Cap-and-Fail

A hot topic in the news these days is whether the cap and trade approach should be incorporated into the United States budget. Cap and trade works to first set a limit on the amount of pollution emissions (the “cap”) and then to open up a market for different firms to sell and buy pollution permits from each other (the “trade”.) The idea behind this approach is that it is efficient in how it minimizes pollution while internalizing the externality, so that government intervention is kept to a minimum.

The problem with this approach, according to a recent New York Times article, is that it works like a tax, in that it limits firms from producing where they want to produce so they charge a higher price and consumers must pay more, and that it redistributes rights to large firms. The simple idea of cap and trade had twisted into a complex system of exemptions in which “those with the most muscle got the best deals,” coining it the new name “tax-and-redistribution.” Instead of auctioning off these pollutions rights, the government was simply giving away rights to big companies.

Senators Maria Cantwell and Susan Collins worked up a new alternative they called “cap and dividend,” in which permits are auctioned off to firms and then rebates are returned to consumers to make up for the higher costs. The success of this bill passing however, will depend on the elasticity of the senators’ support, which is ironically swayed by large firm lobbying.

High Impact Ruling

A recent NFL.com article explained the recent policy development in the NFL following a weekend riddled with helmet to helmet hits that caused several players to be carted off the field and left several others with concussions. The NFL wants to create an incentive for players to avoid this sort of brutal dangerous play. A spokesmen for the NFL described the new policy that would seek to curb these types of brutal hits.

"Ray Anderson, the NFL's executive vice president of football operations, said Monday that harsher fines and possibly suspensions for helmet-to-helmet hits could be coming immediately, even for first-time offenders."

According to the league, these type of hits create a negative externality in the production of their product, which is professional football. The impact on the long term health aspects and the short term ability to play full careers apparently outweighs the cost of removing exciting physical plays from the game. A major part of the popularity of the game is the physicality and brutality unseen in any other sport. Will removing these types of hit ultimately hurt the game's popularity and turn the game into a quasi-physical game of soccer with pads? Would a better solution to this externality to produce a public good for the players such as more advanced helmets rather than attempting to regulate the game further?

Regulation such as this will create a "rent" that one group will try and capture. What exactly is the rent of this new rule and who stands to gain? Could it be that the rent is an opening for less physical players to excel in the league? Could it be kickers all along who have lobbied for this regulation in order to finally take over the game of football?

Close to Home, Free Rider Problem is Very Literal

Sometimes the free rider problem is just what it sounds like. With the recent wave of assaults on University students, the SafeRide program at UVa seems more sensible and useful now than ever. However, after a girl was assaulted Saturday night while waiting for SafeRide to arrive, one writer for the Cavalier Daily argues that the program is being stretched to its limits and needs attention due to suffering service.

Currently, the program does not have the capacity to accommodate a large number of riders. With two vans responding to student requests and a third solely devoted to making library runs, seats fill up quickly — especially during peak exam times. Calls to the service line are often met with busy signals because of high use, which is frustratingly inconvenient for students. Such drawbacks deter students from making use of the program. Instead, they might choose to walk alone at night and put their safety at risk.

Undoubtedly, SafeRide provides a valuable service to the UVa community. Moreover, because the service is free, there is a public aspect to its provision. As many would expect, this has led the University to under-provide. However, the article mentions an effort by the University to launch a free cab service (prophetically named “FreeRide”) in the fall 2008 semester – while popular, this program fell flat. When students began to use it inappropriately for transportation to social events and drivers complained about lack of proper compensation, it was discontinued just one semester after its inception.

It is clear that SafeRide is a popular and useful method of transportation for University students when safety is an issue. With the recent increase in crime near the University, it is likely that students will begin to utilize it even more, potentially placing even greater strain on the system. Faced with a tight budget, the University may be hesitant to expand the program. One alternative is the Yellow Cab service created by the Office of the Dean of students, but that option is far less attractive to students because there is a price tag, although payment can be deferred until a later date.

Free programs are difficult to fund and provide efficiently, and students don’t use other programs heavily precisely because they are not free. What other options does the University have to efficiently provide safe transportation for students?

