-party systems, parties will strive to distinguish themselves ideologically from each other and maintain the purity of their positions. And this conclusion would normally stand in German politics, as small parties can have a real presence in the Bundestag as long as they retain merely 5% of the vote. But this can change as coalitions are formed post-election in an effort to gain a majority. Parties that have complementary ideologies/interests will find it easier to form coalitions, and this is currently seen with S.P.D’s lack of interest in forming a coalition with the AfD party, due to their extremism. 

Another interesting note from Downs’ analysis of multi party systems is his emphasis on ideology of parties. He states that voters in multiparty systems are much more likely to be swayed by doctrinal considerations than voters of two party systems. Germany’s mounting pressure for action in regards to the climate crisis and recent flooding can be attributed to the Green Party’s best ever performance in a federal election, with 15% of the vote. We can see that ideological interests based on the climate are better reflected in a multi-party system, and can have significant influence in election outcomes. 

College Apartment Decision-Making

It wasn't until this semester I realized how many times I have used collective action in my very own college apartment. Collective action is frequent amongst myself and my roommates: what type of barstools should we have? Is it time to replace the tiny, broken kitchen trashcan? As an individual, it is important to consider which of these decisions should require unanimity versus a simple majority agreement. For example, I let my roommates handle most of the decisions regarding living room decor. Why? Because the external cost of how my roommates decided to decorate were relatively low to me, whereas the decision making costs were relatively high. Here we used a simple majority method – we went with what my two roommates wanted since there were very low costs associated with their actions. On the other hand, when we were deciding how to divide rent we required unanimity; after all, the external cost of enduring a rent division you cannot afford greatly outweighs the decision making cost associated with bargaining. We may not always want to take the time to go through the bargaining process associated with unanimity (especially when splitting rent), but it comes in handy when you are able to eliminate large external costs. 

Where to go for dinner?

When my team goes on the road for tournaments, often our coaches let us pick where we go for dinners. For simplicity we usually stick with a simple majority decision. However, a problem arises because within the typical five of us, there are 2 people that primarily like to eat super healthy, 2 people that don’t mind unhealthy food, and 1 person who is somewhere in the middle and can swing either direction. This causes issues as myself being on the extreme of not minding unhealthy food, will not always get my preferred dinner and sometimes end up with a salad for dinner. No matter how much the two sides try to petition our cases to our coaches about our choice of restaurant, it always comes down the middle person, the median voter. 

As we have seen, no matter the distribution of parties in an election, it will come down to the median voter, and each party will shift their policies to appeal to this median voter. We see that even outside of a political realm, the median voter theorem still holds because she is the deciding vote. In the past we have not moved in towards the median voter’s preferences, both sides sticking to our “extremist” point of view, which led to the middle person’s vote being a shot in the dark because of imperfect information. We wouldn’t act rationally and try to edge inward, sticking with our positions of a super healthy place or a super unhealthy place. This was because on any given day we had to guess what kind of food our median voter was in the mood for, and only sometimes would our perceived view of her preferences be the real view. So some days my side would be closer to her real preferences and some days the other side would be closer to her real preferences. But as we have gotten to know each other better, we have understood her preferences better. So with my new knowledge of the median voter theorem, I can now choose a restaurant that fits her preferences slightly better than the other side to convince her to choose our restaurant and we win the vote on a consistent basis.

In Defense of Aaron Burr as a Politician

 I’m a huge fan of Hamilton: The Musical, probably more than I should admit. During the second song, Hamilton meets Aaron Burr, his idol. As Hamilton talks to Burr, Burr offers political advice that doesn’t sit right with the fiery and passionate Hamilton. Specifically, Burr says, “talk less, smile more. Don’t let them [the voters] know what you’re against or what you’re for… you wanna get ahead? Fools who run their mouths off wind up dead.” Further along in the song, Burr declines to publicly voice his opinions and states: “you spit [what you believe], I’m ‘a sit. We’ll see where we land.” Hamilton responds with an iconic line: “If you stand for nothing Burr, what do you fall for?”. Lin Manuel Miranda, the writer of Hamilton, frames Burr as a weak politician unable to take a stand and credits Burr's lack of activism as the downfall to his career. Yet, based on the median voter theorem, I beg to differ. 

            The median voter theorem is the idea that politicians will shift their policies as close as possible to the center of the voter distribution to appeal to the median vote, and that this median vote is often the deciding factor of elections. A further interpretation of the theory is that "any politician who strays too far from voters at the philosophical center will soon be out of office." Under certain conditions discussed in class, the median vote is the deciding factor in elections. Thus, by appealing to this moderate vote, politicians are more likely to win. Hamilton frames Burr as a politician unable to take a stand and therefore unable to gain votes. Instead, Burr was simply appealing to the median voter by staying moderate and neutral in his policies. Burr may not have been an activist, but he certainly was a strategist. 

 

 

Externalities and the Piney Point Disaster

 After our initial discussion about externalities, the recent Piney Point leak in the Tampa Bay area came to mind. Piney Point is an abandoned phosphate mine in Manatee County, FL which was in danger of collapsing earlier this year, unless the government authorized the discharge of over 200 million gallons of nitrogen infused water into Tampa Bay. Many experts believe that this spillage caused a red tide breakout, which led to a major decline in tourism hurting many local businesses. 

I had a question from this event which I will attempt to answer here but would love any feedback from the rest of the class: when determining the externality cost factor associated with a production externality, how do we incorporate the cost of potential future disasters, such as this one? In this case, the mine had been shut down for over twenty years and the ownership company no longer exists. When the mine was operating, if the government were trying to assign a tax in order to push back production to the optimal level, would we have to include in our model the potential that the plant could have a risk of exploding and causing a major environmental disaster, even though this is something that only could happen many years down the road? I would argue that no we should not account for a cost like this when determining the optimal output level for Piney Point at the time of production, as it could not have been reasonably estimated that a disaster like this could have occurred. Additionally, although the actual mining operation did unleash the chemicals which ended up spilling into the bay and causing the red tide, I believe that Piney Point is ultimately not the one to blame for this issue because if government/environmental agencies had been keeping a better watch on the property after its abandonment, the plant may have not ever been at risk of explosion. Because of both the inability to predict the future problems of the mine and the difficulty in assigning blame for this crisis, I do not think the cost of a potential future crisis like this should have been incorporated when enforcing tax on Piney Point to determine its optimal level of output. 

