Not so rotten kids

 College students enjoy brand new freedoms – being able to design their schedules, pick their majors, and engage in new social activities. However, in this new quest of separation and individuation – natural to adolescence – you often hear students still doing what their parents want. 

Now this may be out of love, but I want to consider the deeper reason why a “latent” group like newly solo college students may still respond to their parents’ desires: selective incentives. Olson writes that the only “organizations” with the ability to be coercive or have positive incentives. And parents have both of those! They pay for your tuition and provide a place to sleep during break – so that’s quite the coercive power. They are also (generally) very loving – and may even show extra affection should you follow their wishes – like my mom when I promise her not to ride Veo scooters. 

The idea that kids generally grow to be harmonious and obedient is not new. Becker explored this in his Rotten Kid Theorem, holding that due to the selective incentive power of parents, even your most rotten kids will be heavily incentivized to be well-behaved in the eyes of their parents.

A career in politics? Nah. Give me civil society.

In high school, I dreamed of a career in politics so that I could make a positive impact by writing legislation (or more likely, by allocating budget money to bureaucrats who create policy). But my interests have shifted more to for-profit jobs. Why the change? I derive less utility from pursuing political, ideological behavior. As Kalt and Zupan discuss in their paper, “pursuit of such a [civic] duty is a consumption activity that yields utility in the form of the warm glow of moral rectitude” (280). Looking at our grand challenges, increasing polarization, and worsening cynicism, I realized how difficult it would make a positive impact in politics right now. I no longer get as much of a warm glow from thinking about politics, and my opportunity costs have risen with the skills I have developed in college.

But all is not lost. I still care about civil society (and I know you do too). Michael Walzer defines “civil society” as the space of uncoerced human association and relational networks that form from our interactions with one another. Think about your place of worship, your neighborhood, the school you attend, the CIOs you are a part of, your workplace, etc. These are the places we choose to spend our time, where we take greater interest in the lives of one another, where our utility functions are more tied together, and where we overcome rational ignorance. The stakes here are lower than the political arena, and we have a greater ability to influence the local environment. It's where our interests reach farther than our egocentric goals and where we stay engaged with one another.

So long as we remain invested in the personal relationships we create with one another, we can all reap the “profits” as residual claimants in the shared endeavors that form civil society.

The Bullet Budget

The summer after my first year, I was a first-hand beneficiary of bureaucratic surplus. For Naval ROTC after first year, everyone spends a month in San Diego where we get a week each with the Surface Navy, Naval Aviation, Submarines, and the Marine Corps to get a sense of what our jobs will be like after graduation. During our Marine week, we were scheduled to go to a range to shoot M240s. We were the last group to go, and we were all supposed to get 100 rounds to shoot. After everyone shot, the Marines realized there was still a lot of unused ammunition. They said that they were required to use all of the ammunition every time they went to the range, so they gave us each another turn shooting. During this, I heard some of the officers joking about how if they were given the ammo they better shoot it or they won't get it again. These Marines are bureaucrats adhering to the fifth assumption in the Agency Autonomy theory which is that the agency exhausts the entire budget. They knew that if they didn't use all the ammunition that they were given for this exercise, the next budget may be smaller to eliminate the waste. The Marine Corps and the DoD as a whole want to maintain as high a budget as possible. By maximizing the budget, the utility of the senior bureaucrat is maximized which is the foundation of the Niskanen model. They use their entire budget, including all the ammunition they are given, in order to prove to Congress that the money they received for the last year was necessary for their operations when in fact it was just used so that some college kids could have fun shooting a second time. 

The Surplus

Many of life's greatest lessons can be learned from The Office (the American version that is). And no Office character exhibits this microcosm of deep knowledge than the one and only Michael Scott. For those of you who haven't watched the show or don't know who Michael is, how do I put this...let's say that he's interesting. In the "The Surplus" episode, Michael is made aware (like a 5 year old) the branch has a $4300 surplus that it "needs to spend", or it will be removed from the budget the following year. Factions form in the office and tensions rise between the copier and chair lobbyists. But wait, there's more! Michael is also made aware that he could receive an individual bonus for returning the surplus to "corporate".