Clinton, Canosa, Cuba...and Olsen

This article from 1994 discusses the influence that Jorge Mas Canosa had on President Clinton’s decision to overturn the U.S. foreign policy towards Cuban refugees. The Cuban Refugee Adjustment Act of 1966 changed the legal status of Cuban immigrants in the United States; it treated them as political refugees and granted them political asylum. The act also provided immigrants with immediate privileges that no other group enjoyed, such as automatic permanent residence status without review and without the usual waiting time. However, on August 19, 1994 President Clinton announced that the United States new foreign policy would involve detaining any Cuban immigrants, “halting cash transfers to Cuba and curtailing charter flights to the island.” This article delves into reasons Canosa gives for his support of Clinton’s decision to reverse this foreign policy. Canosa’s involvement as leader of the Cuban-American National Foundation (CANF) interested me when reading this article. After a little more research on the topic, I found another article that intensified Canosa’s involvement in the Clinton Administration's foreign policy. This article argued that Clinton changed Cuban foreign policy as a way to gain electoral votes and money from Florida, Canosa, and the CANF.

In relation to our class discussion about Olsen’s By-Product Theory of Interest Groups, these articles provide a case of where a larger interest group was able to overcome organizational costs and benefit from political lobbying. The CANF is a Cuba exile organization devoted to removing Fidel Castro from power and transforming Cuba into a democratic, market-based society (the primary product of CANF). However, Canosa used political lobbying to influence US foreign policy and therefore hopefully benefit the primary goals of the CANF eventually (lobbying was a by-product).

Olsen argued that this lobbying by interest groups gives them advantages in democracy; he also states that political lobbying advances the interests of a small group over the interests of a much larger group. In this case, would the much larger group whose interests are being overlooked because of Canosa’s and the CANF’s political activity be the Cuban refugees who must now return to an economically depressed Cuba? Also, Olsen argues that interest groups are responsible for the decline of nations. Does that argument apply to this case, since technically Canosa and the CANF are ultimately trying to help the nation of Cuba? Is the democratic structure of America being harmed by this case of political lobbying?

How Small Businesses Exploited Wal-Mart

When I was home for fall break, I discussed the recent debit card fee regulation with my father (who works for the Star debit network). This NY times article explains the regulation that will allow the Federal Reserve Bank to set the fees debit card companies charge merchants. Merchants will benefit from the lower fees (and maybe consumers, but that remains to be seen), while Visa and MasterCard will receive lower profits. Additionally, cards issued by big banks with at least $10 billion in assets are the only ones affected by the legislation. Visa and MasterCard give banks 80% of the merchant fees, and so this is also a heavy blow to the banking industry. The Federal Reserve Bank has not yet enacted the new fees, and so the full effect of the regulation on retailers, consumers, big banks, and debit card companies remains to be seen.

Major retailers such as Wal-Mart and Amazon heavily lobbied for this regulation. This is a clear example of Olson’s “privileged” group, where a few members had an incentive to bear the entire cost of obtaining a collective good. The major retailers paid the cost for lobbying the regulation, knowing they had much to gain. On the other hand, small businesses that accept debit cards now also reap the benefits of the regulation without any of the cost. The small businesses had no individual incentive to bear the cost of lobbying, and so they acted as free riders while Wal-Mart and Amazon paid all the costs. It happens rarely that one can say that small businesses exploited Wal-Mart.

Tariffs, Tullock and China

This article from the New York Times discusses a bill passed by the U.S. House of Representatives that would give the Obama Administration greater power to impose tariffs on Chinese imports. The legislation, which passed with a bipartisan majority, is considered retaliation to Chinese currency manipulations. Although such actions might be questioned by the WTO and Treasury Secretary Timothy Geithner, it seems that both political parties are in favor of these measures. The welfare costs of such tariffs though are well known and are represented by the Harberger deadweight loss triangle. As a result of the tariff, Chinese goods become less competitive and the benefits of free trade are lost. Jiang Yu, a Chinese foreign ministry spokesman, seems to have alluded to this overall decrease in consumer surplus as he stated that the US should “resist protectionism so as to refrain from any damage to the interests of both peoples.”

