Wednesday, September 26, 2007


In the last legislative session, the Oregon House passed a bill aimed at reducing the burden of expensive textbooks on college students. Being a professor myself and dealing with the issue of textbooks I was very interested in this bill as I am acutely aware of the burden that high priced texts creates for students. But is this legislation sensible, will it serve to reduce the burden on students and is it a good example of government intrusion in a market to correct a market failure? Sadly, no. I am convinced it is unlikely to make things better and I fear that it may make actually make things worse. Oh why didn't they talk to an economist before doing this??

Here is the background: textbooks are enormously expensive. They are so expensive because they are expensive to produce and sales are relatively low. Publishers routinely push new editions very quickly with the express aim of circumventing the used textbook market. Professors who write textbooks are not well compensated save for the few who write introductory textbooks for popular subjects that become very well adopted. Though it appears to be a monopoly to a student (and is once a professor selects a particular textbook) it is actually a very competitive industry. The retail end has become competitive as well - no longer are students stuck with the campus bookstore, there are many internet textbook sellers, for example. In fact, I have a voice mail message this morning from a rep trying to get me to switch to 'their' international economics text that is 'just updated and covers the new US trade policy!" So it is not the publishers that are making abnormal returns on texts. So while new editions are produced probably too frequently, essentially textbooks are expensive to buy because they are expensive to make.

The legislation (in the words of the Ashland Daily Tidings):

The bill requires publishers of college textbooks to provide professors and private and public colleges and universities with information regarding their products, including the prices and the frequency of updated editions.

The bill would also make publishers offer higher education institutions the option of ordering each component of bundled textbook packages separately, and disclose the price for textbooks purchased without bundled items such as workbooks and CD-roms.

So how will this legislation potentially help? Well, there is one aspect I am fairly neutral about. When publishers send me info about texts or examination copies of texts, the list price is never given. I select the text I like but then always go and check the prices (it is easy these days, just a few key strokes) to make sure the one I chose is not abnormally expensive. I can imagine may professors never bother to check, but the thing is that in my experience, publishers price very similarly. I have never changed my decision on a text because I found the price too high. This suggests that price competition does exist. But it is probably not as fierce as it would be if prices were provided to professors - and providing professors with list price info is basically costless to publishers. So I have no problem with this, though I am not sure that it is necessary, and I am very doubtful that there will be much gained from it. But if it is costless and may lead to some improvement, why not? (NB: I think if there were a federal requirement that textbook publishers were required to print the list price on the covers, there would be some improvement) Here's why not: if there already is price competition and this makes it a bit worse, publishers will respond by not trying to make new textbooks for categories already well populated - so while price competition may go up, quantity competition may go down. There may end up being only three competing intermediate microeconomics texts to choose from instead of about eight now. The end result may not be lower prices. (By the way, I am not sure how information on frequency of updates really matters if the price in for is provided)

The second part of the legislation is a bigger problem. I understand the motivation. While I rarely have been forced to order a bundle, it happens occasionally. By requiring textbook publishers to offer non-bundled texts and components, it stops this practice. Case in point: this semester the text for my class includes access to the publisher on-line interactive study tools. They are nice, but many students will not want this access. They have no choice if they go to the bookstore. They publisher is doing this to force the purchase of a new text, but I have found numerous used texts available on the internet, so if a student does not wish access there is a easy option. What is the problem with this legislation? Well publishers who bundle can offer the bundle at a cheaper price than the a la carte prices. So students who do want the bundle, or need the bundle will end up paying more not less. So it is again not clear to me that the net effect of this legislation will be students paying less for textbooks.

Now let's turn to the meta-analysis: where is the market failure and is the remedy justified? This is perhaps the reason I have the most problem with this legislation - I can't identify the market failure! There may be one in terms of the professor insisting on a particular text in class, but I see no easy way around that. The market has evolved so that used texts and discounted new texts are easily obtained, publishing academic texts in the US is very competitive and professors are, in my experience, acutely aware of the burden of high text prices. This legislation seems to be aimed at lazy professors who blithely order texts without paying attention to price or bundles. But I find this caricature to be inaccurate. So it is a legislation that I don't think will do much harm or be much of a burden on publishers, but I think is unnecessary and smacks of populism on the part of a state government that is currying favor with college students that they have been screwing for the last 15 years bu underfunding state higher ed.

