Explanatory Power

By: Adam Witham ’16

Recently, influenza has infested both the United States and Hampden-Sydney College. I suffered from the illness for more than two weeks over winter break, sitting in bed, unable to have an amusing, relaxing break with friends. I, along with many other Virginians, fell victim to the negative externality of the flu. Only now after recovering from it, I search for ways to correct the externality and prevent it from imposing social costs on others.

According to the Centers for Disease Control and Prevention, a mere flu shot can significantly boost one’s immunity to the virus and its symptoms. At the beginning of the school year at Hampden-Sydney, flu shots at the Wellness Center were offered for $31.99. Getting a flu shot reduces the chances of catching a similar strand of flu again and suffering from painstaking symptoms: fever, sore throat, congested sinuses, headache, and nausea. But what would be the most efficient way of promoting good health?

Walking around always with a mask over one’s face, washing hands incessantly, using hand sanitizer after touching anything, and simply staying inside to avoid germs all represent possible solutions or methods with correcting for the flu. Centralized planning would occur as the Wellness Center determines which students have permission or excuse to miss class. If an individual visits the center and displays the symptoms of the flu, confinement to the dorm room would provide the greatest security for other students, preventing an increased outbreak.

The work of Nobel Prize-winning economist F. A. Hayek on social coordination suggests that little to no precise knowledge is required in order to achieve social outcomes such as preventing the flu. All we need are the proper incentives.  How do we align incentives to stay healthy? A subsidy or tax could be applied. In order to encourage people to purchase the flu vaccine, a half-off subsidy could be applied. Using the earlier example from Hampden-Sydney, the vaccine could be sold to students at $15.99 rather than 31.99. This price decrease would lead to an increase in quantity demanded for the vaccines. Alternatively, a tax that could be applied to infected students would be the confinement to the dorm room, preventing other students from becoming ill.

Rather than live in a safety bubble for the remainder of the flu season, students search for a more practical solution. By simply receiving a flu shot and avoiding contact with other students when contagious, students reduce the risk of a further outbreak at Hampden-Sydney.

By:  Dylan DelliSanti ’14

From Led Zeppelin turning hotel hallways into slip-and-slides for half-naked groupies, or Ozzy Osbourne biting the head off a dove, stories of rock n’ roll exuberance are often chalked up to such notions as “80’s decadence” or the all infamous slogan “sex, drugs, and rock and roll.” The idea here is that the wild antics or lofty demands of rock stars are the results of irrationalities on their part. One such story involves rock band Van Halen. Back in the 80s, when the band was in their prime, they had it written into their contract’s with the venues they played at that a bowl of M&M’s – with all of the brown one’s removed — was to be served in their dressing room. While some may attribute this to exuberant demands on the part of animal-spirited, doped-up rock stars, the reality is that the band was actually making good use of the economic concept of signaling.

Van Halen came into an age of rock n’ roll that was not as simple as when Elvis first started swinging his hips for crowds of screaming girls. The screaming girls were still around, but rock concerts were now much larger with intricate stage set-ups, lights, amps, and pyrotechnics among other things. This meant that bands like Van Halen had lots of stage equipment that had to be taken care of by the owners of the venue, or it could pose a serious danger to the lives of the band or their stage crew. This problem was compounded by the fact that the band would likely not have enough time to ensure that every little detail had been accounted for, because they were moving city-to-city almost every day and had to work with different venue managers every night. Unlike bands of the past who had less intricate stage equipment, Van Halen had many issues to deal with, and very little time.

As a way of overcoming this problem, the band had written into their contract that a bowl of M&M’s was to be served at every concert – with the stipulation that all brown M&M’s had to be removed. If the M&M’s were not served, or if a single brown M&M was discovered, the band had the right to cancel the show. In some instances where the brown M&M’s were not served, lead singer David Lee Roth would wreak havoc in the dressing rooms, destroying property and shouting at the arena’s managers.

