Duck [Political] Dynasty?

We’ve talked in class about prominent interest groups like the NRA and AARP, but there may a new interest group at work in Louisiana.

Saturday was the runoff round of the special election in Louisiana to replace Republican congressman Rodney Alexander, who recently resigned to join governor Bobby Jindal’s cabinet as the secretary of veteran affairs. The two top vote-getters in the first round were both Republicans – state senator Neil Riser received close to 32%, while businessman Vance McAllister received 17.8%.

McAllister, who has never held political office, was a clear underdog going into the runoff but he picked up a big endorsement ahead of the polls from Willie Robertson, Louisiana resident and star of A&E’s “Duck Dynasty”. Robertson touted McAllister as an outsider, and urged Louisiana residents to support him at the polls. It certainly worked – McAllister cruised to victory Saturday, picking up 59.7% of the vote.

This would seem to fit Olson’s description of large interest groups. “Duck Dynasty” commands a large audience – the show’s most recent season premiere had 11.8 million viewers, although many are not Louisiana voters – but it is not inherently political. The group is instead held together by a mutual interest in the show. But after building a huge audience, the shows stars now have a huge basis of support with which to affect actual political change. Riser, a state politician, was the logical favorite for the seat, and his large margin in the primary seemed to signal an easy win. Robertson, however, was able to use his television status, and thus his “interest group”, to elect a complete political outsider who better supported his interests.

More on the Value of Campaign Spending

This article discusses the value of campaign spending and extends our recent class discussion on the subject. The author claims that the value of campaign spending is often largely overstated, and he gives data from the 2012 elections to back up his claims. He shows that the relationship between an incumbent’s margin of victory and the amount by which he outspent his opponent is statistically insignificant. The relationship between the incumbent vote share and the amount of money spent by the challenger, however, is negative and highly statistically significant. This relationship shows as a logarithmic curve, where returns to challenger campaign spending are initially very high but decrease after $200,000 has been raised. This data seems to further back up the s-curve relationship between campaign spending and votes documented by Mueller: Challengers begin at the bottom portion of the s-curve, where they initially experience increasing returns to their campaign expenditures. These increasing returns are experienced up until the $200,000 mark is reached, at which point diminishing returns begin to set in Incumbents, however, begin at or above the inflection point in the curve and therefore receive diminishing returns or no returns at all to their additional dollars spent.

As noted by the author of the article, an important extension of the fact that campaign spending matters more for challengers than incumbents is that U.S. campaign contribution limits serve to protect incumbents. The fact that individuals may not contribute more than $2,600 to any given campaign means that it is very difficult for challengers to raise enough money to threaten the incumbent’s position. Challengers are often less well-connected than incumbents and furthermore start at a point further down on the s-curve. While this means that each additional dollar they raise has a higher impact, it also means they must raise more money than the incumbent in order to be able to effectively compete - something that is not easily done without connections.

Interest groups and the Trans-Pacific Partnership Agreement

From an economic point of view, lowering barriers to trade between nations is widely seen as valuable policy reform. However, as this article describes, the Trans-Pacific Partnership Agreement is "A free trade agreement that is neither about trade nor freedom." In fact, information from leaked papers suggests that of the 29 chapters under negotiation, only 5 actually negotiate trade while the 24 others "aim to influence many issues, such as food and environmental standards, intellectual property, and pharmaceutical formularies." 

The TPPA is a clear example of how legislation is supplied in accordance with demand, and the demand in this case is largely derived from firms in industries sensitive to intellectual property issues. Trade agreements have potential create massive new rents in nearly every industry, so the secrecy and focus on pleasing the firms providing input to the negotiations doesn't come as a surprise based on our studies in public choice.

Benefactors of Immigration Lobby

            Nearly six months ago Facebook’s Mark Zuckerberg teamed up with other tech industry big names like Bill Gates, Netflix’s CEO, and founders of companies like Dropbox and LinkedIn to form FWD.us. As this article highlights, FWD.us is an organization that lobbies for immigration reform; specifically an increase in the number of H-1B Visas which are visas for high-skilled STEM workers. Because of the STEM shortage in the United States tech companies across the country are desperately seeking qualified work to fill their growing demand for STEM employees and have begun to look overseas to find that talent.

