Mark A. Zupan

Extending the economic theory of regulation to the form of policy

The mutually beneficial connection between industries and the governments that regulate them is the subject of a large literature led by Stigler (1971). What has not been studied is how firms choose their desired policies from the set including entry barriers, price floors, subsidies, and demand stimulation. We take as given that government and incumbents from the supply and demand for regulation and explore the choice of political product.

Optimal Effort Allocation by U.S. Senators: The Role of Constituency Size

Legislators in a representative democracy are modeled as being able to allocate a fixed amount of effort between two objectives: national policymaking and local benefit-seeking. The model predicts that the effort allocated to local benefit-seeking should be a negative function of the population size of a legislators constituency. We empirically test and confirm this prediction by examining the manner in which United States senators allocate their personal staff between home state and Washington D.C. offices.

A Test for Regulatory Lag and the Role Played by Periodic Contract Renewals in Mitigating Such Lag in Local Cable Franchise Relationships

Summary and ConclusionsThis study reports two primary findings. First, the typical cable franchise relationship appears to be characterized by substantial regulatory lag. While long-term franchise contracts may involve a significant amount of day-to-day interpretation and modification, the interpretation and modification are not sufficient to ensure that the contractual terms of trade are consistently at market. In terms of pricing, channel capacity, community programming channels, and franchise fees, the terms of trade confronted by cities prior to franchise renewal are significantly less favorable than the terms of trade found in post-renewal contracts.Second, periodic franchise renewals appear to be a relatively effective means of mitigating regulatory lag and adjusting the contractual terms of trade to market. The terms of trade obtained by cities conferring renewal contracts are roughly, although not entirely, equivalent to the terms obtained by similarly situated cities concurrently issuing initial franchise awards.The conclusions to be drawn from these findings are twofold. First, the existence of regulatory lag in cable franchise relationships may be desirable. From a dynamic efficiency perspective, that is, regulatory lag may provide the regulated firm with an appropriate incentive to undertake risks, reduce costs, and/or improve productivity (Vogelsang 1988). In addition, because most of the capital assets associated with a cable system have economic lives of 10 to 15 years (Webb 1983), it may be inefficient to continually attempt to adjust the terms of trade in a franchise relationship to market (Schmalensee 1979).Second, while continuous regulatory oversight may have undesirable economic consequences, periodic contract renewals show promise as an effective means to ensure that regulatory authorities continue to promote the interests of a public utilitys consumers. If designed perhaps to correspond to the points in time at which the public utility needs to rebuild or upgrade its plant, contract renewals may serve to push regulators to periodically examine whether the terms of trade offered by the public utility are at market. Without such encouragment, public utility commissioners may be content to sit back and do nothing (Joskow 1974, 298–299) so long as “none of the actors in the regulatory process are complaining.”

Local benefit-seeking and national policymaking: Democrats vs. Republicans in the legislature

ConclusionA simple economic theory may provide at least a partial explanation for the ticket splitting pattern that has been observed at the federal level in the United States: where Republicans do better in races for the White House than in contests for Congressional seats. To the extent that Democratic legislators, because of their ideology, are more willing to forgo national policymaking for local benefit-seeking than their Republican counterparts, rational voters have an investment incentive to: (1) lean Democratic when it comes to casting ballots for an individual representative to Congress — thereby attempting to secure as large as possible a slice of the total government spending pie; and (2) lean Republican when it comes to races for the presidency — so as to limit the net losses imposed by the prisoners dilemma game that local benefit-seeking by Congressional representatives entails.The foregoing theory naturally depends on the validity of the assumption that Democratic legislators engage in greater local benefit-seeking than their Republican counterparts. By examining roll call attendance rates this paper provides some empirical support for such an assumption. To the extent that roll call votes concern national policymaking issues, Democratic legislators appear to be more willing than their Republican counterparts to forgo taking part in the resolution of such issues for the sake of narrower, local-benefit seeking activities such as casework and the pursuit of pork barrel.

Franchise Bidding for Public Utilities Revisited

Analogous to the reforms sweeping through Eastern Europe, important changes have been taking place in Western utility industries. Competition has been occurring in telecommunications and gas and is beginning to take place in electricity. Price-cap regulation is beginning to be employed in telecommunications. Privatization and calls for privatization are on the rise. Such changes are all raising serious questions about the life expectancy of rate-of-return (ROR) regulation and whether, in the traditional set-up and implementation of public policy towards utilities, too little consideration has been given to market-oriented solutions to natural monopoly problems.

An Economic Perspective on Leadership

Helpful comments on a prior draft have been provided by Steve Zaffron.

Why nice guys finish last: A comment on Robert Axelrod's The Evolution of Cooperation

Robert Axelrods The Evolution of Cooperation (1984) offers a cogent explanation for why mutually-beneficial behavior may emerge in a prisoners dilemma game. Provided that the game will be repeated an indefinite number of times, that players of the game are capable of recognizing any other player and of remembering the nature of the interaction between the two of them in prior encounters, and that there is not too much discounting of the payoffs to be gained from future interactions, a strategy of reciprocity can be most desirable for players of the game. Even though such a mutual give-and-take strategy runs counter to the dictates of self-interest from a simple, short-run point of view, it can best promote ones interests over the long run when ones fellow players are capable of retaliating sufficiently tomorrow for any transgressions made against them today. As evidence for his argument, Axelrod reports on the results of several computer simulations that he has conducted. Some of the simulations consist of round-robin tournaments between the strategies submitted by various social and natural scientists for playing a repeated prisoners dilemma game. Invariably, the winner of these tournaments is the simplest decision rule submitted, TIT FOR TAT: an eye-for-eye strategy that starts off by making a cooperative move and then mimics whatever the opposing player has done on the preceding move. TIT FOR TAT wins the tournament even when it is well-known beforehand that such a decision rule will be competing in the tournament. TIT FOR TAT also wins the overall round-robin even though it does no better in any head-to-head competition than the opposing decision rule with which it is paired.

The Virtues of Free Markets

This article argues that free markets promote other important virtues that have heretofore received scant attention. Specifically, through fostering an indefinitely-lived series of exchanges, free markets create a future promoting integrity and trust. This is because the more the future matters, the better behaved are individuals in the present. Therefore, rather than being castigated, as they so often are in the popular media and political arena, for encouraging immorality, free markets should be praised for fostering integrity and cooperative behavior through their promotion of ongoing mutually beneficial exchange.

A further test of a simple economic explanation for the existence and nature of political ticket splitting

Abstract Extending earlier work, this paper examines whether a noted ticket splitting pattern is amplified by increasing legislative subdivision. While the results are not supportive of a recently advanced theory for ticket splitting, they also do not allow one to conclusively reject the theory.