Posts Tagged ‘states’

Are you an economics graduate student casting about for dissertation topics? I have a few ideas for you. As part of the rewriting of Freedom in the 50 States, I’ve been reviewing the economic literature on how various public policies affect consumer and producer surplus, deadweight loss, and so on. We use an estimate of “victim cost” for each policy to weight the policy. The weighted sum of policies comprises the freedom index. Interestingly, the literature on some public policy issues is quite thin. That makes it difficult for us to come up with weights, and sometimes we have to do no more than guess.

Without further ado, here is a list of research questions to which I for one would like to see credible answers:

  1. How productive are publicly owned hospitals relative to for-profit and charitable ones?
  2. How accurate are people in estimating how much of their state’s residents’ income is taken in state and local taxes?
  3. How do state-level regulatory takings compensation requirements affect local land-use regulation and economic outcomes such as housing prices and population growth?
  4. How does state-level eminent domain reform affect actual local eminent domain takings?
  5. How do laws forbidding employers from forbidding guns on their property affect employers’ liability insurance rates?
  6. What are the effects of state workers’ compensation laws on workers’ comp costs? What is the effect of employers’ WC coverage costs on employment and wages? How efficient are state funds relative to private insurers?
  7. What is the incidence of state short-term disability insurance coverage mandates? In other words, which workers lose, which ones win, and by how much? What is the effect on labor supply?
  8. How does mandatory paid family leave affect labor supply and wages?
  9. How do state mandatory E-Verify programs affect employment rates of natives and immigrants and aggregate economic growth? What are their administrative costs?
  10. How do state anti-discrimination laws in employment (above the federal minimum) affect lawsuits, liability insurance rates, and tort judgments against companies? How effective are they at reducing employment and wage differentials?
  11. How do state-mandated health insurance benefits affect premiums after the PPACA? How do direct access to provider mandates affect premiums and health care spending? What about standing referral mandates?
  12. How do video franchising reform and general telecom deregulation (along different dimensions) affect broadband rollout, competition, and prices?
  13. How does severity of occupational licensing (education and examination requirements especially), not just prevalence or existence of licensing, affect prices, wages, and deadweight loss?
  14. Here’s one for the political scientists: do state sunrise and sunset provisions affect occupational licensing burdens?
  15. What are the economic impacts of being inside versus outside the Nurse Licensure Compact? What are the effects of having a “nursing consultation exception” that permits some interstate practice?
  16. How does membership in the Interstate Insurance Product Regulation Compact affect the number of life insurance and annuity offerings in a state and their premiums? How does it affect wages of life insurance agents, independent versus employed? How do state form filing requirements affect these outcomes?
  17. How do certificate of need laws affect density of ambulatory surgery centers?
  18. What is the effect of state rate filing requirements for personal auto insurance and homeowners’ insurance on premiums and coverage rates (residual markets)? What about bans on certain kinds of rating, e.g., territorial?
  19. What is the effect of California’s Proposition 65 on prices of consumer products, manufacturing production, and manufacturing employment? How many products are not sold at all in California as a result of the law, and what are the economic losses?
  20. What is the effect of allowing direct-to-consumer Tesla sales on consumer surplus?
  21. What is the effect of requiring certificates of public convenience and necessity for household goods moving companies on prices, moving company profits, consumer surplus, and deadweight loss?
  22. What is the effect of general retail sales-below-cost laws on retailer margins, prices, and productivity?
  23. How effective are certain tort reforms, such as joint and several liability reform/abolition and punitive damages caps/abolition, on liability insurance costs?
  24. How does concealed carry license cost, including mandatory training, affect the number of license holders? How do various state gun regulations, such as assault weapons bans, high-capacity magazine bans, “Saturday night special” bans, licensing of gun buyers/owners, mandatory sale of locking devices, and state licensing of dealers, affect gun prices, sales, and ownership rates?
  25. How do happy hour bans affect alcohol sales and restaurant and bar profitability?
  26. How do direct-to-consumer wine shipping bans affect wine prices and sales?
  27. How does permitting wine and spirits sales in grocery stores affect sales?
  28. How does marijuana decriminalization affect consumption and producer and consumer surplus? What is the price elasticity of demand for marijuana?
  29. How do penalties for marijuana cultivation and distribution affect quantity supplied?
  30. How do Salvia divinorum bans affect consumption and producer and consumer surplus?
  31. What would Americans be willing to pay for greater privacy? E.g., not having fingerprints on driver’s licenses, not having SSN’s stored in government databases, not having to go through sobriety checkpoints, not being tracked by automated license plate readers, etc.?
  32. Do bans on home poker games affect the prevalence of such games? Do gambling penalties (felony vs. misdemeanor) affect the prevalence of illegal gambling?
  33. What is the price elasticity of demand for casino gambling? How do casino regulations/legalization affect consumer surplus?
  34. What is the size of the U.S. raw milk industry? What is the consumer and producer surplus? How would banning raw milk affect welfare?
  35. How have restaurant trans fat bans affected sales, prices, and consumer welfare?
  36. What is the consumer surplus from mixed martial arts? What are the economic effects of state legalization?
  37. How do mandatory state approval/accreditation and registration of private schools affect private school enrollment and competition? What about mandatory licensure of private school teachers?
  38. How do home school regulations affect the number of home schoolers by state?
  39. How do smoking bans in bars affect bar turnover, profitability, and competition? Believe it or not, no one has analyzed bars separately from restaurants, even though the effects on bars are hypothesized to be much larger.
  40. Do regulations on cigarette vending machines and Internet sales affect consumption?
  41. How did sodomy laws, gay marriage bans, and “super-DOMAs” affect the migration of gay couples? What can we infer about their effect on gay Americans’ well-being?
  42. How do campaign contribution limits affect would-be contributors’ welfare?