            While nearly all technology companies would like to see an increase in the H-1B visa cap, FWD.us is composed of only a few major tech firms that are collectively funding a major lobbying effort on behalf of their entire industry, making the members of FWD.us benefactors to a privileged group.

            This is an example of a privileged group because members of FWD.us have enough to gain from H-1B reform that they are willing to bear lobbying costs on behalf of the entire high-tech industry while smaller firms have the opportunity to free-ride on FWD.us’ efforts. As discussed in class, whatever gains FWD.us receives will greatly benefit the industry, and will help FWD.us’ members, but will never quite reach Q* for the entire high-tech market because of the smaller firms who are free-riding on the group’s lobbying efforts.

Airline Regulations eased or new ones added?

          This CNN article describes major airline reactions to the latest change to Airline regulations  electronic devices are now allowed during all parts of a flight.  The only hitch is that you have to get each aircraft approved by the FAA to be able to do this.  US Air and Southwest will be among the first to  receive approval (They are also among the largest airlines in the US).  Spirit Airlines (a smaller airline) on the other hand did not give a time table of when their aircraft will be approved.
          While this may seem like deregulation, this could be another example of rent seeking by the large players in the airline industry.  The cost of filing the additional paperwork to get the luxury of allowing electronics at all times on aircraft is more easily covered by the incumbents in the industry with larger market shares and deeper pockets.  At first glance, this appears to benefit passengers, but the new regulations could concentrate the market even further raising both profits for larger airlines and prices for their passengers.

Econ 3330 loves Gander Mountain

Gander Mountain and guns seem to be a reoccurring subject in our class recently. After talking about Olson, Becker and interest groups, it occurred to me… how does the NRA get members to join?

According to this article, the NRA claims to have about 4.5 million members. We learned in class that Olson favors smaller groups because there is a free rider problem for larger groups. When a group gets larger, the individual contribution of the next member decreases, so people start free riding the benefits without incurring any costs. On the other hand, Becker would contradict Olson and argue that NRA is powerful because of their large membership base. With more people, there are more resources for the group to use and the free rider problem is mitigated.

The NRA has an annual membership fee of $35. That means the group gets roughly 150 million dollars a year for their collective goods (safety programs, gun advocacy, lobbying against gun restrictions, etc.), which upholds Becker's theory. However, Olson does explain that large groups like the NRA exist because the NRA is organized to promote firearm competency, safety, and ownership (lobbying is a byproduct), which lessens the free rider problem and their members enjoy selective incentives. Examples of positive selective incentives from joining the NRA would be discounts on restaurants, attorney referral services, and insurance. Negative incentives: exclusion from private shooting clubs because public shooting locations are rare. So join today!

Christmas is Coming Early For Venezuela This Year

            This week the Venezuelan President, Nicolas Maduro declared the official arrival of “early Christmas.” As this article explains, Venezuelan early Christmas means all workers will receive two-thirds of their holiday bonuses this week, nearly two months before the 25^th of December.

            While participating in a variety of holiday traditions this week, Madura said “Merry Christmas 2013, Christmas early, early victory, early happiness for the whole family," leading many to believe his recent actions are nothing more than a tactic to gain votes in the upcoming December 8^th elections. While early Christmas and bonuses may be appealing to many Venezuelans, Maduro’s Christmas movement says nothing of his position or policy plans for the future and is therefore not informative campaigning. Aside from having nothing to do with Madero’s actual political beliefs, the new Christmas policy benefits every one of his constituents in an effort to bring all voters closer to his platform without driving any farther away.

            Maduro’s tactic is an example of persuasive campaigning because the new Christmas policies are nothing more than an attempt to gain votes.  His unconventional new holiday policy is targeting every single Venezuelan regardless of their political beliefs and is aimed at “persuading” voters of all kinds to support Madero in the upcoming election. 

