The Patent Paradox

Patents are extremely prevalent entities in today’s markets, resulting in 346,152 patents being issued in 2023, with the US Patent and Trademark office estimating that $3.7billion is spent on patent fees alone. This number does not include the research and development, grants or other means of funding, or lobbying for the product incurred by the patent-seeker. Patents are fundamentally rent-seeking. The patent process involves a federal government agency vetting a product and granting an inventor exclusive rights to their unique product for a set period of time, typically around 20 years. While these inventions are still governed by anti-trust laws, these patented products can and often do create quasi-monopolies, pushing other companies out of a market due to greater efficiency and/or lower costs of the product. However, because of patents’ temporary nature, they do not guarantee monopolies but can create enough of a buffer to establish oneself as the giant in an industry. 

Patents are crucial to incentivize innovation and fuel capitalism in the US, pushing inventors to constantly improve their products for financial gain and increase in national GDP. Key technology patents alone are the cause of roughly 2.85 trillion USD in GDP per year in the US. These patents however come at a societal deadweight loss. Approximately 90% of patents are rejected at least once, incurring more expenses like forgoing the endeavor or investing more resources to secure the legal rights of the product. In turn, a series of government agencies has to be funded to grant patents, monitor them, and enforce them, and consumers have to pay more taxes and more for the products or services in stores and online.

Elon Musk Makes Economists :(

Recently, Elon Musk said he will hand out $1 million dollars a day to a random voter in Pennsylvania (a swing state) who votes Republican. Obviously, there are serious concerns that this is very illegal (vote buying), but nonetheless it is his plan. By doing this in a crucial swing state for both Harris and Trump, Musk hopes that his actions will tip the scales in favor of Trump, who ideally will limit regulations and provide contracts to Elon.

There are two ways I can take this: Elon rent seeking from the government, or individuals rent-seeking from Elon. I find Elon's relationship with the government more interesting, so I will go with that. For the government, if they wanted to hand out rents, there are a few ways they could go about it: they could give it to those who provide the most value to society (which makes us happy), they can use a lottery (which makes us indifferent), or provide to those who lobby the most effectively (which makes us sad). Trump would allocate by this final method, instead of giving it to those who benefit society the most. If the government instead provided rents to the most worthy of them, in the case of SpaceX and its competitors, this may mean giving rent to companies that have the least carbon emissions, or even the closest to sending a mission to Mars. By doing this, there is no negative societal impact on the government giving out rents.

Drowning in Amenities

Universities are meant to be havens of academia, with professors conducting research and students cultivating their knowledge. Recently, however, a trend has emerged where universities offer luxury amenities to attract students, a departure from their academic pursuits. This can be seen as rent-seeking behavior. 

Take, for example, Louisiana State University's lazy river in the shape of “LSU.” A premier research university, LSU officially states that their mission is to “the generation, preservation, dissemination, and application of knowledge” and the development of students for “lifelong success.” How does a lazy river help achieve this goal? It doesn’t.

This is a clear misallocation of resources that should be invested in academics. Instead, funds are diverted to “perks” designed to draw in students, resulting in increased tuition. More rent is extracted from enrolled students with no change in academic results.

There is a significant negative social impact. Higher tuition increases the burden of debt and exacerbates unequal access to education. The shift of focus erodes the academic values of universities, trapping them in a race to attract more students through sparkly benefits rather than educating. Universities need to re-examine their priorities and question whether these changes add real value to society or if they only benefit individual universities.

Rent Seeking, Literally

In an episode of the TV show Friends, Ross is looking for a new apartment and finds that “ugly naked guy” is moving out of his apartment across the street. It’s Ross’s dream apartment so when he finds out that “ugly naked guy” is subletting the apartment himself, he sends him a gift to try and sway his decision. Unfortunately for Ross, many other applicants have the same idea and send over lavish gifts to try and win the apartment. 

This “auction” for the apartment is an open competition. This leads to rent seeking behaviors to try and get the prize of the apartment. The outcome in this case is allocatively inefficient because applicants are using resources to buy bribes instead of using those resources in more efficient ways. For example, one applicant buys “ugly naked guy” a mountain bike. This expensive gift may not even generate utility for the recipient depending on whether or not he bikes or already owns a bike. Ross even spends time lobbying “ugly naked guy” in person. Hence, the time and money used to bribe him for the apartment are used in an allocatively inefficient way. Additionally, this situation is akin to an all pay auction. Ross cannot get back his $12 basket of mini muffins even if he does not win the apartment. This literal rent seeking is socially wasteful.

