Micro final

Tullock - bureaucracy

"whispering down the lane" problem

Coase - durability and monopoly

???

Logic of special interests

Adam Smith - specialization is limited by extent of market - expand scope of political decisionmaking => more division of labor/specialization => more groups - SIGs figure out how to allocate resources to highest valued uses - type of preferences responded to by PDMs aligns with specilaization Key points: - good econ. and good politics aren't necessarily aligned - governments can't be run as firms are, no calculation of valuable behavior b/c no PRs - nature of PDM does not abolish competition, just changes its manifestation CPE = choice over sets of rules - Brennan and Buchanan - reason of rules - see PPT Invisible hook was application of CPE - it applies to everything

Demsetz: comp. in vs. for the field

Competition to be the one firm exists too - you pick one person to shingle your roof - you give them a monopoly because TC makes it make sense to have one roofer instead of one for each shingle - same applies to utility monopolies - competition still lets you discover lowest price - limited liability and attracting capital to take over a market - LL is a check on omonopoly power, allows contesting of market Restricting cigarette ads increased profits - artificial barrier to entry

McChesney - rente xtraction and rent creation in the economic theory of regulation 2 noteworthy limitations of current model? What does this do to entrepreneurship? Advertising example?

Government has come to be treated as complicated network of individuals incentivized to maximize self-interest Two noteworthy limitations of current model Despite growing realization of methodological individualism, role of politician ahs not been integrated into model Economic theory remains one of rent creation Politicians aren't brokers redistributing wealth in response to competing demands, but as independent actors making their own demands to which private actors respond Reap returns by threatening and forbearing from extracting rents already in existence Politcal office = property right ot impose costs Producers compelled to pay legislators to prevent private rents form being extracted Existing estimates of welfare costs of govt. Regulation overlook costs of inducing govt. Not to regulate Legislative creation of political rents Stigler interpretation: cartel model where govt. Imposes adn enforces anticompetitive restrictions, DWL triangle, producers gain from rectangle, competition for rectangle produces additional social loss from RS REVIEW GRAPHS IN NOTES "Broker" model of politician subsumes role Demand votes or money, threaten to impose costs, political blackmail Forms of cost forbearance strategy Threat to deregulate previously regulated industry Subsequent payments to avoid postcontractual opportunism Guaranteed rent durability is impossible Among firm owners, subsequent purchasers of shares with expected rents built into prices are vulnerable to extraction on part of opportunistic politicians Payments to political newcomers earn no retns, just protect against windfall losses that new legislators could otherwise impose Minatory presence reduces EV of entrepreneurship, one way of minimizing theft is to have nothing to steal Producers and legislators get locked into a chicken game, who will call whose bluff Constitution affects credibility More inleastic industry demand = greater attraction of rent creation Threats to act create auction market, bids for favors get higher and reveal which firms stand to gain and lose from effects Advertising creates specific capital, the one that advertised can lose rents from intervention, for example legislation that requires quality guarantee that used to be unique to a brand Conditions making rent creation unattractive make rent extraction more attractive Attraction of rent extraction increases with decrease of constitutional PR protection Cost of government regulation has been missed: costs of protecting private capital even when politicians ultimately are persuaded not to regulate

Winston and Clifford - does AT policy improve consumer welfare? Assessing the evidence 5 reasons for failure?

John Bates Clark - Sherman act should be informed by economic theory and have empirical evidence that it has worked in broad social interest - there isn't any Scope of AT activity - enforcement responsibility of DOJ and FTC, resources consumed on enforcement are significant - could gains to consumers from curbing offenses outweigh costs? DoJ investigates <10 violations per year, just has to demonstrate firm has power over price and output to exclude competition - impossible to analyze en masse 6 cases 1. standard oil - oil prices were already falling before it broke up, they did nothing, market share was already falling 2. american tobacco - broke it into three firms, just created advertising battle, not price changes, those stayed stable - farmers didn't get better prices from it either 3. alcoa - "restricting trade" - aluminum market was already falling 4. paramount - court prohibited uniform prices and required system of competitive bidding among theaters for each run of feature film - didn't work, nobody entered the market despite "extra access" granted by courts - either the original actions were not raising prices or restricting output, or the decree didn't work at all 5. united shoe machinery - leases impeding purchase of competitors' machines, "full capacity" clause in contracts - court banned these leases, established secondhand shoe market, machinery expenses didn't go down - SC made them get rid of 1/3 of operations, just meant increase in imported shoes, US shoe manufacturing was ruined 6. AT&T - after breakup long distance competition increased a lot - good? nope - it happened b/c requirement that bell companies provide access to all carriers, but FCC could've done that without antitrust authorities - problem was FCC was the one blocking competition already - waste of resources, AT enforcement didn't help, just overcame dumb policies from a federal agency Why do these fail? - length of cases is so long that industry already changes - fails to benefit consumers because remedy is negligible - politically popular to challenge large firms in court despite doing nothing Collusion - price fixing agreements are treated as violations automatically, never has stopped "collusion" - cartels reduce costs by EoS which reduces prices - real collusion has never been helped by govt. prosecution Mergers - stock prices suggest challenged mergers were not anticompetitive - mergers consummated anyway despite opposition by regulators usually helped consumers - price cost margins should have fallen if interventions were helping along with second requests for information - enforcement policy undermining mergers that would enhance efficiency - either AT wasn't strong enough or firms had to compromise production efficiencies Deterring anticompetitive behavior - AT laws didn't work in England either - deterrent effect is small compared to market power to do the same thing Causes of ineffectiveness - duration of cases - difficulty formulating remedies - sorting out which mergers are bad - substantial challenges of formulating policies characterized by dynamic competition - political forces influence which cases are initiated, settled or dropped - focus on egregious violations instead and figure out why other policies have sucked

Role of economic theory

To understand, NOT define, reality/history - defining history is stupid

Coase conjecture

With complete durability, price always = competitive price - consumers know price will go down as "otput" increases so nobody will pay until it's the comptitive price, not monopoly price - empirically verifiable process - even if indivdual is monopolist, there is a caveat - durability ruins ability to exercise monopoly power

Leeson chapter 8 - secrets of pirate management 6 lessons?

