ECON 439: Public Policy Analysis

You know that warm tingling feeling you get after a few drinks? Some of us call it a liquor blanket and it’s when alcohol consumption makes you feel a little warmer, a little cozier when it’s cold out. This odd phenomenon could be a possible explanation of increased alcohol consumption whenever there are extreme weather conditions, which we are experiencing now in Corvallis. I have been to the liquor store on 6th street twice now in the last 24 hours;  now my increased shopping trips could be because I am the only one of my friends with snow tires and courage but also because all everyone wants to do is drink. A freak snow storm comes with it’s many expected outcomes: sledding, hot chocolate drinking, tire chains, and snow boots. An externality (positive or negative I’m not really sure) from these snow days has been an increase in alcohol consumption. This extra event stemming from the snow day is unexpected but it does make sense. The roads are terrible so most people can’t drive anyways, building a snowman drunk is way more fun, and peppermint schnapps hot chocolate is delicious, so drinking is the obvious activity for the day/night in this weather.

In the end I would conclude that the increased alcohol consumption occurring during this freak snow storm is a positive externality because of the financial boost to any stores that sell alcoholic beverages but also because it has increased individuals consumption utility from other activities such as sledding or sitting by a fireplace.

I have approximately 17 minutes to express myself before the deadline so let’s keep this brief.

The word “buffet” brings all kinds of thoughts to mind. Some may think of value, others may think of bloating. Then some may think of quality and where it may have disappeared to.

One thing that many tend to overlook is the externality of Salmonella. It’s not visible, but I assure you it is there (bring a microscope). According to many moderately reliable sources (i.e. google), buffets are one of the leading causes of Salmonella in regards to dining out. The food sits and sits and the bacteria grow and grow. You go in for that bite of oyster that has been sitting out for the whole afternoon, and you are filled with regret a few hours later. This is clearly a negative externality of eating out. One expects to receive food and nourishment (maybe) at a buffet and walks away with bacteria. Another negative externality could be the flies that land on the food and lay maggots. There are also some positive externalities of a buffet, such as potentially meeting a new love-interest in line.

The moral of this story is that if one chooses to indulge in a buffet, they may in turn receive a negative externality of food poisoning. Despite all this, I’ll take my chances.

Smartphones should have a positive externality on work and production. Now that people have the Internet with them at all times they are able to check e-mail and do other work related activities that they were not able to do unless they were in an office with a computer and Internet. Unfortunately this is not the case. Even though people can take the Internet with them everywhere now, this is actually a negative externality. One would think that these devices would improve productivity when in reality it is just one more thing to distract the worker from what needs to get done. Yes, they do check their e-mail often for work but now it is even easier to get sidetracked with other apps on their phone. The long-term average increase in productivity per year is 2.25% however, since the era of smartphones began, production has only been increasing 1.5% a year. It is harder for people to close out of Flappy Bird and seriously consider their work. However, this stops no one from continuing to play on their phones instead of working, the companies are the people who are seriously suffering from this negative externality because it’s their production that is going down. A lot of companies are even funding this negative externality because they need all of their workers to have smartphones.

http://online.wsj.com/news/articles/SB10001424127887323982704578455163211575512

http://www.huffingtonpost.com/2014/01/24/smartphone-night-worklace_n_4653223.html

Is being a vegan really good for our planet?    There are many reasons people choose to be vegans, animal cruelty being on the top of the list.  I agree that animal cruelty is a heinous act but are we talking about pets or food?  Don’t get me wrong, I do not support the inhumane way that some industries have treated cows, chicken, turkeys, sheep, pigs, etc.  However, if these industries keep to their commitment of humane treatment in animal slaughtering, they are actually doing the world a service.  Try to imagine Earth and the animal populations if being an omnivore was illegal.  The animals would be left to the natural food chain of the animal kingdom and that could potentially lead to disaster for the human race.  What is a natural predator for a cow?  Wolves perhaps?  How about pigs?  I know that wild pigs can be destructive and don’t really have any natural predators other than maybe alligators in the south.  In the U.S. alone we would lose lots of farmable land to the growth of  animals that we no longer eat.  How are we suppose to feed ourselves if there isn’t enough land to farm?  Another thing is that there is a lot of articles like this one  from Fox News http://www.foxnews.com/science/2013/11/26/big-methane-burp-cows-refineries-spew-gas/ which talks about how much methane produced from cows is adding to global warming.  Leaving cows to breed freely and not be consumed by humans is a worse externality on our society than eating them.  By being a meat eater, I am creating a positive externality on our planet by keeping animals from over breeding, crowding out humans, destroying fertile land, and generally destroying the environment.

One of the questions that bothered me recently is that why the police departments couldn’t be private-owned. United States is a privatized country. Most of the companies are private-owned, and it works very well and makes the U.S. becomes the richest nation in the world. But could the police departments become private-owned as well? The answer would be “no.” Firstly, if the police departments become private-owned companies, then “how to survive” would be the major problem the companies are going to face. Thus profit would be the major concern for them. If it is like so, then some rich people could sponsor the police companies. Since those people are the mainly source of money, they could avoid the punishment and even put the blame on somebody else. This would lead to the social injustice. Secondly, if two different police companies investigate the same case, it could waste the human and physical resource. Thirdly, in order to compete with each other, two different police companies would try to kill the clues that the opponent found and disturb them. This would result in the lower detection rate in a total and the increase of criminal rate. Fourthly, nobody wants to call the police and then pay the money. If it is like so, who wants to call the police? The police companies might also stop helping the victims if the victims couldn’t pay enough to them. Finally, if the private police company becomes larger, it could pose a threat to the government, which may affect the rendering of a fair award.