While the M&M’s demand may at first seem like an immature gag, they actually served as an important signaling mechanism for the band, who needed a way of ensuring that their stage equipment was appropriately setup without having to take the time to personally investigate it. If the arena managers provided the M&M’s, then it was very likely that they read and provided for the other — more crucial — stipulations of the contract. If the M&M’s were not provided, then the band would have reason to be suspicious about the safety of the arena. Through this system, the band could economize on scarce time and information so that they can get on to more important business, such as playing a show.

Today’s artists, recognizing the success of such strategies, are up to very similar machinations. Jennifer Lopez, for instance, requested white flowers, white furniture, white curtains and Cuban food for a cameo she was making in a video for an African charity. Moreover, one source said that she didn’t even eat the food. She may seem simply crazy for making such a request, but it’s more likely the case that she, and other artists who make outrageous demands, wanted to ensure that the people she was contracting with were paying attention to the finer details.

By: Will Massey ’12

Unfortunately, this year Hampden-Sydney lost two fraternities, Beta Theta Pi and Lambda Chi. After the gossip settles around campus on why they were closed the main question most people on the circle ask is, “So…What are they gonna do with the houses?” Because the college owns the houses they can and have in the past (Chi Phi) open the houses up for general student housing. This is to help meet the needs of housing in a college that is expanding admissions but not housing options.

In recent weeks, I have heard a plan to turn at least the Beta house in an IFC house. This house would be open to only fraternity members. The main argument being that fraternity men should be able to occupy fraternity circle. Now I do believe that creating an IFC house would keep fraternity circle a Greek focused community, however, I think there is a consequence to having an IFC house that should not be overlooked.

The main consequence the IFC should consider is damage bills and fees that may increase from this house. It is college policy that states that all fraternity houses split damage to a fraternity house that came from an unknown source. For instance, if there is a window broken at the Beta house and Beta reports that they themselves did not cause the damage, the bill would be fairly divided amongst all the fraternities. Damages that occur in student resident halls like Cushing however are not charged to fraternities. It would seem logical then that if the Beta house became an IFC house, filled with only fraternity members that damages in this house would be charged under the dispersal method amongst all fraternities.

There would also be an expected increase in damage in that house because of respect problems. Damages are somewhat controlled around fraternity circle by individuals not wanting to damage their own fraternity. It is a different story when individuals are put into a house that is not their own. Therefore I predict creating an IFC house out of Beta would lead to an increase in damage for the house and that this damage would be charged to all fraternities. The IFC must weigh the seen advantage of a Greek centered community around the circle against the unseen consequence of increase damage bills.

By: Zachary Taylor ’14

While student have always either protested or completely ignored the drinking restrictions on those under 21, it seems they now have unexpected allies. An increasing number of college Presidents are proclaiming their support of lowering the drinking age to 18. Presidents who sign the Amethyst petition want to lower the drinking age to 18 (Pope). Justin Pope argues that lowering the age from 21 to 18 will result in the youth becoming desensitized to alcohol, and then resulting in less binge drinking from lower classmen at the Universities.

On a college campus, the under-21 Crowd is constantly mixing it up with the legal drinkers. Looking at the purchase of alcohol illegally by under-age drinkers and the purchase of drugs illegally by under-age drinkers, it is easy to see why drugs might be a tempting alternative to alcohol for the young student/ teen. A young student looking to get drunk must find an older student that is willing to go out of their way and buy alcohol for them. This is not easy and even if they succeed, the cost to the underage student is high. It usually involves paying the older student for their services, or doing something for that older student. The ending cost to the under-age student is about 2x than to the student who is the legal age.