1. Greed is good - socially desirable outcomes, everyone was better off - pirates were motivated to not aimlessly kill, be progressive with democracy and constitutions, not be racist 2. let your business drive thinking about management, not other way around - management worker incentive alignment is crucial - election of leaders nd dispersion of power to align incentives solved this - workers' democracy, but profit driven - no such thing as THE efficient management structure!!! 3. regulations are important, but using govt. to impose them can backfire - pirates were better at regulation because they had local knowledge, profit=incentive to create rules that created a more desirable workplace 4. don't let your prejudices get in the way of a better payday - pirates had to put aside race to see silver and gold, competitive pressures make it even more important to do this - Jackie Robinson example 5. look out for legal changes affecting bottom line - pirates had to be aware of changing institutional environment, growth of government now lets them make or break firms, encourages rent seeking 6. trademark yer terror, nothing beats a brand name - newspapers, flags, dedication to message made pirate marketing very successful

Barriers to entry and competition

1. competition between firms 2. competition for the field Price search with high entry barriers Barriers to entry 1. natrual scarcity - derek jeter 2. artificial - government restrictions, occ. licensing, etc. Are all barriers inconsistent with competition? - no, nature of competition is to exclude competitiors EoS = natural barrier What do we do when MP exists? - limit entry, reduce competition, add govt. prod., etc. (SEE PPT) - these create structures for the market instaed of addressing what created teh bariers to entry - this will stifle the real competitive process Reconsidering barriers to entry - differentiation communicates info, substitute availability - doesn't reduce competition (probably increases it) Platform economies - EoS - natural monopoly? - utility production is an example - grabbing more share and driving out competitors, then rasie priece and cut production

How to stop monopoly

1. cost of colluding prohibitively high 2. nobody has control over a resource - may not hold in some conditions

Put me in, coach, I'm ready to play - Coyne etc. 3 forms of discrimination? What does entr. reveal?

3 forms of discrimination and problems 1. employer - they miss out on most productive workers 2. coworker 3. consumer Consumer might persist over long run because firms are rewarded for meeting preferences Discrimination and entrepreneurship - Kirzner: all action is entrepreneurship - nondiscrimination firms should take over market Part of entrepreneurship: revealing LATENT DEMANDS - if entrepreneurs can demonstrate costs associated with their taste for discrimination, consumers will change behavior accordingly MLB - integration as innovation - consumers had revealed preference for winning World Series, profits came from winning - Dodgers were first movers, Indians were next Teams did pay a price for employing black players, impact on behavior was not instantaneous - taste for winning exceeded taste for racism, increased wins increased cost to consumers of being racist - entrepreneurs had to take a bet that this would work Dodgers reaped greatest rent by being first movers, won 6 rings with jackie NL teams were more willing to integrate because they were the more competitive league, meaning an advantage gained by integrating had greater reward Austrian theory - integration made sense when reward was more likely to be realized quickly through immediate competitiveness, potential gain outweighed potential loss way more - still worked in AL because the Indians wanted to beat the yankees Entrepreneurship tends to erode economic errors like discrimination, market process overcomes these by revealing latent demands and costs associated with them

Public choice foundations

Applying tools for undersatnding market to reality 1. Methodological individualism - unit of analysis is individual - trace back to choices individuals make - "US imposes tariff on China" - no 2. purposive behavior (homo econ) - NOT modeling as lightnining maximizers - analytic emphasis on rules structuring play - hate the game, not the players - changing players isn't enough - if market actors are self-interested, so are political actors 3. Politics-as-exchange - people participate in exchange to gain mutual benefits - pirates engage in a n agreement b/c they epect to benefit from it Magic # in markets is 2, in politics is 3 - market phenomena can be traced back to mutual 2 person exchange - in politics, not everyone volunteers to exchange, externality? (? CBDC?)

The great fact

As of 2015, less than 10% of the wrold llives on less than $2 for first time in history - down from 37.1% in 1990 - fall of Berlin Wall, India reforms itself - bulk of decrease was in Asia - poverty still rises in Africa - literally a miracle North Korea vs. South Korea - no difference but institutions What epxlains transition? - allocation vs. exchange paradigm - allocation: within set of constraints, indivdiuals exhaust gains from trade, no $20 on sidewalk -exchange: how do we relax those constraints to create additional gains? Transition is institutional transition - focus on isntitutions as primary explanation - cultural, geographic, etc., are not sufficient - rewards tructure turns on productive engine

Baumol - entrepreneurship: productive, unproductive, and destructive

Basic hypothesis: while total supply of ents varies, productive contribution varies much more based on its allocation Implication: policy can influence allocation of entr more effectively than it can influence supply Central hypothesis: it's set of rules and not supply of ents or nature of their objectives that undergoes change that effects economic growth Schumpeter's main shortcoming was policy implications No obvious reason to make shift of ent activity away from improvement in production toward introduction of new products He doesn't go far enough - rent seeking innovations, etc. Two propositions Rules of game that determine relative payoffs do change dramatically Entrepreneurial behavior changes direction from one economy to another ina manner corresponding to variations in rules of game Ancient rome - wealth acquisition was honorable, opportunities for political moneymaking Reward system offered wealth to those engaging in commerce but was offset through attendant loss in prestige, econ effort was all political and parasitical thorugh conquest and usury Medieval China - monarch possessed all property Those with resources dind't invest them so they didn't get stolen Those climbing political ladder were rewarded instead and enterprise was frowned upon Rules changed from wealth from military activity to protection from arbitrary taxation and labor force creation, tech advances driven by monopoly opportunity Rules changed again in 14th century, more rent seeking took place, patrician elites depended for power on royal charters and monopolies instead of talen tand initiative Third proposition: allocation of ent between activities has profound effect on innovativeness of economy and dissemination of discoveries Taxes can redirect effort - it's easy to become rich in high tax society, but not by being productive A central point: if reallocation of effort is adopted as objective of society, it is far more easily achieved through changes in rules that determine relative rewards than modifying goals of entrepreneurs themselves Requiring plaintiff to bear both sides' costs if defendants are not guilty Japan has fewer lawyers and less lawsuits because their suits have to be approved and can't be appealed, US incentivizes suing instead Overall moral: we don't have to wait for slow cultural change, just change rules to offset undesired institutional influences or supplement beneficial influences

Processes of Entrepreneurship

Baumol: driver of growth is entr. but modeled in Schumpeter Framework - not supply of entrepreneurship that affects growth - negative alllocation of productive entrepreneurship is wah'ts important Kirzner: if you can teach it, it ain't entrepreneurship Baumol: Schumpeter is incomplete picture - combination of Schumpeter and Kirzner entrepreneurshi p- development is made of such mundane innovations we don't even realize they made life easier - double entry bookkeeping - China wwas using it for public admin since 400 BC - became commercial tool in Italy - why did Italy get rich while tech advanced middle east didnt? - realization of commercial use incentivized by institutions - 2 entry bookkkeping freed up time for entr. to do and discover something else, increase scope and specilaization - totality of knowledge in society swamps any group of entrepreneurs - use of tacit knoweldge created growth - institutions as entr. filters - performance based on allocation of entr., not quantity Medival China vs. Europe See PPT once entrepreneurship emerges, aristocracy diminishes

Leeson chapter 6 - pirate conscription

Benefits of conscripting over accepting volunteers: conscripts get no treasure share - but conscripts signing constitution by force undermine rule integrity - escape conscripts and revolts were bad Pirates always claimed they were forced when tried - laws encouraged defense against pirates by providing reward for not giving up - initial act of grace for pirates, many accepted and got the pardon and then continued pirating - fake conscriptions existed, pirates asked fellow captured sailors that escaped to advertise impressment, used newspaper as defense during trial - staged shows of impressment acted out in front of others, honest comrades fell for it and reported it - ad of force didn't always work since everyone did it