US-Israeli Relations

      In one of my foreign policy classes I am writing a paper on US-Israeli relations and one of the books I came across is particularly pertinent to this class.  The NYT's article here gives a nice summary of the arguments presented by two of the most prominent realist thinkers in the field.  Their first argument is that a long, well documented, and violent history of anti-Semitism has resulted in such a climate that makes it nearly impossible to criticize Israel.  They argue that the Israel Lobby is just like any interest group- the NRA, AARP, etc- except they have no counter-balancing organization.  Therefore, they possess disproportionate influence, or using Olson's terminology "asymmetric power." They argue that because the public views anything other than pro-Israel as anti-semetic, the costs to a politician of questioning the current policies are extremely high.
     Their second argument is about the concentrated benefits of this policy. Because the benefits are concentrated in such a small group of people, they have massive incentives to organize and lobby politicians.  It is not that there is a vast, pernicious, well-connected conspiracy as racists argue. There exists a group who has strong incentives to organize, over-come collective action problems, and capture the concentrated benefits available to them.  It is true that organizations have successfully lobbied for pro-Israel policies, but using Olson, and other authors we've read in this class, we see the sober person can see how concentrated benefits have given a group an incentive to organize and exert its influence.                      
     Mearsheimer and Walt, do however, come to the dreary conclusion that Olson predicted. They argue that the US's consistent support for Israel has negatively effected US national security. To them, the latent group has not been brought to life by selective incentives and because the general public is such a large group it consistently falls short of the optimal amount of the collective good, in this case, national security.

Should the Government Control Toilet Paper Production?

    The country of Venezuela has found themselves in a sticky situation. After the government placed a price ceiling on toilet paper (thinking it would help make it more affordable for all) Venezuela has found itself deep in a toilet paper shortage. The government induced price ceiling left producers of toilet paper in Venezuela no incentive to produce at the lower price. Even after limiting purchases to 12 rolls a customer, and importing 50,000 rolls from abroad, citizens of Venezuela are struggling to find toilet paper--a good in high demand! Lines extend far beyond stores, and there is even an app that can help people find stores with toilet paper.
   The government's new solution to the problem (after importing didn't seem to work) is to take control of the production of toilet paper. They have recently taken over one of the largest the toilet paper factories. Many citizens are upset seeing that it was the government who got them in the mess in the first place. The government seeks to blame private companies for charging prices too high, but this begs the question, is it really the role of government to control the production of a good like toilet paper? Free market Economists like Friedman would argue that all might be better off if the production of toilet paper was left to the private market. Considering the government's track record, this may be something better left to the private market and not a role of the government.

Illinois Unions Hold Strong

In this article published on November 3rd, Sara Burnett discusses the recent debate between political parties in Illinois over collective bargaining and the surprising stronghold that organized labor still has in Illinois despite the hits it has taken in other states across the nation. Burnett notes Illinois as an exception because its public employees are still receiving their defined benefit pensions and unions are still collecting dues from their members.

As we discussed in class, many southern states in the U.S. have adopted "right-to-work" policies that prohibit unions from requiring their members to pay dues; however, in Illinois, Burnett tells us that "a right-to-work bill introduced earlier this year didn't get as much as a committee hearing." While Olson in The Logic of Collective Action, demonstrates that he is scared of such collective interest groups bringing down the industry through their asymmetric power, high-profile government officials in both political parties in Illinois are showing a slightly positive acceptance of the significant role of the state's organized labor groups. As quoted at the end of the article, "In Illinois, 'there's an acceptance that the labor movement isn't alien [...] and isn't bad." Perhaps legislative officials in Illinois would side more with Becker in his argument that the presence of special interest groups isn't of highest concern, but instead we should attempt to attain optimal pressure, determined by the effect of the state's political expenditures on the individual members' utilities. 