Finally an economist's note. One of the reasons new texts are so pricey is the fact that there are used texts around. In fact, without used texts there could be economies of scale in the new text industry that would lead to much lower prices. I try and not require anything out of a text that could not be found in a used older-edition text (not always possible). But I realize that is a small way, I am contributing to the high price of new texts. A conundrum, for sure, but publishers are not evil student's blood sucking corporations - they are typical businesses competing in a difficult market.

Tuesday, September 25, 2007

Oregon and the Bottle Bill

Recently, the Oregon Bottle Bill was expanded to include more types of bottles, including plastic water bottles like those in the picture. The original bottle bill was the first of its kind in the nation and has been credited with greatly reducing litter and with giving the recycling movement a huge boost. All of this is nice, but it also imposes a cost on consumers and retailers and may lead to lower sales for beverage manufacturers. So, is it good public policy?

How I think about this problem is first by focusing on the market failure: externalities. Litter despoiling our landscape, excessive amounts of garbage filling our landfills and excessive use of raw materials (aluminium for cans, say) are all real and not unimportant costs that we all pay when bottles and cans are not recycled - economists call these social costs. However, the costs paid by any one individual disposer of a beverage container is very small, especially compared to the social costs. Thus, this activity has a negative externality associated with it: the private costs are smaller then the social costs. In these cases (where negative externalities exist) the individual incentive to refrain from excessive use and disposal of containers is too small relative to what is optimal for society. This is a classic case for government intervention - similar to the case for government regulation of pollutants from industrial activity. So I buy that there is a strong case to be made for regulation, but at what price? Is this problem worth the cost of the solution?

Here we have to veer off into the realm of conjecture, but it seems clear to me that a $0.05 refundable deposit is a very small cost (the true cost is the time value of the money - i.e. not being able to earn interest on your nickel - and the expense and effort of redeeming the containers) for consumers. For retailers, with the emergence of automated container collection points, it appears that the cost to them has been reduced quite a bit as well. But it is not insignificant: the up-front cost of the machines, the space needed to house them and the expense and effort of handling the used containers are all real. However, I do not notice a large difference in the price of beverages between stores in Oregon and Washington, for example, so I conclude that it is probably not a terribly significant expense.

Finally, there is the question of the recycling itself. Critics argue that recycling uses more resources than it saves. I cannot judge the veracity of this statement, but I will say that with non-renewable resources and toxic pollutants, I think that it is an argument that is not terribly convincing. Even if true however, the motive for the bottle bill is not only energy resource conservation but litter control as well.

So, in the end, my opinion is that the market failure is real and serious, the remedy relatively cheap and painless and thus a very good example of sound policy. One of the things I like most about the policy is that I can choose to pay the extra five cents and dispose of the bottles in my own recycling rather than have to redeem them. Few economists would argue with my description of the market failure, but many may quibble with my analysis of the costs and benefits of the remedy. This is true of most economic policy issues, economists tend to agree on the fundamentals, but disagree on the costs and benefits.

Topping Off and Benzine Fumes

In the post below I mused that there could be health risks for gas pumpers who are, in my experience, usually teenagers or young adults. Well, the AP reported a couple of days ago on Lane County health officials recommendation against the practice of "topping off."

From the news article (found on the Oregonian's web site) :

The most serious risk is to children and gas-station attendants, a health official said.

Benzene gets into the air when vehicles run or when gas tanks are "topped off" that is, filled past the automatic shut-off point, the county said.

Though no evidence of the health effects is given, and thus no evaluation of the degree to which this is a serious health problem can be made, it seems a pretty strong argument against the prohibition on self-service gas. Benzine is a known carcinogen.

Thursday, September 20, 2007

Welcome to My New Blog

I am a professor of economics at Oregon State University and I have started this blog to create a public forum in which I can comment on economic issues that matter to the state of Oregon. These issues may be local, state or national but in some way matter to Oregon and Oregonians.

My aim is to eschew politics as much as possible (understanding that it is often impossible to do so entirely) and give an economists' perspective on economics and public policy as it relates to Oregon.

I hope you will enjoy and participate.