The Market Failure of Great Smoky Mountain National Park

     Over spring break this past year, I was able to visit Great Smoky Mountain National Park. Attracting over 14 million visitors a year (being the most visited national park), I thought visiting in the "off-season" would allow for ample exploration, while allowing limited encounters with other visitors. Researching online, it was claimed that there was an entrance fee of $35. However, the park has no entrance stations, and does not require parking permits, allowing for mass visitation at essentially no cost to the individual. On the descent from Mount LeConte, the effect of this absence of fees became visible, as we encountered many other visitors and the litter they left behind.

    Parks with high visitation also tend to experience associated negative externalities. Littering and general wear-and-tear to trails and roads show that through mass consumption of this park, a negative externality in consumption is generated. While individuals benefit (PMB) through visiting the park, the overall benefit (SMB) is reduced due to the negative effects of this mass visitation (SMB < PMB) . Without collecting entrance fees, the park has no efficient way to self-combat these drawbacks. This is likely why the park is now establishing an actual fee system in order to help pay for the wear-and-tear the park experiences, internalizing these negative externalities: those that visit the park now take into account the associated effects of their visitation through monetary compensation. The National Park system prides itself on the preservation of natural beauty while also making it available to the public. This is a difficult game to play due to externalities present, and will likely require more tweaking of these fees in years to come to more effectively reduce this market failure.

Comm School Construction Externalities

    For students who live on or near the Corner, the fastest way to the academic buildings on JPA (Wilson, Nau/Gibson, etc.) is to make your way down East Range until the start of Brandon Ave which shortly intersects with JPA. Renovations on the Commerce School*, however, render Brandon Ave inaccessible north of JPA therefore increasing student commute times and thus decreasing well-being for a portion of the student populous (increased commute time = decreased time spent elsewhere). 

    In economic terms, what's occurring here, is a negative production externality.  UVA, in "producing" Comm School renovations simultaneously decreases the well-being of those students in the college (not comm) who use East Range and Brandon Ave to commute to class without compensation. The private marginal cost (to UVA) is lower than the social marginal cost (the cost to UVA + the damages to affected students). Unfortunately, there is no clear economic solution here from applying Coase Theorem. Any solution would likely lead to a free rider problem. UVA is a government institution and the area closed for construction is also government land, meaning the "producer" controls the property rights. In essence the producer has all the power and would need incentive from the affected party to impose any changes. However, most students would be reluctant to make any personal investment for the common benefit of a solution, hoping to free ride off others contributions. 

*Admittedly the whole construction zone is largely for medical buildings as well, but the small section that specifically blocks the path to JPA is for the Comm School.

Not Another Pledge Drive (Please!)

As an avid NPR Morning Edition listener, there is one thing I absolutely hate about the fall: pledge drive week. I really only want two things. First, I want Steve Inskeep, Renee Montagne, and David Green to tell me what I need to know that day. Second, I don't want to pay for it. National Public Radio is an example of a public good as it is both non-rivalrous and non-excludable. It is non-rivalrous because someone else listening to NPR (or in my case Morning Edition) does not affect my ability to listen to NPR/Morning Edition. It is also non-excludable since once the radio signal is broadcast, it would be very difficult to exclude someone from being able to receive and listen to it. This puts me in an exceptional position as a consumer of Morning Edition because I can exploit one of the limitations of the Coase Theorem by being a free rider. 