Coyne - lobotomizing the defense brain

Buchanan's two foundations for public finance Organismic view - state as single entity acting as fiscal brain to select social welfare variables, purely allocative Individualistic view - focus on individual chooser as unit of interest, how individuals interact given incentives and constraints generated in various political contexts Core argument: this insight is relevant to treatments of defense wehre it is assumed a benevolent "defense brain" provides optimal quantity/quality of defense to maximize welfare of a nation Defense is not solely a national good, diverse goods and services can be provided at subnational levels and units SEE BOOK FOR MORE EXAMPLES Using national defense as PPG example misleads students Focus on how rules constrain or fail to constrain relevant decisionmakers who control various aspects of defense provision, appreciate paradox of government and tensions between govt. Power and domestic liberty

Stigler - the theory of economic regulation POP and NR views? Stigler's theory? 4 policies industries seek? 3 limitations of benefits? 2 differences btw. democracy and market? occupational licensing incentives? fundamental vice of criticism?

Central thesis: as a rule, regulation is acquired by industry and desigend adn operated primarily for its benefit Two main views of regulation 1. instituted for protection and benefit of public at large or some large subclass of the pbulic (POP) - oil import quota example - why dont they just take subsidies from public treasury? - POP theory must say choice of quotas is dictated by concern for adequate domestic supply in event of war - if this were the case, tariff would be better instrument becuase it woudl get money for treasury 2. non-rationalist view (NR) - they woudl say consumers can't measure cost of import quotas, so they're willing ot pay higher prices because they're dumb Stigler's theory: Profit Maximizing - present members of refining industry would ahv eot share cash subsidy with all new entrants, only when elasticity of supply is small will industry prefer cash to controls of entry or output (competition restriction) !!! the problem of regulation is problme of discovering when and why an industry is able to use state for its purposes, or is singled out by the state to be used for alien purpsoes (what?) Four main policies an industry can seek 1. direct subsidy of money - requires excludability of new claimants 2. control over entry by new rivals - limit prices, vertical integration, etc. to retard rate of entry 3. affecting substitutes and complements - buter producers wish to suppress margarine 4. price fixing - even ones alrady with entry control will want price controls, without diseconomies of scale more price control is essentail to gain better rates of return Proposed general hypothesis: every industry or occupation that has enoguh power to utilize the state will seek to conrol entry 3 limitations upon political benefits 1. distribution of control is changed, political decisions wight control based on political strength instead of market control, skewed towards small firms 2. procedural sfaeguards required by public processes are costly, bureaucratic process and other politicians trying to survive, tc. 3. political process automatically admits powerful outsiders to industry's councils - allocation of TV channels among communities doesn't maximize industry revenue but reflects pressures to serve many smaller communities Costs of obtaining legislation - benefit to industry falls short of dmage to rest of community - why doesn't democracy reject requests? peopel vote with pocketbook - CBDC Two differences between democracy and market 1. decisions must be made simultaneously by large number of persons - makes voting prohibitively expensive, you don't vote every time someone decides to do something 2. decision process must invovle all the comunity, not just those directly concenred with decision - private market narrows it down just to who is direclty affected by decision If gorup X wantsa policy that injures non-X by a small amount, it won't pay non-X to discover and act accordingly to his interests (CBDC) Political parties are Demsetz's theory of natural monopoly - if one party becomes extortionate another party can provide the services at a better price - with effectively controlled entry we shoudl expect one party dominance to lead that party to solicit requests for protective legislation but exact higher price for legislation (?) Occupational licensing - size of population, per capita income of population changes reward for action - concentration of occupation in large cities, expenses for soliciting support are lower in higher conentration ares - presence of coheisve opposition to licensing - dealing with public at large means CBDC, but if peopel get mad and oppose it, it will be costly to overcome - larger occupations licensed in early years - stability of membership - longer in occupation, greater control Fundamental vice of criticism: misdirects attention - we need to cahnge political support and reward system for commission, not preach to commissioners and those who appoint them (institutions need to change first)

McChesney - rent extraction

Cery similar to Fiseh Body problem - appropriation of rent problem/opportunism - govt. as demander of rents, not just supplier Tax incidence - who is actually burdened by the tax? - yacht tax to close budget deficit, failed to work - goods were elastic, you can rent yahts instead - rich people can lobby it away look at graphs Role state plays allocates resources (RS or PG)

Hayek - pretense of knowledge

Chief practical problem economsits face today - on one hand Nboel establishment marks process by which economics has been conceded some dignity like other sciences, but on other hand, economists are called upon to say how to extricate the free world rom serious threat of inflation brough about by policies majority of economists recommended and urged governments to pursue Propensity to imitate physical sciences leads econ to error Current policy: assertion that simple positive correlation between total employment and size of AD for goods and we can assure full employment (thanks Keynes) CRUCIAL ISSUE: while in phyisiscal sciences it's assumed any important factor determining events will be osbervable and measurable, in economics it's too complex and depends on many individuals contributing in immeasurable ways to outcome Everything that can't be quantitatively measured gets ignored Since AD and unemployment are the only measurable things tehy are assumed to be the only factors Chief actual cause of unemployment: existence of discrepancies between distribution of demand among different GnS and allocation of labor among their production Unemployment indicates structure of relative prices has been distorted, so to restore it we need change in relative prices Why can't we act like scientists? !!! social sciences, like biology but unlike other sciences, have to deal with structures of essential complexity (like competition) Organized complexity = structures depend on properties of individual elements of which they are composed and relative frequency with which they occur, but also in manner in which elements are connected (???) Inherent limitations of numerical knowledge are often overlooked Algebraic equations are still good for econ, allow describing of general character of a pattern This led to illusion that we could use numbers to make predictions, but math econ founders had no such illusion Real life depends on so many circumstances that it oculd only be known to God Chief point to remember: great and rapid advance of physical sciences took place in fields where explanation and prediction could b ebased on laws WITH FEW VARIABLES Complex phenomena have many more variables Simple example: ball game played by people of equal skill Knowing their state of mind would help predict outcome, but we can't know that, therefore result of game is outside range of science, but we might know what effects some events have on teh result Doesn't mean no predictions, but our capacity is confined to general characteristics of expected events PATTERN PREDICTIONS!!!!! Man cannot acquire full knowledge which would make mastery of events possible Use what he can achieve and cultivate growth by providing appropriate environment, gardener instead of engineer Fatal striving to control scoetiy, become destroyer of civilization no brain has designed but has grown from free efforts of millions of individuals

Collusion

Chisleing problem, freeriding problem - undercut high price, cartel breaks down How do you know who to include? must be comprehensive, infinite substitutes exist - TC of monitoring and agreeing on price Sign of cartel: enforcement mechanism - defacto enforcement or de jure exception from antitrust laws - sports leagues are legal cartels Does AT work? - Sherman Act - internationally unique - new innovations with railroad and perishable goods - basis for regulation has changed over time - originally to prevent monopolies caused by tariffs - Sherman didn't like getting called a monopolist for doing tariffs Sherman had no support from economists at time of passing - born out of agriculture producers getting protection from those reducing prices Clayton Act - nonprice monopolistic actions - didn't encourage competition, def. could stifle it Both open ended in enforcemt => discretion>rules - easy to be abused - rent seeking opportunities

???Buchanan - the constitution of economic policy 3 focuses?