Drying Rack Dilemma/The Importance of the Starting Point

I live in an apartment with 3 other guys in my fraternity and we get along very well.  We all like playing poker on Fridays, going to UVA games on Saturdays, and grinding out work during the NFL games on Sundays.  But when it comes to our weekly deep-clean of the living room and kitchen on Mondays, we clash about the need for a drying rack for our dishes.

Over the summer, my suite mate (Evan) who lived in Charlottesville had a drying rack out next to the kitchen sink.  At the start of the year, myself and another suite mate (Max) said it was taking up too much room and that we should get rid of it.  Evan and my final suite mate (Harry) both pushed back and said that a drying rack is a kitchen essential and that it didn't take up too much room.  In short, our apartment was split 2-2 on the need for a drying rack so neither side had a majority.  But, since having the drying rack out was the starting point/status quo, it is still out in the kitchen and Max and I have had to put up with it.  Click this link for a picture of the drying rack and let me know which side you are on.

Zooming out from my dilemma, it seems our founding fathers were aware that should a 50-50 split vote occur in the Senate, the status quo would remain.  That is why they wrote Article 1, Section 3 of the US Constitution, which grants the Vice President the right to cast a tie-breaking vote and give one side the majority.

Viewing Prisons as Insurance

In another one of my classes, the topic of the costs associated with incarceration was brought up, and it got me thinking with some of my newly learned public choice frameworks. First thing first, prisons are a public good. The “good” that prisons provide is a bit obscure and difficult to define in economic terms, but I think that I can appropriately define it as the protection of property and persons from harm that may be perpetrated by those who are known to harm property or persons. Prisons are public goods because the protection they afford to people and property is not excludable, and consumption of this protection is reasonably non-rival. (Prisons also must be provided through sovereign government and collective action because there is no rationale for private markets depriving people of their freedom.) There is, however, a different way of thinking about the value of prisons that is similar to our reading on redistribution as insurance. It costs about $37,000 per year (close to half the US GDP per capita) to hold an inmate in federal prison. Hopefully, it may stand to reason that those high costs are at least somewhat allocatively efficient under this different view Going along with the assumptions in Mueller 3.1, I will say that there are two classes of property, and each class has differing utility for their property and differing probability that they will be harmed by a prisoner who might otherwise be free. Under these assumptions, prisons and the protection they create is supposedly worth a large amount of money. The cost of this insurance is lowest with a membership of all society, to avoid the free-rider problem, and therefore, prisons may be best thought of as an insurance natural monopoly that protects persons and property. Through this blog post, I am aiming to analyze the costs of prisons in a different way, and considering that the costs of incarceration are very high, and the American prison system still has many concerning issues. I am wondering if public choice can justify this cost or if there may be a less expensive alternative framework introduced later in class.

What is Democracy Good For Anyway?

The last several readings have covered the numerous failures of democracy and majority rule. From low voter turnout, to rational ignorance, to cycling and intransitivity, democracy is plagued with issues that undermine several of its founding myths. Since civics class simply inculcated falsehoods like “every vote counts”, we cannot rely on widely accepted beliefs to evaluate democracy. What advantages, if any, does democracy provide over other forms of government?

When listing the advantages of democracy, most people would point to the vote as the sacred mechanism by which every individual can make their voice heard. If you don’t like something about your government, you can vote against it and move policy towards your preferences. This falls apart when you realize that there is almost no chance that any individual actually affects the outcome of a democratic election. No matter which way you vote, the outcome of every election is almost guaranteed to be decided by everyone else’s vote, not yours. This means that the individual’s preferences are completely disregarded in a democracy. If my vote represents the influence I have over my government, then I may as well be living under a dictatorship. 

Democracies are, in general, much nicer places to live than dictatorships. How can this be explained if democratic governments are not beholden to individual’s preferences? In most dictatorships, the government is controlled by a small group of powerful people. The majority of Sparta’s population were slaves, and Saudi Arabia is run by an insular royal family. Democracies, on the other hand, are dictatorships of the majority. This is a significant improvement over oligarchy. Powerful inner circles can still benefit even while the majority of the population starves. In democracies, things that greatly harm the majority like famines and total authoritarian control over freedoms are usually avoided. This still leaves room for total oppression and exploitation of the minority, the disenfranchised, and the non-citizens, however. Democracies, like all power structures, create civic religions that propagate flattering lies about the way they work. It is important to separate myth from reality and evaluate democracy on its true merits and true failures.

The Rational Voter and Social Media

 “Finger the Pulse” – a comedy segment on Trevor Noah’s “The Daily Show” – highlights the rational ignorance of voters. In this segment, Jordan Klepper attends Trump rallies and interviews supporters, asking them about their knowledge of political issues. With their response, he fires back with a witty comment, alluding to their ignorance or misunderstanding of political knowledge.

One of the interviewees admitted that she does all of her research on politics – through Twitter and Facebook that is. To this, Jordan Klepper responds that she puts facts and nonsense together. Jordan agrees with the judgement that social media platforms are inherently biased (from algorithmic and herd mentality factors) and vessel widespread misinformation campaigns. Despite this, it’s incredibly rational for this woman to utilize social media platforms for election information. When analyzing her marginal costs and benefits of gathering information about politics and candidates, it might be costlier for this woman to go out of her way and find unbiased, credible sources to politically inform her. The convenience of social media in consuming political information supports the marginal benefits one gets from using it as a news source. Additionally, through the in-app adjustments made to limit the misinformation circulating platforms, finding information outside of social media platforms has an even greater marginal cost.

Although segments like “Finger the Pulse” take a jab at ignorant and opinionated comments voters make, they highlight the preferences that people have in gathering electoral information.

