Thursday, November 01, 2007

I'm still alive

and kicking.

Just to stay in the game, a couple of mini-fisks, of bloggers whom I otherwise look up to.

1) Ravikiran, theorising about Indian democracy, says (among other things)

"
If we are honest with ourselves, we will have to admit that no one has a clue about which way the Indian voters vote, and once they have voted, the process of translating the votes to seats makes it pretty much impossible to draw a causal chain between the intention of the voter and the “Popular Will” as expressed via the seat position in the legislature.

If pollsters and pundits cannot call an election a month in advance, it is very likely that those in the government will be unable to take a guess as to which policies will win them the next election five years away. If democracy means that rulers govern according to the will of the people, then India’s democracy is broken.
"

Now this statement rests on the assumptions that
1) Politicians are not significantly more competent in knowing the popular mind than pollsters, and do not understand the votes to seats translation better than the average citizen.
2) Policy making and implementation in the government are a fucntion of five-year (or similar medium term) strategies of political parties, strategies optimized to give them votes.

Both are wholly unreasonable assumptions. Pollsters survey people, extrapolate data and make predictions on that basis. The sample sizes are typically so small as compared to the size of the elctorate that statistically the interval of confidence should prevent you from making any estimates. However, the TV demands a number. Hence, the pollster quotes a mean, neglecting the variance. Political parties have teams of workers working at multiple levels - they do not need to understand the scientific model or the mean or the variance for their data is far more representative and most parties know what is going to happen in the election, irrespective of what they may claim on TV. Plus, a Brahman+Dalit combine in the Up sweeping the legislature elctions there was pretty much predicted by everyone, wasn't it?

Anyone who has any close relative working in the steel frame will tell you why assumption no. 2 is false. On a daily basis, the work of the government is largely independent of the strategy of the party. The issues and stands that highlight the ideological(?) differences in the parties and become controversial are largely tactical in nature, and far lesser bearing on policy formulation and implementation.

2) Shruti Rajgopalan talks about how the market itself corrects market failures far better than governments, even in the case of public goods. The crux of the matter - people used to crowd in to listen to tour guides in Prague, even those people who hadn't really paid for their services. This is a nuisance because it is free-riding, and it can even cause legitimate tourists to miss the guide's detailing due to crowding. To solve the problem, tour guides now use small microphones and headphones are given to the touring group, thus preventing the free-riders from listening in.

Shruti believes that this is a wonderful example of a market corecting a market failure, and shows us the following dystopian situation as the government's possible solution

"How would the government deal with this problem? They would regulate the number of tourists each guide can have in a group. Furthermore they would regulate the distance each group must maintain and each individual must maintain from the groups. Then they would issue licenses to guides and have Tourist Inspectors for enforcing the regulations and ensuring the correct distance is maintained."

Oh dear god.

She calls the tourist guide's service a public good because it is "non-exclusive" and rival.

"It is difficult to exclude other tourists who are also at the monuments and the consumption may be rival as those who paid for the guide get crowded out"

Three points

1) Excuse my pedantism, but the term is non-excludable, and not non-exclusive(trust me, there's a significant difference)
2) A non-excludable, rival good is called a common property resource, not a public good.
3) The fact that a tour guide finds it difficult to physically exclude the non-paying tourists does NOT mean that his services are non-excludable. He is charging a fee for his services, and can easily deny his service to anyone. This by definition implies that his service is excludable. The problem, thus, is one of logistics (the fact that denying the service is physically difficult), and not economics and market failures(where denying the service is practically impossible, for example fishing in a sea).

The tour guide's service is in fact rival and excludable, a pure private good if there ever was one. It is a smart solution to a problem of business logistics, and not a romantic success of the market against its own shortcomings (atleast not in the free market vs government context that Shruti tries to provide her text).

I am now convinced of two things. One, ideological extremism, of any form whatsoever, is such an over-riding factor that it can totally impinge upon reason. Centrism is pretty much the only way out. Two, very few people have truly internalised what they learnt in their microeconomics course. People choose convenient bastardizations of a sound theory to criticise at will. I am reminded of Prof Deodhar's remark to us about trying to avoid the abuse of terms like moral hazard and adverse selection.

p.s : Some problem with blogger. Wll put up the links to their respective posts a little later.