As Gruber describes in chapter 5, the public sector under-provides public goods because of the free-rider problem, which occurs when an investment has a personal cost, but a common benefit. This will lead individuals to underinvest. I, as a consumer of public radio, have a reluctance to contribute to NPR during pledge week. Any contribution that I make will cost me personally and will benefit everyone who listens to NPR. Thus, I have an incentive to not contribute. Public radio is especially vulnerable to the free rider problem because there are many consumers nationwide. Because public radio is vulnerable to the free rider problem, there is a potential role for the government to improve efficiency and fund public radio. This episode of Planet Money discusses the potential need for government intervention in public radio. On the one hand, because it is a public good, there is an argument to be made for the government to step in to combat under-provision and improve the public radio being produced. On the other hand, they mention the possibility of advertisements and big donors which could both fund NPR enough for it to be produced at the optimal level. In the case of advertisements, the advertisers would be the consumers (and the listeners would be the product). Since advertising is rivalrous (when one ad fills a slot, that slot cannot go to another ad) and excludable (if the advertiser does not pay, their ad is not run), this would convert public radio from a public good to a private good. This means the government would not need to act. The conversation, unfortunately, ends without a conclusion on whether government intervention is necessary in the case of public radio. As for me, for right now, I'll continue to be a free rider. Sorry, NPR (not really). 

High School Sports Complex

Throughout my time in high school, everyone was talking about our new beautiful sports complex. The new stadium would allow my school to host home football games for the first time, and the addition of a turf field would prevent rolled ankles, dirt patches, and other inconveniences that come with a poorly maintained grass field. Serving as a public good, community members would be free to use the facility at any time of the day.

One evening, I attended a discussion between homeowners and representatives from the school district. The homeowners were upset. "You think I want stadium lights streaming through my windows every Friday evening?!" In addition to the external cost of the lights, the residents in the neighborhood argued that increased noise levels, greater traffic congestion on game days, and the eye-sore of a giant cement stadium would decrease the value of their homes and negatively impact their quality of life. In terms of public choice, it is probable that the construction process (road closures, jackhammering, etc.) of the stadium would have been a negative production externality, meaning the social marginal cost of building the stadium would exceed the school's private marginal cost. Furthermore, the ongoing use (lights, noise, traffic congestion) of the facility would also provide a negative consumption externality felt by the homeowners, meaning the social marginal benefit of the sports complex would fall below the school's private marginal benefit of using the facility. In order to achieve allocative efficiency, both the school and the homeowners were forced to compromise. The school proposed using a new lighting technology that would minimize light pollution, thereby decreasing external cost. After negotiations, the school constructed a redesigned sports complex with the new lighting technology and limited seating capacity. After considering the preferences of the homeowners, these concessions by the school district brought the allocation of resources closer to the allocative efficient level. An interesting fact about this case is that my school, a public school, is a good provided by the government. The school district accounted for some of the community's preferences by initiating the building project, while neglecting the preferences of the homeowners. In the Role of Government, Friedman asserts that the government can establish new neighborhood effects in a community "by failing to charge or to compensate individuals properly". If these negative externalities had not been addressed, this new sports complex would have left nearby homeowners disproportionately worse off.

The Warm Glow of DC Buses

    While living in DC over the summer, I often used the Metro system to get around the city. At first, I maintained the responsible approach and paid for every one of my rides, swiping the card without thinking. Eventually after around ten rides, I began to notice an expected but concerning trend: I was only one of a few people who actually swiped my card for the buses. Other riders would either enter through the exit or simply walk right past the payment machine. A clear free rider problem was at play here. The local city government, the few farepayers, and the Federal COVID stimulus had to shoulder the burden of funding this public good, and ended up under-providing the good, creating a positive externality. The fare system and its enforcement by Metro officers provided excludability for the bus rides, but, due to the Pandemic, fares were relaxed and Metro officers no longer rode on the buses. Buses became a impure public good, where it is rival but non-excludable. One person's enjoyment of the bus would affect the enjoyment of another person due to crowding, but there were no longer measures to maintain excludability. Once I realized one did not have to pay to use the bus, we had all become free riders. 