Coase on Piracy

Illegal film/television streaming websites are a product of the last 20 years of technological advancements. Entire movies and television shows are uploaded online for the free consumption of viewers without legal permission or payment to the production companies who own them. These websites generate profit from advertisements, either from real brands or hackers who place malware in the ads. There are few ways for the government to regulate these websites. If one site is taken down, multiple sites pop up in its place as there are low barriers of entry. Currently, there are about 84,000 illicit entertainment sites. 

The Coasian thought model solution to this problem would be to define the property rights, hold who is liable for the damages accountable, and allow free-market negotiations to occur. This would force the quantity produced to be equal to the allocatively efficient quantity. In this case, the production companies would own the property rights, and the streaming websites would be liable. If they were to negotiate and the marginal social benefit of producing is greater than than the social marginal cost, the streaming websites would continue uploading the movies but for a cost, which would, in turn, bring down the number of films uploaded, leading to the quantity being at its efficiently allocated amount. However, if the cost is not greater than the benefit, the sites would shut down. This solution is only applicable if there are no limitations, which we know are not true. Due to the number of websites, we would face the assignment problem as we could not quantify how much damage each website produces. Neither the website nor the production studio would have an incentive to reveal this information. Further, we live in a world of transaction costs; the transaction cost of finding each website and negotiating with them would make the costs higher than the benefit of going after the website for their illegal use of the copyrighted property. Unfortunately for the production companies, they will not receive the profit from the movies being streamed on illegal websites as the costs of attempting to reclaim potential profits would outweigh the benefits.  

Revolutionary Business Seeking Investors

Dear Econ 3330 Classmates,

Every presidential election, I find myself stuck between a rock and a hard place.  I can either act irrationally and go vote or stay home and be talked down to by my politically active friends, who flex their "I voted" stickers on their Instagram stories.  Well I have had enough of this, so I will be starting a new sticker business!  My business will sell "I voted" stickers that are identical to those you receive after voting at the polls.  I would say the average social cost I incur for not voting is approximately $5.  I figure $5 is the correct amount because it is the amount I would pay for my friends to not heckle me about not voting.  Therefore, this is the price that I will set for my stickers.  From this site, I can buy 500 "I voted" stickers for $14.  This is approximately $.03 per sticker, so if I sell each seller for $5, I can make $4.97 per sticker!  This margin is incredible!  If you would like to consider investing in my business, please send me an email and we can discuss!

Sincerely,

Wilson Friestad

Graduated Income Tax vs. Flat Tax

 In the United States, we have a graduated or progressive federal income tax. This means that the more money a person makes, the greater the percentage they will pay of income tax. One of the main intellectual defenses for the graduated tax is that it is fair because those who make more money pay a higher percentage of their income in taxes, and value each dollar of their income less than those who don't make as much. Thus, it would seem reasonable that the rich would pay a greater percentage than the poor. However, that is poor economic reasoning. This argument does not take into account the utility of each extra dollar for the rich versus the poor. John D. Rockefeller, the richest man in the world in his day was asked how much money was enough for him. His response was "A little bit more." This shows that a person's wealth is not indicative of their marginal utility for their next dollar. As a result, one cannot assume another's preferences and utility rates simply based on their wealth.

Instead of advocating for the graduated income tax, those who want everyone to "pay their fair share" should push the federal government to revert to a flat tax, where everyone is taxed at the same rate. Although a situation where everyone told the government their marginal utility for each dollar would be most desirable, in reality, it is not practical, which is why a flat tax is the best option. The rich will still have to pay more than those with less money but will pay the same percentage of their income in taxes. 

When Votes "Matter"

I have worked on a couple of political campaigns at the grassroots level. This mostly involved registering voters and knocking on doors. I once worked on a campaign with an incumbent Democratic congressional candidate in a very blue area. The strategy of this campaign was to make sure that the Democratic base turned out enough. While I knocked on doors, countless voters told me they did not want to vote because the incumbent was going to win. The word "pointless" was thrown around a lot. Both voters and campaigns know that elections all boil down to swing states and districts, so why show up if you live in a strong blue or a strong red area?

Returning to the paradox of voting, many voters already think that the probability of influencing the election (P) is small. P is infinitesimal in these reliably blue and red states. The only way I and other campaign staff convinced voters to show up was by suggesting that they would dislike the candidate if the opposing party won. As a result, they would regret not voting. I did not realize that we were using the minimax regret to try to convince people to vote. From my personal experience, it is very persuasive and does increase turnout. Hatred of the other candidate drives people to the ballot more than love of their preferred candidate. In retrospect, we likely made them overestimate their marginal benefit of voting by talking to them about the consequences of a loss. 

First Year Dorms as Localities

 As a first year, I was assigned to live in Gooch-Dillard, suite-style dorms that are located on the outer edge of Grounds. I recall being extremely annoyed by this assignment and complaining about the walk to classes pretty much constantly. I specifically remember a situation in which I asked my RA why first year dorms were both randomly assigned and uniformly priced. In my mind, it did not make sense that I, in Gooch, could be paying the same amount as someone centrally located in Kent-Dabney. Furthermore, I was sure that there were people who may have preferred to live in Gooch because of the suite-style layout. When reading Tiebout, I was reminded of my initial arguments for why the assignment of first year dorms should be treated as a free market in order to maximize utility. 

Tiebout argues that with no costs of moving, full information, and heterogeneous localities (among other assumptions), people will reveal their preferences for the allocation of public goods by their choice to move somewhere. In my scenario, I am treating UVA as the federal government, the dorm buildings as localities, and the cost of housing as the taxes paid to the localities. The public goods provided from those taxes would be specific to each locality. For example, Gooch-Dillard would provide larger rooms and Kent-Dabney would provide a central location. Furthermore, taxes would be lower in places such as Dunglison in which AC is not provided as a public good. In the current system, UVA is allocating these public goods from a “federal” level and having uniform taxes. This current system is inefficient and utility would be maximized by focusing on the local level (the dorms) and creating heterogeneity between them. 

Virginia as a Case Study For Rational Abstention

 Do people vote when the issues mattered most? Political economists like Johnson say no. But how does Virginia fit into this? Unlike most states, Virginia has an election every year. Of course, it has Presidential elections and Congressional elections every two years. But many do not realize that Virginia has a governor’s election the year after the presidential election, and a midterm for the House of Delegates the year after the Congressional midterms. Thus, with an election every year, it provides a fascinating case study into voter turnout based on various issues on the ballot.