Another critical issue is how these tariffs protections will be allocated. Although the Obama Administration “would not have personal control to turn sanctions on or off,” the legislation would give the Commerce Department discretion to place tariffs on countries that have “fundamentally undervalued” currencies. The issue is that giving the Commerce Department the ability to “place duties on imports” creates incentives for firms to compete for tariff restrictions in their industry. As Gordon Tullock might point out, the fundamental problem with this behavior is that it diverts resources to seeking this “prize” instead of investing into something more productive. If greater tariff powers are granted to representatives, then they could justify pursuing tariffs in favor of certain industries. This gives firms incentive to lobby and contribute financial resources to campaigns which in turn gives politicians an added incentive to create rent! It seems that the repercussions of China undervaluing their currency is that creates “legitimate” reasons for instituting tariffs on their goods which creates a market for campaign contributions in the United States, thereby leading to greater inefficiency and welfare costs.

Stigler and the (Bleeping) FCC

How often do you hear people bemoan the Federal Communications Commission, the national agency designed to regulate, among other things, radio and television? Creative minds in TV and radio grumble frequently about the stiff regulations of thecontent they are, or rather aren't, allowed to broadcast. Shouts of "Don't Censor Us!" are hardly uncommon, and certain shows like South Park and Family Guy (which did a popular musical number slamming the FCC) repeatedly push the threshold of suitability. Some shows have more "Bleeps" per minute than words, it seems, and some stations with laxer restrictions might play up their riskier shows in an attempt to seem edgy. But how badly do they really want these restrictions pulled? According to Peter Funt, son of Allen Funt, creator of Candid Camera, they don't. His theory is quite simple: people find the censored versions or broadcasts more entertaining. As he puts it, "The sizzle has far more appeal than the steak," which I take to imply that people are much more amused when someone curses and they aren't supposed to, leaving it to the audience's imagination to fill in the bleeps, than when someone curses freely. He even says broadcasters have "always been driven more by self-censorship than by the government-mandated kind," and as an example demonstrates how CBS mandated his show 'bleep' any eruptions of "Jesus!", which left "viewers to assume a truly foul word had been spoken." This brings to mind George Stigler's paper, "The Theory of Economic Regulation." Indeed, the circumstances are not identical. Stigler showed that firms often acquire regulation to give them an edge, somehow stifling competition from other entities, often requesting regulation that on the surface seems to harm their business. Funt contends that broadcast companies do something very similar. They play a hypocritical game with the FCC, "begging not to be thrown in the briar patch of censorship, because that’s really where they most want to be." Why else would shows script words they know won't make it past the censors? Because, Funt explains, it gets the audience excited and seems to challenge authority. His father was actually prohibited from censoring non-illicit material as a way to draw laughs, leaving the bleeps for only the really foul stuff. He mentions shows today that take advantage of double-entendre and censorship, including the popular "Unnecessary Censorship" bit in Jimmy Kimmel's talk show, which mimics Funt's father's gimmick of old. As companies plead for regulation on their industries to earn economic profit, so to, Funt asserts, will broadcasters (secretly) desire regulation to keep their audience laughing. There might well be something to this. After all, satellite radio has never taken off as expected, and one of their biggest assets was their claim of no-censorship. Stand-up comedian Mitch Hedberg said that, "there's a reason you can say whatever you want on satellite radio... Nobody is listening." Perhaps Howard Stern was funnier in a regular broadcast, and Funt is right when he declares, "Censorship, it seems, remains one of the most entertaining things on television."

Fill 'er Up: Hotelling and the Gas to Grub Conversion

Any of us that live on JPA will likely have noticed the new Fry's Spring Station restaurant that opened on the corner of Maury Ave earlier this summer. I thought the Service Station-to-Pizzeria was an interesting conversion and was surprised to find out that it is actually a common form of reuse of abandoned stations, as this Dallas-Forth Worth article details.

For this to occur, obviously old stations have to close. The old Fry's Spring Station, which closed early on in my time at UVa, is across the street from an Exxon, across the corner from a convenience store with WoCo gas pumps, and down the street from a BP Station. There were four gasoline sellers within a stone's throw of each other. We know from our discussion of Harold Hotelling's Stability in Competition why these stations cluster as such to try and gain the majority of the market by being slightly closer than the competition. The most curious part of this conversion, is that the new business is furthering the occurrence of this clustering - it is right across Maury Avenue from Anna's Pizza. And so the cycle may begin again.

Stephan Parry has employed the site of a business that possibly succumbed to the price wars that Hotelling posits may begin when merchants sharing a customer base compete strongly. However, he has perhaps unknowingly employed that site to enter into another Hotelling-style conflict in competing with Anna's Pizza.