As I’ve been outside wandering and hiking around in this crazy and beautiful weather I’ve found myself laughing at people in ill equipped vehicles attempting to get around in this inclement weather. Be it a car with no front wheel  or four wheel drive, or just a lack of chains, it got me thinking, how inefficient this kind of weather has on functioning society. There are of course several  positive consumption externalities for us students with no school and a winter wonderland to play in, but a major issue still remains and that is the ill equipped transportation departments for such storms. In the Midwest and east coast where storms like these are frequent, transportation departments are prepared to get hit hard by storms like this one. With fleets of plows, salt truckers, and deicers; the majority of time the working folk and students don’t miss a beat. The roads are cleared and society putters along as usual. But in a climate like ours, this is not the case. There are large negative externalities for a storm like this when it comes to functionality. People who are paid by the hour at on campus jobs and other places, won’t get paid for today, heating costs increase not to mention all the ill prepared drivers that are unlucky enough to get in an accident. School is another loss that cannot be ignored, obviously we would all prefer to stay at home, have coffee, hot cocoa, and watch the Winter Olympics but there is an opportunity cost of not being in class. less time learning and more time playing. Its a positive when the fun outweighs the boredom, but the lost time learning is still a factor. All in all have a blast, but if you try driving and end up struggling, I will probably be one of the people laughing at you.

Cigarettes are a demerit good which is a good that is over provided by the market and consumption of this good is harmful to society. Cigarettes are harmful to society because they produce a negative externality. This is because the consumption of cigarettes have a spillover effect on third parties and no compensation is paid by anyone. For cigarettes, the benefit of consuming has a greater effect on the consumer than on society. So the marginal benefit for the consumer is greater than it is on society. This results in an allocative inefficiency is achieved by the industry producing the cigarettes. This negative externality produced by cigarette consumption causes major health issues for the consumer and greater adverse effects for society. Before the government ban on advertising was set in 1970, this externality was much greater. Without the ban, the average price of cigarettes was lower which caused an increase in cigarette consumption, an increase in consumer surplus and a decrease in producer surplus. When the government was restriction was enacted, prices increased resulting in a negative change in total surplus. This meant that government intervention was successful in reducing the negative externality effect on society.

Below is a graph that shows how a ban on positive advertising and a tax on cigarettes was beneficial for society because it reduced the size of the negative externality.

*https://www.boundless.com/economics/market-failure-externalities/externalities-in-depth/negative-externalities/

Negative and positive externality costs and benefits are rarely the stuff that makes headlines. While they are easy to identify on a principle’s level graph ,in the real world it is harder to find them stated in such black and white terms outside of the classroom or economics journal. But those days might be coming to an end soon. Surprisingly, it might also be of the corporation’s own volition. A pioneer in this effort is the German sporting company Puma. In 2011 they hired several private consultants to calculate their impact on the environment, as well as the positive production externalities. This “environmental profit and loss statement” evaluated the company’s damage at $190 million, taking into account not just carbon emissions, but also factors like water land use. Not only was this report created, but it was published, allowing for an increased level of transparency and potentially accountability going forward.

The difficulty going forward will be to incentivize other corporations to undertake these kind of assessments. They are neither cheap nor fast to produce, let alone what the findings might do if they make their way into the public discourse. For these studies to be conducted, we must find a not only encourage firms to undertake these studies, but utilize them to make decisions that will benefit society, even if it cuts into their bottom line.

http://www.theguardian.com/sustainable-business/blog/price-tag-nature-biodiversity-puma-comment

The best example I could find in differentiating between correlation and causation is explained in a graph published by gizmodo.com.  The graphic shows a strong correlation between the market shares of the web browser internet explorer and the amount of murders in the United States.  While I can understand where they are coming from by linking the data, this is a perfect example of where correlation does not necessarily imply causation.

However just to be safe, everyone should save lives and use Chrome.  

I often hear people make statements and argue points with poor judgement. Many of these misguided opinions occur because of that person’s failure to accurately distinguish between correlation and causation. One analogy that could be made to highlight this phenomena is the fallacy shown in the graph comparing highway fatality rate and lemons imported the the USA from Mexico. Upon hearing this remark most people would likely question its legitimacy and what kind of proof could possibly be used to back up the claim. It could be argued that the strong downward correlation between the two variables is strong enough evidence to show that when more lemons are imported the fewer highway fatalities there are. However, it should be clear to anyone reading this, without having done any further research on the subject, it is highly unlikely that the two have much of an impact on each other. It is possible that the increased lemon imports over the years have had an effect on highway fatality due to the need for an increase in their transportation. However, there is no way that this factor alone could cause such a strong impact to the highway fatality rate. To avoid propagating logical fallacies, one must be able to realize that the causation for the correlation is merely coincidence, caused by a multitude of other factors, such as safer cars and an increased supply and demand for lemons.