The results are clear: many Virginians are indifferent to state and local elections. 72% of registered voters turned out in 2016, but only 48% for the 2017 Governor’s race and 42% for the House of Delegates and local races in 2019. This seems peculiar – in the elections where your vote matters most, where there was even a tie in 2017 which ultimately decided the control of power in the House of Delegates, people vote the least. And these elections have important issues that decide the funding for your local schools, the police department, and other vital local services that impact us daily, and voter turnout is at its lowest. And this feeds into Johnson’s argument – that regardless of the potential benefit of a preferred candidate winning, the social pressure to vote in the house of delegates midterm and the local school board election is insufficient. And anecdotally, we can all see this. Think, how many times were you asked “did you vote? Have you voted yet?” prior to the 2020 election? I could name at least a dozen times. But would I be the first person to ask “do you have a plan to vote this November?” I would assume so. Thus, through the lens of my life and yours in our Commonwealth, we can see that Johnson was right: voting in a gubernatorial election just isn’t that cool. 

My Anarchist Friend Noah

 All this talk about voting got me thinking, what would my anarchist friend Noah have to say about this? So I asked him, and I pulled the following valuable insights. 

Noah doesn't want anybody in office at all. He thinks the whole government is pointless. For him to vote would be consenting to be governed by one of the two choices that were forced upon him by the powers that be. Contrary to "if you don't vote, you can't complain" (which is already a faulty argument), Noah says, "if you vote, you can't complain either."

Noah's D and B in the PxB+D-C equation are negative. To vote would be hypocritical, counterintuitive, and a waste of time. Noah doesn't vote "because he doesn't want to." What separates him from so many others is that he just doesn't care what people think about him, in his own words, he is "shwoke." He has no civic duty, no moral responsibility to vote, and clearly doesn't succumb to social pressure or else he wouldn't be an anarchist. Interestingly, Noah still has preferences over who's in office, preferring a Libertarian candidate over a Democratic one. However, even in this case, he still would not vote because he doesn't believe in the office itself. 

A lot of Noah's ideas don't make too much sense to me when it comes to voting. Maybe he's not all that rational, then again maybe I'm not either, and maybe neither are you. So go ahead Noah, down with the man! Become ungovernable.

Rivalry & Voting

    When we discussed public goods last week, we zeroed in on non-rivalry and non-excludability as defining characteristics of such a good. However, according to Buchanan’s Economic Theory of Clubs, many goods fall somewhere on a continuum of rivalry and publicness rather than a binary dichotomy of either rival or non-rival, private or public. This point is especially impactful for supposed non-rival goods, which, Buchanan argued, eventually reach a point of overcrowding. At this point, the good, though still technically available to you, gives you less than its possible utility because of the number of people you have to share it with. 

    As I read Johnson’s piece on voting, this conception of rivalry returned to mind. The ability to vote can be seen as a traditionally non-rival good; your exercise of your right to vote does not deny anyone else the ability to exercise their right to vote. The right to vote is not “consumed” when it is exercised. This principle of equal and unfettered access to the vote has been enshrined in American case law, such as Baker v. Carr, as well as in constitutional amendments. However, as Johnson points out, the utility you might get from voting certainly diminishes as more people exercise their right to vote. As more and more people use their right to vote, your vote goes from decisive to totally inconsequential. In fact, the probability that your vote will be the decisive one is so low that a rational person likely would not vote at all. These characteristics make the ability to vote seem more like a semi-rival good, one which is subject to a point of overcrowding, upon which it loses the utility it might otherwise endow. As the number of people who exercise their vote increases, p - the probability that your vote will be the decisive one - decreases, functionally reducing any marginal benefit you might derive from voting to 0. When some number of voters decide to exercise their right to vote, sufficiently reducing p, the right to vote essentially crosses a “threshold” of rivalry. After this threshold, the right to vote may as well have been “consumed,” for all the utility it offers an additional voter. 

Does the nature of "Market Makers" lean the profession towards the public good side of the public-private spectrum?

The benefits that registered market makers (MMs), or equivalent volatility suppliers, consign to the efficiency of the equity market is a concept that deserves careful consideration. MMs provide valuable liquidity to the stock exchange, and in doing so increase the functionality of the market. A primary aspect of MMs is that they are (for the most part) not profit-making entities, MMs are not speculating on the price of a stock, nor are they inclined to justify their actions with thoughtful due diligence. It is clear that a world without market makers would be a world with limited liquidity; the price formation of a particular security would be feeble, susceptible to the daily fluctuations in the proclivity of an individual to sell their securities to a buyer (or vice versa). This promotes the idea that Market Makers serve, in some sense, as a public good as the positive externalities (efficient and highly liquid markets) that result from their actions seem to surpass the negative ones.

Since the efficiency of the market depends on MMs, there is justified support for regulation via policy. One example of this is the 2019 Lead Market Maker (LMM) incentive program, a program the CBOE deployed to incentivize Market Makers to meet liquidity and market quality metrics. If Market Makers are rewarded for their ability to supply efficient markets, does that remove them from the discussion of being a public good? I’d surmise no; incentives are used often to reform and ensure the proficient caliber of public goods. Regulating Market Makers is a way that policy can ensure highly efficient markets, though sometimes this regulation has not always yielded the results policy makers would hope for. Market Makers are non-rival in consumption (one person’s trading of a security via market maker assistance does not detract from the next person’s predilection to do so) and non-excludable (anyone who trades almost any stock is subjecting themselves to an inescapable realm of MMs.). This analysis leads me to believe that MMs are more towards the public good side of the public-private spectrum than they are towards the private good side.

The American Court System = A Public Good?

            A recent topic in my Introduction to Public Policy course was Public Goods. In my discussion section, the TA encouraged us to name Public Goods. One of my classmates suggested the American Court System as an example. After a pause of contemplation, the TA agreed and moved on. I, however, spent the rest of the class thinking about the qualities of the American Courts System and how it does or does not resemble a public good. 