A Painfully Funny Look at Representation in the US

A satirical article in the Onion [the site is slightly NSFW] mocks the representative democracy that has come to define the US. Here, the American people apparently have hired a high-powered lobbyist to "help advance their agenda in Congress." Tired of being a "low-priority fringe group," all 310 million Americans have decided to take the big business route to make themselves heard. The article is saturated with irony, making the reader take a good look at how the average citizen's interests have been pushed aside for private ones. Irony aside, some quotes hit too close to home like,

"The goal is to make it seem political advantageous for legislators to keep the American people in mind when making laws," Weldon said. "Lawmakers are going to ask me, 'Why should I care about the American people? What's in it for me?'"

Therein lies the value of satire: constructive social criticism. What is in it for lawmakers to help the average citizen, who does not have the influence or resources of a large corporation? Re-election? Not necessarily. Virtue? Maybe, but Stigler points out, "Unfortunately virtue does not always command so high a price." In a government where we find that money often equals votes, hiring a lobbyist for special interest group "American citizenry" is not as far-fetched as it sounds; looking at how much clout industrial giants and special interest groups hold, it might even be the rational choice. In the article, they're paying the lobbyist $795 an hour; if that were the only cost of organizing, then the latent group could awaken as well. If elected representatives are placing their constituents' concerns last anyway, what's the point of voting?

I think that, given the article's suggested direction that America is heading toward, there are also a lot of implications that need examining. It's no secret that special interest groups are influential, but do they have the potential to uproot our democracy? Does everyone need to be in a special interest group to be counted? How is this new representative system changing the US?

Is the most expenisve public school in the country Pareto Efficent?

This August in a Yahoo News Article, Los Angeles unveiled the most expensive public school in the nation with a price tag of 578 million dollars. The school will house 4,200 students, so that is $137,619.05 dollars per student! The school called the Robert F. Kennedy Community School is built on the same land as the former Ambassador Hotel, where the Robert F. Kennedy was assassinated in 1968. This is the state's third of these "Taj Mahal Schools" which boast price tags of over $100 million dollars. Not everyone is celebrating these schools though. "The buildings are nice but they are a big waste of tax payers money and run by the same people who have given the city a 50 percent dropout rate." says Ben Austin who holds a seat on the California Board of Education. Parents are not fooled either. So while these schools may have all the latest amenities, they are not guaranteeing higher success rates for students, but the arguement for some is that students learn better in more pleasant surroundings. Even so, allocating all of the money to these schools and leaving out other public schools in the Los Angeles area does still indeed make this a Pareto Efficient outcome. The question that determines Pareto efficieny is, is it possible to make someone better off without making anyone else worse off? If the answer is no, the system is efficient. If one group received all of the production of an economy, while a second person received absolutely nothing, most people would agree that this is not fair, but is it Pareto efficient? Well, is it possible to make the second group better off without making the first person worse off? No. The first group will suffer, even if only a little bit, from loss of the extra goods because the state only has a limited amount of resources. It may be true that the loss to the first group is smaller than the gain to the second group, but the fact remains that, to make the second group better off, you must do it at the expense of the first group.

Stigler and Proposition 19

California’s Proposition 19, if passed in the November election, will ‘legalize, tax, and regulate’ the production, sale, and use of recreational marijuana in the state. Regulation will vary between municipalities, but, in general, growers will be able to set up legal businesses, and restrictions on growing for personal recreational use will be lessened. Opponents of the bill can be divided into several groups with different motivations. The law enforcement and prison industry favor the status quo where they receive large amounts of federal funding for the ‘War on Drugs.’ Non-profit ‘public interest’ groups argue that legalization will have negative effects on society. Marijuana’s competitors, the wine, beer, and liquor industries have opposed the proposition and contributed significantly to the campaign against it, because, if passed, it will increase competition for their products.