Besides being a humorous situation, this scenario applies some of the concepts about bureaucracy from Weingast and Marshall. Not only is the principal-agent problem very evident ("corporate" and shareholders want costs lowered, but the agents [employees] are looking to maximize their own benefit/utility by buying an expensive chair or copier) but we also see the behavior of Senior Bureaucrat (Michael) affected by the maximization of his power and salary, both related to the size of the budget he oversees. 

Bureaucracy of Hitting a Shark

 Recently, Lex Fridman had Elon on his podcast and they just so happened to talk about his recent struggle with bureaucracies, specifically the U.S. Fish and Wildlife Service (FWS). Elon (as billionaire often do) is trying to launch his rocket, Starship, into space; but he's spent the last few months jumping through some peculiar hoops to do so. 

First, FWS was EXTREMELY concerned about a shark or whale getting his by his rocket on descent. Now you would think they could pretty quickly calculate the probability of this occurring, but it took a few months of dealing with permissions issues and data moving back and forth through internal departments for them to figure it out. Turns out... P(Rocket hitting shark/whale) = pretty much 0.

Then, they were worried about the sonic booms of the rocket launch may disrupt seal procreation in California. To prove this wasn't the case Starlink kidnapped a seal, put headphones on it, and played sonic boom sounds to it...twice. (I swear the picture below is real)

  

We, the voters, indirectly paid this organization $3.7 billion in 2023. Because we're all rationally ignorant individuals, I highly doubt any of us know in depth what this organization does day to day or even knew it existed at all. However, even if we did, how would we measure their output? The amount of sharks they save from rockets, the number of seals born, or how much they annoy Elon Musk? It is possible that these monitoring problems play significant role in extremely slow and expensive processes or their huge budget. 

Sororities & Bureaucracies

     I currently hold the position of president of my sorority. I oversee eight vice presidents and each of the VPs has a few subsequent Directors that work under them as well. In a way, each of my VPs act as the Senior Bureaucrat of their ‘bureau’, which in this case is their area of expertise, whether that be managing our chapter’s finances, planning our philanthropic events, etc. Each of these VPs has their own portion of the total budget given to us by Nationals each year.

    During recruitment last year, my VP Membership was extremely conservative with her spending, in fear of running out of money. She didn’t end up spending her entire budget and nationals cut her budget for this year by a couple hundred dollars. When finding this out, she was furious. In fact, she plans to overspend so that the budget gets reset to the previous value. This directly reflects the behavior of Senior Bureaucrats who produce past Q* to use up their budgets - because the budgets will get cut if they don’t do so. 

    Each year, chapter members request more transparency on our budget and where their dues are actually going. Unfortunately, we do have a case of the monitoring problem, as the output of each VP is not necessarily measurable and quantifiable, much like the monitoring problem at the federal level. As President, I try my best to ensure that everything that absolutely needs to get done is getting done first, and only then after that do I allow frivolous spending.

Shirking the Lawn

 Last spring my friend Eli was ecstatic to learn he had been accepted to live on the lawn for his fourth year. However, the day of lawn room selection, Eli was tasked with a last minute emergency shift at his job and could not attend the meeting. I received a call from him electing me as his representative. Therefore, a consensual fiduciary relationship of agency had been created. Eli the principal, and I the agent tasked to act on his behalf and choose his lawn room.  

    We all met in a sophisticated conference room, akin to the house chamber, hidden within the labyrinth of Newcomb. Tensions and emotions ran high as the random name generator assigned the order of selection. My heart sank when I saw I would be selecting 41st of 54 people meaning the potential for a principal agent problem of shirking just skyrocketed. Eli texted me a list of 10 rooms ranked in order of preference and they were all gone by the 20s. Among chatter and logrolling between future lawnees, I randomly chose a room number and the conference room halted to a deafening silence. I looked around in confusion unaware that I had just selected a room specifically awarded to students of color at the university. 