            In theory the Court System should certainly be a Public Good. They are a publicly financed system that is freely available to all Americans to utilize. One citizen's use of the system doesn't take away from another's and all citizen's personal rights are protected by trial in a court of law. Referring back to our Gruber readings, in Chapter 7 Gruber makes the point that most Public Goods we think of are actually "Impure" Public Goods, exhibiting imperfect non-rival or non-excludable properties. The Court System certainly is one of these Impure Public Goods. For example, Court back-log is massive issue in our society, as citizens are unable to have their cases heard in a reasonable amount of time. These problems have only been exacerbated by COVID-19 with the pace of case-work slowing further. Around the nation people are in prison, on bail, or roaming freely due to the Pandemic-driven severe back-log while they wait for their cases to be heard. Negative externalities abound with these situations. While there will always be a threshold of rivalry of use with regards to our Court System, such as number of cases a court can hear in a year, the Pandemic has pushed the American Court System further and further away from the nature of a Public Good. In some areas many non-violent crime cases were simply dropped to ease the growing court's burden. Citizen's issues are being prioritized and evaluated rather than heard. The American Court System may be partially resemble a Public Good, but it is an impure one to the core. 

"Keep Calm and Trust the Government": How a Deeper Trust in our Government Leads to Maximum Resource Allocation

 “Trust in our government” has been a popular topic in the news cycle for generations. Pew Research Center conducted a study this past May on this very issue. The National Election Study started taking data on trust in the government back in 1958. Then, roughly two-thirds of the public had faith in the federal government. Today, Only about one-quarter of Americans say they can trust the government in Washington to do what is right 'just about always' (2%) or 'most of the time' (22%). 

            Our class has studied efficient resource allocation much in the past three weeks. When , there are no externalities and no misallocation of resources. Yet when externalities are present, the government can either set restrictions or levy taxes and subsidies to try and return to . The government uses consumer votes to determine their taxes, yet the flaw with this system is consumers have little incentive to accurately reveal their preferences. Most consumers do not trust the government in general, thus they certainly don’t trust the government with taxes. Instead, utility-maximizing consumers latch onto the “free rider” principle by trying to contribute as little as possible while still using the resource. According to Charles Tiebout, “[i]f all consumer-voters could somehow be forced to reveal their true preferences for public goods, then the amount of such goods to be produced and the appropriate benefits tax could be determined” (p. 417). Because of the low percentage of Americans that have faith in the government, consumers do not reveal their true preferences and the government cannot tax efficiently. If more of the population trusted in the government, they would reveal their true preferences and be accurately taxed. Externalities would be eradicated, , and our society would be better off. 

I-5 Southbound: Wilsonville’s Worst Nightmare

My hometown is Wilsonville, Oregon – a standard suburban town south of Portland, Oregon. Wilsonville is situated along I-5, the interstate that runs down the west coast from Washington to California. Now, when I say my hometown is on I-5, I mean that the freeway runs directly down its middle. Over time this has created a major traffic problem; whenever there is traffic going southbound on the freeway, the center of town essentially comes to a standstill. Good luck trying to get from one side to the other during rush hour. Here, we have a classic negative consumption externality problem.

The issue is that I-5 consumption (drivers using the freeway during rush hour), exerts a negative externality on those in Wilsonville trying to move about town. This negative externality takes the form of increased travel times for drivers who have zero intention of using the freeway and are not compensated for the costs inflicted by others. So, during rush hour the private marginal benefit (PMB) of using I-5 is greater than the social marginal benefit (SMB). This means the equilibrium quantity of road consumption is greater than the allocatively efficient level. The solution? Putting tolls on I-5 – something that Oregon does not currently have on its freeways. This would lower each freeway driver's PMB of freeway consumption, ideally to equal the SMB. Much to my surprise, the Oregon Department of Transportation is actually in the process of considering tolls to remedy congestion problems such as this. Wilsonville may see a government solution to its negative externality problem in the near future. 

Shocking Revelations: Am I a Free-Rider?

I can safely say that, of all living situations in Charlottesville, my roommates and I have one of the best. I often find myself wondering; how did I get so lucky? Everyday we continue to live amongst each other in perfect harmony, never squabbling over who has to do the dirty dishes like Nick so tragically complained to us about. The Brita is always full and Venmo requests are always completed. After some consideration on what makes our apartment living so cohesive, I came to a shocking conclusion.

I am a free-rider. Not in the sense that I don’t take out the trash, but in the provision of our apartment’s public goods. These goods include household staples, from dishwasher detergent, paper towels, pam cooking spray, and even baking supplies (vanilla is expensive, you know). Somehow, we have come to an unspoken agreement for a single person to bear the costs of these public goods, yet this person has never been me. The success of our private provision of public goods can be attributed to many factors. For one, my roommates have determined that the benefit of the public good (having clean dishes or a stocked pantry) is greater than I think it is, so they are willing to purchase these supplies. Or rather, they possess altruistic tendencies and are willing to contribute to our public goods even when the opportunity to free ride presents itself. 

While these goods are rival in consumption, they are a form of impure public goods in that they are non-excludable. Yes, my roommates could physically take the pam cooking spray from me every time I intend to use it, or hide the dishwasher detergent, but that would decrease their own utility of the product, as my consumption of the public good lessens the chore load. My use of the dishwasher detergent helps keep our sink empty, which has positive externalities by saving them time. The exclusion of these goods is too costly to maintain, so our 'utopia' lives on.

Coasian Crowdfunding

 One of the central insights in Ronald Coase’s The Problem of Social Cost is that, because costs and opportunity costs are equivalent in accounting, it doesn’t matter who is made liable for compensating an externality. The best way to understand this is via example. To use Coase’s; imagine a cow rancher and crop farmer share neighboring plots of land. Cow ranching has a negative externality on crop farming because the cows eat some crops. Say the marginal cow eats $5 worth of crops. If the cow rancher is made liable by the government then he has to pay this extra $5 if he wants to add that cow to his herd. Even if the government takes no stand in the situation, however, the cow rancher will still have to pay that $5. The crop farmer can no longer force the cow rancher to hand over the money, but he can still exert influence on his balance books by offering up to a $5 payment if the rancher doesn’t add that next cow. The farmer is willing to do this because he can avoid $5 of crop damage. Just as before, if the rancher wants to add another cow to his herd, he has to give up $5.