Two additional groups that oppose Proposition 19 are already in the marijuana business. These are the large (illegal) commercial producers and the legal medical marijuana dispensaries. While this may seem counterintuitive to many people that marijuana producers support prohibition, this is in line with Stigler’s theory that, if possible, industries will seek government regulation that limits entry into their industry, decreasing competition and allowing them to keep prices high. It is difficult for criminal marijuana producers to make a public interest argument, or lobby the government or the public successfully. However the medical marijuana producers have publicly come out in opposition of the bill with the ‘public interest’ argument that the way the bill is currently written will decrease access to medical marijuana for patients who really need it. This article from The Huffington Post argues that the bill will have no affect on the availability of medical marijuana to the sick and elderly, and shows that the language of the bill contains special provisions to prevent it. Some of the more prominent figures opposing Proposition 19, such as Mary Rathburn and Dennis Peron, are same people who wrote and supported Proposition 215 that legalized medical marijuana. They are also the owners of some of the largest medical marijuana dispensaries in the state.

Loudoun School Board Votes for Obesity (ok, maybe not directly)

At home for fall break, I encountered many high school friends. I was shocked when one of my friends informed me that her little brother (now attending our old high school) was required to pay $200 dollars for parking, $86 per AP test, and $100 per sport season. I looked it up online to confirm and found a Loudoun Times Mirror article on the topic. Immediately, all I could think about were resulting externalities. When I graduated from Heritage High School in 2007, parking permits cost $25 per school year and sports and AP exams were funded by the school. This past year there was a $15 million budget cut for the Loudoun School system and that is what has lead to these new fees. Externalities of the 700 percent increase in the parking fee:

• Positive: Encourages carpooling, riding the bus, or walking to school, leading to reduced pollution and traffic
• Negative: Inconveniences parents who have to drive their children as a result

The $86 per AP test also has its externalities:

• Positive: may encourage more students to take AP classes more seriously and better prepare for the exam
• Negative: could act as a barrier for students that cannot financially afford to pay for the exam

The $100 fee per sport played:

• Positive: can’t think of significant ones (maybe you can!?)
• Negative: discourages many students from trying out for the team if they know they won’t be getting significant amounts of playing time.
• Negative: it will become more difficult to get student to try out for the less glamorous JV and freshman teams.
• Negative: reduced participation in after school sports could contribute to drug, alcohol, and obesity problems.

Of the three fees, I am most skeptical with the sports pay-to-play fee. While the parking fee and the AP exam fee truly charge the individuals that are benefiting from parking and taking AP exams, I don’t think the pay-to-play fee does. Like I mentioned above, not all athletes on a team participate equally and arguably should be charged the same fee. Furthermore, playing time is based on a pure comparative measure (if your friend is a better athlete than you are, then he/she gets more playing time), so it is more difficult for the individual to decide his/her fate (unlike the parking permit where you are guaranteed a parking spot). For this reason I think the negative externalities of the pay-to-play fee are much more discouraging and I am interested to see if its costs will eventually outweigh its benefits leading to a reversal of the fee.

Voter Turnout for Primaries Shows Troublesome Trend

According to this article from September 14^th in the New York Times, for the first time since the 1930’s, Republican turnout for primary elections in 2010 has outpaced that of Democrats, with just over 10% of Republicans participating compared to about 8% of Democrats. To some this might sound like an obvious warning to Democrats of potential losses in the upcoming midterm elections, but the article suggests that there is more to these figures than meets the eye.

While it is unclear whether higher levels of Republican primary participation spell doom for the Democrats in November, a closer look at the data shows reasons for leaders of both parties to be concerned — the number of nonvoters continues to outpace voters. In a primary season where the narrative tends to be about partisanship and anger, the statistics through the end of the summer suggest that voter participation remained relatively consistent with the last couple off-year election cycles.

Precisely why fewer voters are voting in primaries is open to debate, but many believe it is because fewer Americans are choosing to identify with a specific party – both Democrats and Republicans are currently seeing fewer and fewer Americans self-identify into their party. With most states holding closed primaries, meaning one must be a registered Republican or Democrat to participate, a lack of party affiliation instantly disqualifies a voter from primary participation.

How might sagging rates of participation be remedied? One state is attempting to take action to reverse the trend of non-participation: simply by giving their voters the option of voting in advance by mail, Colorado’s rate of primary participation more than doubled in 2010 compared to 2006. Colorado follows the same closed-primary system as most other states, yet has managed to significantly boost participation rates just by reducing the opportunity cost to their voters of casting a vote in a primary election.