I was already embarrassed to be imposing at the future lawnee meeting and now I just looked like an ignorant jerk too. After being informed of the gravity of the decision I just made, I changed my approach and started to act within my own interests. Within the utility equation discussed from Kalt and Zupan, I had an ideological incentive to respect the legacy of lawn rooms, and had an economic incentive to not spend anymore of my personal time here viewing more powerpoints on lawnee protocol. Therefore, regardless of my principal’s preferences, I shirked and chose a random room in order to maximize my own utility function.

Seeking Rent in the Big Brother House

Big Brother, like most reality competitions, involves acquiring power through various means such as weekly-competitions or favors from the viewers. Each week the houseguests compete for safety and one player is voted out of the house by the other houseguests.

In a game of social warfare, reality competitions reflect the principles of rent that are explored in Public Choice. Houseguests vie for a limited number of valuable resources such as cash prizes, luxuries, and power (first 36 seconds). Economic rent-seeking activities include forming alliances, lying, and strategic behavior that maximizes benefits beyond what an individual player contributes.

Similar to the real world, rent-seeking behavior in the Big Brother house is unproductive for the social cohesion and experience of the other houseguests. In an environment where you are trapped inside for 18+ hours daily, required to take cold showers, and tasked with the sometimes impossible decision of evicting one of your fellow housemates, social cohesion can be equated to social welfare within the Big Brother economy.

Like our own community, the Big Brother community experiences the inefficiency of rent-seeking behavior.

The Coasian Cat

This past weekend I had the pleasure of visiting my friend's newly adopted kitten, Billy Bop. I admit that I am a dog person through and through, but boy oh boy did I find true love with Billy Bop. His eyes were so eye-like (round, and so big you can see your soul in them), and his fur was so fluffy it made cotton candy seem hard as brick. 

However, when at my friend's apartment I couldn't help but be distracted by the tremendously loud music and stomping from the ceiling above. It was absolutely irritating. And poor poor Billy Bop who was trying to sleep. My friend was considering calling in a noise complaint, but as I looked Billy Bop in the eyes I was reminded of our beloved Coase. With only two parties (my friend and her upstairs neighbor), and the only presumable transaction cost being the flight of stairs going up to see the neighbor (sorry Coase, there will never be "no" transaction cost), surely a solution could be worked out amongst them both without having to involve an official regulatory body. 

Granted, a third party may be needed to determine who's at fault. If the neighbors were at fault, perhaps they could pay Sarrah in kitten food to continue playing their loud music, hence internalizing the externality. Seeing Billy Bop's face, I could tell he was an eager economist-in-the-making.

Fig 1: Billy Bop

(a kitten that is adorable)

Borda Saves Diwali

Today, my suitemates and I wanted to do something to celebrate Diwali. Our options ranged from getting dinner at Kanak, lighting fireworks, watching India's cricket match against the Netherlands, or going shopping for new clothes While we had several options on what to do, we were struggling to pick just one as all of us did not have the time to do all of these activites.

All of my suitemates have taken ECON 2010, and when one of them jokingly brought up comparing our utils, my Econ brain turned on, and within a few seconds, I realized a possible solution to our problem was using the Borda Count. I quickly told my friends about this method and instructed everyone to rank the events based on their individual interests. We would assign a point value to each rank, and then sum up each event's points. The activity with the most points would be the one we would partake in.

I then created a table with everyone's preferences ranked and used a point system where 1st gets 4 points, 2nd gets 3 points, 3rd gets 2 points, and 4th gets 1 point.

	Kanak Dinner	Fireworks	Watching Cricket	Clothes Shopping
Krishna	1	3	2	4
Saahas	3	2	1	4
Raj	2	4	3	1
Siva	4	3	1	2
Quinn	2	1	4	3

Kanak = 4 + 2 + 3 + 1 + 3 = 13

Fireworks = 2 + 3 + 1 + 2 + 4 = 12

Cricket = 3 + 4 + 2 + 4 + 1 = 14 (Winner)

Clothes Shopping = 1 + 1 + 4 + 3 + 2 = 11

After computing everything, I was able to determine that watching India's cricket match was the activity all of us would do for today, as it had received the most amount of points (14). The cricket match was fun to watch as India won their match and is now advancing to the World Cup semifinals this coming Wednesday!