    There are, thankfully, solutions to the free rider problem, but none of them are perfect. Reinstating the laws around paying the bus fare would temporarily increase fare payments, but methods for avoiding fares like entering the exit and fighting the bus driver would return from the past. The people who take the buses have grown accustomed to riding for free in nice air conditioning for as long as they want. Buchanan, in his writings, offers some thoughts around the free rider problem. The warm glow effect and altruism are more psychological than economical but they both combine in this instance to raise the possibility for greater fare payment. They both deal with the private marginal benefit gained from "doing your part." For bus takers, paying the fare creates private marginal benefit as one contributes to not only their conscious but also the DC Metro system. For example, I noticed that whenever a bus driver greeted the passenger at the door, the person was more likely to pay, as they would derive personal enjoyment or benefit from the act of paying. If bus fare is $2, the added PMB from the warm glow effect will provide consumer surplus for a paying bus passenger. The first time I did not pay the bus fare, the person behind said "Man, some folks just don't care." She had to pay while I got to derive benefit from it in the same way. Her moral compass and ethics provided private marginal benefit in her decision to pay the fare and she derived some consumer surplus or "moral profit." She, in fact, experienced the warm glow. While not a catch all, the warm glow effect certainly exists on public transit. The real solutions, however, must combat growing distrust of local government, infrastructure issues, and decreasing Federal funds, but perhaps through the warm glow and the reinstatement of stricter fare laws can combine to mitigate a small amount. 

https://www.washingtonpost.com/transportation/2022/02/07/metro-fare-evasion-pandemic/

Pollution of the Shenandoah Watershed

For over 30 years, my family has been fishing the Shenandoah River System. One of the headwaters, the South River, which flows out of the Shenandoah National Park and through Waynesboro, has been subject of the largest environmental damage settlement in Virginia history. In the 1930's and 40's, a DuPont facility manufacturing rayon released toxic mercury into the South River which is a tribute The devastating environmental effects of toxic pollution are well-known. Although experts predicted mercury levels to decrease, the soil on the banks of the river temporarily absorb mercury, but frequent high water levels cause the mercury in the soak to be re-released into the water. Even when I fish on the South Fork of the Shenandoah River, there are still signs to limit consumption of smallmouth bass due to elevated mercury levels. 

This is an example of a negative production externality: the production of rayon reduces the well-being of othersThe social marginal cost was higher than the social marginal benefit. In our text, Gruber defines an externality as when "the actions of one party makes another party worse or better off, yet the 1st party neither bears the cost nor benefit". The Coasian solution to this problem would have been for fisherman and local businesses to charge DuPont $x/unit of pollution. This charge would increase the private marginal cost, which would coincide with the social marginal cost, thereby decreasing the quantity of pollution. It is possible that a Coasian private remedy could have worked back then, but now, 70 to 80 years later, the solution is retroactive regulation and corrective payments. In 2016, the DOJ, Department of the Interior, and Virginia state government announced a $50 million settlement with DuPont to help finance "restore the precious natural resources of the South Fork watershed". 

Corrective Taxation and Vaping

 The Corner at UVA is a marker of change in Charlottesville. Even in the three years that most of us have been here we have gained and lost crucial members. Gone are the days of late night Sheetz, Little Johns (even Sammy’s briefly), College Inn and Armando’s. In their stead, we have a ridiculously understaffed Chipotle and a new Vape shop. The Vape shop is accompanied by a delta-9 store next to Grit and nicotine sales at Cohn’s, 7-day, and Corner Grocery. Personally, I would much rather have a small late night food stop than another store selling nicotine but it seems like the only businesses that can survive are ones selling alcohol or tobacco/nicotine products. I found a research paper online talking about the increased density and proximity of vape shops to college campuses. The study by Dai and Hao (2017) https://pubmed.ncbi.nlm.nih.gov/27302700/  found that there are more vape stores near college campuses. The conclusion of the study was pretty interesting. They suggested that since e-cigarettes pose a negative health risk to young adults that are not moderated by the private market that there should be some public regulation to limit its impact on young people. The argument is similar to the negative consumption externalities from smoking cigarettes. People smoke cigarettes, there is a bad odor (with potential health risks), and when they get sick they create a burden on the healthcare system and others. The risks of e-cigarettes are still being uncovered. While there seems to be little risk of harming others from secondhand smoke, there are some health risks posed to younger users. Their health problems could also pose a burden on healthcare that is felt by everyone else. 