Compare this to the cost of buying illegal drugs. A gram of Marijuana costs about the same as a case of beer, if not cheaper. While the resource costs of drugs are usually higher than alcohol, the transactions costs can be much lower on college campuses. The student still must find a dealer of the drugs which is risky but no riskier than finding someone to get alcohol. Both transactions take a searching period, one finding someone to buy drugs from and the other transaction trying to find an individual to buy alcohol. The difference in the search is that a drug dealer will never turn someone down to sell drugs to while the alcohol buyer will on occasion turn down the younger student. The reasoning for this is that the drug dealer knows that he will be directly benefitting from the transaction while the alcohol buyer must be enticed to do it. The difference in the method of obtaining the drugs or alcohol is that you do not need to bully the drug dealer into taking you money. Further, since the drug dealer is sitting in his cozy apartment with drugs to sell after you give the money to him/her and then he/she hands you the drugs the transaction is over. With the alcohol buyer you must give him/her the money then they must drive, or you might have to drive them, to the market. Then they buy the alcohol and give it to you. With the full cost of doing the transaction with a 21 year old to think about and having to pay for beer the younger students will obviously be more inclined to buy drugs.

Many rational students are finding that the cost of other illegal substances are not as high compared to total cost of getting alcohol. Why should a student go through the trouble of finding and paying extra for a case of beer when he/she could just as easily pay less to get some marijuana or other illegal drug? Just because the government makes the age of buying alcohol 21 doesn’t stop younger teen’s demand to be “messed up”. They still want to be at the level of “messed up”, they will achieve this level by any means necessary. So by constricting them with age limits they will go to the next best opportunity to attain the point of “messed up”, this next best alternative being drugs. So by having the drinking age 21 the government has inadvertently pushed the younger students/teens to buy and use illicit drugs.

By: Willis Honeycutt ’13

Most people see Valentine’s Day as a day for showing your significant other how you truly feel but for some. Valentine’s Day is characterized by over-the-top corporate marketing and excessive expenditures. Some estimates show that people spend on average $126 per person, and total spending this year was expected to reach $17.6 billion. Some very lofty totals, but Valentine’s Day doesn’t have to be an expensive showcase. For many couples, a loving gesture can be inexpensive and also meaningful. So why is it that total spending is so high when simple cost-effective gifts and dates can do the trick?

When it comes to Valentine’s Day celebrations, couples experience a heart-shaped version of the classic game theory problem called the Prisoner’s Dilemma. In the original Prisoner’s Dilemma, 2 partners and suspects of a robbery are arrested for a crime and are interrogated in separate rooms. The police go to each partner and make a deal that they can either stay silent and faithful to their partner, or betray them and walk free while the other goes to jail for one year. If both stay quiet then they get a lesser charge and jail for one month. If one betrays and the other cooperates, then the betrayer walks and the cooperator goes to jail for one year, and if both betray, then they both go to jail with early parole for three months.

With these payoffs, both players will choose to defect due to the high payoffs of betraying and the relatively low cost. However, this still does not give both players the best outcome, since the lowest punishment for both players comes from both players cooperating.

The Valentine’s Day Dilemma faced by countless couples every February is similar.  Couples can either “cooperate” and get gifts for their significant others or “defect” and not get gifts. If they decide to exchange gifts, then they incur the costs of the gifts, but they also incur extra costs of getting a gift that is bad or just not as good as one received. If one gifts and the other doesn’t give a gift then both players essentially lose due to inequality of gift giving, so one partner feels left out for not receiving a gift and the other feels inconsiderate and insensitive for not giving a gift. The final option is one where they both choose not to give gifts, which leaves both partners equal and incurring no costs.

Since players want to spend the least amount of money while making the same “play “ as their partner we can conclude that both players not gifting will see the greatest benefits. This is because the cost taken by both players is zero, they receive the same outcome, and they do not risk any indifference that may come through gifting.

In the Prisoner’s Dilemma, players are isolated from each other, so communication and knowledge of the other’s choice is impossible.  However, in the Valentine Dilemma, players often choose not to coordinate and plan what they do, since a gift given is supposed to be a surprise. However, in the Valentine Dilemma, communication and knowledge is possible, which means that couples can work together to avoid coordination failure.

So, if you forego the benefit of a surprise gift you can solve the dilemma with the exchange and use of knowledge with your partner, which is a luxury that criminals don’t have.