All of these policies show some variation across states, making it possible to do some research on their effects across states. Not all of them are hugely economically significant, but they are all at least somewhat controversial politically. How can legislators make informed decisions about these policies without at least rough estimates of their consequences for citizens?

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Last week Attorney General Eric Holder announced that the Department of Justice would be suspending its adoption of state civil forfeiture cases through its “Equitable Sharing” program. To review, civil asset forfeiture is the procedure by which law enforcement seizes property suspected of having been associated with a crime, and then auctions it off and uses the money for its own purposes. Under federal law, asset forfeiture is easy: the agency must simply show by a preponderance of the evidence that the property was associated with a crime, and then the owner bears the burden of proving her innocence. Under the Equitable Sharing program, the Department of Justice “adopts” state cases in states in which forfeiture laws are stricter, thereby implicating the weaker federal standard, then shares up to 80% of the proceeds of these forfeitures with state and local law enforcement.

The system creates perverse incentives for seizing the cash, vehicles, and businesses of innocent people, as last year’s blockbuster investigation by the Washington Post revealed. Moreover, the Equitable Sharing program intentionally circumvents state law. The Institute for Justice’s 2010 study Policing for Profit showed that states with stricter civil asset forfeiture procedures saw substantially greater Equitable Sharing revenues.

Thus, Holder’s announcement is very welcome. Still, as Radley Balko points out, the new policy contains some big exceptions:

. . . (1) seizures by state and local authorities working together with federal authorities in a joint task force; (2) seizures by state and local authorities that are the result of joint federal-state investigations or that are coordinated with federal authorities as part of ongoing federal investigations; or (3) seizures pursuant to federal seizure warrants, obtained from federal courts to take custody of assets originally seized under state law.

According to the WaPo story, only 57% of Equitable Sharing proceeds came from state-only investigations, so the new policy should cut payments to state and local agencies by about half. When it comes to big forfeitures, the new policy creates an obvious incentive for local law enforcement to bring in a federal investigator to create a pretext for adoption. Moreover, many of those forfeitures that are no longer adopted will still be pursued under state law, simply with a higher evidentiary threshold in many cases. Thus, the total amount of civil forfeiture that occurs in this country can be expected to drop by only a small fraction of the current annual average total.

To get a better sense of how this policy change will affect asset forfeiture in the states, I will present some numbers from the new asset forfeiture dataset that we are compiling for the fourth edition of Freedom in the 50 States. We have data on Equitable Sharing proceeds by state from Fiscal Year 2000-01 to Fiscal Year 2012-13, as well as detailed information on state standards for forfeiture.

The following time-series chart shows Equitable Sharing revenues per $1000 of state personal income for several large states: Texas, Florida, California, Illinois, and New York. These data exclude a massive, one-time payout to New York agencies for the Bernie Madoff case.
equitable sharing by state
As the chart shows, Equitable Sharing really began to ramp up in 2006-07. By 2012-13, these five states combined for $228 million in forfeiture revenues from the federal government. For each of the last four years, California was first or second among these five states in forfeiture revenue as a share of the state economy. Probably not coincidentally, California has some of the toughest procedures for civil forfeiture in the country.

In the U.S. as a whole, Equitable Sharing forfeiture revenues totaled $486 million in FY 2012-13, more than double the total of 2004-05. We don’t know just what the total value of assets forfeited in the country is, because states and localities don’t often keep track of the data. Moreover, the Equitable Sharing program includes proceeds of criminal as well as civil forfeiture (criminal forfeiture upon conviction is much less controversial). But from the states for which we do have data, it appears that, at least in the early 2000s, total assets forfeited through state law amounted to about 20-50% more than what the states got from Equitable Sharing. Those figures undercount the losses to victims of forfeiture, because agencies get, at best, market value for what they seize. So it’s quite possible that each year, more than $1 billion in value is taken from property owners through civil asset forfeiture.

