Bryan Caplan  

A True Story of Efficient Regulation

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I'm a member of local Fairfax pool. I don't know exactly how this pool got started, but for about $400/year, my family was able to become a shareholder in this private non-profit.

One nice thing about this pool is that it has an old-fashioned, springy diving board. Well, actually, I should say that it had such a diving board. This summer, the board was closed down. Why? According to new regulations (or maybe old regulations no one had noticed?), the pool had to be a couple feet deeper in order to have this kind of diving board.

OK, so how is a pool funded by $400/year in fees from a few hundred families supposed to pay the hundreds of thousands of dollars required to meet the new regulations? The governing board quickly hit upon a simple solution: Sell an acre of unused land on the corner of the grounds. With land in Fairfax going for $500k/acre, it quickly became obvious that there was money to meet the new regulations and then some.

The upshot is that the new regulations indirectly caused $500k worth of otherwise completely wasted land to be put on the market. And that clearly looks like an efficient move to me. It is literally true that no one will miss that acre of land.

So if it was such a free lunch, why wasn't the land sold previously? The answer, I hazard, is that the pool association is a non-profit. Every family has an equal share, including the members of the board. The upshot is that if the board had voted to sell the land and pay the proceeds as dividends to all the shareholders, each of them - including the board members - would only have gotten about $1000/each. That's not peanuts, but it hardly seems worth alienating your friends and neighbors over.

In contrast, if this were a for-profit firm, someone (say me) could have bought up a bunch of shares, voted to sell the land, and pocketed the bulk of the proceeds. There wouldn't have been any need to wait for the safety police to come along and order the deepening of the pool. The major shareholders would simply have noticed that they were sitting on an expensive asset they were never going to use.

And that's one of the great things about for-profit firms. Unlike non-profits, they aren't just looking to get by. They aren't like hibernating bears who only move to get away from a cattle prod. They're looking to get rich. And as Smith pointed out two centuries ago, that motivates them to take valuable assets that are gathering dust and sell them to other people who would truly appreciate them.

P.S. As far as non-profits go, my pool is one of the more efficient. At least it charges a market-clearing fee, so there's no waiting list for new members. Another pool I'd much rather belong to is so under-priced that I'll be waiting three more years to get in. What a waste.


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COMMENTS (8 to date)
Grzesiek writes:

Bryan states:
"I'm a member of local Fairfax pool. I don't know exactly how this pool got started, but for about $400/year, my family was able to become a shareholder in this private non-profit.

One nice thing about this pool is that it has an old-fashioned, springy diving board. Well, actually, I should say that it had such a diving board. This summer, the board was closed down. Why? According to new regulations (or maybe old regulations no one had noticed?), the pool had to be a couple feet deeper in order to have this kind of diving board.

OK, so how is a pool funded by $400/year in fees from a few hundred families supposed to pay the hundreds of thousands of dollars required to meet the new regulations?"

When was the pool installed? Which firm installed the pool? Is that firm liable to correct the problem in order to comply with the building standard?

I see that paying hundreds of thousands of dollars will be needed to fix the problem. It sounds as if those overseeing the compliance have jumped to the conclusion that digging a new pool or digging to increase the depth of the current pool is the answer.

Did anyone ask if raising the diving board would solve the problem?

voorhees writes:

Wouldn't raising the diving board result in a faster velocity of diver at moment of impact with water, requiring a deeper pool than was mandated by regulation?

(-_-) writes:

yes, it would.

Grzesiek writes:

Guys, good catch. While raising the board a few feet will not increase the acceleration of the diver appreciably, the key here is to increase the drag on the diver at the current depth, or the duration of the drag by deepening the diving area on the diver so they do not injure themselves at the bottom of the pool.

I assumed that the issue was one of distance between the board and the pool surface (a local issue here in the past). What I should have said was change the type of board.

I spoke before I thought out the issue.

I still wonder when the pool was installed and whether the building code was followed.

Retrenching a pool is too much money for innocents to come up with but it all comes down to how valuable the resource is to each individual and the association as a whole.

Robert Speirs writes:

As to the better pool, can't you go to one of the people on the list for a place in that pool, offer them money and get their place on the list? If that were allowed, soon the actual fee for that pool would reach a market rate.

spencer writes:

How do you know that a waiting list, or non-price rationing is a waste?

spencer writes:

I repeat my question, why is it a waste.

You have a non-profit with a vertical supply curve. Membership is limited and can not grow.
Consequently, raising prices will not induce additional supply.

So what you are advocating is raising prices enough to induce some family to drop out so you can get their position.

The way it would work is that the current price would be raised. So every member would have to pay more to belong to this closed organization until the price was too high for one current member and a new member could join.

So why is it more efficient for 499 of some assumed 500 member to pay more so that you can join this organization.

If you really wanted to be less wasteful you could try to bribe some current member to give up their membership so you could purchase it.
That would come much closer to the perfect competition model you want to impose on everything. This model would not impose the additional cost on the existing membership that is completely unnecessay and wasteful except that it fits your ideological model of everything.

I challenge you to answer my question.

Tom West writes:

I assume that "what a waste" means that human beings here fail to conform to what common economic theory claims is the the ideal distribution of this scarce good, i.e. have the good go to those who want it the most.

Of course, to "want" means being willing to spend money for it, so those who do not have the money to spend for something more or less by definition don't "want" it as much as somebody who does.

If the pool is run as a co-op, it also means that the value of having a consistent membership is incorrectly valued over maximizing the pool profits, since common enjoyment of a shared asset with a familiar crowd does not have an easily valued metric, and certainly not one that can be measured against dollars.

Once again, humanity fails to meet the standards set by homo economus.

And Bryan wonders why people don't give economists the respect they're due. Perhaps it's because economists don't give people the respect they're due.

(And apologies to economists that realize that much of what is important to humanity isn't "a waste".)

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