Rent Sea-king Behavior

Bristol Bay, Alaska, is the most bountiful source of sockeye salmon in the world. In 2023, the Bristol Bay salmon fishery harvested 40.6 million sockeye salmon for a total value of nearly $117 million, and has historically provided over 50% of the worldwide supply of the fish. In order to maintain a sustainable population, the fishing season is restricted to just 6 weeks, and boat length is restricted to 32 feet to discourage over-fishing.

However, these indirect regulations on the total catch have presented opportunities for some rent sea-king behavior. Fisherman must race from the docks to the fishing grounds, and once they are out there they battle dangerously – veering wildly towards each other, crowding the waters and tangling their nets together, all of which reduces fishing efficiency. Additionally, the boat length restriction didn't account for all dimensions, and so fisherman began investing money into building upwards instead of outwards – the two boats pictured below are both 32 feet long for example:

5'11 vs 6'0

A potential solution to these issues introduced by the regulatory catch restrictions could be to instead allocate quotas on catch amounts through auction. Similar to the auction we ran in class, this approach would better select the fishermen with the greatest benefit of salmon production without any of the aforementioned wasteful and dangerous activities.

Shirking in SNL

         This week on Saturday Night Live’s Weekend Update segment, they featured one of the cast members as a “guest” titled “Your Co-Worker Who Is Extremely Busy Doing Seemingly Nothing.” The character was one that was dressed professionally, carrying all a sticky-note-covered laptop, pages and pages of loose paper, three cell phones and a giant water bottle that just kept talking about how busy she was with work and how important her job was, despite the fact that she could never really say what she did and all of 900 emails were from horoscope.com. 

As Colin Jost was interviewing her, I realized that her character was a great example of a shirker. She “worked and worked and worked” but actually just wasted everyone’s time and money by getting literally nothing done. Whoever her boss was could possibly implement some ways to get her off of horoscope.com and actually working, like maybe setting up firewalls on her work computer and phones so that she could only access work-related sites, or tie her pay to objective metrics or tasks that she accomplishes, or just sit next to her and make sure she’s working. Let's just hope this co-worker never decides to run for Congress, because she would shirk constantly and truly demonstrate the Principal Agent Problem.

Money printer goes brrr

To the surprise of absolutely no-one Big Pharma has built and operated its own home in the political arena, amplified by the megaphone of "all da money". The pharmaceutical industry spent a meager $372 million on lobbying last year. It follows somewhat naturally that in a system of patents, regulations, and healthcare policies, lobbying is an essential part of the game for pharma. The why is less shocking than the how.

Olson’s theory in "The Logic of Collective Action" posits that large groups have a much more difficult time providing a public good—like lobbying—without a nudge. In Big Pharma's case, the nudge is fascinating, since there are almost 600 prolific entities that stand to benefit from lobbying. Though each company knows that it could technically free-ride the industry's lobbying efforts, there seems to be some effective selective/separate incentive to stimulate significant and growing collective action. 

So perhaps our model isn't covering the whole story. Perhaps in this industry, getting a line-item on a bill is so valuable (Vi) that even at low quantities of the public good (T), the value to the firm is greater than the cost (Ci). This would make sense, right? Because the value of a drug getting funding, rights, etc. is so impactful to a firm, the firm is compelled to want to "produce" lobbying activities individually in a manner that is also consistent with the group (Pharma's) interest. So maybe this is one way for us to explain the money flying off the printing press...

"Read my Lips: I'm a Shirker"

"Read my lips: no new taxes." These were the famous words former President George HW Bush uttered at the 1988 Republican National Convention, reflecting a prevailing conservative ideology favoring low taxes and smaller government. Bush's words were politically popular after years of tax cuts and economic growth under the Reagan administration, and they undoubtedly helped him win the 1988 election.