Now that the Equitable Sharing program is being curtailed, state laws will matter more. Which states are best positioned to protect property rights in the new order? Here’s a ranking of states as of January 1, 2015 on citizen protections from civil asset forfeiture, based on the burden of proof for showing that the property was connected to a crime, whether there is an “innocent owner” rebuttable presumption, where the proceeds of asset forfeiture go (when they go to the forfeiting agency, there are more incentives for abuse), and whether the state had put any limits on Equitable Sharing already:

1. North Carolina
2. California
3. Colorado
4. New Mexico
5. Florida
5. Minnesota
7. Oregon
8. Vermont
8. Missouri
10. Nebraska
10. Wisconsin
10. Indiana
10. Maine
14. Kansas
14. Michigan
14. Maryland
17. Connecticut
18. Utah
19. New York
19. Kentucky
21. Louisiana
21. Mississippi
21. Nevada
24. New Hampshire
24. Texas
26. Alabama
27. Arizona
27. Arkansas
27. Hawaii
27. Idaho
27. Iowa
27. New Jersey
27. Ohio
27. Oklahoma
27. Pennsylvania
27. Tennessee
27. Virginia
27. West Virginia
39. Illinois
39. Rhode Island
39. South Carolina
42. Georgia
42. North Dakota
42. South Dakota
42. Washington
46. Alaska
46. Delaware
46. Massachusetts
46. Montana
46. Wyoming

With any luck, Holder’s decision will inaugurate a new round of forfeiture reforms at the state level, as legislators realize that they once again have the power to set policy for their own officials.

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The new, book-length edition of Freedom in the 50 States: Index of Personal and Economic Freedom will be released on March 28 by the Mercatus Center at George Mason University. In the days leading up to release, I will be “teasing” a few of the novel findings and methods from the study. Here at Pileus, I’ve already posted a couple of teasers over the past few months, linked here:

This post will explain the logic and method behind the weighting scheme in the new edition. Every index of freedom has to use some way of weighting its variables to come up with an aggregate measure of freedom. The Heritage Foundation’s “Index of Economic Freedom” and Fraser Institute’s “Economic Freedom of the World” and “Economic Freedom of North America” essentially weight each variable equally, either within categories that are themselves weighted equally in the overall index (Fraser) or across the index as a whole (Heritage). The most commonly used international indices of democracy, Polity IV and Freedom House, and the first two editions of Freedom in the 50 States use “arbitrary” weights, that is, the researchers weight the categories according to their own judgment using general criteria.

We were unsatisfied with all of these approaches, as well as with inductive statistical alternatives known as “principal component analysis” and “factor analysis.” Here is how we put the case in the book:

Because we want to score states on composite indices of freedom, we need some way of “weighting” and aggregating individual policies. One popular method for aggregating policies is “factor” or “principal component” analysis, which weights variables according to how much they contribute to the common variance—that is, how well they correlate with other variables.

Factor analysis is equivalent to letting politicians weight the variables, because correlations among variables across states will reflect the ways that lawmakers systematically prioritize certain policies. Of course, partisan politics is not always consistent with freedom (e.g., states strong on gun rights tend to be weak on gay rights). The index resulting from factor analysis would be an index of “policy ideology,” not freedom.

Another approach, employed in the Fraser Institute’s “Economic Freedom of North America,” is to weight each category equally, and then to weight variables within each category equally. Of course, this approach assumes that the variance observed within each category and each variable is equally important. In the large dataset used for the freedom index, such an assumption would be wildly implausible. We feel confident that, for instance, tax burden should be weighted more heavily than court decisions mandating that private malls or universities allow political speech.

Previous versions of this index used a subjective weighting system, based on a rough assessment of the importance of each policy in terms of the number of people affected and the value they were likely to place on their infringed freedom. We were dissatisfied with the imprecise and subjective manner in which we constructed those weights, and for this edition we have tried to use a much more objective and independent measure of the “value” of each freedom.

The new, “objective” method of weighting variables is what we call the “freedom value” approach. Here is how we describe it: (more…)

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1.  I’m not a big fan of CNN but it occasionally produces an interesting piece.  This one on a surrogate who rescued a baby with birth defects from the natural parents (or so she thought!) who wanted the baby aborted is a must-read and raises a lot of interesting questions about law and ethics.  It also highlights how states are still relevant actors in our lives despite the encroachments of the federal government (and see #3 below).