Clear message: economists shoudln't give policy advice like they were employed by a benevolent despot, look to structure within which decisions are made instead - ultimately normative purpose: seeking to make economic sense out of relationship between individual and state 1. Methodological individualism - focus on individual choice as basis - "economy" isn't something that exists - efficiency in resource allocation came to be defined independently of its process - shift towards teleology - market and politics can't be evaluated simultaneously because incentive structure is incompatible - no invisible hand 2. homo economicus - people make maximizing decisions - no need to assign net wewalth or income a dominating motivational influence to produce operation economic theory of choice behavior - presumption of welath maximization is dumb, doesn't place economic interest in a dominating position (???) - differences in predicted results stemming from market and political interaction stem from differences in sthe structures of these two institutional settings rather than switch in motives as they change roles 3. Politics as exchange - economic interest is a good peopel value positively - markets are institutions of exchange, that's it, no conscious sense of aggregate outcome - counters classical idea that persons participate in politics through common search for the good true and beautiful - difference between markets and politics is not kind of values pursued but condittions under which they pursue their interests Constitution of economic policy - improvement in politics is measured by satisfaction of what individuals desire, nothing more - no supersession of individual evaluation - severe restrictive implacations for normative theory - indirect evaluation only, based on measure of degree to which process facilitates tranlsation of expressed preferences into observed political outcomes - focus becomes process instead of end state In political exchange there is no deontological efficiency evaluatoin like market, no prices or purchasing goods - unanimity is political analogue to freedom of exchange - evaluate only by ascertaining degree of correspondence between rules of reaching decisions and unique rule that guarantees unanimity/efficiency - Wicksell suggests correspondence between justice and efficiency - political equivalent of TC makes pursuit of efficiency seem out of bounds of reason - to extent individual reckons a constitutional rule will remain over a long time, he is necessarily placed behind veil of uncertainty - choice among rules will be more fair then Constitutionalism and contractarianism - ultimate goal is equlaity before the law - Wicksell - PE interest merges into that of contractarian political philosophy - behind veil of ignorance, contractual agreement on rules seems to be possible - purpose of contractarian exercise is justificatory in that it offers basis for normative evaluation - could ovserved rules constraining activity of ordinary politics have emrged from agreement in constitutional contract? - deficit financing regimes offer most dramatic example - it is impossible to construct contractual calculus in which separate generations of politicians agree toa llow majorities ina single generations to finance currently enjoyed goods thorugh issue of public debt that imposes utility losses on later generations of taxpayers - if end states are invariant over shifts in institutions, no role for CPE - if institutions do matter, role of CPE is well defined - American constitutional convention was one of few examples of deliberately chosen political rules - Madison: how can we live together in peace, prosperity, and harmony, while retaining our liberties as autonomous individuals who can, and must, create our own values?

Sowell ch. 18 - government functions

Corruption - nobody wants to invest when govt. is unstable - cost of corruption is wealth reduction - Russian oil company sells for % of its value in US because expectations are for looting, etc. to ruin everything Consistent laws is what's most important, even if they promote discrimination, etc. Property rights - without them you have waste, monitoring problem, incentive problem, etc. Morality and trustworthiness of people themselves (informal institutions) - rent control as example of dishonest behavior requiring regulations - widens difference between value of building to honest owners and dishonest owners - cost of legally mandated services can exceed amount of rent permitted under law, so value to honest landlord becomes 0 - landlords who are willing to violate the law to save money by neglecting or accepting bribes might still participate - don't make honest behavior financially impossible - unscrupulous landlords have made a science out of milking rent-controlled buildings by neglecting maintenance, etc. Free markets punish dishonesty - cheaters don't succeed in private sector, even when a few sneak in like Enron, serious ripoffs never succeed (Stossel) Externalties are wehre govt. can decide better than marketplace by colelctivizing a decision, could be a spontaneous decision too (cattle grazing associations, etc.)(?) Disntinction between what govt. can do and is likely to do - Nixon putting in price controls was incredibly popular - political time horizons way shorter than economic time horizons - tradeoffs exist - removing tiny shreds of arsenic in water because nobody wants to be politician that opposes clean water despite uselessness of policy decision JS Mill -adding to functions of govenrment increases its influence over people, makes them "hangers-on" of the government, we never really are free

???Demsetz - why regulate utilities?

Current doctrine promotes basic reslationship between number of firms and degree of competition - public utility regulation has been criticized becasue of ineffectiveness, baseic arguments for effective regulation have not been challenged Monopoly defined in this paper: if it is less costly for one ifrm to produce than for two or more firms, one survives, if left unregulated that firm sets the price - current theory does not explain how scale economies results in monopoly price - no reason scale production woudl decrease number of bidders for their goods - what about firms bidding annually for right to produce license plates? Two assumptions: 1. inputs must be available to many bidders at prices determined in open markets 2. cost of colluding must be high Presence of active rivalry is clearly indicated by public utility history - no logical basis for monopoly prices A small market can be competitive or collusive - TC exists, no monopoly is present without TC because they could be eliminated otherwise, coexisting of monopoly power and structure is only possible in world of TC, restricting entry=increasing TC for potential rivals Absence of price for resources leads to overuse Possible systems - franchise system - public ownership of distribution (highways) Problem of windfalls - ?????????? Defense for regulation can't be based on formal arguments considered - utility industries shoudl resort to rivalry of marketplace to relieve discomforts of commission regulation (?) - but also relieves them of comfort of legally protected market areas Rivalry disciplines more effectively than regulatory processes of the commission

Development

Development = overcoming TGT Abudnace of resource =/= economic growth - oranges at Christmas in Sicily What is economic dvelopment? - individuals discover ways to use scarce resources most valuably - more importantly: expansion of feasible choice set - not ust more stuff, but more options - choosing own destiny - "you can't eat beautiful" - not just growth rates, but satisfaction and wellbeing "Industrial revolution" - misleading - dvevlopment =/= industrialization - Argentina attracted tons of immigrants - secure PRs and specialization under RoL - how industrialize? traded ag goods for acpital Default state: abject poverty - with this as SQ, transfering resources isn't the answer - where did it come from first - Earth resources aren't manna from heaven - existence has remained constant - how did they get best used? We don't read economists to plan econ. development Why inflection on hockey stick? - began in least liekly place in the wrld What does coal mean without an indivdiual to discover and use it? - ability to apply capacity to discover those resources Technology: knowledge about available means to create output - trade is technology - only realized by ability to exchange (PRs) Natural endowment might explain first mover, but not why tohers are left behind

McAfee and Vakkur - the strategic abuse of the antitrust laws 7 strategic uses? 3 uses for private firms?