However, as the title of this blog post suggests, George HW Bush's lips may have said he was an ideological conservative in favor of low taxes, but his actions indicated that he was an ideological shirker. In 1990, the economy was receding and there were rising political pressures in Congress, leading to an amendment of the Gramm-Rudman-Hollings Balanced Budget Act that raised multiple taxes. While most Americans believed that some tax increases were necessary due to the state of the economy, there was a loss of trust in Bush that led to his 1992 election defeat. 

While on the campaign trail, Bush tried to atone for his shirking by apologizing, but to no avail. Bill Clinton would become the next president of the United States, making Bush a one-term president. The case of George HW Bush exemplifies the consequences of ideological shirking. Shirkers don't just lie; they also lose.

He Was Not Ken-Enough

Last Saturday, I went to a charity banquet for a student org, partly for the delicious food and partly because my friend wanted to see a boy she liked who was also attending. For clarity, the boy will hence forth be referred to as Ken. 

This event was "ticket optional." All proceeds went to charity, so you could pay/donate as much as you wanted when registering. And if you wanted to be a real jerk, you could pay nothing. Either way, you would still receive entry and have access to the catered dinner. The dinner here is our public good. 

While we were in line for the buffet, Ken told my friend he didn't donate any money and was just here for the "free" food. In that moment, I realized: 1) Ken sucks and my friend can do so much better, and 2) this was an exact replica of the situation outlined in Chapter 1 of the Olsen reading. This student org was relying on voluntary monetary contributions, driven by emotional/idealogical factors, to the cover event costs. Ideally, org members would want to pay something to support the cause. But this creates a free-rider problem. 

There's no way to exclude people like Ken, who weren't sufficiently motivated by sentiment to contribute, and yet still receive the benefits of the common interest/public good (dinner) the org managed to obtain. As Olsen points out, this is why governments can't survive on voluntary dues and instead impose compulsory payments like taxes. The state provides public goods, ie non-exclusionary goods. It'd be impossible to exclude citizens who didn't voluntarily contribute to the cost of public defense from the benefit of said defense.

In conclusion, I'll be advising my friend to stay single!!!

Stop! In the Name of Bourbon

My dad and I took a winding drive through Napa Valley when my dad stopped by a winery to buy a case of wine. At the counter, the cashier asked us where we were from, to which my dad said Kentucky. This prompted the man to pull out a massive binder with the state-by-state rules for shipping wine. 

And much to my dad’s dismay, Kentucky was listed in the binder as a no-ship state. This is a prime example of one of Stigler’s types of regulations – controlling substitutes. Kentucky’s bourbon industry knows very well that fans of liquor also tend to be fans of fine wine – so by restricting their ability to buy California wine, they can reduce competition for Kentucky residents. 

There’s one problem with no-ship rules…other states retaliate. California had a similar law prohibiting shipments of Kentucky bourbon to their state to prevent competition with their precious wine. 

While it seemed like capture was here to stay, the COVID-19 pandemic and the ensuing economic pressure on Bourbon Trail tourism pushed distillers to finally sign on to a new law that would open up shipments of bourbon and wine between both states. Public interest finally prevailed – and now Kentuckians and Californians can get whatever bourbon or wine they want (within the quantity restrictions). 

The Rational Gambler Hypothesis

We have discussed the rationality behind voting behavior, and I think that the   pB + [D] - C > 0 model could also be used to create a “rational gambler hypothesis” with sports bettors. Each individual bet can be seen as a “vote,” with p representing the probability of it being successful, B being the potential payout, and C representing the wagered amount as well as the time and effort spent to place the bet. Similar to voting, pB will virtually always be less than C because sportsbooks both set accurate lines and offer odds that are advantageous to the house. If we assume that lines favor the house and gamblers know this, then the “D” value, the added utility of watching a game with a bet placed on it, is the reason that people gamble on sports.