Sriracha Shortage? Not Quite Yet

For about a day, food-lovers everywhere were upset at the prospect of a Sriracha shortage when a lawsuit was brought against Huy Fong Foods, Inc. One of their plants in southern California was creating a chili odor in the air that was so strong that it was said to be a public nuisance, causing "burning eyes, irritated throats, and headaches." Luckily, a judge denied the town’s attempt to get the plant to cease production until they can reduce the odor. This article on the recent development of the suit says, “Huy Fong executives said they were cooperating with the city to reduce the smell, but balked at the city's suggestion of putting in a new, $600,000 filtration system that may not be necessary. The company said it was looking into other alternatives when the city sued”.

This odor is an example of a negative externality of production. It is reducing the well being of others who are not being compensated by the firm. In this case, the town of Irwinsville attempted to implement a solution to the externality similar to the example of the confectioner that we looked at in lecture. The producer is liable, but the marginal benefit of production is greater than the marginal cost of production, therefore the output is still produced. This still requires negotiations in order to reach a solution. As Huy Fong agrees, jumping to the solution of spending $600,000 on a new filtration system might lead to a lower level of odor but that does not mean it is the optimal solution. In order to internalize the externality, government action might be necessary. A corrective tax seems like a reasonable solution to this externality; Huy Foods would pay the tax, which would be an input cost, raising their MC of production (PMC curve shifts up) and reaching the socially optimal level.

Mining in Maine

     In his, Logic of Collective Action, Olson argues that an agent will pursue collective action until the marginal benefit of their share of the collective benefit is greater than their personal cost incurred in obtaining the benefit. When the group size is incredibly small, the cost of coordinating efforts is low and the greater the expected payoff, the greater the incentive becomes to contribute towards the acquisition. A fantastic example of this is the newest piece of mining regulation set to pass the Maine State Legislature. As this article outlines, one single private actor, J.D. Irving Ltd., has essentially dictated the State's environmental policy in this area. At issue in this case is the loosening of regulations concerning metallic mining practices that environmentalist claim protect the community from pollution and contamination.  Irving is the owner of Bald Mountain, and after presumably discovering it's money making potential, Irving has, "begun considering the possibility of mining on the land and pushed to write new regulations more favorable to the industry." Legislators have been extremely responsive to Irving's 'request', justified as an attempt to create '700 jobs', and the regulation weakening bill is set to pass the house in January. The incredible responsiveness of Maine's Department of Environmental Protection to Irving's request demonstrates the power of Olson's theory, that an extremely small group with an incredible amount to gain will be highly efficient in it's lobbying efforts.

Wisconsin Organic Farmers Seek Regulation

According to this article from two weeks ago in the LaCrosse Tribune, approximately half of organic farmers in Wisconsin will be denied their $750 annual federal subsidy this year, which has traditional gone towards the certification process required to be “certified organic.” The program for the subsidy was cancelled back in January, but many small time farmers are realizing only now that they will not be eligible to receive their funds. This change in regulation effects mostly small-time farmers for whom $750 is a relatively large percentage of the value of their crop. Being certified organic is absolutely necessary for these farmers, as it is more of a niche market and non-organic farms are able to produce much more food at lower costs.

            One of Stigler’s four ways that the State can benefit an industry is through the direct subsidy of money, and this is exactly the type of regulation these Wisconsin farmers are being denied and so desperately are seeking. In an economy when so many people think that good-producing firms are all for free markets and Laissez Faire government, it is interesting to see these small time farmers fighting and appealing for the government to step back into the picture and provide the regulation that they desperately need.  

Regulation on Cigarette Packaging in Australia - For the Public Good?

This article discusses new regulations on cigarette packaging in Australia aimed at reducing smoking. No longer are brand images allowed to appear on cigarette wrappers - rather, it is required that cigarettes have “drab wrappers” with warning labels and graphic images of the negative health effects of smoking. This has severely limited the ability of tobacco manufacturers to brand and market their products in Australia, and has prompted significant backlash against regulations by large tobacco companies and cigarette-producing countries alike. Several countries are filing WTO cases against Australia on the grounds that the country is using these regulations as a way to limit cigarette imports rather than simply to improve health.

