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There are three reasons to impose taxes, it seems:
1. To discourage behavior "we" don't like
2. To raise revenue for things "we" want 
3.  To achieve a pattern of social justice in the distribution of resources
What does transaction cost analysis have to tell us about all this?
And Bob Barker, and the 99 cent price point.
Have you even read Marx?
And a new letter.
NOTE: This is the last of the regular episodes of Season 1. With the start of the new academic year, TAITC will move to once per month, with longer episodes coming out the last Tuesday of each month. 
APOLOGY: I said "Meltzer and Richards" with an "S", twice. That's wrong. It's just "Richard," no "S."


Links to Resources:

• Quote Investigator on the ditty about "Tax that man"
• Meltzer, A. H., & Richard, S. F. (1981). A Rational Theory of the Size of Government. Journal of Political Economy, 89(5), 914–927. 
• Costs of tax compliance in the U.S.
• Chilean tax system 
• Laffer Curve
• Charlie Gibson/Barack Obama exchange
• Who Pays Federal Income Tax? 
• Harvard Business Review article on $X.99 pricing
• On the Problem of "Fictitious Reference Pricing"
• Bob Barker Obit

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There are many different pricing and packaging schemes for serving food in restaurants, and they all seem to coexist. But there are some significant differences, and thinking in terms of transaction costs and adverse selection can help us understand why.

Plus, a TWEJ on the eternal optimism of Keynesians: THIS time it might work!

Some links:

• Yoram Barzel, Measurement Cost and the Organization of Markets. The Journal of Law & Economics, Vol. 25, No. 1 (Apr., 1982), pp. 27-48   https://www.jstor.org/stable/725223
• Comeback of "all you can eat" https://www.today.com/food/restaurants/all-you-can-eat-buffets-comeback-rcna99462

Buffets, pricing, and management, seller's perspective

• https://www.cheftalk.com/threads/pricing-salad-bars-by-weight.70748/
• https://pdfcoffee.com/buffet-cost-control-pdf-free.html
•  David V. Pavesic (1994) By-The-Ounce Pricing for Salad Bars, Journal of College & University Foodservice, 1:4, 3-11
• David V. Pavesic and Paul F. Magnant (2005; 2nd Ed).  Fundamental Principles of Restaurant Cost Control, pp. 238-246. Prentice Hall. 

Consumer's perspective

• https://www.budgetbytes.com/hit-salad-bar-like-boss/  
• https://www.refinery29.com/en-us/whole-food-cheap-salad-bar-hacks 

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Are HOAs an argument for anarchy, or an example of it?
Ex post recontracting as a form a of aggression, when the enforcer of contracts is also a party to the contract.
And of course the TWEJ

Some Links:

• How to pronounce “Tiebout” 
• Why you should care about Tiebout
• Munger on Wealth Taxes, and "Tuh" the Dog  
• Makovi on "Cookie Cutter Covenants"
• NH property owners say HOA elections are undemocratic
• Public Goods and "Club" Goods

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The listener letter last week asked about the the three "red dots" that are used to identify liquor stores in South Carolina.
Turns out that this kind of "shibboleth" is a way of identifying and discriminating, in ways that can be useful, or harmful.

Red Dots in South Carolina:

• The Robert Moss (SOUTHERN SPIRITS) version
• South Carolina Encyclopedia (from Moore, John H. “Solving the Red Dot Mystery.” Sandlapper,  spring 2000: 32–34.)

Shibboleth

• Gileadites and Ephraimites
• Background on the conflict
• Naked mole rats use shibboleths (thanks to Robert Lawson, who knows him some mole rats)

The Stone Signposts of Pompeii

World Series as Shibboleth  (Robert T. Gravlin, 23rd Armored Engineer Battalion)

Appropriate Measures of Inflation

ERRATUM: MJ writes to point out that if the economist could really count, he would have miscounted the number of sheep, adding one, because he counted the dog. That's fine. But then why did the shepherd agree that the number of sheep was correct? It should have been one over. It's okay that TWEJ's are not funny, that comes with the territory. But in this case there is a logical problem. My mistake, and thanks, MJ!

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How do you trade off your own interests against the interests of others? And what role do transaction costs play? A discussion of our "interest" in the welfare of others,  and the complexity that adds to economic indifference curves.

Things take an interesting turn, going toward how transaction costs can shape our institutions and preferences, ranging from  a marine fishery to a bowl of M&M's.

And TWEJ. Always, TWEJ.

Some Resources:

Gary Lynne, on Dual Interest Theory:   https://journals.sagepub.com/doi/abs/10.1177/02601079231172366?journalCode=jiea

Neo(Classical) and Rama-Kandra, on caring about others: 
https://www.imdb.com/title/tt0242653/characters/nm0924502

On Coase, Olson, and the Problem of Encompassing Institutions:

• Justice Department Merger Guidelines:  https://www.justice.gov/archives/atr/merger-guidelines-and-integration-efficiencies-antitrust-review-horizontal-mergers: https://www.justice.gov/archives/atr/merger-guidelines-and-integration-efficiencies-antitrust-review-horizontal-mergers
• Ronald Coase, 1937, "The Theory of the Firm." https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0335.1937.tb00002.x
• Richard Jankowski on Encompassing Organizations:  (1989). Preference Aggregation in Firms and Corporatist Organizations: The Enterprise Group as a Cellular Encompassing Organization. American Journal of Political Science, 33(4), 973–996. https://www.jstor.org/stable/2111117
• Robert Keohane, "International Institutions": https://www.jstor.org/stable/2600589
• Mancur Olson, the Rise and Decline of Nations. https://www.jstor.org/stable/j.ctt1nprdd
• The "Coase Theorem" and the "$100 Bill on the Sidewalk" Joke: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405632