    As a result of limited studies demonstrating the health risks of e-cigarettes, cities in the U.S. and other countries have implemented taxes like those on tobacco products. However, the strict association of tobacco with electric nicotine introduces another problem. E-cigarettes are commonly used by individuals in order to quit smoking tobacco, and as far as we can tell from current studies, are noticeably healthier (healthier is a relative term). Current regulations don’t take into account the differences between cigarettes and e-cigarettes, or the positive externalities from e-cigarette consumption, and instead they lump them into the same category with the same taxation. The result is a tax that overestimates the harm of consumption of e-cigarettes. An article published by Yale argues that e-cigarette tax increases will push young people to smoke cigarettes. https://news.yale.edu/2022/07/19/higher-taxes-e-cigs-likely-boost-cigarette-smoking-among-young-adults Much of the discussion around e-cigarettes emphasizes its potential dangers and ignores the results of overemphasizing this harm. Government regulation that attempts to correct for negative externalities is difficult enough, but how can they properly adjust for these two related markets? And how can they possibly implement well-informed regulation on e-cigarettes when there is so little information available about their real impacts? I found an interesting paper that goes through in more detail about the problems with the current attempts at corrective taxation with vape products and tobacco products if you’re interested. https://digitalcommons.pepperdine.edu/cgi/viewcontent.cgi?article=1077&context=sppworkingpapers

   

The Externalities of Rabbits

When reading Coase's article, The Problem of the Social Cost, his discussion of the externalities of rabbits stuck out to me, as I knew that I had heard about a similar predicament in the past.  No, I didn't learn about the liability of rabbits in another economics course, rather, I had read about a very similar situation in Miss Penny and Mr. Grubbs by Lisa Campbell Ernst. In case you are not familiar with this 90s children book, Miss Penny and Mr. Grubbs are neighbors who compete for the best vegetables at the town fair, however, when Mr. Grubbs becomes jealous because years of coming in second to Miss Penny, he buys numerous rabbits and sets them free to feast upon Miss Penny's harvest.

In the discussion spanning from page 511-513, Coase discusses the fact that a person may be liable for smoke without owning the smoke, so in the same way, who owns the actions of rabbits that devour a neighbor's produce? Regarding the Boulston case which held the rabbit owner liable, Coase notes that we cannot always know who is liable for the action of rabbits, but in Miss Penny and Mr. Grubbs, the situation is slightly different because Mr. Grubbs intentionally released the rabbits into his neighbor's yard--they didn't wander over on their own. Miss Penny was not involved in the transaction for the rabbits, but she still faces an external cost in the decimation of her prized veggies. While at this part of the story, you might think that Mr. Grubbs has created a negative externality in the 'consumption' of the rabbits because the Social Marginal Benefit (SMB) is less than the Private Marginal Benefit (PMB). But the story doesn't end there! Though her crops have all been destroyed, Miss Penny makes the best of the situation and finds a plump bunny to enter in the fair. When this bunny wins first prize, Mr. Grubbs' action can be seen as a positive externality in consumption because Miss Penny was not involved in the transaction for the rabbits, but was still able to benefit from them--the SMB was greater than the PMB. The switching location of the SMB and PMB lines highlight the challenge of internalizing and accounting for externalities. Who knew that a children's book could teach so much about the complexity of externalities?!

Externalities of Dishes

I live in Lambeth, and, because our kitchen does not have much space, we have a jank setup for our dish drying. We toss a mat onto two burners on the stove beside the sink, and we use it to dry dishes. Now, say I wash my dishes and I place them on the mat to dry (sometimes its a lot of dishes). My PMC is the opportunity cost of the time washing dishes, and then my PMB is the clean dishes once they dry. However, by filling up the mat I create a negative production externality by leaving dishes on the mat that my roommates can no longer use. For simplicity's sake let's say I that I have one roommate, but the third paragraph in this blog points out how even small externalities--like those involved in dishes--can put strain on our day to day lives.