This counter-intuitive idea inspired an idea of my own to help resolve global externalities: Coasian Crowdfunding. The idea is to impose costs on externality producing corporations by offering them money if they scale back production closer to the socially optimal level. By crowdfunding what are basically carbon-offset payments from people all around the world, we can force Exxon to incorporate the social cost of carbon into their accounting by forcing them to forgo this large prize if they want to continue polluting. 

This strategy can overcome many of the problems facing coasian bargaining. The assignment problem is lessened because people are incentivized by their private value on carbon offsets, which is easy to know for them. There are still challenges in identifying which corporations are responsible for how much pollution, but at least there are many fewer of them. The free-rider problem is still somewhat of an issue. Since everyone enjoys an improved global climate regardless of whether you pay, it can be personally beneficial to just let others pay. This sort of online crowdfunding has proven resilient against free rider problems, however. Tens of billions of dollars flow through patreon and twitch donations. Fans of certain shows pay money for video content that is posted for free on YouTube. There are some excludable goods like early viewing or extra content though. Similarly, our carbon-offset crowdfund could provide people with a green-check NFT that donors can use to signal how much they care about the environment. Because opportunity costs are the same as costs, the power is in our hands to make carbon producers pay for the damage they do to the global environment.

The Free-rider Problem of the House Clean

 It's a Sunday afternoon, and the house is a mess. After all, that's what one would expect after 18 guys have been living there for a few weeks. A mass text is sent out: "House clean in 5 minutes." Thirty minutes later, the once filthy house is sparkling clean and most of the guys in the house are feeling pretty content with the results of their work cleaning the house. However, not everyone is satisfied. This is because while a majority of the house members participated willingly in the cleanup, a few decided to take the 'time to clean' text as their opportunity to leave the house. This resulted in a classic free-rider problem. Those who did not clean the house knew that the house would be clean with or without their efforts, which may have been why they chose not to participate. As a result, the guys who did clean had to put in more work, while the guys who did not clean were able to enjoy the product of others' labor without putting in any of their own efforts. This could potentially lead to fewer people cleaning in the future, as they see that others will do their work for them. This will result in both disgruntled members of the house who do participate and also potentially a failure to clean the house at all as more and more guys decide it's not worth their time and effort to participate because everyone else is skipping out on the job.

My proposed solution to this problem is to provide incentives to work, or in this case, disincentives to not clean. Our house should make a rule that if you do not show up to the house cleans in the future, that is ok, but you will simply have to pay those who do a small sum of money to compensate them for their extra work. This will be an efficient solution as those who value their money over whatever else they might be doing will help clean the house, and those whose opportunity cost of participating is too high will compensate everyone else for their share of cleaning.

Thank You for Drinking

UVA’s student body has heard it and seen it before, from the critical opinion articles from Charlottesville residents to the harsh glances as older neighbors see students with drinks in hand. All these interactions originate from a critique of UVA students’ drinking habits. However, economic logic suggests that that beer belly (or, in the context of this article, liquor belly) is actually doing the community a service.

As any 21-year-old Virginian knows, alcohol can only be purchased at government-run ABC stores (a public monopoly, as Emma analyzed in her post). An interesting factoid of ABC stores in Virginia is that they return more than $600 million annually to the state’s general fund. Put another way, that $20 handle you bought the other day contributed almost $9 to Virginia schools, roads, and even funding for state universities. In comparison, for a traditional $20 purchase, less than a dollar would go to state and local governments. Thus, logic follows that liquor purchases are a positive consumption externality in alcohol-controlled states like Virginia given their significant financial contribution to society. In that vein, our state would be right to encourage hard alcohol consumption because of its social marginal benefit.

By examining the benefits to civil society from liquor purchases, we can see that the social marginal benefit of liquor consumption is greater than the private marginal benefit. Of course, this post does not analyze the long-term costs to society with regards to the risks of drunk driving and other long-term health effects. However, in this simplistic lens of consumption, the solution is clear: party on – our communities demand it. 

ABC, a Monopoly?

     On August 26^th, we discussed the different types of monopolies – public, private, and publicly regulated. I understood the examples that were discussed but wanted to look further into which category other companies would fall under. Being from Florida, one of the first industries that came to mind was the sale of liquor in Virginia. At home in Jacksonville, there is a corner store that sells liquor every few miles, with bright flashing lights usually advertising the sale of the week. When I came up for move-in weekend my first year, it was weird not to see those bright attention-grabbers here. The ABC store is the only store in the state allowed to sell liquor, which leads directly into the question of what type of monopoly it is. Although I assumed the stores were government-run, there was also a strong possibility that they were just publicly-regulated – something I had no expertise on given that the idea of the state being so involved in these sales still is unique to me.

After looking into some background information on alcohol laws in Virginia, I came to the conclusion that the ABC store (in Virginia at least) is actually an example of a public monopoly. This means the government itself runs the ABC stores. Further, I even found out that Virginia is rather uncommon in its handling of this industry, and some are trying to overturn this monopoly in the name of privatization. There is, however, push back due to the high revenue these stores bring in for the state. So, in answering my question of what type of monopoly it is, I am left with even more questions – namely, if a public monopoly on the sale of liquor brings in so much revenue, what incentives do already privatized states have to leave their own liquor sales in the hands of the market at large?

The Wolf of Wall Street - A True Story of Fallen Brokerage Giant and Its Deadweight Loss

On a chill night, in celebration of my roommate’s recruitment into an investment banking firm, we watched the classic move - the Wolf of Wall Street. The movie is based on a true memoir of Jordan Belfort, the founder of Stratton Oakmont, a brokerage firm in Long Island, New York. Jordan led the firm on participating in several financial frauds, including pump-and-dump schemes, defined as a security fraud that “involves artificially inflating the price of the owned stock through false and misleading positive statements, in order to sell cheaply purchased stocks at a higher price.”