By: Grish Makarenko ’13

Earlier this month, thousands of European youths marched the streets in opposition to the Anti-Counterfeiting Trade Agreement (ACTA); a secret treaty (exposed by Wikileaks) that commits countries to enforcing each other’s intellectual property laws. The protesters were concerned about the effect of the treaty on protections against censorship and invasion of privacy. While the treaty doesn’t change any country’s IPR laws, the investigative power granted to international enforcement agencies results in significant changes to privacy protections .

Intellectual property laws encourage innovation by protecting intellectual property in the same way that property rights encourage investment by protecting physical property. An inventor or artist invests in an intellectual endeavor in order to earn profit just as any entrepreneur does. If intellectual property isn’t protected, a creation could be used by anyone for profit. The inventor of said creation would gain less profit from his work than if he was the only one able to sell this product. So a weak system of IP protection fails to reassure an inventor that his investment will lead to profits. This problem is often found on the internet because it is hard to properly restrict people from pirating copyrighted data. For example, it is estimated that the U.S. lose several billion dollars each year due to music pirating.

This problem gives the intellectual property rights holders the incentive to push for an internationally accepted solution. The non-physical nature of the internet makes it hard for one country to properly regulate and enforce laws within its geographical territory. ACTA is an international treaty that is designed to coordinate the efforts of governments concerned with enforcing intellectual property rights. Each country retains its own IPR laws, but the manner of enforcement is more coordinated with the other signers. However, the real problem with the protection of intellectual property is not the rights themselves but the powers granted to the authorities to enforce the law.

The most troubling provision is that when dealing with the “digital environment” each country is given authority to demand customer information from internet service providers. Surveillance by internet providers is incentivized by this agreement. If an ISP can be punished for the activity of their customers, it is in the interest of the providers to monitor customer activity. The extent of monitoring can only be speculated, but any common practice of invasion of privacy of this sort would greatly harm the future development of the internet. Each time a person does anything on the internet she would have to make sure that she isn’t violating any IPR. The “watchful eye” would discourage many people from expressing themselves freely and have the unintended consequence of censoring free expression.

This agreement makes the trade-off between intellectual property protection and individual privacy, but it isn’t the individuals that are calling the shots. Individuals have more incentive to protect their privacy than government officials because they don’t incur the same costs. The recent riots in Europe over the issue have brought it to surface, but the sneaky negotiations show that the countries were trying to avoid discussion on the constituency level. The trade-off that we face now is whether or not we want to stay out of the decision making process for our own lives.

By: Alexander Cartwright ’13

The committee on the Judiciary is currently debating a bill that would follow at least 12 states and several cities in outlawing the latest marijuana substitute, K2 or spice. K2 is typically used as incense, composed of herbs and a few synthetic compounds, and designed to replicate marijuana when smoked, except its legal. While banning a substance that people abuse may help some people, allowing K2 to be legal would incentivize producers to create safer versions, but the government does not know if the good of prohibition will outweigh the bad of a few people abusing drugs; in fact, it is nearly impossible for them to know the answer.

Over the past year and a half K2 has become an enormously popular marijuana substitute. As more people began using K2 instead of other drugs, we have learned some its negative side effects: high blood pressure, seizures, and hallucinations just to name a few. K2 users were becoming more and more frequent in hospitals, and when an Indiana 18 year old smoked enough K2 to have a hallucination that provoked him to end his life, law makers decided to capitalize on the opportunity to justify K2’s prohibition. K2 has taken at least three lives, and has sent hundreds to hospitals all while scientists know relatively little about the long term health effects of its synthetic compounds- is that enough to justify prohibition? At least 12 states and several cities think so.