Coase might have an elegant solution to this problem involving M1, but I think my solution might be better. First, Coase: if I am liable for removing dry dishes by house rules, I can pay my roommate: let's say $10 dollars (if that happens to be the bargained price) to let me keep the dishes on the mat (and then he can remove them himself). If I am not liable for removing my dishes we don't have any house rules, and we are stupid, then my roommate can pay me those $10 and I will remove the dishes. Either way, the externality is internalized, and the efficient output is reached. Since my roommate is not an economist, this solution will be too much Econ for him to handle and is not optimal (Does his private marginal cost curve factor in the cost of doing Econ!? 'Tis a shame). Instead, my solution: the payment will occur in the form of exchanging dish removal duties. So he removes my dishes, and I remove his dishes, and we both correct each other's externalities. Only thing is, it becomes more complicated when you add two more roommates to the equation. Luckily, we are all friends and get along well, so transactions costs should be minimal. I think I have to call a house meeting now...

Coasian Solutions to Vaccines

 The recent political turmoil over COVID vaccines provides a good link between the Friedman reading and our current analysis of the Coase Theorem. Friedman wrote that “the use of political channels, while inevitable, tends to strain the social cohesion essential for a stable society. The strain is least if agreement for joint action need be reached only on a limited range of issues” (23). Clearly, the use of government vaccine mandates (regardless of your stance on them) relates intimately to this. The use of political channels to mandate vaccines was an instance of forced conformity that led to enormous strain on the social fabric: a host of papers have been investigating the increase in political polarization and other unintended consequences of the mandates. Please find two linked below.

https://gh.bmj.com/content/7/5/e008684

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4022798

Coasian solutions to vaccines may have been more prudent and may be more attractive in similar scenarios in the future. But what would such solutions look like? This is an instance of a positive consumption externality. It seems clear first of all that the "property rights" in this scenario belong to those against the vaccine (the non-vaccinated)—as free citizens, they have legal sovereignty over their bodies. Therefore, the burden would be on those affected (the pro-vaccine) to entice the non-vaccinated to receive the vaccine. It at least plausible that the pro-vaccine group could privately extend compensation to the non-vaccinated group and entice all or most of them to receive the vaccine.

Some clear problems must be taken into account, however. The PMB of a vaccine is likely very low for the non-vaccinated (since they have no desire to receive it), and the SMB is likely very high (since it will protect society from disease). If these two assumptions are correct, then the EB in this scenario is going to be quite large. This means that paying the non-vaccinated to receive the vaccine could ultimately be a very expensive undertaking, since the price each vaccine is worth to the pro-vaccine group is about the value of the EB. Moreover, the non-vaccinated generally are so because of deep-seated political or religious beliefs. This means that convincing them will take an enormous amount of negotiation and compensation (if they are even willing to compromise at all). Lastly, as Gruber mentions repeatedly in the reading from chapter 5, there would be a host of difficulties with conducting negotiations when the issue exists on such a large national (or even international) scale and involves so many individuals (both non-vaccinated and pro-vaccine).

Local Government Externalities and Coasian Institutions

     I interned for Henrico County Managers Office this summer doing white paper writing. In the course of my internship, having already read Coase's Theorem, I designed a program to be administered by the county that served as a "Coasian" institution. We had a problem with tree overgrowth on elderly individuals' property that negatively impacted adjacent property owners and their safety.  Therefore, the program reduced the transaction and search costs of the individuals to fix this problem as well as incentivizing businesses to help fix the problem. In early drafts of the paper, I had even included "Coasian Solutions" where adjacent property owners could go in on a contract to fix the problem, but with a clause that stipulated it wouldn't be fixed unless all parties agreed to prevent a hold out or free rider issue. 