Jordan Belfort’s life started off as a son of two accountants. As Belfort slowly explored his career as a broker and accumulated wealth through running Stratton Oakmont, he developed a lavish lifestyle filled with luxury ownerships, sex parties, and abusive use of recreational drugs. He became fanatic with money-making; under his leadership, the firm had developed a cult-like culture where all employees submitted themselves unconditionally to the principle of the firm and became completely money-driven. Everyone who came in as financially-incapable has now become millionaires, sitting on top of the money they have defrauded from investors through convincing them to purchase large quantities of penny stocks. Belfort showed excessive greed for the possession of wealth and women, and have committed over 21 cases of money-laundering to scale up his earnings. 

Halfway through the film, me and my roommates began to wonder if we could ever adopt a similar lifestyle portraited in the movie and whether money could ever be of such big attractions to us. We concluded that the marginal private benefits we may receive from earning an extra $10k - $1M is not worth trading in our sanity and basic moral grounds. As wealth accumulates, the private marginal benefit (PMB) diminishes, and private marginal cost (PMC) also grows at a faster rate because the risk that Belfort had to bare became larger and larger under illegal operation as the volume of transactions grew. In real life, as Belfort committed more fraudulent deals, the social marginal cost (SMC) brought along by the existence of Stratton Oakmont had gone way up, not only incurring an opportunity cost on the money tied to those pump-and-dump schemes when it could have been invested elsewhere and generated tangible return, but also resulted in investor net losses of $200 million dollars when the overvalued scheme collapsed. This case differs from market production inefficiency cases that we learned from Gruber's reading; it is more like a market failure resulted from information deficiency which ended up creating an off-balance between the supply and demand for stocks. The financial operation of Stratton Oakmont still created a deadweight loss for its investors and the society as a whole. As a consequence, Belfort lost everything and was federally imprisoned for 2 years. 

Vaccine Mandates

There has been widespread debate as to whether Covid-19 vaccines should be mandated by the government, with polarizing opinions across the country. Vaccines have a positive consumption externality, the social marginal benefit of receiving the vaccine is greater than the private marginal benefit.  However, many scientific studies have estimated that this positive consumption externality will be reduced once the country reaches herd immunity (estimated to be around 80%). Similar to Gruber's example of global warming, increases in vaccinations produce diminishing marginal returns.  

Mandating vaccines would be considered a collective action response to the externality. Due to the diminishing marginal rate of returns to increases in vaccinations, a government mandate is not the economically efficient solution to the externality. A Coasian solution would define property rights and determine who is liable. We can see examples of this occurring within the private sector. For instance, some companies are offering to pay their employees to receive the vaccine. In this case, companies are assuming liability and have determined that reducing the risk of Covid-19 spread is more valuable than the money they are willing to pay the employees. The employees will get the vaccine if the private marginal benefit with the addition of monetary compensation outweighs the private marginal cost of the vaccine. In this scenario, the employees retain property rights over their body but they have increased incentive to receive the vaccine. In other words, the social marginal benefit would equal the private marginal benefit. This is an example of a Coasian solution internalizing the externality. 

The Negative Externalities of the Activities Fair

 As the Treasurer of a political organization at UVA during my first year, part of my role as an exec board member was to table at the activities fair for the spring semester. Because it took place during the winter months, the fair was held indoors in Newcomb. For some reason, the fair organizers decided to place all the political organizations, from both sides of the aisle, in the same small room. On the one hand, one can see the purpose of this decision. It would be more efficient, as all those who were interested in political advocacy would only have to go to one room, saving them time and effort. It would optimize space and preparation time for the fair organizers. However, this decision did not take into account the negative externalities of placing political organizations from different sides of the aisle in the same room as each other. Members of other organizations came to our side of the room and made negative comments as well as obscene hand gestures. These actions hurt our organization's recruitment because potential members may well have been turned off after realizing that they would be subject to the same harassment if they joined our club. As a result, they missed out on being part of a club from which they would have gained utility through free and open debate.

Without intending it, the club's organizers imposed a negative externality on potential members of our club by placing all the political clubs in the same room during the activities fair.  If the fair organizers were interested in an efficient market of club recruitment, they should have compensated our potential members who decided against joining our club because of the harassment we received. This would make up for the opportunity cost of the utility they would have received from becoming members of our club.

The Defining Problem of Our Generation: Who's Going to Wash the Dishes?

     I live in a house with eight other people here in Charlottesville. While this makes rent very cheap and days very action-packed, it also leads to a lot of dirty dishes. Divvying up this godforsaken chore is one of the greatest sources of animosity in the house and is quite literally, the worst. Dishes are an economical nightmare in my house. Those who have the lowest private marginal cost (not caring about dirty dishes in the sink), produce the most dirty dishes, while those with the highest private marginal cost (caring deeply about having an empty sink), produce the least dirty dishes. This results in a massive negative production externality where my sink is normally full, to my detriment, even though I wash all my dishes.

    With equal property rights to the sink, am I entitled to a clean sink or are others entitled to a dirty sink? We knew dishes had to eventually become clean so a few members of the house produced a weekly dish schedule system where everyone washed all the dishes once a week (with the exception of two members/free-riders with meal plans who never used the sink), because everyone washing their own dishes "just wouldn't work". In this system, the sink remained full throughout the day, with nobody having any incentive to wash their own dishes, knowing somebody else would do it for them at the end of the day. Furthermore, knowing the kitchen would just be cleaned the next day, it was easy for those who didn't care as much about a clean sink to skip out on cleaning the dishes on their day and leave it for the next guy, leading to a detrimental free-rider problem.

    This problem continues to plague my house, with variations between washing own dishes and having a schedule. So here I humbly ask all of you economists to help me come up with a solution to this predicament.