Were more states to follow Colorado’s example and attempt to make primary voting as quick and easy as possible for their voters, it might be possible to reverse the current trend; it is clear that most voters today need the process to be expedited to consider it worthwhile to participate in primaries.

Deregulation of the Taxi Industry in Ireland

When I lived in Dublin, Ireland last summer, I noticed the large number of taxis for the European capital of only 1 million people. I commented about this to my Irish co-worker who explained to me the recent deregulation of the taxi industry in Ireland. Before deregulation, a shortage of taxis existed in Dublin and getting home from a pub on the weekend often involved waiting for over an hour in a taxi queue. I never had to wait more than a minute to catch a taxi, even in the residential area where I lived in Dublin.

This article from an economist at the University in Dublin written in 2004 describes the history and results of deregulation. Regulation of the taxi industry began in 1978 (due to pressure from incumbent license holders) and made taxi licenses scarce and expensive. The Irish economy boomed in the 1990s and the number of taxi licenses remained at nearly the same level. The average taxi license cost I£80,000 in 1997 and after deregulation in 2000 only cost I£5,000. The number of licensed taxis rose from 2,722 in 2000 to 8,609 in 2002. Taxi drivers protested the deregulation, claiming that their income would decrease, the quality of taxi service would decline, and open entry would encourage criminals and rapists to become cabbies. While the individual income of taxi drivers did decline, the consumer gained from the decreased waiting time. No other signs of decreased quality in taxi service have been observed.

With the meltdown of the Irish economy recently, taxi drivers do have a genuine grievance about their loss of income. Tourism is down and less people can afford to take taxis. Additionally, many illegal immigrants work as taxi drivers. Does Ireland need that many taxi drivers? The joke in Dublin is that anyone with a car is a cabbie. Should entry into the market be made slightly more difficult or is the (nearly) free market the best for Ireland?

So Long ABC Stores

Virginia Governor Bob McDonnell is trying to push legislation to privatize the liquor sales in Virginia. Doing so would end a 76 year Virginia government monopoly on the sale. Governor McDonnell plans auction off 1,000 new licenses to sell liquor to private retailers ranging from local drug stores to grocery stores and even chains like Costco. This auction is expected to provide the government with a much needed initial windfall of money of between $400 and $500 million to be spent immediately on roads and construction. The use of an auction for allocation is a good way to minimize any potential rent seeking by corporations as a liquor sales license is sure to be a very lucrative prize. The auction coupled with the new market for alcohol sales license will ensure that the licenses get into the hands of the companies that want them the most.

Some “public interest” opponents of the bill believe that the Government wants to privatize sales (to the detriment of Virginia Citizens) because it is being influenced by alcohol lobbyists who are asking for less regulation to help their individual sales. This goes against Stigler’s theory that industry actually seeks out regulation to block entry of new competition. If passed, the bill will create a competitive market for alcohol sales which should lower prices slightly and actually provide more brand options for consumers; however, alcohol sales in the state are expected to increase overall, so this argument is definitely complicated. Considering the government will have to make extensive budget cuts to make up for the $47 million per year loss in profits from alcohol sales (which happens to be one of its most profitable sectors during the recession) it is hard to see how this is just being done for the benefit of the government. Governor McDonnell and his supporters are arguing for the bill on the basis of principal (the government should not be involved in the sale of liquor), economics (the competitive market should be allowed to function for this private industry) and for the benefit of consumers (convenience and options).

With the monopoly in effect the government currently gets slightly more than 50% of the price of a bottle of liquor. Without the monopoly the prices of bottles are unlikely to decline dramatically (although higher end brands like Grey Goose may be more affected) but the government will only receive about $2 in taxes per bottle with the rest of the markup going to the private sellers. While most would not argue that this redistribution of wealth from “big government” to private sellers is not a bad thing, the fact is that these losses to the government will have to be accounted for in some other form (say higher taxes). With monopolies and market control the problem is that resources are diverted in seeking the rent, not in the rent itself; so is a government monopoly really such a bad thing in this case? It appears as though the money from citizens was just being transferred to the government in the form of alcohol sales (although I suppose an investigation into the government’s relationship with alcohol wholesalers and producers could indicate some rent seeking). Furthermore, even though the plan to allocate licenses by way of auction minimizes rent seeking, with such a lucrative industry one can expect these opportunities to surface in the future.