    There was a producer (in this case the property owner) who had property rights, but one who was producing externalities by their inaction. The SMC > PMC creating clear dead weight loss. The correction, however, in my program, worked rather interestingly. The county would give a tax credit to a tree company to rectify the issue (similar to other county ordinance). Because there was also a slight cost to the producer (the elderly property owner) in terms of safety, they were partially incentivized to seek help through the program. The company would be compensated in tax credits (essentially a payment that made PMC = SMC) and the externality would be rectified. 

Variance in Voter Influence

In class, we discussed that there was a difference in the way voters influence policy between local and national governments. I think this can be explained economically by both the capture theory and a difference in rational ignorance. Since industries have more interest in national policies that affect them more broadly, they would "take" the influence from individual voters, and leave the voters to be more keen to helping with local policies. On the other hand, it is more rational for voters to know more about local issues than national issues that might not affect them as much. 

I think construal level theory would be more effective at explaining the difference in interest between local and national policies. Construal level is the way that the brain changes the focus on incoming information or filters out or in certain information. A construal level in this case would be linked to the psychological distance of the policies, meaning the distance one feels from them. A high construal level, or the national government, which seems like a large distance from voters, means there is a focus on desirability and exciting opportunities. In other words, voters are more likely to think broadly about policy options in terms of their general appeal, and thus know less about voting on them. A low construal level, or the local government, which seems like a small distance from voters, means there is a focus on feasibility and deliverable opportunities. In other words, voters are more likely to be more knowledgeable about the policies at hand. 

The Committee System: A brief history

The committee system implemented in the United States was modeled after the British Parliament. However, when our country was founded there were very few members in Congress, and there wasn't a need for division of labor between the different legislative processes. Originally, Congress relied primarily on the House and Senate chambers, and the bill was primarily created in and by the full chamber of Congress. The bill was then referred to select or ad hoc committees to iron out details. Sometimes even the details of the bill were decided by the entire chamber of Congress, and the ad hoc committee only performed clerical tasks. Once the ad hoc committee completed its duties, it was dissolved.

This system of creating legislation had its problems. Although ad hoc committees were flexible and responsive to the preferences of the entire House and Senate, this made them duplicative, slow, and time-consuming. As the House and Senate grew the number of ad hoc committees needed to pass legislation increased (in the Third Congress alone 350 ad hoc committees were created), and it became increasingly difficult to pass legislation. The first standing committee was created in 1789, and from there the committee system developed into the modern one we have today. Although the founding members of Congress likely weren’t thinking about it at the time, they were really creating a more efficient system by slowly getting rid of ad hoc committees, as a bill could be created without the consent of the entire Congress, saving time and allowing committee members to express areas in which they were preference outliers. 

That Screwed-up Agency (TSA)

Thursday night, 1 AM. After getting home from a Friendsgiving, I finally began packing for my flight home that was in about 7 hours. As I sluggishly attempted to choose which product was precious enough to be poured into my single 3.4 oz. travel container, I thought about the TSA. I had long been hearing claims that the TSA is mostly a waste of resources and a form of "security theater," whose main goal was to make people feel safe more than it actually prevents security threats. For example, according to the first article, when Homeland Security officials evaluated the agency by attempting to smuggle weapons and bombs 70 different times, they apparently succeeded 67 of those times.  

We all have our peeves with the TSA -- personally, it’s the “random extra security screenings” or the time they threw away the expensive 3.8 oz. moisturizer I’d accidentally packed. So articles like these once gave me hope that maybe they’d eventually loosen these restrictions, trim their inefficiencies, and focus resources on methods that work better. Our recent discussions in Public Choice regarding the Niskanen model of bureaucracies pretty much dashed that hope. The head of the Department of Homeland Security would maximize their utility by maximizing their budget, which results in an inefficient and inflated budget, operating where the marginal cost of their output is greater than the marginal benefit. In fact, if we consider that, much like with the police, the demand for outputs such as border security, the coast guard, and airport security is comparatively relatively inelastic, the potential inefficiencies could be even greater. Essentially, I think we’ll be taking our shoes off for the foreseeable future.  