The other countries’ fight against Australia’s cigarette packaging regulation struck me as interesting. In class we discussed advertising regulations as actually proving beneficial to cigarette companies, as they limit the entry of new firms into the industry. The WTO cases brought against Australia prove that cigarette companies see the reduction in their sales due to packaging restrictions as greater than the gain due to the entry restrictions it imposes, however. This case seems to run counter to Stigler’s theory, which says that regulation is acquired by an industry and is designed and operates for its benefit. It seems here that an alternative explanation of regulation - that it is for the public good - seems most applicable. Unless there are deeper issues at work here, Australia’s cigarette packaging regulations seem to be aimed at promoting health rather than protecting the cigarette industry.

Profit-maximizers in Utah

Coming to the United States “the land of freedom” I never thought to encounter rules such as blue laws and/or alcohol beverage restrictions that help create monopoly markets. Last readings and the Thursday class were a bit of a shock to me so I started reading more on the subject. I realized that Utah has one of the strictest alcohol distribution and consumption regulations. A Fox News article explains how these rules make it hard to get a drink in Utah. For example, you cannot order a drink at a restaurant without having food first, there are three different license categories for restaurants that allow them to sell alcohol at a certain time period and specify the kinds of alcoholic beverages to be served, and wine and beer are only to be supplied by a state-run store (at 86% markup). Francis Liong, an LA relocate that owns Lamb's Grill in Salt Lake City expressed that "makes it hard for a restaurant to appease guests and to make money, too." Not only that but recent regulations require that new restaurants and bars keep a curtain over the location of alcohol in restaurants and bars. The justification that the Utah Department of Alcoholic Beverage Control gives is that

"The purpose of control is to make liquor available to those adults who choose to drink responsibly -- but not to promote the sale of liquor,” the department states on its website. “By keeping liquor out of the private marketplace, no economic incentives are created to maximize sales, open more liquor stores or sell to underage persons."

However, as Coppock’s students, we know that the reasoning behind such restrictions is the rent-seeking opportunities they bring for the local government and the old-dominant restaurants and bars. These restrictions exemplify three of Stigler’s types of regulations: control over entry by new rivals, regulation on related industries (substitutes in this case), and price-fixing.

Changing Regulation by the FAA

For years, airplane passengers have been told to turn off all their electronic devices while the plane is taking off or landing, as required by the Federal Aviation Administration (FAA). However, an announcement this week by the FAA, as outlined in this WSJ article, indicates that passengers will be able to use their electronic devices at ANY altitude, as long as the cell signal is turned off. The only requirement to offer this service is passing a five-step safety process proving that electronic signals will not affect the aircraft.

Building off of what we learned in class and from the Stigler paper, this apparent reduction in legislation could actually be viewed as additional legislation, acquired and most likely designed by the airline industry itself. The article seems to confirm this, as it mentions the FAA made its decision after "embracing recent recommendations by a high-level advisory group," no doubt made up of many airline executives.

The ability to offer better service to passengers, and the "costs" of going through the safety process, will most likely allow the airlines to justify higher prices to their customers. The additional safety guidelines relating to electronic devices, including the costs of setting up effective Wi-fi in the air, will also deter new airlines from entering the industry due to the higher costs. Thus, this new regulation will allow airlines to raise their prices and deter new entrants at the same time.

Sober Santa

In the United States, the alcohol industry has self-regulatory bodies that determine appropriate standards of advertising.  Large alcohol companies avoid government regulation by agreeing to abide by a set of strict rules they impose on each other.  One of the largest self-regulating bodies is called DISCUS, The Distilled Spirits Council of the United States.  Their website lists all members which include Bacardi, Moet Hennessy, and Patrón.  The organization represents 70% of all distilled spirit brands sold in the US. 

As a part of my summer internship at a marketing firm, I had to research the rules on alcoholic beverage advertising in the United States.  Their “Code of Responsible Practices” is exhaustive.  I found one rule particularly comical; “Beverage alcohol advertising and marketing materials should not contain the name of or depict Santa Claus.”  No one wants his or her child to see Santa Claus boozing it up on a commercial during family time. 