Mission (Statement) Failed

My club ultimate frisbee team held a players' meeting to brainstorm a mission statement, which details the core values of an organization. Small groups created and nominated a mission statement, followed by a vote. However, the team lost interest, and we ended up with a short, uninspiring mission statement.

After reading Buchanan and Tullock's analysis on external and decision-making costs, I now understand why things turned south. Despite my excitement about it, the mission statement had little external costs on our players. Even if you disagreed with the values, it wouldn't immediately affect our organization. Furthermore, there were higher decision-making costs than I expected; players wanted to get home at 9pm on a Wednesday. 

My teammates' rush to finish the process, even if no statement received a simple majority (K/N<0.5), is a rational choice to minimize the sum of the external and decision-making costs. 

Fantasy Football Logrolling

 A couple weeks ago we talked about logrolling. Logrolling is a method used by politicians to get their bills passed in the form of an IOU. If one votes for the bill then the issuing party agrees to vote for the other. This can obviously be beneficial to both parties as they have the chance of their bills being passed. While advantageous there could be some moral dilemmas.

I was presented with such an offer a couple weeks back by my roommate,Teddy, in our  house fantasy football league. Fantasy football is a game where you draft a team of football players and earn points as they perform. The league is compiled of people who watch football and others live in the house and wanted to play. Teddy being somewhat knowledgable in football wanted to scam the ones who didn't know anything. He came to me and proposed that I convince people his trades were good and he would do the same for me. I saw no reason for this because I had a good team and found it distasteful.

When Tutoring Pays Off for Everyone

As an economics major who is arguably bad at math, I am shocked I've made it this far. When looking back at my economics career here at the University, I wondered what got me to this point successfully. My professors? Sure, they've been pretty good, but that's not it. Myself and my drive for economics? No. This happens to be my first blog post.....anyways. My peers? Yes. My peers have helped me through almost every single economics class I have ever taken - willing and able to answer every minuscule question I might have, support me in understanding challenging concepts, and being a shoulder to cry on. While I probably should have invested in a tutoring service instead of bombarding my friends, I didn't, because they could end up helping me get to the correct answer just as efficiently, without affecting my bank account. 

This got me thinking about tutoring acting as a positive externality in consumption. Tutoring offers immense value to not only the students getting tutored, but their free-riding friends who reap the benefits as well (me). When one of my peers pays for and receives tutoring services , the clarification they received gets extended beyond completion of a problem set, but in making a clearer exam study guide, organizing notes, and explaining difficult concepts to friends. So, when I get clarifying answers from a peer who has paid for a tutoring service, I am also benefiting from my friends consumption of tutoring, exemplifying a positive externality in consumption. 

As noted in the link, the cost of a graduate economics tutor here at UVA ranges between $40-$80, reflecting the value that is provided directly to the student who signs up for tutoring. However, I wonder if the knowledge-sharing aspect of tutoring is captured in this fee (possibly, because these tutors are obviously well versed in economics, but for the sake of my blog post, it is not). Assuming it is not, the total societal benefits of tutoring are greater than the private monetary benefit to the tutor, leading to underconsumption in tutoring services - demonstrating an example of a positive externality in consumption. 

Awkward Conversations: The True Transaction Cost of Coasian Solutions

 Though we have not discussed Coase in class recently, thinking back, his ideas made me wonder as to why we do not see Coasian solutions to externalities occur more often in reality. It seems like such a good idea in theory - being able to come up with a market solution to a negative (or positive) externality conundrum. In particular, I was reminded of Coase when I was on the Amtrak from Charlottesville to Trenton, New Jersey for fall break. It was a very crowded train, as one might expect on that date, and in front of me, two people were chatting rather loudly. At first, this did not bother me; after all, what's wrong with two friends reconnecting on a good old train ride?

But when we were approaching the fifth hour of this journey and the clock struck midnight, the frankly incessant talking had begun to wear me down: a negative externality was being imposed on me. Coase would have encouraged me to negotiate a solution with these people to stop them from talking; perhaps $20 or so would be a fair arrangement. But herein lies the problem; even if both parties would be content with that payment, I would never actually propose this solution, for fear of social embarrassment. This is why, I believe, Coasian solutions are seldom seen in practice - there is a rather large transaction cost to ask somebody you don't know to stop what they are doing, and thus imply that they are negatively impacting society. 