10 comments:

Vivek Kumar said...

Politicians are not significantly more competent in knowing the popular mind than pollsters, and do not understand the votes to seats translation better than the average citizen.

This assumption, as you say, is just not true.

Political parties get their data directly from constituencies (right down to the level of polling booths). Except for cases where the margin of victory is too close to call, they know exactly the seats they are going to win.

Voters, in general, do not care about national slogans etc. anyway. Voting takes place on highly localized issues. Politicians have to keep talking on the TV to keep their flock together and to influence the fence-sitters (there aren't many of them in our electorate).

The only thing that works on a national level is a "wave". Creating one is usually beyond the control of political parties, though they try.

ada-paavi!!!! said...

i was too lazy to respond to shruti's post, thank god you have done so.

Ravikiran S Rao said...

"The fact that a tour guide finds it difficult to physically exclude the non-paying tourists does NOT mean that his services are non-excludable. He is charging a fee for his services, and can easily deny his service to anyone."

Can you explain what you mean by this?

zen babu said...

Ravi,

I think I used the word deny twice, once in the wrong context. What I mean is - the excludability of a service is, to the best of my knowledge, a function of the possibility of keeping someone out of availing it by charging a fee. For example, fishing in a sea which has undefined property laws is by definitiion non-excludable. (there is no legal basis to excluding anyone)

In Shruti's example, keeping people out was problematic due to a logistical hassle. The tour guide can very well refuse to guide a person X around the monuments (i.e deny his service to X). His service is excludable - he can legally deny anyone the service and he charges a particular fee for the service, thereby automatically excluding those who can't pay for it. To that extent, I think his service is purely a private good - the logistical hassle, which he solved by the use of microphones, does not make it a common property resource.

Ravikiran S Rao said...

Nope. The only definition of "excludability" that makes sense is the one you don't accept. Excludability is not a legal matter. Fishing in sea is not problematic because of an absence of property rights in sea - if it were, it would be easily fixable. It is problematic because fish themselves would not respect any oceanic boundaries you'd draw. Television broadcasts used to be non-excludable because there used to be no practical way of stopping people from receiving a channel. Even though legally it was always perfectly possible to claim that only those who paid a fee could receive the broadcasts, there was no practical way of enforcing it short of a police state.

National defence is an example of an non-excludable good. It is, in theory, possible to say that only tax-payers will receive the protection of the army. In practice, if you are defending a border, everyone inside it will get defended.

Treating excludability as a matter of legal small print would create so many problems for economic analysis that it boggles the mind.

zen babu said...

Ravi,

I doubt if it is legal 'small print' that I refer to. It is more a question of
1) what is the right that you have a claim to, which is not too difficult to determine
2) what is the cost of implementing the exclusion - is it merely difficult as opposed to impossible

W.r.t fishing, the problem you mention arises because you're defining the good as fishing a particular number/set of fishes. In reality, when property rights are defined over seawaters, the good that has been made excludable is fishing in a particular stretch of the sea. The only property rights over the sea that have been traditionally defined are by nations which claim some territorial waters and there was an instance of Australia fining some Japanese deep sea trawlers when they breached these property rights. Australia could have allowed these trawlers for a fee - fishing in those waters then definitely becomes an excludable good. (I'll try to find an online link for this if I can)

Apropos national defence, it is impossible to exclude non-taxpayers, as opposed to merely difficult. However, the government could easily levy, say a defence tax, on the border states and station more armymen in the states that pay higher rates of defence tax - effectively introducing substantial excludability in the provision of national defence. It is just that no government would ever do that, and that 'national defence', as a good, is never defined in terms of the number of armymen stationed etc.

By the way, is it me you refer to in your Fenimoore Cooper post? Do tell - I will only consider it a signal to try and tighten the way I write.

Ravikiran Rao said...