2.  One of the great benefits of government spending cuts (including the sequester) is that politicians and bureaucrats have to think more seriously about trade-offs.  Of course, the sequester cuts are absolutely tiny – as Nick Gillespie at Reason nicely points out – and thus don’t pinch those folks enough.  But this piece at the USNI site notes one potential benefit – the Navy may have to reduce its efforts in support of the drug war.  Of course, the article makes it sound like the possible shift is a bad one but this is yet another war the US won’t be winning.

3.  As citizens and visitors to the Tar Heel State know too well, North Carolina has a state liquor monopoly.  In this white paper, lawyer Jeannette Doran of the NCICL “addresses whether North Carolina’s monopoly system violates the State Constitutional provision which declares and mandates: ‘monopolies are contrary to the genius of a free state and shall not be allowed.'”  Here is a nice quotation from the conclusion of this short paper:

It is dangerous to permit the State to engage in monopolistic activity. To tolerate a government-sanctioned monopoly by any entity, including the State itself, is “contrary to the genius of a free state”, according to the common sense of our Constitution. If the State is given wide discretion to monopolize spirituous liquor sales on the justification that it is doing so to protect public health and safety, there is little constitutional barrier to the monopolization of other products and services.

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Which public policies make an economy better for business? One way to answer this question is to ask businesspeople. Two recent surveys ask businesspeople to rank the American states on their friendliness toward business.

Now, libertarians often remind us that friendliness toward business is not the same as friendliness toward markets. Indeed, libertarians believe that many of their favored policies, such as abolishing trade protection, corporate welfare, and regulations that privilege big business, will redound to the benefit of workers and small business owners. What’s so interesting about these two surveys is that they are of different types of business owners: CEOs of large companies and small businesspeople. The first survey was conducted by Chief Executive magazine and the second by thumbtack.com in partnership with the Kauffman Foundation. By relating respondents’ views about the friendliness of their states to those states’ actual policies, we can see where big and small businesses agree and disagree about which policies are most important for their success.

My first step was to draw out of these survey data those numbers that relate specifically to different states’ policy environments, as opposed to other aspects of the economic climate. From the CEO survey, therefore, I took the taxation/regulation score given for each state (higher is better). From the small business survey, I took the “Regulations” component grades. Unfortunately, the small business survey does not include raw scores for each state, so I simply quantified the grades as follows: A+ = 0, A = 1, A- = 2, and so on, up to F = 11. The small business survey only covers 45 states, but for these states, the correlation between CEO and small business scores was -0.76. Since higher is better in the CEO survey and lower is better in the small business survey, that high correlation indicates a surprising degree of agreement between large and small businesses about states’ friendliness toward their businesses.

Nevertheless, there may remain some important differences in which policies large and small businesses prioritize. To get a handle on this question, (more…)

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The Institute for Justice has just released a new study of occupational licensing requirements in the 50 states and D.C. These requirements disproportionately harm low- and moderate-income people who are seeking to ply a trade.

License to Work finds that Louisiana licenses 71 of the 102 occupations, more than any other state, followed by Arizona (64), California (62) and Oregon (59). Wyoming, with a mere 24, licenses the fewest, followed by Vermont and Kentucky, each at 27. Hawaii has the most burdensome average requirements for the occupations it licenses, while Pennsylvania’s average requirements are the lightest.

Arizona leads the nation with the worst combination of number of licenses and burdensome requirements to secure those licenses, followed by California, Oregon, Nevada, Arkansas, Hawaii, Florida and Louisiana. In those eight states it takes on average a year-and-a-half of training, an exam and more than $300 to get a license, a tremendous burden for would-be entrepreneurs and workers.

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Once upon a time, local governments accounted for the lion’s share of economic policy-making in the United States. Before World War I, not only was the federal government’s economic policy-making activity strictly limited to areas such as international trade, management of federal lands, trust-busting, and food and drug regulation, but state governments themselves were also internally decentralized. In 1913, local government own-source revenues (revenues raised autonomously by local governments, thus excluding grants) as a percentage of total state and local revenues (including federal grants to state and local governments) stood at a whopping 82%, according to my calculations based on historical Census Bureau data. If we assume that revenues track economic policy activity closely, this figure implies that four-fifths of all state and local economic policy activity occurred at the local level.

Today, of course, local governments are quite limited in their economic policy autonomy, with the most important remaining policy role left largely to local governments being K-12 education. Local revenue decentralization (the variable described in the last paragraph) was just 38% in 2008. This chart shows the evolution of local revenue decentralization over time for the U.S. as a whole:

So who killed local autonomy in the U.S.? The answer is: (more…)

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