Despite all the social ills the ‘drug’ seems to be causing, outlawing it will not deter consumer’s demand. Nor will outlawing K2 incentivize scientific research on its synthetic compounds so that we can fully understand their effects on our health. If left legal, entrepreneurs could try to profit from creating safer versions of K2, and competition between these producers would only lead to more effective, less harmful drugs. Competition in an illegal market would not be nearly as effective. Furthermore, prohibition will not stop consumer demand, and there is no reason why producers would not innovate a new, potentially more dangerous, substitute.

During the legislative process, our representatives will no doubt debate the costs and benefits to outlawing K2. Obviously, there are costs and benefits to allowing consumers to buy K2, but how do we know when the costs are high enough to outweigh the benefits and legitimize prohibition?

We have a mechanism for determining the best decision: competition. Nobel Prize Winning Economist F.A Hayek calls competition “a discovery procedure,” and he couldn’t be more correct. When we have a hot-dog eating contest, we do not know who is the best hot-dog-eater, (who can eat the most) so we have a competition. If we knew who the best hot-dog-eater was, then having a contest would be pretty silly, so we have a contest to discover who is the best- competition is a discovery process.

As elementary as competition seems, without it we couldn’t make every day decisions. Consider choosing between 2 brands of razors in Wal-Mart. By buying the razor that works best, I send a signal to all the razor companies about which price and razor characteristics I prefer. Being able to choose the best razor signals information about my preferences which producers use to make better razors and maximize profits. For example, I did not know that I really wanted the razor with the AAA battery that vibrates and shaves closer, but by watching my consumption patterns, corporations knew consumers wanted a close shave, and innovated a way to make that happen at a low cost. By allowing consumers and producers to exchange knowledge, competition literally leads to the creation of knowledge- about what products consumers will prefer. Without competition in the razor industry, there would be only one, un-innovative, razor on the market leaving me without the opportunity to choose the best product, and signal to innovators what kind of razor would be best.

Competition provides us with ever innovative and ever cheaper products, but it also provides us with choice, without which we couldn’t decide if something is best. Without competition, I wouldn’t know a 4-blade razor was the best choice not only because lack of competition does not give companies the incentive to innovate a razor with more than one blade, but also because there would be no 3 blade razor to compare it to- my friends majoring in philosophy would say that without a ‘contrast class’ we cannot say the buying the 4-blade razor is advantageous. In other words, the only reason I know the 4-blade razor is the best, is because I know it is better than the competing 3-blade razor.

Unlike the competitive market for goods and services, the government is by definition a monopoly. When the government creates a law, we simply can’t choose to follow one we like better since there could be legal consequences. As a monopoly, laws that our legislature creates are not subject to competition from other laws, and without competition- a discovery process- we can’t know if the government is making the best decision when it comes to weighing costs and benefits, like in the prohibition debate over K2.

The government does not lack innovative minds; in fact, I am sure congress will drag in a diverse group of experts to testify about K2. But, it will not matter how many experts testify in front of committees, how altruistic our representatives are, or even how well our politicians represent their constituents views, without competition they cannot ‘discover’ whether it would be best to outlaw K2- it’s systematically impossible.

Fortunately, introducing competition, the discovery process, into law is not beyond our experience or our established institutions. When judicial institutions, utilizing common law, make rulings that uphold old precedents or establish new ones, the law becomes better and better at executing its intended purpose. In the court room, judges are able to choose between the costs and benefits a law has imposed on both parties and make a ruling that establishes a precedent, or unverifiable principle that can perfected over time. Parties seeking to utility maximize by suing each other, and judges seeking to utility maximize by establishing the best precedent possible, will lead to better law. Different cases give judges the option to chose between what types of precedent should be created, and after many different cases judge’s choices create knowledge about what type of precedent works best. Furthermore, different precedents can apply to different districts, which allows for even more competition.

We can continue to scream our individual preferences to congress about what they should do, but systematically it is nearly impossible for them to make the best decision outside of pure luck. Should we legalize K2? I have no idea; in fact the knowledge we need to know too much such a decision might not even exist, which is why we need competition. Just as we use competition to discover the best ways to use allocate our resources, justice should be a discovery process too.