Better Read the Terms and Conditions

 Dr. Kanokporn Tangsuan died of an allergic reaction after consuming food at a restaurant in Disney World on October 5, 2023. She died even despite the server's assurance that her allergies could be accommodated. Her surviving husband, Jeffrey Piccolo, sued Disney parks, but Disney argued the lawsuit should be dismissed and resolved through arbitration since the couple agreed to the terms and conditions of the Disney+ service and the Walt Disney Parks website. Disney, facing immense media and public backlash, eventually dropped the effort to dismiss the lawsuit. 

Similarly, a couple that was involved in a major car accident while in an Uber ride in March 2022 sued Uber for damages, but Uber argued that the couple had agreed to arbitration by accepting the terms and conditions of both the Uber Eats and Uber Rides apps. The plaintiffs argued that it was their young daughter who had clicked "agree" to the terms and conditions, but an appellate court still sided with Uber and ruled that the plaintiffs cannot take Uber to jury trial. 

Not thoroughly reading through the terms and conditions for every account you open, app you download, or website you visit is a clear example of rational ignorance. There are simply high marginal costs to reading the super long, complex, and obscure terms and conditions for minimal marginal benefit in return. However, I also agree with the general public backlash that it is outrageous for companies to take advantage of this rational ignorance.

"JUST PICK ALREADY!"

My friends and I could not figure out where to get dinner last night. Asado had too long a wait, Virg couldn’t seat us together, and most didn’t want Canes. I weighed the external and decision-making costs in my head. 

First, the external costs. Many of us didn’t want Canes, and though we were hungry, we would spend dinner dreaming about Virg Mac N’ Cheese. The goal was to spend time together, and splitting the group at Virg would defeat that purpose, leaving everyone unhappy. Asado would mean waiting an hour for a table, making the group hungrier (crabbier) for longer.

Next, the decision-making costs. We were negotiating and complaining about each option outside in the cold. The more people we needed for agreement the longer we would debate. The longer we debated, the colder and hungrier we would become. Aiming for unanimity would increase the decision-making costs even if it would remove external costs. 

A simple-majority seemed preferable to a unanimous decision, lowering decision-making costs without pushing anyone’s external costs too high. Once half of the group agreed on Canes I yielded the fight for Asado and followed them. I may have been eating over-priced chicken tenders, but I got to see my friends and I (think) the group’s costs were minimized. 

*I love this stuff*

Costs of a Country Music Constitution

Over fall break two friends and I went to Nashville. With only four nights to explore Broadway, we wanted to maximize our time and explore a new place every night. Each person had different preferences about where to go, so we decided to let each person decide one night and leave the extra night flexible. At the time, we did not realize how extreme this decision rule was, as one person held all the power to decide our plans for the night. 

On my night I decided to bring the group to Luke Bryan’s, as he’s my favorite country singer. After waiting in the crowded line for forty minutes, my friends started to complain. A large external cost was being imposed on them. I thought about giving up on the line, but I thought through how high our decision-making costs now were. By abandoning the one-person decision rule, all three of us would now have to come to a consensus which could be an even bigger waste of time. To be honest, I also really wanted a picture inside Luke Bryan’s. People may call me stubborn, but I decided not to budge. After another ten minutes we finally got in! Looking back, our decision rule definitely did not minimize total costs. I’m sure my friends would’ve preferred a simple majority at that moment so they could override my decision.

The Lambeth 4593 Constitution

My apartment is in rough shape. Dishes fill up the sink, ginger ale cans take refuge on tables, and junk litters every corner of the living room. My three roommates and I epitomize the free rider problem -- we have very little incentive to clean up after ourselves when we can just bank on our brethren to do so for us. 

Starting this week, however, we free ride no longer. Over the break, trying to solve this problem and create a genius blog entry for my public choice economics class, I created the Lambeth 4593 Constitution. This clearly sets up the rules of the game for our apartment. While passage requires unanimity, our group of four members with similar preferences should have no time signing this into law. With three main chores to do (dishes, cleaning, and taking out trash), each roommate has a smaller yet clearly delineated responsibility with the added bonus of a break every four weeks. If they're slammed with exams or just don't want to do their role in a given week, they are free to trade or pay someone to take their responsibility, creating a market for each chore. Essentially, they can buy the right to free ride. And to disincentivize violating the constitution, a wannabe free rider faces a punishment decided by the three other members. 

Justin Verlander Hates the Borda Count (probably)

     Justin Verlander is one of baseball’s greatest all time pitchers— currently 41 years old and still pitching, he is one of the only active MLB players that is essentially guaranteed a spot in the Baseball Hall of Fame. Shockingly enough, he has never made a sociopolitical commentary on the theory of the Borda Count. If he were to, however, I think he would be able to point out some of its major flaws.