Sifting Through the Smog

A New York Times article explains the legal action being taken by the state of West Virginia against the Obama administration regarding coal-mining regulations. At the direction of Governor Joe Manchin, the state is claiming that new federal mountaintop mining regulations are unconstitutional and place an unnecessary burden on the coal industry:

"The lawsuit, filed by the state Department of Environmental Protection, accuses U.S. EPA of overstepping its authority and asks the U.S. District Court for the Southern District of West Virginia to throw out the federal agency's new guidelines for issuing Clean Water Act permits for coal mines."

This raises several interesting questions, which do not have clear answers. According to Stigler, firms use the government to craft regulation in their favor. So then, who benefits from these regulations on the coal industry (Environmental groups, the renewable energy industry, local fisheries, etc.)? Could it be that these regulations are actually in the public interest as it is almost always claimed? Or rather is the inefficiency created by this regulation a type of "rent" that firms are seeking to capture for their own benefit?

NRA Endorsement of Perriello

This Daily Progress article discusses the recent acknowledgment that Tom Perriello will most likely be endorsed by the National Rifle Association in the upcoming election. The NRA follows a “friendly incumbent rule” by which they support pro-gun law makers seeking re-election.

"Tom hasn’t been afraid to stand up to members of his own party when it comes to fighting for the Second Amendment, and the NRA’s endorsement will signify to Virginia gun owners that they can continue to count on Tom to represent them,” said a spokeswoman in his campaign. Perriello has a strong history of defending second amendment rights and the NRA supports their friends who have stood by them in the past.

The article got me thinking about our discussion in class of the median voter theorem. If the single dimension policy space is a social conservatism continuum, or even more specifically a continuum of gun policy conservatism, what will this endorsement do for Perriello?

The NRA’s endorsement and Perriello’s pro-gun platform would move him (as a candidate option) along the continuum towards the conservative end. It can be predicted from the theorem that inevitably Perriello may lose the votes of some liberal anti-gun extremists as a result of isolation. Yet, it would also be assumed that he would gain the votes of those super loyal to the NRA in all its decisions Conservatives.

The overall gain Perriello would get from his position in the policy space would be contingent on the location of the median voter. If the median voter is already more conservative it is likely that the NRA’s endorsement and his pro-gun stance will benefit him, but rather if the median voter is more liberal (with respect to second amendment rights) it could do more harm than good in his efforts to win the election. Given that much of the 5^th district is heavily rural, I’d say this is really great for Perriello and could give him a big boost.

I Would Have Named it the Sabre Center

This Washington Post article discusses the enormous cost of building John Paul Jones Arena at our beloved University. Everything about the stadium is state of the art, least of which the price:

The building's total cost of $191 million includes about $130 million to build the center, nearly $14.5 million to outfit the dining, audio-visual and other areas, about $5 million for fundraising costs and $42 million to pay interest on bonds to finance the building over 20 years, according to Virginia executive vice president and chief operating officer Leonard W. Sandridge. Private donations, suite leases and sponsorships will cover all but $9.6 million, which comes from student fees to be paid over the life of the bonds, he said.

Only five percent of the cost is coming from public funding, which is astounding for a public university. A great deal of the cost is being burdened by private donations, even though they are certainly to be in the minority of people using the stadium. What could possibly motivate someone to put forth money when they could wait around and use it for free? Chapter 7 of the Gruber textbook highlights the main reason why someone would do so; the warm glow model:

Individuals care about both the total amount of the public good and their particular contributions as well. Perhaps they get a plaque with their name on it from making contributions, or maybe their contributions are known publicly so that their friends praise them for their generosity, or maybe they get a psychological benefit from knowing they helped a worthy cause.

Certain donor levels did get recognized for their contribution to the project. And for the paltry sum of 35 million dollars, you can have a state of the art basketball stadium named after your father.

Rent-Seeking and Economic Regulation Hurts Those in Mourning in Maryland

This 2006 article from the Baltimore Sun discusses how expensive funeral services are in Maryland (not to mention everywhere else in America) due to an early 20^th century state law that was passed in order to protect consumers from unreliable morticians; the article goes on to reveal that this law is actually popular amongst funeral business owners today in Maryland because they can use it to prevent legitimate funeral service businesses from opening up around them. The author of this article states that “funeral directors couldn't engineer this protection by themselves; they've had help from state lawmakers who have prevented attempts to reform the funeral laws. Few Marylanders are aware that one of Annapolis's more generous political benefactors is the Maryland State Funeral Directors Association.”