Wait a minute! You are confusing things a lot. Obviously, as you have proved with the question of national defence, nothing is "impossible". In economics, it is always a question of how costly the implementation of the solution would be. Secondly, the impossibility or otherwise is always contextual. When it comes to tour guides, in the absence of the technology Shruti is praising, excluding people would have been truly "impossible", because the context, i.e. the legal environment made it so. They could not have asked the tourists hanging around to move away.

Secondly, the argument you are making has a curious circularity to it. Let me explain by using a dialogue between a Supporter of Government Intervention (SGI) an a Free Market Fundamentalist (FMF)

SGI: Market failures happen when goods are not excludable. In such cases, the government should tax people to avoid the problem of free riders. Here is an example... [Gives example]

FMF: Oops.. The example that you just gave... the free market has found a smart way to solve the problem and make the product in question excludable.

SGI: OK, so the fact that the free market has found a way to exclude people proves that in the example I gave, the product is not truly excludable. Here is another example...

See what I mean? The way you have defined things, there is no way to prove you wrong. But then the way you define it, there is no case ever for government intervention, because no one can prove that it is *impossible* to exclude users, only that it is very very costly.

And btw, you've got my description of property rights for fishing exactly the wrong way round. I was not talking of property rights in terms of number of fish. I was talking of property rights in terms of boundary lines drawn on the ocean (which can be done by the government within territorial waters or by international agreement outside it, but will be useless because of the reason I gave.) I actually agree that property rights defined in terms of number of fish is a better way, but difficult to enforce.

zen babu said...

Ravi,

Quick one - have to mug.

1) The argument is not circular - if the private sector does make the good excludable better than government taxation, the FMF would have won the argument. If conservation of water bodies was better handled by property rights than by pollution regulation or taxation, I am more than willing to accept the FMF argument. I began by contesting the very premise that the tour guide's sevices are non-excludable. An SGI who asserted so would also be wrong in the first place.

2) It is technology that makes the cost of excluding low. Is technology per se a free market phenomenon? If the government was to take into cognizance this problem of tour guides and give them headphones to solve the problem, would that still be a free market solution?

3) I absolutely agree that impossibility is contextual. In this context, the tour guide is charging a fee and has the legal right to deny his service to anyone who has not paid for it. Whether that includes the right to ask certain people (who have not paid) to move away when he is speaking is a question of legal tenability, and I'm no expert. However, contrast this situation with one where I am utilizing a water body with no property rights. Does anybody (any private party) have the legal right to deny this good to me? No. Can anybody charge me a fee for using the water body? No. Thus, here it is contextually impossible to exclude me from consuming the good, as opposed to the tour guide example which strikes me as a logistical hassle instead of a contextual impossibility.

Ravikiran Rao said...

"Whether that includes the right to ask certain people (who have not paid) to move away when he is speaking is a question of legal tenability, and I'm no expert. "

Huh????

In the first place, the premise of the whole argument was that it is legally impossible for the guide to ask the tourists to move away from him, because it is a national monument, open to all. If it was just a dispute over facts, why on earth did you get on a high horse about Shruti not understanding the concept of excludability and being blinded by her ideological blinkers?

Secondly, I am not claiming that technology is a monopoly of FMFs. I am saying that by making "impossibility" the criterion for excludability, you have made it very difficult for SGIs to in fact Support Government Intervention on the ground of excludability, because it is always conceivable that some technological breakthrough could make what was hitherto nonexcludable now excludable.

Thirdly, you are confusing the argument thoroughly by focusing on the legal options of a private player in water.

Let us imagine a country where there are no property rights at all in land. From the point of view of a private player, land will then be a non-excludable property. Even if he builds a house on a piece of land, someone else can come and bulldoze the house, because he does not hold an exclusive right on the land.

Can this situation be used to justify government control over land? No? Then how is the situation different with water? Obviously, the answer is that in case of water, the problem is not just the legal situation, but also the physical situation, i.e. it is difficult for even the government to define property rights.

Please note that I am just defining the standard argument for government intervention for you. This has nothing to do with whether you support libertarianism or not.

zen babu said...

Ravi,

Agree. I now think I was mistaken.