Digital equpiment vs. intel - everyone liked intel's chip even though digitals was faster, so digital sued intel, used antimonoply rheotric as marketing - digital won and got access to producing plant and intel's chips slowed their entry and forced them to give up tech - example of exploiting AT for competitive benefit Taxonomy of strategic uses of the AT laws - Sheran act focuses on restraint of trade - clayton act makes anticompetitive behaviors illegal (more comprehensive) - private litigation - harassing, harming and extorting potential !!! - extort funds from successful rival, change terms of contract, punish noncooperative behavior, repsond to lawsuit, prevent hostile takeover, discourage entry of rival or prevent successful firm from competing vigorously - cheaper to bring suit than to defend against a suit Examples of 7 strategic uses? Firms repeat succesful strategies proven by other firms - walmart suing visa and mastercard has taken years AT laws were formulated with purpose of promoting competition, but uses have nothign to o with this and two of them directly reduce it AT laws are improtant for private firms and useful for evaluating alternative legal regimes to reudce unintended consequences 3 important uses for private firms 1. laws may ahve direct application to their advantage 2. consider startegy iemployed by rival firms and protect against use 3. firms are always vulnerable to lawsuits by government as well, understand environment in which strategy is formulated

Public choice revolution when born? Knight vs. buchanan? 3 phases?

Econ. of politics = public choice/nonmarket decision making - not to suggest public choice is anti-govt. approach to econ, it's the opposite, pretending to advise social despot is a stupid strategy Not born in 1950s - bastiat petition is PCh argument - Hume - pretend all decision makers are knaves - Smith - WoN roasting mercantilists = privileges given by govts. Knight: hopeless = ideal - Buchanan: nonideal = hope - hope rests on the rules 1. Pre public choice - markets are perpetually in failure - socila welfare max (aggregate > individual) 2. Buchanan critique - any public finance theory presumes theory of the state - waht ought govt. expend on? what ought we tax? - fiscal brain vs. individual view - instead of SWF, we need to see politics as excahnge behavior for mutulaly shared benefits - Wicksell emphasis: political externalitiees spilled over onto minorities by majority - for mutually beneficial behavior, we need unanimity as standard 3. Foundational book: Calculus of Consent - two-tiered analysis: rules within and rules themselves - constitutional vs. ordinary politics

Clemens - the biggest idea in development that no one really tried

Global development policy = measures to extend prosperity of people born in places where growth has taken root to people born in places where it has yet to begin Seeks convergence between rich people and poor countries by assisting poor countries Removing barriers to movement of things like trade barriers and education barriers hasn't worked as well as expected New idea: labor mobility Labor movement does cause convergence, works in the US Neglecting migration omits most powerful tool for gloablization Migrants know what they're getting into, for every migrant there are 200 who want to migrate Migration doesn't mean talented people leave a country poorer by leaving Most criticisms of migration are not empirically backed Immigration saves $ on foreign aid and saves costs of blocking migration Big story: once a person of a given level is in US doing a given job, that person's productivity doesn't depend on what country they're from Creates opportunity to weigh visas towards low-income countries so a developed country can do more for development without giving up immigration benefits Reserve a certain number of visas for the wrost countries Golden visas???

Alternative hypotheses of development causes

Improtant and to be taken seriously Colonialism/imperialism - deliberate inent of subjugation of another group - mercantilism - bullion = wealth - get theis thorugh trade surplus - secure market with miliatry 2 problems: - subsarahan Africa divided up by Europe in 1880s - one country resisted, Switzerland didn't do this - if this theory is true, Switzerland and ethiopia should both be poor (???) - colonialism is an indirect factor - characteristic of capitalism in Marxism - solution implied is soclailism - this is what Africa did - autocratic nature expalins persisent stagnantion Tullock - WCTC - unproductive entrepreneur could've otherwise been used for prudctivity, - sum effect for both countries involved - subjugation requires army, enforcement, etc., waste of time and resources Geography and natural resources - then why is HOng Kong way richer than Russia/ - Russia has best resources in the world, mid-low per capita GDP Foreign aid - mixed results - marshall Plan sponsored by US - so why is Germany more advanced than those gifted $? - institutions are entrepreneurial filters - if they filter in unproductive entr., ading more resources will incentivize more dumb behavior - if foreign aid is required for growth, it implies institutions that attract investment for growth aren't there - foreign aid is substitute for investment - why aren't they getting investment? Implications: 1. disincentivizes political leaders to gain public support - Glasgow vs. oxford professors: Glasgow way better - oxford teachers piad from endowment, galsgow profs made $ on earned student tuition eachyear - if reason for aid is is your country sucks... 2. (see ppt) encourages unproductive entr. - requiring aid implies good institutions didn't exist, why would they start being good now

Tullock - TGT

Major activity of govt. Is granting of special privileges Why aren't profits of protected industries way better than nonprotected ones? Only transitional gains can be made, successors don't make exceptional profits but will be injured by cancellation fo original gift Privileges can arise on purpose or accident Pharmaceuticals fought against regulation but it helped them eventually by reducing competition, government is never completely controlled Taxi medallions After a few years capital value of monopoly profit has been fully taken into account in the industry Excessive TC of leaving this deal LR effect of this was restricting growth of taxi cab business Blue laws Reduction of number of hours store is open by mandating sunday closure tos ave costs, same thing as destroying 1/7th of the stores Cost-saving from closing sundays was passed onto consumers who prefer to pay a little more for greater convenience of store open all week More stores will be built since people are slightly less comfortable since there are bigger crowds, more stores open, profit for incumbent businesses is eroded Now if you repeal blue laws, some of them would open on Sunday and costs saved by going to 6 day weeks would be reimposed, significant transitional loss Why not just do pure transfers, way more efficient than monopolies? Pushing through of benefit for special class requires cost not to be obvious to voters, so add complexity by using monopolization that isn't obvious Once institution is set up, it is not reexamined regularly and doesn't require any positive affirmative vote, just keep until something untoward happens Transitional costs in many cases large enough so that compensation of losers would impose excess burden which would be of same order of magnitude as cost of present institution It's a trap, there's no great way out, do our best to prevent more from happening Since they're so prevalent now though, removal of all of them at once might hurt some specific privileged people but will overcome the loss by benefit of everyone else losing their TGTs too

???Government failure??? 7 shortcomings for government?