Hate Changing your Clocks Twice a Year? Blame the Committee System

Ever wonder why we have this antiquated system of changing the clocks twice a year.  Daylights Saving Time was originally instituted during WWI by Germany to conserve fuel and was adopted in the U.S. two years later in 1918.  While changing time may have been useful then, the benefits are meager now and numerous studies have shown many negative consequences of it including increased car accidents, increased suicide rates and decreased worker productivity.

So the question remains, why do we continue following this disastrous tradition; why doesn't Congress do something about it?  Well many representatives have.  The Sunshine Protection Act (SPA) is a bill that if passed would make Daylight Saving Time permanent in the U.S.  The SPA has been introduced to both the House and Senate with bipartisan support in each new session of Congress since 2018.  However, the SPA has died in each houses commerce committee each time.  So why do the commerce committees not support this bill?  If I were to speculate I would say it's because the representatives on the commerce committees are preference outliers and come from states with large industries that benefit from the current system.  These representatives want to maximize their votes by not upsetting these industries and constituents of their states so they let the SPA die in committee every time they can.  Therefore unless there are significant changes in the composition of each houses commerce committee, I think it's safe to say the current system is here to stay.

Should we really let the FDA be captured?

        Biogen, a biotech company worth over $30 billion, just got FDA approval for a $56,000 Alzheimer’s drug that is not proven to be effective. When I read this, I was inundated by the stench of regulatory capture emanating from this approval. Not only does this affect those who need the drug, the average Medicare Part B (medically-necessary services) insurance premiums will rise by over 14%. Biogen might be the most recent offender, but this analysis has led me down a rabbit hole tattooed by a theme of capitalism not caring about virtue.

        What I find most stunning is that the FDA seems to see no immorality in having massive companies push through layers of internal dissension to get approval for drugs that are not fully studied or proven to be clearly effective. That seems wrong to me. Capture seems like a mostly-fair side effect of a free market system, but that doesn’t mean it should rear its head in every bureaucracy without anyone batting an eye. Normally regulatory capture deserves careful thought, but not diligent combat. In the case of the FDA, combat seems most appropriate. There’s a difference between the shipping industry seeking fixed-prices and individual companies within the biotech industry seeking barrier control. The latter deals with potentially life-saving medications that have real physiological impacts (on top of financial impacts) on a large portion of our population.

Everybody Hates the IRS

Before my dad retired, he was a senior executive at the IRS, and he reported to the Commissioner of the IRS. Part of his role involved reviewing the budget for his department so that he could present it to the Commissioner. This would then be incorporated into the final budget proposal. 

My dad noted that the IRS budget proposal was typically more than they actually needed. The budget-maximizing bureaucrat model would suggest that the Commissioner is misleading Congress about the true needs of the IRS. Congress is forced to accept their proposals. Though this may reflect the behavior of other agencies, this is not the case for the IRS. Congress typically rejects significant components of the IRS's proposal.

For the past decade, members of Congress have voted to decrease the size of the IRS. My dad complained that this has truly affected its operational capacity. The IRS has substantially cut their staff, and, as of 2017, I believe my dad still used Microsoft Office 2007 on his work laptop. Simply put, voters hate the IRS, and it is politically popular to decrease their budget. The Commissioner has learned to overestimate the proposal because he knows that Congress will only approve a fraction of the budget. The Commissioner hopes that enough will be left in the appropriations bill to keep the IRS functional. Therefore, a more appropriate assessment is that legislators will do what is necessary to be reelected.

Looking Forward: The Effects of Climate Change on Bureau Efficiency

This week we discussed how it is possible make comparisons across government agencies in regards to the legislature's demand for bureau output. Some agencies have marginal political benefits that are relatively elastic, while others are relatively inelastic; the more inelastic these marginal political benefits are, the more important the agency is, and the less efficient they can be. This is due in part to the take-it-or-leave-it nature of bureau proposals and the fact that bureaus are essentially monopolistic suppliers of their output. The elasticity of demand for agency output can also change over time. As Alex Tabarrok's seminar showed, a prime example was the relatively inelastic demand for CDC output during the pandemic which allowed for increased inefficiency. 