    In 2016 Verlander had an amazing year and was the prime candidate to win the American League Cy Young award, given to the most outstanding pitcher in a season. The award is decided by the Baseball Writers’ Association of America, where 30 writers pencil in their votes by way of the Borda Count. When the award was announced after the 2016 season, Verlander received the most first place votes (46%), and somehow lost. Two of the writers had completely left Verlander off of their ballot, resulting in Verlander losing by only 5 points (137-132), the closest race since 1970.

    This race exemplifies the prime flaw of the Borda Count which Mueller discusses; strategic voting. While Verlander was not unanimously the best pitcher in 2016, he objectively was a top 5 pitcher in the league. Knowing this, a writer who strongly wants somebody else to win the award would be incentivized to leave Verlander off their vote entirely even if it does not represent their true preferences. 

Borda saves movie night!

For the past couple weeks my friends and I have been trying to find a time for movie night, now that the weather is getting slightly colder. The issue is we can’t seem to settle on which movie to watch. I want to watch La La Land, someone else wants to watch Tron, a third wants to watch Twilight and so on. We'd been labouring over this decision for a few weeks, bickering over which would be more fun to watch, and it looked set to fall apart if we couldn't decide on a film soon.

Remembering that groups of individuals can display intransitive preferences, I thought this may be a good chance to try out one of the voting methods we learnt in class. I used this google form to set up a rank-choice voting procedure (may have accidentally included an extra column, so disregard column 5). I decided on the winner using the Borda Count Method, with each first place vote being worth 4 points, second place votes being worth 3 points and so on.

Under the Borda method, the winner was (drumroll)... La La Land!

Controlling the Agenda

This morning, I met up with two friends to go on a hike. It was a perfect day to spend outdoors, and we only had one issue–which hike to choose. The three options we had to choose from were Sharp Top, Devil’s Marbleyard, and Flat Top. Each of us preferred a hike different from the other, so I came up with a brilliant solution: we would all rank our preferences and then use a Borda count to determine the winner (note this is the point in the decision-making process when your non-Econ friends will call you weird). Below are our hike preferences, which I had to write on a napkin. 

Much to my dismay, I realized that in our situation a Borda count would not yield a Condorcet winner since one did not exist; we had intransitive preferences and a Condorcet paradox on our hands. We had three options, and all ranked them differently due to various reasons like length, difficulty and views. However, I quickly realized that with the power of agenda setting I could manipulate the outcome of the situation. Luckily enough, my friends were honest, and I did not have to worry about preference revelation. Since I knew that my 2nd choice would beat my 3rd choice, and my 1st choice would beat my 2nd choice, I set up two pairwise votes in that order. Using my knowledge of Economics, I was able to control the outcome and end up with my 1st choice hike, Sharp Top (which really was the best option). 

A Coxswain's Conundrum

In my position in rowing, that of a coxswain, athlete selection can be particularly difficult due to a lack of hard data about an individual coxswain's skill. To select our coxswains, we use a system of ranked choice voting nearly identical to that of the Commonwealth of Virginia, at least within each boat. Beginning with our fastest boat, rowers rank their preferences for their coxswains. Usually, a coxswain achieves a majority of votes but, if they do not, the coxswain with the fewest first or, sometimes, first and second place votes is eliminated, their votes are redistributed, and the votes are counted again, continuing until someone has a majority. Then, we move on to the next boat and do the same with the remaining coxswains, until each boat has selected a coxswain.

This system leads to a unique problem. The presence of many boats and, thus, many different ranked choice elections creates an incentive for coxswains to focus on winning over a majority of athletes in just one boat, rather than developing their overall skills and ability to work better with everyone on the team. Worsening this problem is the fact that boats tends to be made up of similar "types" of rowers with similar personalities who who work well together. If a group of five athletes (in a boat of eight) have a unique preference for, say, a particularly intense coxswain, they may be the only five rowers on the team to rank that coxswain highly, but that coxswain may gain an opportunity to race over others with more broad appeal. Then, when that coxswain has to practice or race with others down the line, they are less effective in doing so, as they've only really developed one part of their ability for the opportunity to race earlier on. 

I have proposed that, to limit this issue, we still select our coxswains with a ranked choice vote, but whether a coxswain races at all is decided by a vote that includes the entire team. Then, we should give each crew a choice on who from that pool they want in their boat, removing the incentive for coxswains to appeal to a narrow group for the opportunity to race in the first place. Thus, we would instead be incentivizing coxswains to work well with all rowers for the opportunity to race, and allow them to race with those who they work with best.