Best,

Nick Cummings

The Real Life 'Up' House - A Storybook Holdout

The other night a few of my friends and I decided we wanted to stay in and have a movie night. The debate over what to watch was hotly contested, but we finally settled on Up, the heartwarming Pixar movie about a grouchy old man (Carl) who goes on an adventure with a young boy (Russell). Part of the exposition of the movie is Carl's stubborn refusal to sell his old home to the developers building skyscrapers around him. This is a great example of a holdout; a developer who wants to build something on Carl's block, even having bought up the surrounding property, still needs to negotiate with him individually. The sentimental value that Carl places on his home is far more than market value, making him a difficult holdout to deal with and giving him inordinate power. The key difference between Carl's example and a true perfect holdout, however, is that ownership of the houses on the block is not truly shared. The developers can build around Carl's home on all of the adjacent properties they own, making his holdout more of a hindrance than a total barrier.

I was curious about the inspiration behind this story, and a quick Google search showed me that Up is loosely based on the story of Edith Macefield, a Seattle woman who allowed a shopping center to be built up around her house rather than sell it. She's far from the only real world example; there's a small leatherworks shop in my hometown that is in a similar position. Again, while these may not be perfect examples of holdouts due to home ownership on a block being an imperfect example of shared property, they are some of the clearest and simplest real world demonstrations we have. The power a single stubborn property owner can have over the development of a larger block of land closely resembles the power a single owner can have over shared property, which is the textbook definition of the holdout problem.

Gonzales v Raich through the Economic Lens of Markets Externalities

    This past Tuesday I was sitting in my Comm Law class, listing to Professor Sherri Moore lecture on the Commerce Clause and its many applications. The Commerce Clause gave Congress the power to regulate interstate commerce to prevent states from establishing laws that may disrupt the free flow of goods. There have been numerous commerce clause-related cases appealed to the courts. One case in particular, Gonzales v Raich, relates to our discussions on markets and externalities. The 2005 case involves Gonzales, a citizen of California, who had been growing medical marijuana in his backyard. The 1970 Controlled Substances Act made the use of marijuana, along with many other drugs, illegal on the federal level. Gonzales was arrested for his possession and potential use of marijuana. Gonzales went on to appeal his case under the 1996 California Compassion Act, which made the use of medical marijuana legal in California. The court ruled that the commerce clause gave jurisdiction to the federal law, specifically because the local cultivation of marijuana affected the state market for medical marijuana, thus altering market prices. Gonzales was found guilty.

            The court’s ruling on Gonzales was based on Wickard v. Filburn, a 1942 case involving the quantity of wheat allowed. The Agricultural Act of 1938 restricted the quantity of wheat individual farms were allowed to grow in hopes of manipulating market prices. Wickard, a small farmer in Ohio, sold only the allowed quantity, yet grew more for his own personal use. Although intrastate and not exceeding the quantity of wheat allowed to be sold, the courts found Wickard guilty. Their ruling was as follows: although insignificant when only one farmers, dozens and thousands of farmers growing excess wheat for personal use affects market prices for wheat. Thus, the intrastate wheat market was affected, and the commerce clause stands. Wickard was found guilty.   

            Professor Moore added another justification for Gonzales’ inditement, a justification that directly relates to our Public Choice class and discussion of externalities. Moore commented on “the possibility of overflow smells” from the marijuana, which would inadvertently influence and intoxicate the neighbors. Assuming his neighbors did not want to “get high”, the “spillover” of Gonzales’ marijuana smoke is a negative externality, much like the smelly hog farms of Michigan. 

 

Unemployment Benefits and Negative Externalities

During covid, the government increased federal unemployment benefits to help those who lost jobs due to the pandemic or those who worked in service industries that may not have felt comfortable going back to work because of the virus. However, since the end of lockdowns and the restart of the economy this has been creating a negative production externality for many consumers. For example, the other week my friend locked her keys in her car and we called AAA to help us out. AAA is a company that provides 24/7 roadside assistance and advertises themselves on their prompt service. However, they have had issues with staffing because of these unemployment benefits and many former employees are more content with their current benefits than their previous salaries. Due to this, we had to wait 5 hours in the middle of the night, the night before the first day of classes, for a tow truck that never came. And apparently this has been an issue for AAA since the end of June, as this article shows.

We experienced a negative production externality because of the external cost of the unemployment benefits that has not yet been addressed by AAA. And while the federal unemployment benefits are coming to an end soon, employees may not necessarily return to their previous jobs, since many enjoyed the changes to their work environments that they experienced during covid. To address this issue, AAA should pay attention to the external cost and either charge consumers more in order to reduce the amount of people using their service or pay their employees a higher percentage of their revenues to entice them to come back and better serve their remaining customers.

Ideology & the Hold Out Problem in the Senate

     As October approaches, the Biden administration is pushing hard for the president’s long-awaited infrastructure bill. With the narrowest possible majority in the Senate, Democrats can only pass the high-spending measure using the budget reconciliation process - a loophole allowed once per year to circumvent the filibuster. Still, in order to take advantage of this opportunity, every single democratic senator and Vice President Harris will have to vote in favor of the bill. As time to whip the votes necessary to pass the infrastructure bill wanes, centrist Democrats like Sen. Joe Manchin of West Virginia can take advantage of the holdout problem described in Grueber chapter 5. 

    Rather than property rights, these 50 democratic senators all share voting rights. As the “last one” to exercise his right to vote - since Manchin’s conservative tendencies mean his vote along the party line is not guaranteed - Manchin is in a position to hold the other Democrats hostage, negotiating bill provisions that uniquely benefit his political interests and/or his constituency. Earlier today, in fact, he decided to capitalize on this position by publicly declaring that the party needed to take a “strategic pause” on the bill the administration is so eager to pass. Majority Leader Schumer will give Manchin much more in negotiations to secure his vote now that he is essentially the only thing blocking this important political victory. 

    This example of the holdout problem is slightly different from those that plague Coasian negotiations. For one thing, though Manchin’s strategy may crumple the collective action of the Senate Democrats, it will not have any negative effect on Senate Republicans, who uniformly oppose the bill. This intragroup effect of the holdout problem is different than intergroup scenarios we studied, where an opposing group’s actions were blocked by the original group’s failure to act collectively. Additionally, unlike a more classical example of the holdout problem, Manchin is one of the only Senate Democrats willing to use the holdout strategy. The political consequences of not supporting such an important party vote could cost more liberal Democrats reelection, meaning there is not much competition to be “the last one.”