Nirvana fallacy - don't compare real life to hypothetical ideal governments - tale of two signers - PCh: let the second singer sing 1. Knowledge problem - market has calculation w/ profit, govt. offers products @ 0 or less than cost, no calculation 2. Negative unintended consequences - ICC for railroads to "combat monopoly power" b/c railroads were using price discimination - when trucks came around, ICC and R interests aligned - negative unintended consequence = regulatory capture opportunity - enforced monooly power, opposite of goal 3. Regulatory catpure - Stigler - regulation is passed often to benefit of SIGs - if we know about inintended consequences, why do they still exist? - people still demand it - example: occ. licensing - why do we see it in some practices and not others? - nature of occupation/industry, benefit for industries like tobacco farmers is less than cost because they ahve asset-specific land => inelastic supply, they enjoy quasi rent (?) - why licensing for law but not economics (???) 4. information asymetries - FDA has good purpose supposedly - answers presumed market failure of asymmetric info between pharmaceutircal companies and consumers - but they are incentiviezed to overtest a drug instead of undertest 5. Logrolling - votes as medium of exchange - indirect expression of prefernce intensity - vote trading between politicians - implication: minority programs can gain majority support - farmers want road fixed for them with dispersed cost to taxplayers, wouldn't otherwise be built - solution: require more than simple majority - see example in PPT 6. Shortsighted bias - associated with incomplete set of PRs - kicking the can down the road - building Brooklyn bridge - why? - incentive to build something strong enough to hold a certain amount - unintended conseuqence was spillover benefit 7. Externalities - Demsetz example - military draft - externality b/c OC of those drafted spills over on US, not on the govt. deciding (we lost years of Elvis music because of the draft)

Political groups/players

Not mutually exclusive groups 1. voters - seek wealth and income, including nonmonetary benefits 2. politicians - votes, power, fame, prestige 3. bureaucrats - job security, budget maximization 4. interest groups - seek wealth and income

Valid vs. sound theories

PC is valid - but is it realistic? ! if a theory rules out historical events, it sucks - econonimc way of thinking is not policy conclusions on its own - study of c/e of individuals and indirect nature of their results - PC went from efficiency illustration to justification for socialism

Public goods

PG - huge positive externality market failure assumed in production of PGs - incentive and knoweldge problem - monopoly or PC production can't do it either - efficient provision requires price discrimination, can't under PC - monopolies will restrict quantity and underprovide

Coase - lighthouse in economics (REVIEW THIS)

Pigou uses lighthouse as instance of uncompensated services where MP falls short of MSP Other economists; lessons on lighthouses are very limited What if general taxes were substituted forl ight dues Increase obligation to supervise operations of lighthouse service to keep under control of subsidy Would reduce efficiency (how???) Previous economists are wrong because they never actually studied lighthouse finance and admin so they didn't know the facts Lighthouse idea was picked out of air for illlustartion, others took it too far Generalizations need to be derived from how activities are actually carried out, early lighthouse history shows it can happen without govt. Intervention If you want an example of goods that require govt. backing , try something else, this one sucked

Candela and Geloso - lightship in economics 3 implications?

Provision of services before that illustrates failure for market to emerge owing to government failure, not market failure Entanglement of private and government actors makes it hard to assess whether private production is possible beyond shadow of state Reframing of existing literature Coastal lighting services focused on in general, competition within the market expanded Competition for the market, ask how much government encouraged or stifled monopoly Adding consumers to non rivlarous good has no cost, does not imply same for production Ignores competition for the market Nore lightship Floating lights or swimming lights, placed in places lighthouses coudln't go Overlooked since they were offshore, including by Coase Introduced when prot was rapidly increasing, nature of good was endogenous to institutional context Private or public is matter of degree, not kind Lightship didn't have state backing in collecting tolls, but it was fine Competing for market with lighthouses Operated on voluntary contributions How did they overcome free riding? Operating costs were low so it was easier to profit Charged rates below lighthouses so merchants liked them and discriminated prices Relied on subscriptions by sailors and merchants to finance initial investment and collected dues at ports for the rest Solicited investors by leaving parchments for subscription in public papers Subscription payment as exclusionary mechanism - elicits demand revelation for those who would benefit most form rise of commercial traffic following from lighships' existence Political competition narrowed extent of market and expanded scope for rent seeking Government failure by trinity house: opposition to Nore lightship Trinity deliberately obstructed private lighthouses to assert monopoly privilege Monopoly rents were POs for entrepreneurs to capture shares of market and erode rents Trinity house stifled endogenous market solution Coase - private involvement could and did exist as viable alternative to public provision of coastal lighting services financed by general revenues Three implications: In face of missing market, private provision was possible in spite of opposition by govt. If trinity house had interest in fostering conditions for lighting market to emerge, it would not exclude entry, justification for nationalization was to reduce dues even though cheaper private alternative had been developing and were shut down Degree of govt. Failure has been underappreciated while existence of market failure has been overemphasized

Profit vs. Rent seeking

RS is as old as Adam Smith - eliminating monopoly privileges in mercantilist economy - revived by Tullock Rent = payment > OC - originally payment to alndowners - indestructible powers of the soil - i fyou tax rent on land, it's just wealth transfer, land doesn't change - rent is wasteful b/c no incentive to mke more land - misses point of rent - rents incentivize allocation to most valued uses - but rent ins't sufficient condition - rules of the game are, determine + or - sum

Sowell ch. 8 - regulation and AT laws role of substitutes?

Regulatory commissions - straightforward function, impossible in practice - seek to set prices wehre they would have been in competitive marketpalce, but this info onyl emerges through competitive process - "the" COP isn't real - after a commission is established people forget that they begged for it, and then it just exists to encourage rent seeking while they aren't paying attention - ICC responding to rise of trucking industry - initailly meant to stop railroad monopoly pricing, then expanded control to include trucking - original rationale was that RR monopolized areas of the country, but now that monopoly was over ICC was unnecessary, so they moved on to restrict truckers so they could survive AT laws - competition is a condition, can't be measured by # of competitiors, competition's existence elminates a lot of compettiors - people lsoe sight of what is beneficial to consumers - EoS is viewed as big chains destroying little suppliers - protecting competitiors over competition is a huge problem !!!Substitutes exist for everything, those bringing lawsuits narrowly define market to make it look worse than it is - no "market" actually exists by itself - if you can't keep competitors out, you're not a monopoly!!!!!!! Blanket prohibition against collusion is good

Ricardian rent vs. monopoly rent

Ricardo said payment was due to natural superiority of the land, etc. that accrued a higher rent - monopoly rent is artificial, resources that otherwise would've gone somewhere else RS and PS are both entrepreneurship - entr. means noticint unnoticed opportunites - benefits can be $ or non $ - both generate rent dissipation - rent attracts mimicking - competition drives value of rent down to 0 in both - main difference: productive vs. unproductive - + sum or - sum RS = expenditure of effort and resources to capture existing weatlh or overt transfers of existing weatlh -> overall destruction of wealth There's no such thing as giving/getting $ for free, error in market => lesson for another entrepreneur See notes for graphs on uber McLean invented containerization: supply of resources in Us went up, price went down - monopolist as first mover, others join market, rent is bid down to - , creates gainsf rom trade otherwise unrealized Striving for + profits and minimizing costs are the same A comparative advantage can maintain rent, when natural, done by making consumers better off Meanwhile, sugar producers get bad rent Sugar producers are willing to spend up to rent (Tullock traingle - see graphs in notebook - rent is bid away as loss of wealth - aren't you paying lobbyists, etc. to seek bbenefits? simply transfers - diverts resources from how otherwise would be used - broken window fallacy - implication about costs: they're always tied to future choiice - major cost of RS is resources are lost forever - once committed, time and resource wasted forever - wealth and pvoerty of nations is unrelated to being smart, etc. RULES OF THE GAME incentivizing talented people in society is key RS incentives perpetuate poverty, wastes talent