On Brown M&Ms:

• The DLR interview (excerpts): https://www.youtube.com/watch?v=_IxqdAgNJck
• NPR on Brown M&Ms:  https://www.npr.org/sections/therecord/2012/02/14/146880432/the-truth-about-van-halen-and-those-brown-m-ms
• Background, including a copy of the relevant part of the contract:  https://www.insider.com/van-halen-brown-m-ms-contract-2016-9

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What do Monty Python, George Akerlof, and the academic publishing industry have in common? They're all part of the explanation for the way academic publishing works.  High transaction costs and the race for tenure often push scholars to prioritize quantity over quality.

 So, if you've ever wondered why professors seem to produce endless streams of research, this episode is for you.  Plus the TWEJ, a triple-header!

Some links:

1.  Some images sent by EA, about "Desert Town", by Claude Gillot
Two carriages at an intersection, arguing about who gets to go first
A drawing of same, with a judge to determine the merits of the claims

2. The Insectivore's Dilemma: An actual instant of the "eat a bug!" coupon.

3. George Akerlof and the "Loyalty Filters" article in the American Economic Review, 73(1), 54–63.  

4. Kevin Munger and the Journal of Quantitative Description

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Transaction costs can help institutions build loyalty and commitment among their members. Starting with the biblical story of Abraham, we delve into the delicate balance of setting transaction costs to neither alienate nor diminish values. 

Then: loyalty filters. The civil service of imperial China.  Email spam.  "The Word of Wisdom", a LDS dietary and lifestyle principle. But....there are cola vending machines at Brigham Young University, a seeming detour from the teachings of the Word of Wisdom. 

Links:

• Genesis 22 Text
• Word of Wisdom Text from D&C
• Caffeinated drinks at "The Y."
• Why is SPAM so badly written? 
• Calligraphy in the Chinese Civil Service
• George Akerlof. (1983). Loyalty Filters. The American Economic Review, 73(1), 54–63. 
• David Kreps (1990). Corporate Culture and Economic Theory ("culture" as a signalling device)

Lagniappe: A note from listener J:  I was particularly interested in today's topic as I am a member of the "Mormon" faith. I remember growing up when caffeinated sodas were seen as a huge deal, you would never bring one to a church BBQ and I remember being kicked out of a friend's house for drinking a diet mountain dew.
I thought you may find it funny that after almost 100 years of confusion around caffeinated sodas, the church finally clarified in 2012 that in fact, caffeinated sodas are okay and not against the word of wisdom. Many speculate that this was due to MItt Romney being thrust into the spotlight as a presidential candidate, and he often drinks diet coke, and the church didn't want to turn off potential converts who might think, "I would never join a church that would ask me to give up soda," (though that does defy the transaction costs argument).

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How is buying lettuce like buying lumber? Each is idiosyncratic, and has to be sorted. Imposing the sorting costs on the buyer is actually a way of price discriminating.

Clement Atlee and Winston Churchill, for the best TWEJ ever.

And a cool new letter, about using transaction costs to separate by type, when type is "private information."

Links:

• "Measurement Costs and Pricing in Retail Produce"  
• Clement Atlee:  https://blog.oup.com/2017/06/clement-attlee-timeline/ 
• Atlee and Churchill:  https://www.amazon.com/Attlee-Churchill-Allies-Adversaries-Peace/dp/1848876602 
• Atlee speech  https://www.youtube.com/watch?v=XLuIlkT4gV4 
• SOURCE for the joke:  https://quoteinvestigator.com/2015/08/13/working-well/ 

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(NOTE: SORRY for audio glitch earlier. Fixed now!)

BR asks about the economic content of "old sayings."

We talk about habits, character, and "thinking fast and slow."

Plus, TWEJ takes on cultural norms.

Some links and background:

• F.A. Hayek on habit and information
• B. Hooker on Rule Consequentialism
• Munger on Pave the Muddy Paths
• Munger on Rule Utilitarianism
• Russ Roberts on Wild Problems
• Roberts and Munger on Norms and Sports
• Roberts and Munger on Cultural Norms
• David Schmidtz on "Desert Town"
• Adam Smith on being committed to your principles
• Alfred North Whitehead on habit

Lagniappe:
I think we all see different headlines. This one (to me) says, "Sheetz raises gas prices using long lines and frayed tempers on one of the hottest days of the year!"

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Last week's letter asked about the role of transaction costs in rationing discounted products, or "sales," like "Dollar Hotdog Night!" at the ballpark.  As the listener correctly pointed out, this relates to price discrimination, which is a great topic.

And....coupons!

Some additional links and info:

• The $21 "Dodger Dog" at Chavez Ravine
• The "Monkey App" kerfuffle in the Bay Area
• $1 hotdog night at Philadelphia got out of hand, because of course it did
• Robert Murphy and the Argument FOR Coupons
• Econtalk discussion of "found wallets" 
• There is no such thing as a free coupon!

If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !

You can follow Mike Munger on Twitter at @mungowitz