If we attempt to analyze the model to get the optimal bet size (similar to Peltzmann’s work), then the first step is to take the derivatives of (pB - C) and (D) with respect to bet size. (pB - C)’ is negative as the size of the bet increases due to the disadvantageous odds, and there is also a significant "fixed cost" associated with placing any bet. D’ is positive until some satiation point where the bet becomes stressful, and D’’ is negative before this due to the law of diminishing returns.

A normative implication of this model is that gamblers should place bets that are big enough to be worth their time but not too large that they start to become stressful. These moderately-sized wagers could benefit both the bettor and the house, who knew that gambling could be pareto-efficient?

Raise the roof: chaos in the house representatives

   Around a month ago, the house of representatives fell into chaos with a debt issue and turmoil inside the ranks of the GOP. The GOP holds the majority of of the seats in the house by a 4 seats. A group of 8 "hardliners" inside of the republican party have consistently caused issues by voting against republican bills that they don't support. Most recently this happened in a crucial moment when the house was voting on a bill which would raise the debt ceiling and avoid a government shutdown.

    The "hardliners" wouldn't work with the republicans or democrats. They contain enough members and clout to stop any bill that only has single party agreement on. In a hypothetical world where reps only vote for their party (except for the "hardliners"), the hardliners would be the agenda setters and the bills passed would need to be approved/ appeal to them the most. In reality, the democratic and the republican blocs were able to work with each other (logrolling). The bill therefore fit bipartisan ideals and the "hardliners" lost their agenda setting power. Ironically, they held the power all along because they promptly ousted McCarthy by calling a vote for his removal (a novel power log-rolled by McCarthy so he could gain the votes to become the speaker). 

Dolly Rocks with Redistribution

        The 2023 Rock & Roll Hall of Fame induction ceremony happened on Friday, and as I saw advertisements from it and highlights from it, I thought back to last year’s ceremony when Dolly Parton was inducted into the Hall of Fame. Dolly Parton is a fantastic singer, songwriter, performer, and all-around icon, and she also demonstrates some interesting economic ideas about redistribution. 

Dolly is one of the most famous singers in the world, and has been for a while, and she has had the opportunity to become a billionaire at many points in her life, yet she chooses to donate hundreds of millions of her fortune to philanthropic causes. Compared to others, such as Jeff Bezos, who have achieved billionaire status, she demonstrates that different individuals may choose to redistribute money until their marginal utility of income is equal to that of the super rich. Part of the reason why Dolly has donated so much of her potential billion-dollar fortune may be because her marginal utility for income is far less than some, like Jeff Bezos, and she contributes to philanthropies in order to get her marginal utility for income to a point where it is equal to someone who is a billionaire. Overall, to me this is just one example as to why Dolly Parton is a total rockstar, both on and off the stage.

A Royal(ly Absurd) Decree

Australia has a system of public inquiries called royal commissions, and they've become a particularly popular way for politicians to "respond" to the public's concerns. One of these commissions was called in 2017 to conduct a review of the banking and financial services industry after a series of exposés unearthed misconduct including bribery, money laundering, and even the charging of service fees for customers who were already dead. Australia has two financial regulatory bodies: the Australian Prudential Regulation Authority (APRA), and the Australian Securities & Investments Commission (ASIC). The commission found that both had fallen to regulatory capture from the Big Four Australian banks, causing them to turn a blind eye when evidence of this misconduct had been presented to them for years.

When the commission concluded in 2019, a report of recommended actions was presented for parliament to consider. While some of it seems sensible, I nearly spat out my drink when I reached Recommendations 6.13 and 6.14. They call for "a new oversight authority" consisting of "three part-time members" and "regular capability reviews" to keep APRA and ASIC from being captured by the banks again. A regulator to regulate the regulators. The absurdity of this is two-fold – not only would this super-regulator be just another target for the banks, it would also present an incentive for APRA and ASIC to take up their own lobbying efforts to swing its oversight in their favor, thereby adding even further to the inefficient allocation of resources. It seems like the bill implementing this authority has yet to pass, but I think I need to take some public choice material back home with me if even our highest form of public inquiry can produce recommendations like this.