Alcohol companies are content with society believing these rules are for the “public good.”  However, the Stigler article we read suggests that regulation can be beneficial for already established companies because it strengthens barrier to entry.  If the “Code of Responsible Practices” makes it difficult or near impossible for emerging companies to advertise, then companies will have more difficultly selling their products and entering the market.  Large and previously established companies love these regulations because they reduce competition.  I guess Santa Claus will just have to stick to milk and cookies this Christmas.

Regulations to Blame for HeathCare.gov Failure?

      Ever since the HealthCare.gov website went live there has been a never-ending string of frustrations and complaints with the website’s inability to perform its job.  This article highlights this was not really a surprising outcome as “94 percent of large federal information technology projects over the past 10 years were unsuccessful.” The article credits the HealthCare.gov’s and other government technologies’ failures to the regulation surrounding the bid process for contracting out these jobs.

            Of the types of regulation discussed in class, the article blames entry restrictions on rivals as the cause of government technologies failures.  With over 1,800 pages of legal code the article points to the Federal Acquisition Regulation as the main regulatory barrier claiming it “all but ensure(s) that the companies that win government contracts… are those that can navigate the regulations best, but not necessarily do the best job.”

            Basically, this regulatory code prevents smaller firms from entering the contract award process because they cannot sift through all the regulation despite their ability to build better technologies. The regulation serves as a barrier to the government information-technology sector, ensuring the large firms who support the regulation continue to win contracts, collect profits, and create poor systems while new firms cannot break in to win contracts.

Will Madagascar's New President be a Condorcet Winner?

Madagascar is waiting on the results of the 2013 presidential election, the first after four years of political deadlock. Since president Marc Ravalomanana was ousted in 2009, Madagascar has been in a state of political turmoil and there have been severe social, environmental and economic costs as a result of this crisis. This article explains the progress of the current election. Over the next few days, results will continue to trickle in but as of right now, “Richard Jean-Louis Robinson has about 30% of the votes so far, while his main rival Hery Martial Rakotoarimanana Rajaonarimampianina has just over 15%.” Only a small portion of the polling stations has released results as of today. The article then goes on to explain that if no candidate receives 50% of the votes, a runoff election will be held.

            The use of a runoff election in democracy is discussed in Mueller Chapter 7 along with other alternatives to the simple majority rule. In majority rule with a runoff, if no candidate receives a majority, the top two candidates with the most votes compete to reach a majority. The importance of the runoff method lies in that it is decisive and picks a winner. This winner might not always be a Condorcet winner, but studies have shown that when there are two candidates, the probability of a Condorcet winner is 100% and given a high number of candidates, runoff elections result in a Condorcet winner still around 60% of the time. In this election, there are around 30 approved candidates in the running, which means that even if there are two front-runners, votes given to the other candidates could be enough to warrant a runoff. Because of the reliability of a majority rule with a runoff, hopefully a Condorcet winner can restore political stability to Madagascar.

Externalities and Rent Seeking caused by Fracking

     This article describes how in recent years the development of new drilling methods (i.e. fracking) have allowed oil companies to tap into places never thought possible.  While this has brought increased profits to companies, it has brought negative externalities (stemming from production) to neighboring landowners who have to deal with the hazards and annoyances of oil wells.  

     The Coase theorem (or some application of it) appears to have been used in cases where landowners also own mineral rights and can thereby demand royalties from the oil companies.  However, in many cases, landowners do not own the mineral rights, and so they do not receive royalty payments.  In cases where landowners lack mineral rights, Coase might suggest paying the oil companies not to drill or to at least put up sound barriers.   

     Interestingly, the article mentions a nonprofit group (i.e. a special interest group) that looks to "preserve quality of life and protect the environment while helping the economy." Those affected by the externality and without mineral rights could have much to gain from an interest group like this one.  Rent seeking could result from this situation if disgruntled landowners begin going head to head with oil companies by spending money on this or other interest groups in an effort to lobby local and state governments for a share of the profit.