With this quote, the problem of rent-seeking within the funeral service business in Annapolis, Maryland becomes obvious. In terms we have discussed in class via Tullock’s chapter on the topic, because of the monetary gains that can be obtained from keeping regulatory state laws in place, there is an incentive for funeral business owners today to give money to the Maryland state government (aka spend resources on rent-seeking expenditures), and thus money is spent away from the natural direction of the market. Funeral home owners have fought innovations in the funeral service business that would lower funeral costs by “working with their politician friends…they have defended and strengthened anti-competitive funeral regulations aimed at stemming the tide of Internet casket sales, the expansion of funeral home chains and the popularity of cremations.”

In this rent-seeking case in Maryland, resources were wasted trying to obtain the “rent” of regulation to entry in the funeral service business. Therefore, I also felt as though this article was interesting because it provided a real life example that tied Tullock’s article on rent-seeking to Stigler’s article on economic regulation. The author of this article states that “people usually think that businesses dislike regulation. But businesses often find it profitable to have regulations crafted to impede would-be competitors. This allows politically well-connected businesses to charge higher prices and manipulate consumers' choices.” With this quote, Stigler’s argument of how businesses like government regulation because it gives them market power and control is proven. The funeral business owners give money to the government (rent-seeking) in order to make sure that it is hard for new funeral service businesses to open up and therefore their prices can stay high (theory of economic regulation).

My question after reading this article is, how will this cycle of rent-seeking and unnecessary regulation over entry into a market be fixed? Or will people in Maryland just always have to pay more for their funeral services?

The Economics Behind 'The Bachelor Pad'

Of the many hours I wasted watching the Bachelor Pad, I have found a way to gain some value from it—blog about it. This show relies on the economics of public choice in order to create unpredictability and drama. For those of you that are not familiar with it, it’s a TV show in which past bachelors and bachelorettes (From the TV shows of The Bachelor or The Bachelorette) compete for $250,000 and a chance of finding love along the way. At the end of each week an elimination ceremony takes place where all of the women vote individually on the man they would like to eliminate and the men do the same for the women. .

Right off the bat, the contestants divided into the “insiders” (contestants that knew each other before the show) and the “outsiders”. As a result, the women of the insider group would collaborate with the men on the insider group in order to see which man they should voted off. In return for granting the insider-men their wish, the men would place their vote based on what the insider-women requested. The outsider’s did the same. I think this is a great example of logrolling. These mutual agreements lead to both sides (men and women) gaining a better chance at achieving their preferences. Furthermore, just as Mueller describes it in Chapter 5.9, the bluffing problem certainly made its appearance on the Bachelor Pad, creating a good amount of drama. .

Mueller also mentions the problem that occurs when voting is done in sequence, as was the case on the Bachelor Pad. The holdout problem proved to be a very popular strategy for some contestants. Many times right before the last contestant was going to place his/her vote, the contestant most worried about being voted off would strike deals with the last voter. For example, Kip was on the verge of being sent home and Nikki was the last women to vote leaving Kips fate in her hands. Kip bargained with here by promising his loyalty to her in the future—a benefit Nikki only received because she was the last voter.

Finally, at the end of the show only one woman (Natalie) and one man (Dave) were left standing. Natalie and Dave were sent into separate rooms and were given the decision to either share the money or to keep it all to themselves. Who would receive the money was decided in the following manner:

• If both Natalie and Dave decided to keep the money, neither would receive it and the quarter million dollars would be divided among all other Bachelor Pad contestants.

• If one of them decided to share and the other decided to keep the money, the person that chose ‘keep’ would receive the whole $250,000.

• If both decided to share the money, each would receive half of the $250,000.

This is a typical prisoner’s dilemma. In class we discussed that the dominant strategy would be for both of them to decide to keep the money, which would leave both with nothing. However, if there are other convincing incentives put in place (like an inmate breaking the leg of the person who confesses) then this may be avoided. So the burning question the show left its viewers with was whether “love” was enough of an incentive for both Natalie and Dave to decide to share the money. I’ll leave it at that…