With this in mind, let's turn our attention to climate change and its impact on bureaus such as the Environmental Protection Agency. As we have all likely seen, the effects of climate change have become more prominent in recent years and are predicted to worsen unless significant changes are made. Thus, the marginal political benefits of environmental regulation will likely become more inelastic in the coming years. However, with a more inelastic demand comes the increased capability to shirk responsibility. So, as we near the point of irreversible damage to our climate and are in desperate need of the EPA's output, will we see a decrease in agency efficiency? Only time will tell.

Red meat: to subsidize or not to subsidize?

 We have spent some time theorizing the “why” of regulation. As we saw in class, Stigler’s “Capture Theory” provides an intuitive explanation: claiming that regulation is “acquired by the industry and is designed and operated primarily for it”. This somewhat scary idea, however, is walked back by Peltzman in his “Toward a More General Theory of Regulation”. What is clear from these works is that for-profit industries are incentivized to lobby their respective governments for industry control and/or economic support, but can only attain such if they are agreed to by vote-maximizing representatives.

Thus, a recently published article titled “Nearly all global farm subsidies harm people and planet – UN” especially peaked my interest as a public choice academic. This text lays out how the global climate change threat is being intensified by governments subsizdizing the production of red meat and dairy as well as the need to re-allocate resources towards more eco-friendly agriculture. According to a UN report discussed in the article, a stark 90% of the $540 billion in annual global support provided to farmers does more environmental harm than good. Further, an estimated $12 trillion in damage is done per year with the current level of regulation on a global basis, which greatly favors the environmentally-tolling production of meat and dairy (in terms of subsidies). 

An analysis of the effect this regulation has on total welfare across the impacted markets is necessary to determine the usefulness of these policies; we must consider whether the benefits these subsidized farmers are enjoying outweigh the costs. $12 trillion is no small number, so perhaps total welfare is being decreased as a result of regulation—as theorized by Peltzman. If this is the case, what will it take for these policies to change? And when? The answer lies in the attention the issue (or set of issues that this gets grouped in to) receives among voters and whether it will drive vote-maximizing representatives to alter their legislative course. 

Senior Bureaucrat Professor Coppock

I’m feeling oddly sentimental writing this final post, almost like I didn’t spend every week stress procrastinating them. Yes, it is possible to be super stressed about something yet still refuse to start it... I guess you know what they say about seeing the past in rose coloured glasses. 

Since Professor Coppock said he was a bureaucrat, the idea of the Public Choice Agency has stuck in my head. Let’s suspend reality. Do Profesor Coppock and the Public Choice blog post-producing agency hold up to the Traditional Model of Bureaucracy? Let’s assume blog posts are the agency’s output. Is the output hard to measure? How many are too many? How do we know the work is all of good quality. Even though Professor Coppock knows the measure of the output quality (four points hopefully, five if we are lucky), would others who are not a part of the agency know? How would one differentiate between a 3 and a 4 or even harder when it would be awarded a five? Is this class a monopoly supplier? Although I’m sure there’s another public choice class somewhere in the country making blog posts about issues, there is not another UVA public choice class writing them currently. Obviously, no other school compares to our economic prowess, so I would say we are a monopoly supplier on blog posts. Apart from Professor Coppock, there is no other alternative source on whether these posts are good or not *cue Professor Coppock screaming, “you can’t handle the truth.” Since these two assumptions regarding the monitoring problem hold up, I’m starting to believe that we just might be an agency. Let’s see, are we overproducing blog posts at a level that is not optimal in order to maximize? Of course not. Who wouldn’t want 150 so posts on public choice topics to read... Guess we aren’t an agency after all.