Boudreaux and DiLorenzo - protectionist roots of antitrust

Sherman Act was smokescreen to pave way for McKinley tariff - public interest interpretation - law was passed as benevolent response to a market failure Interest groups and MO AT law - MO farmers' alliance, blackballed candidates who didn't support them, larger farms were underpricing MO farmers "below COP" so they complained - if consumer welfare interpretation makes sense then price of farm outputs would rise, volume of outputs should've fell and real price of farm inputs should rise - they didn't, all of them fell - cattle dropped 30% of value, supply rose - farm input costs like railroads, interest rates all fell, industry was competitive - small merchants got screwed by EoS, tough beans People were also mad about "beef trust" - some had advantage because they invented fridge train cars - extracted extra value from current meat by improving quality - collusion inferred because prices didn't fall as fast cattle price, nobody cares State level of government is origin of dumb laws, AT laws have been used to thwart competition by providing vehicle for uncompetitive businesses to sue competitors for doing better than them

Cowen - public goods definitions and their institutional context: a critique of public goods theory

Thesis: most discussions of public goods ignore definition of public good being used - IGNORES INSTITUTIONAL CONTEXT Examples Technology, quantity, distribution mechanism, how intense demand is, how we define marginal unit, what constitutes consumption, meanings attached to notion of exclusion Joint and non-rivalrous consumption Nonexcludability - jointness is necessary condition, critique of joint consumption Easy to make good appear as public or private Road in community with little traffic Public: one person doesn't prevent others from driving, but if demand is higher, more traffic does make it excludable Television - financed by commercial advertising and broadcast free of charge could be public Varying use of goods can make it seem private or public National defense can become less public if you consider one single anti-ballistic missile that only covers one area What is joint consumption then? It isn't? Excludability critique - being private or public doesn't exclude a good from being the other Public means its impossible to supply same good in private fashion in pareto superior manner for all relevant individuals !Exclusion is always possible, just more or less costly Costliness isn't function of good's nature but how it is supplied, depends on institutional context Movie theater benefits from exclusion based on how crowded it is, so they might not care if nobody is there if you hop movies With ZTC adn good PRs you can make anything a public good, people might enjoy watching you eat bread Important institutional features Intensity of demand Amount produced Current state of technology Manner of distribution Manner of consumption Manner of charging for good's use All other models are stupid

Olson - big bills left o nthe sidewalk

Two possible explanations for differences wetween different countries Borders mark differences in scarcity of productive resources Boundaries mark borders of public policies and institutions that are better or worse, incentives to pick up big bills Migration necessarily reduces income differentials Ireland had greatest emigration in world history, no growth in income happened, so difference in human capital can't be the difference Culture is not the reason either Best thing society can do to increase prosperity is wise up, economists need to get things right, when they're wrong it causes lots of harm Efficient cooperation is required, low income countries miss gains by not specializing and trading (PRs, contracts, ect.) Spontaneous individual optimization is important but not enough alone Bargains needed to create efficient societies are not made As literature of collective action demonstrates, individual rationality is very far from being sufficient for social rationality What was the point of this???

Leeson chapter 5 - economics of pirate torture

Walking the plank probably didn't happen, pirates only engaged in torture when its as rational and to their advantage Three reasons for torture 1. elicit information 2. punish government officials 3. punish unscrupulous merchant captains Created reputation for horrible torture so future targets wouldn't hide or throw the treasure away, worked like a brand name - insanity was their brand, newspapers helped them accidentally They didn't wrongly torture, had to make it worthwhile to give in and reveal loot Individual captains made brands for themselves to weed out free riders that weren't really brutal Extra brutality on government officials captured to deter clampdowns Sometimes befriended friendly merchant captains that could help them, also punished them to make them be nice to workers since most pirates were one before Still were some wrongful punishments that escaped profit motive controls

TGT -Tulock

Why is taxi system still in place? - medallions created in 1937 - rents have been eroded for medallions by competitoin from uber and Lyft - populatoin in NYC rose since 1937 See graph in notes Pretend medallions were manna from heaven - no rent seeking => still causes prblems Medallions are fixed supply, sell at market value, you get a windfall profit - the guy who buys it just pays OC though, factor of production - now it's just an extra cost for veryone in the future for no reason, they never got the benefit of rent If medallion is eliminated P->0, concentrated csot to holders - dispersed benefit to sciety Taxi driver will pay to avoid elimination of something that is not even giving him profits - more lobbying power than individuals in society One escape from TGT is entrepreneurship - Uber and Lyft Better solution: don't allow the situation in the future at all Bigger rent = biger prof. opportunity to innovate around it Rise of humanity is story of overcoming TGT - there's awlays set of eltites who gets ruined by change and prevents it - $64T question

Bastiat - a petition

Wish to reserve domestic market for domestic industry - suffering from competitoin that is flooding the market with a low price - require closing of windows, etc. so everyone needs candles all day Won't consumer bear expesne? - no, you sacrifice them to encourage industry and increase employment, producers interests are opposite consumers Isn't this rejecting free welath? - no, we've always excluded foreign goods - only half as good a reason to comply with other monopolists as with the sun Labor and nature collaborate in varying proportions, human labor is the part that's valued and paid for - oranges are more valuable based on how much sun they get naturally, how is it fair that French labor has to do twice as much work as somewhere where the sun does half the work? - but if product being half free of charge leads to exclusion from competition, how can it being totally free lead to it being admitted into competition? (the sun) - sun should be banned when it's completely free by this logic When we import something and acquire it for less than if we made it ourselves, the difference is gratutious gift - question is whether what you desire is the benefit of consumption free of charge of the advantages of onerous production - since you ban foreign products in proportion to their price advnatage, it only makes sense to completely ban the light of the sun

Why don't people care about referees in sports?