Curb Your Rationality

    I recently came across a clip from Larry David’s show Curb Your Enthusiasm. In the clip, Larry is waiting in line at the polls to vote for his friend, and makes a deal with another voter so neither of them have to wait in the line. They recognize that since they’re voting for opposing candidates, their votes cancel each other out. They make a deal to leave, allowing both individuals to essentially cast their votes without waiting in line. Later in the clip, Larry’s friend discovers he lost the election by one vote.

    The clip brings up a few things we’ve read and talked about in class; the cost of voting, social pressures, and the idea of trading votes being the main ones. The cost of voting is the cause of the video— two people recognize that waiting in line sucks, and they’d rather be elsewhere. Social pressures are present when Larry’s friends are mad at him for his decision, and the idea of trading votes by symmetrical abstention is clearly apparent. The irony in the clip is that even if the other voter were to return and vote, the probability of that one vote making a difference is statistically insignificant, except of course in the irrational world of Larry David. 

What To Do with the WASH

The WASH, a speech and debate club at UVA, is a club good. At meetings, one’s utility depends on how many people are in the hall. The optimal point is when there are enough people that meetings are lively, and enough room that everyone can sit comfortably. 

Each semester, the WASH accepts a new class of provies (provisional members), who must complete a set of requirements to become official members: one debate, one literary presentation, etc. This semester there are 113 provies, and this comes with negative externalities: less opportunity for member participation, increased congestion in the hall, which lead to decreased individual utility. 

The WASH can increase the marginal costs of joining by increasing provie requirements. Provies could stay till the end of 3 meetings instead of 1, complete more acts of service, attend more meetings, etc. The WASH could host 2 meetings a week, but marginal cost would increase as meetings are long and the hall has to be reserved/paid. They could set time limits on literary presentations. Overall, the WASH needs to find a balance between marginal benefit of new membership with the marginal cost of crowding.

Breaking the Law for the Right Price

I was rushing to class as the time ticked down before my astronomy exam. I knew that I had to gain some time to arrive when the exam was supposed to start. As I hastily made my way up Stadium Road, I glanced both ways and seeing a car coming quickly towards me, I made a split second decision: cross the street. In a rush, I jaywalked, forcing the car to slow down to accommodate me as I jogged across the two lanes to the other side of the road. This interaction, along with many other similar ones at UVA, presents a prisoner’s dilemma. A prisoner’s dilemma occurs when two parties, unable to communicate, must choose between cooperation and self-interest, where the optimal choice depends on the decisions of others. These situations often present a dominant strategy. A dominant strategy is when there is an optimal choice regardless of others’ decisions. In the presence of an incoming car on the road, we are presented with two options given our time constraints: one, cross the street in front of the car, or two, wait for it to pass, losing those few crucial seconds.

In this dilemma, the dominant strategy is to cross the road in front of the car. This choice will resolve in one of two ways: either the car slows and you cross at your convenience, or the car hits you. Any court is likely to hold the driver accountable, because jaywalking is illegal in most states, while hitting a pedestrian is illegal everywhere. Furthermore, the mitigation of damage doctrine prevents a party from receiving damages that could have been avoided. Unless the pedestrian was grossly-negligent and could have avoided being hit, the court will often side with the 150lb pedestrian over the 3,000lb motor vehicle in a collision. In both situations, the pedestrian wins, making this a prisoner's dilemma.

All My Homies Hate Rock Paper Scissors

I am firmly in the camp that all petty arguments can and should be decided by rock-paper-scissors. With essentially 50/50 odds of winning, arguments can easily be resolved within seconds. While doing a quick google search about the game, I learned there is some interesting game theory associated with rock paper scissors as well. Because of the nature of the game, there is no dominant strategy for any player, meaning there is no Nash Equilibrium because of its cyclicality.

But why does rock paper scissors work so well? Interestingly, it is because of its intransitive nature. Rock beats scissors, scissors beats paper, and paper beats rock. If you each play the same hand, it is a tie, and you play again. In simple terms, A>B, B>C, and C>A. Imagine if this wasn't the case. What if Scissors beat paper and rock? That would mean A>B and A>C. Therefore, any rational person would choose scissors against their opponent, ruining the game. Contrary to what we talked about with the irrationality of intransitivity in class, the ONLY reason why rock paper scissors is a viable game to solve problems is because of its intransitivity, and although it may not be rational in an economic sense, in my opinion its "irrationality" makes it perfect.