You can name players but not refs - if refs helped you on purpose, you'd get to know them What matters is what entrepreneurial talent is incentivized to elarn - transfering vs. creating wealth

Leeson chapter 7 - economics of pirate tolerance

all crews had black guys, sometimes sold into slavery, sometimes still prejudiced against - indulging in discriminatory preferences was costly though, and black pirates were more willing to be pirates and work for cheaper, wages became equal over time Concentrated costs and dispersed benefits - pirates jointly owned labor where loot was divided equally, additional revenue of a slave was costless, but not that much because it was dispersed - cost of having slave was concentrated because everybody faced full consequences of slaves' actions while only getting a part of their loot Slavery made more sense on merchant ships - concentrated benefits for merchant captains owning slaves, they didn't share loot Pirates did have slaves when MB>MC, when slave prices were high they kept them for selling, held them for short periods so they couldn't revolt, unskilled black pirates were of less use so they could just keep them as slaves Matelotage - not gay - partnerships, provisions for each other's wife, etc. - risk sharing: form of insurance, diversify risk of trade by spreading potential gains and losses over two people instead of one DBCC was the reason for tolerance, invisible hook led them to display racial progressivism despite preferences

B and W - democracy and deficit

deficit spending as externality - like evenly splitting a check - tragedy of commons, CBDC No well-defined PRs over decisionmaking => tragedy of fiscal commons - result of separating C/B of decisions Why do bureaucrats max budget? - fixed resource pol - if you don't spend it, someone else will - Alchian - survival is deepenent on context - in politics, it's to have the biggest budget of a fixed pool of resources - central bank isn't residual claimant - before GD, price level wasn't rising - but that's not appropriate measure of balance - in market, firms respond to knowledge from price system - in policics, bureaucrats repsod to political knowledge

Rules of game vs. action within rules 3 shortcomings of Ricardo? implications of Smith? chain of effects?

element of human action defining all individuals' ability to maximize opprotunities within world of uncertainty - entrepreneur = bearing uncertainty and its CB - defined by ability to realize opportunity, byproduct is acquiring resources - not other way around two distinct approches 1. Ricardo - allcoation paradigm - oversimplification of his explanation - he underempasizes entrepreneur - increase in output are function of LLK - more resources = more output - true within constraints - shortocmings: 1. diminishing returns to K, 2. slope into development as tech problem, 3. development and more output aren't synoymous, increased outputs vs. value added outputs (USSR nail creation story) - price mechanism communicates OC of alternative uses to ensure highest valued uses 2. Smithian - exchange paradigm - Ricardo isn't wrong, but incomplete - they said we'd run out of oil - wrong, more discovred - increase in value added are functions of specialization and exchange due to expanded scope of market - new combinations of resources - economizing on existing amount - LLK are proximate causes, but byproduct of scope increasing institutions - surgeons used to be barbers, buy bread wher eyou buy pizza - more popoulation means more specialization - those with com. adv. specialized focus - returns to those investments increased - capital is byproduct of increasing retunrs to capital investment Important implicatoins: - we need economic knowledge to know what to invest in - globalization effects: integration fo economies due to falling tarde barriers - Smith imlies poor countries fail to ralize institutions allowing them to join in progress - rule of 72 implication (???) - 3% grwoth is unbelievably more than 1%, country would double GDP in 24 instead of 72 years - explosive potentail: harnessing productive capacity of entire population Is overpopulation the problem? China in 1978 - Smith approach implies it was underpopulated - productive capcity is irrelevant without PRs - what matteres is # of individuals in DoL - institutioanl variable - China excluded people, lost their potential - less focus on quantity of resources, more on entr. process that combines them into valuable in/outputs see quotes in PPT First efect of new PRs is greater productivity, ability to use and exchange creates prices - more food -> more population -> more mouths to feed but same amoutn of land -> be more productive with that land -> capital creation (manure, hoes, etc.), learn by doing - capital is byproduct of incentive to gain mroe productive knowledge - more output with less people -> people free to amke better stuff (manufacturing) - specialization created new way to do things better

?Price discrimination?

in many cases, price searchers charge diff. prices in ddiff. markets nondependent on COP 1. different prices don't depend on COP but WTP 2. must have diff. elasticities AND no arbitrage opportunities (resale, etc.) Price disc. is an exerise of producers learning elasticity of demand - clipping coupons, hardcover vs. softcover books Repsonds to changing/varying elasticities, allocates resources where they're valued the highest Important policy implications - countries "dumping" on US - driving out US competitors with cheap goods? - not sustainable, predatory pricing same thing why not???

Mill - role of state

just to enforce payment or undertake provision? Coase actually understimated cost of governmetn intervention Observed stories of unintended consequences Critique: why did it become nationalized later? - meant to reduce light dues - other critique; this wasn't a private marekt - there wa sno pricing in this system - dues were set and enforced royally BUT these conditions only existed b/c government regulation - market fialed to exist, not market failue Trinity hosue blocked competition - Erskine went to king instead for patent - paid rent to king for right to produce - source of monopoly privilege was response to regulation Lightships emerged - profit opp. were lighthouses couldn't be built - avoided reulgation aond excluded customers - price discrim., subscriptions, bundiling w/ exlcudable goods "Uber of the 18th Century" - existing owners had monopoly pwoer as result of regulation - introduced prof. opp. to erode monopoly power - advertising and free pricing did exist - failure of market to exist due to government failure - trinity sued b/c they were upset to lose monpoly - NOT market failue

Logic of ballot box

making choices without expressing intensity of preference over certain issues - in market we reflect intensity with $ amount spent - voting rights are not transferable - you have to vote on a bundle => rational ignorance - not bearing full cost of decisionmaking - expressive voting instead of instrumental voting - nature of political decisions is concentrating benefits on well-organized and interest groups, dispersing costs on the masses

Monopoly

market only discriminates on monetary productivity Possibility of learning - baseball - managers readjudicated MC and MB of decisions - learned they hated losing more thna black people Acitivities like advertising, differentiation, etc. are tactics to discover WTP and D of consumers - these make demand more elastic Competitive price searchers - downward dslopping D curves, MR below D Approaching CP is like cosing tongs so D=MR - entry/exit effect Contestable market: no barriers to entry or exit Product differentiation - why? - creates info about quality of available gods Two relevant margins of competigion

Nature of collective choice

market: individuals act indpeendently of each other - sellign wehat doesn't require agreement of other farmers - deciding to buy only depends on you Political: individuals act jointly - paying taxes for budnle of things whether you agree to it or not Downs: rational ignorance - people aren't stupid, they just know stuff according to the C/B of learning it - CBDC for interest groups makes them aware of stuff voteres frequently aren't Government is nonprofit monopoly - no PR => no residual claimance Special interests get bundles together - some care about tariffs, some about guns, they get combined

Cowen - PGs and institutions

no inherent features of a good make it PG you could make any good seem either way Efficient provision is monopolistic price discrimination firm (government) ??? - implies it knows who will consume Can PG be publicly provided? see ppt

Tulluck - the welfare costs of tariffs, monopolies, and theft

statics Normal graph ignores many of the costs of DWL, collection of tariff involves expenditures which wastes more resources Situation is identical to that of govt. Telling established industry to abandon efficient production method and replace it with an inefficient one Dynamics - cost of transfers One anticipates producers investing in lobbying until MR=MC Welfare triangle underestimates costs, economics of theft example Investments of capital and labor in activity of theft and protection against theft, diverts resources in making or preventing transfer, these resources are totally wasted Cars have locks and keys because doing that is more cost effective than paying police to overcome effect of leaving them off Existence of theft causes diversion of resources to fields where they offset each othe rand produce no positive product